##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to
 000-30586
 IVANHOE ENERGY INC.
  Yukon, Canada
    
    98-0372413(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)654-999 Canada Place
Vancouver, British Columbia, Canada
    
    V6C3E1(Address of principal executive offices)
    
    (Zip Code)
 (604) 688-8323
       Title of each class
    
    Name of each exchange on which registeredCommon Shares, no par value
    
    Toronto Stock Exchange
NASDAQ Capital Market
 o þ
 o þ
  þ o
 þ
  o þ o
 o þ
   Class
    
    Outstanding at February 28, 2006Common Shares, no par value
    
    229,430,769 shares
 DOCUMENTS INCORPORATED BY REFERENCE




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##### 



TABLE OF CONTENTS
 PagePART IItems 1 and 2

Business
and PropertiesCorporate Overview
    
    
    4Historical Overview
    
    
    4Corporate Strategy
    
    
    4Heavy Oil Processing Technology
    
    
    5Gas-to-Liquids Technology
    
    
    6Oil and Gas Properties
    
    
    8Other Enhanced Oil Recovery Projects
    
    
    12Employees
    
    
    12Reserves, Production and Related Information
    
    
    12Additional Factors Affecting the Business
    
    
    14Competition
    
    
    14Environmental Regulations
    
    
    15Environmental Provisions
    
    
    15Government Regulations
    
    
    15Item 1A

Risk Factors
    
    
    15Item 1B

Unresolved Staff Comments
    
    
    19Item 3

Legal Proceedings
    
    
    19Item 4

Submission of Matters to a Vote of Security Holders
    
    
    19PART IIItem 5

Market for Registrants Common Equity and Related Stockholder Matters
    
    
    20Item 6

Five Year Summary of Selected Financial Data
    
    
    22Item 7

Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    23Item 7A

Quantitative and Qualitative Disclosures About Market Risk
    
    
    39Item 8

Financial Statements and Supplementary Data
    
    
    40Item 9

Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure
    
    
    76Item 9A

Controls and Procedures
    
    
    76Item 9B

Other Information
    
    
    78PART IIIItem 10

Directors and Executive Officers of the Registrant
    
    
    78Item 11

Executive Compensation
    
    
    81Item 12

Security Ownership of Certain Beneficial Owners and Management
    
    
    87Item 13

Certain Relationships and Related Transactions
    
    
    88Item 14

Principal Accountant Fees and Services
    
    
    89PART IVItem 15

Exhibits and Financial Statement Schedules
    
    
    90
 2




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##### 



CURRENCY AND EXCHANGE RATES
 dollars $ Cdn.$
 2005
    
    2004
    
    2003
    
    2002
    
    2001Closing
    
    $
    0.86
    
    
    $
    0.83
    
    
    $
    0.77
    
    
    $
    0.63
    
    
    $
    0.63Low
    
    $
    0.79
    
    
    $
    0.72
    
    
    $
    0.63
    
    
    $
    0.62
    
    
    $
    0.62High
    
    $
    0.87
    
    
    $
    0.85
    
    
    $
    0.77
    
    
    $
    0.66
    
    
    $
    0.67Average Noon
    
    $
    0.83
    
    
    $
    0.77
    
    
    $
    0.71
    
    
    $
    0.63
    
    
    $
    0.65
  ABBREVIATIONS
  Boe
    
    = barrel of oil equivalentBbl
    
    = barrelMBbl
    
    = thousand barrelsMMBbl
    
    = million barrelsMboe
    
    = thousands of barrels of oil equivalentBopd
    
    = barrels of oil per dayBbls/d
    
    = barrels per dayBoe/d
    
    = barrels of oil equivalent per dayMboe/d
    
    = thousands of barrels of oil equivalent per dayMBbls/d
    
    = thousand barrels per dayMMBls/d
    
    = million barrels per dayMMBtu
    
    = million British thermal unitsMcf
    
    = thousand cubic feetMMcf
    
    = million cubic feetMcf/d
    
    = thousand cubic feet per dayMMcf/d
    
    = million cubic feet per day
 equivalents
 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 Ensyn
 3




---



##### 



AVAILABLE INFORMATION
 http://www.ivanhoe-energy.com http://www.sec.gov
 
 ITEMS 1 AND 2 BUSINESS AND PROPERTIES
 
 CORPORATE OVERVIEW
 RTP TM Technology GTL
   
 HISTORICAL OVERVIEW
   Syntroleum
 TM
 
 CORPORATE STRATEGY
 TM E&P
 Merger TM TM
 
    
    It is field-located and effective at a relatively small minimum scale of 10,000 to
15,000 barrels per day;
    
    The value of the upgraded liquid product means the producer is able to capture the
majority of the price differential between heavy and light crude oil;
    
    The upgraded product is easily transported by pipeline without the need for light blend
oils; and
    
    The process generates significant on-site excess energy, replacing natural gas for
production of steam and/or power used in heavy oil recovery.
 4




---



##### 



TM
   
 HEAVY OIL PROCESSING TECHNOLOGY
 RTP TM License
 TM TM
 RTPTM Process
  TM TM
 
 5




---



##### 



RTP TM Project Plans and Opportunities
 
    
    Aera Energy LLC Agreement
 IE HTL Aera
 
    
    RTPTMCommercial Demonstration Facility
 TM RTP TM CDF TM TM TM TM TM TM
 
    
    RTPTMPlant Design Package
 RTPTM Plant o
 
    
    ConocoPhillips Canada Resources Corp. Agreement
 ConocoPhillips Canada TM TM
 
 GAS-TO-LIQUIDS TECHNOLOGY
 Syntroleum License
  6




---



##### 



Syntroleum Process
 Syntroleum Process
   GTL Projects
  CTL
 
    
    Egypt
 MOU EGAS
 
    
    Bolivia
 Repsol
 7




---



##### 



OIL AND GAS PROPERTIES
  California
  Aera Exploration Agreement
 AMI
 
    
    South Midway
   
    
    Citrus
  
    
    Northwest Lost Hills
  8




---



##### 



1 2
 Other California Prospects
 
    
    Knights Landing
   
    
    North Salt Creek
 o
 
    
    North Yowlumne
  Wyoming
 
    
    LAK Ranch
 Derek
  9




---



##### 



China
 
    
    Dagang
 CNPC Dagang field Richfirst CITIC
 WTI
  ODP
  10




---



##### 




    
    Sichuan Basin
 Zitong Contract
   Mitsubishi
     
    
    CITIC Alliance
 CITIC Energy
 11




---



##### 



OTHER ENHANCED OIL RECOVERY PROJECTS
  
    
    Iraq
 o
 TM
   
    
    Colombia
 Ecopetrol
 
 EMPLOYEES
  
 RESERVES, PRODUCTION AND RELATED INFORMATION
   12




---



##### 



Average Sales Price
    
    
    Average Operating Costs2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003Crude Oil and Natural Gas ($/Boe)U.S
    
    $
    44.01
    
    
    $
    34.66
    
    
    $
    25.69
    
    
    $
    15.64
    
    
    $
    11.76
    
    
    $
    10.87China
    
    $
    49.97
    
    
    $
    36.11
    
    
    $
    28.41
    
    
    $
    8.27
    
    
    $
    8.14
    
    
    $
    13.71
  2005
    
    
    2004
    
    
    2003Oil Wells
    
    
    Gas Wells
    
    
    Oil Wells
    
    
    Gas Wells
    
    
    Oil Wells
    
    
    Gas WellsGross
    
    
    Net
    
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    NetU.S.
    
    
    87
    (1)
    
    
    69.3
    (1)
    
    
    3
    (1)
    
    
    1.5
    (1)
    
    
    84
    (2)
    
    
    67.2
    (2)
    
    
    13
    
    
    
    11.7
    
    
    
    76
    
    
    
    59.9
    
    
    
    1
    
    
    
    0.5China
    
    
    43
    
    
    
    21.2
    
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    10.3
    (3)
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    7.4
    
    
    
    
    
    
    
    
 
 (1)
    
    After giving effect to 10.8 net (12 gross) producing wells shut in or converted to disposal
wells in 2005.(2)
    
    After the sale of 0.8 net (2 gross) Sledge Hamar wells in December 2004 and the purchase of
8.2 net (9 gross) Knights Landing wells partially in April of 2004 and the remainder
(including an increase in the working interest of the existing wells) in December of 2004.(3)
    
    After giving effect to the 40% farm-in of Richfirst to the Dagang field.  Exploratory
 Productive Wells
    
    
    Dry Wells2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003Oil
    
    
    Gas
    
    
    Oil
    
    
    Gas
    
    
    Oil
    
    
    Gas
    
    
    Oil
    
    
    Gas
    
    
    Oil
    
    
    Gas
    
    
    Oil
    
    
    GasU.S.
    
    
    1.5
    
    
    
    0.2
    
    
    
    0.4
    
    
    
    3.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.8
    (1)
    
    
    1.4
    
    
    
    4.0
    
    
    
    
    
    
    
    China
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1.5
    
    
    
    0.2
    
    
    
    0.4
    
    
    
    3.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.8
    
    
    
    1.4
    
    
    
    4.0
    
    
    
    
    
    
    
    
 
 (1)
    
    Includes 0.8 net (2 gross) exploratory wells drilled during 2001, which were determined to
be dry in 2005. Development
 Productive Wells
    
    
    Dry Wells2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003Oil
    
    
    Gas
    
    
    Oil
    
    
    Gas
    
    
    Oil
    
    
    Gas
    
    
    Oil
    
    
    Gas
    
    
    Oil
    
    
    Gas
    
    
    Oil
    
    
    GasU.S.
    
    
    1.0
    
    
    
    
    
    
    
    7.3
    (1)
    
    
    
    
    
    
    17.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.0
    
    
    
    
    
    
    
    2.0
    
    
    
    China
    
    
    10.8
    
    
    
    
    
    
    
    7.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    11.8
    
    
    
    
    
    
    
    15.2
    
    
    
    
    
    
    
    17.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.0
    
    
    
    
    
    
    
    2.0
    
    
    
    
 
 (1)
    
    Includes 0.3 (1 gross) net producing wells acquired as a result of the farm-in to LAK
Ranch. Wells in Progress
   Developed Acres
    
    Undeveloped AcresGross
    
    Net
    
    Gross
    
    NetU.S.
    
    
    14,055
    
    
    
    6,176
    
    
    
    104,387
    
    
    
    31,838China (1)
    
    
    2,969
    
    
    
    1,461
    
    
    
    888,924
    
    
    
    884,280
 
 (1)
    
    The number of developed acres disclosed in respect of our China properties relates only
to those portions of the field covered by our producing operations and does not include the
remaining portions of the field previously developed by CNPC. 13




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##### 



Our Share of
    
    
    
    
    
    
    
    

    Our Share ofBefore Tax Cash Flows
    
    
    After Tax Cash FlowsOur Share
    
    
    In Thousands of U.S. Dollars
    
    
    In Thousands of U.S. DollarsOil
    
    
    Gas
    
    
    Discounted at:
    
    
    Discounted at:(Mbbl)
    
    
    (MMcf)
    
    
    0%
    
    
    10%
    
    
    15%
    
    
    0%
    
    
    10%
    
    
    15%Net Proved Reserves(1)U.S.
    
    
    1,272
    
    
    
    1,685
    
    
    $
    47,829
    
    
    $
    32,174
    
    
    $
    28,128
    
    
    $
    47,829
    
    
    $
    32,174
    
    
    $
    28,128China
    
    
    1,300
    
    
    
    
    
    
    
    55,569
    
    
    
    44,114
    
    
    
    39,997
    
    
    
    53,985
    
    
    
    43,299
    
    
    
    39,3972,572
    
    
    
    1,685
    
    
    $
    103,398
    
    
    $
    76,288
    
    
    $
    68,125
    
    
    $
    101,814
    
    
    $
    75,473
    
    
    $
    67,525
 
 (1)
    
    Net Proved Reserves are our share of the estimated quantities of crude oil which
geological and engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic conditions. See the Supplementary
Disclosures about Oil and Gas Production Activities, which follow the notes to our financial
statements set forth in Item 8 of this Annual Report on Form 10-K. Special Note to Canadian Investors
 SEC National Instrument 51-101  Standards of Disclosure for Oil and Gas Activities NI 51-101 COGE Handbook
  
    
    SEC registrants apply SEC reserves definitions and prepare their reserves estimates in
accordance with SEC requirements and generally accepted industry practices in the U.S.
whereas NI 51-101 requires adherence to the definitions and standards promulgated by the
COGE Handbook;
    
    the SEC mandates disclosure of proved reserves calculated using year-end constant prices
and costs only whereas NI 51-101 also requires disclosure of reserves and related future
net revenues using forecasted prices;
    
    the SEC mandates disclosure of proved and proved producing reserves by country only
whereas NI 51-101 requires disclosure of more reserve categories and product types;
    
    the SEC does not require separate disclosure of proved undeveloped reserves or related
future development costs whereas NI 51-101 requires disclosure of more information
regarding proved undeveloped reserves, related development plans and future development
costs; and
    
    the SEC leaves the engagement of independent qualified reserves evaluators to the
discretion of a companys board of directors whereas NI 51-101 requires issuers to engage
such evaluators and to file their reports.
  
 ADDITIONAL FACTORS AFFECTING THE BUSINESS
  
 Competition
  14




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##### 



Environmental Regulations
    
 Environmental Provisions
 TM TM TM TM
 
 Government Regulations
  
 ITEM 1A. RISK FACTORS
  We are not able to guarantee the successful commercial development of the RTP TM
Technology.
 TM TM
 We may not be able to conclude joint venture or production-sharing contracts using the RTP TM Technology.
 TM
 15




---



##### 



We are not able to guarantee the successful commercial development of our licensed GTL technology.
  We may not be able to conclude a GTL development and production-sharing contract.
  Our efforts to commercialize the Syntroleum Process and the RTP TM Technology may give
rise to claims of infringement upon the patents or proprietary rights of others .
 TM TM
 Technological advances could significantly decrease the cost of upgrading petroleum and, if we are
unable to adopt or incorporate technological advances into our operations, the RTP TM
Technology could become uncompetitive or obsolete.
 TM TM TM
 TM
 Expansion of our operations will require significant capital expenditures for which we may be
unable to provide sufficient financing. Our need for additional capital may harm our financial
condition.
 TM
 16




---



##### 



We have a history of losses and must generate greater revenue to achieve profitability.
  Conflict in the Middle East may hamper our GTL and EOR project objectives.
  Government regulations in foreign countries may limit our activities and harm our business
operations.
  You should not unduly rely on reserve information because reserve information represents estimates.
      Information in this document regarding our future plans reflects our current intent and is subject
to change.
  17




---



##### 



We cannot guarantee the successful commercialization of our exploration activities.
  We might not be successful in acquiring and developing new prospects and our exploration and
development properties may not contain any significant proved reserves.
    Our business may be harmed if we are unable to retain our licenses, leases and working interests in
licenses and leases.
  Complying with environmental and other government regulations could be costly and could negatively
impact our production.
    18




---



##### 



Crude oil and natural gas prices are volatile.
     We compete for oil and gas properties with many other exploration and development companies
throughout the world who have access to greater resources.
  Our share ownership is highly concentrated and, as a result, our principal shareholder
significantly influences our business.
   If we lose our key management and technical personnel, our business may suffer .
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  19




---



##### 



PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 Market Information
  NASDAQ CAPITAL MARKET (IVAN)(U.S.$)2005
    
    20044th Qtr
    
    3rd Qtr
    
    2nd Qtr
    
    1st Qtr
    
    4th Qtr
    
    3rd Qtr
    
    2nd Qtr
    
    1st QtrHigh
    
    
    2.00
    
    
    
    2.50
    
    
    
    2.95
    
    
    
    3.34
    
    
    
    3.20
    
    
    
    2.33
    
    
    
    3.06
    
    
    
    4.28Low
    
    
    .99
    
    
    
    1.97
    
    
    
    1.98
    
    
    
    2.04
    
    
    
    2.03
    
    
    
    1.22
    
    
    
    2.08
    
    
    
    1.96
 TORONTO STOCK EXCHANGE (IE)(CDN$)2005
    
    20044th Qtr
    
    3rd Qtr
    
    2nd Qtr
    
    1st Qtr
    
    4th Qtr
    
    3rd Qtr
    
    2nd Qtr
    
    1st QtrHigh
    
    
    2.32
    
    
    
    3.06
    
    
    
    3.60
    
    
    
    4.02
    
    
    
    3.90
    
    
    
    3.00
    
    
    
    4.15
    
    
    
    5.49Low
    
    
    1.16
    
    
    
    2.30
    
    
    
    2.52
    
    
    
    2.52
    
    
    
    2.56
    
    
    
    1.62
    
    
    
    2.88
    
    
    
    2.63
  Exemptions from Certain NASDAQ Marketplace Rules
   Enforceability of Civil Liabilities
  Holders of Common Shares
  20




---



##### 



Dividends
 Yukon Business Corporations Act
 Exchange Controls and Taxation
  Investment Canada Act Investment Act Canadian WTO investor
 Income Tax Act Convention
 Sales of Unregistered Securities
 
    
    During the year ended December 31, 2005, we issued securities, which were not registered
under the Securities Act of 1933 (the Act), as follows:
    
    in February 2005, we issued a convertible promissory note in the principal amount of
$6.0 million to an arms length lender in a transaction exempt from registration under Rule
903 of the Act. The principal amount and all accrued and unpaid interest was convertible
into common shares of the Company at a price of U.S.$2.25 per common share. The conversion
rights were not exercised and expired in November 2005;
    
    in April 2005, we issued 4,100,000 special warrants at a price of Cdn.$3.10 per special
warrant to institutional and individual investors in a transaction exempt from registration
under Rule 903 of the Act. Each special warrant was exercised to acquire, for no additional
consideration, one common share and one share purchase warrant following the issuance of a
receipt for a prospectus by applicable Canadian securities regulatory authorities, which
occurred in July 2005. One common-share purchase warrant will entitle the holder to
purchase one common share at a price of Cdn.$3.50 exercisable until the second anniversary
date of the special warrant date of issue;
 21




---



##### 




    
    in April 2005, we issued 29,999,886 common shares in exchange for all of the issued and
outstanding common shares of Ensyn in a transaction exempt from registration under Section
3(a)(10) of the Act;
    
    in May 2005, we issued a convertible promissory note in the principal amount of $2.0
million to an arms length lender in a transaction exempt from registration under Rule 903
of the Act. The principal amount and all accrued and unpaid interest was convertible into
common shares of the Company at a price of U.S.$2.15 per common share. The conversion
rights were not exercised and expired in November 2005;
    
    in June 2005, we issued 1,500,000 common shares at a price of U.S.$1.10 to a Canadian
institutional investor pursuant to the exercise of previously issued share purchase
warrants in a transaction exempt from registration under Rule 903 of the Act;
    
    in July 2005, we issued 1,000,000 special warrants at a price of Cdn.$3.10 per special
warrant to an institutional investor in a transaction exempt from registration under Rule
903 of the Act. Each special warrant was exercised in November 2005 to acquire, for no
additional consideration, one common share and one share purchase warrant.. One common
share purchase warrant will entitle the holder to purchase one common share at a price of
Cdn.$3.50 exercisable until the second anniversary date of the special warrant date of
issue;
    
    in August 2005, we issued 1,500,000 common shares at a price of U.S.$1.10 to a Bahamian
institutional investor pursuant to the exercise of previously issued share purchase
warrants in a transaction exempt from registration under Rule 903 of the Act;
    
    in September 2005, we issued 1,514,706 common shares at a price of U.S.$1.87 to a
Bahamian institutional investor pursuant to the exercise of previously issued share
purchase warrants in a transaction exempt from registration under Rule 903 of the Act;
    
    in November 2005, we issued 2,000,000 common share purchase warrants to an arms length
lender in a transaction exempt from registration under Rule 903 of the Act. Each common
share purchase warrant is exercisable to purchase one common share of the Company at a
price of U.S.$2.00 per common share at any time until November 2007; and
    
    in November 2005, we issued 11,196,330 special warrants at U.S.$1.63 per special warrant
to four individual investors in a transaction exempt from registration under Rule 903 of
the Act. Each special warrant was exercised to acquire, for no additional consideration,
one common share and one share purchase warrant following the issuance of a receipt for a
prospectus by applicable Canadian securities regulatory authorities, which occurred in
December 2005. One common share purchase warrant will entitle the holder to purchase one
common share at a price of U.S.$2.50 exercisable until the second anniversary date of the
special warrant date of issue.
 
 ITEM 6. FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
 The selected financial data set forth below are derived from the accompanying financial statements,
which form part of this Annual Report on Form 10-K. The financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP) applicable in Canada, which are
not materially different from GAAP in the U.S. except as noted immediately below in Reconciliation
to U.S. GAAP. See also Item 7 Managements Discussion and Analysis of Financial Condition and
Results of Operations.The following table shows selected financial information for the years indicated:
 December 31,(stated in thousands of U.S. dollars, except per share amounts)2005
    
    2004
    
    2003
    
    2002
    
    2001Financial PositionTotal assets
    
    
    240,877
    
    
    
    118,486
    
    
    
    106,574
    
    
    
    107,088
    
    
    
    104,003Long-term debt
    
    
    4,972
    
    
    
    2,639
    
    
    
    833
    
    
    Nil
    
    NilShareholders equity
    
    
    204,767
    
    
    
    103,586
    
    
    
    100,537
    
    
    
    100,548
    
    
    
    96,897Common shares outstanding (in thousands)
    
    
    220,779
    
    
    
    169,665
    
    
    
    161,359
    
    
    
    144,466
    
    
    
    139,267Capital investments
    
    
    43,301
    
    
    
    46,454
    
    
    
    15,391
    
    
    
    18,828
    
    
    
    40,504Results of OperationsRevenues
    
    
    29,939
    
    
    
    17,997
    
    
    
    9,659
    
    
    
    8,437
    
    
    
    9,722Net loss
    
    
    13,512
    (1)
    
    
    20,725
    (1)
    
    
    30,179
    (1)
    
    
    7,130
    (1)
    
    
    21,122
    (1)Net loss per share  basic and diluted
    
    
    0.07
    
    
    
    0.12
    
    
    
    0.20
    
    
    
    0.05
    
    
    
    0.16
 
 (1)
    
    Includes asset write-downs and provisions for impairment of $5.6 million, $16.6 million,
$23.3 million, $2.4 million and $14.0 million for 2005, 2004, 2003, 2002 and 2001,
respectively. See Notes 4 and 15 to our financial statements under Item 8 in this Annual
Report on Form 10-K. Reconciliation to U.S. GAAP
  22




---



##### 




    
    adjustment for the reduction in stated capital in 1999,
    
    increase in the ascribed value of shares issued for the acquisition of U.S. royalty interests in 1999 and 2000,
    
    net additional impairment provision for our China oil and gas properties in 2001 and 2005, net of depletion expense,
    
    net additional impairment provision for our U.S. oil and gas properties in 2004 and 2005, net of depletion expense,
    
    net additional expense from 2001 to 2005 in connection with development costs for our GTL and EOR projects, and
    
    reduction in the net losses from 2002 to 2005 for stock based compensation accounted
for under the intrinsic value method for U.S. GAAP.
   December 31,(stated in thousands of U.S. dollars, except per share amounts)2005
    
    2004
    
    2003
    
    2002
    
    2001Financial PositionTotal assets
    
    
    224,935
    
    
    
    105,791
    
    
    
    94,024
    
    
    
    91,921
    
    
    
    90,219Shareholders equity
    
    
    188,825
    
    
    
    90,892
    
    
    
    87,987
    
    
    
    85,279
    
    
    
    83,113Results of OperationsNet loss
    
    
    14,972
    
    
    
    19,696
    
    
    
    27,086
    
    
    
    8,202
    
    
    
    36,264Net loss per share  basic and diluted
    
    
    0.07
    
    
    
    0.12
    
    
    
    (0.18
    
    
    
    0.06
    
    
    
    0.28
 
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 TABLE OF CONTENTS
 PageExecutive Overview of 2005 Results
    
    
    23Financial Results  Year to Year Change in Net Loss
    
    
    24Net Operating Revenues
    
    
    25General and Administrative
    
    
    28Business and Product Development
    
    
    29Depletion and Depreciation
    
    
    30Net Interest
    
    
    31Write-Down of GTL and EOR Investments
    
    
    31Impairment of Oil and Gas Properties
    
    
    32Liquidity and Capital Resources
    
    
    32Contractual Obligations and Commitments
    
    
    34Critical Accounting Principles and Estimates
    
    
    34Impact of New and Pending Canadian GAAP Accounting Standards
    
    
    38Impact of New and Pending U.S. GAAP Accounting Standards
    
    
    38Off Balance Sheet Arrangements
    
    
    39Related Party Transactions
    
    
    39
    
 Executive Overview of 2005 Results
  23




---



##### 



TM
 TM TM
  Year ended December 31,2005
    
    2004
    
    2003Net loss
    
    
    13,512
    
    
    
    20,725
    
    
    
    30,179Net loss per share
    
    
    0.07
    
    
    
    0.12
    
    
    
    0.20Average annual production (Mboe/d)
    
    
    1,738
    
    
    
    1,376
    
    
    
    979Capital investments
    
    
    43,301
    
    
    
    46,454
    
    
    
    15,391Cash flow (deficit) from operating activities
    
    
    9,358
    
    
    
    4,032
    
    
    
    (1,522
    )
 
 Financial Results  Year to Year Change in Net Loss
  2005 vs.
    
    
    2004 vs2004
    
    
    2003Net Losses for 2004 and 2003
    
    $
    20,725
    
    
    $
    30,179Favorable (unfavorable) variances:Cash Items:Net Operating Revenues:Production volumes
    
    
    4,334
    
    
    
    4,534Oil and gas prices
    
    
    7,671
    
    
    
    3,442Hedge loss
    
    
    
    
    
    
    250Less: Operating costs
    
    
    (2,530
    )
    
    
    (780
    )9,475
    
    
    
    7,446General and administrative
    
    
    (1,589
    )
    
    
    405Business and product development
    
    
    (2,893
    )
    
    
    (582
    )Net interest
    
    
    (881
    )
    
    
    (36
    )Total Cash Variances
    
    
    4,112
    
    
    
    7,233Non-Cash Items:Depletion and depreciation
    
    
    (6,965
    )
    
    
    (3,653
    )Stock based compensation
    
    
    (837
    )
    
    
    (800
    )Write downs of GTL and EOR investments
    
    
    (386
    )
    
    
    3,071Impairment of oil and gas properties
    
    
    11,350
    
    
    
    3,650Other
    
    
    (61
    )
    
    
    (47
    )Total Non-Cash Variances
    
    
    3,101
    
    
    
    2,221Net Losses for 2005 and 2004
    
    $
    13,512
    
    
    $
    20,725
  24




---



##### 



Net Operating Revenues
 
    
    Production Volumes 2005 vs. 2004
  China
   U.S.
      25




---



##### 



Years ended December 31,Net
Boes
    
    Percentage2005
    
    2004
    
    ChangeChina:Dagang
    
    
    282,582
    
    
    
    190,309
    
    
    
    48
    %Daqing
    
    
    32,236
    
    
    
    44,626
    
    
    
    -28
    %314,818
    
    
    
    234,935
    
    
    
    34
    %U.S.:South Midway
    
    
    196,428
    
    
    
    183,875
    
    
    
    7
    %Citrus
    
    
    34,257
    
    
    
    31,008
    
    
    
    10
    %Knights Landing
    
    
    57,106
    
    
    
    14,786
    
    
    
    286
    %Others
    
    
    31,883
    
    
    
    38,945
    
    
    
    -18
    %319,674
    
    
    
    268,614
    
    
    
    19
    %634,492
    
    
    
    503,549
    
    
    
    26
    %
 
    
    Production Volumes 2004 vs. 2003
  China
  U.S.
   26




---



##### 



Years ended December 31,Net
Boes
    
    Percentage2004
    
    2003
    
    ChangeChina:Dagang
    
    
    190,309
    
    
    
    130,651
    
    
    
    46
    %Daqing
    
    
    44,626
    
    
    
    13,771
    
    
    
    224
    %234,935
    
    
    
    144,422
    
    
    
    63
    %U.S.:South Midway
    
    
    183,875
    
    
    
    169,858
    
    
    
    8
    %Citrus
    
    
    31,008
    
    
    
    
    
    
    
    100
    %Knights Landing
    
    
    14,786
    
    
    
    
    
    
    
    100
    %Others
    
    
    38,945
    
    
    
    42,962
    
    
    
    -9
    %268,614
    
    
    
    212,820
    
    
    
    26
    %503,549
    
    
    
    357,242
    
    
    
    41
    %
 
    
    Oil and Gas Prices 2005 vs. 2004
  
    
    Oil and Gas Prices 2004 vs. 2003
   
    
    Operating Costs 2005 vs. 2004
  China
  U.S.
  27




---



##### 




    
    Operating Costs 2004 vs. 2003
  China
  U.S.
   Year ended December 31,2005
    
    2004
    
    2003U.S.
    
    China
    
    Total
    
    U.S.
    
    China
    
    Total
    
    U.S.
    
    China
    
    TotalNet Production:Boe
    
    
    319,674
    
    
    
    314,818
    
    
    
    634,492
    
    
    
    268,614
    
    
    
    234,935
    
    
    
    503,549
    
    
    
    212,820
    
    
    
    144,422
    
    
    
    357,242Boe/day for the year
    
    
    876
    
    
    
    863
    
    
    
    1,738
    
    
    
    734
    
    
    
    642
    
    
    
    1,376
    
    
    
    583
    
    
    
    396
    
    
    
    979
 Per Boe
    
    
    Per Boe
    
    
    Per BoeOil and gas revenue
    
    $
    44.01
    
    
    $
    49.97
    
    
    $
    46.97
    
    
    $
    34.66
    
    
    $
    36.11
    
    
    $
    35.34
    
    
    $
    25.69
    
    
    $
    28.41
    
    
    $
    26.79Field operating costs
    
    
    11.44
    
    
    
    7.49
    
    
    
    9.48
    
    
    
    8.94
    
    
    
    6.04
    
    
    
    7.59
    
    
    
    7.65
    
    
    
    9.31
    
    
    
    8.52Production taxes
    
    
    0.83
    
    
    
    
    
    
    
    0.42
    
    
    
    0.44
    
    
    
    
    
    
    
    0.23
    
    
    
    1.03
    
    
    
    
    
    
    
    0.62Engineering support
    
    
    3.37
    
    
    
    0.78
    
    
    
    2.08
    
    
    
    2.38
    
    
    
    2.10
    
    
    
    2.25
    
    
    
    2.19
    
    
    
    4.40
    
    
    
    2.8915.64
    
    
    
    8.27
    
    
    
    11.98
    
    
    
    11.76
    
    
    
    8.14
    
    
    
    10.07
    
    
    
    10.87
    
    
    
    13.71
    
    
    
    12.03Net operating revenue
    
    
    28.37
    
    
    
    41.70
    
    
    
    34.99
    
    
    
    22.90
    
    
    
    27.97
    
    
    
    25.27
    
    
    
    14.82
    
    
    
    14.70
    
    
    
    14.76Depletion
    
    
    15.53
    
    
    
    29.77
    
    
    
    22.60
    
    
    
    16.80
    
    
    
    12.18
    
    
    
    14.64
    
    
    
    10.58
    
    
    
    10.23
    
    
    
    10.44$
    12.84
    
    
    $
    11.93
    
    
    $
    12.39
    
    
    $
    6.10
    
    
    $
    15.79
    
    
    $
    10.63
    
    
    $
    4.24
    
    
    $
    4.47
    
    
    $
    4.32
 
 General and Administrative
  2005 vs.
    
    
    2004 vs2004
    
    
    2003Favorable (unfavorable) variances:Oil and Gas Activities:China
    
    $
    (1,116
    )
    
    $
    216U.S.
    
    
    (188
    )
    
    
    1,119Corporate
    
    
    (950
    )
    
    
    (1,730
    )(2,254
    )
    
    
    (395
    )Less: stock based compensation
    
    
    665
    
    
    
    800$
    (1,589
    )
    
    $
    405
 28




---



##### 




    
    General and Administrative 2005 vs. 2004China
  U.S.
  Corporate
  
    
    General and Administrative 2004 vs. 2003China
  U.S.
  Corporate
  
 Business and Product Development
  29




---



##### 



2005 vs.
    
    
    2004 vs2004
    
    
    2003Favorable (unfavorable) variances:GTL
    
    $
    164
    
    
    $
    (140
    )EOR
    
    
    (3,229
    )
    
    
    (442
    )(3,065
    )
    
    
    (582
    )Less: stock based compensation
    
    
    172
    
    
    
    $
    (2,893
    )
    
    $
    (582
    )
 
    
    Business and Product Development 2005 vs. 2004
 TM TM TM
 
    
    Business and Product Development 2004 vs. 2003
  
 Depletion and Depreciation
  
    
    Depletion and Depreciation 2005 vs. 2004
  China
  
    
    As noted in prior periodic reports on Form 10Q and in related shareholder
communications, we have suspended new drilling activity at our Dagang field in order that
we may assess production decline performances on recently drilled wells, as well as
maximizing cash flow from these operations. As a result, we have reduced our estimate of
the overall development program and our independent engineering evaluators, Gilbert
Laustsen Jung and Associates, have revised downward their estimate of our proved reserves
as at December 31, 2005.
    
    We impaired the cost of our first Zitong block exploration well, Dingyuan 1, resulting
in $12.2 million of those and other associated costs being included with our proved
properties and therefore subject to depletion.
  U.S.
  30




---



##### 




    
    Depletion and Depreciation 2004 vs. 2003
  China
  U.S.
  
 Net Interest
 
    
    Net Interest 2005 vs. 2004
  
    
    Net Interest 2004 vs. 2003
  
 Write-Down of GTL and EOR Investments
  
    
    Write-Down of GTL and EOR Investments 2005 vs. 2004
  
    
    Write-Down of GTL and EOR Investments 2004 vs. 2003
  31




---



##### 



Impairment of Oil and Gas Properties
  
    
    Impairment of Oil and Gas Properties 2005 vs. 2004
   
    
    Impairment of Oil and Gas Properties 2004 vs. 2003
    
 Liquidity and Capital Resources
 Sources and Uses of Cash
  
    
    Operating Activities
  
    
    Investing Activities
  32




---



##### 




    
    Financing Activities
    Year ended December 31,2005
    
    
    2004
    
    
    2003Cash flow (deficit) from operating activities
    
    $
    9,358
    
    
    $
    4,032
    
    
    $
    (1,522
    )Investing ActivitiesCapital investments, after changes in
non-cash working capital
    
    
    (31,279
    )
    
    
    (43,190
    )
    
    
    (15,928
    )Merger, net of working capital
    
    
    (10,096
    )
    
    
    
    
    
    
    Equity investment and Merger related costs
    
    
    (8,462
    )
    
    
    (5,016
    )
    
    
    (500
    )Proceeds from sale of assets
    
    
    
    
    
    
    13,958
    
    
    
    Advance payments
    
    
    (1,200
    )
    
    
    
    
    
    
    Other
    
    
    (78
    )
    
    
    (410
    )
    
    
    (37
    )(51,115
    )
    
    
    (34,658
    )
    
    
    (16,465
    )Financing ActivitiesProceeds from private placements, net of all
share issue costs
    
    
    26,578
    
    
    
    20,428
    
    
    
    24,070Proceeds from exercise of options and
purchase warrants
    
    
    6,248
    
    
    
    1,723
    
    
    
    3,928Net debt financing
    
    
    6,333
    
    
    
    3,306
    
    
    
    50039,159
    
    
    
    25,457
    
    
    
    28,498Net Sources (Uses) of Cash
    
    $
    (2,598
    )
    
    $
    (5,169
    )
    
    $
    10,511
 Outlook for 2006
  33




---



##### 



TM
  
 Contractual Obligations and Commitments
  Payments Due by Year(stated in thousands of U.S. dollars)Total
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    After 2009Purchase Agreement:
    
    $
    100
    
    
    $
    100
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Consolidated Balance Sheet:Note payable  current
portion (Note 7)
    
    
    1,667
    
    
    
    1,667
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Long term debt (Note 7)
    
    
    4,972
    
    
    
    
    
    
    
    4,972
    
    
    
    
    
    
    
    
    
    
    
    Asset retirement obligations
(Note 8)
    
    
    1,780
    
    
    
    950
    
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    730Long term obligation (Note 9)
    
    
    1,900
    
    
    
    
    
    
    
    1,900
    
    
    
    
    
    
    
    
    
    
    
    CITIC note payable (Note 22)
    
    
    7,386
    
    
    
    2,050
    
    
    
    2,460
    
    
    
    2,460
    
    
    
    416
    
    
    
    Other Commitments:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest payable (1)
    
    
    762
    
    
    
    458
    
    
    
    304
    
    
    
    
    
    
    
    
    
    
    
    Lease commitments (Note 9)
    
    
    2,287
    
    
    
    763
    
    
    
    608
    
    
    
    461
    
    
    
    287
    
    
    
    168Zitong exploration
commitment (Note 9)
    
    
    4,300
    
    
    
    4,300
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    25,154
    
    
    $
    10,288
    
    
    $
    10,344
    
    
    $
    2,921
    
    
    $
    703
    
    
    $
    898
 
 (1)
    
    This is the estimated future interest payments on our notes payable and long term debt using
the rates of interest in effect as at December 31, 2005.  
 Critical Accounting Principles and Estimates
    Full Cost Accounting AcG 16
 34




---



##### 



Oil and Gas Reserves
  
    
    determining whether or not an exploratory well has found economically recoverable
reserves. Such determinations involve the commitment of additional capital to develop the
field based on current estimates of production forecasts, prices and other economic
conditions.
    
    calculating our unit-of-production depletion rates. Proved reserves are used to
determine rates that are applied to each unit-of-production in calculating our depletion
expense. In 2005, oil and gas depletion of $14.3 million was recorded in depletion and
depreciation expense. If our reserve estimates changed by 10%, our depletion and
depreciation expense for 2005 would have changed
by approximately $1.5 million assuming no other changes to our reserve profile. See
Depletion below.
    
    assessing our proved oil and gas properties for impairment on a quarterly basis.
Estimated future net cash flows used to assess impairment of our oil and gas properties
are determined using proved and probable reserves (1). See Impairment of
Proved Oil and Gas Properties below.
    
 (1)
    
    Proved oil and gas reserves are the estimated quantities of natural gas, crude oil,
condensate and natural gas liquids that geological and engineering data demonstrate with
reasonable certainty can be recoverable in future years from known reservoirs under existing
economic and operating conditions. Reservoirs are considered proved if economic recoverability is
supported by either actual production or a conclusive formation test. Probable reserves are
those additional reserves that are less likely to be recovered than proved reserves. It is
equally likely that the actual remaining quantities recovered will be greater or less than the
sum of estimated proved plus probable reserves. Depletion 
 35




---



##### 



Impairment of Proved Oil and Gas Properties 
 ceiling test (1)
 (1)
 
 (1)
    
    For Canadian GAAP, the carrying value includes all capitalized costs for each cost
center, including costs associated with asset retirement net of estimated salvage values,
unproved properties and major development projects, less accumulated depletion and ceiling test
impairments. This is essentially the same definition according to Regulation S-X, except that the
carrying value of assets should be net of deferred income taxes and costs of major development
projects are to be considered separately for purposes of the ceiling test calculation. Asset Retirement  CICA
 36




---



##### 



Research and Development  TM
 TM
 TM
  Intangible Assets  TM TM TM TM TM TM TM
  37




---



##### 



Impact of New and Pending Canadian GAAP Accounting Standards
 S.1530 S.3855 S.3865
   
    
    Section 3831, Non-Monetary Transactions,effective for non-monetary transactions
initiated in periods beginning on or after January 1, 2006.
    
    Emerging Issues Committee of the CICA issued Abstract No. 157, Implicit Variable
Interests Under AcG-15, effective in the first quarter of 2006.
 
 Impact of New and Pending U.S. GAAP Accounting Standards
 FASB SFAS No. 123(R)
 SAB No. 107
 SFAS No. 154
 38




---



##### 



On July 14, 2005, the FASB published an exposure draft entitled Accounting for Uncertain Tax
Positions -an interpretation of SFAS No. 109. The proposed interpretation is intended to reduce
the significant diversity in practice associated with recognition and measurement of income taxes
by establishing consistent criteria for evaluating uncertain tax positions. The proposed
interpretation would be effective for the first fiscal year beginning after December 15, 2006.
Earlier application would be encouraged. Only tax positions meeting the probable recognition
threshold at that date would be recognized. The transition adjustment resulting from application of
this interpretation would be recorded as a cumulative-effect change in the income statement as of
the end of the period of adoption. Restatement of prior periods or pro forma disclosures under APB
Opinion No. 20, Accounting Changes, would not be permitted. The implementation of this exposure
draft is not expected to impact us at this time.On September 30, 2005, the FASB issued an Exposure Draft that would amend SFAS No. 128, Earnings
per Share, to clarify guidance for mandatorily convertible instruments, the treasury stock method,
contracts that may be settled in cash or shares and contingently issuable shares. The proposed
Statement would be effective for interim and annual periods ending after June 15, 2006.
Retrospective application would be required for all changes to SFAS No. 128, except that
retrospective application would be prohibited for contracts that were either settled in cash to
prior adoption to require cash settlement. We are in the process of reviewing the requirements of
this recent exposure draft.The following standards issued by the FASB do not impact us at this time:
 
    
    SFAS No. 153, Exchanges of Nonmonetary Assetsan amendment of APB Opinion No. 29,
effective for nonmonetary asset exchanges occurring in fiscal years beginning after June
15, 2005.
    
    FASB issued Interpretation No. 47 Accounting for Conditional Asset Retirement
Obligations  an interpretation of FASB Statement No. 143, effective no later than the
end of fiscal years ending after December 15, 2005 (December 31, 2005, for calendar-year
enterprises).
 
 Off Balance Sheet Arrangements
  
 Related Party Transactions
   
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Equity Market Risks
   39




---



##### 



Commodity Price Risk
   (1)
 
 (1)
    
    The recoverable value of probable reserves is included only for the measurement of the
impairment of the carrying value of oil and gas properties as required under Canadian GAAP but not
for U.S. GAAP. Additionally, U.S. GAAP requires the use of period end oil and gas prices to measure
the amount of the impairment rather than estimated future oil and gas prices as required by
Canadian GAAP. See Critical Accounting Principles and Estimates in Item 7 in this Annual Report
on Form 10-K for the difference between Canadian and U.S. GAAP in calculating the impairment
provision for oil and gas properties. Foreign Currency Rate Risk
   Interest Rate Risk
  
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 Index to Financial Statements and Related Information
 PageReport of Independent Registered Chartered Accountants
    
    
    41Consolidated Financial StatementsConsolidated Balance Sheets
    
    
    42Consolidated Statements of Loss
    
    
    43Consolidated Statements of Shareholders Equity
    
    
    44Consolidated Statements of Cash Flow
    
    
    45Notes to the Consolidated Financial Statements
    
    
    46Quarterly Financial Data in Accordance with Canadian and U.S. GAAP (Unaudited).
    
    
    72Supplementary Disclosures About Oil and Gas Production Activities (Unaudited)
    
    
    72
 40




---



##### 



REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
 Ivanhoe Energy Inc.:
    Internal Control  Integrated
Framework
 
 COMMENTS BY INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS FOR U.S.
READERS ON CANADA  U.S. REPORTING DIFFERENCES
    
 41




---



##### 



IVANHOE ENERGY INC.
 
 Consolidated Balance Sheets
 As at December 31,2005
    
    
    2004AssetsCurrent AssetsCash and cash equivalents
    
    $
    6,724
    
    
    $
    9,322Accounts receivable (net of allowance for doubtful accounts of
$83
and nil as at December 31, 2005 and 2004, respectively) (Note 3)
    
    
    9,994
    
    
    
    5,377Prepaid and other current assets
    
    
    338
    
    
    
    81217,056
    
    
    
    15,511Oil and gas properties and investments, net (Note 4)
    
    
    119,654
    
    
    
    86,551Intangible assets  technology (Note 5)
    
    
    102,068
    
    
    
    10,000Long term assets (Note 6)
    
    
    2,099
    
    
    
    6,424$
    240,877
    
    
    $
    118,486Liabilities and Shareholders EquityCurrent LiabilitiesAccounts payable and accrued liabilities
    
    $
    25,791
    
    
    $
    9,845Note payable  current portion (Note 7)
    
    
    1,667
    
    
    
    1,667Asset retirement obligations  current portion (Note 8)
    
    
    950
    
    
    
    28,408
    
    
    
    11,512Long term debt (Note 7)
    
    
    4,972
    
    
    
    2,639Asset retirement obligations (Note 8)
    
    
    830
    
    
    
    749Long term obligation (Note 9)
    
    
    1,900
    
    
    
    Commitments and contingencies (Note 9)Shareholders EquityShare capital, issued and outstanding 220,779,335 common shares;December 31, 2004 169,664,911 common shares (Note 10)
    
    
    291,088
    
    
    
    183,617Purchase warrants
    
    
    5,150
    
    
    
    Contributed surplus
    
    
    3,820
    
    
    
    1,748Accumulated deficit
    
    
    (95,291
    )
    
    
    (81,779
    )204,767
    
    
    
    103,586$
    240,877
    
    
    $
    118,486
  Approved by the Board:
 (signed) David R. Martin
Director
    
    (signed) E. Leon Daniel
Director
 42




---



##### 



Consolidated Statements of Loss
 Year ended December 31,2005
    
    
    2004
    
    
    2003RevenueOil and gas revenue
    
    $
    29,800
    
    
    $
    17,795
    
    
    $
    9,569Interest income
    
    
    139
    
    
    
    202
    
    
    
    9029,939
    
    
    
    17,997
    
    
    
    9,659ExpensesOperating costs
    
    
    7,603
    
    
    
    5,073
    
    
    
    4,293General and administrative
    
    
    9,529
    
    
    
    7,275
    
    
    
    6,880Business and product development
    
    
    4,978
    
    
    
    1,913
    
    
    
    1,331Depletion and depreciation
    
    
    14,447
    
    
    
    7,482
    
    
    
    3,829Interest expense and financing costs
    
    
    1,258
    
    
    
    379
    
    
    
    184Write-downs and provision for impairment (Notes 4 and 15)
    
    
    5,636
    
    
    
    16,600
    
    
    
    23,32143,451
    
    
    
    38,722
    
    
    
    39,838Net Loss
    
    $
    13,512
    
    
    $
    20,725
    
    
    $
    30,179Net Loss per share   Basic and Diluted(Note 17)
    
    $
    0.07
    
    
    $
    0.12
    
    
    $
    0.20Weighted Average Number of Shares (in thousands)
    
    
    195,803
    
    
    
    167,612
    
    
    
    150,154
  43




---



##### 



IVANHOE ENERGY INC.
 
 Consolidated Statements of Shareholders Equity
 Share Capital
    
    
    Purchase
    
    
    Contributed
    
    
    AccumulatedShares
    
    
    Amount
    
    
    Warrants
    
    
    Surplus
    
    
    Deficit
    
    
    Total(thousands)Balance December 31, 2002
    
    
    144,466
    
    
    $
    131,112
    
    
    $
    
    
    
    $
    311
    
    
    $
    (30,875
    )
    
    $
    100,548Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,179
    )
    
    
    (30,179
    )Shares issued for:Private placements, net of share issue costs
    
    
    12,654
    
    
    
    24,070
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,070Conversion of debt
    
    
    2,000
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000Exercise of purchase warrants (Note 10)
    
    
    250
    
    
    
    425
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    425Exercise of options
    
    
    1,363
    
    
    
    3,773
    
    
    
    
    
    
    
    (271
    )
    
    
    
    
    
    
    3,502Services
    
    
    626
    
    
    
    695
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    695Stock based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    476
    
    
    
    
    
    
    
    476Balance December 31, 2003
    
    
    161,359
    
    
    
    161,075
    
    
    
    
    
    
    
    516
    
    
    
    (61,054
    )
    
    
    100,537Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,725
    )
    
    
    (20,725
    )Shares issued for:Private placements, net of share issue costs
    
    
    7,173
    
    
    
    20,428
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,428Exercise of options
    
    
    975
    
    
    
    1,767
    
    
    
    
    
    
    
    (44
    )
    
    
    
    
    
    
    1,723Services
    
    
    158
    
    
    
    347
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    347Stock based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,276
    
    
    
    
    
    
    
    1,276Balance December 31, 2004
    
    
    169,665
    
    
    
    183,617
    
    
    
    
    
    
    
    1,748
    
    
    
    (81,779
    )
    
    
    103,586Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,512
    )
    
    
    (13,512
    )Shares and purchase warrants issued for:Merger, net of share issue costs (Note 20)
    
    
    30,000
    
    
    
    74,907
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74,907Private placements, net of share issue costs
    
    
    13,842
    
    
    
    21,834
    
    
    
    4,837
    
    
    
    
    
    
    
    
    
    
    
    26,671Refinance of convertible debt (Note 7)
    
    
    2,454
    
    
    
    4,000
    
    
    
    313
    
    
    
    
    
    
    
    
    
    
    
    4,313Exercise of purchase warrants (Note 10)
    
    
    4,515
    
    
    
    6,133
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,133Exercise of options
    
    
    111
    
    
    
    156
    
    
    
    
    
    
    
    (41
    )
    
    
    
    
    
    
    115Services
    
    
    192
    
    
    
    441
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    441Stock based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,113
    
    
    
    
    
    
    
    2,113Balance December 31, 2005
    
    
    220,779
    
    
    $
    291,088
    
    
    $
    5,150
    
    
    $
    3,820
    
    
    $
    (95,291
    )
    
    $
    204,767
  44




---



##### 



IVANHOE ENERGY INC.
Consolidated Statements of Cash Flow
 Year ended December 31,2005
    
    
    2004
    
    
    2003Operating ActivitiesNet loss
    
    $
    (13,512
    )
    
    $
    (20,725
    )
    
    $
    (30,179
    )Items not requiring use of cash:Depletion and depreciation
    
    
    14,447
    
    
    
    7,482
    
    
    
    3,829Write-downs and provision for impairment (Notes 4 and 15)
    
    
    5,636
    
    
    
    16,600
    
    
    
    23,321Stock based compensation (Note 2 and 11)
    
    
    2,113
    
    
    
    1,276
    
    
    
    476Write off of debt financing costs (Note 6)
    
    
    345
    
    
    
    
    
    
    
    Other
    
    
    108
    
    
    
    47
    
    
    
    Changes in non-cash working capital items
    
    
    221
    
    
    
    (648
    )
    
    
    1,0319,358
    
    
    
    4,032
    
    
    
    (1,522
    )Investing ActivitiesCapital investments
    
    
    (43,301
    )
    
    
    (46,454
    )
    
    
    (15,391
    )Merger, net of working capital
    
    
    (10,096
    )
    
    
    
    
    
    
    Equity investment and Merger related costs (Notes 6 and 20)
    
    
    (1,712
    )
    
    
    (5,016
    )
    
    
    (500
    )Acquisition of joint venture interest (Notes 10 and 21)
    
    
    (6,750
    )
    
    
    
    
    
    
    Proceeds from sale of assets (Note 4)
    
    
    
    
    
    
    13,958
    
    
    
    Advance payments (Note 6)
    
    
    (1,200
    )
    
    
    
    
    
    
    Other
    
    
    (78
    )
    
    
    (410
    )
    
    
    (37
    )Changes in non-cash working capital items
    
    
    12,022
    
    
    
    3,264
    
    
    
    (537
    )(51,115
    )
    
    
    (34,658
    )
    
    
    (16,465
    )Financing ActivitiesProceeds from private placements, net of share issue costs
    
    
    26,671
    
    
    
    20,428
    
    
    
    24,070Proceeds from exercise of options and purchase warrants
    
    
    6,248
    
    
    
    1,723
    
    
    
    3,928Share issue costs on shares issued for Merger
    
    
    (93
    )
    
    
    
    
    
    
    Proceeds from debt obligations (Note 7)
    
    
    8,000
    
    
    
    14,000
    
    
    
    1,750Payments of debt obligations
    
    
    (1,667
    )
    
    
    (10,694
    )
    
    
    (1,250
    )39,159
    
    
    
    25,457
    
    
    
    28,498Increase (decrease) in cash and cash equivalents, for the year
    
    
    (2,598
    )
    
    
    (5,169
    )
    
    
    10,511Cash and cash equivalents, beginning of year
    
    
    9,322
    
    
    
    14,491
    
    
    
    3,980Cash and cash equivalents, end of year
    
    $
    6,724
    
    
    $
    9,322
    
    
    $
    14,491
  45




---



##### 



IVANHOE ENERGY INC.
 
 Notes to the Consolidated Financial Statements
(all tabular amounts are expressed in thousands of U.S. Dollars, except share amounts)
 1. NATURE OF OPERATIONS
 EOR RTP TM GTL
 2. SIGNIFICANT ACCOUNTING POLICIES
 GAAP
   Changes in Accounting Policies
 Asset Retirement Costs
  CICA
 46




---



##### 



Stock Based Compensation
    Principles of Consolidation
 Ensyn Merger Merger Agreement TM RTP TM CDF TM
   Foreign Currency Translation
  Cash and Cash Equivalents
  Financial Instruments
  47




---



##### 



Oil and Gas Properties
 Full Cost Accounting
  Depletion
  Impairment of Proved Oil and Gas Properties
 ceiling test
  Asset Retirement Costs
 TM
 TM TM
  48




---



##### 



Development Costs
 MOU
 TM TM TM TM TM
  TM
 Furniture and Equipment
  Intangible Assets
  Syntroleum RTP TM Technology TM TM TM  TM
 Oil and Gas Revenue
   49




---



##### 



Earnings or Loss Per Share
  Income Taxes
  Stock Based Compensation
    Derivative Activities
   Impact of New and Pending Canadian GAAP Accounting Standards
 S.1530 S.3855 S.3865
 50




---



##### 




    
    Section 3861, Financial Instruments Disclosure and Presentation, effective for fiscal
years beginning on or after November 1, 2004.
    
    Accounting Guideline 15, Consolidation of Variable Interest Entities, effective for
annual and interim periods beginning on or after November 1, 2004.
 3. CONCENTRATION OF CREDIT RISKS
   Accounts Receivable as
    
    
    Oil and Gas Revenues for the Yearat December 31,
    
    
    Ended December 31,2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2003U.S. CustomersA
    
    $
    738
    
    
    $
    542
    
    
    $
    8,812
    
    
    $
    6,140
    
    
    $
    4,392B
    
    
    327
    
    
    
    398
    
    
    
    1,002
    
    
    
    1,202
    
    
    
    C
    
    
    110
    
    
    
    193
    
    
    
    1,166
    
    
    
    1,040
    
    
    
    986D
    
    
    7
    
    
    
    229
    
    
    
    605
    
    
    
    441
    
    
    
    E
    
    
    80
    
    
    
    71
    
    
    
    261
    
    
    
    300
    
    
    
    273All others
    
    
    81
    
    
    
    20
    
    
    
    2,059
    
    
    
    188
    
    
    
    651,343
    
    
    
    1,453
    
    
    
    13,905
    
    
    
    9,311
    
    
    
    5,716China CustomerA
    
    
    3,519
    
    
    
    1,982
    
    
    
    
    
    
    
    8,484
    
    
    
    4,1034,862
    
    
    
    3,435
    
    
    
    13,905
    
    
    
    17,795
    
    
    
    9,819Receivables from partners
    
    
    4,888
    
    
    
    1,652
    
    
    
    
    
    
    
    
    
    
    
    Other receivables
    
    
    244
    
    
    
    290
    
    
    
    
    
    
    
    
    
    
    
    $
    9,994
    
    
    $
    5,377
    
    
    $
    13,905
    
    
    $
    17,795
    
    
    $
    9,819
   4. OIL AND GAS PROPERTIES AND INVESTMENTS
  51




---



##### 



As at December 31, 2005Oil and GasU.S.
    
    
    China
    
    
    GTL
    
    
    EOR
    
    
    TotalOil and Gas Properties:Proved
    
    $
    99,721
    
    
    $
    71,760
    
    
    $
    
    
    
    $
    
    
    
    $
    171,481Unproved
    
    
    9,676
    
    
    
    5,320
    
    
    
    
    
    
    
    
    
    
    
    14,996109,397
    
    
    
    77,080
    
    
    
    
    
    
    
    
    
    
    
    186,477Accumulated depletion
    
    
    (15,920
    )
    
    
    (16,036
    )
    
    
    
    
    
    
    
    
    
    
    (31,956
    )Accumulated provision for impairment
    
    
    (50,350
    )
    
    
    (5,000
    )
    
    
    
    
    
    
    
    
    
    
    (55,350
    )43,127
    
    
    
    56,044
    
    
    
    
    
    
    
    
    
    
    
    99,171GTL and EOR Investments:Commercial demonstration facility
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,599
    
    
    
    9,599Feasibility studies and other deferred costs
    
    
    
    
    
    
    
    
    
    
    4,570
    
    
    
    6,142
    
    
    
    10,712
    
    
    
    
    
    
    
    4,570
    
    
    
    15,741
    
    
    
    20,311Furniture and equipment
    
    
    485
    
    
    
    95
    
    
    
    
    
    
    
    15
    
    
    
    595Accumulated depreciation
    
    
    (380
    )
    
    
    (37
    )
    
    
    
    
    
    
    (6
    )
    
    
    (423
    )105
    
    
    
    58
    
    
    
    
    
    
    
    9
    
    
    
    172$
    43,232
    
    
    $
    56,102
    
    
    $
    4,570
    
    
    $
    15,750
    
    
    $
    119,654
 As at December 31, 2004Oil and GasU.S.
    
    
    China
    
    
    GTL
    
    
    EOR
    
    
    TotalOil and Gas Properties:Proved
    
    $
    81,648
    
    
    $
    35,771
    
    
    $
    
    
    
    $
    
    
    
    $
    117,419Unproved
    
    
    20,447
    
    
    
    10,581
    
    
    
    
    
    
    
    
    
    
    
    31,028102,095
    
    
    
    46,352
    
    
    
    
    
    
    
    
    
    
    
    148,447Accumulated depletion
    
    
    (10,956
    )
    
    
    (6,663
    )
    
    
    
    
    
    
    
    
    
    
    (17,619
    )Accumulated provision for impairment
    
    
    (50,350
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50,350
    )40,789
    
    
    
    39,689
    
    
    
    
    
    
    
    
    
    
    
    80,478GTL and EOR Investments:Feasibility studies and other deferred costs
    
    
    
    
    
    
    
    
    
    
    3,793
    
    
    
    2,091
    
    
    
    5,884Furniture and equipment
    
    
    417
    
    
    
    84
    
    
    
    
    
    
    
    11
    
    
    
    512Accumulated depreciation
    
    
    (300
    )
    
    
    (22
    )
    
    
    
    
    
    
    (1
    )
    
    
    (323
    )117
    
    
    
    62
    
    
    
    
    
    
    
    10
    
    
    
    189$
    40,906
    
    
    $
    39,751
    
    
    $
    3,793
    
    
    $
    2,101
    
    
    $
    86,551
   United States
    Unocal
 52




---



##### 



China
 CNPC Richfirst
  Mitsubishi PetroChina
  Gas-to-Liquids
   Enhanced Oil Recovery and Heavy Oil Processing
  53




---



##### 



TM
 TM TM TM TM TM
 Ecopetrol
 5. INTANGIBLE ASSETS  TECHNOLOGY
  RTP TM Technology
 TM TM TM TM TM
 Syntroleum GTL Master License
 Syntroleum
 6. LONG TERM ASSETS
 EPIL TM
  54




---



##### 



.
   As at December 31,2005
    
    
    2004Investment in EPIL
    
    $
    
    
    
    $
    3,000Merger related costs
    
    
    
    
    
    
    2,513Long-term advances
    
    
    1,200
    
    
    
    Drilling deposits
    
    
    400
    
    
    
    400Deferred debt financing costs
    
    
    321
    
    
    
    384Other long term deposits and assets
    
    
    178
    
    
    
    127$
    2,099
    
    
    $
    6,424
 7. NOTES AND ADVANCE PAYABLE
  Bank
    
    
    PromissoryNote
    
    
    Note
    
    
    Total2006
    
    $
    1,667
    
    
    $
    
    
    
    $
    1,6672007
    
    
    972
    
    
    
    4,000
    
    
    
    4,9722,639
    
    
    
    4,000
    
    
    
    6,639Less: current portion
    
    
    1,667
    
    
    
    
    
    
    
    1,667$
    972
    
    
    $
    4,000
    
    
    $
    4,972
 Bank Note
 LIBOR
  Promissory Note
  55




---



##### 



Advance Payable
  Revolving Line of Credit
  8. ASSET RETIREMENT OBLIGATIONS
 TM
 Balance as
at December 31, 2003
    
    $
    521Liabilities incurred
    
    
    180Accretion expense
    
    
    48Balance as at December 31, 2004
    
    
    749Liabilities incurred
    
    
    1,052Liabilities settled
    
    
    (2
    )Accretion expense
    
    
    76Revisions in estimated cash flows
    
    
    (95
    )Balance as at December 31, 2005
    
    
    1,780Less: current portion
    
    
    950$
    830
  9. COMMITMENTS AND CONTINGENCIES
 Zitong Block Exploration Commitment
 Phase 1
 56




---



##### 



Phase 2
 Long Term Obligation
 TM
 Other Commitments
   Lease Commitments
   2006
    
    $
    7632007
    
    
    6082008
    
    
    4612009
    
    
    2872010
    
    
    168Thereafter
    
    
    $
    2,287
 10. SHARE CAPITAL
  Private Placements
  57




---



##### 



Purchase Warrants
  CommonPurchase
    
    
    SharesWarrants
    
    
    Issuable(thousands)Balance December 31, 2002
    
    
    
    
    
    
    Purchase warrants issued for:Private placements
    
    
    10,779
    
    
    
    6,015Balance December 31, 2003
    
    
    10,779
    
    
    
    6,015Purchase warrants issued for:Private placements
    
    
    7,173
    
    
    
    3,587Purchase warrants exercised
    
    
    (500
    )
    
    
    (250
    )Balance December 31, 2004
    
    
    17,452
    
    
    
    9,352Purchase warrants issued for:Private placements
    
    
    16,296
    
    
    
    16,296Refinance of convertible debt
    
    
    2,000
    
    
    
    2,000Purchase warrants exercised
    
    
    (9,029
    )
    
    
    (4,515
    )Purchase warrants expired
    
    
    (1,250
    )
    
    
    (1,250
    )Balance December 31, 2005
    
    
    25,469
    
    
    
    21,883
   Purchase WarrantsPrice per
    
    
    
    
    
    
    
    
    
    Common
    
    
    
    
    
    
    
    ExerciseYear of
    
    Special
    
    
    
    
    
    
    
    
    
    Shares
    
    
    
    
    
    
    
    Price perIssue
    
    Warrant
    
    Issued
    
    Exercisable
    
    Issuable
    
    Value
    
    Expiry Date
    
    Share(thousands)
    
    

($U.S. 000)2004
    
    U.S. $2.90
    
    
    5,449
    
    
    
    5,449
    
    
    
    2,725
    
    
    $
    
    
    
    February 2006
    
    U.S. $3.202004
    
    U.S. $2.90
    
    
    1,724
    
    
    
    1,724
    
    
    
    862
    
    
    
    
    
    
    March 2006
    
    U.S. $3.202005
    
    Cdn. $3.10
    
    
    4,100
    
    
    
    4,100
    
    
    
    4,100
    
    
    
    2,412
    
    
    April 2007
    
    Cdn. $3.502005
    
    Cdn. $3.10
    
    
    1,000
    
    
    
    1,000
    
    
    
    1,000
    
    
    
    534
    
    
    July 2007
    
    Cdn. $3.502005
    
    U.S. $1.63
    
    
    11,196
    
    
    
    11,196
    
    
    
    11,196
    
    
    
    1,891
    
    
    November 2007
    
    U.S. $2.502005
    
    n/a
    
    
    2,000
    
    
    
    2,000
    
    
    
    2,000
    
    
    
    313
    
    
    November 2007
    
    U.S. $2.0025,469
    
    
    
    25,469
    
    
    
    21,883
    
    
    $
    5,150
    11. STOCK BASED COMPENSATION
  58




---



##### 



December 31, 2005
    
    
    December 31, 2004
    
    
    December 31, 2003Weighted-
    
    
    
    
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Number
    
    
    Average
    
    
    Number
    
    
    Average
    
    
    Number
    
    
    Averageof Stock
    
    
    Exercise
    
    
    of Stock
    
    
    Exercise
    
    
    of Stock
    
    
    ExerciseOptions
    
    
    Price
    
    
    Options
    
    
    Price
    
    
    Options
    
    
    Price(thousands)
    
    
    (Cdn.$)
    
    
    (thousands)
    
    
    (Cdn.$)
    
    
    (thousands)
    
    
    (Cdn.$)Outstanding at beginning of year
    
    
    8,246
    
    
    $
    2.65
    
    
    
    8,949
    
    
    $
    2.64
    
    
    
    10,265
    
    
    $
    2.69Granted
    
    
    3,664
    
    
    $
    2.84
    
    
    
    608
    
    
    $
    2.52
    
    
    
    840
    
    
    $
    4.95Exercised
    
    
    (111
    )
    
    $
    1.52
    
    
    
    (975
    )
    
    $
    2.43
    
    
    
    (1,363
    )
    
    $
    3.39Cancelled/forfeited
    
    
    (1,521
    )
    
    $
    6.14
    
    
    
    (336
    )
    
    $
    2.96
    
    
    
    (793
    )
    
    $
    4.42Outstanding at end of year
    
    
    10,278
    
    
    $
    2.21
    
    
    
    8,246
    
    
    $
    2.65
    
    
    
    8,949
    
    
    $
    2.64Options exercisable at end of year
    
    
    6,547
    
    
    $
    1.74
    
    
    
    6,698
    
    
    $
    2.44
    
    
    
    6,974
    
    
    $
    2.20
    2005
    
    
    2004
    
    
    2003Assumptions used:Risk-free interest rate
    
    
    3.5
    %
    
    
    4.0
    %
    
    
    4.1
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Volatility factor
    
    
    77.3
    %
    
    
    107.6
    %
    
    
    99.4
    %Expected life (years)
    
    
    4.0
    
    
    
    4.0
    
    
    
    4.0
  Stock Options Outstanding
    
    Stock Options ExercisableWeighted-AverageRange of
    
    Number
    
    Remaining
    
    Weighted-Average
    
    Number
    
    Weighted-AverageExercise Prices
    
    Outstanding
    
    Contractual Life
    
    Exercise Price
    
    Exercisable
    
    Exercise Price(Cdn.$)
    
    (thousands)
    
    (Years)
    
    (Cdn.$)
    
    (thousands)
    
    (Cdn.$)$0.50 to $2.00
    
    
    4,178
    
    
    
    2.7
    
    
    $
    0.62
    
    
    
    4,022
    
    
    $
    0.57$2.18 to $3.62
    
    
    5,271
    
    
    
    3.7
    
    
    $
    2.92
    
    
    
    1,972
    
    
    $
    3.00$5.37 to $7.00
    
    
    829
    
    
    
    2.5
    
    
    $
    5.73
    
    
    
    553
    
    
    $
    5.73$0.50 to $7.00
    
    
    10,278
    
    
    
    3.2
    
    
    $
    2.21
    
    
    
    6,547
    
    
    $
    1.74
 12. RETIREMENT PLAN
 4 01(k) Plan
 59




---



##### 



13. SEGMENT INFORMATION
  Oil and Gas
  GTL
 
 EOR
 TM TM TM
 .
 Year ended December 31, 2005Oil and GasU.S.
    
    
    China
    
    
    GTL
    
    
    EOR
    
    
    Corporate
    
    
    TotalOil and gas revenue
    
    $
    14,069
    
    
    $
    15,731
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    29,800Interest income
    
    
    30
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    102
    
    
    
    13914,099
    
    
    
    15,738
    
    
    
    
    
    
    
    
    
    
    
    102
    
    
    
    29,939Operating costs
    
    
    5,001
    
    
    
    2,602
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,603General and administrative
    
    
    1,178
    
    
    
    2,076
    
    
    
    
    
    
    
    
    
    
    
    6,275
    
    
    
    9,529Business and product development
    
    
    
    
    
    
    
    
    
    
    1,307
    
    
    
    3,671
    
    
    
    
    
    
    
    4,978Depletion and depreciation
    
    
    5,039
    
    
    
    9,378
    
    
    
    11
    
    
    
    13
    
    
    
    6
    
    
    
    14,447Interest expense and financing costs
    
    
    311
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    943
    
    
    
    1,258Write-downs and provision for impairment
    
    
    
    
    
    
    5,000
    
    
    
    279
    
    
    
    357
    
    
    
    
    
    
    
    5,63611,529
    
    
    
    19,056
    
    
    
    1,597
    
    
    
    4,045
    
    
    
    7,224
    
    
    
    43,451Net (Income) Loss
    
    $
    (2,570
    )
    
    $
    3,318
    
    
    $
    1,597
    
    
    $
    4,045
    
    
    $
    7,122
    
    
    $
    13,512Capital Investments
    
    $
    6,541
    
    
    $
    30,722
    
    
    $
    1,056
    
    
    $
    4,982
    
    
    $
    
    
    
    $
    43,301Identifiable Assets (As at December 31, 2005)
    
    $
    48,070
    
    
    $
    65,020
    
    
    $
    14,609
    
    
    $
    107,869
    
    
    $
    5,309
    
    
    $
    240,877
 60




---



##### 



Year ended December 31, 2004Oil and GasU.S.
    
    
    China
    
    
    GTL
    
    
    EOR
    
    
    Corporate
    
    
    TotalOil and gas revenue
    
    $
    9,311
    
    
    $
    8,484
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    17,795Interest income
    
    
    10
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    176
    
    
    
    2029,321
    
    
    
    8,500
    
    
    
    
    
    
    
    
    
    
    
    176
    
    
    
    17,997Operating costs
    
    
    3,159
    
    
    
    1,914
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,073General and administrative
    
    
    990
    
    
    
    960
    
    
    
    
    
    
    
    
    
    
    
    5,325
    
    
    
    7,275Business and product development
    
    
    
    
    
    
    
    
    
    
    1,471
    
    
    
    442
    
    
    
    
    
    
    
    1,913Depletion and depreciation
    
    
    4,594
    
    
    
    2,864
    
    
    
    16
    
    
    
    4
    
    
    
    4
    
    
    
    7,482Interest expense
    
    
    195
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    184
    
    
    
    379Write-downs and provision for impairment
    
    
    16,350
    
    
    
    
    
    
    
    250
    
    
    
    
    
    
    
    
    
    
    
    16,60025,288
    
    
    
    5,738
    
    
    
    1,737
    
    
    
    446
    
    
    
    5,513
    
    
    
    38,722Net (Income) Loss
    
    $
    15,967
    
    
    $
    (2,762
    )
    
    $
    1,737
    
    
    $
    446
    
    
    $
    5,337
    
    
    $
    20,725Capital Investments
    
    $
    17,428
    
    
    $
    26,965
    
    
    $
    95
    
    
    $
    1,966
    
    
    $
    
    
    
    $
    46,454Identifiable Assets (As at December 31, 2004)
    
    $
    48,465
    
    
    $
    44,960
    
    
    $
    13,867
    
    
    $
    2,441
    
    
    $
    8,753
    
    
    $
    118,486
 Year ended December 31, 2003Oil and GasU.S.
    
    
    China
    
    
    GTL
    
    
    EOR
    
    
    Corporate
    
    
    TotalOil and gas revenue
    
    $
    5,466
    
    
    $
    4,103
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    9,569Interest income
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71
    
    
    
    905,485
    
    
    
    4,103
    
    
    
    
    
    
    
    
    
    
    
    71
    
    
    
    9,659Operating costs
    
    
    2,313
    
    
    
    1,980
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,293General and administrative
    
    
    2,109
    
    
    
    1,176
    
    
    
    
    
    
    
    
    
    
    
    3,595
    
    
    
    6,880Business and product development
    
    
    
    
    
    
    
    
    
    
    1,331
    
    
    
    
    
    
    
    
    
    
    
    1,331Depletion and depreciation
    
    
    2,321
    
    
    
    1,484
    
    
    
    20
    
    
    
    
    
    
    
    4
    
    
    
    3,829Interest expense
    
    
    115
    
    
    
    27
    
    
    
    
    
    
    
    
    
    
    
    42
    
    
    
    184Write-down and provision for impairment
    
    
    20,000
    
    
    
    
    
    
    
    3,321
    
    
    
    
    
    
    
    
    
    
    
    23,32126,858
    
    
    
    4,667
    
    
    
    4,672
    
    
    
    
    
    
    
    3,641
    
    
    
    39,838Net Loss
    
    $
    21,373
    
    
    $
    564
    
    
    $
    4,672
    
    
    $
    
    
    
    $
    3,570
    
    
    $
    30,179Capital Investments
    
    $
    8,386
    
    
    $
    6,213
    
    
    $
    792
    
    
    $
    
    
    
    $
    
    
    
    $
    15,391
 14. DERIVATIVE ACTIVITIES
    15. PROVISION FOR IMPAIRMENT
  61




---



##### 



As at December 31. 2005West TexasIntermediate
    
    
    Henry Hub(per Bbl)
    
    
    (per Mcf)2006
    
    $
    57.00
    
    
    $
    10.502007
    
    $
    55.00
    
    
    $
    8.752008
    
    $
    51.00
    
    
    $
    7.502009
    
    $
    48.00
    
    
    $
    7.002010
    
    $
    46.50
    
    
    $
    6.752011
    
    $
    45.00
    
    
    $
    6.502012
    
    $
    45.00
    
    
    $
    6.502013
    
    $
    46.00
    
    
    $
    6.652014
    
    $
    46.75
    
    
    $
    6.752015
    
    $
    47.75
    
    
    $
    6.902016
    
    $
    48.75
    
    
    $
    7.05Thereafter
    
    2% per year
    
    2% per year
  As at December 31. 2004West TexasIntermediate
    
    
    Henry Hub(per Bbl)
    
    
    (per Mcf)2005
    
    $
    42.00
    
    
    $
    6.202006
    
    $
    40.00
    
    
    $
    6.002007
    
    $
    38.00
    
    
    $
    5.752008
    
    $
    36.00
    
    
    $
    5.502009
    
    $
    34.00
    
    
    $
    5.502010 to 2015
    
    $
    33.00 to $34.50
    
    
    $
    5.50 to $5.75Thereafter
    
    2% per year
    
    2% per year
  As at December 31. 2003West TexasIntermediate
    
    
    Henry Hub(per Bbl)
    
    
    (per Mcf)2004
    
    $
    29.00
    
    
    $
    5.102005
    
    $
    26.00
    
    
    $
    4.502006
    
    $
    25.00
    
    
    $
    4.352007
    
    $
    25.00
    
    
    $
    4.352008
    
    $
    25.00
    
    
    $
    4.352009 to 2014
    
    $
    25.00
    
    
    $
    4.35Thereafter
    
    1.5% per year
    
    1.5% per year
 16. INCOME TAXES
 :
 62




---



##### 



Year ended December 31,2005
    
    
    2004
    
    
    2003Tax benefit computed at the combined Canadian federal and
provincial statutory income tax rates
    
    $
    (4,543
    )
    
    $
    (6,968
    )
    
    $
    (12,832
    )Effect of change in effective income tax rates on future tax assets
    
    
    
    
    
    
    (488
    )
    
    
    Foreign net losses affected at lower income tax rates
    
    
    1,457
    
    
    
    (246
    )
    
    
    3,251Expiry of tax loss carry-forwards
    
    
    1,734
    
    
    
    977
    
    
    
    569Effect of change in foreign exchange rates
    
    
    (659
    )
    
    
    (3,433
    )
    
    
    (522
    )Stock-based compensation not deductible for income tax purposes
    
    
    756
    
    
    
    375
    
    
    
    Tax credit carry-forward
    
    
    (362
    )
    
    
    (1,094
    )
    
    
    Change in prior year estimate of tax loss carry-forwards
    
    
    (368
    )
    
    
    1,756
    
    
    
    (239
    )Permanent differences related to U.S. royalty interests acquired
    
    
    
    
    
    
    1,250
    
    
    
    710Other
    
    
    16
    
    
    
    (5
    )
    
    
    170(1,969
    )
    
    
    (7,876
    )
    
    
    (8,893
    )Valuation allowance
    
    
    1,969
    
    
    
    7,876
    
    
    
    8,893$
    
    
    
    $
    
    
    
    $
    
  As at December 31,2005
    
    
    2004Future Income Tax
    
    
    Future Income TaxAssets
    
    
    Liabilities
    
    
    Assets
    
    
    LiabilitiesOil and gas properties and investments
    
    $
    
    
    
    $
    (19,673
    )
    
    $
    
    
    
    $
    (11,560
    )Intangibles
    
    
    
    
    
    
    (36,746
    )
    
    
    
    
    
    
    Tax loss carry-forwards
    
    
    71,774
    
    
    
    
    
    
    
    58,842
    
    
    
    Tax credit carry-forward
    
    
    1,456
    
    
    
    
    
    
    
    1,094
    
    
    
    Valuation allowance
    
    
    (16,811
    )
    
    
    
    
    
    
    (48,376
    )
    
    
    $
    56,419
    
    
    $
    (56,419
    )
    
    $
    11,560
    
    
    $
    (11,560
    )
   17. NET LOSS PER SHARE
  Year ended December 31,(thousands of shares)2005
    
    
    2004
    
    
    2003Richfirst conversion rights
    
    
    9,631
    
    
    
    9,537
    
    
    
    Stock options
    
    
    3,211
    
    
    
    3,796
    
    
    
    3,535Purchase warrants
    
    
    862
    
    
    
    2,107
    
    
    
    556Convertible debt
    
    
    
    
    
    
    
    
    
    
    49913,704
    
    
    
    15,440
    
    
    
    4,590
   Year ended December 31,(thousands of shares)2005
    
    
    2004
    
    
    2003Stock options
    
    
    5,103
    
    
    
    3,669
    
    
    
    3,802Purchase warrants
    
    
    9,689
    
    
    
    4,082
    
    
    
    140Convertible debt
    
    
    1,161
    
    
    
    
    
    
    
    30615,953
    
    
    
    7,751
    
    
    
    4,248
 63




---



##### 



18. SUPPLEMENTAL CASH FLOW INFORMATION
  Year ended December 31,2005
    
    
    2004
    
    
    2003Supplementary Information
Regarding Non-Cash TransactionsFinancing activities, non-cash:Shares issued for:Merger (Note 20)
    
    $
    75,000
    
    
    $
    
    
    
    $
    Refinance of convertible debt (Note 7)
    
    
    4,000
    
    
    
    
    
    
    
    Conversion of debt
    
    
    
    
    
    
    
    
    
    
    1,000$
    79,000
    
    
    $
    
    
    
    $
    1,000Cash paid during the year include the following:Income taxes
    
    $
    20
    
    
    $
    3
    
    
    $
    6Interest
    
    $
    1,138
    
    
    $
    317
    
    
    $
    96Changes in non-cash working capital items
Operating Activities:Accounts receivable
    
    $
    (1,635
    )
    
    $
    (1,949
    )
    
    $
    (201
    )Prepaid and other current assets
    
    
    16
    
    
    
    (403
    )
    
    
    282Accounts payable and accrued liabilities
    
    
    1,840
    
    
    
    1,704
    
    
    
    950221
    
    
    
    (648
    )
    
    
    1,031Investing ActivitiesAccounts receivable
    
    
    (2,982
    )
    
    
    (708
    )
    
    
    Prepaid and other current assets
    
    
    457
    
    
    
    
    
    
    
    Accounts payable and accrued liabilities
    
    
    14,547
    
    
    
    3,972
    
    
    
    (537
    )12,022
    
    
    
    3,264
    
    
    
    (537
    )$
    12,243
    
    
    $
    2,616
    
    
    $
    494
 19. RELATED PARTY TRANSACTIONS
  20. MERGER
 Merger Shares
  64




---



##### 



Purchase Consideration29,999,886 shares of Ivanhoe at $2.50 per share.
    
    $
    75,000Cash
    
    
    10,00085,000Merger related costs
    
    
    4,228Total purchase consideration and cost of the Merger
    
    $
    89,228Net Assets AcquiredCash
    
    $
    21Non-cash working capital, net
    
    
    (117
    )Oil and gas properties and investments
    
    
    4,561Intangible asset
    
    
    89,759Asset retirement obligation
    
    
    (96
    )Long term obligation (Note 9)
    
    
    (1,900
    )Less : previous investment in EPIL
    
    
    (3,000
    )$
    89,228
 21. ENSYN AGREEMENTS
 RTP TM Joint Venture
 RTP TM Joint Venture TM TM TM TM TM TM TM TM
 IE HTL Aera TM TM TM TM TM
 ConocoPhillips Canada Resources Corp.
 ConocoPhillips Canada
 22. SUBSEQUENT EVENTS
   65




---



##### 



Sunwing
 CMA
 23. ADDITIONAL DISCLOSURES REQUIRED UNDER U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
  Consolidated Balance Sheets
  Shareholders Equity and Oil and Gas Properties and Investments
 As at December 31, 2005Shareholders EquityOil and GasProperties and
    
    
    Share Capital
    
    
    Contributed
    
    
    AccumulatedInvestments
    
    
    and Warrants
    
    
    Surplus
    
    
    Deficit
    
    
    TotalCanadian GAAP
    
    $
    119,654
    
    
    $
    296,238
    
    
    $
    3,820
    
    
    $
    (95,291
    )
    
    $
    204,767Adjustments for:Reduction in stated capital
    
    
    
    
    
    
    74,455
    
    
    
    
    
    
        
    (74,455
    )
    
    
    Stock based compensation
    
    
    
    
    
    
    (316
    )
    
    
    (3,432
    )
    
    
    3,748
    
    
    
    Ascribed value of shares issued for U.S.
royalty interests, net
    
    
    1,358
    
    
    
    1,358
    
    
    
    
    
    
        
    
    
    
    
    1,358Provision for impairment
    
    
    (8,150
    )
    
    
    
    
    
    
    
    
    
        
    (8,150
    )
    
    
    (8,150
    )Depletion adjustments due to differences in
provision for impairment
    
    
    1,562
    
    
    
    
    
    
    
    
    
    
        
    1,562
    
    
    
    1,562GTL and EOR development costs expensed
    
    
    (10,712
    )
    
    
    
    
    
    
    
    
    
        
    (10,712
    )
    
    
    (10,712
    )U.S. GAAP
    
    $
    103,712
    
    
    $
    371,735
    
    
        $
    388
    
    
    $
    (183,298
    )
    
    $
    188,825
 As at December 31, 2004Shareholders EquityOil and GasProperties and
    
    
    
    
    
    
    Contributed
    
    
    AccumulatedInvestments
    
    
    Share Capital
    
    
    Surplus
    
    
    Deficit
    
    
    TotalCanadian GAAP
    
    $
    86,551
    
    
    $
    183,617
    
    
    $
    1,748
    
    
    $
    (81,779
    )
    
    $
    103,586Adjustments for:Reduction in stated capital
    
    
    
    
    
    
    74,455
    
    
    
    
    
    
    
    (74,455
    )
    
    
    Stock based compensation
    
    
    
    
    
    
    (300
    )
    
    
    (1,660
    )
    
    
    1,960
    
    
    
    Ascribed value of shares issued for U.S.
royalty interests, net
    
    
    1,358
    
    
    
    1,358
    
    
    
    
    
    
    
    
    
    
    
    1,358Provision for impairment
    
    
    (8,650
    )
    
    
    
    
    
    
    
    
    
    
    (8,650
    )
    
    
    (8,650
    )Depletion adjustments due to differences in
provision for impairment
    
    
    482
    
    
    
    
    
    
    
    
    
    
    
    482
    
    
    
    482GTL and EOR development costs expensed
    
    
    (5,884
    )
    
    
    
    
    
    
    
    
    
    
    (5,884
    )
    
    
    (5,884
    )U.S. GAAP
    
    $
    73,857
    
    
    $
    259,130
    
    
    $
    88
    
    
    $
    (168,326
    )
    
    $
    90,892
 66




---



##### 



Shareholders Equity
   Oil and Gas Properties and Investments
    Ceiling Test Impairments
    
    
    (Increase)U.S. GAAP
    
    
    Canadian GAAP
    
    
    DecreaseU.S. PropertiesPrior to 2004
    
    $
    34,000
    
    
    $
    34,000
    
    
    $
    2004
    
    
    15,000
    
    
    
    16,350
    
    
    
    1,3502005
    
    
    2,800
    
    
    
    
    
    
    
    (2,800
    )51,800
    
    
    
    50,350
    
    
    
    (1,450
    )China PropertiesPrior to 2004
    
    
    10,000
    
    
    
    
    
    
    
    (10,000
    )2004
    
    
    
    
    
    
    
    
    
    
    2005
    
    
    1,700
    
    
    
    5,000
    
    
    
    3,30011,700
    
    
    
    5,000
    
    
    
    (6,700
    )$
    63,500
    
    
    $
    55,350
    
    
    $
    (8,150
    )
   67




---



##### 



Consolidated Statements of Loss
  Year ended December 31,2005
    
    
    2004
    
    
    2003Net
    
    
    Net Loss
    
    
    Net
    
    
    Net Loss
    
    
    Net
    
    
    Net LossLoss
    
    
    Per Share
    
    
    Loss
    
    
    Per Share
    
    
    Loss
    
    
    Per ShareCanadian GAAP
    
    $
    13,512
    
    
    $
    0.07
    
    
    $
    20,725
    
    
    $
    0.12
    
    
    $
    30,179
    
    
    $
    0.20Stock based compensation expense
    
    
    (1,788
    )
    
    
    (0.01
    )
    
    
    (1,173
    )
    
    
    (0.01
    )
    
    
    (476
    )
    
    
    Provision for impairment
    
    
    (500
    )
    
    
    
    
    
    
    (1,350
    )
    
    
    (0.01
    )
    
    
    
    
    
    
    Depletion adjustments due to differences in
provision for impairment
    
    
    (1,080
    )
    
    
    (0.01
    )
    
    
    (316
    )
    
    
    
    
    
    
    (88
    )
    
    
    GTL and EOR development costs expensed, net
    
    
    4,828
    
    
    
    0.02
    
    
    
    1,810
    
    
    
    0.02
    
    
    
    (2,529
    )
    
    
    (0.02
    )U.S. GAAP
    
    $
    14,972
    
    
    
    0.07
    
    
    $
    19,696
    
    
    $
    0.12
    
    
    $
    27,086
    
    
    $
    0.18Weighted Average Number of Shares under U.S.
GAAP (in thousands)
    
    
    
    
    
    
    195,803
    
    
    
    
    
    
    
    167,612
    
    
    
    
    
    
    
    150,154
    Stock Based Compensation
  68




---



##### 



Year ended December 31,2005
    
    
    2004
    
    
    2003Net loss under U.S. GAAP
    
    $
    14,972
    
    
    $
    19,696
    
    
    $
    27,086Stock-based compensation expense determined under the fair
value based method for employee and director awards
    
    
    1,911
    
    
    
    1,869
    
    
    
    1,682Pro forma net loss under U.S. GAAP
    
    $
    16,883
    
    
    $
    21,565
    
    
    $
    28,768Basic and diluted loss per common share under U.S. GAAP:As reported
    
    $
    0.07
    
    
    $
    0.12
    
    
    $
    0.18Pro forma
    
    $
    0.09
    
    
    $
    0.13
    
    
    $
    0.19Weighted Average Number of Shares under U.S. GAAP (in
thousands)
    
    
    195,803
    
    
    
    167,612
    
    
    
    150,154Stock options granted during the period (thousands)
    
    
    2,889
    
    
    
    458
    
    
    
    690Weighted average exercise price
    
    $
    2.41
    
    
    $
    1.88
    
    
    $
    4.00Weighted average fair value of options granted during the year
    
    $
    1.52
    
    
    $
    1.40
    
    
    $
    2.83
  Pro Forma Effect of Merger
  Year Ended December 31,(unaudited)2005
    
    
    2004Net
    
    
    Net Loss
    
    
    
    
    
    
    Net
    
    
    Net LossRevenue
    
    
    Loss
    
    
    Per Share
    
    
    Revenue
    
    
    Loss
    
    
    Per ShareAs reported
    
    $
    29,939
    
    
    $
    14,972
    
    
    $
    0.07
    
    
    $
    17,997
    
    
    $
    19,696
    
    
    $
    0.12Pro forma adjustments
    
    
    736
    
    
    
    730
    
    
    
    
    
    
    
    371
    
    
    
    2,248
    
    
    
    $
    30,675
    
    
    $
    15,702
    
    
    $
    0.07
    
    
    $
    18,368
    
    
    $
    21,944
    
    
    $
    0.12Weighted Average Number
of Shares (in thousands)
    
    
    
    
    
    
    
    
    
    
    204,186
    
    
    
    
    
    
    
    
    
    
    
    197,612
 Consolidated Statements of Cash Flow
  Additional U.S. GAAP Disclosures
 Oil and Gas Properties and Investments
  69




---



##### 



As at December 31, 2005
    
    
    As at December 31, 2004U.S.
    
    
    China
    
    
    Total
    
    
    U.S.
    
    
    China
    
    
    TotalProperty acquisition costs
    
    $
    20,613
    
    
    $
    2,418
    
    
    $
    23,031
    
    
    $
    22,295
    
    
    $
    2,418
    
    
    $
    24,713Royalty rights acquired
    
    
    10,582
    
    
    
    
    
    
    
    10,582
    
    
    
    10,582
    
    
    
    
    
    
    
    10,582Exploration costs
    
    
    41,289
    
    
    
    15,525
    
    
    
    56,814
    
    
    
    35,120
    
    
    
    8,594
    
    
    
    43,714Development costs
    
    
    38,272
    
    
    
    58,861
    
    
    
    97,133
    
    
    
    35,456
    
    
    
    35,105
    
    
    
    70,561Commercial demonstration facility
    
    
    9,600
    
    
    
    
    
    
    
    9,600
    
    
    
    
    
    
    
    
    
    
    
    Support equipment and general
property
    
    
    556
    
    
    
    315
    
    
    
    871
    
    
    
    480
    
    
    
    270
    
    
    
    750120,912
    
    
    
    77,119
    
    
    
    198,031
    
    
    
    103,933
    
    
    
    46,387
    
    
    
    150,320Accumulated depletion and
depreciation
    
    
    (16,015
    )
    
    
    (14,804
    )
    
    
    (30,819
    )
    
    
    (11,197
    )
    
    
    (6,266
    )
    
    
    (17,463
    )Provision for impairment
    
    
    (51,800
    )
    
    
    (11,700
    )
    
    
    (63,500
    )
    
    
    (49,000
    )
    
    
    (10,000
    )
    
    
    (59,000
    )$
    53,097
    
    
    $
    50,615
    
    
    $
    103,712
    
    
    $
    43,736
    
    
    $
    30,120
    
    
    $
    73,857
   Incurred inPrior toTotal
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2003Property acquisition costs
    
    $
    3,058
    
    
    $
    (247
    )
    
    $
    621
    
    
    $
    429
    
    
    $
    2,255Royalty rights acquired
    
    
    659
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    659Exploration costs
    
    
    11,311
    
    
    
    5,116
    
    
    
    4,493
    
    
    
    751
    
    
    
    951$
    15,028
    
    
    $
    4,869
    
    
    $
    5,114
    
    
    $
    1,180
    
    
    $
    3,865
  Incurred inPrior toTotal
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2003U.S.LAK Ranch
    
    
    3,275
    
    
    
    1,221
    
    
    
    2,054
    
    
    
    
    
    
    
    North Yowlumne
    
    
    1,469
    
    
    
    292
    
    
    
    347
    
    
    
    507
    
    
    
    323East Texas
    
    
    903
    
    
    
    (59
    )
    
    
    51
    
    
    
    7
    
    
    
    904Knights Landing
    
    
    1,848
    
    
    
    1,848
    
    
    
    
    
    
    
    
    
    
    
    San Joaquin Basin prospects  other
    
    
    2,213
    
    
    
    60
    
    
    
    193
    
    
    
    22
    
    
    
    1,9389,708
    
    
    
    3,362
    
    
    
    2,645
    
    
    
    536
    
    
    
    3,165ChinaZitong block
    
    
    5,320
    
    
    
    1,507
    
    
    
    2,469
    
    
    
    644
    
    
    
    700$
    15,028
    
    
    $
    4,869
    
    
    $
    5,114
    
    
    $
    1,180
    
    
    $
    3,865
  Accounts Payable and Accrued Liabilities
  As at December 31,2005
    
    
    2004Accounts payable and accruals
    
    $
    23,955
    
    
    $
    8,745Accrued salaries and related expenses
    
    
    1,397
    
    
    
    929Accrued interest
    
    
    22
    
    
    
    11Other accruals
    
    
    417
    
    
    
    160$
    25,791
    
    
    $
    9,845
 70




---



##### 



Impact of New and Pending U.S. GAAP Accounting Standards
 FASB SFAS No. 123(R)
 SAB No. 107
 SFAS No. 154
 -
   
    
    SFAS No. 153, Exchanges of Nonmonetary Assetsan amendment of APB Opinion No. 29
effective for nonmonetary asset exchanges occurring in fiscal years beginning after June
15, 2005.
 71




---



##### 




    
    FASB issued Interpretation No. 47 Accounting for Conditional Asset Retirement
Obligations  an interpretation of FASB Statement No. 143, effective no later than the end
of fiscal years ending after December 15, 2005 (December 31, 2005, for calendar-year
enterprises).
 
 QUARTERLY FINANCIAL DATA IN ACCORDANCE WITH CANADIAN AND U.S. GAAP (UNAUDITED)
 QUARTER ENDED2005
    
    
    20044th Qtr
    
    
    3rd Qtr
    
    
    2nd Qtr
    
    
    1st Qtr
    
    
    4th Qtr
    
    
    3rd Qtr
    
    
    2nd Qtr
    
    
    1st QtrTotal revenue
    
    $
    8,651
    
    
    $
    8,907
    
    
    $
    6,645
    
    
    $
    5,736
    
    
    $
    6,212
    
    
    $
    4,932
    
    
    $
    3,521
    
    
    $
    3,332Net loss:Canadian GAAP
    
    $
    8,885
    
    
    $
    2,113
    
    
    $
    1,031
    
    
    $
    1,483
    
    
    $
    17,184
    
    
    $
    951
    
    
    $
    1,298
    
    
    $
    1,292U.S. GAAP
    
    $
    8,557
    
    
    $
    1,843
    
    
    $
    1,564
    
    
    $
    3,008
    
    
    $
    15,736
    
    
    $
    980
    
    
    $
    1,510
    
    
    $
    1,470Net loss per share:Canadian GAAP
    
    $
    0.04
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.09
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01U.S. GAAP
    
    $
    0.03
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.02
    
    
    $
    0.09
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01
  
 SUPPLEMENTARY DISCLOSURES ABOUT OIL AND GAS PRODUCTION ACTIVITIES (UNAUDITED)
  Oil and Gas Reserves
      72




---



##### 



Oil (MBbl)
    
    
    Gas (MMcf)U.S.
    
    
    China
    
    
    Total
    
    
    U.S.Net proved reserves, December 31, 2002
    
    
    1,784
    
    
    
    15,604
    
    
    
    17,388
    
    
    
    819Extensions and discoveries
    
    
    480
    
    
    
    
    
    
    
    480
    
    
    
    22Production
    
    
    (202
    )
    
    
    (144
    )
    
    
    (346
    )
    
    
    (50
    )Revisions to previous estimates
    
    
    (499
    )
    
    
    239
    
    
    
    (260
    )
    
    
    (96
    )Net proved reserves, December 31, 2003
    
    
    1,563
    
    
    
    15,699
    
    
    
    17,262
    
    
    
    695Extensions and discoveries
    
    
    240
    
    
    
    
    
    
    
    240
    
    
    
    1,289Purchases of reserves in place
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    819Production
    
    
    (234
    )
    
    
    (235
    )
    
    
    (469
    )
    
    
    (207
    )Revisions to previous estimates
    
    
    (121
    )
    
    
    (1,360
    )
    
    
    (1,481
    )
    
    
    87Sale of reserves
    
    
    (18
    )
    
    
    (6,196
    )
    
    
    (6,214
    )
    
    
    Net proved reserves, December 31, 2004
    
    
    1,430
    
    
    
    7,908
    
    
    
    9,338
    
    
    
    2,683Extensions and discoveries
    
    
    19
    
    
    
    
    
    
    
    19
    
    
    
    98Production
    
    
    (237
    )
    
    
    (315
    )
    
    
    (552
    )
    
    
    (495
    )Revisions to previous estimates
    
    
    60
    
    
    
    (6,293
    )
    
    
    (6,233
    )
    
    
    (601
    )Net proved reserves, December 31, 2005
    
    
    1,272
    
    
    
    1,300
    
    
    
    2,572
    
    
    
    1,685Net proved developed reserves as at:December 31, 2003
    
    
    1,225
    
    
    
    209
    
    
    
    1,434
    
    
    
    695December 31, 2004
    
    
    1,187
    
    
    
    1,142
    
    
    
    2,329
    
    
    
    2,365December 31, 2005
    
    
    1,099
    
    
    
    1,071
    
    
    
    2,170
    
    
    
    1,405
 Standardized Measure of Discounted Future Net Cash Flows and Changes Therein Relating to
Proved Oil and Gas Reserves
   
    
    future production from proved reserves will differ from estimated production;
    
    future production will also include production from probable and potential reserves;
    
    future, rather than year end, prices and costs will apply; and
    
    existing economic, operating and regulatory conditions are subject to change.
  2005U.S.
    
    
    China
    
    
    TotalFuture cash inflows
    
    $
    83,418
    
    
    $
    76,533
    
    
    $
    159,951Future development and restoration costs
    
    
    2,890
    
    
    
    8,136
    
    
    
    11,026Future production costs
    
    
    32,699
    
    
    
    12,828
    
    
    
    45,527Future income taxes
    
    
    
    
    
    
    1,584
    
    
    
    1,584Future net cash flows
    
    
    47,829
    
    
    
    53,985
    
    
    
    101,81410% annual discount
    
    
    15,655
    
    
    
    10,686
    
    
    
    26,341Standardized measure
    
    $
    32,174
    
    
    $
    43,299
    
    
    $
    75,473
 73




---



##### 



2004U.S.
    
    
    China
    
    
    TotalFuture cash inflows
    
    $
    64,357
    
    
    $
    327,481
    
    
    $
    391,838Future development and restoration costs
    
    
    3,063
    
    
    
    84,682
    
    
    
    87,745Future production costs
    
    
    27,867
    
    
    
    58,488
    
    
    
    86,355Future income taxes
    
    
    
    
    
    
    44,708
    
    
    
    44,708Future net cash flows
    
    
    33,427
    
    
    
    139,603
    
    
    
    173,03010% annual discount
    
    
    11,238
    
    
    
    50,774
    
    
    
    62,012Standardized measure
    
    $
    22,189
    
    
    $
    88,829
    
    
    $
    111,018
 2003U.S.
    
    
    China
    
    
    TotalFuture cash inflows
    
    $
    48,751
    
    
    $
    478,748
    
    
    $
    527,499Future development and
restoration costs
    
    
    2,138
    
    
    
    154,245
    
    
    
    156,383Future production costs
    
    
    22,037
    
    
    
    91,912
    
    
    
    113,949Future income taxes
    
    
    
    
    
    
    61,647
    
    
    
    61,647Future net cash flows
    
    
    24,576
    
    
    
    170,944
    
    
    
    195,52010% annual discount
    
    
    7,466
    
    
    
    89,180
    
    
    
    96,646Standardized measure
    
    $
    17,110
    
    
    $
    81,764
    
    
    $
    98,874
  2005U.S.
    
    
    China
    
    
    TotalSale of oil and gas net of production costs
    
    $
    (9,068
    )
    
    $
    (13,129
    )
    
    $
    (22,197
    )Net changes in pricing and production costs
    
    
    15,110
    
    
    
    20,016
    
    
    
    35,126Discoveries and extensions
    
    
    1,051
    
    
    
    
    
    
    
    1,051Revisions of previous estimates
    
    
    (1,492
    )
    
    
    (150,588
    )
    
    
    (152,080
    )Net change in income taxes
    
    
    
    
    
    
    24,993
    
    
    
    24,993Net change in future development costs
    
    
    (694
    )
    
    
    46,380
    
    
    
    45,686Accretion of discount
    
    
    5,078
    
    
    
    26,798
    
    
    
    31,876Increase (decrease)
    
    
    9,985
    
    
    
    (45,530
    )
    
    
    (35,545
    )Standardized measure, beginning of year
    
    
    22,189
    
    
    
    88,829
    
    
    
    111,018Standardized measure, end of year
    
    $
    32,174
    
    
    $
    43,299
    
    
    $
    75,473
 2004U.S.
    
    
    China
    
    
    TotalSale of oil and gas net of production costs
    
    $
    (6,152
    )
    
    $
    (6,570
    )
    
    $
    (12,722
    )Net changes in pricing and production costs
    
    
    1,015
    
    
    
    56,329
    
    
    
    57,344Sale of reserves
    
    
    (108
    )
    
    
    (21,646
    )
    
    
    (21,754
    )Discoveries and extensions
    
    
    6,779
    
    
    
    
    
    
    
    6,779Purchases of reserves in place
    
    
    3,050
    
    
    
    
    
    
    
    3,050Revisions of previous estimates
    
    
    (1,401
    )
    
    
    (22,847
    )
    
    
    (24,248
    )Net change in income taxes
    
    
    
    
    
    
    (9,107
    )
    
    
    (9,107
    )Net change in future development costs
    
    
    (1,700
    )
    
    
    (14,424
    )
    
    
    (16,124
    )Accretion of discount
    
    
    3,596
    
    
    
    25,330
    
    
    
    28,926Increase
    
    
    5,079
    
    
    
    7,065
    
    
    
    12,144Standardized measure, beginning of year
    
    
    17,110
    
    
    
    81,764
    
    
    
    98,874Standardized measure, end of year
    
    $
    22,189
    
    
    $
    88,829
    
    
    $
    111,018
 74




---



##### 



2003U.S.
    
    
    China
    
    
    TotalSale of oil and gas net of production costs
    
    $
    (3,153
    )
    
    $
    (2,123
    )
    
    $
    (5,276
    )Net changes in pricing and production costs
    
    
    (4,034
    )
    
    
    47,960
    
    
    
    43,926Discoveries and extensions
    
    
    5,712
    
    
    
    (636
    )
    
    
    5,076Revisions of previous estimates
    
    
    (8,957
    )
    
    
    1,604
    
    
    
    (7,353
    )Net change in income taxes
    
    
    
    
    
    
    (9,435
    )
    
    
    (9,435
    )Net change in future development costs
    
    
    2,337
    
    
    
    (14,626
    )
    
    
    (12,289
    )Accretion of discount
    
    
    3,720
    
    
    
    (762
    )
    
    
    2,958Increase (decrease)
    
    
    (4,375
    )
    
    
    21,982
    
    
    
    17,607Standardized measure, beginning of year
    
    
    21,485
    
    
    
    59,782
    
    
    
    81,267Standardized measure, end of year
    
    $
    17,110
    
    
    $
    81,764
    
    
    $
    98,874
  For the year ended December 31,2005
    
    
    2004
    
    
    2003U.S.Property acquisitionProved
    
    $
    
    
    
    $
    3,204
    
    
    $
    Unproved
    
    
    (1,682)
    
    
    
    1,572
    
    
    
    650Exploration
    
    
    6,169
    
    
    
    4,351
    
    
    
    1,406Development
    
    
    2,912
    
    
    
    8,389
    
    
    
    6,7007,399
    
    
    
    17,516
    
    
    
    8,756ChinaExploration
    
    
    6,931
    
    
    
    6,925
    
    
    
    1,742Development
    
    
    23,756
    
    
    
    19,975
    
    
    
    4,48130,687
    
    
    
    26,900
    
    
    
    6,223Total
    
    $
    38,086
    
    
    $
    44,416
    
    
    $
    14,979
    U.S.Year ended December 31, 2005
    
    $
    14.91Year ended December 31, 2004
    
    $
    16.52Year ended December 31, 2003
    
    $
    10.58
 ChinaYear ended December 31, 2005
    
    $
    27.00Year ended December 31, 2004
    
    $
    11.19Year ended December 31, 2003
    
    $
    9.60
  2005
    
    
    2004
    
    
    2003U.S.
    
    
    China
    
    
    Total
    
    
    U.S.
    
    
    China
    
    
    Total
    
    
    U.S.
    
    
    China
    
    
    TotalOil and gas revenue
    
    $
    14,069
    
    
    $
    15,731
    
    
    $
    29,800
    
    
    $
    9,311
    
    
    $
    8,484
    
    
    $
    17,795
    
    
    $
    5,466
    
    
    $
    4,103
    
    
    $
    9,569Operating costs
    
    
    5,001
    
    
    
    2,602
    
    
    
    7,603
    
    
    
    3,159
    
    
    
    1,914
    
    
    
    5,073
    
    
    
    2,313
    
    
    
    1,980
    
    
    
    4,293Depletion
    
    
    4,756
    
    
    
    8,507
    
    
    
    13,263
    
    
    
    4,428
    
    
    
    2,633
    
    
    
    7,061
    
    
    
    2,253
    
    
    
    1,396
    
    
    
    3,649Provision for impairment
    
    
    2,800
    
    
    
    1,700
    
    
    
    4,500
    
    
    
    15,000
    
    
    
    
    
    
    
    15,000
    
    
    
    20,000
    
    
    
    
    
    
    
    20,000Results of operations from
producing activities
    
    $
    1,512
    
    
    $
    2,922
    
    
    $
    4,434
    
    
    $
    (13,276
    )
    
    $
    3,937
    
    
    $
    (9,339
    )
    
    $
    (19,100
    )
    
    $
    727
    
    
    $
    (18,373
    )
 75




---



##### 



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
  ICFR
 
    
    During the first quarter of 2005, we engaged an independent firm to handle all
complaints, whether from employees or third parties with respect to concerns regarding
accounting or auditing matters and any perceived violations of our Code of Business Conduct
and Ethics, including inappropriate management overrides. By means of a secure website or
telephone all issues raised will be automatically directed to the Chairman of our Audit
Committee who has primary responsibility for responding to and pursuing all reported
matters.
    
    As part of our new complaint process noted above, we have formally communicated the
roles and responsibilities related to internal control over financial reporting to all
employees.
    
    As part of our responsibilities under Section 404 of the Sarbanes-Oxley Act of 2002,
there will be an annual and extensive formal review related to internal control over
financial reporting. Such a review was conducted during the 2005 fiscal year.
    
    Prior to December 31, 2004 and since that date, we have formalized our financial
reporting processes, instituted changes in the division of financial reporting
responsibilities and changed our policies and procedures to require written documentation
of our approvals and reviews in those financial reporting processes where deficiencies have
been identified.
   MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
  
    
    Pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Company;
 76




---



##### 




    
    Provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company; and
    
    Provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Companys assets that could have a material effect
on the financial statements.
 Internal
Control-Integrated Framework.
 /s/ E. Leon Daniel
    
    /s/ W. Gordon LancasterE. Leon Daniel
    
    W. Gordon LancasterPresident and Chief Executive Officer
    
    Chief Financial Officer
 REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
 Ivanhoe Energy Inc.:
 Internal ControlIntegrated Framework
    Internal ControlIntegrated
 77




---



##### 



Framework
  
 
 ITEM 9B. OTHER INFORMATION
  
 PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
  78




---



##### 



Name, Age and
    
    Position with
    
    Present Occupation andMunicipality of Residence
    
    the Registrant
    
    Principal Occupation for the Past Five YearsDAVID R. MARTIN, age 74
Santa Barbara, California
    
    Chairman of the Board and
Director (since August
1998)
    
    Chairman of the Board, Ivanhoe Energy Inc.
(August 1998  present); President,
Cathedral Mountain Corporation (1997  present)ROBERT M. FRIEDLAND, age 55
Hong Kong
    
    Deputy Chairman (since
June, 1999) and Director
(since February 1995)
    
    Chairman and President, Ivanhoe Capital
Corporation, a Singapore based venture capital
company principally involved in establishing and
financing international mining and exploration
companies; Chairman and Director, Ivanhoe Mines Ltd.
(March 1994  present)E. LEON DANIEL, age 69
Park City, Utah
    
    President,
Chief Executive Officer
(since June 1999) and
Director (since August
1998)
    
    President and Chief Executive Officer,
Ivanhoe Energy Inc. (June, 1999  present)R. EDWARD FLOOD, age 60
Reno, Nevada
    
    Director (since June 1999)
    
    Deputy Chairman and Director, Ivanhoe Mines Ltd.
(May 1999  present); Mining Analyst, Haywood
Securities (May, 1999  September 2001)SHUN-ICHI SHIMIZU, age 65
Tokyo, Japan
    
    Director (since July 1999)
    
    Managing Director of C.U.E. Management
Consulting Ltd. (1994  present)HOWARD R. BALLOCH, age 54
Beijing, China
    
    Director (since January
2002)
    
    President, The Balloch Group
(July 2001  present); President, Canada
China Business Council (July 2001 
present); Canadian Ambassador to China,
Mongolia and Democratic Republic of Korea
(April 1996  July 2001)J. STEVEN RHODES, age 54
Los Angeles, California
    
    Director (since December
2003)
    
    Chairman and Chief Executive Officer, Claiborne-
Rhodes, Inc. (2001  present); Senior Vice President,
First Southwest Company (1999 2001)ROBERT G. GRAHAM, age 52
Ottawa, Ontario
    
    Director (since April 2005)
    
    President and CEO, Ensyn Corporation (October 1984
 present)ROBERT A. PIRRAGLIA, age 56
Boston, Massachusetts
    
    Director (since April 2005)
    
    Chief Operating Officer and Vice President, Ensyn
Corporation (April 15, 2005  present); Chief
Operating
Officer and Vice President, Ensyn Group, Inc.
(September 1998  April 2005)BRIAN DOWNEY, C.M.A. age 64
Chicago, Illinois
    
    Director (since July 2005)
    
    President, Downey & Associates Management Inc.
(July 1986  present); Partner/Owner, Lending
Solutions, Inc. (November 1995  January 2002);
Financial Advisor, Lending Solutions, Inc. (January
2002  present)
Chief Financial Officer, Ivanhoe Energy Inc.W. GORDON LANCASTER, C.A. age
62
Vancouver, British Columbia
    
    Chief Financial Officer
(since January 2004)
    
    (January 2004  present); Vice President Finance and
Chief
Financial Officer, Xantrex Technology Inc. (July 2003
 December 2003); Vice President Finance and Chief
Financial Officer, Power Measurement, Inc. (August
2000  June 2003)PATRICK CHUA, age 50 
Hong Kong, China
    
    Executive Vice-President
(since June 1999)
    
    Executive Vice-President, Ivanhoe Energy
Inc. (June 1999  present); President, Sunwing
Energy Ltd. (Bermuda) (March 2000  April 2004);
Chairman, Sunwing Energy Ltd. (Bermuda) (April
2004  present)GERALD MOENCH, age 57
Lethbridge, Alberta
    
    Executive Vice-President
(since June 1999)
    
    Executive Vice-President, Ivanhoe Energy
Inc. (June, 1999  present); President,
Sunwing Energy Ltd. (Bermuda) (April 2004
 present)
  Business Corporations Act
 80




---



##### 



Other Directorships
  Beneficial Ownership Reporting Compliance
  Code of Business Conduct and Ethics
  
 ITEM 11. EXECUTIVE COMPENSATION
 Named Executive Officers
 Summary Compensation Table
  81




---



##### 



Summary Compensation Table ($U.S.)Annual Compensation
    
    Long Term CompensationAwards
    
    PayoutsSecuritiesUnder
    
    RestrictedOther
    
    Options/
    
    Shares or
    
    
    
    
    
    All OtherAnnual
    
    SARs
    
    Restricted
    
    
    
    
    
    Compen-Name and
    
    
    
    
    
    
    
    
    
    
    
    
    
    Compen-
    
    Granted
    
    Share
    
    LTIP
    
    sationPrincipal Position
    
    Year
    
    Salary
    
    Bonus (6)
        sation
    
    (#)
    
    Units
    
    Payouts
    
    (U.S.$) (7)E. Leon Daniel
    
    
    2005
    
    
    
    340,000
    
    
    
    
    
    
    
    
    
    
    
    500,000
    
    
    
    
    
    
    
    
    
    
    
    16,200President & Chief Executive
    
    
    2004
    
    
    
    300,000
    
    
    
    90,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,792Officer (1)
    
    
    2003
    
    
    
    332,610
    
    
    
    81,123
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,792David R. Martin
    
    
    2005
    
    
    
    270,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,200Chairman (2)
    
    
    2004
    
    
    
    200,000
    
    
    
    60,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,7922003
    
    
    
    205,562
    
    
    
    54,082
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,792Patrick Chua
    
    
    2005
    
    
    
    144,000
    
    
    
    27,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Executive Vice President (3)
    
    
    2004
    
    
    
    144,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2003
    
    
    
    144,000
    
    
    
    32,449
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gerald Moench
    
    
    2005
    
    
    
    174,460
    
    
    
    51,480
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Executive Vice President (4)
    
    
    2004
    
    
    
    165,000
    
    
    
    41,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2003
    
    
    
    150,000
    
    
    
    33,801
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    W. Gordon Lancaster
    
    
    2005
    
    
    
    225,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Chief Financial Officer (5)
    
    
    2004
    
    
    
    200,000
    
    
    
    60,000
    
    
    
    
    
    
    
    250,000
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Mr. Daniel was appointed President and Chief Executive Officer in June 1999, and has been
one of our directors since August 1998.(2)
    
    Mr. Martin has been Chairman and one of our directors since August 1998.(3)
    
    Mr. Chua was appointed as an Executive Vice President in June 1999.(4)
    
    Mr. Moench was appointed an Executive Vice President in June 1999.(5)
    
    Mr. Lancaster was appointed Chief Financial Officer effective January 2004.(6)
    
    Bonuses earned were paid in cash and common shares from our Employees and Directors Equity
Incentive Plan at fair market value on the date of approval by the Compensation Committee.(7)
    
    Our matching contribution to the 401(k) plan, a U.S. defined contribution retirement plan
available to U.S. employees. Long Term Incentive Plan
  Options and Stock Appreciation Rights (SARs)
  Option/SAR Grants in Last Fiscal YearMarket Value ofNumber of Securities
    
    Percent of Total
    
    
    
    
    
    SecuritiesUnderlying
    
    Options/ SARs
    
    
    
    
    
    UnderlyingOptions/SARs
    
    Granted to
    
    Exercise
    
    Options/ SARs onGranted
    
    Employees in
    
    or
    
    the Date of Grant
    
    ExpirationName
    
    (#)
    
    Financial Year
    
    Base Price ($/Security)
    
    ($/Security)
    
    Date(a)
    
    (b)
    
    (c)
    
    (d)
    
    (e)
    
    (f)E. Leon Daniel, CEO
    
    
    500,000
    
    
    
    13.6
    %
    
    
    U.S. $2.42
    
    
    
    U.S. $1,210,000
    
    
    May 5, 2010
 Aggregated Option Exercises
  82




---



##### 



Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option ValuesNumber of Securities
    
    Value of Unexercised In-Underlying Unexercised
    
    the-Money Options atShares Acquired
    
    
    
    
    
    Options at December 31, 2005
    
    December 31, 2005on Exercise
    
    Value Realized
    
    (#)
    
    ($U.S.)Name
    
    (#)
    
    ($U.S.)
    
    Exercisable/Unexercisable
    
    Exercisable/UnexercisableE. Leon Daniel
    
    
    
    
    
    
    
    
    
    
    266,667/400,000
    
    
    
    104,301 / 0David R. Martin
    
    
    
    
    
    
    
    
    
    
    3,400,000 / 0
    
    
    
    2,127,733/0Patrick Chua
    
    
    
    
    
    
    
    
    
    
    48,000/12,000
    
    
    
    Gerald Moench
    
    
    
    
    
    
    
    
    
    
    40,000/10,000
    
    
    
    W. Gordon Lancaster
    
    
    
    
    
    
    
    
    
    
    150,000/100,000
    
    
    
    
 Option and SAR Repricings
  Defined Benefit and Actuarial Plan
 4 01(k) Plan
 Employment Contracts, Termination of Employment and Change-In-Control Arrangements
    Director Compensation
  Employees and Directors Equity Incentive Plan
 Plan Share Option Plan Share Bonus Plan Share Purchase Plan
  83




---



##### 



Share Option Plan
    Share Bonus Plan
  Share Purchase Plan
     General
   Composition of the Compensation Committee
  84




---



##### 



Report on Executive Compensation
        85




---



##### 



Performance Graph
  86




---



##### 



As at December 31,(Cdn.$)2000
    
    2001
    
    2002
    
    2003
    
    2004
    
    2005Ivanhoe Energy Inc.
    
    $
    100
    
    
    $
    30
    
    
    $
    10
    
    
    $
    65
    
    
    $
    41
    
    
    $
    17S&P/TSX CompositeIndex
    
    $
    100
    
    
    $
    87
    
    
    $
    77
    
    
    $
    97
    
    
    $
    111
    
    
    $
    138
 
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
  Name and Address of
    
    Number of Shares
    
    PercentageTitle of Class
    
    Beneficial Owner
    
    Beneficially Owned (1)
    
    of ClassCommon Shares
    
    Robert M. Friedland
    
    
    46,611,725
    (2)
    
    
    21.11No. 1 Temasek Avenue#37-02 Millenia TowerSingapore 039192Common Shares
    
    Directors and Executive Officers as a Group
    
    
    61,380,627
    (3)
    
    
    27.12(13 persons)
 
 (1)
    
    Beneficial ownership is determined in accordance with the rules of the SEC and generally
includes voting or investment power with respect to securities. Unissued common shares subject
to options, warrants or other convertible securities currently exercisable or convertible, or
exercisable or convertible within 60 days, are deemed outstanding for the purpose of computing
the beneficial ownership of common shares of the person holding such convertible security but
are not deemed outstanding for computing the beneficial ownership of common shares of any
other person.(2)
    
    46,611,725 common shares are held indirectly through Newstar Securities SRL, Premier Mines
SRL and Evershine SRL, companies controlled by Mr. Friedland.(3)
    
    Includes 5,516,667 unissued common shares issuable to directors and senior officers upon
exercise of incentive stock options. Security Ownership of Management
  87




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##### 



Amountand Nature
    
    
    
    
    
    Incentive Stockof Beneficial
    
    Percentage
    
    OptionsOwnership (1)
    
    of Class
    
    Included in (a)Title of Class
    
    Name of Beneficial Owner
    
    (a)
    
    (b)
    
    (c)Common Shares
    
    David R. Martin
    
    
    4,365,393
    
    
    
    1.95
    
    
    
    3,400,000Common Shares
    
    Robert M. Friedland
    
    
    46,611,725
    (2)
    
    
    21.11
    
    
    Common Shares
    
    E. Leon Daniel
    
    
    1,299,884
    
    
    
    0.59
    
    
    
    666,667Common Shares
    
    R. Edward Flood
    
    
    125,029
    
    
    
    0.06
    
    
    
    100,000Common Shares
    
    Shun-ichi Shimizu
    
    
    97,500
    
    
    
    0.04
    
    
    Common Shares
    
    Howard R. Balloch
    
    
    200,000
    
    
    
    0.09
    
    
    
    200,000Common Shares
    
    J. Steven Rhodes
    
    
    290,000
    
    
    
    0.13
    
    
    
    290,000Common Shares
    
    Robert G. Graham
    
    
    7,168,755
    
    
    
    3.24
    
    
    
    150,000Common Shares
    
    Robert A. Pirraglia
    
    
    500,834
    
    
    
    0.23
    
    
    
    200,000Common Shares
    
    Brian Downey
    
    
    150,000
    
    
    
    0.07
    
    
    
    150,000Common Shares
    
    W. Gordon Lancaster
    
    
    273,100
    
    
    
    0.12
    
    
    
    250,000Common Shares
    
    Patrick Chua
    
    
    185,300
    
    
    
    0.08
    
    
    
    60,000Common Shares
    
    Gerald Moench
    
    
    113,107
    
    
    
    0.05
    
    
    
    50,000Common Shares
    
    All directors and executive officers as a group(13 persons)
    
    
    61,380,627
    (3)
    
    
    27.12
    
    
    
    5,516,667
 
 (1)
    
    Beneficial ownership is determined in accordance with the rules of the SEC and generally
includes voting or investment power with respect to securities. Unissued common shares subject
to options, warrants or other convertible securities currently exercisable or convertible, or
exercisable or convertible within 60 days, are deemed outstanding for the purpose of computing
the beneficial ownership of common shares of the person holding such convertible security but
are not deemed outstanding for computing the beneficial ownership of common shares of any
other person.(2)
    
    46,611,725 common shares are held indirectly through Newstar Securities SRL, Premier Mines
SRL and Evershine SRL, companies controlled by Mr. Friedland.(3)
    
    Includes 5,516,667 unissued common shares issuable to directors and senior officers upon
exercise of incentive stock options. Securities Authorized for Issuance under Equity Compensation Plans
  Equity Compensation Plan InformationNumber of securities to be issued
    
    Weighted-average exerciseupon exercise of outstanding options,
    
    price of outstanding options,
    
    Number of securities remainingwarrants and rights
    
    warrants and rights
    
    available for future issuancePlan category
    
    (a)
    
    (b)
    
    (c)Equity compensation
plans approved by
Security holders
    
    
    10,278,388
    
    
    Cdn. $2.21
    
    
    2,803,256Equity compensation
plans not approved
by Security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    10,278,388
    
    
    Cdn. $2.21
    
    
    2,803,256
 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 Transactions with Management and Others
  Certain Business Relationships
   88




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##### 



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
 Year ended December 31,Cdn.($000)2005
    
    
    2004Audit fees (a)
    
    $
    751
    
    
    $
    314Audit related fees (b)
    
    
    45
    
    
    
    134Tax fees (c)
    
    
    75
    
    
    
    124All other fees (d)
    
    
    
    
    
    
    $
    871
    
    
    $
    572
  (a)
    
    Fees for audit services billed in 2005 and 2004 consisted of:
 
    
    Audit of our annual financial statements
    
    Reviews of our quarterly financial statements
    
    Comfort letters, statutory and regulatory audits, consents and other services related to
Canadian and U.S. securities regulatory matters
    
    Review of our internal controls over financial reporting in compliance with the
requirements of the Sarbanes Oxley Act of 2002.
 (b)
    
    Fees for audit related services billed in 2005 and 2004 consist of financial and tax analysis
in contemplation of our proposed merger with Ensyn Group, Inc.
 (c)
    
    Fees for tax services billed in 2005 and 2004 consisted of tax compliance and tax planning
and advice:
 
    
    Fees for tax compliance services totaled Cdn.$43,600 and Cdn.$58,000 in 2005 and 2004,
respectively. Tax compliance services are services rendered based upon facts already in
existence or transactions that have already occurred to document, compute, and obtain
government approval for amounts to be included in tax filings and consisted of:
 i.
    
    Federal, state and local income tax return assistanceii.
    
    Preparation of expatriate tax returnsiii.
    
    Assistance with tax return filings in certain foreign jurisdictions
 
    
    Fees for tax planning and advice services totaled Cdn.$31,000 and Cdn.$66,000 in 2005
and 2004, respectively. Tax planning and advice are services rendered with respect to
proposed transactions or that alter a transaction to obtain a particular tax result. Such
services consisted of:
 i.
    
    Tax advice related to structuring certain proposed mergers, acquisitions
and disposals.
 (d)
    
    All other fees includes fees for services billed in 2005 and 2004 other than the services
reported as Audit fees, Audit related fees, or Tax fees.
  Audit Committee Pre-Approval Policy
  Disclosure Categories Service List
 89




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##### 



PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
  (a)
    
    
    1.
    
    
    Financial Statements:Deloitte & Touche LLP Report of Independent Registered Chartered
Accountants on Consolidated Balance Sheets of Ivanhoe Energy
Inc. as at December 31, 2005 and 2004 and Consolidated
Statements of Loss and Shareholders Equity and Cash Flow of
Ivanhoe Energy Inc. for the years ended December 31, 2005, 2004
and 2003Consolidated Balance Sheets of Ivanhoe Energy Inc. as at December31, 2005 and 2004Consolidated Statements of Loss of Ivanhoe Energy Inc.for the years ended December 31, 2005, 2004 and 2003Consolidated Statements of Shareholders Equity for the years
ended December 31, 2005, 2004 and 2003Consolidated Statements of Cash Flow of Ivanhoe Energy Inc. for
theyears ended December 31, 2005, 2004 and 20032.
    
    
    Financial Statement Schedules:Quarterly Financial Data in Accordance with Canadian and U.S.
GAAP (Unaudited)Supplementary Disclosures about Oil and Gas Production Activities(Unaudited)3.
    
    
    Exhibits3.1
    
    
    Articles of Ivanhoe Energy Inc. as amended to September 28, 20053.2
    
    
    Bylaws of Ivanhoe Energy Inc. as amended May 15, 2001
(Incorporated by reference to Exhibit 3.2 of Form 10-K filed
with the Securities and Exchange Commission on March 10, 2005)10.1
    
    
    Petroleum Contract for Kongnan Block, Dagang Oilfield of the
Peoples Republic of China dated September 8, 1997 between China
National Petroleum Corporation and Pan-China Resources Ltd., as
amended June 11, 1999 (Incorporated by reference to Exhibit 3.15
of Form 20-F filed with the Securities and Exchange Commission
on February 28, 2000)10.2
    
    
    Master License Agreement Amendment No. 1 dated October 11, 2000
between Syntroleum Corporation and Ivanhoe Energy Inc.
(Incorporated by reference to Exhibit 10.18 of Form 10-K filed
with the Securities and Exchange Commission on March 16, 2001)10.3
    
    
    Petroleum Contract dated September 19, 2002 between China
National Petroleum Corporation and Pan-China Resources Ltd. for
Zitong Block, Sichuan Basin of the Peoples Republic of China
(Incorporated by reference to Exhibit 10.12 of Form 10-K filed
with the Securities and Exchange Commission on March 19, 2003)10.4
    
    
    Strategic Development Alliance Letter Agreement dated September
26, 2002 between Ivanhoe Energy Inc. and CITIC Energy Ltd.
(Incorporated by reference to Exhibit 10.13 of Form 10-K filed
with the Securities and Exchange Commission on March 19, 2003)
 90




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##### 



10.5
    
    
    Employees and Directors Equity Incentive Plan (Incorporated by
reference to Exhibit 10.15 of Form 10-K filed with the
Securities and Exchange Commission on March 15, 2004)10.6
    
    
    Amendment No. 2 to Master License Agreement between Syntroleum
Corporation and the Company dated June 1, 200210.7
    
    
    Amendment No. 3 to Master License Agreement between Syntroleum
Corporation and the Company dated July 1, 2003 (Incorporated by
reference to Exhibit 10.17 of Form 10-K filed with the
Securities and Exchange Commission on March 15, 2004)10.8
    
    
    Farm-out Agreement by and among Richfirst Holdings Limited,
Pan-China Resources Limited, Sunwing Energy Ltd. and the Company
dated January 18, 2004 (Incorporated by reference to Exhibit
10.22 of Form 10-K filed with the Securities and Exchange
Commission on March 15, 2004)10.9
    
    
    Agreement and Plan of Merger dated December 11, 2004 by and
among Ivanhoe Energy Inc., Ivanhoe Merger Sub, Inc. and Ensyn
Group, Inc. (Incorporated by reference to Exhibit 2.1 of Form
8-K filed with the Securities and Exchange Commission on
December 15, 2004)10.10
    
    
    Voting Agreement dated December 11, 2004 by and by and among
Ivanhoe Energy Inc, Ensyn Group, Inc. and Robert M. Friedland
(Incorporated by reference to Exhibit 99.1 of Form 8-K filed
with the Securities and Exchange Commission on December
15, 2004)10.11
    
    
    Terms of Agreement  Conversion of Participating Interest by
Richfirst dated February 18, 2006 among Richfirst Holdings
Limited,
Pan-China Resources Limited, Sunwing Energy Ltd. and the Company
(Incorporated by reference to Exhibit 10.2 of Form 8-K filed
with the Securities and Exchange Commission on February 24,
2006)10.12
    
    
    Amended and Restated License Agreement dated December 8, 1997
between Ensyn Technologies Inc. and Ensyn Group, Inc. and as
amended on February 12, 199910.13
    
    
    Employment Agreement dated April 30, 2002 between Ivanhoe Energy
Inc. and E. Leon Daniel (Incorporated by reference to Exhibit 10.21
of Form 10-K filed with the Securities and Exchange Commission on
March 10, 2005)10.14
    
    
    Employment Agreement dated November 25, 2003 between Ivanhoe
Energy Inc. and W. Gordon Lancaster (Incorporated by reference to
Exhibit 10.22 of Form 10-K filed with the Securities and Exchange
Commission on March 10, 2005)14.1
    
    
    Code of Business Conduct and Ethics (Incorporated by reference
to Exhibit 14.1 of Form 10-K filed with the Securities and
Exchange Commission on March 15, 2004)21.1
    
    
    Subsidiaries of Ivanhoe Energy Inc.23.1
    
    
    Consent of Gilbert Laustsen Jung Associates Ltd., Petroleum
Engineers23.2
    
    
    Consent of Netherland, Sewell & Associates, Inc.23.3
    
    
    Consent of Deloitte & Touche LLP31.1
    
    
    Certification by the Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 200231.2
    
    
    Certification by the Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 200232.1
    
    
    Certification by the Chief Executive Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 200232.2
    
    
    Certification by the Chief Financial Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
 91




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##### 



SIGNATURES
  IVANHOE ENERGY INC.By: /s/ E. LEON DANIELName: E. Leon DanielTitle: President and Chief Executive Officer Dated: March 8, 2006
  Signature
    
    Title
    
    Date/s/ E. LEON DANIEL
E. Leon Daniel
    
    President, Chief Executive
Officer and Director
(Principal Executive Officer)
    
    March 8, 2006/s/ W. GORDON LANCASTER
W. Gordon Lancaster
    
    Chief Financial Officer
(Principal Financial and
Accounting Officer)
    
    March 8, 2006/s/ DAVID R. MARTIN 
David Martin
    
    Chairman of the Board and Director
    
    March 8, 2006/s/ ROBERT M. FRIEDLAND
Robert M. Friedland
    
    Deputy Chairman and Director
    
    March 8, 2006/s/ R. EDWARD FLOOD 
R. Edward Flood
    
    Director
    
    March 8, 2006/s/ SHUN-ICHI SHIMIZU
Shun-ichi Shimizu
    
    Director
    
    March 8, 2006/s/ HOWARD R. BALLOCH
Howard Balloch
    
    Director
    
    March 8, 2006/s/ J. STEVEN RHODES 
J. Steven Rhodes
    
    Director
    
    March 8, 2006/s/ ROBERT G. GRAHAM 
Robert G. Graham
    
    Director
    
    March 8, 2006/s/ ROBERT A. PIRRAGLIA
Robert A. Pirraglia
    
    Director
    
    March 8, 2006/s/ BRIAN DOWNEY 
Brian Downey
    
    Director
    
    March 8, 2006
 92




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##### 



EXHIBIT INDEX
 Exhibit No.
    
    Description3.1
    
    Articles of Ivanhoe Energy Inc. as amended to September 28, 20053.2
    
    Bylaws of Ivanhoe Energy Inc. as amended May 15, 2001 (Incorporated by reference to Exhibit 3.2 of Form 10-K
filed with the Securities and Exchange Commission on March 10, 2005)10.1
    
    Petroleum Contract for Kongnan Block, Dagang Oilfield of the Peoples Republic of China dated September 8,
1997 between China National Petroleum Corporation and Pan-China Resources Ltd., as amended June 11, 1999
(Incorporated by reference to Exhibit 3.15 of Form 20-F filed with the Securities and Exchange Commission on
February 28, 2000)10.2
    
    Master License Agreement Amendment No. 1 dated October 11, 2000 between Syntroleum Corporation and Ivanhoe
Energy Inc. (Incorporated by reference to Exhibit 10.18 of Form 10-K filed with the Securities and Exchange
Commission on March 16, 2001)10.3
    
    Petroleum Contract dated September 19, 2002 between China National Petroleum Corporation and Pan-China
Resources Ltd. for Zitong Block, Sichuan Basin of the Peoples Republic of China (Incorporated by reference
to Exhibit 10.12 of Form 10-K filed with the Securities and Exchange Commission on March 19, 2003)10.4
    
    Strategic Development Alliance Letter Agreement dated September 26, 2002 between Ivanhoe Energy Inc. and
CITIC Energy Ltd. (Incorporated by reference to Exhibit 10.13 of Form 10-K filed with the Securities and
Exchange Commission on March 19, 2003)10.5
    
    Employees and Directors Equity Incentive Plan (Incorporated by reference to Exhibit 10.15 of Form 10-K
filed with the Securities and Exchange Commission on March 15 , 2004)10.6
    
    Amendment No. 2 to Master License Agreement between Syntroleum Corporation and the Company dated June 1, 200210.7
    
    Amendment No. 3 to Master License Agreement between Syntroleum Corporation and the Company dated July 1,
2003 (Incorporated by reference to Exhibit 10.17 of Form 10-K filed with the Securities and Exchange
Commission on March 15 , 2004)10.8
    
    Farm-out Agreement by and among Richfirst Holdings Limited, Pan-China Resources Limited, Sunwing Energy Ltd.
and the Company dated January 18, 2004 (Incorporated by reference to Exhibit 10.22 of Form 10-K filed with
the Securities and Exchange Commission on March 15 , 2004)10.9
    
    Agreement and Plan of Merger dated December 11, 2004 by and by and among Ivanhoe Energy Inc., Ivanhoe Merger
Sub, Inc. and Ensyn Group, Inc. (Incorporated by reference to Exhibit 2.1 of Form 8-K filed with the
Securities and Exchange Commission on December 15 , 2004)10. 10
    
    Voting Agreement dated December 11, 2004 by and by and among Ivanhoe Energy Inc, Ensyn Group, Inc. and
Robert M. Friedland (Incorporated by reference to Exhibit 99.1 of Form 8-K filed with the Securities and
Exchange Commission on December 15 , 2004)10.11
    
    Terms of Agreement  Conversion of Participating Interest by Richfirst dated February 18, 2006 among
Richfirst Holdings Limited, Pan-China Resources Limited, Sunwing Energy Ltd. and the Company (Incorporated
by reference to Exhibit 10.2 of Form 8-K filed with the Securities and Exchange Commission on February 24,
2006)10.12
    
    Amended and Restated License Agreement dated December 8, 1997 between Ensyn Technologies Inc. and Ensyn
Group, Inc. and as amended on February 12, 199910.13
    
    Employment Agreement dated April 30, 2002 between Ivanhoe Energy Inc. and E. Leon Daniel (Incorporated by reference to Exhibit 10.21 of Form 10-K filed with the Securities and Exchange Commission on March 10, 2005)10.14
    
    Employment Agreement dated November 25, 2003 between Ivanhoe Energy Inc. and W. Gordon Lancaster (Incorporated by reference to Exhibit 10.22 of Form 10-K filed with the securities and Exchange Commission on March 10, 2005)14.1
    
    Code of Business Conduct and Ethics (Incorporated by reference to Exhibit 14.1 of Form 10-K filed with the
Securities and Exchange Commission on March 15, 2004)21.1
    
    Subsidiaries of Ivanhoe Energy Inc.23.1
    
    Consent of Gilbert Laustsen Jung Associates Ltd., Petroleum Engineers23.2
    
    Consent of Netherland, Sewell & Associates, Inc.23.3
    
    Consent of Deloitte & Touche LLP31.1
    
    Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification by the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification by the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 97