##### 









SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-K


(Mark One)

|   |  |                                                                                                                                                                         
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|x  |  | Annual Report pursuant to Section 13 or
    15(d) of the Securities Exchange Act of 1934. For the fiscal
    year ended December 31, 2002.                              
|or |  |                                                                                                                                                                         
|o  |  | Transition Report pursuant to Section 13 or
    15(d) of the Securities Exchange Act of 1934. For the transition
    period from to
    ------------------------------ .
|   |  | Commission file number 000-30586                                                                                                                                        

IVANHOE ENERGY INC.

(Exact name of registrant as specified in its
charter)


Yukon, Canada

(State or other jurisdiction of


incorporation or organization)


98- 0372413

(I.R.S. Employer


Identification No.)


654  999 Canada Place

Vancouver, British Columbia, Canada


V6C 3E1


(Address of principal executive
offices)


(604) 688-8323

(Registrants telephone number, including
area code)


Securities to be registered pursuant to
Section 12(b) of the Act: None

Securities registered or to be registered
pursuant to Section 12(g) of the Act:

|                            |  |                                                      
|--------------------------- |  | -----------------------------------------------------
|Title of each class         |  | Name of each exchange on which
    registered        
|                            |  |                                                      
|Common Shares, no par value |  | The Toronto Stock Exchange
    NASDAQ SmallCap Market

Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past 90 days.

Yes  x  No  o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to
this
Form 10-K.  x

Indicate by check mark whether the registrant is
an accelerated filer as defined in Rule 12b-2 of the Act.

Yes  x  No  o

The aggregate market value of the voting stock
held by non-affiliates of the Registrant on June 28, 2002
based on the closing price on the NASDAQ National Market on that
date, was $121,378,767.

Documents incorporated by reference: None



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TABLE OF CONTENTS

|         |  |               |  |                                                                                           |  |      |    | 
|-------- |  | ------------- |  | ----------------------------------------------------------------------------------------- |  | ---- | -- | 
|         |  |               |  |                                                                                           |  | Page
|         |  |               |  |                                                                                           |  |     
|PART I   |  |               |  |                                                                                           |  |     
|         |  | Items 1 and 2 |  | Business and Properties                                                                   |  |      | 4  | 
|         |  |               |  | Corporate Overview                                                                        |  |      | 4  | 
|         |  |               |  | Historical Overview                                                                       |  |      | 4  | 
|         |  |               |  | Corporate Strategy                                                                        |  |      | 5  | 
|         |  |               |  | Gas-to-Liquids Projects                                                                   |  |      | 6  | 
|         |  |               |  | Oil and Gas Properties                                                                    |  |      | 7  | 
|         |  |               |  | Risk Factors                                                                              |  |      | 10 | 
|         |  |               |  | Competition                                                                               |  |      | 14 | 
|         |  |               |  | Environmental Regulations                                                                 |  |      | 14 | 
|         |  |               |  | Government Regulations                                                                    |  |      | 14 | 
|         |  |               |  | Employees                                                                                 |  |      | 14 | 
|         |  |               |  | Reserves, Production and Related Information                                              |  |      | 14 | 
|         |  | Item 3        |  | Legal Proceedings                                                                         |  |      | 16 | 
|         |  | Item 4        |  | Submission of Matters to a Vote of Security
    Holders                                   |  |      | 16 | 
|PART II  |  |               |  |                                                                                           |  |     
|         |  | Item 5        |  | Market for Registrants Common Equity and
    Related Stockholder Matters                 |  |      | 16 | 
|         |  | Item 6        |  | Selected Financial Data                                                                   |  |      | 18 | 
|         |  | Item 7        |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations |  |      | 19 | 
|         |  | Item 7A       |  | Quantitative and Qualitative Disclosures About
    Market Risk                            |  |      | 25 | 
|         |  | Item 8        |  | Financial Statements and Supplementary Data                                               |  |      | 27 | 
|         |  | Item 9        |  | Changes In and Disagreements with Accountants on
    Accounting and Financial Disclosure  |  |      | 48 | 
|PART III |  |               |  |                                                                                           |  |     
|         |  | Item 10       |  | Directors and Executive Officers of the Registrant                                        |  |      | 49 | 
|         |  | Item 11       |  | Executive Compensation                                                                    |  |      | 50 | 
|         |  | Item 12       |  | Security Ownership of Certain Beneficial Owners
    and Management                        |  |      | 56 | 
|         |  | Item 13       |  | Certain Relationships and Related Transactions                                            |  |      | 57 | 
|PART IV  |  |               |  |                                                                                           |  |     
|         |  | Item 14       |  | Disclosure Controls and Procedures                                                        |  |      | 57 | 
|         |  | Item 15       |  | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K                       |  |      | 58 | 

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CURRENCY AND EXCHANGE RATES

Unless otherwise specified, all reference to
dollars or to $ are to U.S. dollars
and all references to Cdn.$ are to Canadian dollars.
The closing, low, high and noon buying rates in New York for
cable transfers for the conversion of Canadian dollars into
U.S. dollars for each of the five years ended
December 31 as reported by the Federal Reserve Bank of New
York were as follows:

|             |  |      |      |      |  |      |      |      |  |      |      |  |  |   |      |  |  |   |      | 
|------------ |  | ---- | ---- | ---- |  | ---- | ---- | ---- |  | ---- | ---- |  |  | - | ---- |  |  | - | ---- | 
|             |  | 2002 |      | 2001 |  | 2000 |      | 1999 |  | 1998
|             |  |      |      |      |  |      |      |      |  |     
|Closing      |  | $    | 0.63 |      |  | $    | 0.63 |      |  | $    | 0.67 |  |  | $ | 0.69 |  |  | $ | 0.65 | 
|Low          |  | $    | 0.64 |      |  | $    | 0.62 |      |  | $    | 0.64 |  |  | $ | 0.64 |  |  | $ | 0.63 | 
|High         |  | $    | 0.64 |      |  | $    | 0.67 |      |  | $    | 0.70 |  |  | $ | 0.69 |  |  | $ | 0.71 | 
|Average Noon |  | $    | 0.63 |      |  | $    | 0.65 |      |  | $    | 0.67 |  |  | $ | 0.67 |  |  | $ | 0.67 | 

The average noon rate of exchange reported by the
Federal Reserve Bank of New York for conversion of
U.S. dollars into Canadian dollars on March 3, 2003
was $0.67 ($1.00 = Cdn.$1.485). Exchange rates are based upon
the noon buying rate in New York City for cable transfers in
foreign currencies as certified for customs purposes by the
Federal Reserve Bank of New York.

ABBREVIATIONS

As generally used in the oil and gas business and
in this Annual Report, the following terms have the following
meanings:

|        |  |                                    
|------- |  | -----------------------------------
|Boe     |  | = barrel of oil equivalent         
|Bbl     |  | = barrel                           
|MBbl    |  | = thousand barrels                 
|MMBbl   |  | = million barrels                  
|Bbls/d  |  | = barrels per day                  
|Boe/d   |  | = barrels of oil equivalent per day
|MBbls/d |  | = thousand barrels per day         
|MMBls/d |  | = million barrels per day          
|MMBtu   |  | = million British thermal units    
|Mcf     |  | = thousand cubic feet              
|MMcf    |  | = million cubic feet               
|Mcf/d   |  | = thousand cubic feet per day      
|MMcf/d  |  | = million cubic feet per day       

When we refer to oil in equivalents,
we are doing so to compare quantities of oil with quantities of
gas or to express these different commodities in a common unit.
In calculating Bbl equivalents, we use a generally recognized
standard in which one Bbl is equal to six Mcf.

SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS

Certain statements in this document are
forward-looking statements. Such forward-looking
statements involve known and unknown risks, uncertainties and
other factors which may cause our actual results, performance or
achievements, or other future events, to be materially different
from any future results, performance or achievements or other
events expressly or implicitly predicted by such forward-looking
statements. Such risks, uncertainties and other factors include,
but are not limited to, our short history of limited revenue,
losses and negative cash flow from our current exploration and
development operations in the U.S. and China; our limited cash
resources and consequent need for additional financing;
uncertainties regarding the potential success of our oil and gas
exploration and development projects in the U.S. and China;
uncertainties regarding the potential success of gas-to-liquids
technology; oil price volatility; oil and gas industry
operational hazards and environmental concerns; government
regulation and requirements for permits and licenses,
particularly in the foreign jurisdictions in which we carry on
business; title matters; risks associated with carrying on
business in foreign jurisdictions; conflicts of interests;
competition for a limited number of promising oil and gas
exploration properties from larger more well financed oil and
gas companies; and other statements contained herein regarding
matters that are not historical facts. Forward-looking
statements can often be identified by the use of forward-looking
terminology such as may, will,
expect, intend, estimate,
anticipate, believe or
continue or the negative thereof or variations
thereon or similar terminology.

ENFORCEABILITY OF CIVIL LIABILITIES

We have been organized under the laws of Canada
and our executive offices are located in British Columbia,
Canada. Some of our directors, controlling persons and officers
and representatives of the experts named in this Form 10-K
Annual Report reside outside the U.S. and a substantial portion
of their assets and our assets are located outside the U.S. As a
result, it may be difficult for you to effect service of process
within the U.S. upon the directors, controlling persons,
officers and representatives of experts who are not residents of
the U.S. or to enforce against them judgments obtained in the
courts of the U.S. based upon the civil liability provisions of
the federal securities laws or other laws of the U.S. There is
doubt as to the enforceability in Canada against us or against
any of our directors, controlling persons, officers or experts
who are not residents of the U.S., in original actions or in
actions for enforcement of judgments of U.S. courts, of
liabilities based solely upon civil liability provisions of the
U.S. federal securities laws. Therefore, it may not be possible
to enforce those actions against us, our directors and officers
or experts named in this Form 10-K Annual Report.

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AVAILABLE INFORMATION

Copies of our annual reports on Form 10-K,
our quarterly reports on Form 10-Q, our current reports on
Form 8-K and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 are available free of charge on or through
our website at http://www.ivanhoe-energy.com/ or through the
Securities and Exchange Commissions website at
http://www.sec.gov/.

ITEMS 1
AND 2.       BUSINESS
AND PROPERTIES

CORPORATE OVERVIEW

We are an international energy company engaged in
the development of gas-to-liquids projects, enhanced recovery
and conventional exploration and production. We were
incorporated pursuant to the laws of the Yukon Territory,
Canada, on February 21, 1995 under the name 888 China
Holdings Limited. We were largely inactive until early 1996. On
June 3, 1996, we changed our name to Black Sea Energy Ltd.,
and on June 24, 1999, we changed our name to Ivanhoe Energy
Inc.

Our authorized capital consists of an unlimited
number of common shares without par value and an unlimited
number of preferred shares without par value.

Our principal executive offices are located at
Suite 654  999 Canada Place, Vancouver, British
Columbia, V6C 3E1, and our registered and records offices
are located at 300-204 Black Street, Whitehorse, Yukon,
Y1A 2M9.

HISTORICAL OVERVIEW

Ivanhoe Energy Inc. is a company focused on three
major strategies: (1) production of clean fuels from
natural gas using gas-to-liquids (GTL) technology;
(2) enhanced oil recovery (EOR) and natural gas
projects, on a production-sharing basis, with national petroleum
companies and (3) conventional exploration and production
(E&P), primarily natural gas in the U.S.

Following our incorporation in February 1995, we
were largely inactive until early 1996. Initially, our strategy
was to seek out existing oil and gas properties in Russia on
which past field development practices did not maximize reserve
recoveries and to establish joint ventures with local partners
to enhance oil recovery. However, after successfully increasing
oil production and reserves at the Kalchinskoye field in western
Siberia, a dispute with our partner prevented us from proceeding
with operations in the area. In August 2000 we settled the
dispute and disposed of our assets for approximately $29
million, bringing to an end our activities in Russia.

In the third quarter of 1998, we began to
implement a diversification program aimed at expanding the
geographical scope of our business. We added three individuals
to our Board of Directors who have international experience in
the oil and gas industry. David Martin, who is now our Chairman,
was formerly the President and CEO of Occidental Oil and Gas
Corporation. E. Leon Daniel, who is now our President and
CEO, and John Carver, who is now one of our directors, are also
both former executives of Occidental Oil and Gas Corporation.

In August 1998, we began acquiring oil and gas
exploration property interests in Peru, which we relinquished in
2000 after our exploration test well was unsuccessful.

In California, we started accumulating working
interests and royalty interests in the San Joaquin Valley in
1998, primarily through an exploration agreement with Aera
Energy LLC (Aera). This agreement entitled us to
joint explorations rights with Aera in return for analyzing and
identifying oil and gas prospects. Under the agreement, we had
access to exploration, seismic and technical data owned by Aera.
See Oil and Gas Properties  California

In June 1999, we expanded the geographical scope
of our business into China by acquiring Sunwing Energy Ltd.
(Sunwing), an oil and gas E&P company. As a
result of our merger with Sunwing, we acquired two
production-sharing contracts with China National Petroleum
Corporation (CNPC) to develop and operate the
Kongnan oilfield in Dagang, located in Hebei Province and the
Zhaozhou oilfield in Daqing in the Heilongjiang Province. We
subsequently sold our working interest in our Daqing oil and gas
properties in January 2002 so we could concentrate our Chinese
efforts in the larger and more prospective Dagang area.

In April 2000, we acquired a limited volume
license from Syntroleum Corporation (Syntroleum) to
use its proprietary GTL technology to convert natural gas into
synthetic fuels. By sponsoring engineering and design work to
extend the Syntroleum technology for large-scale and more
economical gas conversion, we earned the right to upgrade our
limited volume license to a master license. The master license
allows us to use Syntroleums proprietary process to
convert natural gas into an unlimited volume of ultra clean
transportation fuels and other synthetic petroleum products. We
plan to use the technology in areas with large natural gas
deposits, which would otherwise be uneconomic to develop. Our
master license entitles us to use the Syntroleum proprietary
process in an unlimited number of GTL projects throughout the
world, excluding North America, China and India.

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Immediately following the Syntroleum Master
License acquisition, we began actively pursuing development
contracts for GTL plants in Qatar, Egypt and Oman, and have
undertaken extensive feasibility studies in connection with
these opportunities. Our negotiations with Qatar Petroleum for a
development and production-sharing contract are currently at an
advanced and detailed stage. See Gas-to-Liquids
Projects.

In May 2000, we entered into an agreement with
Discovery Operating, Inc. (Discovery) to earn
working interests in approximately 10,000 gross acres of oil and
gas exploration properties in the Spraberry Trend of the West
Texas Permian Basin in Midland County, Texas. We sold interests
in the least productive of our Spraberry wells in 2002, limiting
our remaining holdings to interest in only 25 producing wells
and approximately 2,200 gross acres.

During 2000 and 2001 we leased the mineral rights
in approximately 49,000 gross acres in the East Texas Basin and
in 2001 entered into a joint venture agreement with a subsidiary
of Unocal Corp. (Unocal) to explore and develop
prospects in the Bossier Trend. See Oil and Gas
Properties  Texas.

In February 2001, we extended our China
interests. We entered into two memoranda of understanding with
PetroChina Corporation (PetroChina), a subsidiary of
CNPC, which gives us the exclusive right to negotiate
production-sharing contracts for the development of oil and gas
reserves in three blocks in the Sichuan Basin. In September
2002, we signed a 30-year production-sharing contract for two of
these blocks covering approximately 900,000 acres and are
waiting further response from PetroChina to begin negotiations
on the third block. The Sichuan Basin is a major oil and gas
producing region of China located approximately 930 miles
southwest of Beijing. See Oil and Gas
Properties  China.

CORPORATE STRATEGY

Our mission is to increase shareholder value by
developing business opportunities in 1) GTL conversion projects
using our licensed Syntroleum technology, 2) EOR development
projects, and 3) E&P projects. In pursuing these three
business development areas, we are focused on achieving a
balance in our short, medium and long-term goals. Our long-term
priority is on GTL production of ultra clean fuels. Our medium
term strategy is to concentrate on natural gas exploration and
development. Short term, we are focused on EOR and E&P
projects that can be implemented and achieve early production
and cash flow. During 2002 these strategies continued to mature
and gain focus.

Our long-term objective is to become a leader in
the development and operation of GTL projects. We foresee
rapidly increasing future demand for clean energy as
environmental regulations become more stringent and the
worlds crude oil becomes more sour and heavy. We believe
that Syntroleums proprietary GTL technology holds
significant potential for the economic production of synthetic
fuels and other specialty petroleum products from stranded
natural gas deposits throughout the world, which would otherwise
be uneconomic to exploit. Although there are several competing
GTL technologies under development, we believe that the
Syntroleum technology offers several key advantages. Plant
construction is less expensive and the plant is safer to operate
because, unlike competing technologies, the conversion process
utilizes compressed air rather than pure oxygen.

With our master license to use Syntroleums
proprietary GTL technology, we are currently pursuing
opportunities in Qatar, Egypt and Oman to obtain rights to
stranded natural gas deposits to use as feedstock for GTL
projects.

The cornerstone of our medium term strategy is
exploration and development in the San Joaquin Basin of
California and in East Texas. In 1998, we acquired exploration
rights through an agreement with Aera, Californias largest
producer. This agreement gave us access to a significant
inventory of exploration, seismic and technical data for the
purpose of identifying drillable prospects, primarily beneath
existing oil fields in the San Joaquin Basin.

Our activities in China also have the potential
to contribute to our medium-term growth. In September 2002,
Sunwing entered into a 30-year production-sharing contract with
PetroChina in the western portion of the Sichuan Basin. Under
the terms of the agreement, Sunwing will develop natural gas
deposits on the 900,000 acre Zitong Block. Sunwing has
established crude oil production at its Dagang project. We
remain encouraged by the results achieved in our production
program at Dagang and intend to proceed with the development
phase once Chinese government authorities approve our
development plan. Based on our decision to concentrate on larger
projects in China, we decided to dispose of our smaller Daqing
project. For a further description of our E&P and EOR
projects in the U.S. and China, see Oil and Gas
Properties.

Our short-term objective is to focus on areas
where production can be achieved quickly and efficiently to
create cash flow to fund our operations and allow us to pursue
our medium and long-term objectives. To date, we have
established oil and natural gas production in the South Midway
property in the San Joaquin Basin of California, in the
Spraberry Trend of West Texas, and at Dagang in China.

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GAS-TO-LIQUIDS PROJECTS

Syntroleum License

We hold a non-exclusive master license entitling
us to use Syntroleums proprietary GTL process in an
unlimited number of projects in all areas of the world, other
than North America, China and India, with no limit on production
volume.

Syntroleum Process

Syntroleums proprietary GTL process is
designed to catalytically convert natural gas into synthetic
liquid hydrocarbons. This patented process uses compressed air,
steam and natural gas as initial components to the catalyst
process. As a result, this process (the Syntroleum
Process) substantially reduces the capital and operating
cost and the minimum economic size of a GTL plant as compared to
the other oxygen-based GTL technologies.

Syntroleum developed its GTL technology based on
a process developed in Germany in the 1920s for the gasification
of coal into oil, called the Fischer-Tropsch reaction.
Syntroleum has applied its principles to the conversion of
natural gas to synthetic liquid hydrocarbons. Syntroleum
believes that it holds a competitive advantage over other GTL
technologies because the Syntroleum Process uses air when
converting natural gas into synthetic hydrocarbons. Competitor
GTL processes use either steam reforming or a combination of
steam reforming and partial oxidation with pure oxygen. A steam
reformer and an air separation plant necessary for oxidation
are, expensive, hazardous and increase operating costs.

From our perspective, the attraction of the
Syntroleum Process lies in the commercialization of stranded
natural gas. Such gas exists in discovered and known reservoirs,
but requires innovative gas processing to produce products that
can be marketed on an economic basis. Operators consider natural
gas to be stranded based on the relative size of the fields and
their remoteness from comparable sized markets.

GTL Prospects

During 2001, we undertook detailed project
feasibility studies for the construction, operation and cost of
GTL plants in both Qatar and Egypt. The scope of our proposed
project in Qatar includes the development of natural gas from
the North Field, transporting that gas to shore, extracting the
associated liquids in a natural gas liquids (NGL)
plant, moving the dry gas though the GTL facility to
create diesel and naphtha and storing and offloading the
products for shipment throughout the world. Under this proposal
we intend to produce 121,000 barrels of NGL, such as condensate,
propane, butane and ethane and 185,000 barrels of GTL product
per day. This proposal would also provide 220,000 barrels of
agricultural quality water per day. This proposal contemplates
the largest facility of its kind in the world with an estimated
total cost of approximately $5 billion. Negotiations with
Qatar Petroleum (QP) and the Government of the State of Qatar
have been ongoing for several months following the completion of
feasibility studies. Technical and financial due diligence has
been completed and a Heads of Agreement is being negotiated.

The feasibility studies we have undertaken for
Egypt contemplate the natural gas feedstock being purchased,
rather than developed, and production capacity in the order of
45,000 barrels per day. The results of the feasibility studies
are being utilized during the course of commercial discussions
with Egyptian authorities. We are still at the early stages of
discussion with the Government of Oman for a GTL project.

We have conducted marketing and transportation
feasibility studies for both Europe and Asia Pacific regions in
which we identified potential markets and estimated premiums for
GTL, diesel and naphtha. Based on our ongoing commercialization
studies and the growing demand for cleaner sources of energy in
Japan, we have incorporated a new subsidiary in Japan to
facilitate the potential future participation by Japanese
companies in the Qatar GTL project. Should we obtain the right
to develop this project, we intend to assign up to 5% of our
interest to our new Japanese subsidiary, GTL Japan Corporation
(GTLJ). GTLJ would then invite Japanese companies
from the refining and distribution, exploration and production,
trading and manufacturing industry sectors to invest in GTLJ.
The proceeds raised would be used to fund up to an estimated
$250 million of project costs, including front-end
engineering and design.

Sweetwater GTL Project

In 2000, we signed a letter of intent to invest
$21.0 million to participate as a 13% partner in
Syntroleums Sweetwater GTL project in Western Australia.
The project was a 10,000 barrels per day plant that would
produce specialty products such as lubricants, industrial fluids
and liquid normal paraffin, as well as synthetic fuels. We made
a $2.0 million advance for front-end engineering and other
costs. The balance of the investment was subject to a number of
conditions, including Syntroleums obligation to arrange
project financing.

During 2002, the project was cancelled by
Syntroleum. In June 2002, we signed a letter of intent with
Syntroleum to participate in its U.S. Department of Energy
(DOE) Fuels Project at a cost of $5.0 million.
Our participation is contingent upon our success in signing a GTL

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project contract in Qatar. Our cost of
participating in the DOE Fuels Project is to be offset by
$2.0 million of our investment in Sweetwater.


OIL AND GAS PROPERTIES

Our primary oil and gas properties are located in
the San Joaquin Valley area of California, the Midland and East
Texas Basins in Texas and the Hebei Province in China. Set forth
below is a description of our material oil and gas properties.

California

Over the past five years, we have acquired
interests in a number of properties in and around the San
Joaquin Basin. To date, only our South Midway project contains
proved reserves and has wells on production. We cannot assure
you that any of our other prospects in California will result in
the development of commercially viable production.



| |                           
| | --------------------------
| | Aera Exploration Agreement

In 1998, we acquired rights to an exploration
agreement with Aera covering an area of more than 250,000 acres
in the San Joaquin Valley. The Aera exploration agreement gave
us access to all of Aeras exploration, seismic and
technical data in the region for the purpose of identifying
drillable exploration prospects within the exclusive area. We
have a right to a working interest ownership in, and Aera has
the right to act as the operator for, any drillable prospects in
which Aera elects to participate.

Except for those prospect areas of mutual
interest (AMIs) previously designated by us and
accepted by Aera, our exclusive rights to explore Aeras
properties expired in September 2001. We will continue to hold
exploration rights to the lands within previously designated and
accepted prospect AMIs until an exploration well is drilled in
that prospect. Although the Aera exploration agreement provides
that Aeras working interest in these prospects will range
from a minimum of 25% to a maximum of 87.5%, we have negotiated
different working interest allocations with Aera. Aera is
obliged to assign to us any working interest in the prospect
that it does not retain. Once we identify a drillable prospect
and agree upon working interests with Aera, we have an
indefinite time to carry out exploration drilling if Aera elects
to participate in the prospect. If Aera elects to participate
but not to drill the designated prospect, or elects not to
participate, we have an additional two years to drill the
prospect on our own or with other parties. This two-year period
will be extended as long as we continue to drill or have
established production.

The properties covered by the Aera exploration
agreement are located in Kern, Kings, Tulare, Fresno, San
Benito, Monterey and San Luis Obispo Counties. Using the
extensive proprietary seismic and technical databases owned by
Aera and supplemented by us, we have identified 30 prospects
within 12 prospect AMIs covering approximately 76,000 gross
acres. Of the 12 prospect AMIs we have submitted, Area has
elected to take a working interest in 9 areas, in which we have
working interests ranging from 12.5% to 50% and we have a 100%
working interest in three prospect AMIs in which Aera elected
not to participate.



|  |             
|- | ------------
| | South Midway

Our first project under the Aera exploration
agreement was in the South Midway field, in which Aera elected
not to participate. We therefore own a 100% working interest and
a 93% net revenue interest in the project. Aera receives
royalties pursuant to our exploration agreement. By the end of
2002, we had drilled 41 wells, 35 of which are producing oil
wells. We are currently producing approximately 525 gross
barrels per day a slight decline from the peak production level
of 625 gross barrels per day achieved in the fourth quarter of
2002. We implemented a full-scale cyclic steam injection project
during 2002, which provided for more than a 300 gross barrel per
day increase in production levels. Our drilling in the South
Midway area has identified additional new pools in the field,
and based on this success, we have arranged a $5.0 million
credit facility to fund an additional 20 wells and cyclic steam
expansion program that is expected to provide additional
production volume increases during the second half of 2003.



|  |                  
|- | -----------------
| | Belgian Anticline

The second exploratory prospect was a gas test in
the Belgian Anticline field area. The well found the prospective
gas sands, but they had been partially depleted by other nearby
wells.



|  |                     
|- | --------------------
| | Northwest Lost Hills

The third exploration prospect area was at
Northwest Lost Hills where we began drilling in August 2001 the
Northwest Lost Hills #1-22 well, located in Kern County and
operated by Aera. The well lies five miles northwest of, and on
a trend with, the Bellevue No. 1 gas discovery drilled by
Berkley Petroleum Corp. In the 9,300 gross acres owned and under
option encompassing the Northwest Lost Hills prospect, we hold,
on average, a 39% working interest. We have a 42% working
interest in the NWLH #22-1 well.

The well was designed to fully evaluate the
natural gas and condensate reserve potential of the deep Temblor
formation and reach a depth of approximately 20,000 feet.
This drilling objective was achieved in August 2002 after
substantial delays and cost overruns resulting

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from difficult drilling conditions. While
drilling the well, we encountered several high-pressure
intervals which indicated the presence of natural gas and
decided to set casing in preparation for testing. Testing
operations have been suspended while we seek a partner to share
the costs of the testing program. Accordingly, the commercial
success of this well has not yet been determined.


Other Southern California Prospects



|  |                  
|- | -----------------
| | Amethyst Prospect

The next prospect we are likely to drill is in
the northern part of the South Belridge area, which we have
designated Amethyst. We currently hold a 15% working interest in
the prospect. We originally expected to commence drilling the
prospect in early 2002, but delayed drilling in order to shoot
and evaluate additional seismic data. We have completed
interpreting this additional seismic data and expect to begin
drilling this prospect during 2003.



|  |                  
|- | -----------------
| | North South Forty

In 1999, we entered into an agreement with Prime
Natural Resources, LLC (Prime) to jointly
conduct a 3-D seismic survey in the southern San Joaquin Valley
basin in order to identify new prospects over an area of
approximately 80,000 acres. We subsequently entered into an
exploration agreement with Prime and Aera in which we agreed to
pool certain of our acreage positions in the basin to share the
costs of carrying out the 3-D seismic program and to broaden our
respective interests in the area. All costs of carrying out the
program will be borne equally by Prime and Ivanhoe. The 3-D
seismic program is intended to identify prospects for
exploration drilling. Once prospects have been identified, each
party may elect to participate in a drilling program. We started
evaluating the results of the program in the second half of 2001
and to date three drillable prospects have been identified. Our
evaluation remains ongoing while we look for potential farm-in
candidates for these prospects. Our working interests over this
exploration area currently range from 17.5% to 50%.

Texas



|  |          
|- | ---------
| | Spraberry

In May 2000, we entered into an agreement with
Discovery Operating, Inc. (Discovery) to earn
working interests in approximately 10,000 gross acres of oil and
gas exploration property in the Spraberry Trend of the West
Texas Permian Basin in Midland County, Texas. During 2002, after
determining that most of the wells producing in the Spraberry
Trend contained little upside for reservoir and production
enhancements, we elected to sell a majority of our interests in
these wells. These sales generated cash proceeds of
approximately $3.0 million. We currently have a working
interest of 31% in 16 wells and 48% in 4 wells on
approximately 1,760 gross acres. We retained our interests in
the Apache Flats area because the wells in that area have shown
higher levels of daily production. We hold a 40% working
interest in 5 wells in Apache Flats on approximately 400
gross acres covered by a farm-out agreement. Following the
property sales, we are producing approximately 120 net
Boe/d from the 25 wells in West Texas. Discovery is the
operator of the West Texas Properties.



|  |           
|- | ----------
| | East Texas

We have leased mineral rights in approximately
49,000 gross acres in East Texas under a joint venture with
Unocal. Unocal is the operator of the joint venture and will
fund the drilling costs for the first several exploration wells
to offset the $10.1 million in leasehold, seismic and
processing costs we have already incurred. After our respective
investments in the joint venture have been equalized, we will
share exploration, development and infrastructure costs equally.

In late 2001, and during the first half of 2002,
three exploratory wells were drilled. During drilling,
indications of natural gas were encountered from multiple pay
sands such as the Bossier, Cotton Valley and Pettit but no
commercial levels of production were established. The drilling
costs for these wells were carried by our 50% partner, Unocal,
as a part of the agreement for their participation. Since
mid-2002, our activities in East Texas have been very limited.
Early in 2003, we reached an agreement with a third party to
further test the potential for natural gas production from the
Rodessa and Pettit Sands in two of the wells drilled on the
Creslenn Ranch Prospect in Henderson County. We continue to
search for third parties to fund our share of exploration in the
remaining prospects in East Texas.

Kentucky

In March of 2001, we entered into a joint venture
with Hay Exploration, Inc. to explore for natural gas in
the Rome Trough of eastern Kentucky. We each held a 50%
interest. We identified three prospect areas covering 15,000 net
acres and during 2001 we drilled an exploration well in each
prospect area. However, based on our assessment that these
prospects contain no commercial quantities of gas, we
relinquished our participation in these properties to Hay and
have no further obligations on these prospects.

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China

We hold interests in China through our wholly
owned subsidiary Sunwing Energy Ltd.



|  |               
|- | --------------
| | Daqing Project

Our first project in China was Daqing, a
production-sharing contract with CNPC, which covered an area of
8,100 gross acres in the Zhaozhou oilfield in Daqing,
Heilongjiang Province, China (the Daqing Project).
We initially undertook the Daqing Project on the expectation
that we would be able to acquire rights to additional land
blocks. We were unable to acquire the additional blocks
necessary to provide critical mass and divested our interest in
January 2002 for $2.4 million and a right to an overriding
royalty on future production.



|  |               
|- | --------------
| | Dagang Project

Sunwings producing asset in China is a
20-year production-sharing contract with CNPC, covering an area
of 22,400 gross acres divided into six blocks in the Kongnan
oilfield in Dagang, Hebei Province, China (the Dagang
Project). Under the contract we operate the project and
fund 100% of the development costs to earn 82% of the net
revenue from oil production until cost recovery, at which time
our entitlement reverts to 49%.

We have the right to market our oil domestically
or export it, sell our product in U.S. dollars and receive
world market prices for our product. We are currently selling
our crude oil to CNPC at a three-month rolling average price of
Cinta crude oil, which over the past three years has averaged
approximately $2.00 per barrel less than the West Texas
Intermediate (WTI) price.

All petroleum producers in China pay a value
added tax of 5% on oil production. We pay no royalty until
annual gross production of crude oil from a particular block
within the Dagang Project exceeds 500,000 tonnes per annum.
Royalties then become payable at a rate of 2% and increase
incrementally as the rate of production increases to a maximum
of 12.5% once annual gross production on a block exceeds four
million tonnes. Our entire interest in the Dagang Project will
revert to CNPC at the end of the 20-year production period or if
we abandon the project earlier.

In 1999, we farmed out a 20% working interest in
the Dagang project to Nippon Oil Exploration Limited
(Nippon) for which Nippon agreed to fund
$6.0 million of pilot testing expenditures. At the end of
the pilot phase, Nippon elected to relinquish its 20% working
interest back to us.

During 2001, we completed the pilot phase and in
2002 submitted the final draft of an Overall Development Program
(ODP) to Chinese regulatory authorities for
approval. Our partner, PetroChina, has approved the program, and
has recommended to the Central Government that we be allowed to
proceed with the development. We expect to receive this
Government approval during the first half of 2003, after which
the development phase will commence. The current development
program will cost approximately $185.0 million over a
three-year period and will involve drilling 115 new wells
and reworking an additional 29 of the 82 existing wells.



|  |              
|- | -------------
| | Sichuan Basin

In February 2001, we signed two memoranda of
understanding with PetroChina. These memoranda gave us the
exclusive right to negotiate production-sharing contracts for
three land blocks in the Sichuan province. We agreed with
PetroChina to carry out joint feasibility studies on the
Zitongxi, Zitongdong and Yudong blocks. These blocks, located in
the Sichuan Basin, approximately 930 miles southwest of
Beijing cover an area of approximately 2.2 million acres.
PetroChina has drilled 39 wells on the three blocks, with
twenty-six of these wells having been classified as producing
gas wells. PetroChina has production tested 8 of the estimated
38 hydrocarbon bearing structures located on the three blocks.
In September 2002, we signed a production-sharing contract
(the Zitong Contract), with PetroChina covering both
the Zitongxi and Zitongdong blocks. The contract received final
Chinese regulatory approval in November 2002.

Under the Zitong Contract, Sunwing has agreed to
conduct an exploration program on the Zitong block consisting of
two phases, each three years in length. The parties will jointly
participate in the development and production of any
commercially viable deposits, with production rights limited to
a maximum of the lesser of 30 years following the date of
the Zitong Contract or 20 years of continuous production.

During the first phase of exploration, Sunwing
must complete a minimum work program consisting of reprocessing
2,000 kilometers of seismic data, completing
500 additional kilometers of new seismic lines and drilling
and completing two wells totaling at least 7,000 meters
with estimated minimum expenditures of at least
$18 million. Upon completion of the first phase, Sunwing
must relinquish up to 30% of the Zitong block.

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During phase two, Sunwing must complete a minimum
work program consisting of new seismic lines totaling
350 kilometers and drill and complete two additional wells
totaling 7,000 meters and incur minimum expenditures of at
least $16 million. Following the completion of
phase two, Sunwing must relinquish all of the property
except any areas identified for development and production.

Sunwing can elect to commence the development of
commercially viable deposits at any time following the
submission of an ODP. Once Sunwing completes phase one of the
exploration project, Sunwing can also elect not to proceed with
phase two of the exploration project. However, once Sunwing
commences a phase of the exploration project it must complete
the minimum work program or else it will be obligated to pay, to
PetroChina, the cash equivalent of the deficiency in the work
program for that exploration phase.

If Sunwing identifies a hydrocarbon deposit for
development and/or production, the parties will divide the
participating interest in the project, with PetroChina entitled
to fund and take up to 51% of the participating interest and
Sunwing funding and taking the balance of the participating
interest.

Once commercial production commences, Sunwing
will recover annual exploration, development and operating costs
from up to 60% of gross oil production and 70% of gross natural
gas production. After annual cost recovery, Sunwing is entitled
to production equaling its participating interest, subject to
certain additional rights of the Chinese government. Assuming
Sunwing holds a 49% participating interest, Sunwing will be
entitled to approximately 75% of production initially, declining
to approximately 45% after full exploration and development cost
recovery.

PetroChina retains the rights to production from
six existing wells located on the Zitong Block. Sunwing can
drill new wells on the same formation as those tapped by the
existing wells, but Sunwings wells must be no closer than
1,000 meters from the existing wells.

In the first quarter of 2003, we established an
office in Chengdu, the capital of Sichuan. We also completed our
feasibility study obligations for the Yudong block and submitted
a report to PetroChina in April 2002. In September 2002, we
submitted a letter of intent to negotiate a production-sharing
contract and our work plan for the Yudong block, and are
currently awaiting PetroChinas reply.



|  |               
|- | --------------
| | CITIC Alliance

In October 2002, Sunwing entered into an
agreement with CITIC Energy (CITIC) to form a
strategic alliance to seek out and develop oil and gas projects
in China and around the world. CITIC is a subsidiary of China
International Trust & Investment Corporation, a major
Chinese state-owned enterprise that holds interests in a wide
range of industries.

Under the terms of the agreement, CITIC will
assist Sunwing in raising its profile in Asian capital markets
and gaining access to future financing opportunities. CITIC will
also support Sunwing in its plan to obtain a listing for its
shares on the Stock Exchange of Hong Kong.

Sunwing will assist CITIC in identifying and
acquiring interests in international oil and gas development
projects and in introducing GTL and other advanced energy-sector
technologies to Chinas domestic oil and gas industry. We
hold a master license to Syntroleums proprietary GTL
process, but the geographical scope of our license does not
currently include China.

CITIC has also agreed to assist Sunwing in its
efforts to negotiate a production-sharing contract with
PetroChina covering the Yudong block in Sichuan Province. Should
a production-sharing contract for the Yudong block be obtained,
Sunwing and CITIC will jointly participate in the development of
the project on a 70/30 basis. Within 180 days
thereafter, either party can elect to convert CITICs 30%
participating interest in the project into a 20% equity interest
in Sunwing. CITIC has the right to appoint a representative to
Sunwings board of directors and will be entitled to
appoint a second representative if, as and when it acquires a
20% equity interest in Sunwing.

RISK FACTORS

We are subject to a number of risks due to the
nature of the industry in which we operate, the present state of
development of our business and the foreign jurisdictions in
which we carry on business. The following factors contain
certain forward-looking statements involving risks and
uncertainties. Our actual results may differ materially from the
results anticipated in these forward-looking statements.

We have a history of losses and must
generate greater revenue to achieve profitability.

We commenced operations in 1997 and have been
involved in three start-up situations in Russia, China and the
U.S. Like most start up companies we have incurred losses during
our start up activities. Our current cash flows alone are
insufficient to fund our medium and long-term business plans,
necessitating further growth and funding for implementation. We
may be unable to achieve the needed growth to obtain
profitability and may fail to obtain the funding that we need
when it is required.

We are not able to guarantee the successful
commercial development of our licensed
gas-to-liquids technology.

To date, no commercial-scale GTL plants have been
constructed using the proprietary GTL process we license from
Syntroleum and, therefore, the process has not been proven on a
commercial scale. Other developers of GTL technology have
significantly more financial resources than Ivanhoe and may be
able to use this to obtain a potential competitive advantage.

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We may not be able to conclude a GTL
development and production-sharing contract.

We are in advanced negotiations with state-owned
QP for a development and production-sharing contract, which is
to form the basis for a large GTL project in Qatar. We can give
no assurances as to when or if we will be able to conclude such
a contract with QP. We are also exploring GTL project
opportunities in Egypt and Oman, for which no conclusion has
been reached.

Conflict in the Middle East may hamper our
GTL project objectives

A conflict involving Iraq could harm our business
in the short to medium term by making it difficult or impossible
to continue our pursuit of GTL projects in Qatar and other
countries in the Middle East or to obtain financing for projects
we do succeed in obtaining. It is impossible to predict if or
when a military conflict involving Iraq will occur, how long it
will last if it does occur, the economic consequences of the
conflict for the energy industry, regionally and globally, and
how our business might be affected over the longer term.

Crude oil and natural gas prices are
volatile.

Fluctuations in the prices of oil and natural gas
will affect many aspects of our business, including our
revenues, cash flows and earnings; our ability to attract
capital to finance our operations; our cost of capital; the
amount we are able to borrow and the value of our oil and
natural gas properties.

Both oil and natural gas prices are extremely
volatile. Oil prices are determined by international supply and
demand. Political developments, compliance or non-compliance
with self-imposed quotas, or agreements between members of the
OPEC can affect world oil supply and prices. Any material
decline in prices could result in a reduction of our net
production revenue and overall value. The economics of producing
from some wells could change as a result of lower prices. As a
result, we could elect not to produce from certain wells. Any
material decline in prices could also result in a reduction in
our oil and natural gas acquisition and development activities.

In addition, a material decline in oil and
natural gas prices from historical average prices could
adversely affect our ability to borrow and to obtain additional
capital on attractive terms.

Volatile oil and natural gas prices make it
difficult to estimate the value of producing properties for
acquisition and often cause disruption in the market for oil and
natural gas producing properties, as buyers and sellers have
difficulty agreeing on such value. Price volatility also makes
it difficult to budget for and project the return on
acquisitions and development and exploration projects.

Government regulations in foreign countries
may limit our activities and harm our business
operations.

In addition to our interest in our China
projects, we may enter into contractual arrangements to acquire
oil and gas properties in other foreign jurisdictions with
governments, governmental agencies or government-owned entities.
The foreign legal framework for these agreements, particularly
in developing countries, is often based on recent political and
economic reforms and newly enacted legislation, which may not be
consistent with long-standing local conventions and customs. As
a result, there may be ambiguities, inconsistencies and
anomalies in the agreements or the legislation upon which they
are based which are atypical of more developed western legal
systems and which may affect the interpretation and enforcement
of our rights and obligations and those of our foreign partners.
Local institutions and bureaucracies responsible for
administering foreign laws may lack a proper understanding of
the laws or the experience necessary to apply them in a modern
business context. Foreign laws may be applied in an
inconsistent, arbitrary and unfair manner and legal remedies may
be uncertain, delayed or unavailable.

We may not be successful in negotiating
additional production sharing contracts in China.

We hold our interests in China through two
production-sharing contracts with CNPC for the Dagang and Zitong
blocks. We also have a memorandum of understanding with
PetroChina indicating a mutual intention to negotiate an
additional production-sharing contract in the Sichuan basin. We
cannot assure you, based on our existing memorandum of
understanding with PetroChina, that we will successfully
negotiate additional production-sharing contracts. It is
possible that disputes between us could arise in the future,
which must be resolved under foreign law. We cannot be sure that
we can enforce our legal rights in foreign countries or that an
effective legal remedy will be available to us in any dispute
governed by foreign law.

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 future exploration and development success
depends upon our ability to find, develop and acquire additional
economically recoverable oil and natural gas reserves. The
successful acquisition and development of oil and gas properties
requires proper forecasting of recoverable reserves, oil and gas
prices and operating costs, potential environmental and other
liabilities and productivity of new wells drilled.

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Estimates of cost to explore, develop and produce
are assessments and are inexact. As a result, we might not
recover the purchase price of a property from the sale of
production from the property, or might not recognize an
acceptable return from properties we acquire. Our estimates of
exploration, development and production costs can be affected by
such factors as permitting regulations and requirements,
weather, environmental factors, unforeseen technical
difficulties and unusual or unexpected formations, pressures and
work interruptions.

Exploration and development involves significant
risks. Few wells, which are drilled, are developed into
commercially producing fields. Substantial expenditures may be
required to establish the existence of proved reserves, and we
cannot assure you commercial quantities of oil and gas deposits
will be discovered sufficient to enable us to recover our
exploration and development costs or be sufficient to sustain
our business.

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.

We will be required to make substantial capital
expenditures far beyond our existing capital resources to
develop a GTL project, exploit our existing reserves and to
discover new oil and gas reserves. Historically, we have relied,
and continue to rely, on external sources of financing to meet
our capital requirements to continue acquiring, exploring and
developing oil and gas properties and to otherwise implement our
corporate development and investment strategies. We have, in the
past, relied upon equity capital as our principal source of
funding. We plan to obtain the future funding we will need
through debt and equity markets, but we cannot assure you that
we will be able to obtain additional funding when it is required
and whether it will be available on commercially acceptable
terms. We also make offers to acquire oil and gas properties in
the ordinary course of our business. If these offers are
accepted, our capital needs may increase substantially. If we
fail to obtain the funding that we need when it is required, we
may have to forego or delay potentially valuable opportunities
to acquire new oil and gas properties or default on existing
funding commitments to third parties and forfeit or dilute our
rights in existing oil and gas property interests. Our limited
operating history may make it difficult to obtain future
financing.

You should not unduly rely on reserve
information because reserve information represents
estimates.

Reserve estimates involve a great deal of
uncertainty, because they depend in large part upon the
reliability of available geologic and engineering data, which is
inherently imprecise. Geologic and engineering data are used to
determine the probability that a reservoir of oil and natural
gas exists at a particular location, and whether oil and natural
gas are recoverable from a reservoir. Recoverability is
ultimately subject to the accuracy of data including, but not
limited to geological characteristics of the reservoir
structure, reservoir fluid properties, the size and boundaries
of the drainage area and reservoir pressure and the anticipated
rate of pressure depletion.

The evaluation of these and other factors is
based upon available seismic data, computer modeling, well tests
and information obtained from production of oil and natural gas
from adjacent or similar properties, but the probability of the
existence and recoverability of reserves is less than 100% and
actual recoveries of proved reserves usually differ from
estimates.

Reserve estimates also require numerous
assumptions relating to operating conditions and economic
factors, including, among others the price at which recovered
oil and natural gas can be sold, the costs of recovery,
prevailing environmental conditions associated with drilling and
production sites, availability of enhanced recovery techniques,
ability to transport oil and natural gas to markets and
governmental and other regulatory factors, such as taxes and
environmental laws.

A negative change in any one or more of these
factors could result in quantities of oil and natural gas
previously estimated as proved reserves becoming uneconomic. For
example, a decline in the market price of oil or natural gas to
an amount that is less than the cost of recovery of such oil and
natural gas in a particular location could make production
thereof commercially impracticable. The risk that a decline in
price could have that effect is magnified in the case of
reserves requiring sophisticated or expensive production
enhancement technology and equipment, such as some types of
heavy oil. Each of these factors, by having an impact on the
cost of recovery and the rate of production, will also affect
the present value of future net cash flows from estimated
reserves.

In addition, estimates of reserves and future net
cash flows expected from them prepared by different independent
engineers, or by the same engineers at different times may vary
substantially.

Information in this document regarding our
future exploitation projects reflects our current intent and is
subject to change.

We describe our current exploration and
development plans in this document. Whether we ultimately
implement our plans will depend on availability and cost of
capital; receipt of additional seismic data or reprocessed
existing data; current and projected oil or gas prices; costs
and availability of drilling rigs and other equipment, supplies
and personnel; success or failure of activities in similar
areas; changes in estimates of project completion costs; our
ability to attract other industry partners to acquire a portion
of the working interest to reduce costs and exposure to risks
and decisions of our joint working interest owners.

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We will continue to gather data about our
projects and it is possible that additional information will
cause us to alter our schedule or determine that a project
should not be pursued at all. You should understand that our
plans regarding our projects might change.

Our business may be harmed if we are not
able to retain our licenses, leases and working interests in
licenses and leases.

Some of our properties are held under licenses
and leases and working interests in licenses and leases. If we,
or the holder of the license or lease, fail to meet the specific
requirements of each license or lease, the license or lease may
terminate or expire. We cannot assure you that any of the
obligations required to maintain each license or lease will be
met. The termination or expiration of our licenses or leases or
our working interest relating to a license or lease may harm our
business. Some of our property interests will terminate unless
we fulfill certain obligations under the terms of our agreements
related to such properties. If we are not able to satisfy these
conditions on a timely basis, we may lose our rights in these
properties. The termination of our interests in these properties
may harm our business.

Complying with environmental and other
government regulations could be costly and could negatively
impact our production.

Our operations are governed by numerous laws and
regulations at various levels of government in the countries in
which we operate. These laws and regulations govern the
operation and maintenance of our facilities, the discharge of
materials into the environment and other environmental
protection issues. The laws and regulations may, among other
potential consequences, require that we acquire permits before
commencing drilling; restrict the substances that can be
released into the environment with drilling and production
activities; limit or prohibit drilling activities on protected
areas such as wetlands or wilderness areas; require that
reclamation measures be taken to prevent pollution from former
operations; require remedial measures to mitigate pollution from
former operations, such as plugging abandoned wells and
remediating contaminated soil and groundwater and require
remedial measures be taken with respect to property designated
as a contaminated site, for which we are a responsible person.

Under these laws and regulations, we could be
liable for personal injury, clean-up costs and other
environmental and property damages, as well as administrative,
civil and criminal penalties. We maintain limited insurance
coverage for sudden and accidental environmental damages as well
as environmental damage that occurs over time. However, we do
not believe that insurance coverage for the full potential
liability of environmental damages is available at a reasonable
cost. Accordingly, we could be liable, or could be required to
cease production on properties, if environmental damage occurs.

The costs of complying with environmental laws
and regulations in the future may harm our business.
Furthermore, future changes in environmental laws and
regulations could occur that result in stricter standards and
enforcement, larger fines and liability, and increased capital
expenditures and operating costs, any of which could have a
material adverse effect on our financial condition or results of
operations.

We compete for oil and gas properties with
many other exploration and development companies throughout the
world who have access to greater resources.

We operate in a highly competitive environment in
which we compete with other exploration and development
companies to acquire a limited number of prospective oil and gas
properties. Many of our competitors are much larger than we are
and, as a result, may enjoy a competitive advantage in accessing
financial, technical and human resources. They may be able to
pay more for productive oil and gas properties and exploratory
prospects and to define, evaluate, bid for and purchase a
greater number of properties and prospects than our financial,
technical and human resources permit.

Our share ownership is highly concentrated
and, as a result, our principal shareholders control our
business.

Our directors and executive officers, including
Robert M. Friedland, collectively own or have rights to
acquire approximately 36% of our common stock and control our
Board of Directors and determine our policies, business and
affairs and the outcome of any corporate transaction or other
matter, including mergers, consolidations and the sale of all or
substantially all of our assets.

In addition, the concentration of our ownership
may have the effect of delaying, deterring or preventing a
change in control that otherwise could result in a premium in
the price of our common stock.

If we lose our key management and technical
personnel, our business may suffer.

We rely upon a relatively small group of key
management and technical personnel. We do not maintain any key
man insurance. We do not have employment agreements with certain
of our key management and technical personnel and we cannot
assure you that these individuals will remain with us in the
future. An unexpected partial or total loss of their services
would harm our business.

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COMPETITION

The oil and gas industry is highly competitive.
Our position in the oil and gas industry, which includes the
search for, and development of, new sources of supply, is
particularly competitive. The oil and gas industry also competes
with other industries in supplying energy, fuel and other needs
of consumers. See Risk Factors.

ENVIRONMENTAL REGULATIONS

Both our oil and gas and GTL operations are
subject to various levels of government laws and regulations
relating to the protection of the environment in the countries
in which they operate. We believe that our operations comply in
all material respects with applicable environmental laws.

In the U.S., environmental laws and regulations,
implemented principally by the Environmental Protection Agency,
Department of Transportation and the Department of the Interior
and comparable state agencies, govern the management of
hazardous waste, the discharge of pollutants into the air and
into surface and underground waters and the construction of new
discharge sources, the manufacture, sale and disposal of
chemical substances, and surface and underground mining. These
laws and regulations generally provide for civil and criminal
penalties and fines, as well as injunctive and remedial relief.

In China, environmental regulation does not exist
on a national level. Individual projects are monitored by the
state and the standard of environmental regulation depends on
each case.

GOVERNMENT REGULATIONS

Our business is subject to certain U.S. and
Chinese federal, state and local laws and regulations relating
to the exploration for, and development, production and
marketing of, crude oil and natural gas, as well as
environmental and safety matters. In addition, the Chinese
government regulates various aspects of foreign company
operations in China. Such laws and regulations have generally
become more stringent in recent years in the U.S., often
imposing greater liability on a larger number of potentially
responsible parties. It is not unreasonable to expect that the
same trend will be encountered in China. Because the
requirements imposed by such laws and regulations are frequently
changed, we are not able to predict the ultimate cost of
compliance.

EMPLOYEES

At March 3, 2003, we had 73 employees. None
of our employees are unionized.

RESERVES, PRODUCTION AND RELATED
INFORMATION

See the Supplementary Disclosures About Oil and
Gas Production Activities included under Item 8 in this
Annual Report for information with respect to our oil and gas
producing activities. We have not filed with or included in
reports to any other U.S. federal authority or agency, any
estimates of total proved crude oil or natural gas reserves
since the beginning of the last fiscal year.

The following tables set forth, for each of the
last three fiscal years, our average sales prices and average
operating costs per unit of production. In China for 2000,
proceeds from the sale of oil produced were credited to our
China cost center due to the stage of development of our
projects in China. The average sales price realized on China
production in 2000 was $28.26 per bbl. Average operating costs
include lifting costs and production taxes, but exclude
allocated head office engineering support costs, depreciation,
depletion and amortization, royalties, income taxes, interest,
selling and administrative expenses.

|                                  |  |                     |       |                         |  |      |       |      |  |      |       |      |  |   |      |  |  |   |       |  |  |   |       | 
|--------------------------------- |  | ------------------- | ----- | ----------------------- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | - | ---- |  |  | - | ----- |  |  | - | ----- | 
|                                  |  |                     |       |                        
|                                  |  | Average Sales Price |       | Average Operating Costs
|                                  |  |                     |       |                        
|                                  |  | 2002                |       | 2001                    |  | 2000 |       | 2002 |  | 2001 |       | 2000
|                                  |  |                     |       |                         |  |      |       |      |  |      |       |     
|Crude Oil and Natural Gas ($/Boe) |  |                     |       |                         |  |      |       |      |  |      |       |      |  |   |      |  |  |   |       |  |  |   |       | 
|U.S.                              |  | $                   | 22.43 |                         |  | $    | 21.93 |      |  | $    | 27.52 |      |  | $ | 6.76 |  |  | $ | 7.28  |  |  | $ | 10.00 | 
|China                             |  | $                   | 22.30 |                         |  | $    | 24.42 |      |  |      |      |      |  | $ | 6.49 |  |  | $ | 10.50 |  |  |   |      | 

The following tables set forth the number of
commercially productive wells (both producing wells and wells
capable of production) in which we held a working interest at
the end of each of the last three fiscal years:

|      |  |          |      |        |  |          |        |        |  |          |    |        |  |  |      |  |  |  |    |  |  |  |      | 
|----- |  | -------- | ---- | ------ |  | -------- | ------ | ------ |  | -------- | -- | ------ |  |  | ---- |  |  |  | -- |  |  |  | ---- | 
|      |  |          |      |        |  |         
|      |  | 2002     |      | 2001   |  | 2000    
|      |  |          |      |        |  |         
|      |  | Gross(1) |      | Net(2) |  | Gross(1) |        | Net(2) |  | Gross(1) |    | Net(2)
|      |  |          |      |        |  |          |        |        |  |          |    |       
|U.S.  |  |          | 60(3 | )      |  |          | 43.9(3 | )      |  |          | 59 |        |  |  | 48.4 |  |  |  | 29 |  |  |  | 25.6 | 
|China |  |          | 9(4  | )      |  |          | 7.4(4  | )      |  |          | 13 |        |  |  | 10.8 |  |  |  | 9  |  |  |  | 6.7  | 

14



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|    |                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Gross wells are the total number of wells in
    which an interest is owned.                                                                                              
|   
|(2) | Net wells are the sum of fractional interests
    owned in gross wells.                                                                                                   
|   
|(3) | After the sale of 4.4 net (7 gross) Spraberry
    wells in August 2002 and a 50% working interest, or 6.9 net
    wells, in our remaining Spraberry wells in October 2002.
|   
|(4) | After the sale of 3.4 net (4 gross) Daqing wells
    in January 2002.                                                                                                     

The following table sets forth, for each of the
last three fiscal years, our participation in the completed
drilling of net crude oil and natural gas wells:

Exploratory

|      |  |            |   |      |  |      |   |  |  |  |   | 
|----- |  | ---------- | - | ---- |  | ---- | - |  |  |  | - | 
|      |  |           
|      |  | Productive
|      |  |           
|      |  | 2002       |   | 2001 |  | 2000
|      |  |            |   |      |  |     
|U.S.  |  |            |  |      |  |      |  |  |  |  |  | 
|China |  |            |  |      |  |      |  |  |  |  |  | 
|      |  |            |   |      |  |      |   |  |  |  |   | 
|Total |  |            | 0 |      |  |      | 0 |  |  |  | 0 | 
|      |  |            |   |      |  |      |   |  |  |  |   | 

|      |  |      |     |      |  |      |     |  |  |  |     | 
|----- |  | ---- | --- | ---- |  | ---- | --- |  |  |  | --- | 
|      |  |     
|      |  | Dry 
|      |  |     
|      |  | 2002 |     | 2001 |  | 2000
|      |  |      |     |      |  |     
|U.S.  |  |      | 1.7 | (1)  |  |      | 1.5 |  |  |  | 2.5 | 
|China |  |      |    |      |  |      |    |  |  |  |    | 
|      |  |      |     |      |  |      |     |  |  |  |     | 
|Total |  |      | 1.7 |      |  |      | 1.5 |  |  |  | 2.5 | 
|      |  |      |     |      |  |      |     |  |  |  |     | 




At the end of 2002 and 2001 we had 2.3 (5 gross)
and 3.3 (7 gross) net exploratory wells, respectively, which
were either in the process of drilling or suspended.

(1) Includes 1.5 net exploratory wells (3
gross) drilled in Kentucky during 2001, which were determined to
be dry in 2002.

Development

|      |  |            |     |      |  |      |      |  |  |  |      | 
|----- |  | ---------- | --- | ---- |  | ---- | ---- |  |  |  | ---- | 
|      |  |           
|      |  | Productive
|      |  |           
|      |  | 2002       |     | 2001 |  | 2000
|      |  |            |     |      |  |     
|U.S.  |  |            | 8.8 |      |  |      | 22.8 |  |  |  | 25.6 | 
|China |  |            |    |      |  |      |     |  |  |  | 3.3  | 
|      |  |            |     |      |  |      |      |  |  |  |      | 
|Total |  |            | 8.8 |      |  |      | 22.8 |  |  |  | 28.9 | 
|      |  |            |     |      |  |      |      |  |  |  |      | 

|      |  |      |   |      |  |      |   |  |  |  |   | 
|----- |  | ---- | - | ---- |  | ---- | - |  |  |  | - | 
|      |  |     
|      |  | Dry 
|      |  |     
|      |  |      |   |     
|      |  | 2002 |   | 2001 |  | 2000
|      |  |      |   |      |  |     
|U.S.  |  |      |  |      |  |      |  |  |  |  | 2 | 
|China |  |      |  |      |  |      |  |  |  |  |  | 
|      |  |      |   |      |  |      |   |  |  |  |   | 
|Total |  |      | 0 |      |  |      | 0 |  |  |  | 2 | 
|      |  |      |   |      |  |      |   |  |  |  |   | 

The following tables set forth our holdings of
developed and undeveloped oil and gas acreage at March 3,
2003:

|         |  |           |       |             |  |          |       |          |  |  |         |  |  |  |         | 
|-------- |  | --------- | ----- | ----------- |  | -------- | ----- | -------- |  |  | ------- |  |  |  | ------- | 
|         |  |           |       |            
|         |  | Developed |       | Undeveloped
|         |  |           |       |            
|         |  | Gross     |       | Net         |  | Gross    |       | Net     
|         |  | Acres(1)  |       | Acres(2)    |  | Acres(1) |       | Acres(2)
|         |  |           |       |             |  |          |       |         
|U.S.     |  |           | 8,543 |             |  |          | 3,879 |          |  |  | 132,317 |  |  |  | 77,053  | 
|China(3) |  |           | 1,729 |             |  |          | 1,418 |          |  |  | 900,320 |  |  |  | 896,607 | 






|    |                                             
|--- | --------------------------------------------
|(1) | Gross acres include the interests of others.
|   
|(2) | Net acres exclude the interests of others.  

15



---



##### 





|    |                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | The number of developed acres disclosed in
    respect of our China projects relates only to those portions of
    the relevant fields covered by our pilot testing operations and
    does not include the remaining portions of the fields previously
    developed by CNPC.

The following table sets out estimates of our
share of proved reserves in respect of our U.S. and China
operations and calculations of cash flows, before tax and after
tax, undiscounted and discounted at 10% and 15%, based on costs
and prices as at December 31, 2002. Estimates for our China
operations were prepared by independent petroleum consultants
Gilbert Laustsen Jung Associates Ltd. Independent petroleum
consultants Allan Spivak Engineering and Joe C. Neal &
Associates prepared estimates for our U.S. operations.

|                       |  |           |        |                         |  |                         |     |                |  |     |         |    |  |     |         |     |  |   |        |  |  |   |         |  |  |   |        |  |  |   |        | 
|---------------------- |  | --------- | ------ | ----------------------- |  | ----------------------- | --- | -------------- |  | --- | ------- | -- |  | --- | ------- | --- |  | - | ------ |  |  | - | ------- |  |  | - | ------ |  |  | - | ------ | 
|                       |  |           |        |                         |  |                         |     |               
|                       |  |           |        | Our Share of            |  | Our Share of           
|                       |  | Our Share |        | Before Tax Cash Flows   |  | After Tax Cash Flows   
|                       |  |           |        | in Thousands of Dollars |  | in Thousands of Dollars
|                       |  | OIL       |        | GAS                     |  | Discounted at:          |     | Discounted at:
|                       |  |           |        |                         |  |                         |     |               
|                       |  | (MBbl)    |        | (MMcf)                  |  | 0%                      |     | 10%            |  | 15% |         | 0% |  | 10% |         | 15%
|Net Proved Reserves(1) |  |           |        |                         |  |                         |     |                |  |     |         |    |  |     |         |     |  |   |        |  |  |   |         |  |  |   |        |  |  |   |        | 
|U.S.                   |  |           | 1,784  |                         |  |                         | 819 |                |  | $   | 31,172  |    |  | $   | 21,485  |     |  | $ | 18,746 |  |  | $ | 31,172  |  |  | $ | 21,485 |  |  | $ | 18,746 | 
|China                  |  |           | 15,604 |                         |  |                         |    |                |  |     | 196,861 |    |  |     | 84,692  |     |  |   | 56,796 |  |  |   | 144,205 |  |  |   | 59,782 |  |  |   | 41,369 | 
|                       |  |           |        |                         |  |                         |     |                |  |     |         |    |  |     |         |     |  |   |        |  |  |   |         |  |  |   |        |  |  |   |        | 
|                       |  |           | 17,388 |                         |  |                         | 819 |                |  | $   | 228,033 |    |  | $   | 106,177 |     |  | $ | 75,542 |  |  | $ | 175,377 |  |  | $ | 81,267 |  |  | $ | 60,115 | 
|                       |  |           |        |                         |  |                         |     |                |  |     |         |    |  |     |         |     |  |   |        |  |  |   |         |  |  |   |        |  |  |   |        | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.

ITEM 3.     LEGAL
PROCEEDINGS

We are not currently a party to any material
legal proceedings.

ITEM 4.     SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of security
holders during the fourth quarter of 2002.

PART II

ITEM 5.     MARKET
FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

Market Information

Our common shares traded on the NASDAQ National
Market and SmallCap Market during 2001 and 2002. As a result of
our shares closing below $1.00 per share for 30 consecutive
trading days during 2002 our shares were transferred from the
NASDAQ National Market to the NASDAQ SmallCap Market on
December 27, 2002. Currently our shares are traded on the
NASDAQ SmallCap Market and The Toronto Stock Exchange.

The high and low sale prices of our common shares
as reported on the NASDAQ and the Toronto Stock Exchange for
each quarter during the past two years are as follows:

NASDAQ MARKET (IVAN)

(US$)


|     |  |       |     |       |  |       |      |       |  |       |      |       |  |       |      |       |  |  |      |  |  |  |      |  |  |  |      |  |  |  |      | 
|---- |  | ----- | --- | ----- |  | ----- | ---- | ----- |  | ----- | ---- | ----- |  | ----- | ---- | ----- |  |  | ---- |  |  |  | ---- |  |  |  | ---- |  |  |  | ---- | 
|     |  |       |     |      
|     |  | 2002  |     | 2001 
|     |  |       |     |      
|     |  | 4th Q |     | 3rd Q |  | 2nd Q |      | 1st Q |  | 4th Q |      | 3rd Q |  | 2nd Q |      | 1st Q
|     |  |       |     |       |  |       |      |       |  |       |      |       |  |       |      |      
|High |  |       | .65 |       |  |       | 1.07 |       |  |       | 2.02 |       |  |       | 2.23 |       |  |  | 2.51 |  |  |  | 3.83 |  |  |  | 4.98 |  |  |  | 5.19 | 
|Low  |  |       | .53 |       |  |       | .85  |       |  |       | 1.72 |       |  |       | 1.93 |       |  |  | 1.40 |  |  |  | 1.39 |  |  |  | 3.18 |  |  |  | 3.25 | 

16



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##### 



THE TORONTO STOCK EXCHANGE (IE)

(CDN$)


|     |  |       |      |       |  |       |      |       |  |       |      |       |  |       |      |       |  |  |      |  |  |  |      |  |  |  |      |  |  |  |      | 
|---- |  | ----- | ---- | ----- |  | ----- | ---- | ----- |  | ----- | ---- | ----- |  | ----- | ---- | ----- |  |  | ---- |  |  |  | ---- |  |  |  | ---- |  |  |  | ---- | 
|     |  |       |      |      
|     |  | 2002  |      | 2001 
|     |  |       |      |      
|     |  | 4th Q |      | 3rd Q |  | 2nd Q |      | 1st Q |  | 4th Q |      | 3rd Q |  | 3rd Q |      | 4th Q
|     |  |       |      |       |  |       |      |       |  |       |      |       |  |       |      |      
|High |  |       | 1.01 |       |  |       | 1.74 |       |  |       | 3.12 |       |  |       | 3.50 |       |  |  | 3.99 |  |  |  | 5.80 |  |  |  | 7.40 |  |  |  | 7.65 | 
|Low  |  |       | .88  |       |  |       | 1.45 |       |  |       | 2.83 |       |  |       | 3.11 |       |  |  | 2.20 |  |  |  | 2.15 |  |  |  | 4.90 |  |  |  | 5.15 | 

On March 3, 2003, the closing prices for our
common shares were $.57 on the NASDAQ SmallCap Market and Cdn.
$.85 on The Toronto Stock Exchange.

Holders of Common Shares

As at March 3, 2003, a total of 144,465,818
of our common shares were issued and outstanding and held by
117 holders of record.

Dividends

We have not paid any dividends on our outstanding
common shares since we were incorporated and we do not
anticipate that we will do so in the foreseeable future. The
declaration of dividends on our common shares is, subject to
certain statutory restrictions described below, within the
discretion of our Board of Directors based on their assessment
of, among other factors, our earnings or lack thereof, our
capital and operating expenditure requirements and our overall
financial condition. Under the Yukon Business Corporations
Act,our Board of Directors has no discretion to declare or
pay a dividend on our common shares if they have reasonable
grounds for believing that we are, or would after payment of the
dividend be, unable to pay our liabilities as they become due or
that the realizable value of our assets would, as a result of
the dividend, be less than the aggregate sum of our liabilities
and the stated capital of our common shares.

Securities Authorized for Issuance Under
Equity Compensation Plans

Our shareholders approved our Employees and
Directors Equity Incentive Plan (the Plan).
The Plan is intended to further align our directors and
managements interests with the companys long-term
performance and the long-term interests of our shareholders. Our
shareholders also approved all amendments increasing the number
of common shares available for issuance under the Plan. The
following is as of March 3, 2003:

|                                                           |  |                                        |            |                                    |  |                                          |      |  |  |  |         | 
|---------------------------------------------------------- |  | -------------------------------------- | ---------- | ---------------------------------- |  | ---------------------------------------- | ---- |  |  |  | ------- | 
|                                                           |  |                                        |            |                                    |  | Number of Securities Remaining Available
|                                                           |  | Number of Securities to be Issued upon |            | Weighted-average Exercise Price of |  | for Future Issuance Under Equity        
|                                                           |  | Exercise of Outstanding Options,       |            | Outstanding Options, Warrants and  |  | Compensation Plans (Excluding Securities
|                                                           |  | Warrants and Rights                    |            | Rights                             |  | Reflected in Column (a))                
|Plan Category                                              |  | (a)                                    |            | (b)                                |  | (c)                                     
|                                                           |  |                                        |            |                                    |  |                                         
|Equity compensation plans approved by shareholders         |  |                                        | 10,957,415 |                                    |  | $                                        | 2.60 |  |  |  | 666,998 | 
|Equity compensation plans not approved by
    shareholders |  |                                        | 1,350,000  |                                    |  | $                                        | 0.77 |  |  |  | 0       | 
|                                                           |  |                                        |            |                                    |  |                                          |      |  |  |  |         | 
|Total                                                      |  |                                        | 12,307,415 |                                    |  |                                          |      |  |  |  | 666,998 | 
|                                                           |  |                                        |            |                                    |  |                                          |      |  |  |  |         | 

Exchange Controls and Taxation

There is no law or governmental decree or
regulation in Canada that restricts the export or import of
capital, or affects the remittance of dividends, interest or
other payments to a non-resident holder of our common shares,
other than withholding tax requirements. There is no limitation
imposed by the laws of Canada, the laws of the Yukon, or our
constating documents on the right of a non-resident to hold or
vote our common shares, other than as provided in the
Investment Canada Act(Canada) (the Investment
Act), which generally prohibits a reviewable investment by
an entity that is not a Canadian, as defined, unless
after review, the minister responsible for the Investment Act is
satisfied that the investment is likely to be of net benefit to
Canada. An investment in our common shares by a non-Canadian who
is not a WTO investor (which includes governments
of, or individuals who are nationals of, member states of the
World Trade Organization and corporations and other entities
which are controlled by them), at a time when we were not
already controlled by a WTO investor, would be reviewable under
the Investment Act under two circumstances. First, if it was an
investment to acquire control (within the meaning of the
Investment Act) and the value of our assets, as determined under
Investment Act regulations, was Cdn.$5 million or more.
Second, the investment would also be reviewable if an order for
review was made by the federal cabinet of the Canadian
government on the grounds that the investment related to
Canadas cultural heritage or national identity (as
prescribed under the Investment Act), regardless of asset value.
An investment in our common shares by a WTO investor, or by a
non-Canadian at a time when we were already controlled by a WTO
investor, would be reviewable under the Investment Act if it was
an investment to acquire

17



---



##### 



control and the value of our assets, as
determined under Investment Act regulations, was not less than a
specified amount, which for 2003 is Cdn.$223 million. The
Investment Act provides detailed rules to determine if there has
been an acquisition of control. For example, a non-Canadian
would acquire control of us for the purposes of the Investment
Act if the non-Canadian acquired a majority of our outstanding
common shares. The acquisition of less than a majority, but
one-third or more, of our common shares would be presumed to be
an acquisition of control of us unless it could be established
that, on the acquisition, we were not controlled in fact by the
acquirer. An acquisition of control for the purposes of the
Investment Act could also occur as a result of the acquisition
by a non-Canadian of all or substantially all of our assets.


Amounts that we may, in the future, pay or
credit, or be deemed to have paid or credited, to you as
dividends in respect of the common shares you hold at a time
when you are not a resident of Canada within the meaning of the
Income Tax Act(Canada) will generally be subject to
Canadian non-resident withholding tax of 25% of the amount paid
or credited, which may be reduced under the
Canada-U.S. Income Tax Convention (1980) (the
Convention). Currently, under the Convention, the
rate of Canadian non-resident withholding tax on the gross
amount of dividends paid or credited to a U.S. resident is
generally 15%. However, if the beneficial owner of such
dividends is a U.S. resident corporation, which owns 10% or
more of our voting stock, the withholding rate is reduced to 5%.
In the case of certain tax-exempt entities, which are residents
of the U.S. for the purpose of the Convention, the withholding
tax on dividends may be reduced to 0%.

Sales of Unregistered Securities

None

ITEM 6.       SELECTED
FINANCIAL DATA

The selected financial data set forth below are
derived from the accompanying financial statements, which form
part of this Annual Report. 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
immediately noted 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 periods indicated:

|                                            |  |                                                                 |         |      |  |      |         |      |  |      |        |  |  |  |        |      |  |  |         |     
|------------------------------------------- |  | --------------------------------------------------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------ |  |  |  | ------ | ---- |  |  | ------- | ----
|                                            |  |                                                                
|                                            |  | Year Ended December 31,                                        
|                                            |  |                                                                
|                                            |  | 2002                                                            |         | 2001 |  | 2000 |         | 1999 |  | 1998
|                                            |  |                                                                 |         |      |  |      |         |      |  |     
|                                            |  |                                                                
|                                            |  | (stated in thousands of U.S. dollars, except per share amounts)
|Revenues                                    |  |                                                                 | 8,437   |      |  |      | 9,722   |      |  |      | 14,063 |  |  |  | 6,210  |      |  |  | 12,752  |     
|Total assets                                |  |                                                                 | 107,088 |      |  |      | 104,003 |      |  |      | 99,800 |  |  |  | 47,659 |      |  |  | 49,442  |     
|Long-term debt                              |  |                                                                 | Nil     |      |  |      | Nil     |      |  |      | Nil    |  |  |  | Nil    |      |  |  | 1,763   |     
|Net earnings (loss)                         |  |                                                                 | (6,819  | )(1) |  |      | (21,122 | )(1) |  |      | 5,429  |  |  |  | (7,802 | )(2) |  |  | (70,677 | )(3)
|Net earnings (loss) per share 
    basic   |  |                                                                 | (0.05   | )    |  |      | (0.16   | )    |  |      | 0.05   |  |  |  | (0.08  | )    |  |  | (0.79   | )   
|Net earnings (loss) per share 
    diluted |  |                                                                 | (0.05   | )    |  |      | (0.16   | )    |  |      | 0.04   |  |  |  | (0.08  | )    |  |  | (0.79   | )   



---



|    |                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes asset write-downs of $2.4 million
    and $14.0 million for 2002 and 2001, respectively. See
    Notes 4 and 11 to our financial statements under
    Item 8 in this Annual Report.
|   
|(2) | Includes asset write down of $2.5 million.
    See Note 8 to our financial statements under Item 8 in
    our 2001 Annual Report.                                                           
|   
|(3) | Includes asset write down of $70.2 million.
    See Note 9 to our financial statements under Item 8 in our
    2000 Annual Report.                                                          

Reconciliation to U.S. GAAP

Our financial statements have been prepared in
accordance with GAAP applicable in Canada, which differ in
certain respects from those principles that we would have
followed had our financial statements been prepared in
accordance with GAAP in the U.S. The only material differences
between Canadian and U.S. GAAP, which affect our financial
statements, is that an increase in ascribed value of shares
issued for royalty interests in 2000 and 1999 of
$1.4 million, additional impairment provision of
$10.0 million in 2001 for our China properties and a
write-off of $1.5 million and $5.1 million, in 2002
and 2001 respectively, in connection with development costs for
our GTL prospects is required under U.S. GAAP.
Determination of earnings per share in 2000, 1999 and 1998 is
calculated excluding shares held in escrow. For U.S. GAAP
reconciliation, see Note 19 to our financial statements.

Had we followed U.S. GAAP, certain selected
financial information reported above, in accordance with
Canadian GAAP, would have been reported as follows. Potential
exercise of the stock options and warrants disclosed in
Note 7 to the financial statements and potential conversion
of the debt, Note 6, do not have a material dilutive effect
on the earnings per share.

18



---



##### 



|                                            |  |                                                        |        |      |  |      |         |      |  |      |         |  |  |  |        |   |  |  |         |  
|------------------------------------------- |  | ------------------------------------------------------ | ------ | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  |  | ------ | - |  |  | ------- | -
|                                            |  |                                                       
|                                            |  | Year Ended December 31,                               
|                                            |  |                                                       
|                                            |  | 2002                                                   |        | 2001 |  | 2000 |         | 1999 |  | 1998
|                                            |  |                                                        |        |      |  |      |         |      |  |     
|                                            |  |                                                       
|                                            |  | (stated in thousands of U.S. dollars, except per share
|                                            |  | amounts)                                              
|Total Assets                                |  |                                                        | 91,921 |      |  |      | 90,219  |      |  |      | 101,158 |  |  |  | 48,852 |   |  |  | 49,442  |  
|Net earnings (loss)                         |  |                                                        | (8,202 | )    |  |      | (36,264 | )    |  |      | 5,429   |  |  |  | (7,802 | ) |  |  | (70,677 | )
|Net earnings (loss) per share 
    basic   |  |                                                        | (0.06  | )    |  |      | (0.28   | )    |  |      | 0.05    |  |  |  | (0.09  | ) |  |  | (1.10   | )
|Net earnings (loss) per share 
    diluted |  |                                                        | ((0.06 | )    |  |      | (0.28   | )    |  |      | 0.05    |  |  |  | (0.09  | ) |  |  | (1.10   | )



|         |                                                                                          
|-------- | -----------------------------------------------------------------------------------------
|ITEM  7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF
    FINANCIAL CONDITION AND RESULTS OF OPERATIONS



| |                                                 
| | ------------------------------------------------
| | Critical Accounting Principles and
    Estimates

Our accounting principles are described in
Note 2 to Notes to the Consolidated Financial Statements in
Item 8. We prepare our Consolidated Financial Statements in
conformity with GAAP in Canada, which conform in all material
respects to U.S. GAAP except for those items disclosed in
Note 2 and Note 19 to Notes to the Consolidated
Financial Statements. For U.S. readers we have detailed the
differences and have also provided a reconciliation of the
differences between U.S. and Canadian GAAP in Note 19 to
Notes to the Consolidated Financial Statements.

The preparation of our financial statements
requires us to make estimates and judgments that affect our
reported amounts of assets, liabilities, revenue and expenses.
On an ongoing basis we evaluate our estimates, including those
related to asset impairment, revenue recognition, allowance for
doubtful accounts and contingencies and litigation. These
estimates are based on information that is currently available
to us and on various other assumptions that we believe to be
reasonable under the circumstances. Actual results could vary
from those estimates under different assumptions and conditions.

We have identified the following critical
accounting policies that affect the more significant judgments
and estimates used in preparation of our consolidated financial
statements.

Full Cost
Accounting We follow the
full cost method of accounting for our oil and gas operations
(as more fully described in Note 2 to the Consolidated
Financial Statements), as compared to the other generally
accepted method, successful efforts. Under the full cost method,
costs associated with geological and geophysical activities and
drilling successful and unsuccessful wells are capitalized on a
country-by-country cost center basis. As a consequence, we may
be more exposed to potential impairments if the book value of
capitalized costs exceeds their future expected cash flows. This
may occur if recoverable reserve estimates decrease, commodity
prices decline or future estimates for capital, operating and
income taxes increase, to levels that would significantly affect
anticipated future cash flows.

Oil and Gas
Reserves The process of
estimating quantities of proved reserves is inherently uncertain
and the reserve estimates included in this document are only
estimates (see Risk Factors). You should not assume
that the present value of our future cash flows is the current
market value of our estimated proved oil and gas reserves. In
accordance with GAAP, we base the estimated future net cash
flows from proved reserves on prices and costs on the date of
estimate. Actual future prices and costs may be materially
higher or lower than the prices and costs at the date of
estimate.

Depletion
Our rate of recording depletion is dependent upon our estimate
of proved reserves and our assessment of unevaluated properties.
If the estimates of proved reserves decline or our depletion
cost base increases as a result of our assessment of impairment
to our unevaluated properties, the rate at which we record our
depletion expense increases, reducing net income. A decline in
proved reserves may occur from lower product prices, which may
make it uneconomic to drill for and produce higher cost fields.

Year Ended December 31, 2002



| |         
| | --------
| | Overview

The year 2002 was a mixture of positive and
negative results for Ivanhoe. On the downside we have, thus far,
been disappointed with the exploration results from our drilling
programs in the Bossier Trend, Northwest Lost Hills and
Kentucky. Of the three wells drilled in the Bossier Trend only
one well is producing minimal levels of gas from the Bossier and
the other two wells are suspended pending Unocals
assessment of the data and its plans for the prospects. In 2003,
we plan to seek other partners who are willing to participate
with us in testing promising zones uphole from the Bossier as
well as other prospects in the Bossier sands. Although Northwest
Lost Hills #1-22 well encountered natural gas in the Temblor
formation, we have thus far been unable to complete negotiations
with a potential partner to finance and participate in the
testing of the Northwest Lost Hills #1-22 deep-gas well. We will
either suspend or plug and abandon Northwest Lost Hills #1-22
pending final concurrence with Aera. Discussions and analysis
are underway with Aera related to cost

19



---



##### 



overruns on Northwest Lost Hills #1-22. We
drilled three exploratory wells in Kentucky in 2001, none of
which were successful in finding commercial quantities of gas.
In 2002, we decided to relinquish our interests in the Kentucky
prospects.


We continue to be pleased with our operations in
South Midway from the 25% increase in production as a result of
our cyclic steam program and the 40% increase in reserve
quantities largely due to our success in proving up additional
reserves in the southern expansion area. Oil and gas prices were
in an upward trend throughout 2002 reducing the negative impact
on revenues, which would have otherwise resulted from the sale
of our reserves in Daqing and Spraberry during the year. More
importantly our net revenues from operations were unchanged from
2001 largely due to our ability to reduce operating costs
despite additional costs incurred for the cyclic steam
operations in South Midway.

We were also able to achieve a 36% reduction in
our project identification and administrative costs in 2002 as
compared to last year through various cost reduction programs,
including, scaling back our programs to identify new exploration
projects and reduction in staff levels.

We concluded a production-sharing contract during
2002 with PetroChina in the Sichuan Basin that included both the
Zitongxi and Zitongdong blocks located in Chinas largest
gas producing region. Several gas-producing structures have
already been discovered on these blocks. There is a strong and
growing market for natural gas, with approximately
120 million people living within the Sichuan basin, an
existing transportation grid within the Zitong block that is
connected to many industrial and populated areas and one major
trunk line is being built to ship gas to other new users in
Eastern China. The alliance we concluded with CITIC during the
year is a key step in potentially accessing the Asian capital
markets to fund our China exploration and development programs.

Our negotiations for a GTL project in Qatar
continue to move forward in a positive direction and we are at
advanced stages in our negotiations. In December 2002, we formed
GTLJ, a wholly owned Japanese subsidiary. We believe Japanese
companies have the capacity to play multiple roles in investing,
financing, engineering, marketing and consuming clean GTL
products throughout the Far East. GTLJ is a vehicle through
which Japanese companies may participate in a world-class GTL
project in a number of these capacities.



| |           
| | ----------
| | Operations

Our net loss for the year was $6.8 million
($0.05 per share) compared to a net loss in 2001 of
$21.1 million ($0.16 per share). The net decrease of $14.3
million is primarily due to an $11.6 million decrease in
write down of properties from year-to-year and $3.2 million
reduction in project identification and general and
administrative costs. Our cash flow deficiency from operating
activities for the year ended December 31, 2002 was $2.8
million, down from the cash flow from operating activities of
$2.4 million we experienced in 2001. In 2002, we raised
$10.1 million through private placements and the exercise
of warrants and incentive stock options ($18.2 million was
raised in 2001 from similar sources). In 2002, we received $0.5
million of financing from a related party (See Note 5 to the
Consolidated Financial Statements, included in Item 8
herein). We invested $18.8 million in exploration,
development and GTL activities in 2002, down from
$40.5 million expended in 2001. Additionally, in 2002 we
generated $5.4 million in cash from the sale of non-core
assets in China and Texas.



| |           
| | ----------
| | Production

Revenues in the U.S. were flat for 2002 as a
production decline of 2% from 2001 was offset by a 2% increase
in the price per Boe. At South Midway, production increased 25%
as a result of our cyclic steam program and the drilling of 7
additional oil wells in 2002. This was offset by a 28% decrease
in Spraberry and Apache Flats production from 2001 levels due to
natural declines, downtime as a result of workovers and the sale
of our interests in certain wells.

At our South Midway field we have drilled 41
wells, 35 of which are producing oil. We are currently producing
approximately 490 net Bbls/d compared to 400 net Bbls/d at the
end of 2001. In 2002, we continued our cyclic steam enhancement
project, which was very successful in increasing production
rates ranging from 2.5 to 4 times. To date, we have cycle
steamed 26 wells with one cycle and 3 wells with a second cycle.
Our plan is to double our ultimate recoverable reserves through
this program. We own a 100% working interest and a 93% net
revenue interest in the project.

To date, we have drilled 32 wells in our
Spraberry field. All 32 wells have been completed in one or more
of the Wolfcamp and Spraberry zones. During the last half of
2002 we sold our interest in 7 Spraberry wells and 50% interest
in 20 Spraberry wells. We have a 40% working interest, before
payout, in 5 Apache Flats wells. Spraberry is producing
approximately 120 net Boe/d compared to 300 net Boe/d at the end
of 2001.

Revenues in China were down $0.8 million for
2002 due to a 9% decrease in oil prices from 2001 plus a 13%
decrease in production from 2001 due to the sale of our Daqing
project in January 2002 and a decrease in production at Dagang
due to natural production declines and the shutting in of one
well due to low production. The production decreases were
partially offset by regaining a 20% interest in the Dagang field
from Nippon Oil in mid-2001 and placing a reworked well on
production late in 2002.

20



---



##### 



We continue to produce pilot phase oil from 8
wells within our Dagang project at a 2002 year-end rate of
467 net Bbls/d, compared to 432 net Bbls/d at year-end 2001.
During the fourth quarter 2002, we performed a workover on a
well previously drilled by CNPC. Initial production after the
workover commenced at 78 net Bbls/d and the well is currently
producing at that same rate. In January 2002, we sold our
interest in the Daqing project, which at year-end 2001 was
producing 50 Bbls/d gross from 2 wells.

Operating costs, including engineering support,
were $3.8 million for 2002 or $10.33 per Boe, compared to
$4.8 million in 2001, or $11.95 per Boe. On our U.S.
properties, the reduction per Boe results primarily from the
installation of permanent production and electrical facilities
in 2001 at South Midway as well as a reduction in operating
costs at the Spraberry field as the wells mature. This is
partially offset by an increase in costs incurred for cyclic
steam activities, including engineering support. In China, we
also installed permanent electrical facilities on certain wells
in our Dagang project, reducing overall costs per Boe and we
experienced improved operating efficiency at Dagang.

U.S. depletion costs per barrel for 2002 have
increased 3% from 2001 primarily due to the reduction in our
reserves as a result of the partial sale of our interests in
Spraberry and an increase in our full cost center as a result of
the impairment of properties. This increase is partially offset
by the $14.0 million write off of depletable costs in 2001. The
depletion costs in China have increased 22% or $1.51 per Boe
compared to 2001, primarily as a result of anticipated increases
in Dagang future development costs and the sale of our reserves
at Daqing.

Since production revenues we generated during
2000 from China were credited to project carrying costs and
production operations in the U.S. did not commence until late
third quarter of 2000, 2000 is not comparable to 2002 and 2001
and is not presented below:

|                             |                     |                      |       |         |     |       |       |         |     |       |       |         |       |   |       |         |     |   |       |         |     |   |       |         |       | 
|---------------------------- | ------------------- | -------------------- | ----- | ------- | --- | ----- | ----- | ------- | --- | ----- | ----- | ------- | ----- | - | ----- | ------- | --- | - | ----- | ------- | --- | - | ----- | ------- | ----- | 
|                             |                     |                      |       |        
|                             |                     | 2002                 |       | 2001   
|                             |                     |                      |       |        
|                             |                     | U.S.                 |       | China   |     | Total |       | U.S.    |     | China |       | Total  
|                             |                     |                      |       |         |     |       |       |         |     |       |       |        
|Net Production               |                     |                      |       |         |     |       |       |         |     |       |       |         |       |   |       |         |     |   |       |         |     |   |       |        
|                             | Boe                 |                      |       | 227,301 |     |       |       | 144,848 |     |       |       | 372,149 |       |   |       | 232,584 |     |   |       | 165,599 |     |   |       | 398,183 |      
|                             |                     | Boe/day for the year |       |         | 623 |       |       |         | 397 |       |       |         | 1,020 |   |       |         | 637 |   |       |         | 454 |   |       |         | 1,091 | 
|Per Boe                      |                     |                      |       |         |     |       |       |         |     |       |       |         |       |   |       |         |     |   |       |         |     |   |       |        
|                             | Oil and gas revenue |                      | $     | 22.43   |     |       | $     | 22.30   |     |       | $     | 22.38   |       |   | $     | 21.93   |     |   | $     | 24.42   |     |   | $     | 22.96   |      
|                             |                     |                      |       |         |     |       |       |         |     |       |       |         |       |   |       |         |     |   |       |         |     |   |       |        
|                             | Operating costs     |                      |       | 6.76    |     |       |       | 6.49    |     |       |       | 6.66    |       |   |       | 7.28    |     |   |       | 10.50   |     |   |       | 8.62    |      
|                             | Production taxes    |                      |       | 1.21    |     |       |       |        |     |       |       | 0.74    |       |   |       | 1.01    |     |   |       |        |     |   |       | 0.59    |      
|                             | Engineering Support |                      |       | 2.38    |     |       |       | 3.80    |     |       |       | 2.93    |       |   |       | 2.12    |     |   |       | 3.62    |     |   |       | 2.74    |      
|                             |                     |                      |       |         |     |       |       |         |     |       |       |         |       |   |       |         |     |   |       |         |     |   |       |        
|                             |                     |                      | 10.35 |         |     |       | 10.29 |         |     |       | 10.33 |         |       |   | 10.41 |         |     |   | 14.12 |         |     |   | 11.95 |        
|                             |                     |                      |       |         |     |       |       |         |     |       |       |         |       |   |       |         |     |   |       |         |     |   |       |        
|Net revenue before depletion |                     |                      | 12.08 |         |     |       | 12.01 |         |     |       | 12.05 |         |       |   | 11.52 |         |     |   | 10.30 |         |     |   | 11.01 |        
|                             | Depletion           |                      |       | 8.39    |     |       |       | 8.30    |     |       |       | 8.35    |       |   |       | 8.12    |     |   |       | 6.79    |     |   |       | 7.56    |      
|                             |                     |                      |       |         |     |       |       |         |     |       |       |         |       |   |       |         |     |   |       |         |     |   |       |        
|Net revenue after depletion  |                     | $                    | 3.69  |         |     | $     | 3.71  |         |     | $     | 3.70  |         |       | $ | 3.40  |         |     | $ | 3.51  |         |     | $ | 3.45  |        
|                             |                     |                      |       |         |     |       |       |         |     |       |       |         |       |   |       |         |     |   |       |         |     |   |       |        

Total revenues from our oil and gas operations
were $8.3 million, $9.1 million and $0.9 million
for 2002, 2001 and 2000, respectively.



| |                                                                
| | ---------------------------------------------------------------
| | General and Administration and Project
    Identification Costs

We continue to follow the practice of expensing
the costs we incur in pursuing and investigating new projects,
as well as costs associated with investment banking advice. In
2002, we incurred $5.7 million of general and
administrative and project identification costs, down from
$8.8 million in 2001. This decrease is directly
attributable to our reduction in activities related to finding
and investigating new projects, including $1.4 million of
investment banking services incurred in 2001. In addition, in
the third quarter of 2002, we implemented a cost reduction
program that continues into 2003.



| |                
| | ---------------
| | Interest Income

Interest income represents income we earned on
our excess cash balances held during the year. Due to decreased
cash balances and a decline in interest rate yields in 2002,
interest income decreased $0.5 million from 2001.



| |             
| | ------------
| | Income Taxes

We have significant tax losses available to carry
forward and reduce taxes otherwise payable. Details of these
losses are in Note 13 to the consolidated financial statements
included herein under Item 8. Given the uncertainty as to
the utilization of these tax loss carry-forwards, we have
followed the practice of recording a provision against the tax
benefit asset resulting from these losses.

21



---



##### 





| |                                           
| | ------------------------------------------
| | Exploration and Development
    Activities

Expenditures in 2002 on these activities were
$16.9 million, down from $36.6 million in 2001. Capital
spending in the U.S. was down $16.7 million in 2002,
primarily due to a reduction in development drilling in
Spraberry and South Midway, the completion of our Magic Mountain
and Kentucky drilling programs in 2001, and the completion of
our significant acreage acquisition program in the Bossier Trend
at year-end 2001. These decreases were partially offset by an
increase in drilling costs on Northwest Lost Hills #1-22.
Spending in China was down $2.9 million to
$3.6 million in 2002, primarily as a result of the pilot
test in our Dagang project being completed in February 2001 and
the sale of Daqing project in 2002, partially offset by an
increase in spending on the Sichuan project in 2002.

At South Midway, we drilled 8 more development
wells, 7 commercial oil producers and 1 gas supply well during
2002. (See above discussion under Production).
Additionally, after initiating a pilot cyclic steam project in
2001, we commenced a full-scale steam project to enhance
production. We anticipate drilling another 20 new wells in 2003
as we develop new reservoirs south of the main A and B areas of
the project. See discussion below under Liquidity and
Capital Resources.

In Texas, we drilled 2 more development wells in
the Apache Flats area of our west Texas Spraberry project, both
commercial producers. We sold our interest in certain wells
within the Spraberry project, keeping our 40% interest in all of
the wells in the Apache Flats area. (See above discussion under
Production). In the Texas Bossier Trend, we
completed 2 wells in the Cresslan Ranch prospect and one in the
Lone Star prospect. One well is producing minimal levels of gas
from the Bossier and the other wells are suspended pending
Unocals assessment of the data and its plans for the
Bossier prospects. There are additional zones of interest above
the Bossier sands waiting on testing. Currently Unocal has spent
$8.3 million of the $10.1 million needed to earn a 50%
interest in our holdings in Bossier.

At Lost Hills in California, the Northwest Lost
Hills #1-22 well was successfully drilled to a measured depth of
21,000 feet and a liner set to 19,620 feet. While drilling the
well, we encountered several high-pressure intervals which
indicated the presence of natural gas. Testing operations have
been suspended while we seek a partner to share the costs of the
testing program. Accordingly, the commercial success of this
well has not yet been determined.

Upon completion of our analysis of the data from
the three Kentucky wells drilled in 2001 we decided not to
perform further tests on any of the wells and to relinquish our
interests.

During 2002, we signed a single
production-sharing contract with PetroChina that includes two
blocks in the Sichuan province of China. The contract was given
final Chinese regulatory approval in November 2002, with a
December 1, 2002 implementation date. The contract consists
of two, three-year exploration periods, the first of which will
include reprocessing of 2D seismic, the acquisition of new
seismic and the drilling of 2 exploratory wells, the first of
which must be spudded no later than September 2004. We also
completed our feasibility study for the Yudong block within the
Sichuan province, submitted the report to PetroChina and
submitted a letter of intent to negotiate a contract and a work
plan for Yudong. We currently await PetroChinas reply.

At our Dagang project in China, we submitted a
final draft of our Overall Development Program to Chinese
regulatory authorities for approval. We expect to receive final
Government approval during the first half of 2003, after which
the development phase will commence. We continue to operate the
pilot wells with 82% of production revenue accruing to us.

Total capital spending on oil and gas operations,
excluding non-cash transactions, for 2002, 2001 and 2000 was as
follows:

|                      |                            |      |        |        |  |      |        |        |  |   |        |        |     
|--------------------- | -------------------------- | ---- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | ----
|                      |                            | 2002 |        | 2001   |  | 2000
|                      |                            |      |        |        |  |     
|Capital Expenditures: |                            |      |        |        |  |      |        |        |  |   |        |       
|                      | U.S                        |      | $      | 13,306 |  |      | $      | 30,047 |  |   | $      | 21,899 |     
|                      | China                      |      |        | 3,626  |  |      |        | 6,568  |  |   |        | 5,676  |     
|                      |                            |      |        |        |  |      |        |        |  |   |        |       
|                      |                            | $    | 16,932 |        |  | $    | 36,615 |        |  | $ | 27,575 |       
|                      |                            |      |        |        |  |      |        |        |  |   |        |       
|Comprised of:         |                            |      |        |        |  |      |        |        |  |   |        |       
|                      | Property acquisition       |      | $      | 913    |  |      | $      | 4,788  |  |   | $      | 6,392  |     
|                      | Royalty rights             |      |        |       |  |      |        | 1,191  |  |   |        | 240    |     
|                      | Seismic                    |      |        | 30     |  |      |        | 1,348  |  |   |        | 3,840  |     
|                      | Exploration                |      |        | 10,811 |  |      |        | 10,197 |  |   |        | 667    |     
|                      | Development                |      |        | 5,178  |  |      |        | 19,091 |  |   |        | 19,376 |     
|                      | Less: China oil production |      |        |       |  |      |        |       |  |   |        | (2,940 | )(1)
|                      |                            |      |        |        |  |      |        |        |  |   |        |       
|                      |                            | $    | 16,932 |        |  | $    | 36,615 |        |  | $ | 27,575 |       
|                      |                            |      |        |        |  |      |        |        |  |   |        |       

22



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##### 








|    |                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------
|(1) | Prior to proceeding to the development phase, oil
    revenue was credited to the China cost center.



| |                     
| | --------------------
| | Gas-to-Liquids (GTL)

GTL expenditures were $1.9 million for 2002,
$3.9 million for 2001 and $13.2 million for 2000. The
decrease in 2002 results from the 2002 completion of technical
and commercial feasibility studies for both the Qatar and Egypt
projects. In 2000, we acquired a master license from Syntroleum
for $10.0 million and invested $2.0 million in
Syntroleums Sweetwater project in Australia.

Negotiations in Qatar for an agreement to build
GTL and natural gas liquids (NGL) plants continue and are
currently at an advanced and detailed stage. The GTL project
that we are negotiating will include the development of natural
gas reserves in Qatars huge offshore North Field; the
construction of an NGL plant to produce 80,000 Bbls/ d of
condensate, 24,000 Bbls/ d of propane and 17,000 Bbls/ d of
butane; and the construction of a modular GTL plant to produce
185,000 Bbls/d of ultra-clean naphtha and diesel fuel. The total
cost of the project will be approximately $5 billion. We
can offer no assurances that our negotiations will ultimately
lead to an agreement for a GTL project.

We continue to work with Japanese companies to
optimize the commercial structure for utilization of GTL and NGL
products produced in our planned Qatar project. Additionally,
testing of the GTL diesel has been completed by various Japanese
automotive interests in an effort to gain acceptance of GTL fuel
in that marketplace. A market analysis for the Asia/ Pacific
region, Western and Eastern Europe and U.S. markets has been
completed. Development of a project financing plan, utilizing
Japanese and global resources, is continuing.

Based on our ongoing commercialization studies
and the growing demand for cleaner sources of energy in Japan,
we have incorporated a new subsidiary in Japan to facilitate the
potential future participation by Japanese companies in the
Qatar GTL project. If, as and when we obtain the right to
develop this project, we intend to assign up to 5% of our
interest to GTLJ, our new Japanese subsidiary. GTLJ would then
invite Japanese companies from the refining and distribution,
exploration and production, trading and manufacturing industry
sectors to invest in GTLJ on certain commercial terms. Any
proceeds raised would be used to fund up to an estimated
$250 million of project costs including front-end
engineering and design. Additional sources of financing for this
predevelopment work are being pursued to obtain the most
competitive and favorable terms.

In Egypt, we are currently studying alternative
scenarios that could improve economics for a 45,000 Bbls/ d GTL
plant. Continued discussions have resulted in the Ministry of
Petroleums willingness to consider alternative
configurations to the plant design. In Oman, we made preliminary
proposals for plant sizes ranging from 45,000 
90,000Bbls/ d. The Ministry of Oil and Gas has been studying our
proposals.

In June 2002, we signed a letter of intent with
Syntroleum to participate in the Syntroleum  U.S.
Department of Energy Fuels Project at a cost of $5.0 million.
Participation is contingent upon our finalizing and signing the
GTL agreement in Qatar. The goal of the project is to establish
GTL diesel production from a demonstration plant in such volumes
so as to supply adequate quantities to various GTL fuel field
trials. Participation allows us sufficient supplies of GTL,
diesel and naphtha to provide samples to potential buyers.
Additionally, we will have access to the demonstration plant for
the purpose of gaining operational experience and training
future operations personnel. The project cost is to be offset by
$2.0 million of our investment in Syntroleums
Sweetwater project in Australia, which was cancelled by
Syntroleum.



| |                                    
| | -----------------------------------
| | Liquidity and Capital
    Resources

Our capital expenditure budget for 2003 is
$18.5 million; $5.0 million is required to develop the
southern expansion in South Midway and $10.0 million to
develop the Dagang field. The Dagang development program is
scheduled to begin after receiving final approval from the
Central Government by mid-2003. The plan is to fund both capital
programs with debt and or equity financing. In February 2003, we
arranged financing for the South Midway expansion development.
The 2003 budget for the Sichuan seismic acquisition program is
$3.5 million. Our plan is to fund Sichuan from existing
cash balances, cash flows from operations, further sales of
non-core assets and loans from related parties. Further equity
financings will also be considered as a source of funds should
capital markets become more favorable.

We view the Sunwing and CITIC strategic alliance
as a key step in potentially accessing the Asian capital markets
to fund our China exploration and development programs. Our
objective in forming the alliance is to raise Sunwings
profile and enhance its credibility among Asian institutional
investors with a view to a possible listing of Sunwings
shares on the Stock Exchange of Hong Kong.

We undertook measures during the third quarter of
2002 to better position ourselves for 2003 when we believe one
or more of our major upside potential projects will materialize
and access to capital markets will become more accommodating.
This included employee and overhead cost reductions, sale of
non-core wells in the Spraberry field and the hedging of crude
oil prices for a portion of our U.S. production. Additionally,
we are optimistic that our cyclic steam program in South Midway
will continue to generate good cash

23



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##### 



flow levels and that these results will be
further enhanced by our plans to drill another 20 wells in the
coming year. We will continue to pursue sales of non-core assets
and pursue joint venture partners to implement our capital
programs when opportunities arise.


After March 27, 2003, the $1.0 million
unsecured, convertible debenture will be payable 90 days
following written demand by the lender, assuming it is not
converted into our common shares prior to March 27, 2003.
Our plans are to negotiate an extension of the conversion period
for up to an additional 180 days under the current terms. Should
demand for payment be made, our plan is to fund the payoff with
equity financing or loans from related parties.

During 2002, we raised $10.1 million through
the issuance of common shares and $0.5 million through a
related party loan agreement. Additional funding will be
required to complete future capital programs through a
combination of equity, debt and joint venture partner
participation. We cannot assure you that we will be successful
in raising the additional funds necessary or securing joint
venture partners to complete our capital programs. If we are
unsuccessful, we will have to prioritize our capital programs,
which may result in delaying and potentially losing some
valuable business opportunities.



| |                              
| | -----------------------------
| | Off Balance Sheet Disclaimer:

At December 31, 2002 and 2001, we did not
have any relationships with unconsolidated entities or financial
partnerships, such as structured finance or special purpose
entities, which would have been established for the purpose of
facilitating off-balance sheet arrangements or other
contractually narrow or limited purposes. In addition, we do not
engage in trading activities involving non-exchange traded
contracts. As such, we are not materially exposed to any
financing, liquidity, market or credit risk that could arise if
we had engaged in such relationships. We do not have
relationships and transactions with persons or entities that
derive benefits from their non-independent relationship with us,
or our related parties, except as disclosed herein.

Year Ended December 31, 2001



| |         
| | --------
| | Overview

Our 2001 U.S. production increased almost 8 fold
over 2000 to 232,600 Boe. Net revenues from our U.S. projects
increased to $5.1 million from $0.9 million the
previous year. Our 2001 China pilot production increased 61% to
165,600 barrels of oil with net revenue increasing
$1.1 million to $4.0 million. Our operating results
however, suffered from the decline in oil and gas prices in the
second half of 2001. In the U.S. these declines necessitated a
provision for impairment of capitalized costs of
$14.0 million and reduced our net revenue to
$1.1 million in the fourth quarter compared to
$1.5 million in the previous quarter. In China, the fourth
quarter decline in net revenue was less dramatic due to the
impact of three month averaging of our oil prices. However, on
application of U.S. GAAP at year-end an impairment provision of
$10.0 million on the carrying value of our China properties
was necessary



| |           
| | ----------
| | Operations

Our net loss for the year was $21.1 million
($0.16 per share) compared to net income in 2000 of
$5.4 million ($0.05 per share). The net change
year-over-year of $26.5 million is attributable to a
$14.0 million write down of our U.S. properties under the
ceiling test calculation in 2001 and the $12.2 million gain
on the sale of our Russian properties recorded in 2000. As more
fully explained in Note 19 to our consolidated financial
statements, included in Item 8 herein, on application of
U.S. GAAP an additional $10.0 million write down of
our China property and a $5.1 million write-off of
capitalized development costs in connection with our GTL
prospects are required. No similar write-downs are required
under Canadian GAAP. Our cash flow from operating activities for
the year ended December 31, 2001 was $2.4 million, up
from the cash flow deficiency from operating activities of
$11.8 million we experienced in 2000. In 2001, we raised
$18.2 million through private placements and the exercise
of warrants and incentive stock options ($47.7 million was
raised in 2000 from similar sources). In 2001, we invested
$40.5 million ($40.8 million in 2000), primarily in
exploration and development activities.



| |           
| | ----------
| | Production

At our South Midway field in California, we
drilled 31 wells, 29 of which are producing. We produced
approximately 400 net Bbls/ d. In the fourth quarter of 2001, we
completed a pilot cyclic steam enhancement project, which more
than doubled production rates in the five wells that were
treated. We own a 100% working interest and a 93% net revenue
interest in the project. Aera elected not to participate in this
project but receives royalties pursuant to the Aera exploration
agreement.

As of the end of 2001, we drilled 30 wells in the
Spraberry field, which are producing approximately 300 net Boe/
d. All 30 wells have been completed in one or more of the
Wolfcamp zones but 5 wells were awaiting their Spraberry zone
completions. As of the end of 2001, we drilled three wells in
the Apache Flats area that are producing 40 net Boe/ d.

South Midway and Spraberry are our only producing
fields in the U.S. The substantial declines in oil and gas
product prices during 2001 have had significant impact on our
operating profitability at these fields and have made it
necessary to provide a provision for

24



---



##### 



impairment on the carrying value of our U.S.
evaluated oil and gas assets. We recorded an impairment
provision of $14.0 million in 2001.




| |                                                                
| | ---------------------------------------------------------------
| | General and Administration and Project
    Identification Costs

During 2001, we incurred $6.2 million, up
$2.5 million from the $3.7 million incurred in 2000,
in costs associated with international project opportunities
that we have rejected. Of the increase, $1.4 million is
attributable to payments to investment bankers for assistance
with financial and strategic planning. We incurred other general
and administrative costs of $2.6 million during 2001, down
$0.3 million from the $2.9 million we incurred in 2000.



| |                          
| | -------------------------
| | Other Income and Expenses

Interest income represents income we earned on
our excess cash balances held during 2001. The decrease of
approximately $0.4 million from 2000 arises from a
reduction of our cash balances and interest rates during 2001.
Russian litigation costs ceased in mid 2000 with the successful
resolution of our dispute with our Russian joint venture partner
and divestiture of our Russian projects. Depletion and
depreciation is up $2.9 million from 2000 due to the
inclusion of production from our U.S. properties for a full year
and the inclusion of production from China in income in 2001.



| |                                           
| | ------------------------------------------
| | Exploration and Development
    Activities

During 2001, we continued our exploration program
in the San Joaquin Valley of Southern California on acreage
primarily acquired under the Aera exploration agreement. We spud
our first deep gas exploration well at Northwest Lost Hills in
Kern County in August 2001. In addition, we drilled 2 other
exploration wells in southern California, which were
unsuccessful, and were abandoned. At South Midway we drilled 10
more development wells, all commercial oil producers.
Additionally, we initiated a pilot cyclic steam enhancement
project, resulting in a full-scale steam project, which
commenced in 2002. We acquired overriding royalties, ranging
from 1.8% to 6.6%, in the deep rights of certain leases of the
Aera exploration agreement.

In Texas, we drilled an additional 14 producing
wells during 2001 in the Spraberry Trend acreage in West Texas.
In 2001, we spud 2 wells in the Creslenn Ranch prospect within
the Bossier Trend in East Texas, both of which encountered gas
shows. We continued to increase our leased acreage in the
Bossier area during 2001.

At our Dagang Project in China, we completed our
pilot-testing phase in February 2001 and later in the year
submitted our overall development plan to the Chinese
authorities for their approval, which is expected in the first
half of 2003. At our Daqing Project, our overall development
plan was approved in February 2001 and we resumed operatorship
and rights to revenues on March 1, 2001. Our Daqing Project
is small by international standards and negotiations with CNPC
for additional blocks to be included in the contract area have
proved unsuccessful and after an internal review of our China
projects, and based on our shift towards major gas development
in China we put the Daqing project up for disposal. Effective
January 2002, we disposed of the project for $2.4 million in
cash and an overriding royalty on future production.



|          |                                                               
|--------- | --------------------------------------------------------------
|ITEM  7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
    MARKET RISK

We have exploration and development projects in
the U.S. and China. Our projects are at various stages and, like
all exploration companies in the oil and gas industry, we are
exposed to the significant risk that our exploration activities
will not necessarily result in a discovery of economically
recoverable reserves.

We currently have limited production. Until June
1999, we had a successful producing project in Russia, but legal
actions initiated in the Russian courts by our Russian joint
venture partner deprived us of the right to operate the field
and to realize any continuing return on our investment. As a
result, we sold our interest in the project in August 2000. Oil
and gas revenue reported before 2000 was generated from our
share of production from the Russian project.

The Companys results of operations are
sensitive mainly to fluctuations in oil and natural gas prices.
We are currently engaged in derivatives to hedge the cash flow
from a portion of our U.S. oil production. See Note 10 to the
Consolidated Financial Statements in Item 8.

We are exposed to the risk that we may require a
provision for impairment as to the carrying value of our oil and
gas assets. Such value is compared quarterly to the estimated
recoverable value of our proved reserves based on period-end
commodity prices, unescalated. We are exposed to the risk that
we will be unable to engage competent cost-effective contractors
and suppliers for our operations, risks that damage to, or
malfunction of, our equipment will hinder our ability to carry
out our exploration activities and risks that foreign laws may
not adequately protect our interests in disputes with foreign
partners and others.

25



---



##### 



In the international petroleum industry, most
production is bought and sold in U.S. currency or with reference
to U.S. currency. Accordingly, we do not expect to face foreign
exchange risks if and when we commence large-scale commercial
production. Most of our business transactions are conducted in
U.S. currency in the countries in which we operate.

We currently have minimal debt obligations and,
therefore, we do not believe that we face any undue financial
risk from interest rate fluctuations.

26



---



##### 





|         |                                                
|-------- | -----------------------------------------------
|ITEM  8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY
    DATA

Index to Financial Statements and Related
Information

|                                                                                  |                                                          |      |    |    | 
|--------------------------------------------------------------------------------- | -------------------------------------------------------- | ---- | -- | -- | 
|                                                                                  |                                                          | Page
|                                                                                  |                                                          |     
|Auditors Report                                                                  |                                                          |      | 28 |   
|Consolidated Financial Statements                                                 |                                                          |      |    |   
|                                                                                  | Consolidated Balance Sheets                              |      |    | 29 | 
|                                                                                  | Consolidated Statements of Loss (Income) and
    Deficit |      |    | 30 | 
|                                                                                  | Consolidated Statements of Cash Flow                     |      |    | 31 | 
|                                                                                  | Notes to the Consolidated Financial Statements           |      |    | 32 | 
|Supplementary Disclosures About Oil and Gas
    Production Activities (Unaudited) |                                                          |      | 46 |   

27



---



##### 



AUDITORS REPORT

To the Shareholders of

Ivanhoe Energy Inc.:


We have audited the consolidated balance sheets
of Ivanhoe Energy Inc. as at December 31, 2002 and
2001 and the consolidated statements of loss (income) and
deficit and cash flow for each of the years in the three-year
period ended December 31, 2002. These consolidated
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.

We conducted our audits in accordance with
Canadian generally accepted auditing standards, and United
States generally accepted auditing standards. Those standards
require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, these consolidated financial
statements present fairly, in all material respects, the
financial position of the Company as at December 31, 2002
and 2001 and the results of its operations and its cash flows
for each of the years in the three year period ended
December 31, 2002 in accordance with Canadian generally
accepted accounting principles.

|                                       |  |                                                         
|-------------------------------------- |  | --------------------------------------------------------
|Calgary, Alberta
    February 14, 2003 |  | (signed) Deloitte & Touche LLP
    Chartered Accountants

COMMENTS BY AUDITORS FOR U.S. READERS
ON

CANADA  U.S. REPORTING
DIFFERENCES


In the United States, reporting standards for
auditors require the addition of an explanatory paragraph
(following the opinion paragraph) when the financial statements
are affected by conditions and events that cast uncertainty as
to the Companys ability to carry out and complete planned
activities without raising additional financing, as described in
Note 1 to the financial statements. Our report to the
shareholders dated February 14, 2003 is expressed in
accordance with Canadian reporting standards which do not permit
a reference to such events and conditions in the auditors
report when these are adequately disclosed in the financial
statements.

In the United States, reporting standards for
auditors also require the addition of an explanatory paragraph
(following the opinion paragraph) outlining changes in
accounting principles that have been implemented in the
financial statements. As discussed in Note 7 to the
consolidated financial statements, the Company changed its
method of accounting for stock-based compensation to conform to
the new Canadian Institute of Chartered Accountants Handbook
recommendations Section 3870.

|                                       |  |                                                         
|-------------------------------------- |  | --------------------------------------------------------
|Calgary, Alberta
    February 14, 2003 |  | (signed) Deloitte & Touche LLP
    Chartered Accountants

28



---



##### 



IVANHOE ENERGY INC.

Consolidated Balance Sheets

(stated in thousands of U.S.
Dollars)


|                                                                        |  |                    |         |      |  |   |         |  
|----------------------------------------------------------------------- |  | ------------------ | ------- | ---- |  | - | ------- | -
|                                                                        |  |                   
|                                                                        |  | As at December 31,
|                                                                        |  |                   
|                                                                        |  | 2002               |         | 2001
|                                                                        |  |                    |         |     
|Assets                                                                  |  |                    |         |      |  |   |         |  
|Current Assets                                                          |  |                    |         |      |  |   |         |  
|Cash                                                                    |  | $                  | 3,980   |      |  | $ | 9,697   |  
|Accounts receivable (Note 3)                                            |  |                    | 2,519   |      |  |   | 1,938   |  
|Other                                                                   |  |                    | 691     |      |  |   | 375     |  
|                                                                        |  |                    |         |      |  |   |         |  
|                                                                        |  |                    | 7,190   |      |  |   | 12,010  |  
|Long term assets                                                        |  |                    | 462     |      |  |   | 397     |  
|Oil and gas properties, equipment and GTL
    investments, net (Note 4) |  |                    | 99,436  |      |  |   | 91,596  |  
|                                                                        |  |                    |         |      |  |   |         |  
|                                                                        |  | $                  | 107,088 |      |  | $ | 104,003 |  
|                                                                        |  |                    |         |      |  |   |         |  
|Liabilities and Shareholders
    Equity                                |  |                    |         |      |  |   |         |  
|Current Liabilities                                                     |  |                    |         |      |  |   |         |  
|Accounts payable and accrued liabilities                                |  | $                  | 4,797   |      |  | $ | 5,974   |  
|Demand loan payable (Note 5)                                            |  |                    | 500     |      |  |   |        |  
|Convertible debentures (Note 6)                                         |  |                    | 1,000   |      |  |   | 1,000   |  
|                                                                        |  |                    |         |      |  |   |         |  
|                                                                        |  |                    | 6,297   |      |  |   | 6,974   |  
|                                                                        |  |                    |         |      |  |   |         |  
|Provision for site restoration                                          |  |                    | 243     |      |  |   | 132     |  
|                                                                        |  |                    |         |      |  |   |         |  
|Shareholders Equity                                                    |  |                    |         |      |  |   |         |  
|Share capital (Note 7)                                                  |  |                    | 131,112 |      |  |   | 120,392 |  
|Deficit                                                                 |  |                    | (30,564 | )    |  |   | (23,495 | )
|                                                                        |  |                    |         |      |  |   |         |  
|                                                                        |  |                    | 100,548 |      |  |   | 96,897  |  
|                                                                        |  |                    |         |      |  |   |         |  
|                                                                        |  | $                  | 107,088 |      |  | $ | 104,003 |  
|                                                                        |  |                    |         |      |  |   |         |  

Approved by the Board:

|                                   |  |                                     
|---------------------------------- |  | ------------------------------------
|(signed) David Martin
    Director |  | (signed) E. Leon Daniel
    Director

29



---



##### 



IVANHOE ENERGY INC.

Consolidated Statements of Loss (Income) and
Deficit

(stated in thousands of U.S. Dollars,
except per share data)


|                                                               |         |                         |        |         |  |      |        |         |  |   |        |         |  
|-------------------------------------------------------------- | ------- | ----------------------- | ------ | ------- |  | ---- | ------ | ------- |  | - | ------ | ------- | -
|                                                               |         |                        
|                                                               |         | Year Ended December 31,
|                                                               |         |                        
|                                                               |         | 2002                    |        | 2001    |  | 2000
|                                                               |         |                         |        |         |  |     
|Revenue                                                        |         |                         |        |         |  |      |        |         |  |   |        |        
|Oil and gas revenue                                            |         | $                       | 8,329  |         |  | $    | 9,144  |         |  | $ | 851    |        
|Interest income                                                |         |                         | 108    |         |  |      | 578    |         |  |   | 990    |        
|Gain on Russia projects (Note 12)                              |         |                         |       |         |  |      |       |         |  |   | 12,222 |        
|                                                               |         |                         |        |         |  |      |        |         |  |   |        |        
|                                                               |         |                         | 8,437  |         |  |      | 9,722  |         |  |   | 14,063 |        
|                                                               |         |                         |        |         |  |      |        |         |  |   |        |        
|Expenses                                                       |         |                         |        |         |  |      |        |         |  |   |        |        
|Operating costs                                                |         |                         | 3,841  |         |  |      | 4,758  |         |  |   | 787    |        
|Project identification costs                                   |         |                         | 733    |         |  |      | 6,210  |         |  |   | 3,732  |        
|General and administrative                                     |         |                         | 4,934  |         |  |      | 2,635  |         |  |   | 2,914  |        
|Russian litigation                                             |         |                         |       |         |  |      |       |         |  |   | 860    |        
|Depletion and depreciation                                     |         |                         | 3,312  |         |  |      | 3,241  |         |  |   | 341    |        
|Write offs and provision for impairment
    (Notes 4 and 11)   |         |                         | 2,436  |         |  |      | 14,000 |         |  |   |       |        
|                                                               |         |                         |        |         |  |      |        |         |  |   |        |        
|                                                               |         |                         | 15,256 |         |  |      | 30,844 |         |  |   | 8,634  |        
|                                                               |         |                         |        |         |  |      |        |         |  |   |        |        
|Net Loss (Income)
    (Note 13)                                |         |                         | 6,819  |         |  |      | 21,122 |         |  |   | (5,429 | )      
|Deficit, beginning of year                                     |         |                         | 23,495 |         |  |      | 2,373  |         |  |   | 7,802  |        
|Loss on acquisition of shares (Note 7)                         |         |                         | 250    |         |  |      |       |         |  |   |       |        
|                                                               |         |                         |        |         |  |      |        |         |  |   |        |        
|Deficit, end of year                                           |         | $                       | 30,564 |         |  | $    | 23,495 |         |  | $ | 2,373  |        
|                                                               |         |                         |        |         |  |      |        |         |  |   |        |        
|Net Loss (Income) per Share
    (Note 14)                      |         |                         |        |         |  |      |        |         |  |   |        |        
|                                                               | Basic   |                         | $      | 0.05    |  |      | $      | 0.16    |  |   | $      | (0.05   | )
|                                                               |         |                         |        |         |  |      |        |         |  |   |        |        
|                                                               | Diluted |                         | $      | 0.05    |  |      | $      | 0.16    |  |   | $      | (0.04   | )
|                                                               |         |                         |        |         |  |      |        |         |  |   |        |        
|Weighted Average Number of Shares (in
    thousands) (Note 14) |         |                         |        |         |  |      |        |         |  |   |        |        
|                                                               | Basic   |                         |        | 142,314 |  |      |        | 128,598 |  |   |        | 119,719 |  
|                                                               |         |                         |        |         |  |      |        |         |  |   |        |        
|                                                               | Diluted |                         |        | 142,314 |  |      |        | 128,598 |  |   |        | 124,549 |  
|                                                               |         |                         |        |         |  |      |        |         |  |   |        |        

30



---



##### 



IVANHOE ENERGY INC.

Consolidated Statements of Cash Flow

(stated in thousands of U.S.
Dollars)


|                                                                   |                                                              |                         |         |       |  |      |         |        |  |   |         |         |  
|------------------------------------------------------------------ | ------------------------------------------------------------ | ----------------------- | ------- | ----- |  | ---- | ------- | ------ |  | - | ------- | ------- | -
|                                                                   |                                                              |                        
|                                                                   |                                                              | Year ended December 31,
|                                                                   |                                                              |                        
|                                                                   |                                                              | 2002                    |         | 2001  |  | 2000
|                                                                   |                                                              |                         |         |       |  |     
|Operating Activities                                               |                                                              |                         |         |       |  |      |         |        |  |   |         |        
|Net (loss) income                                                  |                                                              | $                       | (6,819  | )     |  | $    | (21,122 | )      |  | $ | 5,429   |        
|Items not requiring use of cash                                    |                                                              |                         |         |       |  |      |         |        |  |   |         |        
|                                                                   | Gain on Russian projects (Note 12)                           |                         |         |      |  |      |         |       |  |   |         | (12,222 | )
|                                                                   | Write offs and provision for impairment (Notes
    4 and 11) |                         |         | 2,436 |  |      |         | 14,000 |  |   |         |        |  
|                                                                   | Depletion and depreciation                                   |                         |         | 3,312 |  |      |         | 3,241  |  |   |         | 341     |  
|                                                                   | Other                                                        |                         |         |      |  |      |         |       |  |   |         | 67      |  
|Changes in non-cash working capital items                          |                                                              |                         | (1,687  | )     |  |      | 6,314   |        |  |   | (5,448  | )      
|                                                                   |                                                              |                         |         |       |  |      |         |        |  |   |         |        
|                                                                   |                                                              |                         | (2,758  | )     |  |      | 2,433   |        |  |   | (11,833 | )      
|                                                                   |                                                              |                         |         |       |  |      |         |        |  |   |         |        
|Investing Activities                                               |                                                              |                         |         |       |  |      |         |        |  |   |         |        
|Capital spending                                                   |                                                              |                         | (18,828 | )     |  |      | (40,504 | )      |  |   | (40,827 | )      
|Proceeds from sale of assets (Note 4)                              |                                                              |                         | 5,351   |       |  |      |        |        |  |   |        |        
|Recovery from Russia projects                                      |                                                              |                         |        |       |  |      |        |        |  |   | 31,710  |        
|Other                                                              |                                                              |                         | (65     | )     |  |      | (155    | )      |  |   | 292     |        
|                                                                   |                                                              |                         |         |       |  |      |         |        |  |   |         |        
|                                                                   |                                                              |                         | (13,542 | )     |  |      | (40,659 | )      |  |   | (8,825  | )      
|                                                                   |                                                              |                         |         |       |  |      |         |        |  |   |         |        
|Financing Activities                                               |                                                              |                         |         |       |  |      |         |        |  |   |         |        
|Shares issued on private placements (net)                          |                                                              |                         | 9,964   |       |  |      | 17,903  |        |  |   | 38,598  |        
|Shares issued on exercise of options and warrants                  |                                                              |                         | 119     |       |  |      | 326     |        |  |   | 9,117   |        
|Proceeds from demand loan (Note 5)                                 |                                                              |                         | 500     |       |  |      |        |        |  |   |        |        
|                                                                   |                                                              |                         |         |       |  |      |         |        |  |   |         |        
|                                                                   |                                                              |                         | 10,583  |       |  |      | 18,229  |        |  |   | 47,715  |        
|                                                                   |                                                              |                         |         |       |  |      |         |        |  |   |         |        
|Increase (decrease) in cash and cash
    equivalents, for the year |                                                              |                         | (5,717  | )     |  |      | (19,997 | )      |  |   | 27,057  |        
|Cash and cash equivalents, beginning of year                       |                                                              |                         | 9,697   |       |  |      | 29,694  |        |  |   | 2,637   |        
|                                                                   |                                                              |                         |         |       |  |      |         |        |  |   |         |        
|Cash and cash equivalents, end of year                             |                                                              | $                       | 3,980   |       |  | $    | 9,697   |        |  | $ | 29,694  |        
|                                                                   |                                                              |                         |         |       |  |      |         |        |  |   |         |        
|Supplementary Information                                          |                                                              |                         |         |       |  |      |         |        |  |   |         |        
|                                                                   | Regarding Non-Cash Transactions                              |                         |         |       |  |      |         |        |  |   |         |         |  
|Investing activities, net assets acquired
    (Note 4)             |                                                              |                         |         |       |  |      |         |        |  |   |         |        
|                                                                   | Overriding royalties                                         |                         | $       |      |  |      | $       | 2,852  |  |   | $       | 917     |  
|                                                                   | Lease acquisition                                            |                         |         |      |  |      | $       | 900    |  |   |         |        |  
|                                                                   | Accounts receivable                                          |                         |         |      |  |      |         | 200    |  |   |         |        |  
|                                                                   |                                                              |                         |         |       |  |      |         |        |  |   |         |        
|                                                                   |                                                              | $                       |        |       |  | $    | 3,952   |        |  | $ | 917     |        
|                                                                   |                                                              |                         |         |       |  |      |         |        |  |   |         |        
|Financing Activities, non-cash                                     |                                                              |                         |         |       |  |      |         |        |  |   |         |        
|                                                                   | Shares issued as consideration                               |                         | $       |      |  |      | $       | 3,952  |  |   | $       | 917     |  
|                                                                   |                                                              |                         |         |       |  |      |         |        |  |   |         |        
|Included in the above are the
    following:                       |                                                              |                         |         |       |  |      |         |        |  |   |         |        
|Taxes paid or (refunded)                                           |                                                              | $                       | (27     | )     |  | $    | 104     |        |  | $ | 8       |        
|                                                                   |                                                              |                         |         |       |  |      |         |        |  |   |         |        
|Interest paid                                                      |                                                              | $                       | 74      |       |  | $    | 111     |        |  | $ | 120     |        
|                                                                   |                                                              |                         |         |       |  |      |         |        |  |   |         |        
|Decrease (increase) in non-cash working
    capital items          |                                                              |                         |         |       |  |      |         |        |  |   |         |        
|Accounts receivable                                                |                                                              | $                       | (581    | )     |  | $    | 2,794   |        |  | $ | (3,182  | )      
|Other current assets                                               |                                                              |                         | (316    | )     |  |      | 497     |        |  |   | (248    | )      
|Accounts payable and accrued liabilities                           |                                                              |                         | (790    | )     |  |      | 3,023   |        |  |   | (2,018  | )      
|                                                                   |                                                              |                         |         |       |  |      |         |        |  |   |         |        
|                                                                   |                                                              | $                       | (1,687  | )     |  | $    | 6,314   |        |  | $ | (5,448  | )      
|                                                                   |                                                              |                         |         |       |  |      |         |        |  |   |         |        

31



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##### 



IVANHOE ENERGY INC.

Notes to the Consolidated Financial
Statements

(all tabular mounts are expressed in thousands
of U.S. Dollars, except per share data)


1.   NATURE OF
OPERATIONS

Ivanhoe Energy Inc., a Canadian company, and
its subsidiaries are focused internationally on three major
strategies: 1) the application of gas-to-liquids technology
2) enhanced oil recovery and 3) exploration and
development of hydrocarbons. Operations are currently carried
out in the U.S. and China.

The Companys activities contemplate
significant capital expenditures to develop its properties and
projects. Significant financing will need to be raised through
equity, debt financing and joint venture partner participation
in order to complete the planned activities. In the event that
such financing is not available to the Company, it will be
necessary to prioritize activities, which may result in
delaying, and potentially losing, business opportunities and
causing potential impairment to recorded assets.

2.   SIGNIFICANT ACCOUNTING
POLICIES

These consolidated financial statements have been
prepared in accordance with generally accepted accounting
principles (GAAP) in Canada. The consolidated
financial statements also conform in all material respects to
U.S. GAAP, except for the following matters for which
details are provided in Note 19:  the price per
share used to record the acquisition of royalty
interests;  reduction of the deficit as at
December 31, 1998;  net loss (income) for
2001 as a result of an additional ceiling test provision
required under U.S. GAAP and the requirement to write-off
capitalized development costs incurred in connection with our
GTL prospects;  net loss (income) per share
calculations;  and additional disclosures required
under U.S. GAAP.

The preparation of financial statements requires
management to make estimates and assumptions that affect the
reported amounts and other disclosures in these consolidated
financial statements. Actual results may differ from those
estimates.



| |                            
| | ---------------------------
| | Principles of Consolidation

These consolidated financial statements include
the accounts of Ivanhoe Energy Inc. and its subsidiaries,
all of which are wholly owned.

All inter-company transactions and balances have
been eliminated for the purposes of these consolidated financial
statements.



| |                             
| | ----------------------------
| | Foreign Currency Translation

The Company uses the U.S. Dollar as its
functional currency since it is the currency in which the
worldwide petroleum business denominates its business.
Monetary assets and liabilities denominated in foreign
currencies are converted at the exchange rate in effect at the
balance sheet date and non-monetary assets and liabilities at
the exchange rates in effect at the time of acquisition or
issue. Revenues and expenses are converted at rates
approximating exchange rates in effect at the time of the
transactions. Exchange gains or losses resulting from the
translation of foreign currency amounts are reflected in
operations.



| |                          
| | -------------------------
| | Cash and Cash Equivalents

Cash and cash equivalents include short-term
money market instruments with terms to maturity, at the date of
issue, not exceeding 90 days.



| |                      
| | ---------------------
| | Financial Instruments

The fair value of the Companys cash and
cash equivalents, accounts receivable, accounts payable and
accrued liabilities, demand loan payable and convertible
debenture, approximates the carrying values due to the immediate
or short-term maturity of these financial instruments.



| |                       
| | ----------------------
| | Oil and Gas Properties

The Company follows the full cost method of
accounting for oil and gas operations whereby all exploration
and development expenditures are capitalized on a
country-by-country cost center basis. Such expenditures include
land acquisition costs, geological and geophysical expenses,
carrying charges for unproved properties, costs of drilling both
productive and non-productive wells, gathering and production
facilities and equipment, and financing and administrative costs
related to capital projects. Proceeds from sales of oil and gas
properties are recorded as reductions of capitalized costs,
unless such amounts would significantly alter the rate of
depreciation and depletion, whereupon gains or losses would be
recognized in income. Maintenance and repair costs are expensed
as incurred, while improvements and major renovations are
capitalized.

32



---



##### 



Costs of oil and gas properties accumulated
within each cost center, including a provision for future
development costs, are depleted using the unit of production
method based on estimated proved reserves. Significant
development projects and expenditures on exploration properties
are excluded from the depletion calculation until evaluated.
These excluded costs are evaluated periodically for impairment.

Royalties acquired are included in oil and gas
properties and recorded at cost.

Depletable costs, accumulated in each cost
center, net of depletion provided, future income taxes and
accumulated site restoration costs, are compared annually to the
non-discounted estimated future net revenues from proved
reserves (based on year-end non-escalated prices), net of
estimated administration and carrying costs, and related
production and income taxes (ceiling test). Any
accumulated costs in excess of the calculated ceiling test are
charged to operations as a provision for impairment.



| |                                          
| | -----------------------------------------
| | Provision for Future Site
    Restoration

The Company has developed an estimate for future
site restoration and abandonment costs and is amortizing this
estimate to operations using the unit-of-production method based
upon estimated proved reserves. The provision is included with
depletion and depreciation expense.



| |                       
| | ----------------------
| | Furniture and Fixtures

Furniture and fixtures are stated at cost.
Depreciation is provided on a straight-line basis over the
estimated useful life of the respective assets, at rates ranging
from three to ten years.



| |                    
| | -------------------
| | Oil and Gas Revenue

Sales of crude oil and natural gas are recognized
in the period in which the product is delivered to the customer.



| |                        
| | -----------------------
| | Loss (Income) Per Share

The loss (income) per share is computed on
the basis of the weighted average number of shares outstanding
during each year. Effective January 1, 2001, the Company
adopted, retroactively, the treasury stock method to determine
diluted earnings per share (Note 14).



| |             
| | ------------
| | Income Taxes

The Company follows the liability method of
accounting for future income taxes. Under the liability method,
future income taxes are recognized to reflect the expected
future tax consequences arising from tax loss carry-forwards and
temporary differences between the carrying value and the tax
basis of the Companys assets and liabilities.



| |                              
| | -----------------------------
| | Stock Based Compensation Plan

The Company has an Employees and
Directors Equity Incentive Plan consisting of stock
option, bonus and share purchase incentives (Note 7). The
Company accounts for its stock-based compensation plan using
intrinsic-values. Compensation costs are not recognized in the
financial statements for stock options granted to employees and
directors when granted at market value. Compensation costs are,
however, recognized in the financial statements for options
granted to non-employees based on the fair value of the options
at the date granted. Consideration paid upon exercise of stock
options is credited to share capital.

Compensation expenses are recognized when shares
are issued from the stock bonus plan. The share purchase portion
of the plan has not yet been activated.

3.   CONCENTRATION OF CREDIT
RISKS

The Company sells oil and natural gas products to
pipelines, refineries, major oil companies and foreign national
petroleum companies. Where possible, credit is extended based on
an evaluation of the customers financial condition and
historical payment record.

33



---



##### 



The following summarizes the revenue receivable
balances and revenues from significant customers:

|               |            |                     |       |                  |  |             |       |      |  |   |       |       |  |   |       |       | 
|-------------- | ---------- | ------------------- | ----- | ---------------- |  | ----------- | ----- | ---- |  | - | ----- | ----- |  | - | ----- | ----- | 
|               |            |                     |       |                  |  |            
|               |            |                     |       |                  |  | Oil and Gas
|               |            |                     |       | Revenues for the
|               |            | Accounts Receivable |       | Year Ended      
|               |            | as at December 31,  |       | December 31,    
|               |            |                     |       |                 
|               |            | 2002                |       | 2001             |  | 2002        |       | 2001
|               |            |                     |       |                  |  |             |       |     
|U.S. Customers |            |                     |       |                  |  |             |       |      |  |   |       |       |  |   |       |      
|               | A          |                     | $     | 346              |  |             | $     | 189  |  |   | $     | 2,916 |  |   | $     | 2,034 | 
|               | B          |                     |       | 192              |  |             |       | 328  |  |   |       | 1,764 |  |   |       | 2,500 | 
|               | C          |                     |       | 63               |  |             |       | 97   |  |   |       | 390   |  |   |       | 554   | 
|               | All Others |                     |       |                 |  |             |       | 1    |  |   |       | 29    |  |   |       | 13    | 
|               |            |                     |       |                  |  |             |       |      |  |   |       |       |  |   |       |      
|               |            |                     | 601   |                  |  |             | 615   |      |  |   | 5,099 |       |  |   | 5,101 |      
|China Customer |            |                     |       |                  |  |             |       |      |  |   |       |       |  |   |       |      
|               | A          |                     |       | 767              |  |             |       | 562  |  |   |       | 3,230 |  |   |       | 4,043 | 
|               |            |                     |       |                  |  |             |       |      |  |   |       |       |  |   |       |      
|               |            | $                   | 1,368 |                  |  | $           | 1,177 |      |  | $ | 8,329 |       |  | $ | 9,144 |      
|               |            |                     |       |                  |  |             |       |      |  |   |       |       |  |   |       |      

Included in accounts receivable as at
December 31, 2002 and 2001 are $0.3 million and
$0.5 million, respectively, of costs billed to joint
venture partners and $0.8 million and $0.2 million,
respectively, of advances to partners for joint operations where
the Company is not the operator.

4.   OIL AND GAS PROPERTIES,
EQUIPMENT AND GTL INVESTMENTS

Capital assets categorized by geographic location
are as follows:

|                                     |                                              |                   |        |                   |   |       |        |        |   |       |         |         |   |   |        |         |   |   |        |        |   |   |        |         |  
|------------------------------------ | -------------------------------------------- | ----------------- | ------ | ----------------- | - | ----- | ------ | ------ | - | ----- | ------- | ------- | - | - | ------ | ------- | - | - | ------ | ------ | - | - | ------ | ------- | -
|                                     |                                              |                   |        |                  
|                                     |                                              | December 31, 2002 |        | December 31, 2001
|                                     |                                              |                   |        |                  
|                                     |                                              | U.S.              |        | China             |   | Total |        | U.S.   |   | China |         | Total  
|                                     |                                              |                   |        |                   |   |       |        |        |   |       |         |        
|Oil and gas properties and equipment |                                              | $                 | 76,323 |                   |   | $     | 26,617 |        |   | $     | 102,940 |         |   | $ | 65,997 |         |   | $ | 25,427 |        |   | $ | 91,424 |        
|                                     | Accumulated depletion                        |                   |        | (4,036            | ) |       |        | (2,326 | ) |       |         | (6,362  | ) |   |        | (2,143  | ) |   |        | (1,124 | ) |   |        | (3,267  | )
|                                     | Provision for impairment                     |                   |        | (14,000           | ) |       |        |       |   |       |         | (14,000 | ) |   |        | (14,000 | ) |   |        |       |   |   |        | (14,000 | )
|                                     |                                              |                   |        |                   |   |       |        |        |   |       |         |         |   |   |        |         |   |   |        |        |   |   |        |        
|                                     |                                              |                   | 58,287 |                   |   |       | 24,291 |        |   |       | 82,578  |         |   |   | 49,854 |         |   |   | 24,303 |        |   |   | 74,157 |        
|                                     |                                              |                   |        |                   |   |       |        |        |   |       |         |         |   |   |        |         |   |   |        |        |   |   |        |        
|Gas to Liquids Investments           |                                              |                   |        |                   |   |       |        |        |   |       |         |         |   |   |        |         |   |   |        |        |   |   |        |        
|                                     | Master license                               |                   |        | 10,000            |   |       |        |       |   |       |         | 10,000  |   |   |        | 10,000  |   |   |        |       |   |   |        | 10,000  |  
|                                     | Investment in Sweetwater partnership         |                   |        |                  |   |       |        |       |   |       |         |        |   |   |        | 2,000   |   |   |        |       |   |   |        | 2,000   |  
|                                     | Feasibility studies and other deferred costs |                   |        | 6,603             |   |       |        |       |   |       |         | 6,603   |   |   |        | 5,142   |   |   |        |       |   |   |        | 5,142   |  
|                                     |                                              |                   |        |                   |   |       |        |        |   |       |         |         |   |   |        |         |   |   |        |        |   |   |        |        
|                                     |                                              |                   | 16,603 |                   |   |       |       |        |   |       | 16,603  |         |   |   | 17,142 |         |   |   |       |        |   |   | 17,142 |        
|                                     |                                              |                   |        |                   |   |       |        |        |   |       |         |         |   |   |        |         |   |   |        |        |   |   |        |        
|Support equipment                    |                                              |                   | 457    |                   |   |       | 36     |        |   |       | 493     |         |   |   | 467    |         |   |   |       |        |   |   | 467    |        
|                                     | Accumulated depreciation                     |                   |        | (238              | ) |       |        |       |   |       |         | (238    | ) |   |        | (170    | ) |   |        |       |   |   |        | (170    | )
|                                     |                                              |                   |        |                   |   |       |        |        |   |       |         |         |   |   |        |         |   |   |        |        |   |   |        |        
|                                     |                                              |                   | 219    |                   |   |       | 36     |        |   |       | 255     |         |   |   | 297    |         |   |   |       |        |   |   | 297    |        
|                                     |                                              |                   |        |                   |   |       |        |        |   |       |         |         |   |   |        |         |   |   |        |        |   |   |        |        
|                                     |                                              | $                 | 75,109 |                   |   | $     | 24,327 |        |   | $     | 99,436  |         |   | $ | 67,293 |         |   | $ | 24,303 |        |   | $ | 91,596 |        
|                                     |                                              |                   |        |                   |   |       |        |        |   |       |         |         |   |   |        |         |   |   |        |        |   |   |        |        

During 2002, the Company sold working interests
in the Spraberry field in west Texas for $3.0 million and
the Daqing project in China for $2.4 million. The Company
retains an overriding royalty in the Daqing project of 4% before
cost recovery and 2% thereafter. The sale proceeds were credited
to the respective full cost centers, (Note 2) as the sales
do not represent significant dispositions of the U.S. and China
total reserve bases.

Costs as at December 31, 2002 of
$46.6 million (2001  $40.3 million;
2000  $24.8 million) related to unevaluated oil
and gas properties are excluded from the depletable cost centers.

For the year ended December 31, 2002 general
and administrative expenses related directly to acquisition,
exploration, development and GTL activities of $2.6 million
(2001  $3.6 million; 2000 
$1.5 million) were capitalized.



| |               
| | --------------
| | Gas-to-Liquids

In 2000, the Company acquired a master license
from Syntroleum Corporation permitting the Company to use their
proprietary gas-to-liquid process (GTL) in an
unlimited number of projects around the world except North
America, China and India. In June 2002, the master license was
amended, which would reschedule payment of a portion of upfront
site license fees on specific milestone dates and

34



---



##### 



the balance over the future revenues generated.
The Syntroleum process converts natural gas into synthetic
liquid hydrocarbons that can be utilized to develop, among other
things, clean-burning diesel fuel. The Company views the process
as holding significant potential for monetizing stranded natural
gas deposits around the world.


During 2002 and 2001, the Company has undertaken
detailed project feasibility studies for the construction,
operation and cost of world-class GTL plants in Qatar, Egypt and
Oman. In addition, the Company conducted marketing,
commercialization and transportation feasibility studies.
Marketing studies were conducted for both Europe and the
Asia-Pacific regions for GTL diesel and naphtha. Markets within
these regions were identified and premiums for the GTL ultra
clean fuels were estimated. Product forecasts from these studies
were used to complete studies with various Japanese companies to
optimize the commercial structure for utilization of GTL diesel
and NGL products. All cost associated with these projects have
been capitalized.

In June 2002, the Company signed a letter of
intent with Syntroleum to participate in the
Syntroleum  U.S. Department of Energy
(DOE) Fuels Project at a cost of $5.0 million.
The DOE project cost is to be offset by $2.0 million of the
Companys investment in Syntroleums Sweetwater
project in Australia, which Syntroleum cancelled. As Sweetwater
is not proceeding and participation in the DOE project is
contingent upon the Company successfully signing a GTL contract,
which is not assured, the Company has written off its
$2.4 million investment in the Sweetwater project.

Recovery of the GTL costs capitalized is
dependent upon finalizing contracts to access natural gas
reserves in the respective countries and the successful
completion of GTL processing plants.



| |              
| | -------------
| | United States

In 1998, the Company acquired rights to an
exploration agreement (Agreement) with Aera Energy
LLC (Aera), which gave the Company access to all of
Aeras exploration, seismic and technical data in southern
San Joaquin Valley in California for the purpose of identifying
drillable exploration prospects within the exclusive area. The
Agreement provided the Company the right to a working interest
ownership in all drillable prospects in which Aera elects to
participate equal to a minimum of 12.5% and a maximum of 75%. In
those prospects in which Aera elects not to participate, the
Company has the right to proceed with a 100% working interest
and to seek other joint venture partners. Aera has the right to
act as the operator for any drillable prospects in which Area
elects to participate.

The Company has identified 12 prospect Areas of
Mutual Interest (AMIs) containing a total of
30 drillable prospects in which Aera has elected to participate
under the Agreement. The Companys working interests, in
these AMIs, range from 12.5% to 50%. The Company has a
100% working interest in 3 AMIs in which Aera has declined
to participate. In participation with Aera, the Company has
drilled 3 wells in the AMIs, 1 of which was unsuccessful
and 2 have been suspended, including the Northwest Lost Hills
#1-22 deep gas well. Additionally, the Company has drilled 35
producing wells in South Midway in which the Company has a 100%
working interest.

The Company has drilled 27 producing wells in the
Spraberry field and 5 producing wells in the Apache Flats field
in West Texas with non-operating working interests of 62.5% and
96.15% in Spraberry and 40% in Apache Flats. In 2002, the
Company sold its interests in 7 Spraberry wells for
$1.4 million and 50% of its interests in the remaining 20
Spraberry wells for $1.6 million.

The Company drilled three unsuccessful wells in
Kentucky and in 2002 decided to abandon the wells and relinquish
its interests.

The Company has leased mineral rights in the
Bossier Trend in east Texas and entered into joint venture
agreements with a subsidiary of Unocal Corp.
(Unocal) under which Unocal will earn a 50% interest
in the Companys holdings by expending the next
$10.1 million of costs associated with exploration and
development of prospects. Unocal has drilled three wells in two
prospects and has spent $8.3 million. One of the wells is
producing small quantities of gas and the other two are
suspended pending testing of upper zones.



| |      
| | -----
| | China

The Company currently holds a production-sharing
contract to develop existing oil properties in the Dagang
region. The Company incurs 100% of the costs to earn 82% of the
production, before recovery of costs incurred, reverting to a
49% share post recovery. The pilot phase at Dagang was completed
in February 2001. Nippon Oil Exploration Limited of Japan
(Nippon), earned a 20% working interest in the
Companys interest in the project by funding a
disproportionate share of the Dagang pilot testing expenditures.
In August 2001, Nippon decided to withdraw from the project and
their interest reverted back to the Company. The Company
submitted the Overall Development Program to China National
Petroleum Corporation in 2002 and approval of the development
program is expected in the first half 2003. During the
development program preparation and approval process the Company
continues to operate the Dagang project.

Prior to 2002, the Company held a contract to
develop existing oil fields in the Daqing region and the pilot
program was completed successfully in 1998. In January 2002, the
Company was successful in disposing of the project for
$2.4 million and retains an overriding royalty on future
production.

During the pilot testing phase at Dagang and
Daqing all production costs and revenues were capitalized to oil
and gas properties and equipment. With the evaluation stage
completed and the decision to enter the development and
implementation stage, all operating

35



---



##### 



results beginning January 1, 2001 for Dagang
and March 1, 2001 for Daqing are included in the
Companys statements of loss (income) and deficit.


In September 2002, the Company signed a 30-year
production-sharing contract with PetroChina Corporation
(PetroChina) covering approximately 900,000 acres.
The contract area, known as the Zitong block, is located in the
northwestern portion of the Sichuan Basin, Chinas largest
gas-producing region. Under the terms of the contract, the
Company will develop natural gas deposits within the block and
in return will receive approximately 75% of the revenue before
costs are recovered and approximately 45% thereafter. PetroChina
has the option to participate in any successful developments,
with up to a 51% working interest. The Company will conduct
exploration activities over the block, which will include
acquiring seismic data, reprocessing existing seismic and
drilling two exploration wells. In addition, pursuant to
existing exclusive arrangements, the Company has the right to
negotiate a production-sharing contract for the Yudong block
located on the eastern edge of the Sichuan Basin.



| |                     
| | --------------------
| | Overriding Royalties

Through a series of transactions from 1999 to
2001, the Company acquired overriding royalties in the AMI
prospects and other properties in California ranging from 1.46%
to 6.58% in consideration for $0.9 million cash and the
issuance of 2,885,000 common shares at an aggregate ascribed
value of $8.0 million, being 1,562,000 common shares at $2.02;
523,000 common shares at $1.76 and 800,000 common shares at
$4.94. Of the total consideration paid, $0.9 million was
allocated to property acquisition costs and $0.2 million to
accounts receivable.

5.   DEMAND LOAN
PAYABLE

In December 2002, the Company borrowed
$0.5 million from a related party. The unsecured loan is
due 90 days after written demand, on the closing date of
obtaining equity financing or December 31, 2005 whichever
occurs earliest. The loan bears interest at U.S. prime plus 3%.

6.   CONVERTIBLE
DEBENTURE

The $1.0 million unsecured convertible
debenture was originally due within 90 days following written
demand and was convertible (including principal and accrued
interest) into common shares of the Company at Cdn. $2.75 per
share until August 2002. In October 2002, the Company concluded
an agreement in which the lender agreed not to demand repayment
of the debenture until March 27, 2003. Principal and
accrued interest will be convertible until March 27, 2003,
at lenders option, into common shares of the Company at
U.S.$0.77 per share. Thereafter, the debenture is due at any
time within 90 days following written demand. The debenture
bears interest at U.S. prime plus 2.5%.

7.   SHARE CAPITAL

The authorized capital of the Company consists of
an unlimited number of common shares without par value and an
unlimited number of preferred shares without par value.

36



---



##### 



The total number of issued and outstanding common
shares is as follows:

|                          |                                                            |                               |         |        |      |   |         |        |      |  
|------------------------- | ---------------------------------------------------------- | ----------------------------- | ------- | ------ | ---- | - | ------- | ------ | ---- | -
|                          |                                                            | Number of                     |         |       
|                          |                                                            | Common Shares                 |         | Amount
|                          |                                                            |                               |         |       
|                          |                                                            |                              
|                          |                                                            | (thousands)                  
|Balance December 31, 1999 |                                                            |                               | 110,539 |        |      | $ | 49,494  |       
|                          | Issued for private placements, net                         |                               |         | 11,250 |      |   |         | 38,598 |     
|                          | Issued on exercise of warrants                             |                               |         | 2,998  |      |   |         | 8,083  |     
|                          | Issued on exercise of options                              |                               |         | 1,545  |      |   |         | 1,034  |     
|                          | Issued on acquisition of overriding royalties
    (Note 4) |                               |         | 523    |      |   |         | 917    |     
|                          | Issued for services                                        |                               |         | 19     |      |   |         | 85     |     
|                          |                                                            |                               |         |        |      |   |         |       
|Balance December 31, 2000 |                                                            |                               | 126,874 |        |      |   | 98,211  |       
|                          | Issued for private placements, net                         |                               |         | 11,260 |      |   |         | 17,903 |     
|                          | Issued on exercise of warrants                             |                               |         | 127    |      |   |         | 166    |     
|                          | Issued on exercise of options                              |                               |         | 206    |      |   |         | 160    |     
|                          | Issued on acquisition of overriding royalties
    (Note 4) |                               |         | 800    |      |   |         | 3,952  |     
|                          |                                                            |                               |         |        |      |   |         |       
|Balance December 31, 2001 |                                                            |                               | 139,267 |        |      |   | 120,392 |       
|                          | Issued for private placements, net                         |                               |         | 5,000  |      |   |         | 9,964  |     
|                          | Issued on exercise of options                              |                               |         | 163    |      |   |         | 119    |     
|                          | Issued for deferred compensation                           |                               |         | 201    |      |   |         | 387    |     
|                          |                                                            | Elimination of employee loans |         |        |     |   |         |        | 409  |  
|                          |                                                            | Retirement of shares          |         |        | (165 | ) |         |        | (159 | )
|                          |                                                            |                               |         |        |      |   |         |       
|Balance December 31, 2002 |                                                            |                               | 144,466 |        |      | $ | 131,112 |       
|                          |                                                            |                               |         |        |      |   |         |       

The Company loaned $0.4 million to an
employee and two directors to facilitate their exercise of stock
options and warrants to purchase 165,000 common shares of the
Company. The Company held the shares as collateral for the
loans. The loan balances were previously netted against the
share capital balances. In December 2002, the Company determined
the loans would not be renewed when they became due in December
2002 and January 2003. Each of the borrowers authorized the
Company to acquire the shares held as collateral in full payment
of their loan amounts and accrued interest, thereon.
Subsequently, the Company eliminated the loans and retired the
165,000 common shares at the average price of all common shares
then issued and outstanding ($0.96 per share) and recorded a
$0.25 million loss to retained earnings.



| |                                                   
| | --------------------------------------------------
| | Private Placements and Share Purchase
    Warrants

During 2000, the Company issued common shares
under two private placements. In January and February 2000, the
Company issued 6,250,000 units, each unit consisting of one
common share and one share purchase warrant, for net proceeds of
$14.0 million. Each two warrants were exercisable into one
common share at Cdn.$4.00 until the first anniversary date of
the private placement. All of these warrants were exercised. On
October 17, 2000, the Company issued 5,000,000 units,
each unit consisting of one common share and one share purchase
warrant, for net proceeds of $24.6 million. Each two
warrants were exercisable into one common share at $5.38 until
October 17, 2002. The warrants were not exercised and have
been cancelled.

Under a private placement in October 2001, the
Company issued 11,260,000 common shares at $1.60, for net
proceeds of $17.9 million.

Under a private placement on March 2002, the
Company issued 5,000,000 common shares at $2.00, for net
proceeds of $10.0 million.



| |                      
| | ---------------------
| | Equity Incentive Plan

The Company has an Employees and
Directors Equity Incentive Plan under which it can grant
stock options to directors, officers and employees to purchase
common shares, issue common shares to directors and employees
for bonus awards and issue shares under a share purchase plan
for employees.

Stock options are issued at not less than the
quoted market value on the date of the grant and are conditional
on continuing employment. Expiration and vesting periods are set
at the discretion of the Board of Directors. Options granted
prior to March 1, 1999 vested over a two-year period and
expire ten years from date of issue. Options granted after
March 1, 1999 vest over four years and expire five years
from the date of issue.

37



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##### 



Following is a summary of the stock option
portion of the Companys Equity Incentive Plan, including
changes during the years ended:

|                                 |  |                   |        |                   |  |                   |      |           |  |         |       |           |  |   |      |  |  |  |        |   |  |   |      | 
|-------------------------------- |  | ----------------- | ------ | ----------------- |  | ----------------- | ---- | --------- |  | ------- | ----- | --------- |  | - | ---- |  |  |  | ------ | - |  | - | ---- | 
|                                 |  |                   |        |                   |  |                  
|                                 |  | December 31, 2002 |        | December 31, 2001 |  | December 31, 2000
|                                 |  |                   |        |                   |  |                  
|                                 |  |                   |        | Weighted-         |  |                   |      | Weighted- |  |         |       | Weighted-
|                                 |  | Number            |        | Average           |  | Number            |      | Average   |  | Number  |       | Average  
|                                 |  | of                |        | Exercise          |  | of                |      | Exercise  |  | of      |       | Exercise 
|                                 |  | Shares            |        | Price             |  | Shares            |      | Price     |  | Shares  |       | Price    
|                                 |  |                   |        |                   |  |                   |      |           |  |         |       |          
|                                 |  | (000s)           |        | (Cdn.$)           |  | (000s)           |      | (Cdn.$)   |  | (000s) |       | (Cdn.$)  
|Outstanding at beginning of year |  |                   | 8,635  |                   |  | $                 | 2.66 |           |  |         | 8,161 |           |  | $ | 2.45 |  |  |  | 7,800  |   |  | $ | 1.18 | 
|Granted                          |  |                   | 2,095  |                   |  | $                 | 2.86 |           |  |         | 846   |           |  | $ | 4.63 |  |  |  | 1,991  |   |  | $ | 6.39 | 
|Exercised                        |  |                   | (164   | )                 |  | $                 | 1.57 |           |  |         | (206  | )         |  | $ | 1.40 |  |  |  | (1,545 | ) |  | $ | 1.20 | 
|Cancelled/forfeited              |  |                   | (301   | )                 |  | $                 | 3.48 |           |  |         | (166  | )         |  | $ | 4.04 |  |  |  | (85    | ) |  | $ | 1.09 | 
|                                 |  |                   |        |                   |  |                   |      |           |  |         |       |           |  |   |      |  |  |  |        |   |  |   |      | 
|Outstanding at end of year       |  |                   | 10,265 |                   |  | $                 | 2.69 |           |  |         | 8,635 |           |  | $ | 2.66 |  |  |  | 8,161  |   |  | $ | 2.45 | 
|                                 |  |                   |        |                   |  |                   |      |           |  |         |       |           |  |   |      |  |  |  |        |   |  |   |      | 
|Options exercisable at year end  |  |                   | 7,122  |                   |  | $                 | 2.13 |           |  |         | 6,089 |           |  | $ | 1.73 |  |  |  | 5,356  |   |  | $ | 1.24 | 
|                                 |  |                   |        |                   |  |                   |      |           |  |         |       |           |  |   |      |  |  |  |        |   |  |   |      | 

Effective January 2002, Canadian accounting
standards require disclosure on a pro forma basis of the
impact on net income of using the fair value method for stock
options granted to employees and directors on or after that
date. Had compensation expense been determined based on the fair
value at the option grant date, the Companys net loss and
net loss per share for the year ended December 31, 2002
would have been $7.1 million and $0.05 per share,
respectively. The foregoing is calculated in accordance with
Black-Scholes options pricing model, using the following data
and assumptions: 72% price volatility, using the prior two years
weekly average prices of the Companys common shares;
expected dividend yield of 0%; option terms to expiry of
5 years, as defined by the option agreements; risk-free
rate of return as of the date of the grant of 4.35% to 5.58%,
based on one and five year Government of Canada Bond yields.

The following table summarizes information
respecting stock options outstanding at December 31, 2002:

|                |  |                     |        |                     |  |                |     |             |  |                |      |  |  |  |       |  |  |   |      | 
|--------------- |  | ------------------- | ------ | ------------------- |  | -------------- | --- | ----------- |  | -------------- | ---- |  |  |  | ----- |  |  | - | ---- | 
|                |  |                     |        |                    
|                |  | Options Outstanding |        | Options Exercisable
|                |  |                     |        |                    
|                |  |                     |        | Weighted-Average    |  | Weighted-      |     |             |  | Weighted-     
|Range of        |  | Number              |        | Remaining           |  | Average        |     | Number      |  | Average       
|Exercise Prices |  | Outstanding         |        | Contractual Life    |  | Exercise Price |     | Exercisable |  | Exercise Price
|                |  |                     |        |                     |  |                |     |             |  |               
|(Cdn.$)         |  | (000s)             |        | Yrs.                |  | (Cdn.$)        |     | (000s)     |  | (Cdn.$)       
|$0.50 to $2.00  |  |                     | 4,511  |                     |  |                | 5.5 |             |  | $              | 0.65 |  |  |  | 4,223 |  |  | $ | 0.58 | 
|$2.50 to $3.60  |  |                     | 3,499  |                     |  |                | 3.2 |             |  | $              | 2.95 |  |  |  | 1,607 |  |  | $ | 2.78 | 
|$5.15 to $7.60  |  |                     | 2,255  |                     |  |                | 2.7 |             |  | $              | 6.37 |  |  |  | 1,292 |  |  | $ | 6.38 | 
|                |  |                     |        |                     |  |                |     |             |  |                |      |  |  |  |       |  |  |   |      | 
|$0.50 to $7.62  |  |                     | 10,265 |                     |  |                | 4.1 |             |  | $              | 2.69 |  |  |  | 7,122 |  |  | $ | 2.13 | 
|                |  |                     |        |                     |  |                |     |             |  |                |      |  |  |  |       |  |  |   |      | 

8.   RETIREMENT PLAN

In 2001, the Company adopted a defined
contribution retirement or thrift plan (401(k) Plan) to assist
U.S. employees in providing for retirement or other future
financial needs. Employees contributions (up to the
maximum allowed by U.S. tax laws) are matched 50% by the
Company in 2001 and increasing 10% per year thereafter to a
maximum of 100%. The cost of Company contributions to the plan
during 2002 and 2001 amounted to $0.1 million per year.

9.   SEGMENT
INFORMATION

Geographic segment results from operations for
the years ended December 31, 2002, 2001 and 2000 are
detailed below. The Company maintains a corporate office in
Canada with its operational office in the U.S. For this section
any amounts for Canada are included in the U.S. segment.

38



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##### 



|                                    |                |                              |       |        |  |       |       |        |  |   |         |        | 
|----------------------------------- | -------------- | ---------------------------- | ----- | ------ |  | ----- | ----- | ------ |  | - | ------- | ------ | 
|                                    |                |                             
|                                    |                | Year Ended December 31, 2002
|                                    |                |                             
|                                    |                | U.S.                         |       | China  |  | Total
|                                    |                |                              |       |        |  |      
|Oil and gas revenue                 |                | $                            | 5,099 |        |  | $     | 3,230 |        |  | $ | 8,329   |       
|Interest income                     |                |                              | 108   |        |  |       |      |        |  |   | 108     |       
|                                    |                |                              |       |        |  |       |       |        |  |   |         |       
|                                    |                |                              | 5,207 |        |  |       | 3,230 |        |  |   | 8,437   |       
|                                    |                |                              |       |        |  |       |       |        |  |   |         |       
|Operating costs                     |                |                              | 2,351 |        |  |       | 1,490 |        |  |   | 3,841   |       
|Depletion and depreciation          |                |                              | 2,110 |        |  |       | 1,202 |        |  |   | 3,312   |       
|                                    |                |                              |       |        |  |       |       |        |  |   |         |       
|                                    |                |                              | 4,461 |        |  |       | 2,692 |        |  |   | 7,153   |       
|                                    |                |                              |       |        |  |       |       |        |  |   |         |       
|Segment income before the following |                | $                            | 746   |        |  | $     | 538   |        |  |   | 1,284   |       
|                                    |                |                              |       |        |  |       |       |        |  |   |         |       
|Write off of GTL assets (Note 4)    |                |                              |       |        |  |       |       |        |  |   | 2,436   |       
|Project identification costs        |                |                              |       |        |  |       |       |        |  |   | 733     |       
|General and administrative          |                |                              |       |        |  |       |       |        |  |   | 4,934   |       
|                                    |                |                              |       |        |  |       |       |        |  |   |         |       
|Net loss                            |                |                              |       |        |  |       |       |        |  | $ | 6,819   |       
|                                    |                |                              |       |        |  |       |       |        |  |   |         |       
|Capital expenditures:               |                |                              |       |        |  |       |       |        |  |   |         |       
|                                    | Oil and gas    |                              | $     | 13,305 |  |       | $     | 3,626  |  |   | $       | 16,931 | 
|                                    |                |                              |       |        |  |       |       |        |  |   |         |       
|                                    | Gas-to-liquids |                              |       |        |  |       |       |        |  |   |         | 1,897  | 
|                                    |                |                              |       |        |  |       |       |        |  |   |         |       
|                                    |                |                              |       |        |  |       |       |        |  | $ | 18,828  |       
|                                    |                |                              |       |        |  |       |       |        |  |   |         |       
|Identifiable Assets:                |                |                              |       |        |  |       |       |        |  |   |         |       
|                                    | Oil & gas      |                              | $     | 64,448 |  |       | $     | 25,281 |  |   | $       | 89,729 | 
|                                    |                |                              |       |        |  |       |       |        |  |   |         |       
|                                    | Gas-to-liquids |                              |       |        |  |       |       |        |  |   |         | 17,359 | 
|                                    |                |                              |       |        |  |       |       |        |  |   |         |       
|                                    |                |                              |       |        |  |       |       |        |  | $ | 107,088 |       
|                                    |                |                              |       |        |  |       |       |        |  |   |         |       

|                                               |                |                              |        |        |  |       |       |        |  |   |         |        | 
|---------------------------------------------- | -------------- | ---------------------------- | ------ | ------ |  | ----- | ----- | ------ |  | - | ------- | ------ | 
|                                               |                |                             
|                                               |                | Year Ended December 31, 2001
|                                               |                |                             
|                                               |                | U.S.                         |        | China  |  | Total
|                                               |                |                              |        |        |  |      
|Oil and gas revenue                            |                | $                            | 5,101  |        |  | $     | 4,043 |        |  | $ | 9,144   |       
|Interest income                                |                |                              | 578    |        |  |       |      |        |  |   | 578     |       
|                                               |                |                              |        |        |  |       |       |        |  |   |         |       
|                                               |                |                              | 5,679  |        |  |       | 4,043 |        |  |   | 9,722   |       
|                                               |                |                              |        |        |  |       |       |        |  |   |         |       
|Operating costs                                |                |                              | 2,421  |        |  |       | 2,337 |        |  |   | 4,758   |       
|Depletion and depreciation                     |                |                              | 2,117  |        |  |       | 1,124 |        |  |   | 3,241   |       
|Provision for impairment (Note 11)             |                |                              | 14,000 |        |  |       |      |        |  |   | 14,000  |       
|                                               |                |                              |        |        |  |       |       |        |  |   |         |       
|                                               |                |                              | 18,538 |        |  |       | 3,461 |        |  |   | 21,999  |       
|                                               |                |                              |        |        |  |       |       |        |  |   |         |       
|Segment loss (income) before the
    following |                | $                            | 12,859 |        |  | $     | (582  | )      |  |   | 12,277  |       
|                                               |                |                              |        |        |  |       |       |        |  |   |         |       
|Project identification costs                   |                |                              |        |        |  |       |       |        |  |   | 6,210   |       
|General and administrative                     |                |                              |        |        |  |       |       |        |  |   | 2,635   |       
|                                               |                |                              |        |        |  |       |       |        |  |   |         |       
|Net loss                                       |                |                              |        |        |  |       |       |        |  | $ | 21,122  |       
|                                               |                |                              |        |        |  |       |       |        |  |   |         |       
|Capital expenditures:                          |                |                              |        |        |  |       |       |        |  |   |         |       
|                                               | Oil and gas    |                              | $      | 33,799 |  |       | $     | 6,568  |  |   | $       | 40,367 | 
|                                               |                |                              |        |        |  |       |       |        |  |   |         |       
|                                               | Gas-to-liquids |                              |        |        |  |       |       |        |  |   |         | 3,889  | 
|                                               |                |                              |        |        |  |       |       |        |  |   |         |       
|                                               |                |                              |        |        |  |       |       |        |  | $ | 44,256  |       
|                                               |                |                              |        |        |  |       |       |        |  |   |         |       
|Identifiable Assets:                           |                |                              |        |        |  |       |       |        |  |   |         |       
|                                               | Oil and gas    |                              | $      | 61,750 |  |       | $     | 25,067 |  |   | $       | 86,817 | 
|                                               |                |                              |        |        |  |       |       |        |  |   |         |       
|                                               | Gas-to-liquids |                              |        |        |  |       |       |        |  |   |         | 17,186 | 
|                                               |                |                              |        |        |  |       |       |        |  |   |         |       
|                                               |                |                              |        |        |  |       |       |        |  | $ | 104,003 |       
|                                               |                |                              |        |        |  |       |       |        |  |   |         |       

39



---



##### 



|                                               |                |                              |       |        |  |       |     |        |  |   |         |        | 
|---------------------------------------------- | -------------- | ---------------------------- | ----- | ------ |  | ----- | --- | ------ |  | - | ------- | ------ | 
|                                               |                |                             
|                                               |                | Year Ended December 31, 2000
|                                               |                |                             
|                                               |                | U.S.                         |       | China  |  | Total
|                                               |                |                              |       |        |  |      
|Oil and gas revenue                            |                | $                            | 851   |        |  | $     |    |        |  | $ | 851     |       
|Interest income                                |                |                              | 982   |        |  |       | 8   |        |  |   | 990     |       
|                                               |                |                              |       |        |  |       |     |        |  |   |         |       
|                                               |                |                              | 1,833 |        |  |       | 8   |        |  |   | 1,841   |       
|                                               |                |                              |       |        |  |       |     |        |  |   |         |       
|Operating costs                                |                |                              | 787   |        |  |       |    |        |  |   | 787     |       
|Depletion and depreciation                     |                |                              | 310   |        |  |       | 31  |        |  |   | 341     |       
|                                               |                |                              |       |        |  |       |     |        |  |   |         |       
|                                               |                |                              | 1,097 |        |  |       | 31  |        |  |   | 1,128   |       
|                                               |                |                              |       |        |  |       |     |        |  |   |         |       
|Segment income (loss) before the
    following |                | $                            | 736   |        |  | $     | (23 | )      |  |   | 713     |       
|                                               |                |                              |       |        |  |       |     |        |  |   |         |       
|Project identification costs                   |                |                              |       |        |  |       |     |        |  |   | 3,732   |       
|General and administrative                     |                |                              |       |        |  |       |     |        |  |   | 2,914   |       
|Gain on sale of Russian projects
    (Note 12) |                |                              |       |        |  |       |     |        |  |   | (12,222 | )     
|Russian litigation (Note 12)                   |                |                              |       |        |  |       |     |        |  |   | 860     |       
|                                               |                |                              |       |        |  |       |     |        |  |   |         |       
|Net income                                     |                |                              |       |        |  |       |     |        |  | $ | 5,429   |       
|                                               |                |                              |       |        |  |       |     |        |  |   |         |       
|Capital expenditures:                          |                |                              |       |        |  |       |     |        |  |   |         |       
|                                               | Oil and gas    |                              | $     | 22,815 |  |       | $   | 5,676  |  |   | $       | 28,491 | 
|                                               |                |                              |       |        |  |       |     |        |  |   |         |       
|                                               | Gas-to-liquids |                              |       |        |  |       |     |        |  |   |         | 13,253 | 
|                                               |                |                              |       |        |  |       |     |        |  |   |         |       
|                                               |                |                              |       |        |  |       |     |        |  | $ | 41,744  |       
|                                               |                |                              |       |        |  |       |     |        |  |   |         |       
|Identifiable Assets:                           |                |                              |       |        |  |       |     |        |  |   |         |       
|                                               | Oil and gas    |                              | $     | 65,711 |  |       | $   | 20,836 |  |   | $       | 86,547 | 
|                                               |                |                              |       |        |  |       |     |        |  |   |         |       
|                                               | Gas-to-liquids |                              |       |        |  |       |     |        |  |   |         | 13,253 | 
|                                               |                |                              |       |        |  |       |     |        |  |   |         |       
|                                               |                |                              |       |        |  |       |     |        |  | $ | 99,800  |       
|                                               |                |                              |       |        |  |       |     |        |  |   |         |       

10. DERIVATIVE ACTIVITIES

The Companys results of operations are
sensitive mainly to fluctuations in oil and natural gas prices.
The Company may periodically use different types of derivative
instruments to manage its exposure to price volatility, thus
mitigating fluctuations in commodity-related cash flows.

In September 2002, the Company entered into a
costless collar derivative to hedge the cash flow from the sale
of 91,000 barrels of oil production over a six-month period
starting October 2002. The hedge has a ceiling price of $28.95
per barrel and a floor price of $24.00 per barrel using WTI as
the index traded on the NYMEX. In conjunction with this hedge,
the Company posted collateral of $0.6 million as security
for the hedge. The collateral accrues interest at the U.S.
Federal Funds rate and is returnable to the Company on demand
upon expiration of the hedge. As at December 31, 2002 the
$0.6 million collateral is included in other current assets.

Gains and losses on derivatives are recognized in
earnings as they are realized. As at December 31, 2002, the
Company had insignificant realized gains or losses on derivative
transactions and the mark-to-market value of these derivatives
is a liability of $0.1 million.

11. PROVISION FOR IMPAIRMENT

Provision for impairment amounts calculated for
U.S. oil and gas properties is $14.0 million for 2001. No
provisions for impairment of oil and gas properties are required
for 2002 and 2000.

12. GAIN ON SALE OF RUSSIAN
PROJECTS

In August 2000, a negotiated settlement was
reached resulting in the disposition of the Companys
Russian projects for cash proceeds of $28.2 million, net of
$0.8 million of settlement and severance costs. The
proceeds exceeded the then carrying value of the Companys
investment in the Russian projects and the resulting gain of
$12.2 million is included in income.

13. INCOME TAXES

The Company and its subsidiaries are required to
individually file tax returns in each of the jurisdictions in
which they operate. Details of the determination of the actual
income tax expense for each of the three years are detailed
below. The loss of approximately $35.0 million from the
Russian operations, being the aggregate investment, not
including accounting write downs, less proceeds received

40



---



##### 



on settlement will be a capital loss for Canadian
income tax purposes, available for carry-forward against future
Canadian capital gains indefinitely.


|                                                          |  |                         |        |      |  |      |        |   |  |   |        |  
|--------------------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                          |  |                        
|                                                          |  | Year Ended December 31,
|                                                          |  |                        
|                                                          |  | 2002                    |        | 2001 |  | 2000
|                                                          |  |                         |        |      |  |     
|Source loss (income) before income taxes                  |  | $                       | 6,819  |      |  | $    | 21,122 |   |  | $ | (5,429 | )
|                                                          |  |                         |        |      |  |      |        |   |  |   |        |  
|Composite statutory income tax rate                       |  |                         | 43.20  | %    |  |      | 43.20  | % |  |   | 43.20  | %
|Expected income tax (recovery)                            |  | $                       | (2,946 | )    |  | $    | (9,125 | ) |  | $ | 2,345  |  
|Application of tax benefits not recognized
    previously |  |                         |       |      |  |      |       |   |  |   | (4,910 | )
|Tax benefit not recognized                                |  |                         | 2,946  |      |  |      | 9,125  |   |  |   | 2,565  |  
|                                                          |  |                         |        |      |  |      |        |   |  |   |        |  
|Income tax expense                                        |  | $                       |       |      |  | $    |       |   |  | $ |       |  
|                                                          |  |                         |        |      |  |      |        |   |  |   |        |  

The tax loss carry-forwards in Canada are Cdn.
$47.7 million and in the U.S. $51.5 million. The tax
losses carry-forward in Canada expire between 2003 and 2009, in
the U.S. between 2018 and 2022. In China, the Company has
available for carry-forward against future Chinese income
$37.3 million of cost basis. The Companys carrying
value of assets for accounting purposes is $32.6 million
greater than that available for tax purposes. Due to the
uncertainty of utilizing these net tax assets, the Company has
made a valuation allowance of an equal amount against these
potential recoverable amounts as detailed below.

|                         |  |                    |         |      |  |      |         |   |  |   |         |  
|------------------------ |  | ------------------ | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                         |  |                   
|                         |  | As at December 31,
|                         |  |                   
|                         |  | 2002               |         | 2001 |  | 2000
|                         |  |                    |         |      |  |     
|Future net tax assets    |  | $                  | 31,607  |      |  | $    | 27,082  |   |  | $ | 23,909  |  
|Valuation allowance      |  |                    | (31,607 | )    |  |      | (27,082 | ) |  |   | (23,909 | )
|                         |  |                    |         |      |  |      |         |   |  |   |         |  
|Net future tax liability |  | $                  |        |      |  | $    |        |   |  | $ |        |  
|                         |  |                    |         |      |  |      |         |   |  |   |         |  

14. NET INCOME (LOSS) PER
SHARE

The diluted earnings per share calculations for
the years presented did not include the following items because
their effect was anti-dilutive:

|                      |  |                         |           |      |  |      |           |  |  |  |         | 
|--------------------- |  | ----------------------- | --------- | ---- |  | ---- | --------- |  |  |  | ------- | 
|                      |  |                        
|                      |  | Year Ended December 31,
|                      |  |                        
|                      |  | 2002                    |           | 2001 |  | 2000
|                      |  |                         |           |      |  |     
|Stock options         |  |                         | 2,986,000 |      |  |      | 4,018,000 |  |  |  |        | 
|Convertible debenture |  |                         | 1,299,000 |      |  |      | 545,000   |  |  |  | 525,000 | 
|                      |  |                         |           |      |  |      |           |  |  |  |         | 
|                      |  |                         | 4,285,000 |      |  |      | 4,563,000 |  |  |  | 525,000 | 
|                      |  |                         |           |      |  |      |           |  |  |  |         | 

The number of shares used to calculate diluted
earnings per share for the year ended December 31, 2000 of
124,549,000 included the weighted average number of shares
outstanding of 119,719,000 plus 4,802,000 shares related to the
dilutive effect of stock options and 28,000 shares related to
share purchase warrants.

Additionally, the diluted earnings per share
calculations did not include the following weighted average
items because the exercise prices exceeded the average market
prices of the common shares:

|              |  |                         |           |      |  |      |           |  |  |  |           | 
|------------- |  | ----------------------- | --------- | ---- |  | ---- | --------- |  |  |  | --------- | 
|              |  |                        
|              |  | Year Ended December 31,
|              |  |                        
|              |  | 2002                    |           | 2001 |  | 2000
|              |  |                         |           |      |  |     
|Warrants      |  |                         |          |      |  |      | 2,500,000 |  |  |  | 514,000   | 
|Stock options |  |                         | 5,359,000 |      |  |      | 240,000   |  |  |  | 724,000   | 
|              |  |                         |           |      |  |      |           |  |  |  |           | 
|              |  |                         | 5,359,000 |      |  |      | 2,740,000 |  |  |  | 1,238,000 | 
|              |  |                         |           |      |  |      |           |  |  |  |           | 

15. RELATED PARTY TRANSACTIONS

The Company has entered into agreements with a
number of entities, some of which are related through common
directors or shareholders, to share administrative personnel,
aircraft, office space and facilities. The Company is billed on
a cost recovery basis. The costs incurred in the normal course
of business with respect to the above arrangements amounted to
$1.2 million for 2002, $2.7 million for 2001 and
$1.6 million for 2000. In addition, a company controlled by
a director provides consulting services to the Company.
Consulting services and out of pocket expenses paid to this
company were $0.4 million for 2002, $0.7 million for
2001 and $0.5 million

41



---



##### 



for 2000. At year-end, amounts included in
accounts payable under these arrangements totaled
$0.8 million in 2002 and $1.1 million in 2001.


In December 2002, the Company borrowed
$0.5 million from a related company controlled by a
director of the Company, which was outstanding at year-end. (See
Note 5)

16. COMMITMENTS AND
CONTINGENCIES

With the signing of the production-sharing
contract in September 2002 for the Zitong block, the Company is
obligated to conduct a minimum exploration program during the
first three years, which will include acquiring seismic data,
reprocessing existing seismic and drilling two exploration
wells. If the Company does not complete the minimum exploration
program it will be obligated to pay, to PetroChina, the cash
equivalent of the deficiency in the work program. The estimated
cost of the minimum exploration program is $18.0 million.

The Company will either suspend or abandon
Northwest Lost Hills #1-22 pending final concurrence with Aera.
If the well is abandoned, the Company would be obligated for its
share of the costs to plug and abandon the well, which is
estimated to be $1.1 million. There is no provision in the
balance sheet for this contingent obligation.

17. LEASE COMMITMENTS

For the year ended December 31, 2002, the
Company expended $0.6 million on operating leases relating
to the rental of office space, which expire between April 2003
and March 2007. Such leases frequently provide for renewal
options and require the Company to pay for utilities, taxes,
insurance and maintenance expenses. As at December 31,
2002, future net minimum lease payments for operating leases
(excluding oil and gas and other mineral leases) were the
following:

|                             |  |   |     | 
|---------------------------- |  | - | --- | 
|2003                         |  | $ | 363 | 
|2004                         |  |   | 162 | 
|2005                         |  |   | 149 | 
|2006                         |  |   | 149 | 
|2007                         |  |   | 37  | 
|                             |  |   |     | 
|Total minimum lease payments |  | $ | 860 | 
|                             |  |   |     | 

18. SUBSEQUENT EVENT

In February 2003, the Company obtained bank
financing for up to $5.0 million to construct facilities
and drill an estimated 20 additional wells in the southern
expansion of South Midway. Interest only is payable in the first
year of the loan at 0.25% above the banks prime rate or
2.75% over the London Inter-Bank Offered Rate
(LIBOR) at the option of the Company. After the
first year, the loan is repayable over three years plus interest
at 0.50% above the banks prime rate or 3.0% over LIBOR, at
the option of the Company. The loan is secured by all the
Companys rights and interests in the South Midway
properties.

19. ADDITIONAL DISCLOSURES REQUIRED UNDER
U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(GAAP)

The Companys consolidated financial
statements have been prepared in accordance with GAAP as applied
in Canada. In the case of the Company, Canadian GAAP conforms in
all material respects with U.S. GAAP, except for certain
matters, which were mentioned in Note 2. Where these
matters impact the financial statements, the details of the
differences are as follows:

Consolidated Statements of Loss
(Income)

As discussed under Oil and Gas Properties in this
note, there is a difference in performing the ceiling test
evaluation under full cost accounting between U.S. and Canadian
GAAP. Application of the ceiling test evaluation under U.S. GAAP
as at December 31, 2001 required an additional
$10.0 million provision for impairment with respect to the
Companys China properties.

In addition, the capitalization of development
costs permitted under Canadian GAAP in connection with our GTL
prospects is not permitted under U.S. GAAP.

The Company, in connection with its initial
public offering in June 1997, placed in escrow 31,457,000 common
shares held by certain shareholders, to be released one-third
per year on the succeeding three anniversary dates of the public
offering. For Canadian GAAP, as the release of shares from
escrow is based on time rather than on any performance criteria,
these shares are considered issued and outstanding and form part
of the calculation of earnings and fully dilutive earnings per
share for 2000. Under U.S. GAAP, these escrow shares are
considered issued and outstanding only after they are released
from escrow.

Under U.S. GAAP, interest income and gain on sale
of Russian projects would be classified as other income.

42



---



##### 



The application of U.S. GAAP has the following
effects on net loss (income) and net loss (income) per
share as reported:

|                                                            |                |                         |       |         |  |      |        |         |  |   |        |         |  
|----------------------------------------------------------- | -------------- | ----------------------- | ----- | ------- |  | ---- | ------ | ------- |  | - | ------ | ------- | -
|                                                            |                |                        
|                                                            |                | Year Ended December 31,
|                                                            |                |                        
|                                                            |                | 2002                    |       | 2001    |  | 2000
|                                                            |                |                         |       |         |  |     
|Net loss (income) under Canadian GAAP                       |                | $                       | 6,819 |         |  | $    | 21,122 |         |  | $ | (5,429 | )      
|Additional provision for impairment under
    U.S. GAAP     |                |                         |      |         |  |      | 10,000 |         |  |   |       |        
|Depletion adjustment  China                                |                |                         | (78   | )       |  |      |       |         |  |   |       |        
|Write off of GTL development costs under
    U.S. GAAP, net |                |                         | 1,461 |         |  |      | 5,142  |         |  |   |       |        
|                                                            |                |                         |       |         |  |      |        |         |  |   |        |        
|Net loss (income) under U.S. GAAP                           |                | $                       | 8,202 |         |  | $    | 36,264 |         |  | $ | (5,429 | )      
|                                                            |                |                         |       |         |  |      |        |         |  |   |        |        
|Net loss (income) per share under
    U.S. GAAP             |                |                         |       |         |  |      |        |         |  |   |        |        
|                                                            | Basic          |                         | $     | 0.06    |  |      | $      | 0.28    |  |   | $      | (0.05   | )
|                                                            | Diluted        |                         | $     | 0.06    |  |      | $      | 0.28    |  |   | $      | (0.05   | )
|Weighted average shares outstanding under
    U.S. GAAP     |                |                         |       |         |  |      |        |         |  |   |        |        
|                                                            | (in thousands) |                         |       |         |  |      |        |         |  |   |        |         |  
|                                                            | Basic          |                         |       | 142,314 |  |      |        | 128,598 |  |   |        | 115,065 |  
|                                                            | Diluted        |                         |       | 142,314 |  |      |        | 128,598 |  |   |        | 119,895 |  

Under U.S. GAAP, changes in the fair value of
derivative instruments that meet specific cash-flow hedge
accounting criteria are reported in other comprehensive income
(OCI). The gains and losses on cash-flow hedge transactions that
are reported in OCI are reclassified to earnings in the period
in which earnings are affected by changes in the cash flow of
the underlying hedged item. The Companys hedging contracts
qualify for hedge accounting treatment. The mark-to-market value
of these derivatives as at December 31, 2002 is a liability
of $0.1 million, which comprises the balance of OCI as at
December 31, 2002.



| |                         
| | ------------------------
| | Stock based compensation

The Company has a stock-based compensation plan
as more fully described in Note 7. With regards to its stock
option plan, the Company applies APB Opinion No. 25, as
interpreted by FASB (FIN) 44, in accounting for this
plan and accordingly no compensation cost has been recognized
for stock options issued to employees and directors. Had
compensation expense been determined based on fair value at the
stock option grant date, consistent with the method of SFAS
No. 123, Accounting for Stock-Based Compensation, the
Companys net loss (income) and net loss
(income) per share would have been reduced to the pro forma
amounts indicated below:

|                                                                                             |                       |                         |        |      |  |      |        |      |  |   |        |       |  
|-------------------------------------------------------------------------------------------- | --------------------- | ----------------------- | ------ | ---- |  | ---- | ------ | ---- |  | - | ------ | ----- | -
|                                                                                             |                       |                        
|                                                                                             |                       | Year Ended December 31,
|                                                                                             |                       |                        
|                                                                                             |                       | 2002                    |        | 2001 |  | 2000
|                                                                                             |                       |                         |        |      |  |     
|Net loss (income) under U.S. GAAP                                                            |                       | $                       | 8,202  |      |  | $    | 36,264 |      |  | $ | (5,429 | )    
|Stock-based compensation expense determined under
    fair-value based method for all awards |                       |                         | 1,885  |      |  |      | 1,827  |      |  |   | 2,140  |      
|                                                                                             |                       |                         |        |      |  |      |        |      |  |   |        |      
|Pro forma net loss (income) under
    U.S. GAAP                                              |                       | $                       | 10,087 |      |  | $    | 38,091 |      |  | $ | (3,289 | )    
|                                                                                             |                       |                         |        |      |  |      |        |      |  |   |        |      
|Net loss (income) per common share under
    U.S. GAAP:                                      |                       |                         |        |      |  |      |        |      |  |   |        |      
|                                                                                             | Basic  as reported   |                         | $      | 0.06 |  |      | $      | 0.28 |  |   | $      | (0.05 | )
|                                                                                             | Basic  pro forma     |                         | $      | 0.07 |  |      | $      | 0.30 |  |   | $      | (0.03 | )
|                                                                                             | Diluted  as reported |                         | $      | 0.06 |  |      | $      | 0.28 |  |   | $      | (0.04 | )
|                                                                                             | Diluted  pro forma   |                         | $      | 0.07 |  |      | $      | 0.30 |  |   | $      | (0.03 | )
|Stock options granted during period (thousands)                                              |                       |                         | 1,870  |      |  |      | 846    |      |  |   | 1,991  |      
|Weighted average exercise price                                                              |                       | $                       | 1.92   |      |  | $    | 2.99   |      |  | $ | 4.29   |      
|Weighted average fair value of options granted
    during the period                         |                       | $                       | 1.07   |      |  | $    | 1.92   |      |  | $ | 2.32   |      

The foregoing is calculated in accordance with
Black-Scholes option pricing model, using the following data and
assumptions: 59% to 108% price volatility, using the prior one
to three-year weekly average prices of the Companys common
shares; expected dividend yield

43



---



##### 



of 0%; option terms to expiry of 5 to
10 years, as defined by the option agreements; risk-free
rate of return as of the date of the grant of 4.35% to 5.70%,
based on one and five year Government of Canada Bond yields.


Consolidated Balance Sheets

The application of U.S. GAAP would have the
following effects on balance sheet items as reported:



| |                     
| | --------------------
| | Shareholders Equity

|                                                                                 |  |   |         |  
|-------------------------------------------------------------------------------- |  | - | ------- | -
|Shareholders equity at December 31,
    2002 under Canadian GAAP                |  | $ | 100,548 |  
|Adjustment to ascribed value of shares issued for
    royalty interests          |  |   | 1,358   |  
|Impairment provision for China properties
    required under U.S. GAAP           |  |   | (10,000 | )
|Depletion adjustment  China                                                     |  |   | 78      |  
|Write off of GTL development costs required under
    U.S. GAAP                  |  |   | (6,603  | )
|OCI  Derivative mark- to-market
    adjustment                                  |  |   | (102    | )
|                                                                                 |  |   |         |  
|Shareholders equity at December 31,
    2002 under U.S. GAAP                    |  | $ | 85,279  |  
|                                                                                 |  |   |         |  
|Shareholders equity at December 31,
    2001 under Canadian GAAP                |  | $ | 96,897  |  
|Adjustment to ascribed value of shares issued for
    royalty interests (Note 4) |  |   | 1,358   |  
|Impairment provision for China properties
    required under U.S. GAAP           |  |   | (10,000 | )
|Write off of GTL development costs required under
    U.S. GAAP                  |  |   | (5,142  | )
|                                                                                 |  |   |         |  
|Shareholders equity at December 31,
    2001 under U.S. GAAP                    |  | $ | 83,113  |  
|                                                                                 |  |   |         |  

The shareholders approved, on June 22, 1999,
the reduction of stated capital in respect of the common shares
by an amount of $74.4 million being equal to the
accumulated deficit as at December 31, 1998. Under
U.S. GAAP, a reduction of the deficit such as this is not
recognized except in the case of a quasi reorganization. The
effect of this is that under U.S. GAAP, share capital and
deficit each are increased by $74.4 million at
December 31, 2002 and 2001. As a result, shareholders
equity under U.S. GAAP would comprise the following:

|                                            |  |                    |          |      |  |   |          |  
|------------------------------------------- |  | ------------------ | -------- | ---- |  | - | -------- | -
|                                            |  |                   
|                                            |  | As at December 31,
|                                            |  |                   
|                                            |  | 2002               |          | 2001
|                                            |  |                    |          |     
|Share capital (including adjustments above) |  | $                  | 206,925  |      |  | $ | 196,205  |  
|Deficit (including adjustments above)       |  |                    | (121,544 | )    |  |   | (113,092 | )
|Accumulated other comprehensive income      |  |                    | (102     | )    |  |   |         |  
|                                            |  |                    |          |      |  |   |          |  
|                                            |  | $                  | 85,279   |      |  | $ | 83,113   |  
|                                            |  |                    |          |      |  |   |          |  



| |                       
| | ----------------------
| | Oil and Gas Properties

There are certain differences between the full
cost method of accounting for oil and gas assets as applied in
Canada and as applied in the U.S. The principal difference
results in the method of performing ceiling test evaluations
under the full cost accounting rules. Under Canadian GAAP,
non-discounted future net revenues from oil and gas production,
less an estimate for future general and administrative expenses,
financing costs and income taxes are compared to the carrying
value of the depletable petroleum properties, whereas for
U.S. GAAP future net revenues are discounted to present
value at 10% per annum and compared to the carrying value of the
depletable petroleum properties. The Company has performed the
ceiling test in accordance with U.S. GAAP and determined that
there would be an additional provision for impairment required
in connection with the Companys China properties of $10.0
million for 2001. No impairment provisions are required for 2002
or 2000.

For U.S. GAAP purposes, the aggregate value
attributed to the acquisition of royalty rights is
$1.4 million higher, due to the difference between Canadian
and U.S. GAAP in the value ascribed to the shares issued,
primarily resulting from differences in the recognition of
effective dates of the transactions.

44



---



##### 



The categories of costs included in the cost of
oil and gas properties, equipment and GTL investments, including
the adjustments in accordance with U.S. GAAP, to the
ascribed value of shares issued for royalty interests of
$1.4 million, an additional provision for impairment of the
Companys China properties of $10.0 million and the
write off of GTL development costs are as follows:

|                                                |  |                    |         |      |  |      |         |   |  |   |        |  
|----------------------------------------------- |  | ------------------ | ------- | ---- |  | ---- | ------- | - |  | - | ------ | -
|                                                |  |                   
|                                                |  | As at December 31,
|                                                |  |                   
|                                                |  | 2002               |         | 2001 |  | 2000
|                                                |  |                    |         |      |  |     
|Property acquisition costs                      |  | $                  | 16,868  |      |  | $    | 15,956  |   |  | $ | 10,268 |  
|Royalty rights acquired                         |  |                    | 10,582  |      |  |      | 10,582  |   |  |   | 6,539  |  
|Exploration costs                               |  |                    | 35,209  |      |  |      | 20,918  |   |  |   | 9,373  |  
|Development costs                               |  |                    | 41,639  |      |  |      | 45,325  |   |  |   | 26,414 |  
|GTL license, investment and feasibility studies |  |                    | 10,000  |      |  |      | 12,000  |   |  |   | 13,253 |  
|Support equipment                               |  |                    | 493     |      |  |      | 468     |   |  |   | 368    |  
|                                                |  |                    |         |      |  |      |         |   |  |   |        |  
|                                                |  |                    | 114,791 |      |  |      | 105,249 |   |  |   | 66,215 |  
|Accumulated depletion and depreciation          |  |                    | (6,523  | )    |  |      | (3,437  | ) |  |   | (397   | )
|Provision for impairment                        |  |                    | (24,000 | )    |  |      | (24,000 | ) |  |   |       |  
|                                                |  |                    |         |      |  |      |         |   |  |   |        |  
|                                                |  | $                  | 84,268  |      |  | $    | 77,812  |   |  | $ | 65,818 |  
|                                                |  |                    |         |      |  |      |         |   |  |   |        |  

As at December 31, 2002, the costs of
unevaluated properties included in capital assets are as follows:

|                           |  |             |        |      |  |      |        |      |  |       |        |  |  |   |       |  |  |   |       | 
|-------------------------- |  | ----------- | ------ | ---- |  | ---- | ------ | ---- |  | ----- | ------ |  |  | - | ----- |  |  | - | ----- | 
|                           |  |            
|                           |  | Incurred In
|                           |  |            
|                           |  |             |        | 1998
|                           |  | Total       |        | 2002 |  | 2001 |        | 2000 |  | &1999
|                           |  |             |        |      |  |      |        |      |  |      
|Property acquisition costs |  | $           | 16,696 |      |  | $    | 1,959  |      |  | $     | 9,877  |  |  | $ | 4,330 |  |  | $ | 530   | 
|Royalty rights acquired    |  |             | 9,223  |      |  |      |       |      |  |       | 3,900  |  |  |   | 1,197 |  |  |   | 4,126 | 
|Exploration costs          |  |             | 22,044 |      |  |      | 9,338  |      |  |       | 8,304  |  |  |   | 2,092 |  |  |   | 2,310 | 
|                           |  |             |        |      |  |      |        |      |  |       |        |  |  |   |       |  |  |   |       | 
|                           |  | $           | 47,963 |      |  | $    | 11,297 |      |  | $     | 22,081 |  |  | $ | 7,619 |  |  | $ | 6,966 | 
|                           |  |             |        |      |  |      |        |      |  |       |        |  |  |   |       |  |  |   |       | 



| |                                             
| | --------------------------------------------
| | Accounts Payable and Accrued
    Liabilities

The following is the breakdown of accounts
payable and accrued liabilities:

|                                      |  |                    |       |      |  |   |       | 
|------------------------------------- |  | ------------------ | ----- | ---- |  | - | ----- | 
|                                      |  |                   
|                                      |  | As at December 31,
|                                      |  |                   
|                                      |  | 2002               |       | 2001
|                                      |  |                    |       |     
|Accounts payable                      |  | $                  | 4,387 |      |  | $ | 5,144 | 
|Accrued salaries and related expenses |  |                    | 348   |      |  |   | 782   | 
|Fair market value of oil hedge        |  |                    | 102   |      |  |   |      | 
|Accrued interest                      |  |                    | 10    |      |  |   | 10    | 
|Other accruals                        |  |                    | 52    |      |  |   | 38    | 
|                                      |  |                    |       |      |  |   |       | 
|Total                                 |  | $                  | 4,899 |      |  | $ | 5,974 | 
|                                      |  |                    |       |      |  |   |       | 

Consolidated Statements of Cash Flow

As a result of the write-off of GTL development
costs required under U.S. GAAP, the statement of cash flow as
reported would result in cash deficiencies from operating
activities of $4.7 million and $2.7 million for 2002
and 2001, respectively, and capital spending reported under
investing activities would be $16.9 million and
$36.6 million for 2002 and 2001, respectively.

Impact of New and Pending U.S. GAAP Accounting
Standards

In June 2001, the FASB approved SFAS
No. 143, Accounting for Asset Retirement
Obligations, which addresses financial accounting and
reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement
costs. SFAS No. 143 is effective for fiscal years
beginning after June 15, 2002. Management does not believe
that SFAS No. 143 will have a material impact on the
Companys financial statements.

In June 2002, the FASB approved SFAS
No. 146, Accounting for Costs Associated with Exit or
Disposal Activities which addresses financial accounting
and reporting for costs associated with exit or disposal
activities and nullifies Emerging Task Force Issue
No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit and Activity
(including Certain Costs Incurred in

45



---



##### 



a Restructuring). This Statement is
effective for fiscal years beginning after December 31,
2002. Management does not believe that SFAS No. 146
will have a material impact on the Companys financial
statements.


SUPPLEMENTARY DISCLOSURES ABOUT OIL AND GAS
PRODUCTION ACTIVITIES 
 (UNAUDITED)

The following information about the
Companys oil and gas producing activities is presented in
accordance with U.S. Statement of Financial Accounting Standards
No. 69: Disclosures About Oil and Gas Producing Activities.

Oil and Gas Reserves

Proved oil and gas reserves are the estimated
quantities of crude oil, natural gas and natural gas liquids
which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from
known reservoirs under existing economic conditions.

Proved developed oil and gas reserves are
reserves, which can be expected to be recovered from existing
wells with existing equipment and operating methods.

Estimates of oil and gas reserves are subject to
uncertainty and will change as additional information regarding
the producing fields and technology becomes available and as
future economic conditions change.

Reserves presented in this section represent the
Companys working interest share of reserves net of
royalties. The reserves for 2002, 2001 and 2000 in the U.S. are
based on estimates by the independent petroleum engineering firm
of Joe C. Neal & Associates and Allan Spivak
Engineering. In China, the reserves are based on estimates by
the independent petroleum engineering firm of Gilbert Laustsen
Jung Associates Ltd.

The Companys net proved and net proved
developed oil and gas reserves are as follows:

|                                       |                   |        |        |        |  |  |        |       | 
|-------------------------------------- | ----------------- | ------ | ------ | ------ |  |  | ------ | ----- | 
|                                       |                   | Oil    |        | Gas   
|                                       |                   |        |        |       
|                                       |                   | (MBbl) |        | (MMcf)
|                                       |                   |        |        |       
|Net proved reserves, December 31, 1999 |                   |        | 20,848 |        |  |  |       |      
|Extensions and discoveries             |                   |        | 4,803  |        |  |  | 6,301  |      
|Production                             |                   |        | (133   | )      |  |  | (5     | )    
|Revisions to previous estimates        |                   |        | 276    |        |  |  |       |      
|                                       |                   |        |        |        |  |  |        |      
|Net proved reserves, December 31, 2000 |                   |        | 25,794 |        |  |  | 6,296  |      
|Extensions and discoveries             |                   |        | 923    |        |  |  | 651    |      
|Production                             |                   |        | (377   | )      |  |  | (127   | )    
|Revisions to previous estimates        |                   |        | (2,542 | )      |  |  | (5,189 | )    
|                                       |                   |        |        |        |  |  |        |      
|Net proved reserves, December 31, 2001 |                   |        | 23,798 |        |  |  | 1,631  |      
|Extensions and discoveries             |                   |        | 710    |        |  |  | 63     |      
|Production                             |                   |        | (350   | )      |  |  | (103   | )    
|Revisions to previous estimates        |                   |        | (2,881 | )      |  |  | (101   | )    
|Sale of reserves                       |                   |        | (3,889 | )      |  |  | (671   | )    
|                                       |                   |        |        |        |  |  |        |      
|Net proved reserves, December 31, 2002 |                   |        | 17,388 |        |  |  | 819    |      
|                                       |                   |        |        |        |  |  |        |      
|Net proved developed reserves          |                   |        |        |        |  |  |        |      
|                                       | December 31, 2000 |        |        | 1,573  |  |  |        | 984   | 
|                                       | December 31, 2001 |        |        | 1,808  |  |  |        | 1,215 | 
|                                       | December 31, 2002 |        |        | 1,179  |  |  |        | 819   | 

Standardized Measure of Discounted Future Net
Cash Flows and Changes Therein Relating to Proved Oil and Gas
Reserves

The following standardized measure of discounted
future net cash flows from proved oil and gas reserves has been
computed using period end prices of $29.04 per barrel of oil
($15.37 per barrel in 2001 and $23.95 per barrel in 2000) and
$5.30 per Mcf of gas ($2.76 per Mcf in 2001 and $5.65 per Mcf in
2000) and costs and period end statutory tax rates. A discount
rate of 10% has been applied in determining the standardized
measure of discounted future net cash flows.

The Company does not believe that this
information reflects the fair market value of its oil and gas
properties. Actual future net cash flows will differ from the
presented estimated future net cash flows in that:



| |   |                                                                                         
| | - | ----------------------------------------------------------------------------------------
| |  | future production from proved reserves will
    differ from estimated production;       
| |  | future production will also include production
    from probable and potential reserves;

46



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##### 





| |   |                                                                                  
| | - | ---------------------------------------------------------------------------------
| |  | future rather than year end prices and costs will
    apply; and                 
| |  | existing economic, operating and regulatory
    conditions are subject to change.

The standardized measure of discounted future net
cash flows as at December 31 in each of the three most
recently completed financial years are as follows:

|                                         |  |      |         |      |  |      |         |  |  |   |         | 
|---------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                                         |  | 2002 |         | 2001 |  | 2000
|                                         |  |      |         |      |  |     
|Future cash inflows                      |  | $    | 513,313 |      |  | $    | 370,344 |  |  | $ | 653,419 | 
|Future development and restoration costs |  |      | 134,452 |      |  |      | 137,581 |  |  |   | 162,399 | 
|Future production costs                  |  |      | 150,828 |      |  |      | 156,103 |  |  |   | 145,130 | 
|Future income taxes                      |  |      | 52,656  |      |  |      | 5,526   |  |  |   | 102,831 | 
|                                         |  |      |         |      |  |      |         |  |  |   |         | 
|Future net cash flows                    |  |      | 175,377 |      |  |      | 71,134  |  |  |   | 243,059 | 
|10% annual discount                      |  |      | 94,110  |      |  |      | 52,845  |  |  |   | 141,823 | 
|                                         |  |      |         |      |  |      |         |  |  |   |         | 
|Standardized measure                     |  | $    | 81,267  |      |  | $    | 18,289  |  |  | $ | 101,236 | 
|                                         |  |      |         |      |  |      |         |  |  |   |         | 

Changes in standardized measure of discounted
future net cash flows as at December 31 in each of the
three most recently completed financial years are as follows:

|                                             |  |      |         |      |  |      |          |   |  |   |         |  
|-------------------------------------------- |  | ---- | ------- | ---- |  | ---- | -------- | - |  | - | ------- | -
|                                             |  | 2002 |         | 2001 |  | 2000
|                                             |  |      |         |      |  |     
|Sale of oil & gas net of production costs    |  | $    | (4,488  | )    |  | $    | (4,386   | ) |  | $ | (64     | )
|Revenue credited to China property costs     |  |      |        |      |  |      |         |   |  |   | (2,940  | )
|Net changes in pricing and productions costs |  |      | 164,210 |      |  |      | (110,584 | ) |  |   | (3,433  | )
|Sale of reserves                             |  |      | (47,685 | )    |  |      |         |   |  |   |        |  
|Discoveries and extensions                   |  |      | 9,585   |      |  |      | 4,955    |   |  |   | 19,266  |  
|Revisions of previous estimates              |  |      | (63,467 | )    |  |      | 22,167   |   |  |   | 1,707   |  
|Net change in future development costs       |  |      | 3,230   |      |  |      | (1,640   | ) |  |   | 9,611   |  
|Accretion of discount                        |  |      | 1,593   |      |  |      | 6,541    |   |  |   | 5,979   |  
|                                             |  |      |         |      |  |      |          |   |  |   |         |  
|Increase (decrease)                          |  |      | 62,978  |      |  |      | (82,947  | ) |  |   | 30,126  |  
|Standardized measure, beginning of year      |  |      | 18,289  |      |  |      | 101,236  |   |  |   | 71,110  |  
|                                             |  |      |         |      |  |      |          |   |  |   |         |  
|Standardized measure, end of year            |  | $    | 81,267  |      |  | $    | 18,289   |   |  | $ | 101,236 |  
|                                             |  |      |         |      |  |      |          |   |  |   |         |  

Costs Incurred in Oil and Gas Property
Acquisition, Exploration, and Development Activities for the
following periods ended:

|                     |                |              |        |      |  |   |        |       | 
|-------------------- | -------------- | ------------ | ------ | ---- |  | - | ------ | ----- | 
|                     |                |             
|                     |                | Year Ended  
|                     |                | December 31,
|                     |                |             
|                     |                | 2002         |        | 2001
|                     |                |              |        |     
|Property Acquisition |                |              |        |      |  |   |        |      
|                     | Proved         |              | $      |     |  |   | $      |      | 
|                     | Unproved       |              |        | 913  |  |   |        | 5,688 | 
|                     | Royalty rights |              |        |     |  |   |        | 4,043 | 
|Exploration          |                |              | 10,841 |      |  |   | 11,545 |      
|Development          |                |              | 5,178  |      |  |   | 19,091 |      
|                     |                |              |        |      |  |   |        |      
|                     |                | $            | 16,932 |      |  | $ | 40,367 |      
|                     |                |              |        |      |  |   |        |      

Depletion, per unit of net production, before
provision for impairment:

|                             |  |   |      | 
|---------------------------- |  | - | ---- | 
|U.S.                         |  |   |      | 
|Year ended December 31, 2002 |  | $ | 8.39 | 
|Year ended December 31, 2001 |  | $ | 8.12 | 
|Year ended December 31, 2000 |  | $ | 8.70 | 
|China                        |  |   |      | 
|Year ended December 31, 2002 |  | $ | 8.30 | 
|Year ended December 31, 2001 |  | $ | 6.79 | 

47



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##### 



Results of Producing Activities:

|                                                |  |                         |       |      |  |      |         |   |  |   |      |  
|----------------------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ------- | - |  | - | ---- | -
|                                                |  |                        
|                                                |  | Year Ended December 31,
|                                                |  |                        
|                                                |  | 2002                    |       | 2001 |  | 2000
|                                                |  |                         |       |      |  |     
|Oil and gas revenue                             |  | $                       | 8,329 |      |  | $    | 9,144   |   |  | $ | 851  |  
|Operating costs                                 |  |                         | 3,841 |      |  |      | 4,758   |   |  |   | 787  |  
|Depletion (including provision for impairment)  |  |                         | 3,108 |      |  |      | 27,133  |   |  |   | 275  |  
|                                                |  |                         |       |      |  |      |         |   |  |   |      |  
|Results of operations from producing activities |  | $                       | 1,380 |      |  | $    | (22,747 | ) |  | $ | (211 | )
|                                                |  |                         |       |      |  |      |         |   |  |   |      |  



|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
    ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

48



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##### 



PART III



|         |                                                       
|-------- | ------------------------------------------------------
|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE
    REGISTRANT

The following table provides the names of all of
our directors and executive officers, their positions, terms of
office and their principal occupations during the past five
years. Each director is elected for a one year term or until his
successor has been duly elected or appointed. Officers serve at
the pleasure of the Board of Directors.

|                                                      |  |                                                                                                      |  |                                                                                                                                                                                                                                                                                                                                 
|----------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name, Age and                                         |  |                                                                                                      |  | Present Occupation and                                                                                                                                                                                                                                                                                                          
|Municipality of Residence                             |  | Position with the Registrant                                                                         |  | Principal Occupation for the Past Five Years                                                                                                                                                                                                                                                                                    
|                                                      |  |                                                                                                      |  |                                                                                                                                                                                                                                                                                                                                 
|DAVID R. MARTIN, age 71 Santa Barbara,
    California |  | Chairman of the Board and Director (since August,
    1998)                                          |  | Chairman of the Board of Ivanhoe Energy Inc.
    (August 1998  present); President, Cathedral Mountain
    Corporation (1997  present); President and Chief
    Executive Officer, Occidental Oil and Gas Corporation
    (1986-1996); Executive Vice President and Director, Occidental
    Petroleum Corporation (1986-1996)
|ROBERT M. FRIEDLAND, age 52 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                                                                                                                    
|E. LEON DANIEL, age 66 Park City, Utah                |  | President, Chief Executive Officer (since June,
    1999) and Director (since August, 1998)          |  | President and Chief Executive Officer of Ivanhoe
    Energy Inc. (June, 1999  present); Executive Vice
    President, Worldwide Business Development, Occidental Oil and
    Gas Corporation (1996-1998); Vice President Engineering,
    Drilling and Production, Occidental Petroleum
    Corporation(1997-1998)             
|JOHN A. CARVER, age 70 Bakersfield,
    California    |  | Director (since August, 1998)                                                                        |  | Retired (1998); Senior Vice President, Worldwide
    Exploration, Occidental Petroleum Corporation (1997-1998)                                                                                                                                                                                                                  
|R. EDWARD FLOOD, age 57 Reno, Nevada                  |  | Director (since June, 1999)                                                                          |  | Deputy Chairman, Ivanhoe Mines Ltd. (May,
    1999  present); Mining Analyst, Haywood Securities
    (May, 1999  September 2001) President, Ivanhoe
    Mines Ltd. (1995-1999)                                                                                                                                                
|SHUN-ICHI SHIMIZU, age 62 Tokyo, Japan                |  | Director (since July, 1999)                                                                          |  | Managing Director of C.U.E. Management
    Consulting Ltd. (1994 to present)                                                                                                                                                                                                                                                    
|HOWARD R. BALLOCH, age 51 Beijing, China              |  | Director (since January, 2002)                                                                       |  | President, White Birch International Ltd.
    (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)                                                                               
|JOHN OKEEFE, age 54 Houston, Texas                   |  | Executive Vice-President, Investor Relations and
    Chief Financial Officer (since September, 2000) |  | Executive Vice-President, Investor Relations and
    Chief Financial Officer of Ivanhoe Energy Inc. (September
    2000  present); Vice-President, Investor Relations of
    Santa Fe Snyder Corporation (1999  September
    2000); Director, Investor Relations of Oryx Energy Company
    (1991-1999)                      

49



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##### 



|                                          |  |                                             |  |                                                                                                                                                                                                                                                  
|----------------------------------------- |  | ------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name, Age and                             |  |                                             |  | Present Occupation and                                                                                                                                                                                                                           
|Municipality of Residence                 |  | Position with the Registrant                |  | Principal Occupation for the Past Five Years                                                                                                                                                                                                     
|                                          |  |                                             |  |                                                                                                                                                                                                                                                  
|PATRICK CHUA, age 47 Hong Kong, China     |  | Executive Vice-President (since June, 1999) |  | Executive Vice-President of Ivanhoe
    Energy Inc. (June, 1999  present); President and
    Director of Sunwing Energy Ltd. (Bermuda) (March
    2000  present): Co-Chairman and Director of Sunwing
    Energy Ltd. (June, 1996  June, 1999)
|GERALD MOENCH, age 54 Lethbridge, Alberta |  | Executive Vice-President (since June, 1999) |  | Executive Vice-President of Ivanhoe
    Energy Inc. (June, 1999  present); President and
    Director, Sunwing Energy Ltd. (July, 1997  June,
    1999)                                                                                        

Each of our directors was elected at our last
annual general meeting of shareholders held on May 16,
2002. The term of office of each director concludes at our next
annual general meeting of shareholders, unless the
directors office is earlier vacated in accordance with our
by-laws. There are no family relationships among any of our
directors, officers or key employees.

As required under the Business Corporations
Act(Yukon), our Board of Directors has an Audit Committee.
We also have a Compensation Committee. The members of the Audit
Committee are Messrs. Edward Flood, Howard Balloch and
Shun-Ichi Shimizu. Mr. Ed Flood, an independent director of
the Company, has been determined by the Board of Directors to be
an Audit Committee financial expert. The members of the
Compensation Committee are Messrs. David Martin, Edward
Flood and Howard Balloch.

Management is responsible for our financial
reporting process including our system of internal control and
for the preparation of consolidated financial statements in
accordance with generally accepted accounting principles in
Canada. Our independent auditors are responsible for auditing
those financial statements. The members of the audit committee
are not our employees, and are not professional accountants or
auditors. The audit committees primary purpose is to
assist the Board of Directors to fulfill its oversight
responsibilities by reviewing the financial information provided
to shareholders and others, the systems of internal controls
which management has established to preserve our assets and the
audit process. It is not the audit committees duty or
responsibility to conduct auditing or accounting reviews or
procedures or to determine that our financial statements are
complete and accurate and in accordance with generally accepted
accounting principles in Canada. In giving its recommendation to
the Board of Directors, the audit committee has relied on
managements representations that the financial statements
have been prepared with integrity and objectivity and in
conformity with generally accepted accounting principles in
Canada and on the representations of the independent auditors
included in their report on our financial statements.

Based solely on a review of the reports furnished
to us, we believe that during 2002 all of our directors,
executive officers and 10% shareholders complied with the
applicable requirements for reporting initial ownership and
changes in ownership of our common shares.

ITEM
11.       EXECUTIVE
COMPENSATION

The following executive compensation disclosure
relates to our President and Chief Executive Officer as at
December 31, 2002, and each of our four most highly
compensated executive officers (collectively, the named
executive officers) whose annual compensation exceeded
$100,000 in the year ended December 31, 2002. During the
years ended December 31, 2002, 2001 and 2000 the total
compensation paid to those of our named executive officers was
$1.1 million, $0.8 million and $0.9 million,
respectively.

50



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##### 



Summary Compensation

We paid the following compensation during the
years ending December 31, 2002, 2001 and 2000 to each of
our named executive officers.

SUMMARY COMPENSATION TABLE

|                             |  |                     |      |                        |  |              |         |              |  |            |         |             |  |              |           |     |  |  |         |  |  |  |  |  |  |  |  |  |  |  |          |  |  | 
|---------------------------- |  | ------------------- | ---- | ---------------------- |  | ------------ | ------- | ------------ |  | ---------- | ------- | ----------- |  | ------------ | --------- | --- |  |  | ------- |  |  |  |  |  |  |  |  |  |  |  | -------- |  |  | 
|                            
|                             |  |                     |      |                        |  |             
|                             |  | Annual Compensation |      | Long Term Compensation |  |             
|                             |  |                     |      |                        |  |             
|                             |  |                     |      | Awards                 |  | $            |         | Payouts      |  |           
|                             |  |                     |      |                        |  |              |         |              |  |           
|                             |  |                     |      | Securities             |  |              |         |              |  |           
|                             |  |                     |      | Under                  |  | Restricted   |         |              |  |           
|Name and                     |  |                     |      | Options                |  | Shares or    |         | LTIP         |  | All Other  |         |            
|Principal                    |  | Salary              |      | Bonus                  |  | Other Annual |         | Granted      |  | Restricted |         | Payouts     |  | Compensation |           |    
|Position                     |  | Year                |      | ($)                    |  | ($)          |         | Compensation |  | (#)        |         | Share Units |  | ($)          |           | ($) |  | 
|E. LEON DANIEL               |  |                     | 2002 |                        |  |              | 266,500 |              |  |            |         |             |  |              | 243(1)    |     |  |  |         |  |  |  |  |  |  |  |  |  |  |  | 5,415(2) |  |  | 
|President & Chief            |  |                     | 2001 |                        |  |              | 150,000 |              |  |            |         |             |  |              | 170(1)    |     |  |  |         |  |  |  |  |  |  |  |  |  |  |  |          |  |  | 
|Executive Officer            |  |                     | 2000 |                        |  |              | 200,000 |              |  |            | 22,000  |             |  |              |           |     |  |  | 500,000 |  |  |  |  |  |  |  |  |  |  |  |          |  |  | 
|PATRICK CHUA                 |  |                     | 2002 |                        |  |              | 182,970 |              |  |            |         |             |  |              | 5,083(1)  |     |  |  | 60,000  |  |  |  |  |  |  |  |  |  |  |  |          |  |  | 
|Executive Vice               |  |                     | 2001 |                        |  |              | 180,000 |              |  |            |         |             |  |              | 12,794(1) |     |  |  |         |  |  |  |  |  |  |  |  |  |  |  |          |  |  | 
|President                    |  |                     | 2000 |                        |  |              | 180,000 |              |  |            |         |             |  |              | 6,241(1)  |     |  |  |         |  |  |  |  |  |  |  |  |  |  |  |          |  |  | 
|JOHN OKEEFE                 |  |                     | 2002 |                        |  |              | 219,845 |              |  |            |         |             |  |              | 4,537(1)  |     |  |  | 75,000  |  |  |  |  |  |  |  |  |  |  |  | 7,200(2) |  |  | 
|Chief Financial Officer      |  |                     | 2001 |                        |  |              | 174,955 |              |  |            |         |             |  |              | 3,659(1)  |     |  |  | 250,000 |  |  |  |  |  |  |  |  |  |  |  | 5,250(2) |  |  | 
|Executive Vice               |  |                     | 2000 |                        |  |              | 58,333  |              |  |            |         |             |  |              |           |     |  |  | 250,000 |  |  |  |  |  |  |  |  |  |  |  |          |  |  | 
|President Investor Relations |  |                     |      |                        |  |              |         |              |  |            |         |             |  |              |           |     |  |  |         |  |  |  |  |  |  |  |  |  |  |  |          |  |  | 
|DAVID R. MARTIN              |  |                     | 2002 |                        |  |              | 253,167 |              |  |            |         |             |  |              | 1,077(1)  |     |  |  |         |  |  |  |  |  |  |  |  |  |  |  | 7,200(2) |  |  | 
|Chairman                     |  |                     | 2001 |                        |  |              | 150,000 |              |  |            |         |             |  |              | 894(1)    |     |  |  |         |  |  |  |  |  |  |  |  |  |  |  | 3,000(2) |  |  | 
|                             |  |                     | 2000 |                        |  |              | 50,000  |              |  |            | 110,000 |             |  |              |           |     |  |  |         |  |  |  |  |  |  |  |  |  |  |  |          |  |  | 
|GERALD MOENCH                |  |                     | 2002 |                        |  |              | 152,475 |              |  |            |         |             |  |              | 3,535(1)  |     |  |  | 50,000  |  |  |  |  |  |  |  |  |  |  |  |          |  |  | 
|Executive Vice               |  |                     | 2001 |                        |  |              | 150,000 |              |  |            |         |             |  |              | 3,085(1)  |     |  |  |         |  |  |  |  |  |  |  |  |  |  |  |          |  |  | 
|President                    |  |                     | 2000 |                        |  |              | 150,000 |              |  |            |         |             |  |              | 3,857(1)  |     |  |  |         |  |  |  |  |  |  |  |  |  |  |  |          |  |  | 






|    |                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes premiums paid by us on behalf of the
    named executive officer for medical, dental and other health
    insurance coverage.
|   
|(2) | Companys matching contribution to the
    401(k) plan.                                                                               

Options

We granted the following Options to our named
executive officers in the financial year ended December 31,
2002:

OPTION GRANTS IN LAST FISCAL YEAR

|             |  |            |        |              |  |             |       |                 |  |                       |      |  |  |  |              |  |  |   |      | 
|------------ |  | ---------- | ------ | ------------ |  | ----------- | ----- | --------------- |  | --------------------- | ---- |  |  |  | ------------ |  |  | - | ---- | 
|            
|             |  | Percent of |        |             
|             |  | Number of  |        | Total        |  |            
|             |  | Securities |        | Options      |  |            
|             |  | Underlying |        | Granted to   |  |            
|             |  | Options    |        | Employees in |  | Exercise of |       |                
|             |  | Granted    |        | Fiscal       |  | Base Price  |       |                 |  | Grant Date           
|Name         |  | (#)        |        | Year         |  | (Cdn$/Sh)   |       | Expiration Date |  | Present Value $Cdn(1)
|JOHN OKEEFE |  |            | 75,000 |              |  |             | 3.20% |                 |  | $                     | 3.10 |  |  |  | May, 30 2007 |  |  | $ | 3.10 | 
|PATRICK CHUA |  |            | 60,000 |              |  |             | 2.56% |                 |  | $                     | 3.10 |  |  |  | May, 30 2007 |  |  | $ | 3.10 | 
|GERRY MOENCH |  |            | 50,000 |              |  |             | 2.13% |                 |  | $                     | 3.10 |  |  |  | May, 30 2007 |  |  | $ | 3.10 | 



---



|    |                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Equal to or greater than the weighted average
    price of our common shares on The Toronto Stock Exchange for the
    five trading days preceding the date of a grant.

51



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##### 



Aggregated Option Exercises

No options were exercised by any of the named
executive officers during the financial year ended
December 31, 2002.

Pension Plans

We do not presently provide a pension plan for
our employees. However, in 2001 the Company adopted a defined
contribution retirement or thrift plan (401(k) Plan) to assist
U.S. employees in providing for retirement or other future
financial needs. Employees contributions (up to the
maximum allowed by U.S. tax laws) are matched by the
Company 50% starting in 2001 and increasing 10% per year
thereafter to a maximum of 100%. The Companys matching
contributions to the 401(k) Plan during 2002 and 2001 were
$0.1 million in each of those years.

Employment Contracts, Termination of
Employment and Change-In-Control Arrangements

We have no written employment contracts or
termination of employment or change of control arrangement with
any of our directors or named executive officers except for
Messrs. E. Leon Daniel and John OKeefe. Both
contracts allow us to terminate the employee for cause and if
this were to happen, the employee has no entitlement to claim
any compensation with respect to the termination. Neither
contract contains a change of control arrangement. With respect
to Mr. Daniels contract, the term of employment is
for a period of five years, commencing on April 30, 2002,
unless terminated in accordance with the provisions of the
Agreement. His salary for services performed is at a rate of not
less than $300,000 per year and he is eligible for a cash bonus
and stock bonus each year, as determined by the Compensation
Committee. Mr. Daniels benefit programs are the same
as those applicable to all of our employees. Either party may
terminate the agreement with one years notice to the
other, however, we may terminate Mr. Daniels
employment at any time without notice by compensating him for
the period after termination equivalent to one years
salary or until the expiration of the employment agreement,
whichever is the shorter period of time. With respect to
Mr. OKeefes contract, his base salary is
$200,000 per year, to be reviewed by the board of directors at
least annually. Mr. OKeefes benefit programs
are the same as those applicable to all of our employees.
Mr. OKeefe was granted an initial option to acquire
250,000 common shares of the Company, which vest over
4 years and expire on the 5th anniversary
of the date of grant. We may terminate
Mr. OKeefes employment by delivering to him,
one years written notice, during which time we would
continue to pay his salary and benefits. His initial option of
250,000 common shares would fully vest at the date of
termination and he would be entitled to exercise the option
within the maximum time permitted by the policies of the Toronto
Stock Exchange. If Mr. OKeefe terminates his
employment he will be entitled to exercise the vested shares,
subject to the option, for the maximum time permitted by the
policies of the Toronto Stock Exchange. In the event of
Mr. OKeefes death or permanent disability while
in the employ of the Company, the remaining shares subject to
his initial option would vest and his estate would be entitled
to exercise the option, with respect to those shares, within the
maximum time permitted by the policies of the Toronto Stock
Exchange.

Director Compensation

All independent directors receive director fees
of $2,000 per month. We did not pay any other cash or fixed
compensation to our directors for acting as such. We reimburse
our directors for expenses they reasonably incur in the
performance of their duties as directors and they are also
eligible to participate in our Employees and
Directors Equity Incentive Plan. One of our non-executive
directors, John A. Carver, was engaged as a full time
employee effective January 1, 2002 and receives a salary in
his capacity as an employee.

Employees and Directors Equity
Incentive Plan

Our Employees and Directors Equity
Incentive Plan, as amended (the Plan) consists of
three component plans: a common share option plan (the
Share Option Plan), a common share bonus plan (the
Share Bonus Plan), and a common share purchase plan
(the Share Purchase Plan). The purpose of the Plan
is to advance our corporate interests, by encouraging equity
participation by our directors, officers, employees and service
providers through the acquisition of our shares.

The following is a brief description of the terms
of the Plan.



| |                  
| | -----------------
| | Share Option Plan

The Share Option Plan allows the board of
directors to grant options to acquire our common shares in favor
of our directors, officers, employees and service providers.
Options are subject to adjustment in the event of a subdivision
or consolidation of our common shares, an amalgamation, or other
corporate event affecting our common shares. Participation in
the Share Option Plan is limited to directors, officers,
employees and service providers, who are, in the opinion of our
board of directors, in a position to contribute to our future
growth and success.

52



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##### 



In determining the number of common shares made
subject to an option, we consider, among other things, the
optionees relative present and potential contribution to
our success and to the prevailing policies of each stock
exchange on which our shares are listed. The board of directors
determines the date of grant, the number of optioned common
shares, the exercise price per share, the vesting period and the
exercise period. The minimum exercise price of any option
granted under the Share Option Plan is the weighted average
price of our common shares on the principal stock exchange on
which our common shares trade for the five trading days prior to
the date of grant.

Unless earlier terminated upon an optionees
death or termination of employment or appointment, options are
exercisable for a period of up to ten years. We may, in our
discretion, accelerate unvested options if a take-over bid is
made for our common shares.



| |                 
| | ----------------
| | Share Bonus Plan

The Share Bonus Plan permits our board of
directors to issue up to an aggregate maximum of 1,000,000 of
our common shares as bonus awards to our directors, employees
and service providers on a discretionary basis having regard to
such merit criteria as the board of directors may determine. As
of December 31, 2002 there were 62,579 shares
available to be issued from the Share Bonus Plan.



| |                    
| | -------------------
| | Share Purchase Plan

Participation in the Share Purchase Plan is
limited to employees who have completed at least one year (or
less, at the discretion of the board of directors) of continuous
service on a full-time basis and who are designated by the board
of directors as eligible to participate in the Share Purchase
Plan.

Eligible employees may contribute up to 10% of
their annual basic salary to the Share Purchase Plan in
semi-monthly installments. We then make contributions on a
quarterly basis equal to the employees contribution.

At the end of each calendar quarter, the eligible
employee receives a number of our common shares equal to the
aggregate amount contributed by the employee participant and by
us, on the participants behalf, divided by the weighted
average trading price of our common shares on our principal
stock exchange during the previous three months.

The Share Purchase Plan component of the Plan has
not yet been activated.



| |        
| | -------
| | General

The aggregate maximum number of our common
shares, which we may issue, or reserve for issuance under the
Plan, is currently 15,000,000 common shares. Any increase is
subject to Toronto Stock Exchange approval and approval by our
shareholders. The maximum number of our common shares which we
may, at any time, reserve for issuance to any one person under
the Plan may not exceed 5% of our issued and outstanding common
shares. As of December 31, 2002 there were
474,998 shares available to be issued from our
Employees and Directors Equity Incentive Plan.

Our board of directors has the right to amend,
modify or terminate our Equity Incentive Plan. However, any
amendment to the Equity Incentive Plan which would materially
increase the benefits under the Plan, materially modify the
requirements as to eligibility for participation in the Plan or
materially change the number of our common shares that may be
issued or reserved for issuance under the Plan, is subject to
Toronto Stock Exchange approval and the approval of our
shareholders.

Compensation Committee Interlocks and Insider
Participation

During the year ended December 31, 2002, our
Compensation Committee consisted of Messrs. Edward Flood,
Howard Balloch and David Martin. Mr. Martin is one of our
named executive officers.

Board Compensation Committee Report on
Executive Compensation

Our executive compensation program is
administered by the Compensation Committee. The basic philosophy
underlying our executive compensation program is that the
interests of our executive officers should be aligned as closely
as possible with the interests of Ivanhoe and its shareholders
as a whole. Compensation for our senior executive officers is,
accordingly, designed to reflect the following considerations:
to provide a strong incentive to management to achieve our
corporate goals each year; to ensure that the interests of
management and of our shareholders are aligned; and to enable us
to attract, retain and motivate the quality of people necessary
to our business in the light of competition for qualified
personnel. Our approach to compensation for senior executives
and other employees is designed to recognize both corporate and
individual performance, and the fact that competition for highly
skilled employees is intense.

The compensation that we pay to our executive
officers generally consists of cash, equity and equity
incentives. Our compensation policy reflects a belief that an
element of total compensation for our executive officers should
be at risk in the form of stock options, so as to
create a strong incentive to build shareholder value. The
Compensation Committee oversees and sets the general guidelines
and

53



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##### 



principles for the compensation packages for
senior management. As well, the Compensation Committee assesses
the individual performance of our senior executive officers and
makes recommendations to the board of directors. Based on these
recommendations, the board of directors makes decisions
concerning the nature and scope of the compensation to be paid
to our senior executive officers over and above their base
salaries.


The specific relationship of corporate
performance to executive compensation under our executive
compensation program is created through equity compensation
mechanisms. Incentive stock options, which vest and become
exercisable through the effluxion of time, link the bulk of our
equity-based executive compensation to shareholder return,
measured by increases in the market price of our common shares.
The Board of Directors may make discretionary bonus awards of
common shares to our employees, including our executive
officers. Such awards are intended to recognize extraordinary
contributions to the achievement of corporate objectives or the
fulfillment of defined business development goals and milestones
tied to pre-determined equity incentives.

As part of a temporary program to reduce costs
and preserve cash, the total cash compensation paid to our
senior management personnel during 2002 was reduced by a minimum
of 10%. In lieu of the foregone cash compensation, we issued to
our senior management personnel common shares on the basis of
one common share for each dollar of foregone salary. We believe
that this is consistent with our basic compensation philosophy
that the best interests of shareholders are served by having
executive compensation meaningfully tied to corporate
performance. It also reflects our stage of development, our
limited history of earnings and the priority allocation of our
limited financial resources to the development of our business.

The compensation paid to our Chief Executive
Officer for the fiscal year ended December 31, 2002 was
based on the same basic factors and criteria used to determine
executive compensation generally. During 2002 our Chief
Executive Officer elected to voluntarily forego approximately
15% of the cash compensation that would otherwise have been
payable to him and to receive common shares in lieu of the
foregone salary on the basis of one share for each dollar
foregone. This increase in the ratio of cash compensation to
equity-based compensation reflects his and our expectation that
the contribution and efforts of the Chief Executive Officer will
materially affect the extent to which, and how quickly, we are
successful in developing our business, particularly as it
relates to GTL, and creating shareholder value. The relative
risks and rewards inherent in equity-based compensation are
intended to be commensurate with the Chief Executive
Officers contribution and efforts.

The cash compensation payable to our Chief
Executive Officer reflects the Compensation Committees
views as to what constitutes a fair and reasonable base salary
for an executive with his skills, expertise and experience
having due regard to the nature and stage of development of our
business and our ability to pay. In assessing the cash
compensation payable to the Chief Executive Officer, the members
of the Compensation Committee have drawn upon their extensive
resource industry experience but have not based the assessment
on rates of cash compensation payable to other chief executive
officers in the oil and gas industry. Ongoing consolidation in
our industry is rapidly diminishing the number of peer companies
of similar size and development, thereby making meaningful
comparisons questionable in assessing and determining either the
cash component or the equity component of our Chief Executive
Officers compensation.

We did not pay a cash bonus to our Chief
Executive Officer during 2002. Accordingly, there is no
measurable relationship between our performance, as reflected in
our share price, our financial results or the development of our
business, and the cash component of the Chief Executive
Officers compensation insofar as the cash component for
2002 consists solely of base salary. The value of the equity
component of the Chief Executive Officers compensation is
exclusively determined with reference to our performance as
measured by the appreciation or decline in the market price of
our common shares.

Submitted on behalf of the Compensation Committee:



| |                      
| | ---------------------
| | Mr. R. Edward Flood  
| | Mr. David R. Martin  
| | Mr. Howard R. Balloch

54



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##### 



Performance Graph

The following graph and table compares the
cumulative shareholder return on a $100 investment in common
shares of the Company to a similar investment in companies
comprising the TSE 300 Total Return Index, including dividend
reinvestment, for the period from December 31, 1997 to
December 31, 2002.

(PERFORMANCE GRAPH)

|                     |       |               |        |               |  |               |        |               |  |               |        |               |  |        |        |     |  |        |        |     |  |        |        |    | 
|-------------------- | ----- | ------------- | ------ | ------------- |  | ------------- | ------ | ------------- |  | ------------- | ------ | ------------- |  | ------ | ------ | --- |  | ------ | ------ | --- |  | ------ | ------ | -- | 
|                     |       | Dec. 31, 1997 |        | Dec. 31, 1998 |  | Dec. 31, 1999 |        | Dec. 31, 2000 |  | Dec. 31, 2001 |        | Dec. 31, 2002
|                     |       |               |        |               |  |               |        |               |  |               |        |              
|Ivanhoe Energy Inc.  |       | Cdn. $        | 100    |               |  | Cdn. $        | 22     |               |  | Cdn. $        | 153    |               |  | Cdn. $ | 423    |     |  | Cdn. $ | 128    |     |  | Cdn. $ | 41     |   
|TSE 300 Total Return |       |               |        |               |  |               |        |               |  |               |        |               |  |        |        |     |  |        |        |     |  |        |        |   
|                     | Index |               | Cdn. $ | 100           |  |               | Cdn. $ | 97            |  |               | Cdn. $ | 126           |  |        | Cdn. $ | 133 |  |        | Cdn. $ | 115 |  |        | Cdn. $ | 99 | 

55



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##### 





|         |                                                                   
|-------- | ------------------------------------------------------------------
|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
    OWNERS AND MANAGEMENT

Except as set forth below, no person or group is
known to beneficially own 5% or more of our issued and
outstanding common shares. Based on information known to us, the
following table sets forth the beneficial ownership of each such
person or group in our common shares at March 3, 2003.

|               |  |                                                                                                                 |  |                       |            |            |  |  |        | 
|-------------- |  | --------------------------------------------------------------------------------------------------------------- |  | --------------------- | ---------- | ---------- |  |  | ------ | 
|               |  | Name and Address of                                                                                             |  | Number of Shares      |            | Percentage
|Title of Class |  | Beneficial Owner                                                                                                |  | Beneficially Owned(1) |            | of Class  
|               |  |                                                                                                                 |  |                       |            |           
|Common Shares  |  | Robert M. Friedland(2)
    Flat B, 31st Floor
    Primrose Court
    56A Conduit Road
    Mid-Levels, Hong Kong |  |                       | 46,611,725 |            |  |  | 32.26% | 
|Common Shares  |  | Capital Research and Management Company
    333 South Hope Street
    Los Angeles, California
    90071         |  |                       | 10,192,200 |            |  |  | 7.05%  | 
|Common Shares  |  | Paul Stephens
    388 Market Street
    Suite 200
    San Francisco, California
    94111                       |  |                       | 7,252,138  |            |  |  | 5.02%  | 
|Common Shares  |  | Directors and Executive Officers as a Group
    (10 persons)                                                    |  |                       | 53,935,476 | (3)        |  |  | 36.02% | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Beneficial ownership is determined in accordance
    with the rules of the Securities and Exchange Commission 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) | 46,194,620 outstanding common shares are held
    indirectly through Newstar Securities SRL, Premier Mines Ltd.
    and Evershine LLC, companies controlled by Mr. Friedland.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|(3) | Includes 5,288,677 common shares issuable upon
    the exercise of incentive stock options held by directors and
    executive officers as a group.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

Security Ownership of Management

The following table sets forth the beneficial
ownership at March 3, 2003 of our common shares by each of
our directors, our named executive officers and by all of our
directors and executive officers as a group:

|               |  |                                                                      |  |               |            |            |  |                 |       |   |  |  |           | 
|-------------- |  | -------------------------------------------------------------------- |  | ------------- | ---------- | ---------- |  | --------------- | ----- | - |  |  | --------- | 
|               |  |                                                                      |  | Amount        |            |            |  |                
|               |  |                                                                      |  | and Nature    |            |            |  | Incentive Stock
|               |  |                                                                      |  | of Beneficial |            | Percentage |  | Options        
|Title of Class |  | Name of Beneficial Owner                                             |  | Ownership     |            | of Class   |  | included in (a)
|               |  |                                                                      |  |               |            |            |  |                
|               |  |                                                                      |  | (a)           |            | (b)        |  | (c)            
|Common Shares  |  | David R. Martin                                                      |  |               | 4,337,460  |            |  |                 | 2.93  |   |  |  | 3,400,000 | 
|Common Shares  |  | Robert M. Friedland                                                  |  |               | 46,611,725 |            |  |                 | 32.26 |   |  |  |           | 
|Common Shares  |  | E. Leon Daniel                                                       |  |               | 959,957    |            |  |                 | 0.66  |   |  |  | 466,667   | 
|Common Shares  |  | John A. Carver                                                       |  |               | 616,899    |            |  |                 | 0.43  |   |  |  | 350,000   | 
|Common Shares  |  | R. Edward Flood                                                      |  |               | 105,029    |            |  |                 | 0.07  |   |  |  | 80,000    | 
|Common Shares  |  | Shun-ichi Shimizu                                                    |  |               | 92,500     |            |  |                 | 0.06  |   |  |  | 60,000    | 
|Common Shares  |  | John OKeefe                                                         |  |               | 421,586    |            |  |                 | 0.29  |   |  |  | 315,000   | 
|Common Shares  |  | Patrick Chua                                                         |  |               | 578,120    |            |  |                 | 0.40  |   |  |  | 412,000   | 
|Common Shares  |  | Gerald Moench                                                        |  |               | 172,200    |            |  |                 | 0.12  |   |  |  | , 165,000 | 
|Common Shares  |  | Howard R. Balloch                                                    |  |               | 40,000     |            |  |                 | 0.03  |   |  |  | 40,000    | 
|Common Shares  |  | All directors and executive officers as a
    group
    (10 persons) |  |               | 53,935,476 |            |  |                 | 36.02 | % |  |  |           | 

56



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##### 






See Item 5 for Securities Authorized for
Issuance under Equity Compensation Plans.



|         |                                                   
|-------- | --------------------------------------------------
|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED
    TRANSACTIONS

Transactions with Management and
Others

In December 2002, the Company borrowed
$0.5 million from Ivanhoe Capital Finance Ltd., a company
wholly owned by Mr. Robert Friedland. The unsecured loan is
due 90 days after written demand, on the closing date of
obtaining equity financing or December 31, 2005 whichever
occurs earliest. The loan bears interest at U.S. prime plus 3%.

Certain Business Relationships

We are parties to cost sharing agreements with
other companies wholly owned by Mr. Robert M. Friedland.
Through these agreements, we share office space, furnishings,
equipment and communications facilities in Vancouver, Singapore
and London and an aircraft on a cost recovery basis. We also
share the costs of employing administrative and non-executive
management personnel at these offices. During the year ended
December 31, 2002, our share of these costs was
$1.2 million.

During the year ended December 31, 2002 a
company controlled by Mr. Shun-ichi Shimizu received
$0.4 million for consulting services and out of pocket
expenses.

TABLE OF INDEBTEDNESS OF DIRECTORS, EXECUTIVE
OFFICERS

AND SENIOR OFFICERS


|                            |  |                      |                |                    |  |                     |         |  |  |   |   | 
|--------------------------- |  | -------------------- | -------------- | ------------------ |  | ------------------- | ------- |  |  | - | - | 
|                           
|                            |  | Largest Amount       |                |                   
|                            |  | Involvement of       |                | Outstanding During |  | Amount Outstanding 
|Name and Principal Position |  | Issuer or Subsidiary |                | 2002               |  | as at March 3, 2003
|                           
|DAVID R. MARTIN   Chairman  |  |                      | Loan Agreement |                    |  | $                   | 218,711 |  |  | $ | 0 | 
|R. EDWARD FLOOD   Director  |  |                      | Loan Agreement |                    |  | $                   | 65,613  |  |  | $ | 0 | 

We loaned Messrs. Martin and Flood Cdn.
$200,000 and Cdn. $60,000, respectively, in January 2001 to
facilitate their exercise of warrants to purchase 50,000 and
15,000 of our common shares, respectively. The loans bore
interest at the Bank of Montreal prime rate as quoted from time
to time and were secured by a pledge of the shares purchased
under the loan agreement. The loans were to mature in January
2003. In December 2002, Messrs. Martin and Flood notified
us in writing that they were electing to surrender for
cancellation the common shares purchased with the proceeds of
the loans in lieu of repaying the outstanding loan balances and
accrued interest thereon.

ITEM
14.       DISCLOSURE CONTROLS
AND PROCEDURES

Within 90 days prior to the date of this
report, the Company carried out an evaluation, under the
supervision and with the participation of the Companys
management, including the Companys CEO and CFO, of the
effectiveness of the design and operation of the Companys
disclosure controls and procedures pursuant to the 1934
Securities Exchange Act. Based upon that evaluation, the CEO and
CFO concluded that the Companys disclosure controls and
procedures are effective in timely alerting them to material
information required to be included in the Companys
periodic SEC filings relating to the Company (including its
consolidated subsidiaries). There were no significant changes in
the our internal controls or in other factors that could
significantly affect our internal controls subsequent to the
date of their evaluation, nor any significant deficiencies or
material weaknesses in such internal controls requiring
corrective actions. As a result, no corrective actions were
taken.

57



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##### 



PART IV



|         |                                                                    
|-------- | -------------------------------------------------------------------
|ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
    REPORTS ON FORM 8-K

The following financial statements and exhibits
are filed as part of this Annual Report:

|    |  |    |  |                                                                                                                                  |  |                                                                                                                                                                                                                                                                                                                                                                             
|--- |  | -- |  | -------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | 1. |  | Financial Statements:                                                                                                           
|    |  |    |  | Deloitte & Touche, LLP Auditors
    Report on Consolidated                                                                     
|    |  |    |  | Balance 2001 and Consolid years en                                                                                               |  | Sheets of Ivanhoe Energy Inc. as at
    December 31, 2002 and Consolidated Statements of Loss and
    Deficit and ated Statements of Cash Flow of Ivanhoe
    Energy Inc. for the ded December 31, 2002, 2001 and
    2000.                                                                                                                                                 
|    |  |    |  | Consolidated Balance Sheets of Ivanhoe
    Energy Inc. as at December 31, 2002 and 2001                                         
|    |  |    |  | Consolidated Statements of Loss and Deficit of
    Ivanhoe Energy Inc. For the years ended December 31,
    2002, 2001 and 2000.
|    |  |    |  | Consolidated Statements of Cash Flow of Ivanhoe
    Energy Inc. for the years ended December 31, 2002,
    2001 and 2000.       
|    |  |    |  | Inc. for the years ended December 31, 2002,
    2001 and 2000.                                                                  
|    |  | 2. |  | Financial Statement Schedules:                                                                                                  
|    |  |    |  | Supplementary Disclosures about Oil and Gas
    Production Activities (Unaudited)                                               
|    |  | 3. |  | Exhibits                                                                                                                        
|    |  |    |  | 3.1                                                                                                                              |  | Articles of Ivanhoe Energy Inc. as amended
    to June 24, 1999 (incorporated by reference to
    Exhibits 1.1 through to 1.4 of Form 20-F filed with
    the Securities and Exchange Commission on February 28,
    2000).                                                                                                                                                 
|    |  |    |  | 3.2                                                                                                                              |  | Bylaws of Ivanhoe Energy Inc. (incorporated
    by reference to Exhibit 1.1 of Form 20-F filed with
    the Securities and Exchange Commission on February 28,
    2000).                                                                                                                                                                                                   
|    |  |    |  | 4.1                                                                                                                              |  | Amended and Restated Convertible Loan Agreement
    dated August 4, 1999 between Ivanhoe Energy Inc. and
    Linyi Holdings Ltd. (incorporated by reference to
    Exhibit 3.2 of Form 20-F filed with the Securities and
    Exchange Commission on February 28, 2000).                                                                                                    
|    |  |    |  | 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                                                                                                                             |  | Volume License Agreement dated April 26,
    2000 between Syntroleum Corporation and Ivanhoe Energy Inc.
    (incorporated by reference to Exhibit 3.37 of Amendment
    No. 2 to Form 20-F filed with the Securities and
    Exchange Commission on July 24, 2000).                                                                                                        
|    |  |    |  | 10.3                                                                                                                             |  | 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).                                                                                                       
|    |  |    |  | 10.4                                                                                                                             |  | Employees and Directors Equity
    Incentive Plan (incorporated by reference to Exhibit 10.20
    of Form 10-K filed with the Securities and Exchange
    Commission on March 16, 2001).                                                                                                                                                                                  
|    |  |    |  | 10.5                                                                                                                             |  | Joint Study Agreement between Petro China Company
    Limited and Sunwing Energy Ltd. dated 29 March 2001,
    for the purposes of entering into Production Sharing Contracts
    on the Yudong block. (Incorporated by reference to
    Exhibit 10.21 of Form 10-K filed with the Securities
    and Exchange Commission on March 14, 2002)                                
|    |  |    |  | 10.6                                                                                                                             |  | Joint Study Agreement between Petro China Company
    Limited and Sunwing Energy Ltd. dated 29 March 2001,
    for the purposes of entering into Production Sharing Contracts
    on the Zitongxi and Zitondong blocks. (Incorporated by reference
    to Exhibit 10.22 of Form 10-K filed with the
    Securities and Exchange Commission on March 14, 2002.)              
|    |  |    |  | 10.7                                                                                                                             |  | Joint Venture Agreement and Operating Agreement
    dated 1 July 2001 between Union Oil Company of California
    and Ivanhoe Energy (USA) Inc. on the Creslenn Ranch Area,
    Henderson County, Texas. (Incorporated by reference to
    Exhibit 10.23 of Form 10-K filed with the Securities
    and Exchange Commission on March 14, 2002.)                             

58



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##### 



|    |  |                      |  |                                                                                                                                                                                           |  |                                                                                                                                                                                                                                                                                                                                                                         
|--- |  | -------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  |                      |  | 10.8                                                                                                                                                                                      |  | Joint Venture Agreement and Operating Agreement
    dated 1 October 2001 between Union Oil Company of
    California and Ivanhoe Energy (USA) Inc., in the Bossier
    Trend, Anderson, Freestone & Henderson Counties, Texas.
    (Incorporated by reference to Exhibit 10.24 of
    Form 10-K filed with the Securities and Exchange Commission
    on March 14, 2002)
|    |  |                      |  | 10.9                                                                                                                                                                                      |  | Modification Agreement for Petroleum Development
    Contract for Kongnan Block, Dagang Oilfield, the Peoples
    Republic of China, dated 24 October 2001. (Incorporated by
    reference to Exhibit 10.25 of Form 10-K filed with the
    Securities and Exchange Commission on March 14, 2002)                                                                      
|    |  |                      |  | 10.10                                                                                                                                                                                     |  | Amendment of Petroleum Contract for Petroleum
    Development and Production in Zhou 13 Block, Daqing
    Zhaozhou Oilfield, of the Peoples Republic of China dated
    28 December 2001. (Incorporated by reference to
    Exhibit 10.26 of Form 10-K filed with the Securities
    and Exchange Commission on March 14, 2002)                                        
|    |  |                      |  | 10.11                                                                                                                                                                                     |  | Consulting Agreement dated 13 January 2002
    between Ivanhoe Energy Inc. and Nahwan Trading LLC.
    (Incorporated by reference to Exhibit 10.27 of
    Form 10-K filed with the Securities and Exchange Commission
    on March 14, 2002)                                                                                                                            
|    |  |                      |  | 10.12                                                                                                                                                                                     |  | Petroleum Contract dated September 2002 for
    Zitong Block, Sichuan Basin of the Peoples Republic of
    China                                                                                                                                                                                                                                                       
|    |  |                      |  | 10.13                                                                                                                                                                                     |  | Strategic Development Alliance Letter Agreement
    dated September 26, 2002 between the Company and CITIC
    Energy Ltd.                                                                                                                                                                                                                                              
|    |  |                      |  | 10.14                                                                                                                                                                                     |  | Standstill Agreement dated October 29, 2002
    between the Company and Linyi Holdings Limited                                                                                                                                                                                                                                                                          
|    |  |                      |  | 10.15                                                                                                                                                                                     |  | Loan Agreement dated 31 December 2002
    between the Company and Ivanhoe Capital Finance Limited                                                                                                                                                                                                                                                                       
|    |  |                      |  | 21.1                                                                                                                                                                                      |  | Subsidiaries of Ivanhoe Energy Inc.                                                                                                                                                                                                                                                                                                                                     
|    |  |                      |  | 23.1                                                                                                                                                                                      |  | Consent of Gilbert Laustsen Jung
    Associates Ltd., Petroleum Engineers.                                                                                                                                                                                                                                                                                              
|    |  |                      |  | 23.2                                                                                                                                                                                      |  | Consent of Allan Spivak Engineering.                                                                                                                                                                                                                                                                                                                                    
|    |  |                      |  | 23.3                                                                                                                                                                                      |  | Consent of Joe C. Neal & Associates.                                                                                                                                                                                                                                                                                                                                    
|    |  |                      |  | 99.1                                                                                                                                                                                      |  | Certification by the Chief Executive Officer
    Relating to a Periodic Report Containing Financial Statements                                                                                                                                                                                                                                                          
|    |  |                      |  | 99.2                                                                                                                                                                                      |  | Certification by the Chief Financial Officer
    Relating to a Periodic Report Containing Financial Statements                                                                                                                                                                                                                                                          
|(b) |  | Reports on Form 8-K:
|    |  | October 21, 2002     |  | Agreement With CITIC Energy Inc. to form
    Strategic Alliance and joint development of Yudong Block if a
    production sharing contract with PetroChina Corporation is
    negotiated.

59



---



##### 



SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                                                  
| | -------------------------------------------------
| | IVANHOE ENERGY INC.                              
|
| | By: /s/     E. LEON
    DANIEL                   
| |                                                  
| | Name: E. Leon Daniel                             
| | Title:  President and Chief Executive
    Officer

Dated: March 17, 2003


Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated.

|                                           |  |                                                                                                               |  |               
|------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------- |  | --------------
|Signature                                  |  | Title                                                                                                         |  | Date          
|                                           |  |                                                                                                               |  |               
|/s/ E. LEON DANIELE. Leon Daniel           |  | President, Chief Executive
    Officer and Director
    (Principal Executive Officer)                         |  | March 17, 2003
|/s/ JOHN OKEEFEJohn OKeefe               |  | Executive Vice-President and
    Chief Financial Officer
    (Principal Financial and
    Accounting Officer) |  | March 17, 2003
|/s/ DAVID MARTINDavid Martin               |  | Chairman of the Board and Director                                                                            |  | March 17, 2003
|/s/ ROBERT M. FRIEDLANDRobert M. Friedland |  | Deputy Chairman and Director                                                                                  |  | March 17, 2003
|/s/ JOHN A. CARVERJohn A. Carver           |  | Director                                                                                                      |  | March 17, 2003
|/s/ R. EDWARD FLOODR. Edward Flood         |  | Director                                                                                                      |  | March 17, 2003
|/s/ SHUN-ICHI SHIMIZUShun-ichi Shimizu     |  | Director                                                                                                      |  | March 17, 2003
|/s/ HOWARD BALLOCHHoward Balloch           |  | Director                                                                                                      |  | March 17, 2003

60



---



##### 



CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER
RELATING TO

INTERNAL DISCLOSURE CONTROLS AND
PROCEDURES


I, E. Leon Daniel, certify that:



| |    |                                                                                                                                                                                                                                                                                                                                              
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | I have reviewed this annual report on
    Form 10-K of Ivanhoe Energy Inc.;                                                                                                                                                                                                                                                                  
|
| | 2. | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the periods covered by this
    annual report;
|
| | 3. | Based on my knowledge, the financial statements,
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this annual report;                        
|
| | 4. | The registrants other certifying officers
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                           



| |     |                                                                                                                                                                                                                                                                                                             
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a.) | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;
|
| | b.) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c.) | presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |    |                                                                                                                                                                                                                                                                
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. | The registrants other certifying officers
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent functions):



| |     |                                                                                                                                                                                                                                                                                                                   
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a.) | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b.) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



| |    |                                                                                                                                                                                                                                                                                                                                                                                                        
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. | The registrants other certifying officers
    and I have indicated in this annual report whether there were
    significant changes in internal controls or in other factors
    that could significantly affect internal controls subsequent to
    the date of our most recent evaluation, including any corrective
    actions with regard to significant deficiencies and material
    weaknesses.

Date: March 17, 2003

Chief Executive Officer



|    |                   
|--- | ------------------
|By: | /s/ E. LEON DANIEL

E. Leon Daniel


61



---



##### 



CERTIFICATION BY THE CHIEF FINANCIAL OFFICER
RELATING TO

INTERNAL DISCLOSURE CONTROLS AND
PROCEDURES


I, John OKeefe, certify that:



| |    |                                                                                                                                                                                                                                                                                                                                              
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | I have reviewed this annual report on
    Form 10-K of Ivanhoe Energy Inc.;                                                                                                                                                                                                                                                                  
|
| | 2. | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the periods covered by this
    annual report.
|
| | 3. | Based on my knowledge, the financial statements,
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this quarterly report;                     
|
| | 4. | The registrants other certifying officers
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                           



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;



| |    |                                                                                                                                                                                                       
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and
|
| | c. | presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;                          



| |    |                                                                                                                                                                                                                                                                
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. | The registrants other certifying officers
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent functions):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b. | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



| |    |                                                                                                                                                                                                                                                                                                                                                                                                        
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. | The registrants other certifying officers
    and I have indicated in this annual report whether there were
    significant changes in internal controls or in other factors
    that could significantly affect internal controls subsequent to
    the date of our most recent evaluation, including any corrective
    actions with regard to significant deficiencies and material
    weaknesses.

Date: March 17, 2003

Chief Financial Officer



|    |                 
|--- | ----------------
|By: | /s/ JOHN OKEEFE

John OKeefe


62



---



##### 



EXHIBIT INDEX

|            |       |             |  |                                                                                                                                                                                                                                                                                                                                                                             
|----------- | ----- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |       | Description
|            |       |            
|            | 3.1   |             |  | Articles of Ivanhoe Energy Inc. as amended to
    June 24, 1999 (incorporated by reference to
    Exhibits 1.1 through to 1.4 of Form 20-F filed with
    the Securities and Exchange Commission on February 28,
    2000).                                                                                                                                                 
|            | 3.2   |             |  | Bylaws of Ivanhoe Energy Inc. (incorporated
    by reference to Exhibit 1.1 of Form 20-F filed with
    the Securities and Exchange Commission on February 28,
    2000).                                                                                                                                                                                                   
|            | 4.1   |             |  | Amended and Restated Convertible Loan Agreement
    dated August 4, 1999 between Ivanhoe Energy Inc. and
    Linyi Holdings Ltd. (incorporated by reference to
    Exhibit 3.2 of Form 20-F filed with the Securities and
    Exchange Commission on February 28, 2000).                                                                                                    
|            | 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  |             |  | Volume License Agreement dated April 26,
    2000 between Syntroleum Corporation and Ivanhoe Energy Inc.
    (incorporated by reference to Exhibit 3.37 of Amendment
    No. 2 to Form 20-F filed with the Securities and
    Exchange Commission on July 24, 2000).                                                                                                        
|            | 10.3  |             |  | 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).                                                                                                       
|            | 10.4  |             |  | Employees and Directors Equity
    Incentive Plan (incorporated by reference to Exhibit 10.20
    of Form 10-K filed with the Securities and Exchange
    Commission on March 16, 2001).                                                                                                                                                                                  
|            | 10.5  |             |  | Joint Study Agreement between Petro China Company
    Limited and Sunwing Energy Ltd. dated 29 March 2001,
    for the purposes of entering into Production Sharing Contracts
    on the Yudong block. (Incorporated by reference to
    Exhibit 10.21 of Form 10-K filed with the Securities
    and Exchange Commission on March 14, 2002)                                
|            | 10.6  |             |  | Joint Study Agreement between Petro China Company
    Limited and Sunwing Energy Ltd. dated 29 March 2001,
    for the purposes of entering into Production Sharing Contracts
    on the Zitongxi and Zitondong blocks. (Incorporated by reference
    to Exhibit 10.22 of Form 10-K filed with the
    Securities and Exchange Commission on March 14, 2002.)              
|            | 10.7  |             |  | Joint Venture Agreement and Operating Agreement
    dated 1 July 2001 between Union Oil Company of California
    and Ivanhoe Energy (USA) Inc. on the Creslenn Ranch Area,
    Henderson County, Texas. (Incorporated by reference to
    Exhibit 10.23 of Form 10-K filed with the Securities
    and Exchange Commission on March 14, 2002.)                             
|            | 10.8  |             |  | Joint Venture Agreement and Operating Agreement
    dated 1 October 2001 between Union Oil Company of
    California and Ivanhoe Energy (USA) Inc., in the Bossier
    Trend, Anderson, Freestone & Henderson Counties, Texas.
    (Incorporated by reference to Exhibit 10.24 of
    Form 10-K filed with the Securities and Exchange Commission
    on March 14, 2002)    
|            | 10.9  |             |  | Modification Agreement for Petroleum Development
    Contract for Kongnan Block, Dagang Oilfield, the Peoples
    Republic of China, dated 24 October 2001. (Incorporated by
    reference to Exhibit 10.25 of Form 10-K filed with the
    Securities and Exchange Commission on March 14, 2002)                                                                          
|            | 10.10 |             |  | Amendment of Petroleum Contract for Petroleum
    development and Production in Zhou 13 Block, Daqing
    Zhaozhou Oilfield, of the Peoples Republic of China dated
    28 December 2001. (Incorporated by reference to
    Exhibit 10.26 of Form 10-K filed with the Securities
    and Exchange Commission on March 14, 2002)                                            
|            | 10.11 |             |  | Consulting Agreement dated 13 January 2002
    between Ivanhoe Energy Inc. and Nahwan Trading LLC.
    (Incorporated by reference to Exhibit 10.27 of
    Form 10-K filed with the Securities and Exchange Commission
    on March 14, 2002)                                                                                                                                
|            | 10.12 |             |  | Petroleum Contract dated September 2002 for
    Zitong Block, Sichuan Basin of the Peoples Republic of
    China                                                                                                                                                                                                                                                           
|            | 10.13 |             |  | Strategic Development Alliance Letter Agreement
    dated September 26, 2002 between the Company and CITIC
    Energy Ltd.                                                                                                                                                                                                                                                  
|            | 10.14 |             |  | Standstill Agreement dated October 29, 2002
    between the Company and Linyi Holdings Limited                                                                                                                                                                                                                                                                              
|            | 10.15 |             |  | Loan Agreement dated 31 December 2002
    between the Company and Ivanhoe Capital Finance Limited                                                                                                                                                                                                                                                                           
|            | 21.1  |             |  | Subsidiaries of Ivanhoe Energy Inc.                                                                                                                                                                                                                                                                                                                                         
|            | 23.1  |             |  | Consent of Gilbert Laustsen Jung
    Associates Ltd., Petroleum Engineers.                                                                                                                                                                                                                                                                                                  
|            | 23.2  |             |  | Consent of Allan Spivak Engineering.                                                                                                                                                                                                                                                                                                                                        

63



---



##### 



|                         |              |             |  |                                                                                                               
|------------------------ | ------------ | ----------- |  | --------------------------------------------------------------------------------------------------------------
|Exhibit No.              |              | Description
|                         |              |            
|                         | 23.3         |             |  | Consent of Joe C. Neal & Associates.                                                                          
|                         | 99.1         |             |  | Certification by the Chief Executive Officer
    Relating to a Periodic Report Containing Financial Statements
|                         | 99.2         |             |  | Certification by the Chief Financial Officer
    Relating to a Periodic Report Containing Financial Statements
|(b) Reports on Form 8-K:
|                         | October  21, |             |  | Agreement With CITIC Energy Inc. to form
    Strategic Alliance and joint development of Yudong Block if a    
|                         | 2002.        |             |  | production sharing contract with PetroChina
    Corporation is negotiated.                                    

64