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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

     
x
  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 
    For the quarterly period ended September 30, 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
   98- 0372413
(State or other jurisdiction of
incorporation or organization)		   (I.R.S. Employer
Identification No.)
 
Suite 654 – 999 Canada Place
Vancouver, British Columbia, Canada
V6C 3E1
(Address of principal executive office)
 
(604) 688-8323
(registrant’s telephone number, including area code)

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report:

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

The number of shares of the registrant’s capital stock outstanding as of September 30, 2002 was 144,630,818 Common Shares, no par value.

Page 1 of 22

 

TABLE OF CONTENTS

         
Page
PART I
   Financial Information    
Item 1.
  Financial Statements    
    Consolidated Condensed Balance Sheets at September 30, 2002 (unaudited) and December 31, 2001   3
    Unaudited Consolidated Condensed Statements of Loss and Deficit for the Three Month and Nine Month Periods Ended September 30, 2002 and 2001   4
    Unaudited Consolidated Condensed Statements of Cash Flow for the Three Month and Nine Month Periods Ended September 30, 2002 and 2001   5
    Notes to the Unaudited Consolidated Condensed Financial Statements   6
Item 2.
  Management’s Discussion and Analysis of Financial Condition and Results of Operations   11
Item 3.
  Quantitative and Qualitative Disclosures About Market Risks   16
Item 4.
  Controls and Procedures   16
PART II
   Other Information    
Item 1.
  Legal Proceedings   17
Item 2.
  Changes in Securities and Use of Proceeds   17
Item 3.
  Defaults Upon Senior Securities   17
Item 4.
  Submission of Matters To a Vote of Securityholders   17
Item 5.
  Other Information   17
Item 6.
  Exhibits and Reports on Form 8-K   17

Page 2 of 22

 

Part I — Financial Information

Item 1     Financial Statements

IVANHOE ENERGY INC.

Consolidated Condensed Balance Sheets
(stated in thousands of U.S. Dollars)
                 
September 30, 2002 December 31, 2001
(unaudited) (audited)
Assets
                
Current Assets
               
Cash
  $ 2,981     $ 9,697  
Accounts receivable
    2,898       1,938  
Other
    731       375  
     
     
 
      6,610       12,010  
 
Long Term Assets
    457       397  
Oil and gas properties, equipment and GTL investments
    99,597       91,596  
     
     
 
    $ 106,664     $ 104,003  
     
     
 
Liabilities and Stockholders’ Equity
                
Current Liabilities
               
Accounts payable and accrued liabilities
  $ 3,770     $ 5,974  
Convertible debenture
    1,000       1,000  
     
     
 
      4,770       6,974  
     
     
 
Provision for site restoration
    219       132  
     
     
 
Shareholders’ Equity
               
Share capital, issued 144,631,000 common shares; December 31, 2001 139,267,000
    130,862       120,392  
Deficit
    (29,187 )     (23,495 )
     
     
 
      101,675       96,897  
     
     
 
    $ 106,664     $ 104,003  
     
     
 

(see accompanying notes)

Page 3 of 22

 

IVANHOE ENERGY INC.

Unaudited Consolidated Condensed Statements of Loss and Deficit
(stated in thousands of U.S. Dollars except per share data)
                                 
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
Revenue
                                
Oil and gas revenue
  $ 2,328     $ 2,708     $ 5,972     $ 7,141  
Interest income
    22       26       94       512  
     
     
     
     
 
      2,350       2,734       6,066       7,653  
     
     
     
     
 
Expenses
                                
Operating costs
    1,070       1,198       2,938       3,213  
General and administrative
    1,095       1,436       4,083       6,277  
Depletion and depreciation
    813       770       2,301       1,689  
Write offs and provision for impairment
    2,436       9,000       2,436       14,000  
     
     
     
     
 
      5,414       12,404       11,758       25,179  
     
     
     
     
 
Net loss
     3,064       9,670       5,692       17,526  
Deficit, beginning of period
    26,123       10,229       23,495       2,373  
     
     
     
     
 
Deficit, end of period
  $ 29,187     $ 19,899     $ 29,187     $ 19,899  
     
     
     
     
 
Net Loss per share
   $ 0.02     $ 0.08     $ 0.04     $ 0.14  
     
     
     
     
 
Weighted Average Number of Shares (in thousands)
     144,631       127,981       141,546       127,436  
     
     
     
     
 

(see accompanying notes)

Page 4 of 22

 

IVANHOE ENERGY INC.

Unaudited Consolidated Condensed Statements of Cash Flow
(stated in thousands of U.S. Dollars)
                                 
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
Operating Activities
                                
Net loss
  $ (3,064 )   $ (9,670 )   $ (5,692 )   $ (17,526 )
Items not requiring use of cash
                                
Depletion and depreciation
    813       770       2,301       1,689  
Write offs and provision for impairment
    2,436       9,000       2,436       14,000  
     
     
     
     
 
      185       100       (955 )     (1,837 )
Changes in non-cash working capital items
    (757 )     2,441       (3,133 )     5,633  
     
     
     
     
 
      (572 )     2,541       (4,088 )     3,796  
     
     
     
     
 
Investing Activities
                                
Capital spending
    (4,639 )     (7,766 )     (16,471 )     (33,502 )
Proceeds from sale of assets
    2,560       —       3,760       —  
     
     
     
     
 
      (2,079 )     (7,766 )     (12,711 )     (33,502 )
     
     
     
     
 
Financing Activities
                                
Shares issued on private placement
    —       —       9,964       —  
Shares issued on exercise of options
    —       98       119       327  
Proceeds from demand loan
    —       1,000       —       1,000  
     
     
     
     
 
      —       1,098       10,083       1,327  
     
     
     
     
 
Increase (Decrease) in cash for the period
    (2,651 )     (4,127 )     (6,716 )     (28,379 )
Cash, beginning of period
    5,632       5,442       9,697       29,694  
     
     
     
     
 
Cash, end of period
  $ 2,981     $ 1,315     $ 2,981     $ 1,315  
     
     
     
     
 
Supplementary Information Regarding Non-Cash Transactions
                                
Investing activities, net assets acquired:
                               
Oil and gas properties
  $ —     $ —     $ —     $ 2,978  
Accounts receivable
    —       —       —       200  
     
     
     
     
 
    $ —     $ —     $ —     $ 3,178  
     
     
     
     
 
Financing activities, non-cash:
                               
Shares issued as consideration
  $ —     $ —     $ —     $ 3,178  
     
     
     
     
 
Included in the above are the following:
                                
Interest paid
  $ 21     $ 27     $ 56     $ 84  
     
     
     
     
 
Decrease (increase) in non-cash working capital items
                                
Accounts receivable
  $ (853 )   $ 719     $ (960 )   $ 2,314  
Other current assets
    (503 )     102       (356 )     153  
Accounts payable and accrued liabilities
    599       1,619       (1,817 )     3,165  
     
     
     
     
 
    $ (757 )   $ 2,441     $ (3,133 )   $ 5,633  
     
     
     
     
 

(see accompanying notes)

Page 5 of 22

 

Notes to the Consolidated Condensed Financial Statements

September 30, 2002
(all tabular amounts are expressed in thousands of United States dollars except per share data)
(Unaudited)
 
1. General

  The unaudited consolidated condensed financial statements have been prepared on a basis consistent with the accounting principles and policies reflected in the December 31, 2001 consolidated financial statements, except for a change in the policy of accounting for stock based compensation plan (see note 6), and should be read in conjunction therewith. The December 31, 2001 consolidated balance sheet was derived from the audited consolidated financial statements, but does not include all disclosures required by generally accepted accounting principles (“GAAP”) in Canada and the U.S. All adjustments which are, in the opinion of management, necessary for a fair presentation of the Company’s financial position as at September 30, 2002 and December 31, 2001 and the results of operations and cash flows for the three and nine month periods ended September 30, 2002 and 2001 have been included. The results of operations and cash flows are not necessarily indicative of the results for a full year.
 
  The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts and other disclosure in these condensed consolidated financial statements. Actual results may differ from those estimates.

 
2. Accounting Principles

  The consolidated condensed financial statements have been prepared in accordance with Canadian GAAP, which conforms to U.S. GAAP except as below:
   
  Consolidated Condensed Balance Sheets

                                   
As at As at
September 30, 2002 December 31, 2001
Oil and Gas Shareholders’ Oil and Gas Shareholders’
Properties Equity Properties Equity
Canadian GAAP
  $ 99,597     $ 101,675     $ 91,596     $ 96,897  
 
Adjustment to ascribed value of shares issued for royalty interests
    1,358       1,358       1,358       1,358  
 
Impairment provision for China properties
    (10,000 )     (10,000 )     (10,000 )     (10,000 )
 
Depletion adjustment — China
    56       56       —       —  
 
GTL development costs written off
    (6,421 )     (6,421 )     (5,142 )     (5,142 )
 
OCI — Derivative Mark-to-Market adjustment
    —       (142 )     —       —  
     
     
     
     
 
U.S. GAAP
  $ 84,590     $ 86,526     $ 77,812     $ 83,113  
     
     
     
     
 

  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 mark-to-

Page 6 of 22

 

  market value of the derivative as at September 30, 2002 is a liability of $0.1 million. It has been determined that there is no ineffectiveness in the derivative thus none of the hedging loss has been reclassified from OCI to current period earnings.
 
  Under U.S. GAAP, the transfer of deficit to share capital, which occurred in 1999, would not be recognized and would comprise the following Shareholders’ Equity:

                 
September 30 December 31
2002 2001
Share capital (including adjustments above)
  $ 206,675     $ 196,205  
Deficit (Including adjustments above)
    (120,007 )     (113,092 )
Accumulated other comprehensive income
    (142 )     —  
     
     
 
    $ 86,526     $ 83,113  
     
     
 

          Consolidated Condensed Statements of Loss and Deficit