Summary of IVANHOE ENERGY INC

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
With the exception of historical information, certain matters discussed in this Form 10-Q, including in this Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations, are forward looking statements that involve risks and uncertainties. Certain statements contained in this Form 10-Q, including statements which may contain words such as "anticipate", "could", "propose", "should", "intend", "seeks to", "is pursuing", "expect", "believe", "will" and similar expressions and statements relating to matters that are not historical facts are forward-looking statements. Forward-looking statements can also include discussions relating to Ivanhoe Energy's agreement with Talisman to acquire all of Talisman's working interest in two oil sand leases, Ivanhoe Energy Ecuador's agreement with Petroecuador and Petroproduccion to develop Block 20 in Ecuador, Ivanhoe Energy's ability to obtain the financing to pay the principal and interest on the notes delivered by Ivanhoe Energy at the acquisition closing and obtain the financing necessary to fund the Ecuador project, Ivanhoe Energy's plan to establish integrated HTL heavy oil projects on Talisman Lease 10 and Ecuador Block 20, the anticipated production capacity of the proposed HTL plants, the anticipated quantities of recoverable barrels of bitumen and other statements which are not historical facts and to future production associated with the HTLTM Technology, GTL Technology and Enhanced Oil Recovery ("EOR") techniques. Such statements involve known and unknown risks and uncertainties which may cause the actual results, performances or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Although the Company believes that its expectations are based on reasonable assumptions, it can give no assurance that its goals will be achieved. Important factors that could cause actual results to differ materially from those in the forward-looking statements herein include, but are not limited to, the ability to raise capital as and when required, the timing and extent of changes in prices for oil and gas, competition, environmental risks, drilling and operating risks, uncertainties about the estimates of reserves and the potential success of heavy-to-light and gas-to-liquids technologies, the prices of goods and services, the availability of drilling rigs and other support services, legislative and government regulations, political and economic factors in countries in which the Company operates and implementation of its capital investment program. The above items and their possible impact are discussed more fully in the section entitled "Risk Factors" in Item 1A and "Quantitative and Qualitative Disclosures About Market Risk" in Item 7A of the Company's 2007 Annual Report on Form 10-K.
The following should be read in conjunction with the Company's unaudited condensed consolidated financial statements contained herein, and the consolidated financial statements, and the Management's Discussion and Analysis of Financial Condition and Results of Operations, contained in the Form 10-K for the year ended December 31, 2007. Any terms used but not defined in the following discussion have the same meaning given to them in the Form 10-K. The unaudited condensed consolidated financial statements in this Quarterly Report filed on Form 10-Q have been prepared in accordance with GAAP in Canada. The impact of significant differences between Canadian GAAP and U.S. GAAP on the unaudited condensed consolidated financial statements is disclosed in Note 16.
SPECIAL NOTE TO CANADIAN INVESTORS
The Company is a registrant under the Securities Exchange Act of 1934 and voluntarily files reports with the U.S. Securities and Exchange Commission ("SEC") on Form 10-K, Form 10-Q and other forms used by registrants that are U.S. domestic issuers. Therefore, the Company's reserves estimates and securities regulatory disclosures generally follow SEC requirements. In 2004, the Canadian Securities Administrators ("CSA") adopted National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities (NI 51-101) which prescribes certain standards for the preparation and disclosure of reserves and related information by Canadian issuers. The Company has been granted certain exemptions from NI 51-101. Please refer to the Special Note to Canadian Investors on page 10 of the 2007 Annual Report on Form 10-K.

THE DISCUSSION AND ANALYSIS OF THE COMPANY'S OIL AND GAS ACTIVITIES WITH RESPECT
TO OIL AND GAS VOLUMES, RESERVES AND RELATED PERFORMANCE MEASURES IS PRESENTED
ON NET OF WORKING INTEREST AFTER ROYALTIES. ALL TABULAR AMOUNTS ARE EXPRESSED IN
THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AND PRODUCTION DATA INCLUDING
REVENUES AND COSTS PER BOE.
As generally used in the oil and gas business and in this throughout the Form
10-Q, the following terms have the following meanings:

            Boe       = barrel of oil equivalent
            Bbl       = barrel
            MBbl      = thousand barrels
            MMBbl     = million barrels
            Mboe      = thousands of barrels of oil equivalent
            Bopd      = barrels of oil per day
            Bbls/d    = barrels per day
            Boe/d     = barrels of oil equivalent per day
            Mboe/d    = thousands of 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

Oil equivalents compare quantities of oil with quantities of gas or express these different commodities in a common unit. In calculating Bbl equivalents (Boe), the generally recognized industry standard is one Bbl is equal to six Mcf. Boes may be misleading, particularly if used in isolation. The conversion ratio is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Electronic copies of the Company's filings with the SEC and the CSA are available, free of charge, through its web site (www.ivanhoeenergy.com) or, upon request, by contacting its investor relations department at (604) 688-8323. Alternatively, the SEC and the CSA each maintains a website (www.sec.gov and www.sedar.com) that contains the Company's periodic reports and other public filings with the SEC and the CSA.
Ivanhoe Energy's Business
Ivanhoe Energy is an independent international heavy oil development and production company focused on pursuing long term growth in its reserve base and production using advanced technologies, including its proprietary, patented rapid thermal processing process ("RTPTM Process") for heavy oil upgrading ("HTLTM Technology" or "HTLTM"). In mid-2008, the Company acquired two leases located in the heart of the Athabasca oil sands region in Alberta, Canada and recently signed a Specific Services contract in Ecuador for the appraisal and development of a heavy oil lease in Ecuador. It is anticipated that these sites will provide for the first commercial applications of the Company's HTL™ Technology in major, integrated heavy oil projects (see Implementation Strategy below).
In addition, the Company seeks to selectively expand its reserve base and production through conventional exploration and production ("E&P") of oil and gas. Finally, the Company is exploring an opportunity to monetize stranded gas reserves through the application of the conversion of natural gas-to-liquids using a technology ("GTL Technology" or "GTL") licensed from Syntroleum Corporation. Core operations are in Canada, the United States, China and Ecuador, with business development opportunities worldwide.
The Company has established a number of geographically focused entities. The parent company, Ivanhoe Energy Inc., will pursue HTL opportunities in the Athabasca oil sands of Western Canada and will hold and manage the core HTL technology. A new subsidiary for Latin America recently signed a Specific Services Contract for the appraisal and development of a heavy oil lease in Ecuador. In addition, a subsidiary has been established to undertake activities in the Middle East and North Africa. These companies complement Sunwing Energy Ltd., the Company's existing, wholly-owned company for China. Ivanhoe Energy Inc. owns 100% of each of these subsidiaries, although the percentages are expected to decline as they develop their respective businesses and raise capital independently.
This structure will allow the development and financing of multiple HTL projects around the world, while minimizing dilution of the Company's existing shareholders. In addition, the alignment with principal energy-producing regions will facilitate financing from region-specific strategic investors, some of which already have been identified, and also will enhance flexibility in accessing global capital markets.
Corporate Strategy
Importance of the Heavy Oil Segment of the Oil and Gas Industry The global oil and gas industry is experiencing sharp increases in demand from developing economies and is being impacted by the declining availability of replacement low cost reserves. This has resulted in volatile but increased oil prices and marked shifts in the demand and supply landscape. Although there has been a great deal of volatility in the price of oil and significant recent price declines, long term demand, and the natural decline of conventional oil production will see the development of higher cost and lower value resources, including heavy oil.
Heavy oil developments can be segregated into two types: conventional heavy oil that flows to the surface without steam enhancement and non-conventional heavy oil and bitumen. While the Company focuses on the non-conventional heavy oil, both play an important role in Ivanhoe Energy's corporate strategy.
Production of conventional heavy oil has been steadily increasing worldwide, led by Canada and Latin America but with significant contributions from most other oil basins, including the Middle East and the Far East, as producers struggle to replace declines in light oil reserves. Even without the impact of the large non-conventional heavy oil projects in Canada and Venezuela, world heavy oil production has been increasingly more common. Refineries, on the other hand, have not been able to keep up with the need for deep conversion capacity, and heavy versus light oil price differentials have widened significantly.

With regard to non-conventional heavy oil and bitumen, the dramatic increase in interest and activity has been fueled by higher prices, in addition to various key advances in technology, including improved remote sensing, horizontal drilling, and new thermal techniques. This has enabled producers to more effectively access the extensive, heavy oil resources around the world. These newer technologies, together with higher oil prices, have generated increased access to heavy oil resources, although for profitable exploitation, key challenges remain, with varied weightings, project by project: 1) the requirement for steam and electricity to help extract heavy oil, 2) the need for diluent to move the oil once it is at the surface, 3) the wide heavy versus light oil price differentials that the producer is faced with when the product gets to market, and 4) conventional upgrading technologies limited to very large scale, high capital cost facilities. These challenges can lead to "distressed" assets, where economics are poor, or to "stranded" assets, where the resource cannot be economically produced and lies fallow. Ivanhoe Energy's Value Proposition
The Company's application of the HTLTM Technology seeks to address the four key heavy oil development challenges outlined above, and can do so at a relatively small minimum economic scale.
Ivanhoe Energy's HTL™ upgrading is a partial upgrading process that is designed to operate in facilities as small as 10,000 to 30,000 barrels per day produced. This is substantially smaller than the minimum economic scale for conventional stand-alone upgraders such as delayed cokers, which typically operate at scales of over 100,000 barrels per day produced. The Company's HTL™ Technology is based on carbon rejection, a tried and tested concept in heavy oil processing. The key advantage of HTL™ is that it is a very fast process, as processing times are typically under a few seconds. This results in smaller, less costly facilities and eliminates the need for hydrogen addition, an expensive, large minimum scale step typically required in conventional upgrading. The Company's HTL™ Technology has the added advantage of converting the byproducts from the upgrading process into onsite energy, rather than generating large volumes of low value coke. The HTL™ process offers significant advantages as a field-located upgrading alternative, integrated with the upstream heavy oil production operation. HTL™ provides four key benefits to the producer:
1. Virtual elimination of external energy requirements for steam generation and/or power for upstream operations.

2. Elimination of the need for diluent or blend oils for transport.

3. Capture of the majority of the heavy versus light oil value differential.

4. Relatively small minimum economic scale of operations suited for field upgrading and for smaller field developments.

The business opportunities available to the Company correspond to the challenges each potential heavy oil project faces. In Canada, Ecuador, California, Iraq and Oman, all four of the HTLTM advantages identified above come into play. In others, including certain identified opportunities in Colombia and Libya, the heavy oil naturally flows to the surface, but transport is the key problem. The economics of a project are effectively dictated by the advantages that HTLTM can bring to a particular opportunity. The more stranded the resource and the fewer monetization alternatives that the resource owner has, the greater the opportunity the Company will have to establish the Ivanhoe Energy value proposition.
Implementation Strategy
The Company's continuing strategy is as follows:
1. Build a portfolio of major HTLTM projects. Continue to deploy the personnel and the financial resources in support of our goal to capture additional opportunities for development projects utilizing the Company's HTLTM Technology.

2. Advance the technology. Additional development work will continue to advance the technology through the first commercial application and beyond.

3. Enhance the Company's financial position in anticipation of major projects.Implementation of large projects requires significant capital outlays. The Company is refining its financing plans and establishing the relationships required for the development activities of the future.

4. Build internal capabilities. During 2008, significant progress has been made in building execution teams in preparation for the Company's first HTLTM projects. The upstream team consists of a number of experienced heavy oil engineers and geologists complemented by a core team of petroleum engineers and geologists. Also, the Company's Houston-based HTLTM technology team has been strengthened. The Company expects to continue filling key positions in its execution mode.

5. Build the relationships needed for the future. Commercialization of the Company's technologies demands close alignment with partners, suppliers, host governments and financiers.

Talisman Lease Acquisition
In July, the Company announced the completion of the acquisition of Talisman Energy Canada's ("Talisman') 100% working interests in two leases (Leases 10 and
6) located in the heart of the Athabasca oil sands region in the Province of Alberta, Canada. Lease 10 is a 6,880-acre contiguous block located approximately ten miles (16 km) northeast of Fort McMurray. Lease 6 is a small, un-delineated, 680-acre block, one mile (1.6 km) south of Lease 10. The acquisition of Lease 10 will provide the site for the application of Ivanhoe Energy's proprietary, HTL™ heavy oil upgrading technology in a major, integrated heavy oil project. Lease 10 has a relatively high level of delineation (four wells per section). It is believed to be a high-quality reservoir and an excellent candidate for thermal recovery production using the SAGD (steam-assisted gravity drainage) process. The high quality of the asset is expected to provide for favorable projected operating costs, including attractive steam-oil ratios (SOR) using SAGD development techniques. The Company's HTL plant on Lease 10 is projected ultimately to be capable of operating at production rates of at least 30,000 barrels per day for approximately 25 years. The Company intends to integrate established SAGD thermal recovery techniques with its patented HTL upgrading process, producing and marketing a light, synthetic sour crude. The Company has already commenced planning its Lease 10 development program in preparation for the submission of permits for an integrated HTL project. In general, thermal oil sands projects, including SAGD projects, require a period of initial development, including delineation, permitting and field development, which is followed by relatively stable operations for many years. Ecuador Block 20 Contract
In October, Ivanhoe Energy Ecuador Inc., a wholly owned subsidiary, signed a contract with Ecuador state oil companies Petroecuador and Petroproduccion to explore and develop Ecuador's Pungarayacu heavy oil field. Block 20 is an area of approximately 426 square miles, approximately 125 miles southeast of Quito, Ecuador's capital.
The contract is a Specific Services Contract under which Ivanhoe Energy Ecuador will use its unique and patented HTL technology, as well as provide advanced oil-field technology, expertise and capital to develop, produce and upgrade heavy crude oil from Block 20, which contains the Pungarayacu field. In addition, Ivanhoe Energy Ecuador has the right to conduct exploration for light oil in the contract area and to use any light oil that it discovers to blend with the heavy oil for delivery to Petroproduccion.
The contract has an initial term of 30 years and has three phases. The first two phases are for evaluation of the field's production capability and the crude-oil characteristics, as well as for the construction of the first HTL plant. The third phase is for full field development and will include drilling additional exploration and development wells. Additional HTL capacity will be added as necessary for expected production.
To recover its investments, costs and expenses, and to provide for a profit, Ivanhoe Energy Ecuador will receive from Petroproduccion a payment of US$37.00 per barrel of oil produced and delivered to Petroproduccion. The payment will be indexed (adjusted) quarterly for inflation, starting from the contract date, using the weighted average of a basket of three US Government-published producer price indices relating to steel products, refinery products and upstream oil and gas equipment. Ivanhoe Energy Ecuador may elect to receive its payment in oil, based on market prices.

Executive Overview of 2008 Results
The following table sets forth certain selected consolidated data for the
three-month and nine-month periods ended September 30, 2008 and 2007:

                                               Three-Month Periods Ended                  Nine-Month Periods Ended
                                                     September 30,                             September 30,
                                               2008                 2007                  2008                2007
Oil and gas revenue                        $    20,437          $    10,864           $    53,459          $  30,249
Net income (loss)                          $    10,062          $    (7,232 )         $   (20,213 )        $ (20,358 )
Net income (loss) per share                $      0.04          $     (0.03 )         $     (0.08 )        $   (0.08 )
Average production (Boe/d)                       1,895                1,734                 1,898              1,863
Net operating revenue per Boe              $     70.12          $     41.36           $     63.93          $   35.53
Cash flow from operating activities        $     1,673          $     1,766           $     7,399          $   4,566
Capital investments                        $     8,956          $     9,100           $    16,872          $  22,557

Financial Results - Change in Net Loss
The following provides an analysis of the changes in net losses for the three-month and nine-month periods ended September 30, 2008 as compared to the same periods for 2007:

                                                                              Three-Month Periods Ended September 30,                   Nine-Month Periods Ended September 30,
                                                                                                Favorable                                                  Favorable
                                                                                              (Unfavorable)                                              (Unfavorable)
                                                                            2008                Variances            2007             2008                 Variances          2007
Summary of Net Income (Loss) by Significant Components:
Oil and Gas Revenues:                                                   $     20,437                               $ 10,864       $      53,459                             $  30,249
Production volumes                                                                            $         996                                              $         621
Oil and gas prices                                                                                    8,577                                                     22,589
Realized loss on derivative instruments                                       (3,735 )               (3,312)           (423 )           (10,037 )               (9,791)          (246 )
Operating costs                                                               (8,211 )               (3,945)         (4,266 )           (20,217 )               (8,043)       (12,174 )

General and administrative, less stock based compensation                     (4,352 )               (2,119)         (2,233 )           (11,228 )               (4,247)        (6,981 )
Business and technology development, less stock based compensation            (1,758 )                  807          (2,565 )            (4,385 )                2,343         (6,728 )
Net interest                                                                      91                    105             (14 )              (514 )                 (472)           (42 )
Current income tax provision                                                    (358 )                 (358)              -                (364 )                 (364)             -

Unrealized gain (loss) on derivative instruments                              18,553                 20,283          (1,730 )               122                  2,804         (2,682 )
Depletion and depreciation                                                    (8,183 )               (2,139)         (6,044 )           (24,678 )               (5,718)       (18,960 )
Stock based compensation                                                      (1,114 )                 (356)           (758 )            (3,025 )                 (412)        (2,613 )
Future income tax (provision) recovery                                        (1,125 )               (1,125)              -               1,161                  1,161              -
Other                                                                           (183 )                 (120)            (63 )              (507 )                 (326)          (181 )


Net Income (Loss)                                                       $     10,062          $      17,294        $ (7,232 )     $     (20,213 )        $         145      $ (20,358 )

Net income for the three-month period ended September 30, 2008 was $10.1 million ($0.04 net income per share) compared to a net loss for the same period in 2007 of $7.2 million ($0.03 net loss per share). The change from net loss to net income from 2007 to 2008 of $17.3 million was primarily due to a $20.3 million increase in unrealized gain on derivative instruments and a $9.6 million increase in oil and gas revenues offset by increases in realized losses on derivative instruments and expenses.
Net loss for the nine-month period ended September 30, 2008 was $20.2 million ($0.08 net loss per share) compared to a net loss for the same period in 2007 of $20.4 million ($0.08 net loss per share). The decrease in net loss from 2007 to 2008 of $0.1 million was

primarily due to a $23.2 million increase in oil and gas revenues and a $2.8 million increase in unrealized gain on derivative instruments offset by increases in realized losses on derivative instruments and expenses. Significant variances are explained in the sections that follow. Revenues and Operating Costs
The following is a comparison of changes in production volumes for the three-month and nine-month periods ended September 30, 2008 as compared to the same periods in 2007:

                                      Three-Month Periods Ended September 30,                              Nine-Month Periods Ended September 30,
                                             Net Boe's                     Percentage                            Net Boe's                     Percentage
                                    2008                  2007               Change                     2008                  2007               Change
China:
Dagang                               118,110               111,012                6 %                    349,599               342,368                2 %
Daqing                                 4,615                 5,172              -11 %                     14,604                16,069               -9 %

                                     122,725               116,184                6 %                    364,203               358,437                2 %

U.S.:
South Midway                          47,722                38,297               25 %                    143,419               134,265                7 %
Spraberry                              3,261                 4,838              -33 %                     10,984                14,876              -26 %
Others                                   638                   239              167 %                      1,406                 1,092               29 %

                                      51,621                43,374               19 %                    155,809               150,233                4 %


                                     174,346               159,558                9 %                    520,012               508,670                2 %

Net production volumes for the three-month period ended September 30, 2008 increased 9% when compared to the same period in 2007 primarily due to an increase in production volumes in both our U.S. and China properties. Total volume changes in the quarter resulted in increased revenues of $1.0 million. Production volumes for the nine-month period ended September 30, 2008 increased . . .