Heavy oil reservoirs of steam-injection development after water-flooding have normally experienced many different production processes, such as cold production, water-flooding, steam buff and puff, and steam flooding. Some complex phenomena and effects may occur in the non-isothermal recovery processes, for example, distillation, decline in in-situ oil viscosity, water gravity segregation, steam overlap, the development of wormholes, forming foaming oil, thermal expansion effect of formation fluid and rock, and reversed wettability. Simultaneously, formation damage induced by clay swelling, external particles invasion, fines generation, migration, sanding and asphaltene precipitation may happen, which can lead to variations in formation permeability and porosity and significantly reduce oil production rate and even lead to its complete loss. Traditional model for simulating heavy oil reservoir production behavior has not allowed for the influence of formation damage on heavy oil reservoir and has neglected dynamic changes in formation porosity and permeability. Thereby, it becomes unreliable to design and adjust development plan and forecast production performance in heavy oil reservoir via steam-injection after water-flooding. In this paper, a 3-D, 3-phase, compositional thermal simulator NUMSIP (Numerical Model for Steam Injection Processes) has been reworked and further developed, considering formation damage induced by clay swelling, fines migration and asphaltene precipitation. Based on the laboratory experiments, formation damage was determined and our in-house new simulator has been successfully applied in Liudong Section heavy oil reservoir in Xinjiang Oil Field. The objective of this work was to investigate and illustrate how much formation damage impacts heavy oil reservoir production performance and the work also suggests dynamic changes in porosity and permeability should be considered globally to correctly predict production performance in heavy oil reservoir via steam-injection after water-flooding.