UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM
20-F





| |  ̈ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
(g) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ----------------------------------------------------------------------------------------------

OR

| | x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
| | - | ------------------------------------------------------------------------------------

For the fiscal year ended December 31,
2011



OR

| |  ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ----------------------------------------------------------------------------------------

For the transition period from ____ to
______



OR

| |  ̈ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | -------------------------------------------------------------------------------------------

Date of event requiring this shell company
report:














|Commission file number: 001-33491
|---------------------------------











DEJOUR
ENERGY INC.






(Exact name of Registrant as specified
in its charter)



Province of British Columbia, Canada








(Jurisdiction of incorporation
or organization)



598 - 999 Canada Place
Vancouver, British Columbia V6C 3E1






(Address of principal executive offices)



Mathew Wong598 - 999 Canada Place
Vancouver, British Columbia V6C 3E1

Tel: (604) 638-5050

Facsimile: (604) 638-5051






(Name, Telephone, E-mail and/or Facsimile
number and Address of Company Contact Person)










Securities registered pursuant to Section
12(b) of the Act:



| | Title of Each Class              |  | Name of each exchange on which registered
| | -------------------------------- |  | -----------------------------------------
| |                                  |  |                                          
| | Common Shares, without par value |  | NYSE Amex Equities                       






















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



Securities for which there is a reporting
obligation pursuant to Section 15(d) of the Act: None








Indicate the number of outstanding shares
of each of the Registrant’s classes of capital or common stock as of the close of the period covered by the annual report:
130,786,069 common shares as at April 26, 2012










Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ̈No x










If this report is an annual or transition
report, indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. Yes  ̈No x










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 xNo  ̈










Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes  ̈No  ̈








Indicate by check mark whether the Registrant
is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and
large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one)



Large accelerated filer  ̈Accelerated
filer  ̈Non-accelerated
filer x










Indicate by check mark which basis of accounting
the registrant has used to prepare the financial statements included in this filing:



| | U.S. GAAP  ̈ | International Financial Reporting Standards as issued | x
| | ----------- | ----------------------------------------------------- | -
| | Other  ̈     | by the International Accounting Standards Board       |  










If “Other” has been checked
in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:



Item 17  ̈	Item 18  ̈








If this is an annual report, indicate by
check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ̈
No x






















TABLE OF CONTENTS



|GENERAL INFORMATION                                                                    |  | 4 
|-------------------------------------------------------------------------------------- |  | --
|CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS                                   |  | 4 
|CURRENCY AND EXCHANGE RATES                                                            |  | 6 
|ABBREVIATIONS                                                                          |  | 6 
|PART I                                                                                 |  | 8 
|ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS.                        |  | 8 
|ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE.                                      |  | 8 
|ITEM 3.  KEY INFORMATION.                                                              |  | 8 
|ITEM 4. INFORMATION ON THE COMPANY                                                     |  | 19
|ITEM 4A. UNRESOLVED STAFF COMMENTS                                                     |  | 38
|ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                  |  | 38
|ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.                                    |  | 46
|ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.                            |  | 61
|ITEM 8.  FINANCIAL INFORMATION.                                                        |  | 64
|ITEM 9. THE OFFER AND LISTING                                                          |  | 65
|ITEM 10.  ADDITIONAL INFORMATION                                                       |  | 68
|ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   |  | 85
|ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       |  | 87
|PART II                                                                                |  | 88
|ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                               |  | 88
|ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |  | 88
|ITEM 15. CONTROLS AND PROCEDURES                                                       |  | 88
|ITEM 16.  [RESERVED]                                                                   |  | 89
|ITEM 16A.  AUDIT COMMITTEE FINANCIAL EXPERT                                            |  | 89
|ITEM 16B.  CODE OF ETHICS                                                              |  | 89
|ITEM 16C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES                                      |  | 90
|ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                   |  | 90
|ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PERSONS          |  | 91
|ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT                                 |  | 91
|ITEM 16G. CORPORATE GOVERNANCE                                                         |  | 91
|ITEM 16H. MINE SAFETY DISCLOSURE                                                       |  | 92
|PART III                                                                               |  | 93
|ITEM 17.  FINANCIAL STATEMENTS                                                         |  | 93
|ITEM 18.  FINANCIAL STATEMENTS                                                         |  | 93
|ITEM 19.  EXHIBITS                                                                     |  | 94
|SIGNATURES                                                                             |  | 96















GENERAL
INFORMATION



All references in this annual report on
Form 20-F to the terms “we”, “our”, “us”, “the Company” and “Dejour”
refer to Dejour Energy Inc.



CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS



This annual report on Form 20-F and the
documents incorporated herein by reference contain “forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements concern our anticipated results and developments in the our operations
in future periods, planned exploration and, if warranted, development of our properties, plans related to our business and other
matters that may occur in the future. These statements relate to analyses and other information that are based on forecasts of
future results, estimates of amounts not yet determinable and assumptions of management.



Any statements that express or involve
discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or
performance (often, but not always, using words or phrases such as “expects” or “does not expect”, “is
expected”, “anticipates” or “does not anticipate”, “plans”, “estimates” or
“intends”, or stating that certain actions, events or results “may”, “could”, “would”,
“might” or “will” be taken, occur or be achieved) are not statements of historical fact and may be forward-looking
statements. The forward-looking statements contained in this annual report on Form 20-F concern, among other things:



| | · | drilling inventory, drilling plans and timing of drilling, re-completion and tie-in of wells;
| | - | ---------------------------------------------------------------------------------------------



| | · | productive capacity of wells, anticipated or expected production rates and anticipated dates of
commencement of production;
| | - | ---------------------------------------------------------------------------------------------------------------------------



| | · | drilling, completion and facilities costs;
| | - | ------------------------------------------



| | · | results of our various projects;
| | - | --------------------------------



| | · | ability to lower cost structure in certain of our projects;
| | - | -----------------------------------------------------------



| | · | our growth expectations;
| | - | ------------------------



| | · | timing of development of undeveloped reserves;
| | - | ----------------------------------------------



| | · | the performance and characteristics of the Company’s oil and natural gas properties;
| | - | ------------------------------------------------------------------------------------



| | · | oil and natural gas production levels;
| | - | --------------------------------------



| | · | the quantity of oil and natural gas reserves;
| | - | ---------------------------------------------



| | · | capital expenditure programs;
| | - | -----------------------------



| | · | supply and demand for oil and natural gas and commodity prices;
| | - | ---------------------------------------------------------------



| | · | the impact of federal, provincial, and state governmental regulation on Dejour;
| | - | -------------------------------------------------------------------------------



| | · | expected levels of royalty rates, operating costs, general administrative costs, costs of services
and other costs and expenses;
| | - | --------------------------------------------------------------------------------------------------------------------------------



| | · | expectations regarding our ability to raise capital and to continually add to reserves through
acquisitions, exploration and development;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------



| | · | treatment under governmental regulatory regimes and tax laws; and
| | - | -----------------------------------------------------------------



| | · | realization of the anticipated benefits of acquisitions and dispositions.
| | - | -------------------------------------------------------------------------



These statements relate to analyses and
other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of our
management.





4









Forward-looking statements are subject
to a variety of known and unknown risks, uncertainties and other factors that could cause actual events or results to differ from
those expressed or implied by the forward-looking statements, including, without limitation:



| | · | risks related to the marketability and price of oil and natural gas being affected by factors outside
our control;
| | - | ------------------------------------------------------------------------------------------------------------------



| | · | risks related to world oil and natural gas prices being quoted in U.S. dollars and our production
revenues being adversely affected by an appreciation in the Canadian dollar;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | risks related to our ability to execute projects being dependent on factors outside our control;
| | - | ------------------------------------------------------------------------------------------------



| | · | risks related to oil and gas exploration having a high degree of risk and exploration efforts failing;
| | - | ------------------------------------------------------------------------------------------------------



| | · | risks related to cumulative unsuccessful exploration efforts;
| | - | -------------------------------------------------------------



| | · | risks related to oil and natural gas operations involving hazards and operational risks;
| | - | ----------------------------------------------------------------------------------------



| | · | risks related to seasonal factors and unexpected weather;
| | - | ---------------------------------------------------------



| | · | risks related to competition in the oil and gas industry;
| | - | ---------------------------------------------------------



| | · | risks related to the fact that we do not control all of the assets that are used in the operation
of our business;
| | - | ------------------------------------------------------------------------------------------------------------------



| | · | risks related to our ability to market oil and natural gas depending on its ability to transport
the product to market;
| | - | -----------------------------------------------------------------------------------------------------------------------



| | · | risks related to high demand for drilling equipment;
| | - | ----------------------------------------------------



| | · | risks related to title to our properties;
| | - | -----------------------------------------



| | · | risks related to our ability to continue to meet its oil and gas lease or license obligations;
| | - | ----------------------------------------------------------------------------------------------



| | · | risks related to our anticipated substantial capital needs for future acquisitions;
| | - | -----------------------------------------------------------------------------------



| | · | risks related to our cash flow from reserves not being sufficient to fund its ongoing operations;
| | - | -------------------------------------------------------------------------------------------------



| | · | risks related to covenants in issued debt restricting the ability to conduct future financings;
| | - | -----------------------------------------------------------------------------------------------



| | · | risks related to our being exposed to third party credit risks;
| | - | ---------------------------------------------------------------



| | · | risks related to our being able to find, acquire, develop and commercially produce oil and natural
gas;
| | - | -------------------------------------------------------------------------------------------------------



| | · | risks related to our properties not producing as projected;
| | - | -----------------------------------------------------------



| | · | risks related to our estimated reserves being based upon estimates;
| | - | -------------------------------------------------------------------



| | · | risks related to future oil and gas revenues not resulting in revenue increases;
| | - | --------------------------------------------------------------------------------



| | · | risks related to our managing growth;
| | - | -------------------------------------



| | · | risks related to our being dependent on key personnel;
| | - | ------------------------------------------------------



| | · | risks related to our operations being subject to federal, state, local and other laws, controls
and regulations;
| | - | ----------------------------------------------------------------------------------------------------------------



| | · | risks related to uncertainty regarding claims of title and right of aboriginal people;
| | - | --------------------------------------------------------------------------------------



| | · | risks related to environmental laws and regulations;
| | - | ----------------------------------------------------



| | · | risks related to our facilities, operations and activities emitting greenhouse gases;
| | - | -------------------------------------------------------------------------------------



| | · | risks related to our not having paid dividends to date;
| | - | -------------------------------------------------------



| | · | risks related to our stock price being volatile; and
| | - | ----------------------------------------------------



| | · | risks related to our being a foreign private issuer.
| | - | ----------------------------------------------------





5









This list is not exhaustive of the factors
that may affect any of our forward-looking statements. Some of the important risks and uncertainties that could affect forward-looking
statements are described further under the section heading “Item 3. Key Information – D. Risk Factors” below.
If one or more of these risks or uncertainties materializes, or if underlying assumptions prove incorrect, our actual results may
vary materially from those expected, estimated or projected. Forward-looking statements in this document are not a prediction of
future events or circumstances, and those future events or circumstances may not occur. Given these uncertainties, users of the
information included herein, including investors and prospective investors are cautioned not to place undue reliance on such forward-looking
statements. Investors should consult our quarterly and annual filings with Canadian and U.S. securities commissions for additional
information on risks and uncertainties relating to forward-looking statements. We do not assume responsibility for the accuracy
and completeness of these statements.



Forward-looking statements are based on
our beliefs, opinions and expectations at the time they are made, and we do not assume any obligation to update our forward-looking
statements if those beliefs, opinions, or expectations, or other circumstances, should change, except as required by applicable
law.



We qualify all the forward-looking statements
contained in this annual report on Form 20-F by the foregoing cautionary statements.



CURRENCY
AND EXCHANGE RATES



Canadian Dollars Per U.S. Dollar



Unless otherwise indicated, all references
in this annual report are to Canadian dollars ("$" or "Cdn$").



The following tables set forth the number
of Canadian dollars required to buy one United States dollar (US$) based on the average, high and low nominal noon exchange rate
as reported by the Bank of Canada for each of the last five fiscal years and each of the last six months.  The average rate
means the average of the exchange rates on the last day of each month during the period.



|                       |  | Canadian Dollars Per One U.S. Dollar |       
|---------------------- |  | ------------------------------------ | ------
|                       |  | 2011                                 |       
|Average for the period |  |                                      | 0.9891





|                    |  | March 2012 |        |  | February 2012 |  |        | January 2012 |  |  | December 2011 |  |  | November 2011 |        |  | October 2011 | 
|------------------- |  | ---------- | ------ |  | ------------- |  | ------ | ------------ |  |  | ------------- |  |  | ------------- | ------ |  | ------------ | 
|High for the period |  |            | 1.0015 |  |               |  | 1.0016 |              |  |  | 1.0272        |  |  |               | 1.0406 |  |              | 
|Low for the period  |  |            | 0.9849 |  |               |  | 0.9866 |              |  |  | 0.9986        |  |  |               | 1.0105 |  |              | 



Exchange rates are based on the Bank of
Canada nominal noon exchange rates.The nominal noon exchange rate on April 26, 2012 as reported
by the Bank of Canada for the conversion of United States dollars into Canadian dollars was US$1.00 = Cdn$0.9841.



ABBREVIATIONS



|Oil and Natural Gas Liquids |                               | Natural Gas
|--------------------------- | ----------------------------- | -----------
|bbl                         | barrel                        |            
|bbls                        | barrels                       |            
|BOPD                        | barrels per day               |            
|Mbbls                       | thousand barrels              |            
|Mmbtu                       | million British thermal units |            



|Other |                                                                                                                                                              | 
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------ | 
|AECO  | Intra-Alberta Nova Inventory Transfer Price (NIT net price of natural gas).                                                                                 
|BOE   | Barrels of oil equivalent. A barrel of oil equivalent is determined by converting a volume of natural gas to barrels using the ratio of 6 Mcf to one barrel.
|BOE/D | Barrels of oil equivalent per day.                                                                                                                          
|BCFE  | Billion cubic feet equivalent                                                                                                                               
|MBOE  | Thousand barrels of oil equivalent.                                                                                                                         
|NYMEX | New York Mercantile Exchange.                                                                                                                               
|WTI   | West Texas Intermediate, the reference price paid in U.S. dollars at Cushing Oklahoma for crude oil of standard grade.                                      





6









PART I



ITEM
1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS



Not applicable.



ITEM
2. OFFER STATISTICS AND EXPECTED TIMETABLE



Not applicable.



ITEM
3. KEY INFORMATION



| | A. | Selected Financial Data
| | -- | -----------------------



Our selected financial data and the information
in the following table for the years ended December 31, 2007 - 2011 was derived from our audited consolidated financial statements.
These audited consolidated financial statements have been audited by BDO Canada LLP, Chartered Accountants, for the years ended
December 31, 2011 and 2010, and Dale Matheson Carr-Hilton LaBonte LLP, Chartered Accountants, for the years ended December 31,
2007-2009. Certain prior years’ comparative figures have been reclassified, if necessary.



The information in the following table
should be read in conjunction with the information appearing under the heading “Item 5. Operating and Financial Review and
Prospects” and our audited consolidated financial statements under the heading "Item 18. Financial Statements".



The following table of selected financial
data has been derived from financial statements. On January 1, 2011, the Company adopted International Financial Reporting
Standards (“IFRS”) for financial reporting purposes, using a transition date of January 1, 2010. The Company’s
annual audited Consolidated Financial Statements for the year ended December 31, 2011, including 2010 required comparative
information, have been prepared in accordance with IFRS, as issued by the International Accounting Standards Board (“IASB”)
and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”). Financial statements
prior to the fiscal year ended December 31, 2010 were prepared in accordance with Canadian generally accepted accounting principles
(“Canadian GAAP”). Reference is made to Note 21 of our audited consolidated financial statements as at December 31,
2010 and 2009 and for the years ended December 31, 2010, 2009 and 2008 for a discussion of the material measurement differences
between Canadian GAAP and United States generally accepted accounting principles (“U.S. GAAP”), and their effect on
our financial statements.



Financial information included in this
annual report on Form 20-F for the years 2011 and 2010 is determined using IFRS, which differ from U.S. GAAP and Canadian GAAP.
Unless otherwise indicated, financial information included in this annual report on Form 20-F prior to year 2010 were in accordance
with Canadian GAAP.



We have not declared any dividends since
incorporation and do not anticipate that we will do so in the foreseeable future.  Our present policy is to retain all available
funds for use in our operations and the expansion of our business.



|(Cdn$ in 000, except per share data) |  | Year Ended December 31, |        
|------------------------------------ |  | ----------------------- | -------
|                                     |  | 2011 (IFRS)             |        
|Revenue (Oil and natural gas)        |  | $                       | 8,824  
|Net Loss for the Year                |  | $                       | (11,043
|Loss Per Share                       |  | $                       | (0.09  
|Dividends Per Share                  |  |                         | Nil    
|Weighted Avg. Shares, basic (,000)   |  |                         | 120,300
|Weighted Avg. Shares, diluted (,000) |  |                         | 120,300
|Year-end Shares (,000)               |  |                         | 126,892





7







|(Cdn$ in 000, except per share data) |  | Year Ended December 31, |        
|------------------------------------ |  | ----------------------- | -------
|                                     |  | 2011 (IFRS)             |        
|Working Capital (Deficiency)         |  | $                       | (7,756 
|Resource Properties                  |  | $                       | 25,043 
|Long-term Investments                |  |                         | -      
|Long-term Liabilities                |  | $                       | 1,383  
|Capital Stock                        |  | $                       | 85,076 
|Retained Earnings (Deficit)          |  | $                       | (76,510
|Total Assets                         |  | $                       | 29,438 



Canadian GAAP Adjusted
to United States Generally Accepted Accounting Principles



Under U.S. GAAP the following financial
information would be adjusted from Canadian GAAP, and certain prior years’ comparative figures have been reclassified or
restated, if necessary.



|(Cdn$ in 000, except per share data) |  | Year Ended December 31, |        
|------------------------------------ |  | ----------------------- | -------
|                                     |  | 2011 (IFRS)             |        
|Net Loss for the Year                |  | $                       | (11,043
|Loss Per Share                       |  | $                       | (0.09  
|Resource Properties                  |  | $                       | 25,043 
|Retained Earnings (Deficit)          |  | $                       | (76,510
|Total Assets                         |  | $                       | 29,438 



Exchange Rate History



See the disclosure under the heading "Currency
and Exchange Rates" above.



Recently Adopted Accounting Policies
and Future Accounting Pronouncements



IFRS



On January 1, 2011, we adopted IFRS and
the accounting policies have been applied in preparing the consolidated financial statements for the year ended December 31, 2011,
the consolidated financial statements for the year ended December 31, 2010 and the opening IFRS balance sheet on January 1, 2010.
The detail accounting policies in accordance with IFRS are disclosed in Note 3 of the Company’s audited consolidated financial
statements and the details of transition to IFRS are disclosed in Note 25 of the Company’s audited consolidated financial
statements under the heading "Item 18. Financial Statements", below.



Future Accounting Pronouncements



Certain pronouncements were issued by the
IASB or the IFRIC that are mandatory for accounting periods beginning after January 1, 2011 or later periods.



The Company has early adopted the amendments
to IFRS 1 which replaces references to a fixed date of ‘1 January 2004’ with ‘the date of transition to IFRS’.
This eliminates the need for the Company to restate derecognition transactions that occurred before the date of transition to IFRS.
The amendment is effective for year-ends beginning on or after July 1, 2011; however, the Company has early adopted the amendment.
The impact of the amendment and early adoption is that the Company only applies IAS 39 derecognition requirements to transactions
that occurred after the date of transition.





8









The following are new standards, amendments
and interpretations, that have not been early adopted in these consolidated annual financial statements. The Company is currently
assessing the impact, if any, of this new guidance on the Company’s future results and financial position:



| | · | IFRS 7, Financial Instruments: Disclosures, which requires disclosure of both gross and net information
about financial instruments eligible for offset in the balance sheet and financial instruments subject to master netting arrangements.
Concurrent with the amendments to IFRS 7, the IASB also amended IAS 32, Financial Instruments: Presentation to clarify the existing
requirements for offsetting financial instruments in the balance sheet. The amendments to IAS 32 are effective as of January 1,
2014.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | IFRS 9 Financial Instruments is part of the IASB's wider project to replace IAS 39 Financial Instruments:
Recognition and Measurement. IFRS 9 retains but simplifies the mixed measurement model and establishes two primary measurement
categories for financial assets: amortized cost and fair value. The basis of classification depends on the entity's business model
and the contractual cash flow characteristics of the financial asset. The standard is effective for annual periods beginning on
or after January 1, 2015.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | IFRS 10 Consolidated Financial Statements is the result of the IASB’s project to replace
Standing Interpretations Committee 12, Consolidation – Special Purpose Entities and the consolidation requirements of IAS
27, Consolidated and Separate Financial Statements. The new standard eliminates the current risk and rewards approach and establishes
control as the single basis for determining the consolidation of an entity. The standard is effective for annual periods beginning
on or after January 1, 2013.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | IFRS 11 Joint Arrangements is the result of the IASB’s project to replace IAS 31, Interests
in Joint Ventures. The new standard redefines joint operations and joint ventures and requires joint operations to be proportionately
consolidated and joint ventures to be equity accounted. Under IAS 31, joint ventures could be proportionately consolidated. The
standard is effective for annual periods beginning on or after January 1, 2013.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | IFRS 12 Disclosure of Interests in Other Entities outlines the required disclosures for interests
in subsidiaries and joint arrangements. The new disclosures require information that will assist financial statement users to evaluate
the nature, risks and financial effects associated with an entity’s interests in subsidiaries and joint arrangements. The
standard is effective for annual periods beginning on or after January 1, 2013.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | IFRS 13 Fair Value Measurement defines fair value, requires disclosures about fair value measurements
and provides a framework for measuring fair value when it is required or permitted within the IFRS standards. The standard is effective
for annual periods beginning on or after January 1, 2013.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | IFRIC 20 Stripping costs in the production phase of a mine, IFRIC 20 clarifies the requirements
for accounting for the costs of the stripping activity in the production phase when two benefits accrue: (i) unusable ore that
can be used to produce inventory and (ii) improved access to further quantities of material that will be mined in future periods.
IFRIC 20 is effective for annual periods beginning on or after January 1, 2013 with earlier application permitted and includes
guidance on transition for pre-existing stripping assets. The Company is currently evaluating the impact the new guidance is expected
to have on its consolidated financial statements.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following new standards, amendments
and interpretations that have not been early adopted in these consolidated financial statements, are not expected to have an effect
on the Company’s future results and financial position:



| | · | IFRS 1: Severe Hyperinflation (Effective for periods beginning on or after July 1, 2011)
| | - | ----------------------------------------------------------------------------------------



| | · | IAS 12: Deferred Tax: Recovery of Underlying Assets (Amendments to IAS 12 (Effective for periods
beginning on or after January 1, 2012)
| | - | ---------------------------------------------------------------------------------------------------------------------------------------





| | B. | Capitalization and Indebtedness
| | -- | -------------------------------



Not Applicable.





9









| | C. | Reasons for the Offer and Use of Proceeds
| | -- | -----------------------------------------



Not Applicable.



| | D. | Risk Factors
| | -- | ------------



An investment in a company engaged in oil
and gas exploration involves an unusually high amount of risk, both unknown and known, present and potential, including, but not
limited to the risks enumerated below.  An investment in our common shares is highly speculative and subject to a number of
known and unknown risks. Only those persons who can bear the risk of the entire loss of their investment should purchase our securities.
An investor should carefully consider the risks described below and the other information that we file with the SEC and with Canadian
securities regulators before investing in our common shares. The risks described below are not the only ones faced. Additional
risks that we are not currently aware of or that we currently believe are immaterial may become important factors that affect our
business. The risk factors set forth below and elsewhere in this annual report, and the risks discussed in our other filings with
the SEC and Canadian securities regulators, may have a significant impact on our business, financial condition and/or results of
operations and could cause actual results to differ materially from those projected in any forward-looking statements. See “Cautionary
Note Regarding Forward-Looking Statements”.



Our failure to successfully address the
risks and uncertainties described below would have a material adverse effect on our business, financial condition and/or results
of operations, and the trading price of our common stock may decline and investors may lose all or part of their investment.  We
cannot assure you that we will successfully address these risks or other unknown risks that may affect our business.



Risks related to commodity price fluctuations



The marketability and price of oil
and natural gas are affected by numerous factors outside of our control.  Material fluctuations in oil and natural gas
prices could adversely affect our net production revenue and oil and natural gas operations.



Prices for oil and natural gas may fluctuate
widely in response to relatively minor changes in the supply of and demand for oil and natural gas, market uncertainty and a variety
of additional factors that are beyond our control, such as:



| | · | the domestic and foreign supply of and demand for oil and natural gas;
| | - | ----------------------------------------------------------------------

| | · | the price and quantity of imports of crude oil and natural gas;
| | - | ---------------------------------------------------------------

| | · | overall domestic and global economic conditions;
| | - | ------------------------------------------------

| | · | political and economic conditions in other oil and natural gas producing countries, including embargoes
and continued hostilities in the Middle East and other sustained military campaigns, and acts of terrorism or sabotage;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | the ability of members of the Organization of Petroleum Exporting Countries to agree to and maintain
oil price and production controls;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------

| | · | the level of consumer product demand;
| | - | -------------------------------------

| | · | weather conditions;
| | - | -------------------

| | · | the impact of the U.S. dollar exchange rates on oil and natural gas prices; and
| | - | -------------------------------------------------------------------------------

| | · | the price and availability of alternative fuels.
| | - | ------------------------------------------------



Our ability to market our oil and natural
gas depends upon our ability to acquire space on pipelines that deliver such commodities to commercial markets. We are also affected
by deliverability uncertainties related to the proximity of our reserves to pipelines and processing and storage facilities and
operational problems affecting such pipelines and facilities, as well as extensive governmental regulation relating to price, taxes,
royalties, land tenure, allowable production, the export of oil and natural gas and many other aspects of the oil and natural gas
business.



Both oil and natural gas prices are unstable
and are subject to fluctuation. Any material decline in prices could result in a reduction of our net production revenue. The economics
of producing from some wells may change as a result of lower prices, which could result in reduced production of oil or natural
gas and a reduction in the volumes and net present value of our reserves. We might also elect not to produce from certain wells
at lower prices. All of these factors could result in a material decrease in our net production revenue and a reduction in our
oil and natural gas acquisition, development and exploration activities.





10







Because world oil and natural gas
prices are quoted in U.S. dollars, our production revenues could be adversely affected by an appreciation of the Canadian dollar.



World oil and natural gas prices are quoted
in U.S. dollars, and the price received by Canadian producers, including us, is therefore affected by the Canadian/U.S. dollar
exchange rate, which will fluctuate over time. In recent years, the Canadian dollar has increased materially in value against the
U.S. dollar, which may negatively affect our production revenues. Further material increases in the value of the Canadian dollar
would exacerbate this potential negative effect and could have a material adverse effect on our financial condition and results
of operations. An increase in the exchange rate for the Canadian dollar and future Canadian/U.S. exchange rates could also negatively
affect the future value of our reserves as determined by independent petroleum reserve engineers.



Risks related to operating an exploration,
development and production company



Our ability to execute projects will
depend on certain factors outside of our control.  If we are unable to execute projects on time, on budget or at all,
we may not be able to effectively market the oil and natural gas that we produce.



We manage a variety of small and large
projects in the conduct of our business. Our ability to execute projects and market oil and natural gas will depend upon numerous
factors beyond our control, including:



| | · | the availability of adequate financing;
| | - | ---------------------------------------

| | · | the availability of processing capacity;
| | - | ----------------------------------------

| | · | the availability and proximity of pipeline capacity;
| | - | ----------------------------------------------------

| | · | the availability of storage capacity;
| | - | -------------------------------------

| | · | the supply of and demand for oil and natural gas;
| | - | -------------------------------------------------

| | · | the availability of alternative fuel sources;
| | - | ---------------------------------------------

| | · | the effects of inclement weather;
| | - | ---------------------------------

| | · | the availability of drilling and related equipment;
| | - | ---------------------------------------------------

| | · | accidental events;
| | - | ------------------

| | · | currency fluctuations;
| | - | ----------------------

| | · | changes in governmental regulations; and
| | - | ----------------------------------------

| | · | the availability and productivity of skilled labor.
| | - | ---------------------------------------------------



Because of these factors, we could be unable
to execute projects on time, on budget or at all, and may not be able to effectively market the oil and natural gas that we produce.



Oil and gas exploration has a high
degree of risk and our exploration efforts may be unsuccessful, which would have a negative effect on our operations.



There is no certainty that the expenditures
to be made by us in the exploration of our current projects, or any additional project interests we may acquire, will result in
discoveries of recoverable oil and gas in commercial quantities. An exploration project may not result in the discovery of commercially
recoverable reserves and the level of recovery of hydrocarbons from a property may not be a commercially recoverable (or viable)
reserve that can be legally and economically exploited. If exploration is unsuccessful and no commercially recoverable reserves
are defined, we would be required to evaluate and acquire additional projects that would require additional capital, or we would
have to cease operations altogether.



Cumulative unsuccessful exploration
efforts could result in us having to cease operations.



The expenditures to be made by us in the
exploration of our properties may not result in discoveries of oil and natural gas in commercial quantities. Many exploration projects
do not result in the discovery of commercially recoverable oil and gas deposits, and this occurrence could ultimately result in
us having to cease operations.



Oil and natural gas operations involve
many hazards and operational risks, some of which may not be fully covered by insurance.  If a significant accident or
event occurs for which we are not fully insured, our business, financial condition, results of operations and prospects could be
adversely affected.





11









Our involvement in the oil and natural
gas exploration, development and production business subjects us to all of the risks and hazards typically associated with those
types of operations, including hazards such as fire, explosion, blowouts, sour gas releases and spills, each of which could result
in substantial damage to oil and natural gas wells, production facilities, other property and the environment or personal injury.
In particular, we may explore for and produce sour natural gas in certain areas. An unintentional leak of sour natural gas could
result in personal injury, loss of life or damage to property, and may necessitate an evacuation of populated areas, all of which
could result in liability to us. In accordance with industry practice, we are not fully insured against all of these risks. Although
we maintain liability insurance in an amount that we consider consistent with industry practice, the nature of these risks is such
that liabilities could exceed policy limits, in which event we could incur significant costs that could have a material adverse
effect upon our business, financial condition, results of operations and prospects. In addition, the risks we face are not, in
all circumstances, insurable and, in certain circumstances, we may elect not to obtain insurance to deal with specific risks due
to the high premiums associated with such insurance or other reasons. For instance, we do not have insurance to protect against
the risk from terrorism. Oil and natural gas production operations are also subject to all of the risks typically associated with
those operations, including encountering unexpected geologic formations or pressures, premature decline of reservoirs and the invasion
of water into producing formations. Losses resulting from the occurrence of any of these risks could have a material adverse effect
on our business, financial condition, results of operations and prospects.



Seasonal factors and unexpected weather
patterns may lead to declines in exploration and production activity.



The level of activity in the Canadian oil
and natural gas industry is influenced by seasonal weather patterns. Oil and natural gas development activities, including seismic
and drilling programs in northern Alberta and British Columbia, are restricted to those months of the year when the ground is frozen.
Wet weather and spring thaw may make the ground unstable. Consequently, municipalities and provincial transportation departments
enforce road bans that restrict the movement of rigs and other heavy equipment, thereby reducing activity levels. In addition,
certain oil and natural gas producing areas are located in areas that are inaccessible other than during the winter months because
the ground surrounding the sites in these areas consists of swampy terrain, and additional seasonal weather variations will also
affect access to these areas. Seasonal factors and unexpected weather patterns may lead to declines in exploration and production
activity during certain parts of the year.



The petroleum industry is highly
competitive, and increased competitive pressures could adversely affect our business, financial condition, results of operations
and prospects.



The petroleum industry is competitive in
all of its phases. We compete with numerous other organizations in the search for, and the acquisition of, oil and natural gas
properties and in the marketing of oil and natural gas. Our competitors include oil and natural gas companies that have substantially
greater financial resources, staff and facilities than us. Our ability to increase our reserves in the future will depend not only
upon our ability to explore and develop our present properties, but also upon our ability to select and acquire other suitable
producing properties or prospects for exploratory drilling. Competitive factors in the distribution and marketing of oil and natural
gas include price and methods and reliability of delivery and storage.



We do not control all of the assets
that are used in the operation of our business and, therefore, cannot ensure that those assets will be operated in a manner favorable
to us.



Other companies operate some of the assets
in which we have an interest. As a result, we have a limited ability to exercise influence over the operation of those assets or
their associated costs, which could adversely affect our financial performance.  Our return on assets operated by others
will therefore depend upon a number of factors that may be outside of our control, including the timing and amount of capital expenditures,
the operator's expertise and financial resources, the approval of other participants, the selection of technology and risk management
practices.



Our ability to market oil and natural
gas depends on our ability to transport our product to market.  If we are unable to expand and develop the infrastructure
in the areas surrounding certain of our assets, we may not be able to effectively market the oil and natural gas that we produce.



Due to the location of some of our assets,
both in Canada and the United States, there is minimal infrastructure currently available to transport oil and natural gas from
our existing and future wells to market.  As a result, even if we are able to engage in successful exploration and production
activities, we may not be able to effectively market the oil and natural gas that we produce, which could adversely affect our
business, financial condition, results of operations and prospects.





12









Demand and competition for drilling
equipment could delay our exploration and production activities, which could adversely affect our business, financial condition,
results of operations and prospects.



Oil and natural gas exploration and development
activities depend upon the availability of drilling and related equipment (typically leased from third parties) in the particular
areas where such activities will be conducted. Demand for such limited equipment or access restrictions may affect the availability
of such equipment to us and may delay exploration and development activities. To the extent we are not the operator of our oil
and natural gas properties, we depend upon the operators of the properties for the timing of activities related to the properties
and are largely unable to direct or control the activities of the operators.



Title to our oil and natural gas
producing properties cannot be guaranteed and may be subject to prior recorded or unrecorded agreements, transfers, claims or other
defects.



Although title reviews may be conducted
prior to the purchase of oil and natural gas producing properties or the commencement of drilling wells, those reviews do not guarantee
or certify that an unforeseen defect in the chain of title will not arise to defeat our claim. Unregistered agreements or transfers,
or native land claims, may affect title.  If title is disputed, we will need to defend our ownership through the courts, which
would likely be an expensive and protracted process and have a negative effect on our operations and financial condition. In the
event of an adverse judgment, we would lose our property rights.  A defect in our title to any of our properties may
have a material adverse effect on our business, financial condition, results of operations and prospects.



We may be unable to meet all of the
obligations necessary to successfully maintain each of the licenses and leases and working interests in licenses and leases related
to its properties, which could adversely affect our business, financial condition, results of operations and prospects.



Our properties are held in the form of
licenses and leases and working interests in licenses and leases. If we or the holder of the license or lease fails to meet the
specific requirement of a license or lease, the license or lease may terminate or expire. None of the obligations required to maintain
each license or lease may be met. The termination or expiration of our licenses or leases or the working interests relating to
a license or lease may have a material adverse effect on our business, financial condition, results of operations and prospects.
Certain leases in our Kokopelli (formerly Gibson Gulch) and South Rangley properties will expire in 2012 and 2013.



Risks related to financing continuing
and future operations



We have a working capital deficiency
and will be required to raise capital through financings. We may not be able to obtain capital or financing on satisfactory terms,
or at all.



As of December 31, 2011, the Company had
a working capital deficiency of approximately $7.8 million. Excluding the non-cash warrant liability of $2.2 million related to
the fair value of US$ denominated warrants issued in previous equity financings, the working capital deficiency includes a $5.5
million used demand line of credit. As at December 31, 2011, $1.5 million of the demand line of credit remains unused. We expect
to incur general and administration expenses of approximately $3.5 million over the next twelve months. The next review date for
the demand line of credit is scheduled on or before May 1, 2012. If we are unable to extend or refinance the bank line of credit
or meet our general and administration expenses or our share of the joint venture costs through revenues and field operating netback
from our oil and gas operations, we will need to raise capital through debt or equity financings. We cannot assure you that debt
or equity financing will be available to us, and even if debt or equity financing is available, it may not be on terms acceptable
to us. Our inability to access sufficient capital for our operations would have a material adverse effect on our business, financial
condition, results of operations and prospects.



The Company's ability to continue
as a going concern is dependent upon attaining profitable operations and obtaining sufficient financing to meet obligations and
continue exploration and development activities. Whether and when the Company can attain profitability is uncertain. These uncertainties
cast significant doubt upon the Company’s ability to continue as going concern.





13









In
the course of our development activities, we have sustained losses and expect losses in the year ended December 31, 2012. We expect
to finance our operations primarily through our existing cash and any future financing. Whether and when the Company can attain
profitability is uncertain. These uncertainties cast substantial doubt upon the Company’s ability to continue as going concern
in the next twelve months, because we will be required to obtain additional capital in the future to continue our operations and
there is no assurance that we will be able to obtain such capital, through equity or debt financing, or any combination thereof,
or on satisfactory terms or at all. Our independent auditors have included an explanatory paragraph in their report on our consolidated
financial statements that describes uncertainties that cast substantial doubt about our ability to continue as a going
concern. Our audited consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board applicable to a going concern, which implies we will continue
to meet our obligations and continue our operations for the next twelve months. Realization values may be substantially different
from carrying values as shown, and our consolidated financial statements do not include any adjustments relating to the recoverability
or classification of recorded asset amounts or the amount and classification
of liabilities that might be necessary as a result of the going concern uncertainty.



We anticipate making substantial
capital expenditures for future acquisition, exploration, development and production projects.  We may not be able to
obtain capital or financing necessary to support these projects on satisfactory terms, or at all.



We anticipate making substantial capital
expenditures for the acquisition, exploration, development and production of oil and natural gas reserves in the future. If our
revenues or reserves decline, we may not have access to the capital necessary to undertake or complete future drilling programs.
Debt or equity financing, or cash generated by operations, may not be available to us or may not be sufficient to meet our requirements
for capital expenditures or other corporate purposes.  Even if debt or equity financing is available, it may not be on
terms acceptable to us. Our inability to access sufficient capital for our operations could have a material adverse effect on our
business, financial condition, results of operations and prospects.



Our cash flow from our reserves may
not be sufficient to fund our ongoing activities at all times, thereby causing us to forfeit our interest in certain properties,
miss certain acquisition opportunities and reduce or terminate our operations.



Our cash flow from our reserves may not
be sufficient to fund our ongoing activities at all times and we are currently utilizing our bank line of credit to fund our working
capital deficit. From time to time, we may require additional financing in order to carry out our oil and gas acquisition, exploration
and development activities. Failure to obtain such financing on a timely basis could cause us to forfeit its interest in certain
properties, not be able to take advantage of certain acquisition opportunities and reduce or terminate our level of operations.
If our revenues from our reserves decrease as a result of lower oil and natural gas prices or otherwise, our ability to expend
the necessary capital to replace our reserves or to maintain our production will be impaired. If our cash flow from operations
is not sufficient to satisfy our capital expenditure requirements, there can be no assurance that additional debt or equity financing
will be available to meet these requirements or, if available, on favorable terms.



Debt that we incur in the future
may limit our ability to obtain financing and to pursue other business opportunities, which could adversely affect our business,
financial condition, results of operations and prospects.



From time to time, we may enter into transactions
to acquire assets or equity of other organizations. These transactions may be financed in whole or in part with debt, which may
increase our debt levels above industry standards for oil and natural gas companies of a similar size. Depending upon future exploration
and development plans, we may require additional equity and/or debt financing that may not be available or, if available, may not
be available on acceptable terms. None of our organizational documents currently limit the amount of indebtedness that we may incur.
The level of our indebtedness from time to time could impair our ability to obtain additional financing on a timely basis to take
advantage of business opportunities that may arise.



We may be exposed to the credit risk
of third parties through certain of our business arrangements.  Non-payment or non-performance by any of these third
parties could have an adverse effect on our financial condition and results of operations.



We may be exposed to third-party credit
risk through our contractual arrangements with our current or future joint venture partners, marketers of our petroleum and natural
gas production and other parties. In the event those entities fail to meet their contractual obligations to us, those failures
could have a material adverse effect on our financial condition and results of operations. In addition, poor credit conditions
in the industry and of joint venture partners may affect a joint venture partner's willingness to participate in our ongoing capital
program, potentially delaying the program and the results of the program until we find a suitable alternative partner.





14









Risks related to maintaining reserves
and acquiring new sources of oil and natural gas



Our success depends upon our ability
to find, acquire, develop and commercially produce oil and natural gas, which depends upon factors outside of our control.



Oil and natural gas operations involve
many risks that even a combination of experience, knowledge and careful evaluation may not be able to overcome. Our long-term commercial
success depends upon our ability to find, acquire, develop and commercially produce oil and natural gas.  We have only recently
commenced production of oil and natural gas.  There is no assurance that our other properties or future properties will
achieve commercial production.  Without the continual addition of new reserves, our existing reserves and our production
will decline over time as our reserves are exploited. A future increase in our reserves will depend not only upon our ability to
explore and develop any properties we may have from time to time, but also upon our ability to select and acquire new suitable
producing properties or prospects. No assurance can be given that we will be able to locate satisfactory properties for acquisition
or participation. Moreover, if acquisitions or participations are identified, we may determine that current market conditions,
the terms of any acquisition or participation arrangement, or pricing conditions, may make the acquisitions or participations uneconomical,
and further commercial quantities of oil and natural gas may not be produced, discovered or acquired by us, any of which could
have a material adverse effect on our business, financial condition, results of operations and prospects.



Properties that we acquire may not
produce as projected, and we may be unable to determine reserve potential, identify liabilities associated with the properties
or obtain protection from sellers against such liabilities.



Our long-term commercial success depends
upon our ability to find, acquire, develop and commercially produce oil and natural gas reserves. However, our review of acquired
properties is inherently incomplete, as it generally is not feasible to review in depth every individual property involved in each
acquisition. Even a detailed review of records and properties may not necessarily reveal existing or potential problems, nor will
it permit a buyer to become sufficiently familiar with the properties to assess fully their deficiencies and potential. Inspections
may not always be performed on every well, and environmental problems, such as ground water contamination, are not necessarily
observable even when an inspection is undertaken.



Our estimated reserves are based
on many assumptions that may prove to be inaccurate.  Any material inaccuracies in the reserve estimates or the underlying
assumptions may adversely affect the quantities and present value of our reserves.



There are numerous uncertainties inherent
in estimating quantities of oil, natural gas reserves and the future cash flows attributed to the reserves. Our reserve and associated
cash flow estimates are estimates only. In general, estimates of economically recoverable oil and natural gas reserves and the
associated future net cash flows are based upon a number of variable factors and assumptions, such as historical production from
the properties, production rates, ultimate reserve recovery, timing and amount of capital expenditures, marketability of oil and
gas, royalty rates, the assumed effects of regulation by governmental agencies and future operating costs, all of which may vary
materially from actual results. All estimates are to some degree speculative, and classifications of reserves are only attempts
to define the degree of speculation involved. For those reasons, estimates of the economically recoverable oil and natural gas
reserves attributable to any particular group of properties, classification of such reserves based on risk of recovery and estimates
of future net revenues associated with reserves prepared by different engineers, or by the same engineers at different times, may
vary. Our actual production, revenues, taxes and development and operating expenditures with respect to our reserves will vary
from our estimates of them, and those variations could be material.



Estimates of proved reserves that may be
developed and produced in the future are often based upon volumetric calculations and upon analogy to similar types of reserves
rather than actual production history. Recovery factors and drainage areas are estimated by experience and analogy to similar producing
pools. Estimates based on these methods are generally less reliable than those based on actual production history. Subsequent evaluation
of the same reserves based upon production history and production practices will result in variations in the estimated reserves,
and those variations could be material.





15









Our future oil and natural gas production
may not result in revenue increases and may be adversely affected by operating conditions, production delays, drilling hazards
and environmental damages.



Future oil and natural gas exploration
may involve unprofitable efforts, not only from dry wells, but also from wells that are productive but do not produce sufficient
petroleum substances to return a profit after drilling, operating and other costs. Completion of a well does not assure a profit
on the investment or recovery of drilling, completion and operating costs. In addition, drilling hazards or environmental damage
could greatly increase the cost of operations, and various field operating conditions may adversely affect the production from
successful wells. These conditions include delays in obtaining governmental approvals or consents, shut-ins of connected wells
resulting from extreme weather conditions, insufficient storage or transportation capacity or other geological and mechanical conditions.
While diligent well supervision and effective maintenance operations can contribute to maximizing production rates over time, production
delays and declines from normal field operating conditions cannot be eliminated and can be expected to adversely affect revenue
and cash flow levels to varying degrees.



Risks related to management of the Company



We may experience difficulty managing
our anticipated growth.



We may be subject to growth-related risks
including capacity constraints and pressure on our internal systems and controls. Our ability to manage growth effectively will
require us to continue to implement and improve our operational and financial systems and to attract and retain qualified management
and technical personnel to meet the needs of our anticipated growth. Our inability to deal with this growth could have a material
adverse effect on our business, financial condition, results of operations and prospects.



We depend upon key personnel and
the absence of any of these individuals could result in us having to cease operations.



Our ability to continue our operation business
depends, in large part, upon our ability to attract and maintain qualified key management and technical personnel. Competition
for such personnel is intense and we may not be able to attract and retain such personnel.



Strategic relationships upon which
we may rely are subject to change, which may diminish our ability to conduct our operations.



Our ability to successfully acquire additional
licenses, to discover reserves, to participate in drilling opportunities and to identify and enter into commercial arrangements
depends on developing and maintaining close working relationships with industry participants and government officials and on our
ability to select and evaluate suitable properties and to consummate transactions in a highly competitive environment. We may not
be able to establish these strategic relationships, or if established, we may not be able to maintain them. In addition, the dynamics
of our relationships with strategic partners may require us to incur expenses or undertake activities we would not otherwise be
inclined to undertake in order to fulfill our obligations to these partners or maintain our relationships. If our strategic relationships
are not established or maintained, our business prospects may be limited, which could diminish our ability to conduct our operations.



We cannot be certain that current expected expenditures
and any current or planned completion/testing programs will be realized.



We believe that the costs used to prepare internal budgets are
reasonable, however, there are assumptions, uncertainties, and risk that may cause our allocated funds on a per well basis to change
as a result of having to alter certain activities from those originally proposed or programmed to reduce and mitigate uncertainties
and risks. These assumptions, uncertainties, and risks are inherent in the completion and testing of wells and can include but
are not limited to: pipe failure, casing collapse, unusual or unexpected formation pressure, environmental hazards, and other operating
or production risk intrinsic in oil and or gas activities. Any of the above may cause a delay in any of our completion/testing
programs or our ability to determine reserve potential.





16









Risks related to federal, state, local and other laws, controls
and regulations



We are subject to complex federal,
provincial, state, local and other laws, controls and regulations that could adversely affect the cost, manner and feasibility
of conducting our oil and natural gas operations.



Oil and natural gas exploration, production,
marketing and transportation activities are subject to extensive controls and regulations imposed by various levels of government,
which may be amended from time to time. Governments may regulate or intervene with respect to price, taxes, royalties and the exportation
of oil and natural gas. Regulations may be changed from time to time in response to economic or political conditions. The implementation
of new regulations or the modification of existing regulations affecting the oil and natural gas industry could reduce demand for
crude oil and natural gas and increase our costs, any of which may have a material adverse effect on our business, financial condition,
results of operations and prospects. In addition, in order to conduct oil and natural gas operations, we require licenses from
various governmental authorities. We cannot assure you that we will be able to obtain all of the licenses and permits that may
be required to conduct operations that we may desire to undertake.



There is uncertainty regarding claims
of title and rights of the aboriginal people to properties in certain portions of western Canada, and such a claim, if made in
respect of our property or assets, could adversely affect our business, financial condition, results of operations and prospects.



Aboriginal peoples have claimed aboriginal
title and rights to a substantial portion of western Canada. We are not aware that any claims have been made in respect of its
property and assets. However, if a claim arose and was successful it would have an adverse effect on our business, financial condition,
results of operations and prospects.



We are subject to stringent environmental
laws and regulations that may expose us to significant costs and liabilities, which could adversely affect our business, financial
condition, results of operations and prospects.



All phases of the oil and natural gas business
present environmental risks and hazards and are subject to environmental regulation under a variety of federal, provincial, state
and local laws and regulations. Environmental legislation provides for, among other things, restrictions and prohibitions on spills,
releases or emissions of various substances produced in association with oil and natural gas operations. The legislation also requires
that wells and facility sites be operated, maintained, abandoned and reclaimed to the satisfaction of applicable regulatory authorities.
Compliance with legislation can require significant expenditures, and a breach of applicable environmental legislation may result
in the imposition of fines and penalties, some of which may be material. Environmental legislation is evolving in a manner expected
to result in stricter standards and enforcement, larger fines and liability and potentially increased capital expenditures and
operating costs. The discharge of oil, natural gas or other pollutants into the air, soil or water may give rise to liabilities
to governments and third parties and may require us to incur costs to remedy any discharge. Environmental laws may result in a
curtailment of production or a material increase in the costs of production, development or exploration activities, or otherwise
adversely affect our business, financial condition, results of operations and prospects.



As a public company, our compliance
costs and risks have increased in recent years.



Legal, accounting and other expenses associated
with public company reporting requirements have increased significantly in the past few years. We anticipate that general and administrative
costs associated with regulatory compliance will continue to increase with on-going compliance requirements under the Sarbanes-Oxley
Act of 2002, as well as any new rules implemented by the SEC, Canadian Securities Administrators, the NYSE Amex Equities and the
Toronto Stock Exchange in the future. These rules and regulations have significantly increased our legal and financial compliance
costs and made some activities more time-consuming and costly. We cannot assure you that we will continue to effectively meet all
of the requirements of these regulations, including Section 404 of the Sarbanes-Oxley Act and National Instrument 52-109 of the
Canadian Securities Administrators. Any failure to effectively implement internal controls, or to resolve difficulties encountered
in their implementation, could harm our operating results, cause us to fail to meet reporting obligations, or result in our principal
executive officer and principal financial officer being required to give a qualified assessment of our internal control over financial
reporting. Any such result could cause investors to lose confidence in our reported financial information, which could have a material
adverse effect on the trading price of our common shares and our ability to raise capital. These rules and regulations have made
it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept
reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage in the future. As
a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as
executive officers.





17









Risks Related to Our Being a Foreign
Private Issuer



As a foreign private issuer, our
shareholders may receive less complete and timely data.



We are a “foreign private issuer”
as defined in Rule 3b-4 under the United States Securities Exchange Act of 1934. Our equity securities are accordingly exempt from
Sections 14(a), 14(b), 14(c), 14(f) and 16 of the Exchange Act, pursuant to Rule 3a12-3 of the Exchange Act. Therefore, we are
not required to file a Schedule 14A proxy statement in relation to our annual meetings of shareholders. The submission of proxy
and annual meeting of shareholder information on Form 6-K may result in shareholders having less complete and timely information
in connection with shareholder actions. The exemption from Section 16 rules regarding reports of beneficial ownership and purchases
and sales of common shares by insiders and restrictions on insider trading in our securities may result in shareholders having
less data and there being fewer restrictions on insiders’ activities in our securities.



It may be difficult to enforce judgments
or bring actions outside the United States against us and certain of our directors and officers.



It may be difficult to bring and enforce
suits against us. We are incorporated in British Columbia, Canada.  Many of our directors and officers are not residents
of the United States and some of our assets are located outside of the United States.  As a result, it may be difficult
for U.S. holders of our common shares to effect service of process on these persons within the United States or to enforce judgments
obtained in the U.S. based on the civil liability provisions of the U.S. federal securities laws against us or our officers and
directors.  In addition, a shareholder should not assume that the courts of Canada (i) would enforce judgments of U.S.
courts obtained in actions against us or our officers or directors predicated upon the civil liability provisions of the U.S. federal
securities laws or other laws of the United States, or (ii) would enforce, in original actions, liabilities against us or our officers
or directors predicated upon the U.S. federal securities laws or other laws of the United States.



Risks related to investing in our common
shares





We have not paid any dividends on
our common shares.  Consequently, your only opportunity currently to achieve a return on your investment will be if the
market price of our common shares appreciates above the price that you pay for our common shares.



We have not declared or paid any dividends
on our common shares since our incorporation.  Any decision to pay dividends on our common shares will be made by our
board of directors on the basis of our earnings, financial requirements and other conditions existing at such future time. Consequently,
your only opportunity to achieve a return on your investment in our securities will be if the market price of our common shares
appreciates and you are able to sell your common shares at a profit.



Our common share price has been volatile
and your investment in our common shares could suffer a decline in value.



Our common shares are traded on the Toronto
Stock Exchange and the NYSE Amex Equities. The market price of our common shares may fluctuate significantly in response to a number
of factors, some of which are beyond our control. These factors include price fluctuations of precious metals, government regulations,
disputes regarding mining claims, broad stock market fluctuations and economic conditions in the United States.



Dilution through officer, director,
employee, consultant or agent options could adversely affect our shareholders.



Because our success is highly dependent
upon our officers, directors, employees, consultants and agents, we have granted to some or all of our key officers, directors,
employees, consultants and agents options to purchase common shares as non-cash incentives. To the extent that we grant significant
numbers of options and those options are exercised, the interests of our other shareholders may be diluted. As of April 26, 2012,
there were 9,329,001 common share purchase options outstanding, of which 7,201,506 common share purchase options are vested and
exercisable. If all the vested options were exercised, it would result in an additional 7,201,506 common shares being issued and
outstanding.



The issuance of additional common
shares may negatively affect the trading price of our common shares.



We have issued equity securities in the
past and may continue to issue equity securities to finance our activities in the future, including to finance future acquisitions,
or as consideration for acquisitions of businesses or assets. In addition, outstanding options and warrants to purchase our common
shares may be exercised, resulting in the issuance of additional common shares. The issuance by us of additional common shares
would result in dilution to our shareholders, and even the perception that such an issuance may occur could have a negative effect
on the trading price of our common shares.





18









ITEM
4. INFORMATION ON THE COMPANY



| | A. | History and Development of the Company
| | -- | --------------------------------------



Introduction



Our executive office is located at:



598 – 999 Canada Place

Vancouver, British Columbia, Canada V6C 3E1

Telephone: (604) 638-5050

Facsimile: (604) 638-5051

Website: www.dejour.com

Email: rhodgkinson@dejour.com or mwong@dejour.com



The contact person is: Mr. Robert L. Hodgkinson,
Chairman and Chief Executive Officer or Mr. Mathew H. Wong, Chief Financial Officer and Corporate Secretary.



Our common shares trade on the Toronto
Stock Exchange and the NYSE Amex Equities Stock Exchange under the symbol “DEJ”.



Our authorized capital consists of three
classes of shares: an unlimited number of common shares; an unlimited number of preferred shares designated as First Preferred
Shares, issuable in series; and an unlimited number of preferred shares designated as Second Preferred Shares, issuable in series.
There are no indentures or agreements limiting the payment of dividends and there are no conversion rights, special liquidation
rights, pre-emptive rights or subscription rights.



The First Preferred Shares have priority
over the Common Shares and the Second Preferred Shares with respect to the payment of dividends and in the distribution of assets
in the event of a winding up of Dejour. The Second Preferred Shares have priority over the Common Shares with respect to dividends
and surplus assets in the event of a winding up of Dejour.



As of December 31, 2011, there were 126,892,386
common shares issued and outstanding. As of December 31, 2011, there were no First Preferred Shares and no Second Preferred Shares
issued and outstanding.



Incorporation and Name Changes



Dejour Energy Inc. (formerly Dejour Enterprises
Ltd.) is incorporated under the laws of British Columbia, Canada. The Company was originally incorporated as “Dejour Mines
Limited” on March 29, 1968 under the laws of the Province of Ontario. By articles of amendment dated October 30, 2001, the
issued shares were consolidated on the basis of one (1) new for every fifteen (15) old shares and the name of the Company was changed
to Dejour Enterprises Ltd. On June 6, 2003, the shareholders approved a resolution to complete a one-for-three-share consolidation,
which became effective on October 1, 2003. In 2005, the Company was continued in British Columbia under the Business Corporations
Act(British Columbia). On March 9, 2011, the Company changed its name from Dejour Enterprises Ltd. to Dejour Energy Inc.







Financings



We have financed our operations through
funds from loans, public/private placements of common shares, common shares issued for property, common shares issued in debt settlements,
and shares issued upon exercise of stock options and share purchase warrants. The following table summarizes our financings for
the past three fiscal years.







19











|Fiscal Year |  | Nature of Share Issuance              |  | Number of Shares |  | Gross Proceeds  (Cdn$) | 
|----------- |  | ------------------------------------- |  | ---------------- |  | ---------------------- | 
|Fiscal 2009 |  | Exercise of Stock Options             |  | 631,856          |  | 273,223                | 
|            |  | Private Placement(1)                  |  | 2,710,332        |  | 1,626,199              | 
|            |  | Public Offering(2)                    |  | 10,766,665       |  | 3,425,060              | 
|            |  |                                       |  |                  |  |                        | 
|Fiscal 2010 |  | Private Placement(3)                  |  | 2,907,334        |  | 1,017,567              | 
|            |  | Private Placement(4)                  |  | 2,000,000        |  | 750,000                | 
|            |  | Public Offering/Private Placement (5) |  | 7,142,858        |  | 2,000,000              | 
|            |  | Private Placement (6)                 |  | 2,339,315        |  | 888,940                | 
|            |  |                                       |  |                  |  |                        | 
|Fiscal 2011 |  | Public Offering (7)                   |  | 11,010,000       |  | 3,288,641              | 
|            |  | Exercise of Warrants                  |  | 4,551,841        |  | 1,688,147              | 
|            |  | Exercise of Options                   |  | 1,150,000        |  | 402,500                | 





| | (1) | In October 2009, we completed a private placement and issued 2,710,332 flow-through shares (“FTS”)
at Cdn$0.60 per share. Gross proceeds raised were Cdn$1,626,199. In connection with this private placement, we paid finders’
fees of Cdn$83,980 and other related costs of Cdn$73,427.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | In December 2009, we completed a public offering and issued 10,766,665 units at US$0.30 per unit.
Each unit consists of 10,766,665 common shares and 8,075,000 share purchase warrants, exercisable at US$0.40 per share on or before
December 23, 2014. Gross proceeds raised were Cdn$3,425,060 (US$3,230,000). In connection with this public offering, we paid finders’
fees of Cdn$203,180 and other related costs of Cdn$140,790. We also issued 645,999 agent’s warrants, exercisable at US$0.46
per share on or before November 3, 2014. The grant date fair values of the warrants and agent’s warrants, estimated to be
$888,250 and $71,060 respectively, have been included in share capital on a net basis and accordingly have not been recorded as
a separate component of shareholders’ equity.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | In March 2010, we completed a private placement and issued 2,907,334 flow-through units at Cdn$0.35
per unit. Each unit consists of 2,907,334 common shares and 1,453,667 share purchase warrants, exercisable at $0.45 per share on
or before March 3, 2011. Gross proceeds raised were Cdn$1,017,567. In connection with this private placement, we paid finders’
fees of Cdn$54,575 and other related costs of $52,819. We also issued 37,423 agent’s warrants, exercisable at Cdn$0.45 per
share on or before March 3, 2011.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | In September 2010, we completed a private placement and issued 2,000,000 flow-through shares at
Cdn$0.375 per share. Gross proceeds raised were Cdn$750,000. In connection with this private placement, we paid finders’
fees of Cdn$37,500 and other related costs of Cdn$38,890.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | In November 2010, we completed an offering of 7,142,858 units at Cdn$0.28 per unit, partially pursuant
to a public offering and partially pursuant to a private placement. Each unit consists of one common share and 0.65 of a common
share purchase warrant. Each whole common share purchase warrant is exercisable into one common share at Cdn$0.40 per share on
or before November 17, 2015. Gross proceeds raised were Cdn$2,000,000. In connection with this offering, we paid finders’
fees of Cdn$120,000 and other related costs of Cdn$123,423.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (6) | In December 2010, we completed a private placement and issued 2,339,315 flow-through shares at
Cdn$0.38 per share. Gross proceeds raised were Cdn$888,940. In connection with this private placement, we paid finders’ fees
of Cdn$53,337 and other related costs of Cdn$61,862. We also issued 140,359 agent’s warrants, exercisable at Cdn$0.38 per
share on or before December 23, 2011. Directors and Officers of the Company purchased 513,157 shares of this offering.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (7) | In February 2011, we completed a public offering of 11,010,000 units at US $0.30 per unit. Each
unit consists of one common share and one-half of one common share purchase warrant. Each whole warrant entitles the holder to
acquire one additional common share of the Company at US$0.35 per common share on or before February 10, 2012. Gross proceeds raised
were Cdn$3,288,641 (US$3,303,000). In connection with this private placement, the Company paid finders’ fees of Cdn$196,694
(US$199,710) in cash and other related costs of Cdn$119,602 in cash.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Past Capital Expenditures



|Fiscal Year                 |  | Cash flows used for equipment and resource properties
|--------------------------- |  | -----------------------------------------------------
|                            |  |                                                      
|Fiscal 2009 (Canadian GAAP) |  | Cdn$2,626,488 (1)                                    
|Fiscal 2010 (IFRS)          |  | Cdn$5,038,711 (2)                                    
|Fiscal 2011 (IFRS)          |  | Cdn$8,360,376 (3)                                    



| | (1) | $39,279 of these funds was spent on the purchase of corporate and other assets; and $2,587,209
was spent on our resource properties. (For a breakdown on the resource property expenditures, see Note 6 to our audited consolidated
financial statements for the fiscal year ended December 31, 2009, filed with our annual report on Form 20-F on June 30, 2010.)
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | $26,945 of these funds was spent on the purchase of corporate and other assets; and $5,011,766
was spent on our resource properties. (For a breakdown on the resource property expenditures, see Notes 5 and 6 to our audited
consolidated financial statements for the fiscal year ended December 31, 2011, filed with this annual report on Form 20-F.)
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





20









| | (3) | $28,867 of these funds was spent on the purchase of corporate and other assets; and $8,331,509
was spent on our resource properties. (For a breakdown on the resource property expenditures, see Notes 5 and 6 to our audited
consolidated financial statements for the fiscal year ended December 31, 2011, filed with this annual report on Form 20-F.)
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Capital Expenditures



Additions to property and equipment, and
exploration and evaluation assets:



|                                       |  | Three months ended December 31, |           |  | Year ended December 31, | 
|-------------------------------------- |  | ------------------------------- | --------- |  | ----------------------- | 
|                                       |  | 2011                            |           |  | 2010                    | 
|                                       |  | $                               |           |  | $                       | 
|Land acquisition and retention         |  |                                 | 37,197    |  |                         | 
|Drilling and completion                |  |                                 | 1,853,487 |  |                         | 
|Facility and pipelines                 |  |                                 | 290,381   |  |                         | 
|Capitalized general and administrative |  |                                 | 168,403   |  |                         | 
|Other assets                           |  |                                 | 148       |  |                         | 
|                                       |  |                                 | 2,349,616 |  |                         | 



During 2011, the Company further refined
its focus toward the conversion of resources into reserves. As a result, the Company’s asset characterization has moved toward
more tangible low risk near term development projects, moderate risk appraisal opportunities and moderate to high risk exploration
potential.



In 2011, the Company’s focus was
on production optimization of the Drake/Woodrush property, while finalizing pre-drilling activities for the Kokopelli development
and drilling a discovery well at South Rangely.



Most of the waterflood capital expenditures
have already been spent in fiscal 2011. Future capital expenditures at Woodrush in the upcoming year of 2012 are expected to be
approximately $1.2 to $1.5 million and funded through its cash flow from operations and the undrawn line of credit. In the U.S.,
the Company plans to drill up to eight wells during 2012 and its share of expenditures ranges from $6.5 to $11 million. The Company
plans to fund the expenditures through additional financing, including debt, equity or joint venture financing, or disposal of
non-core assets.



DAILY PRODUCTION





|                                     |  | Three months ended December 31, |       |  | Year ended December 31, | 
|------------------------------------ |  | ------------------------------- | ----- |  | ----------------------- | 
|                                     |  | 2011                            |       |  | 2010                    | 
|By Product                           |  |                                 |       |  |                         | 
|Natural gas (mcf/d)                  |  |                                 | 1,376 |  |                         | 
|Oil and natural gas liquids (bbls/d) |  |                                 | 242   |  |                         | 
|Total (boe/d)                        |  |                                 | 471   |  |                         | 







The decrease
in natural gas production for the year ended December 31, 2011 (“fiscal 2011”) was primarily the result of the temporary
curtailment of production due to maintenance related downtime at the regional gas processing plant in the 2nd quarter
of 2011 and extended to the third week of July 2011. This regional gas processing plant is operated by a third party and is not
under the Company’s control. Gas production resumed during the third week of July 2011. The decrease in natural gas production
for the current quarter was because gas production is restricted to a maximum daily limit, due to 100% compressor capacity.



The decrease in oil production for the
current year was the result of production restrictions imposed by the Oil and Gas Conservation Commission of British Columbia (“OGC”)
on the Company’s Woodrush property prior to the successful implementation of the waterflood in the Halfway “E”
Pool.





21









| | B. | Business Overview
| | -- | -----------------



General



The Company is in the business of acquiring,
exploring and developing energy projects with a focus on oil and gas exploration in Canada and the United States. The Company holds
approximately 113,000 net acres of oil and gas leases in the following regions:



| | · | The Peace River Arch of northwestern British Columbia and northeastern Alberta, Canada
| | - | --------------------------------------------------------------------------------------

| | · | The Piceance, Paradox and Uinta Basins in the US Rocky Mountains
| | - | ----------------------------------------------------------------



Summary



Over the past three years, the Company
has evolved its forward focus from acquiring resource potential toward conversion of resources into reserves. This process involved
several distinct steps on the same continuum including:



| | · | Classification and prioritization of acreage based on economic promise, technical robustness, infrastructural
and logistic advantage and commercial maturity
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Evaluation and development planning for top tier acreage positions
| | - | ------------------------------------------------------------------

| | · | Developing partnerships within financial and industry circles to speed the exploitation process,
and
| | - | ----------------------------------------------------------------------------------------------------

| | · | Aggressively bringing production on line where feasible
| | - | -------------------------------------------------------



As a result of these moves, the Company’s
asset characterization has moved toward more tangible low risk near term development projects, moderate risk appraisal opportunities
and moderate to high risk exploration potential.



Our business objective is to grow our oil
and gas production and generate sufficient cash flow to continue to expand company operations and enhance shareholder value.



Specialized Skill and Knowledge:Exploration
for and development of petroleum and natural gas resources requires specialized skills and knowledge including in the areas of
petroleum engineering, geophysics, geology and title. The Company and its subsidiaries have obtained personnel with the required
specialized skills and knowledge to carry out their respective operations. While the current labour market in the industry is highly
competitive, the Company expects to be able to attract and maintain appropriately qualified employees for fiscal 2012.



Cycles:All of the Company's operations
in Canada are affected by seasonal operating conditions. Dejour Energy (Alberta) Ltd., our wholly owned subsidiary, holds properties
in northwestern Alberta and northeastern British Columbia which are accessible to heavy equipment in winter only when the ground
is frozen, typically between December to early April. For this reason drilling and pipeline construction ceases over the remainder
of the year, limiting growth to winter only. Production operations continue year round in these areas once production is established.
The prices that the Company will receive for oil and gas production in the future are weighted to world benchmark prices and may
be adversely affected by mild weather conditions. Recently there has been a significant change in the supply demand balance and
commodity prices have fallen dramatically. The Company expects this condition to persist for several months but the Company believes
that a balance between production and consumption and a stable price environment will be reestablished by the end of 2012. See
"Risk Factors – Risks related to operating an exploration, development and production company".



Environmental Protection:The Company's
operations are subject to environmental regulations (including regular environmental impact assessments and permitting) in the
jurisdictions in which it operates. Such regulations cover a wide variety of matters, including, without limitation, emission of
greenhouse gases, prevention of waste, pollution and protection of the environment, labour regulations and worker safety. Under
such regulations there are preventative obligations, clean-up costs and liabilities for toxic or hazardous substances which may
exist on or under any of its properties or which may be produced as a result of its operations. Environmental legislation and legislation
relating to exploration and production of oil and natural gas will require stricter standards and enforcement, increased fines
and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility
for companies and their directors and employees. Such stricter standards could impact the Company's costs and have an adverse effect
on results of operations. The Company expects to incur abandonment and site reclamation costs as existing oil and gas properties
are abandoned and reclaimed; however, the Company does not anticipate making material expenditures beyond normal compliance with
environmental regulations in 2012 and future years.



Employees:The Company had the equivalent
of approximately 18 full-time employees and consultants during 2011.





22









Social or Environmental Policies:The
health and safety of employees, contractors and the public, as well as the protection of the environment, is of utmost importance
to the Company. The Company endeavors to conduct its operations in a manner that will minimize adverse effects of emergency situations
by:



| | • | complying with government regulations and standards;
| | - | ----------------------------------------------------

| | • | following industry codes, practices and guidelines;
| | - | ---------------------------------------------------

| | • | ensuring prompt, effective response and repair to emergency situations and environmental incidents;
and
| | - | -------------------------------------------------------------------------------------------------------

| | • | educating employees and contractors of the importance of compliance with corporate safety and environmental
rules and procedures.
| | - | ---------------------------------------------------------------------------------------------------------------------------------



The Company believes that all Company personnel
have a vital role in achieving excellence in environmental, health and safety performance. This is best achieved through careful
planning and the support and active participation of everyone involved.



Competitive Conditions: The Company
operates in geographical areas where there is strong competition by other companies for reserve acquisitions, exploration leases,
licences and concessions and skilled industry personnel. The Company’s competitors include major integrated oil and natural
gas companies and numerous other independent oil and natural gas companies and individual producers and operators, many of whom
have greater financial and personnel resources than the Company. The Company’s ability to acquire additional property rights,
to discover reserves, to participate in drilling opportunities and to identify and enter into commercial arrangements with customers
is dependent upon developing and maintaining close working relationships with its current industry partners and joint operators,
and its ability to select and evaluate suitable properties and to consummate transactions in a highly competitive environment.



Three Year History



2011



In 2011, the Company’s focus was
on production optimization of the Drake/Woodrush property, while finalizing pre-drilling activities for the Kokopelli development
and drilling a discovery well at South Rangely.



During the year, the Company achieved the
following major objectives and also made significant progress on key strategic initiatives that resulted in:



| | (1) | Successful implementation and expansion of the Halfway “E” oil pool waterflood on the
Company’s Woodrush property.
| | --- | ------------------------------------------------------------------------------------------------------------------

| | (2) | Obtained a $7 million line of credit from a Canadian bank to refinance the bridge loan and to provide
funds for general corporate purposes.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Generated positive operating cash flow for the second half of the year.
| | --- | -----------------------------------------------------------------------

| | (4) | Completed all requirements for drilling on the Company’s federal leases at Gibson Gulch,
Piceance Basin, Colorado, resulting in the first drilling permits being issued in the fourth quarter of the year.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (5) | Completed and tested a discovery well at South Rangely. After the well was successfully fractured
and stimulated, the well flowed rich gas from the Mancos "B" Sand in commercial quantities.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



2010



In 2010, the Company’s focus was
on increasing production, reserves, and operational efficiency at the Drake/Woodrush properties, while maintaining all prospective
acreage holdings and positioning for renewed drilling activities as both the business environment and commodity prices improved.



During the year, the Company achieved the
following major objectives and also made significant progress on key strategic initiatives that resulted in:



| | (1) | Extended the limits of the Woodrush halfway pool by drilling three successful development wells
in 2010.
| | --- | --------------------------------------------------------------------------------------------------------





23









| | (2) | Received approval from the British Columbia Oil and Gas Commission to implement a waterflood in
the Halfway “E” oil pool at Woodrush and began project implementation in October.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Raised gross proceeds of $4.7 million in equity, allowing the Company to support the development
of oil and gas properties in the Drake/Woodrush properties.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Obtained a bridge loan credit facility of up to $5 million, allowing the Company to refinance its
existing bank facility and fund its working capital and capital expenditures.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



2009



In 2009, the Company’s focus was
on the restructuring of current assets and operations to reduce debt and lower operating costs while maintaining all prospective
acreage holdings and positioning for renewed drilling activities as both the business environment and commodity prices improved.



Despite the difficult environment faced
in 2009, the Company was able to achieve all major objectives and also make significant progress on key strategic initiatives that
resulted in the following:



| | (1) | Increased Net Proved and Probable Reserves by more than 3,500% from slightly more than 6 BCFE to
over 217 BCFE. The before tax discounted (NPV10) value of the Company’s proved and probable reserves, net of all
future costs for development is now valued at $324 million. This is up from $31 million as at December 31, 2008. The major increase
in reserves results from developments in the Gibson Gulch field in the Piceance Basin where the Company holds a 72% working interest
in 2200 gross acres. This property is discussed in more detail later in this report.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Reduced total liabilities from $18.3 million to $6.2
million
| | --- | ------------------------------------------------------------

| | (3) | Reduced working capital deficit of $12.7 million at the end of 2008 to $20.0 thousand at the end
of 2009
| | --- | --------------------------------------------------------------------------------------------------------



| | (4) | Raised $5 million of equity, allowing the Company to execute its winter drilling program in Woodrush
Field.
| | --- | -----------------------------------------------------------------------------------------------------------



| | (5) | Strengthening our Board of Directors with the addition of Stephen Mut as Co-Chairman of the Board
and Darren Devine as Director.
| | --- | --------------------------------------------------------------------------------------------------------------------------------



| | (6) | We disposed of all of our holdings in Titan Uranium for proceeds of $2,305,491. We retained a 10%
carried interest and a 1% net smelter return on approximately 578,365 acres of uranium leases.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



United States vs. Foreign Sales/Assets



Commencing the second quarter of fiscal 2008, we recorded our
reported oil and gas revenue.



|Gross Revenue for fiscal year ended: |  | Canada |           |  | United States | 
|------------------------------------ |  | ------ | --------- |  | ------------- | 
|                                     |  |        |           |  |               | 
|12/31/2009 (Canadian GAAP)           |  | $      | 6,470,725 |  |               | 
|12/31/2010 (IFRS)                    |  | $      | 8,085,627 |  |               | 
|12/31/2011 (IFRS)                    |  | $      | 8,824,345 |  |               | 



|Asset Location as of:      |  | Canada |            |  | United States |  
|-------------------------- |  | ------ | ---------- |  | ------------- | -
|                           |  |        |            |  |               |  
|12/31/2009 (Canadian GAAP) |  | $      | 16,874,298 |  |               | $
|12/31/2010 (IFRS)          |  | $      | 18,563,424 |  |               | $
|12/31/2011 (IFRS)          |  | $      | 20,622,433 |  |               | $



Commodity Price Environment



Generally, the demand for, and the price
of, natural gas increases during the colder winter months and decreases during the warmer summer months. Pipelines, utilities,
local distribution companies and industrial users utilize natural gas storage facilities and purchase some of their anticipated
winter requirements during the summer, which can lessen seasonal demand fluctuations. Crude oil and the demand for heating oil
are also impacted by seasonal factors, with generally higher prices in the winter. Seasonal anomalies, such as mild winters, sometimes
lessen these fluctuations.





24









Our results of operations and financial
condition are significantly affected by oil and natural gas commodity prices, which can fluctuate dramatically. The market for
oil and natural gas is beyond our control and prices are difficult to predict.



Forward Contracts



The Company is not bound by an agreement
(including any transportation agreement) directly or through an aggregator, under which it may be precluded from fully realizing,
or may be protected from the full effect of, future market prices for oil and gas.



The following table summarizes the Company’s
crude oil risk management positions at December 31, 2011:



|Instrument type                               |  | Contract Month |  | Volume                  |  |  | Price per
barrel |   
|--------------------------------------------- |  | -------------- |  | ----------------------- |  |  | ---------------- | --
|Western Texas Instrument (“WTI”) Sold Futures |  | February 2012  |  | 4,000 barrels per month |  |  | US$              | 98
|Western Texas Instrument (“WTI”) Sold Futures |  | March 2012     |  | 4,000 barrels per month |  |  | US$              | 98
|Western Texas Instrument (“WTI”) Sold Futures |  | April 2012     |  | 4,000 barrels per month |  |  | US$              | 98



Additional Information Concerning Abandonment and Reclamation
Costs



For the Company’s Canadian and US
oil and gas interests, the well abandonment costs for all wells with reserves have been included at the property level. The Company
estimated the total undiscounted amount of the cash flows required to settle the retirement obligations to be approximately $1,635,000.
These obligations are expected to be settled over the next 20 years with the majority of costs incurred between 2018 and 2025.
Additional abandonment costs associated with non-reserves wells, lease reclamation costs and facility abandonment and reclamation
expenses have not been included.



Government Regulations



Our oil and natural gas exploration, production
and related operations, when developed, are subject to extensive laws and regulations promulgated by federal, state, tribal and
local authorities and agencies. These laws and regulations often require permits for drilling operations, drilling bonds and reports
concerning operations, and impose other requirements relating to the exploration for and production of oil and natural gas. Many
of the laws and regulations govern the location of wells, the method of drilling and casing wells, the plugging and abandoning
of wells, the restoration of properties upon which wells are drilled, temporary storage tank operations, air emissions from flaring,
compression, the construction and use of access roads, sour gas management and the disposal of fluids used in connection with operations.



Our operations are subject to environmental
regulations (including regular environmental impact assessments and permitting) in the jurisdictions in which it operates. Such
regulations cover a wide variety of matters, including, without limitation, emission of greenhouse gases, prevention of waste,
pollution and protection of the environment, labour regulations and worker safety. Under such regulations there are preventative
obligations, clean-up costs and liabilities for toxic or hazardous substances which may exist on or under any of its properties
or which may be produced as a result of its operations. Environmental legislation and legislation relating to exploration and production
of oil and natural gas will require stricter standards and enforcement, increased fines and penalties for non-compliance, more
stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their directors
and employees. Such stricter standards could impact our costs and have an adverse effect on results of operations.





25









The Comprehensive Environmental, Response,
Compensation, and Liability Act, or CERCLA, and comparable state statutes impose strict, joint and several liability on owners
and operators of sites and on persons who disposed of or arranged for the disposal of "hazardous substances" found at
such sites. It is not uncommon for the government to file claims requiring cleanup actions, demands for reimbursement for government-incurred
cleanup costs, or natural resource damages, or for neighboring landowners and other third parties to file claims for personal injury
and property damage allegedly caused by hazardous substances released into the environment. The Federal Resource Conservation and
Recovery Act, or RCRA, and comparable state statutes govern the disposal of "solid waste" and "hazardous waste"
and authorize the imposition of substantial fines and penalties for noncompliance, as well as requirements for corrective actions.
Although CERCLA currently excludes petroleum from its definition of "hazardous substance," state laws affecting our operations
may impose clean-up liability relating to petroleum and petroleum-related products. In addition, although RCRA classifies certain
oil field wastes as "non-hazardous," such exploration and production wastes could be reclassified as hazardous wastes
thereby making such wastes subject to more stringent handling and disposal requirements. CERCLA, RCRA and comparable state statutes
can impose liability for clean-up of sites and disposal of substances found on drilling and production sites long after operations
on such sites have been completed. Other statutes relating to the storage and handling of pollutants include the Oil Pollution
Act of 1990, or OPA, which requires certain owners and operators of facilities that store or otherwise handle oil to prepare and
implement spill response plans relating to the potential discharge of oil into surface waters. The OPA, contains numerous requirements
relating to prevention of, reporting of, and response to oil spills into waters of the United States. State laws mandate oil cleanup
programs with respect to contaminated soil. A failure to comply with OPA's requirements or inadequate cooperation during a spill
response action may subject a responsible party to civil or criminal enforcement actions.



The Endangered Species Act, or ESA, seeks
to ensure that activities do not jeopardize endangered or threatened animal, fish and plant species, or destroy or modify the critical
habitat of such species. Under the ESA, exploration and production operations, as well as actions by federal agencies, may not
significantly impair or jeopardize the species or its habitat. The ESA has been used to prevent or delay drilling activities and
provides for criminal penalties for willful violations of its provisions. Other statutes that provide protection to animal and
plant species and that may apply to our operations include, without limitation, the Fish and Wildlife Coordination Act, the Fishery
Conservation and Management Act, the Migratory Bird Treaty Act. Although we believe that our operations are in substantial compliance
with these statutes, any change in these statutes or any reclassification of a species as threatened or endangered or re-determination
of the extent of "critical habit" could subject us to significant expenses to modify our operations or could force us
to discontinue some operations altogether.



The National Environmental Policy Act,
or NEPA, requires a thorough review of the environmental impacts of "major federal actions" and a determination of whether
proposed actions on federal and certain Indian lands would result in "significant impact." For purposes of NEPA, "major
federal action" can be something as basic as issuance of a required permit. For oil and gas operations on federal and certain
Indian lands or requiring federal permits, NEPA review can increase the time for obtaining approval and impose additional regulatory
burdens on the natural gas and oil industry, thereby increasing our costs of doing business and our profitability.



The Clean Water Act, or CWA, and comparable
state statutes, impose restrictions and controls on the discharge of pollutants, including spills and leaks of oil and other substances,
into waters of the United States. The discharge of pollutants into regulated waters is prohibited, except in accordance with the
terms of a permit issued by the Environmental Protection Agency (EPA) or an analogous state agency. The CWA regulates storm water
run-off from oil and natural gas facilities and requires a storm water discharge permit for certain activities. Such a permit requires
the regulated facility to monitor and sample storm water run-off from its operations. The CWA and regulations implemented thereunder
also prohibit discharges of dredged and fill material in wetlands and other waters of the United States unless authorized by an
appropriately issued permit. The CWA and comparable state statutes provide for civil, criminal and administrative penalties for
unauthorized discharges for oil and other pollutants and impose liability on parties responsible for those discharges for the costs
of cleaning up any environmental damage caused by the release and for natural resource damages resulting from the release.



The Safe Drinking Water Act, or SDWA, and
the Underground Injection Control (UIC) program promulgated thereunder, regulate the drilling and operation of subsurface injection
wells. EPA directly administers the UIC program in some states and in others the responsibility for the program has been delegated
to the state. The program requires that a permit be obtained before drilling a disposal well. Violation of these regulations and/or
contamination of groundwater by oil and natural gas drilling, production, and related operations may result in fines, penalties,
and remediation costs, among other sanctions and liabilities under the SWDA and state laws. In addition, third party claims may
be filed by landowners and other parties claiming damages for alternative water supplies, property damages, and bodily injury.



The Clean Air Act, as amended, restricts
the emission of air pollutants from many sources, including oil and gas operations. New facilities may be required to obtain permits
before work can begin, and existing facilities may be required to incur capital costs in order to remain in compliance. In addition,
the EPA has promulgated more stringent regulations governing emissions of toxic air pollutants from sources in the oil and gas
industry, and these regulations may increase the costs of compliance for some facilities.





26









Significant studies and research have been
devoted to climate change and global warming, and climate change has developed into a major political issue in the United States
and globally. Certain research suggests that greenhouse gas emissions contribute to climate change and pose a threat to the environment.
Recent scientific research and political debate has focused in part on carbon dioxide and methane incidental to oil and natural
gas exploration and production. Many state governments have enacted legislation directed at controlling greenhouse gas emissions,
and future state and federal legislation and regulation could impose additional restrictions or requirements in connection with
our operations and favor use of alternative energy sources, which could increase operating costs and demand for oil products. As
such, our business could be materially adversely affected by domestic and international legislation targeted at controlling climate
change.



We expect to incur abandonment and site
reclamation costs as existing oil and gas properties are abandoned and reclaimed; however, we do not anticipate making material
expenditures beyond normal compliance with environmental regulations in 2012 and future years.



The health and safety of employees, contractors
and the public, as well as the protection of the environment, is of utmost importance to us. We endeavour to conduct our operations
in a manner that will minimize adverse effects of emergency situations by:



| | · | complying with government regulations and standards;
| | - | ----------------------------------------------------

| | · | following industry codes, practices and guidelines;
| | - | ---------------------------------------------------

| | · | ensuring prompt, effective response and repair to emergency situations and environmental incidents;
and
| | - | -------------------------------------------------------------------------------------------------------

| | · | educating employees and contractors of the importance of compliance with corporate safety and environmental
rules and procedures.
| | - | ---------------------------------------------------------------------------------------------------------------------------------



We believe that all of our personnel have
a vital role in achieving excellence in environmental, health and safety performance. This is best achieved through careful planning
and the support and active participation of everyone involved.



Competition



We operate in geographical areas where
there is strong competition by other companies for reserve acquisitions, exploration leases, licences and concessions and skilled
industry personnel. Our competitors include major integrated oil and natural gas companies and numerous other independent oil and
natural gas companies and individual producers and operators, many of whom have greater financial and personnel resources than
us. Our ability to acquire additional property rights, to discover reserves, to participate in drilling opportunities and to identify
and enter into commercial arrangements with customers is dependent upon developing and maintaining close working relationships
with its current industry partners and joint operators, and its ability to select and evaluate suitable properties and to consummate
transactions in a highly competitive environment.



We compete with many companies possessing
greater financial resources and technical facilities for the acquisition of oil and gas properties, exploration and production
equipment, as well as for the recruitment and retention of qualified employees.



Seasonality



All of our operations in Canada are affected
by seasonal operating conditions. Dejour Energy (Alberta) Ltd., our wholly owned subsidiary, holds properties in northwestern Alberta
and northeastern British Columbia which are accessible to heavy equipment in winter only when the ground is frozen, typically between
December to early April. For this reason drilling and pipeline construction ceases over the remainder of the year, limiting growth
to winter only. Production operations continue year round in these areas once production is established. The prices that we will
receive for oil and gas production in the future are weighted to world benchmark prices and may be adversely affected by mild weather
conditions.





27









| | C. | Organizational Structure
| | -- | ------------------------



Dejour Energy Inc. (formerly Dejour Enterprises
Ltd.) is incorporated under the laws of British Columbia, Canada. The Company was originally incorporated as “Dejour Mines
Limited” on March 29, 1968 under the laws of the Province of Ontario. By articles of amendment dated October 30, 2001, the
issued shares were consolidated on the basis of one (1) new for every fifteen (15) old shares and the name of the Company was changed
to Dejour Enterprises Ltd. On June 6, 2003, the shareholders approved a resolution to complete a one-for-three-share consolidation,
which became effective on October 1, 2003. In 2005, the Company was continued in British Columbia under the Business Corporations
Act(British Columbia). On March 9, 2011, the Company changed its name from Dejour Enterprises Ltd. to Dejour Energy Inc.



Intercorporate Relationships



We have four 100% owned subsidiaries:



| | · | Dejour Energy (USA) Corp. (“Dejour USA”), a Nevada corporation, holds Dejour's United
States oil and gas interests,
| | - | -------------------------------------------------------------------------------------------------------------------

| | · | Dejour Energy (Alberta) Ltd. (“DEAL”), an Alberta corporation, holds its Canadian oil
and gas interests in northwestern Alberta and northeastern British Columbia;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Wild Horse Energy Ltd. (“Wild Horse”), an inactive Alberta corporation, and
| | - | ---------------------------------------------------------------------------

| | · | 0855524 B.C. Ltd. (“0855524”), a British Columbia Corporation, which had disposed
of its Montney (Buick Creek) property during 2010 and is currently inactive.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| | D. | Property, Plant and Equipment
| | -- | -----------------------------



Our executive offices are located in rented
premises of approximately 2,519 sq. ft. at 598 – 999 Canada Place, Vancouver, British Columbia, V6C 3E1.  We began occupying
these facilities on July 1, 2009.  Current monthly base rent is $6,088.



Resource Properties



Our current focus is on oil and gas properties
located in the United States and Canada. We formerly had direct interest in uranium exploration properties, which we sold to Titan
Uranium Inc. in 2006 for Titan common shares. We sold all of our Titan common shares in 2009, but retained a 1% NSR on all the
properties sold to Titan, and a 10% working interest in each claim, carried by Titan to a completed bankable feasibility study
after which we may elect to participate as to its 10% interest or convert to an additional 1% NSR.



We currently
haveoil and gas leases in the following regions:



| | · | The Piceance, Paradox and Uinta Basins in the US Rocky Mountains.
| | - | -----------------------------------------------------------------

| | · | The Peace River Arch of northeastern British Columbia and north western Alberta, Canada.
| | - | ----------------------------------------------------------------------------------------



United States Oil and Gas Properties



In July 2006, our U.S. subsidiary, Dejour
USA, entered into a participation agreement (the “2006 Retamco Agreement”) with Retamco Operating, Inc. (“Retamco”),
a U.S. privately owned oil and gas corporation, and Brownstone Ventures (US) Inc. (“Brownstone”), a subsidiary of Brownstone
Ventures Inc., a Canadian company listed on the TSX-V. Under the agreement, Dejour USA and Brownstone agreed to participate in
the ownership of specified oil and gas leasehold interests and related exploration and development of those leases located in the
Piceance, Uinta and Paradox Basins of western Colorado and eastern Utah.



In June 2008, Dejour USA entered into a
further purchase and sale agreement with Retamco resulting in Dejour USA acquiring an additional 64,000 net acres involving the
same properties in which it purchased an interest in the 2006 Retamco Agreement. Additionally, as a part of this latter agreement
Dejour USA sold its 25% working interests in two wells in the North Barcus Creek Prospect (located in Piceance Basin, Colorado)
and its lease interest in the Rio Blanco Deep Prospect (located in northern Colorado).



Certain leases expired or sold, and the
Company currently has approximately 100,000 net acres in the Piceance, Paradox and Uinta Projects.





28









Kokopelli (Gibson Gulch)



The Company continued working with its
partners to bring this project into production. Dejour has a 71.43% working interest in this 2,200 acre project which is ideally
situated for exploitation of both the Williams Fork and Mancos shale bodies. The Williams Companies, Inc. and Bill Barrett Corporation
are developing and producing on adjacent acreage to the east, west and north of the Company’s acreage. Dejour USA has worked
closely with important constituents including local citizenry and government, the Bureau of Land Management and the Colorado Division
of Wildlife to develop a mutually acceptable development plan for this environmentally sensitive area. In 2010, we were granted
approval to develop a 660 acre portion of the leases with 10-acre spacing. Approval of this spacing on the remainder of the lease
acreage has enabled us and our partner to drill up to 220 wells (158 wells net to us) from a few multi-well drilling pads to optimally
exploit the gas reserves in the subsurface. Construction of the first drilling pad commenced in the fourth quarter of 2011 with
production expected to begin in the second half of 2012.



South Rangely



The Rangely Prospect Area is just south
of Rangely Field near the Utah border. In the Rangely prospect area, fractured Mancos Shale is producing gas. The Mancos also contains
sandstone intervals, Mancos A and Mancos B, which can be productive. The eastern shoulder of the Douglas Creek Arch and the flanks
of the Rangely Anticline as well as other areas of the basin are being explored for this Cretaceous age strata. The Mancos is also
considered a source rock in the area.



Evaluation and subsequent exploitation
of an oil prospect at South Rangely, was deferred from the fourth quarter of 2010 to the second quarter of 2011, as a result of
minor delays in the permitting process that prevented drilling from occurring before the winter drilling prohibitions designed
to protect big game habitat. Despite a minor delay, we did not alter our plans to drill an evaluation well on the 7,000 acre lease
located just south of Rangely field. Recent advances in horizontal drilling and fracture stimulation technology have moved this
previously marginal development into robust economic status. Success at South Rangely may allow us to revisit plans to evaluate
and potentially exploit  our North Rangely prospect.



In May 2011, we announced that we and our
partners had executed a development alliance with a private Dallas based US E&P with adjacent properties and in June 2011,
we announced that it has drilled and set casing on an initial vertical well to test the Mancos/Niobrara potential on its South
Rangely. After a thorough review of the well data the well will be completed, fractured and flow tested to determine the commercial
potential of the Lower Mancos “C” Sand in this area



In June 2011, the Company drilled and cased
an evaluation well on this 5,500 gross acre (3,300 net acre) lease which is located just south of the Rangely field. The well was
drilled and casing set on approximately 90 feet of gross Mancos "B" Sand and later successfully fractured and stimulated.
The well flowed rich gas from the Mancos "B" Sand in commercial quantities. Analysis of the gas showed a higher natural
gas liquid (“NGL”) yield from the South Rangely discovery than that expected from our NGL development at Kokopelli
(formerly Gibson Gulch).



West Grand Valley (Piceance Basin)



On the Company’s West Grand Valley
property, Dejour operates approximately 5,180 acres (gross) with a 71.43% working interest in an area of active drilling by EnCana,
Laramie Partners II and Axia. Success in developing the gas in the Lower Mancos (Niobrara) section has revitalized drilling interest
in this area of the Piceance Basin. Included in the West Grand Valley property acreage is the 1400+ acre Roan Creek evaluation
project. This project is located very close to and sandwiched between existing Williams Fork gas fields operated by Occidental
and Chevron. While it is likely that the Williams Fork at Roan Creek will be somewhat thinner than is found to the east and west,
Roan Creek has Mancos potential which can be tested via an exploratory tail to a Williams Fork appraisal well. During 2009, the
various geologic and commercial studies conducted by us highlighted the potential at Roan Creek. As a result of those studies,
we began to make plans for a single well drilling program. The permitting process is underway and drilling at Roan Creek will follow
the first increment of drilling at Kokopelli.



Future Exploration and Evaluation



As a result of a reasonably comprehensive
geologic and commercial study in 2009, Dejour has high graded two future development and appraisal projects including:



| | · | Plateau (Piceance Basin) – We have 71.43% working interest in this 3,014 acre (gross) project
located south of Roan Creek has Williams Fork potential as evidenced by successful drilling by EnCana Corporation at acreage adjacent
to the Company’s holdings.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





29









| | · | North Rangely – We have 71.43% working interest in this 18,000 acre (gross) project located
north of the Rangely Field, is prospective for oil in the Lower Mancos (Niobrara), Dakota, Morrison and Phosphoria formations.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



These potential developments will be deferred
to at least 2013 as the current natural gas price has caused Dejour to delay the start of investments on its other leases in Colorado.
Exploitation of these opportunities will in all likelihood proceed once developments at Kokopelli, South Rangely and Roan Creek
have been advanced to the point that Company’s cash flow and proved producing reserve base can support the additional development
costs.



Other Prospect Areas



We have approximately 77,403 net acres
in the following prospect areas, which are considered as non-core projects of the Company.





|Area              |  | Prospect     |  | Net acres to Dejour
|----------------- |  | ------------ |  | -------------------
|Piceance          |  | Book Cliffs  |  | 11,524             
|                  |  | Gunnison     |  | 753                
|Paradox           |  | San Juan     |  | 169                
|Uinta             |  | Bitter Creek |  | 240                
|                  |  | Bonanza      |  | 262                
|                  |  | Cisco        |  | 5,071              
|                  |  | Displacement |  | 4,125              
|                  |  | Gorge Spring |  | 986                
|                  |  | Oil shale    |  | 899                
|                  |  | Seep Ridge   |  | 160                
|                  |  | Tri County   |  | 677                
|Northern Colorado |  | Meeker       |  | 2,329              
|                  |  | Pinyon       |  | 4,637              
|                  |  | Waddle Creek |  | 80                 
|Sub-Thrust        |  | Dinosaur     |  | 44,878             
|                  |  | Ashley       |  | 480                
|Sand Wash         |  | Sand Wash    |  | 133                
|Total             |  |              |  | 77,403             









Canadian Oil and Gas Properties



Our wholly-owned subsidiary, Dejour Energy
(Alberta) Ltd. (“DEAL”), currently has interests in oil and gas properties in the Peace River Arch located principally
in northeastern British Columbia. DEAL’s holdings approximately 11,000 net acres concentrated in the Peace River Arch.





30







Summary of Operational Highlights



|Production and Netback Summary               
|---------------------------------------------
|                                             
|                                             
|Production Volumes:                          
|Oil and natural gas liquids (bbls)           
|Gas (mcf)                                    
|Total (BOE)                                  
|                                             
|Average Price Received:                      
|Oil and natural gas liquids ($/bbls)         
|Gas ($/mcf)                                  
|Total ($/BOE)                                
|                                             
|Royalties ($/BOE)                            
|Operating and Transportation Expenses ($/BOE)
|                                             
|Operating Netbacks ($/BOE)*                  



* NON-GAAP MEASURES



Non-GAAP
measures are commonly used in the oil and gas industry. Certain measures in this Form 20-F includes disclosures of Call Cash Flow
from Operating Activities, Operating Netback, Operating Loss, and EBITDA, which are financial measures not prepared in accordance
with IFRS, and therefore are considered non-GAAP measures. A non-GAAP financial measure is a numerical measure of historical or
future financial performance, financial position or cash flows that excludes or includes amounts that are required to be disclosed
by GAAP. The presentation of this additional information is not meant to be considered in
isolation or as a substitute for the numbers prepared in accordance with GAAP. These measures
may not be comparable to similar measures presented by other issuers. These measures have been described and presented in this
document in order to provide shareholders and potential investors with additional information regarding our liquidity and our ability
to generate funds to finance our operations. The reconciliations of non-GAAP financial measures are included in the table below
and elsewhere if there are any non-GAAP measures.



Operating Netback is a non-GAAP
measure defined as revenues less royalties and operating and transportation expenses.



|                                            |  | Year ended December 31, |           
|------------------------------------------- |  | ----------------------- | ----------
|                                            |  | 2011                    |           
|                                            |  | $                       |           
|Revenues                                    |  |                         | 8,824,000 
|Less: Royalties                             |  |                         | (1,628,000
|Less: Operating and transportation expenses |  |                         | (2,499,000
|Operating Netback                           |  |                         | 4,697,000 



The decrease in natural gas production
in 2011 was primarily the result of the temporary shut-in of gas production in the summer of 2011 due to maintenance related downtime
at the regional gas processing plant that is operated by a third party and is not under the Company’s control.



Production and Development Projects



Drake/Woodrush



2011



In December 2010, a waterflood project
application was expedited and approval was received. The project was implemented in early 2011 with water injection commencing
in March 2011. In the first quarter of 2011, gross production from the field was reduced to approximately 544 barrels of oil equivalent/day
(“BOED”) (408 BOED net) in response to the decreasing pressure in the Halfway oil sand. In October 2011, Dejour received
approval to operate the waterflood on a voidage replacement basis and in December drilled a third production well while increasing
total injection from 1200 BWPD to 2400 BWPD. The start-up and subsequent enhancement of the waterflood marked the end of major
capital investments in Woodrush. Dejour will concentrate on optimizing injection and production in the waterflood, controlling
cost and increasing margins on oil production.





31









Effective December 31, 2011, the Company's
reserve evaluation valued the before tax discounted net present value 10% (NPV10) of remaining proved reserves in the
Woodrush oil pool at $19 million net to Dejour’s 75% working interest. The reserve evaluation was conducted by an independent
firm, Deloitte & Touche LLP (“AJM Deloitte” or “AJM”) of Calgary, Alberta.



2010



After completing a 3-D seismic program
over the field in January 2010, we finalized drilling plans and in March 2010 commenced drilling of two development wells. The
first found the target Halfway sand tight, but encountered a new Gething Gas pool that was subsequently put on production at more
than 1,000 MCFD (100% gross). The second development well encountered the Halfway sand as expected, was completed and flow tested
at rates in excess of 500 BOPD (100% gross).



With the success of the drilling in March
2010, field production reached a record level in May 2010, averaging 970 BOED (100% gross), where 75% is oil. In the fourth quarter
of 2010, production from the field was reduced to approximately 560 BOED (100% gross) in response to increasing gas production
resulting from the decreasing pressure in the Halfway oil sand. In October 2010, the first water injection well was drilled to
the southeast limit of the reservoir. This well was produced briefly without the assistance of at 60 BOPD prior to conversion to
injection. In December 2010, a waterflood project application was expedited and approval was received. The project was fully implemented
in early 2011 with water injection commencing in March 2011. Water injection will be gradually ramped up to a level of 1,500 to
2,000 BWPD with the resulting oil production expected to reach a peak of approximately 900 BOPD (100% gross) in the second half
of 2012.



In 2011 Dejour concentrated on optimizing
injection and production in the waterflood, controlling cost and increasing margins on gas production as the oil production is
gradually ramped up to its maximum level in the second half of 2012.



2009



DEAL was the successful bidder for 1,579
net acres of Crown land located adjacent to the northern boundary of the Woodrush lease which was offered for lease in November
2009. The price paid for this acquisition was approximately $340,000.



Late in 2009, we began preparations for
a 3-D seismic survey designed to investigate the northern portion of the Woodrush lease and the southern portion of the newly acquired
acreage. The survey was shot, processed and interpreted in late 2009/early 2010 with several drilling locations identified. Rigs
were contracted and two or three wells are anticipated to be drilled before activity is truncated at time of “break-up”
in the water prone areas which overlay the prospective oil and gas deposits.



In late 2009 and prior to the seismic survey,
DEAL drilled, sidetracked and suspended an oil and gas well with hydrocarbon shows in several intervals. The well location was
based upon previously acquired seismic data.



During 2009, DEAL sold 25% of its interest
in Woodrush/Drake for $4,500,000 in cash. Proceeds from the sale of the interest were used to fund expanded Woodrush/Drake investments
and to reduce our outstanding bank line of credit. DEAL’s working interest in Woodrush/Drake was 75% as at December 31, 2009.



Buick Creek (Montney)



In December 2010, we sold our entire 90%
interest in this area for net proceeds of approximately $952,000.





32









Reserve Data



The standards of the SEC require that proved
reserves be estimated using existing economic conditions (constant pricing).  Based on this methodology, the Company’s
results have been calculated utilizing the 12-month average price for each of the years presented.



The Company reports in Canadian currency
and therefore the Reserves Data set forth in the tables below has been converted to Canadian dollars at the prevailing conversion
rate at December 31, 2011. The conversion rate used per Bank of Canada is 1.0170.



In 2011, AJM Deloitte, independent petroleum
engineering consultants based in Calgary, Alberta was retained by the Company to evaluate the Canadian properties of the Company.
Their report, titled “Reserve Estimation and Economic Evaluation, Dejour Energy (Alberta) Ltd.”, is dated March 23,
2012 and has an effective date of December 31, 2011.



Gustavson Associates LLP, an independent
petroleum engineering consulting firm based in Boulder, Colorado has been retained by the Company to evaluate the US properties
of the Company. Their 2011 report, titled “Reserves Evaluation Report, Dejour Energy (USA) Corp., Leasehold Garfield county,
Colorado, USA” is dated February 15, 2012 and has an effective date of January 1, 2012.



In 2010, GLJ Petroleum Consultants (“GLJ”),
independent petroleum engineering consultants based in Calgary, Alberta were retained by to evaluate our Canadian properties. Their
report, titled “Reserves Assessment and Evaluation of Canadian Oil and Gas Properties”, is dated March 22, 2011 and
has an effective date of December 31, 2010.



The reserves data set forth below (the
"Reserves Data"), derived from AJM Deloitte and Gustavson’s reports, summarizes our oil, liquids and natural
gas reserves.



The AJM Deloitte and Gustavson reports
are based on certain factual data supplied by the Company, and AJM Deloitte and Gustavson's opinion of reasonable practice in the
industry. The extent and character of ownership and all factual data pertaining to the Company’s petroleum properties and
contracts (except for certain information residing in the public domain) were supplied by the Company to AJM and Gustavson and
accepted without any further investigation. AJM and Gustavson accepted this data as presented and neither title searches nor field
inspections were conducted. All statements relating to the activities of the Company for the year ended December 31, 2011 include
a full year of operating data on the properties of the Company.



The reserve estimates of crude oil,
natural gas liquids and natural gas reserves provided herein are estimates only and there is no guarantee that the estimated reserves
will be recovered. Actual crude oil, natural gas liquids and natural gas reserves may be greater than or less than the estimates
provided herein.



Controls Over Reserve Report Preparation



Our reserve estimates reports as of December 31,
2011 are prepared by our independent qualified reserve evaluators, AJM and Gustavson. To ensure accuracy and completeness of the
data prior to disclosure of reserve estimates to the public, our reserves committee does the following: (1) reviews our procedures
for providing information to the independent qualified reserve evaluators, (2) meets with the independent qualified reserves evaluators
to determine whether any restrictions affected the ability of the qualified reserves evaluators to report without reservation,
(3) reviews the reserves data with management and the independent qualified reserves evaluator. If the reserve committee is satisfied
with results of its evaluation it will approve the content of our reserve disclosure. If any concerns arise in the reserve committee’s
evaluation, the reserve committee will work with our management and the independent qualified reserves evaluators to resolve the
issues before disclosure of reserves is made public.



As of December 31, 2011, the Company’s
reserve committee was composed of: Harrison Blacker, Robert Holmes and Richard Patricio. Please see “Item 6. Directors, Senior
Management and Employees, A. Directors and Senior Management” for biographical information on the members of the reserve
committee.





33







Summary of Oil and Gas Reserves as of Fiscal-Year End Based
on Average Fiscal-Year Prices



|                  |  | Net Reserves |    
|----------------- |  | ------------ | ---
|Reserves Category |  | Oil (Mbbl)   |    
|PROVED            |  |              |    
|Developed         |  |              |    
|Canada            |  |              | 317
|United States     |  |              | -  
|Undeveloped       |  |              |    
|Canada            |  |              | -  
|United States     |  |              | -  
|TOTAL PROVED      |  |              | 317



Proved Undeveloped Reserves



|           |   |  | Total Proved Undeveloped Reserves | 
|---------- | - |  | --------------------------------- | 
|Oil (Mbbl) |   |  | Condensate (MBO)                  | 
|           | - |  |                                   | 



The significant majority of the undeveloped
reserves are scheduled to be developed within the next five years. Our proved undeveloped reserves for natural gas liquids increased
by 3,849 Mbbl, mostly due to increase in natural gas liquids in the Kokopelli (formerly Gibson Gulch) property from technical revision.



In 2011, we incurred approximately $7 million
in expenditures for development of undeveloped reserves to convert proved undeveloped reserves into developed reserves.



Reserves Price Sensitivity



Our management uses forward-looking market-based
data in developing its drilling plans, assessing its capital expenditure needs and projecting future cash flows.  We
believe that using the forecast price yields a better indication of the likely economics of proved reserves than the trailing average
12-month average prices required by the SEC’s reserve rules.



Cautionary Note- The following table
contains reserve sensitivity pricing. Sensitivity pricing is intended to illustrate certain reserve sensitivities to the commodity
prices and should not be confused with “SEC Pricing Proved Reserves” and does not comply with SEC pricing assumptions



The table below compares our estimated proved reserves and associated
present value (discounted at an annual rate of 10%) of the estimated future revenue before income tax.





34











|                                                       |  | December 31, 2011 |    
|------------------------------------------------------ |  | ----------------- | ---
|                                                       |  | Natural           |    
|                                                       |  | Gas               |    
|Canada (Proved Developed and Undeveloped
    Reserves) |  | (Mmcf)            |    
|2011 12-month average prices (SEC) (1)                 |  |                   | 752



|                                                              |  | December 31, 2011 |       
|------------------------------------------------------------- |  | ----------------- | ------
|                                                              |  | Natural           |       
|                                                              |  | Gas               |       
|United States (Proved Developed and Undeveloped
    Reserves) |  | (Mmcf)            |       
|2011 12-month average prices (SEC) (1)                        |  |                   | 41,314



|                                                  |  | December 31, 2011 |       
|------------------------------------------------- |  | ----------------- | ------
|                                                  |  | Natural           |       
|                                                  |  | Gas               |       
|Total (Proved Developed and Undeveloped Reserves) |  | (Mmcf)            |       
|2011 12-month average prices (SEC) (1)            |  |                   | 42,066









Notes:



(1) The 12-month average prices
(SEC) are calculated based on an average of the first price on the first day of each month in 2011, adjusted for wellhead differential
and current costs prevailing at December 31, 2011.  The 12-month average prices (SEC) used for Canadian properties were
Cdn$90.15 per barrel of oil and Cdn$3.82 per Mcf of natural gas. The 12-month average prices (SEC) used for US properties were
US$89.19 per barrel of condensate, US$30.24 per barrel of ethane, US$43.18 per barrel of heavy NGLs, and US$3.14 per Mcf of natural
gas.



(2) Present value of estimated
future net cash flows before income taxes (PV-10) is considered a non-GAAP financial measure as defined by the SEC.  We
believe that our PV-10 presentation is relevant and useful to our investors because it presents the discounted future net cash
flows attributable to our proved reserves before taking into account the related future income taxes, as such taxes may differ
among various companies because of differences in the amounts and timing of deductible basis, net operating loss carryforwards
and other factors.  We believe investors and creditors use our PV-10 as a basis for comparison of the relative size and
value of our proved reserves to the reserve estimates of other companies.  PV-10 is not a measure of financial or operating
performance under GAAP and is not intended to represent the current market value of our estimated oil and natural gas reserves.
PV-10 should not be considered in isolation or as a substitute for the standardized measure of discounted future net cash flows
as defined under GAAP.



(3)  US dollars are converted
into Canadian dollars using the closing exchange rate on December 31, 2011, which is US$1.00 = Cdn$1.017.



Oil and Gas Production, Production Prices and Production
Costs



The following is our total net oil and
gas production for the fiscal years ended December 31, 2011, 2010 and 2009. All production came from our Canadian properties. There
was no production from our United States properties in the fiscal years ended December 31, 2011, 2010, or 2009.



|Production       
|-----------------
|Fiscal Year Ended
|December 31, 2011
|December 31, 2010
|December 31, 2009



The following table includes the average prices the Company
received for its production for the fiscal years ended December 31, 2011, 2010 and 2009.





35









|Average Sales Prices
|--------------------
|Fiscal Year Ended   
|December 31, 2011   
|December 31, 2010   
|December 31, 2009   



The following table includes the average production cost, not
including ad valorem and severance taxes, per unit of production for the fiscal years ended December 31, 2011, 2010 and 2009.



|Average Production Costs
|------------------------
|Fiscal Year Ended       
|December 31, 2011       
|December 31, 2010       
|December 31, 2009       



Drilling and Other Exploratory and Development Activities



During the fiscal year ended December 31, 2011, we drilled the
following wells:



|              |  | Net Exploratory Wells |      |  | Net Development Wells | 
|------------- |  | --------------------- | ---- |  | --------------------- | 
|Canada        |  | Productive            |      |  | Dry                   | 
|              |  |                       |      |  |                       | 
|Oil           |  |                       | -    |  |                       | 
|Natural Gas   |  |                       | -    |  |                       | 
|Dry Wells     |  |                       | -    |  |                       | 
|Service Wells |  |                       | 1.50 |  |                       | 
|Suspended     |  |                       | -    |  |                       | 
|              |  |                       |      |  |                       | 
|Total  Wells  |  |                       | 1.50 |  |                       | 



|                |  | Net Exploratory Wells |   |  | Net Development Wells | 
|--------------- |  | --------------------- | - |  | --------------------- | 
|U.S.A           |  | Productive            |   |  | Dry                   | 
|                |  |                       |   |  |                       | 
|Natural Gas (1) |  |                       | - |  |                       | 
|                |  |                       |   |  |                       | 
|Total  Wells    |  |                       | - |  |                       | 





During the fiscal year ended December 31, 2010, we drilled the
following wells:



|              |  | Net Exploratory Wells |      |  | Net Development Wells | 
|------------- |  | --------------------- | ---- |  | --------------------- | 
|Canada        |  | Productive            |      |  | Dry                   | 
|              |  |                       |      |  |                       | 
|Oil           |  |                       | -    |  |                       | 
|Natural Gas   |  |                       | 0.75 |  |                       | 
|Dry Wells     |  |                       | -    |  |                       | 
|Service Wells |  |                       | -    |  |                       | 
|Suspended     |  |                       | -    |  |                       | 
|              |  |                       |      |  |                       | 
|Total  Wells  |  |                       | 0.75 |  |                       | 





36







During the fiscal year ended December 31, 2009, we drilled
the following wells:



|              |  | Net Exploratory Wells |      |  | Net Development Wells | 
|------------- |  | --------------------- | ---- |  | --------------------- | 
|Canada        |  | Productive            |      |  | Dry                   | 
|              |  |                       |      |  |                       | 
|Oil           |  |                       | -    |  |                       | 
|Natural Gas   |  |                       | 0.75 |  |                       | 
|Dry Wells     |  |                       | -    |  |                       | 
|Service Wells |  |                       | -    |  |                       | 
|Suspended     |  |                       | -    |  |                       | 
|              |  |                       |      |  |                       | 
|Total  Wells  |  |                       | 0.75 |  |                       | 



Delivery Commitments



We have no current delivery commitments for either oil or natural
gas.



Oil and Gas Properties, Wells, Operations



As of December 31, 2011, we had 10 gross (7.13 net) producing
oil or natural gas wells.



|          |  | Oil   |   |  | Natural Gas | 
|--------- |  | ----- | - |  | ----------- | 
|Canada    |  | Gross |   |  | Net         | 
|          |  |       |   |  |             | 
|Producing |  |       | 3 |  |             | 
|Shut-In   |  |       | - |  |             | 
|TOTAL     |  |       | 3 |  |             | 



|            |  | Oil   |   |  | Natural Gas | 
|----------- |  | ----- | - |  | ----------- | 
|U.S.A       |  | Gross |   |  | Net         | 
|            |  |       |   |  |             | 
|Shut-In (1) |  |       | - |  |             | 
|TOTAL       |  |       | - |  |             | 



As of December 31, 2010, we had 9 gross (6.63 net) producing
oil or natural gas wells.



|          |  | Oil   |   |  | Natural Gas | 
|--------- |  | ----- | - |  | ----------- | 
|Canada    |  | Gross |   |  | Net         | 
|          |  |       |   |  |             | 
|Producing |  |       | 3 |  |             | 
|Shut-In   |  |       | - |  |             | 
|TOTAL     |  |       | 3 |  |             | 



Uranium Properties



In 2009, we disposed of all of our 16,750,000
shares in Titan Uranium inc. for proceeds of $2,305,491. We have 10% carried interest and 1% Net Smelter Return on certain uranium
exploration leases in Saskatchewan operated by Titan Uranium Inc. However, we no longer maintain the right of first refusal on
future financings, we are no longer required to provide geologists to Titan, and our representatives have since resigned from the
Titan Board of Directors.





37











ITEM
4A. UNRESOLVED STAFF COMMENTS



Not Applicable.



ITEM
5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS



The following is a discussion of our
consolidated operating results and financial position, including all our wholly-owned subsidiaries. It should be read in conjunction
with our audited consolidated financial statements and notes for the year ended December 31, 2011 and related notes included therein
under the heading "Item 18. Financial Statements" below.



The financial statements of the Company
for the year ended December 31, 2011 are prepared in accordance with International Financial Reporting Standards (“IFRS”)
as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial
Reporting Interpretations Committee (“IFRIC”). These are the Company’s first consolidated annual financial statements
presented in accordance with IFRS.



The preparation of these consolidated
financial statements resulted in changes to the accounting policies as compared with the most recent annual financial statements
prepared under Canadian generally accepted accounting principles (“Canadian GAAP”). These consolidated financial statements
should be read in conjunction with the Company’s 2010 annual financial statements and the explanation of how the transition
to IFRS has affected the reported financial position, financial performance and cash flows of the Company provided in note 25 of
the Company’s consolidated financial statements included therein under the heading "Item 18. Financial Statements"
below.



Certain forward-looking statements are
discussed in this Item 5 with respect to our activities and future financial results. These are subject to risks and uncertainties
that may cause projected results or events to differ materially from actual results or events. Readers should also read the "Cautionary
Note Regarding Forward-Looking Statements" above and “Item 3. Key Information - Risk Factors.”



INTERNATIONAL FINANCIAL REPORTING
STANDARDS



On January 1, 2011, the Company adopted
IFRS for financial reporting purposes, with a transition date of January 1, 2010. The consolidated financial statements for the
year ended December 31, 2011, including required comparative information, have been prepared in accordance with IFRS. Previously,
the Company prepared its financial statements in accordance with Canadian GAAP. Unless otherwise noted, 2010 comparative financial
statement information has been prepared in accordance with IFRS.



The adoption of IFRS has not had a material
impact on the Company’s operations, strategic decisions, cash flow and capital expenditures. The most significant changes
to the Company’s accounting policies related to the accounting for its property, plant and equipment and accounting for derivative
financial instruments. Other impacted areas include stock-based compensation, foreign currency translation and accounting for flow
through shares.



Further information on the IFRS accounting
policies, impacts and reconciliation between previous Canadian GAAP and IFRS are provided in Note 3 and Note 25 to the Company’s
Consolidated Financial Statements for the year ended December 31, 2011. The reconciliations include the Consolidated Balance Sheets
as at January 1, 2010 and December 31, 2010, Consolidated Statement of Changes in Shareholders’ Equity for the year ended
December 31, 2010, and Consolidated Statements of Comprehensive Loss for the year ended December 31, 2010.



The following provides a summary of the
significant IFRS accounting policy changes.



Exploration and Evaluation Assets



Under Canadian GAAP, the Company followed
the Canadian Institute of Chartered Accountants (“CICA”) guideline on full cost accounting in which all costs directly
associated with the acquisition of, the exploration for, and the development of natural gas and crude oil reserves are capitalized
on a country-by-country cost centre basis. Costs accumulated within each country cost centre were depleted using the unit-of-production
method based on proved reserves determined using estimated future prices and costs. Under IFRS, the Company adopted new accounting
policies for its oil and gas activities, including pre-exploration costs, exploration and evaluation costs and development costs.





38









Under IFRS, pre-exploration costs are expensed
and exploration and evaluation (“E&E”) costs are those expenditures for an area or project for which technical
feasibility and commercial viability have not yet been determined. The technical feasibility and commercial viability of extracting
a mineral resource is considered to be determinable when proven reserves are determined to exist. Development (“D&P”)
costs include those expenditures for areas or projects where technical feasibility and commercial viability have been determined.
Under Canadian GAAP, all costs, including E&E assets were capitalized as Property and Equipment (“D&P”). Under
IFRS, E&E costs and D&P are disclosed as different class of assets.



Impairment



Under Canadian GAAP, the Company was required
to recognize an impairment loss if the carrying amount exceeds the undiscounted cash flows from proved reserves for the country
cost centre. If an impairment loss was to be recognized, it was then measured as the amount that the carrying value exceeded the
sum of the estimated fair value of the proved and probable reserves and the costs of unproved properties. Impairments recognized
under Canadian GAAP could not be reversed.



Under IFRS, the Company is required to
recognize and measure an impairment loss if the carrying value exceeds the recoverable amount for a cash-generating unit (“CGU”).
Oil and gas assets are grouped into CGUs based on their ability to generate largely independent cash flows. Under IFRS, the recoverable
amount is the higher of the estimated fair value less cost to sell and value in use. Impairment losses, other than goodwill, can
be reversed when there is a subsequent increase in the recoverable amount.



Upon adoption of IFRS, the Company recognized
an additional impairment charge of $14.7 million to the opening deficit at January 1, 2010, relating to certain non-core E&E
assets in the US. The impairment charge was based on the difference between the net book value of the assets and the estimated
recoverable amount. The recoverable amount was determined using the fair value less costs to sell based on the expected amount
for which the asset could be sold in an arm’s length transaction. Under Canadian GAAP, these assets were included in the
US country cost centre ceiling test, which was not impaired as at December 31, 2009.



Warrant Liabilities



The Company issued US$ denominated warrants
as part of equity financings, while the Company’s functional currency is the CAD$. Under Canadian GAAP, common share purchase
warrants were classified as equity.



Under IFRS, the Company determined that
the warrants denominated in US$ outstanding at the date of transition must be treated as warrant liabilities in the Company’s
statement of financial position. Any issuance costs related to the warrants denominated in a foreign currency are expensed upon
initial issuance. Prospectively, these warrants are re-measured at each balance sheet date based on estimated fair value, and any
resultant changes in fair value are recorded as non-cash valuation adjustments as income or loss in the respective period.



CRITICAL ACCOUNTING ESTIMATES



The Company makes estimates and assumptions
about the future that affect the reported amounts of assets and liabilities. Estimates and judgments are continually evaluated
based on historical experience and other factors, including expectations of future events that are believed to be reasonable under
the circumstances. In the future, actual experience may differ from these estimates and assumptions.



The effect of a change in an accounting
estimate is recognized prospectively by including it in profit or loss in the period of the change, if the change affects that
period only; or in the period of the change and future periods, if the change affects both.



Information about critical judgments in
applying accounting policies that have the most significant risk of causing material adjustment to the carrying amounts of assets
and liabilities recognized in the condensed interim consolidated financial statements within the next financial year are discussed
below:





39









Reserves



The estimate of reserves is used in forecasting
the recoverability and economic viability of the Company’s oil and gas properties, and in the depletion and impairment calculations.
The process of estimating reserves is complex and requires significant interpretation and judgment. It is affected by economic
conditions, production, operating and development activities, and is performed using available geological, geophysical, engineering,
and economic data. Reserves are evaluated at least annually by the Company’s independent reserve evaluators and updates to
those reserves, if any, are estimated internally. Future development costs are estimated using assumptions as to the number of
wells required to produce the commercial reserves, the cost of such wells and associated production facilities and other capital
costs.



Exploration and evaluation expenditures



The application of the Company’s
accounting policy for exploration and evaluation expenditure requires judgment in determining whether it is likely that future
economic benefits will flow to the Company, which is based on assumptions about future events or circumstances. Estimates and assumptions
made may change if new information becomes available. If, after expenditure is capitalized, information becomes available suggesting
that the recovery of the expenditure is unlikely, the amount capitalized is written off in profit or loss in the period the new
information becomes available.



Impairment



A CGU is defined as the lowest grouping
of integrated assets that generate identifiable cash inflows that are largely independent of the cash inflows of other assets or
groups of assets. The allocation of assets into CGUs requires significant judgment and interpretations with respect to the integration
between assets, the existence of active markets, similar exposure to market risks, shared infrastructures, and the way in which
management monitors the operations. The recoverable amounts of CGUs and individual assets have been determined based on the higher
of fair value less costs to sell or value-in-use calculations. The key assumptions the Company uses in estimating future cash flows
for recoverable amounts are anticipated future commodity prices, expected production volumes, future operating and development
costs. Changes to these assumptions will affect the recoverable amounts of CGUs and individual assets and may then require a material
adjustment to their related carrying value.



Derivative Financial Instruments



When estimating the fair value of derivative
financial instruments, the Company uses third-party models and valuation methodologies that utilize observable market data. In
addition to market information, the Company incorporates transaction specific details that market participants would utilize in
a fair value measurement, including the impact of non-performance risk. However, these fair value estimates may not necessarily
be indicative of the amounts that could be realized or settled in a current market transaction.



Decommissioning liability



Decommissioning provisions have been recognized
based on the Company’s internal estimates. Assumptions, based on the current economic environment, have been made which management
believes are a reasonable basis upon which to estimate the future liability. These estimates take into account any material changes
to the assumptions that occur when reviewed regularly by management. Estimates are reviewed at least annually and are based on
current regulatory requirements. Significant changes in estimates of contamination, restoration standards and techniques will result
in changes to provisions from period to period. Actual decommissioning costs will ultimately depend on future market prices for
the decommissioning costs which will reflect the market conditions at the time the decommissioning costs are actually incurred.
The final cost of the currently recognized decommissioning provisions may be higher or lower than currently provided for.





40









Income taxes



The Company recognizes the net future tax
benefit related to deferred tax assets to the extent that it is probable that the deductible temporary differences will reverse
in the foreseeable future. Assessing the recoverability of deferred tax assets requires the Company to make significant estimates
related to expectations of future taxable income. Estimates of future taxable income are based on forecast cash flows from operations
and the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly
from estimates, the ability of the Company to realize the net deferred tax assets recorded at the reporting date could be impacted.
Additionally, future changes in tax laws in the jurisdictions in which the Company operates could limit the ability of the Company
to obtain tax deductions in future periods. All tax filings are subject to audit and potential reassessment. Accordingly, the actual
income tax liability may differ significantly from the estimated and recorded amounts.



Share-based payment transactions



The Company measures the cost of equity-settled
transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating
fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on
the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model
including the expected life of the share option, volatility and dividend yield.



Future Accounting Pronouncements



Certain pronouncements were issued by the
IASB or the IFRIC that are mandatory for accounting periods beginning after January 1, 2011 or later periods.



The Company has early adopted the amendments
to IFRS 1 which replaces references to a fixed date of ‘1 January 2004’ with ‘the date of transition to IFRS’.
This eliminates the need for the Company to restate derecognition transactions that occurred before the date of transition to IFRS.
The amendment is effective for year-ends beginning on or after July 1, 2011; however, the Company has early adopted the amendment.
The impact of the amendment and early adoption is that the Company only applies IAS 39 derecognition requirements to transactions
that occurred after the date of transition.



The following new standards, amendments
and interpretations, that have not been early adopted in these consolidated annual financial statements. The Company is currently
assessing the impact, if any, of this new guidance on the Company’s future results and financial position:



| | · | IFRS 7, Financial Instruments: Disclosures, which requires disclosure of both gross and net information
about financial instruments eligible for offset in the balance sheet and financial instruments subject to master netting arrangements.
Concurrent with the amendments to IFRS 7, the IASB also amended IAS 32, Financial Instruments: Presentation to clarify the existing
requirements for offsetting financial instruments in the balance sheet. The amendments to IAS 32 are effective as of January 1,
2014.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | IFRS 9 Financial Instruments is part of the IASB's wider project to replace IAS 39 Financial Instruments:
Recognition and Measurement. IFRS 9 retains but simplifies the mixed measurement model and establishes two primary measurement
categories for financial assets: amortized cost and fair value. The basis of classification depends on the entity's business model
and the contractual cash flow characteristics of the financial asset. The standard is effective for annual periods beginning on
or after January 1, 2015.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | IFRS 10 Consolidated Financial Statements is the result of the IASB’s project to replace
Standing Interpretations Committee 12, Consolidation – Special Purpose Entities and the consolidation requirements of IAS
27, Consolidated and Separate Financial Statements. The new standard eliminates the current risk and rewards approach and establishes
control as the single basis for determining the consolidation of an entity. The standard is effective for annual periods beginning
on or after January 1, 2013.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | IFRS 11 Joint Arrangements is the result of the IASB’s project to replace IAS 31, Interests
in Joint Ventures. The new standard redefines joint operations and joint ventures and requires joint operations to be proportionately
consolidated and joint ventures to be equity accounted. Under IAS 31, joint ventures could be proportionately consolidated. The
standard is effective for annual periods beginning on or after January 1, 2013.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | IFRS 12 Disclosure of Interests in Other Entities outlines the required disclosures for interests
in subsidiaries and joint arrangements. The new disclosures require information that will assist financial statement users to evaluate
the nature, risks and financial effects associated with an entity’s interests in subsidiaries and joint arrangements. The
standard is effective for annual periods beginning on or after January 1, 2013.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





41









| | · | IFRS 13 Fair Value Measurement defines fair value, requires disclosures about fair value measurements
and provides a framework for measuring fair value when it is required or permitted within the IFRS standards. The standard is effective
for annual periods beginning on or after January 1, 2013.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | IFRIC 20 Stripping costs in the production phase of a mine, IFRIC 20 clarifies the requirements
for accounting for the costs of the stripping activity in the production phase when two benefits accrue: (i) unusable ore that
can be used to produce inventory and (ii) improved access to further quantities of material that will be mined in future periods.
IFRIC 20 is effective for annual periods beginning on or after January 1, 2013 with earlier application permitted and includes
guidance on transition for pre-existing stripping assets. The Company is currently evaluating the impact the new guidance is expected
to have on its consolidated financial statements.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following new standards, amendments
and interpretations that have not been early adopted in these consolidated financial statements, are not expected to have an effect
on the Company’s future results and financial position:



| | · | IFRS 1: Severe Hyperinflation (Effective for periods beginning on or after July 1, 2011)
| | - | ----------------------------------------------------------------------------------------



| | · | IAS 12: Deferred Tax: Recovery of Underlying Assets (Amendments to IAS 12 (Effective for periods
beginning on or after January 1, 2012)
| | - | ---------------------------------------------------------------------------------------------------------------------------------------



| | A. | Operating Results
| | -- | -----------------



On January 1, 2011, the Company adopted
IFRS for financial reporting purposes, using a transition date of January 1, 2010. The Company’s annual audited Consolidated
Financial Statements for the year ended December 31, 2011, including 2010 required comparative information, have been prepared
in accordance with IFRS. Financial statements prior to the fiscal year ended December 31, 2010 were prepared in accordance with
Canadian generally accepted accounting principles (“Canadian GAAP”). Certain comparative figures for 2010 were restated
under IFRS.



All financial information is stated in
Canadian dollars, the Company’s presentation currency, unless otherwise noted. Some numbers have been rounded to the nearest
thousand for discussion purposes.



Revenues





|                                 |  | Year ended December 31, |           
|-------------------------------- |  | ----------------------- | ----------
|                                 |  | 2011                    |           
|Revenue                          |  |                         |           
|Gross revenues                   |  | $                       | 8,824,000 
|Royalties                        |  |                         | (1,628,000
|Revenues, net of royalties       |  |                         | 7,196,000 
|Financial instrument gain (loss) |  |                         | (59,000   
|Other income                     |  |                         | 34,000    
|Total revenue                    |  | $                       | 7,171,000 





For fiscal
2011, the Company recorded $8,824,000 in oil and natural gas sales as compared to $8,086,000 in oil, natural gas and natural gas
liquids sales for the year ended December 31, 2010 (“fiscal 2010”). The increase in gross revenues was due to higher
realized oil prices in 2011. This was partly offset by lower oil and gas production for the current year.



Royalties for fiscal 2011 increased to
$1,628,000 from $1,312,000 for fiscal 2010. The increase was attributable to higher oil revenue and the increase in the proportion
of revenue attributed to oil. Oil production is subject to higher royalty rate compared to the royalty rate for natural gas.



The following table summarizes the commodity
prices realized by the Company and the crude oil and natural gas benchmark prices for the year ended December 31, 2011 and 2010:





42









|                                      |  | Year ended December 31, |      
|------------------------------------- |  | ----------------------- | -----
|                                      |  | 2011                    |      
|Dejour Realized Average Prices        |  |                         |      
|Natural gas ($/mcf)                   |  | $                       | 3.64 
|Oil and natural gas liquids ($/bbl)   |  |                         | 88.98
|Total average price ($/boe)           |  | $                       | 57.49
|                                      |  |                         |      
|Average Benchmark Prices              |  |                         |      
|Edmonton Par ($/bbl)                  |  | $                       | 95.16
|Natural gas - AECO-C Spot ($ per mcf) |  | $                       | 3.67 







In 2011, the Company changed the benchmark
prices from Western Canada Select to Edmonton Par. This is because Edmonton Par is more comparable to the Company’s oil revenue
sales.



For the current year, Dejour’s average
realized natural gas prices reflected lower benchmark prices compared to fiscal 2010. Oil prices received for fiscal 2011 increased
to $88.98 per barrel (“bbl”), compared to $67.46 per bbl for fiscal 2010.



Operating and Transportation Expenses





Operating and transportation expenses include
all costs associated with the production of oil and natural gas and the transportation of oil and natural gas to the processing
plants. The major components of operating expenses include labour, equipment maintenance, workovers, fuel and power. Operating
and transportation expenses for fiscal 2011 decreased to $2,499,000 from $2,609,000 for fiscal 2010. The decrease was due to lower
oil and gas production. Operating costs per BOE for both years were comparable despite lower oil and gas production.



General and Administrative Expenses



General and administrative expenses for
fiscal 2011 increased to $4,042,000 from $3,383,000 for fiscal 2010. The comparative figures for 2010 were restated under IFRS.
The increase was mainly due to the year-end bonus accrual for fiscal 2011 and the non-recurring professional
fees associated with the required conversion to the International Financial Reporting Standards (IFRS).



Finance Costs and Change in Fair
Value of Warrant Liability



Finance costs for fiscal 2011 decreased
to $868,000 from $1,092,000 for fiscal 2010. The decrease was attributable to the line of credit facility obtained in September
2011 that bears a lower interest rate, compared to the bridge loan with a relatively higher interest rate.



The non-cash change in fair value of warrant
liability for fiscal 2011 was a loss of $1,580,000, compared to a gain of $68,000 for fiscal 2010. The warrant liability relates
to the fair value of certain warrants that were issued in the previous equity financings. These warrants are denominated in US
dollars, which is different than the functional currency of the Company. Under IFRS, they are classified as liabilities and any
change in the fair value is recognized in the profit or loss. Changes in fair value result from volatility in the Company’s
share prices and fluctuations in the US/Canadian dollar exchange rates. Due to higher market prices for the Company’s common
shares towards the end of the year, this resulted in higher valuation for these warrants and a non-cash valuation loss for fiscal
2011.



Amortization, Depletion and Impairment
Losses



For fiscal 2011, amortization, depletion
and impairment losses were $8,652,000, compared to $4,685,000 for fiscal 2010. The comparative figures for 2010 were restated under
IFRS. Amortization and depletion of property and equipment for fiscal 2011 was $2,404,000, compared to $3,493,000 for fiscal 2010.
The decrease in amortization and depletion expenses was mainly due to the increased reserves in the Woodrush property at December
31, 2011 and the decrease in production. Impairment losses of $6,248,000 for fiscal 2011 were recognized because the carrying value
of certain property and equipment and exploration and evaluation assets exceeded their recoverable amounts, while the impairment
losses of $1,192,000 for fiscal 2010 were recognized upon the expiry of certain leases for exploration and evaluation assets and
property and equipment.





43









Net Loss and Operating Loss





The Company’s net loss for fiscal
2011 was $11,043,000 or $0.092 per share, compared to a net loss of $5,124,000 or $0.051 per share for fiscal 2010. The comparative
figures for 2010 were restated under IFRS. The increase in net loss was primarily due to the recognition of non-cash impairment
losses of $6,248,000 and non-cash valuation loss of $1,580,000 from the increase in fair value of warrant liability. This was partly
offset by the increase in revenues.



The Company’s operating loss for
fiscal 2011 was $3,215,000, compared to $4,000,000 for fiscal 2010. The decrease was primarily due to lower amortization and depletion
of property and equipment for the current year, as a result of the increased reserves in the Company’s Woodrush property.



The operating loss is a non-GAAP measure
defined as net income (loss) excluding non-cash items that management believes affects the comparability of operating results.
These items may include, but are not limited to, unrealized financial instrument gain (loss), impairment losses and impairment
reversals, gain (loss) on divestitures, and change in fair value of financial instruments.



|                                          |  | Year ended December 31, |            
|----------------------------------------- |  | ----------------------- | -----------
|                                          |  | 2011                    |            
|                                          |  | $                       |            
|Net loss                                  |  |                         | (11,043,000
|Add back (losses) and deduct gains:       |  |                         |            
|Impairment losses                         |  |                         | 6,248,000  
|Change in fair value of warrant liability |  |                         | 1,580,000  
|Operating Loss – Non-GAAP                 |  |                         | (3,215,000 



Financial Instruments
and Risk Management



The Company’s financial instruments
consist of cash and cash equivalents, accounts receivable, bank line of credit, and accounts payable and accrued liabilities. Management
has determined that the fair value of these financial instruments approximates their carrying values due to their immediate or
short-term maturity.Net smelter royalties and related rights to earn or relinquish interests in mineral properties constitute
derivative instruments. No value or discounts have been assigned to such instruments as there is no reliable basis to determine
fair value until properties are in development or production and reserves have been determined.



From time to time, the Company enters into
derivative contracts such as forwards, futures and swaps in an effort to mitigate the effects of volatile commodity prices and
protect cash flows to enable funding of its exploration and development programs. Commodity prices can fluctuate due to political
events, meteorological conditions, disruptions in supply and changes in demand.



The primary risks and how the Company mitigates
them are disclosed in Item 11 – Quantitative and Qualitative Disclosures About Market Risk, below.



Stock Based Compensation



For fiscal 2011, the Company recorded non-cash
stock based compensation expense of $662,000 compared to $765,000 for fiscal 2010. The decrease in stock based compensation expense
was because many of the stock options previously granted had been fully vested.





44







| | B. | Liquidity and Capital Resources
| | -- | -------------------------------



Cash Balance and Cash Flow



The Company had cash and cash equivalents
of $2,488,000 as at December 31, 2011. In addition to the cash balance, the Company has an unused line of credit of $1.5 million
from a Canadian Bank.



Bank Line of Credit Financing



In September 2011, the Company obtained
a $7 million revolving operating demand loan (“line of credit”), including a letter of credit facility to a maximum
of $700,000 for a maximum one year term, from a Canadian Bank to refinance the bridge loan and to provide operating funds. The
line of credit is at an interest rate of Prime + 1% (total 4% p.a. currently) and collateralized by a $10,000,000 debenture over
all assets of DEAL and a $10,000,000 guarantee from Dejour Energy Inc. In December 2011, the Company renewed the line of credit
with the Canadian Bank. The next review date is scheduled on or before May 1, 2012, but subject to change at the discretion of
the bank. As at December 31, 2011, a total of $5.5 million of this facility was utilized.



According to the terms of the facility,
DEAL is required to maintain a working capital ratio of greater than 1:1 at all times. The working capital ratio is defined as
the ratio of (i) current assets (including any undrawn and authorized availability under the facility) less unrealized hedging
gains to (ii) current liabilities (excluding current portion of outstanding balances of the facility) less unrealized hedging losses.
As at December 31, 2011, the Company is in compliance with the working capital ratio requirement.



Working Capital Position



|As at December 31, 2011          |  | $ |           
|-------------------------------- |  | - | ----------
|Working capital deficit          |  |   | (7,756,000
|Non-cash warrant liability       |  |   | 2,245,000 
|Net cash working capital deficit |  |   | (5,511,000



As at December 31, 2011, the Company had
a working capital deficit of $7,756,000. Excluding the non-cash warrant liability of $2,245,000 related to the fair value of US$
denominated warrants issued in previous equity financings, the working capital deficit includes a $5.5 million used demand line
of credit with a $7 million credit limit. As at December 31, 2011, $1.5 million remains unused. The Company plans to remedy the
deficiency through the following:



| | · | Subsequent to December 31, 2011, the Company received $1,200,000 from the exercise of warrants
and options.
| | - | -----------------------------------------------------------------------------------------------------------

| | · | Beginning in June 2011, oil production increased as a result of the waterflood at Woodrush. Oil
production is expected to increase in 2012, generating more cash flow for the Company.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | If necessary and at the right market conditions, the Company may fund its working capital through
additional debt, equity or joint venture financing, or disposal of non-core assets.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





Capital Resources



During the year ended December 31, 2011,
the Company continued to optimize the waterflood at its Woodrush property in Canada. Most of the waterflood capital expenditures
have already been spent in fiscal 2011. Future capital expenditures at Woodrush in 2012 are expected to be approximately $1.2 to
$1.5 million and funded through its cash flow from operations and the undrawn line of credit. In the U.S., the Company plans to
drill up to eight wells during 2012 and its share of expenditures ranges from $6.5 to $11 million. The Company plans to fund the
expenditures through additional financing, including debt, equity or joint venture financing, or disposal of non-core assets.



| | C. | Research and Development, Patents and Licenses, Etc.
| | -- | ----------------------------------------------------



None.





45









| | D. | Trend Information
| | -- | -----------------



Oil currently has risen near $100 per barrel
and the Company’s revenue from oil sales increased. On the other hand, the price of natural gas declined to low $2 range,
lowering the Company’s gas revenue and the economics of natural gas properties. The marketability and price of oil and natural
gas are affected by numerous factors outside of the Company’s control, including domestic and foreign supply and demand,
economics and political conditions, weather and US$ exchange rate. (See risks factors disclosure). Some or all of these [situations]
are likely to have a material effect upon our net sales or revenues, income from continuing operations, profitability, liquidity
or capital resources, or cause reported financial information not necessarily to be indicative of future operating results or financial
condition.



| | E. | Off-Balance Sheet Arrangements
| | -- | ------------------------------



The Company has no material undisclosed
off-balance sheet arrangements that have or are reasonably likely to have, a current or future effect on our results of operations
or financial condition at December 31, 2011.



| | F. | Tabular Disclosure of Contractual Obligations
| | -- | ---------------------------------------------



As of December 31, 2011, and in the normal
course of business we have obligations to make future payments, representing contracts and other commitments that are known and
committed.



|Contractual Obligations     |  |      |       |  |      |  |     |      |  |  |      |  |  |      |   |  |            |  |   |       | 
|--------------------------- |  | ---- | ----- |  | ---- |  | --- | ---- |  |  | ---- |  |  | ---- | - |  | ---------- |  | - | ----- | 
|(in thousands of dollars)   |  | 2012 |       |  | 2013 |  |     | 2014 |  |  | 2015 |  |  | 2016 |   |  | Thereafter |  |   | Total | 
|                            |  | $    |       |  | $    |  |     | $    |  |  | $    |  |  | $    |   |  | $          |  |   | $     | 
|Operating Lease Obligations |  |      | 223   |  |      |  | 107 |      |  |  | 49   |  |  |      | - |  |            |  | - |       | 
|Bank line of credit         |  |      | 5,545 |  |      |  | -   |      |  |  | -    |  |  |      | - |  |            |  | - |       | 
|Total                       |  |      | 5,768 |  |      |  | 107 |      |  |  | 49   |  |  |      | - |  |            |  | - |       | 



| | G. | Safe Harbor
| | -- | -----------



The Company seeks safe harbor for our forward-looking
statements contained in Items 5.E and F. See the heading “Cautionary Note Regarding Forward-Looking Statements” above.



ITEM
6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES



| | A. | Directors and Senior Management
| | -- | -------------------------------



The following table sets forth all current
directors and executive officers of Dejour as of the date of this annual report on Form 20-F, with each position and office held
by them in the Company and the period of service as such.





|Name, Jurisdiction of
    Residence and Position(1)                                                                   |  | Principal occupation or employment during the past 5
    years                                                                                                                                                       |  | Number of Dejour
    Common Shares
    beneficially owned,
    directly or indirectly,
    or controlled or
    directed (2) |  |  | Percentage of Dejour
    Common Shares
    beneficially owned,
    directly or indirectly,
    or controlled or
    directed (2) |   |  | Director Since
|--------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------- |  |  | -------------------------------------------------------------------------------------------------------------------------------- | - |  | --------------
|Robert L. HodgkinsonBritish Columbia, Canada
        Director, Chairman and Chief Executive Officer
        (Age: 62) |  | President of a private company, Hodgkinson Equities Corporation, which provides consulting
    services to emerging businesses in the petroleum resource industry. Formerly a director of Titan Uranium (TSX-V:TUE). |  | 7,187,840                                                                                                                    |  |  | 5.5                                                                                                                              | % |  | May 18/04     











46









|Name, Jurisdiction of
    Residence and Position(1)                                                                           |  | Principal occupation or employment during the past 5
    years                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | Number of Dejour
    Common Shares
    beneficially owned,
    directly or indirectly,
    or controlled or
    directed (2) |  |  | Percentage of Dejour
    Common Shares
    beneficially owned,
    directly or indirectly,
    or controlled or
    directed (2) |   |  | Director Since
|----------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------- |  |  | -------------------------------------------------------------------------------------------------------------------------------- | - |  | --------------
|Stephen
        MutColorado, USA
        Director and Co-Chairman
        (Age:
        61)                                   |  | Mr. Mut has served as CEO of Nycon Energy Consulting since his retirement from Shell in mid
    2009. At Shell, Mr. Mut  served as chief executive officer of a unit of Shell Exploration and Production Company from
    2000 until his retirement in 2009. Prior to that, Mr. Mut served in various executive roles at Atlantic Richfield Corporation.                                                                                                                                                                                                                                       |  | 1,701,001                                                                                                                    |  |  | 1.3                                                                                                                              | % |  | Dec 17/09     
|Harrison Blacker(4)Colorado, U.S.A. Director, President and Chief Operating Officer of Dejour Energy (USA) Inc.
    (Age: 61) |  | President of Dejour Energy (USA) Inc. since April 2008. Over 30 years of expertise managing
    oil and gas operations. Held the positions of Chief Executive Officer with China Oman Energy Company and Portfolio Manager,
    Latin American Business Unit and General Manager/ President of Venezuela Energy with Atlantic Richfield Corporation prior
    to joining Dejour USA.                                                                                                                                                                                                           |  | 525,678                                                                                                                      |  |  | 0.4                                                                                                                              | % |  | Apr 2/08      
|Richard Patricio(4)Ontario, Canada
        Director
        (Age: 38)                                                         |  | Vice President
    of Corporate & Legal Affairs and Secretary of Pinetree Capital Ltd. (investment and merchant banking firm). Prior to joining
    Pinetree Capital, practiced law at a top tier law firm in Toronto and worked as in-house General Counsel for a senior TSX
    listed company. Mr. Patricio is a lawyer qualified to practice in the Province of Ontario.                                                                                                                                                                                                                   |  | -                                                                                                                            |  |  | -                                                                                                                                |   |  | Oct 17/08     
|Robert Holmes(3)
        , (4)California, U.S.A
        Director
        (Age: 68)                                            |  | Began career as an Investment Executive with Merrill, Lynch, Pierce, Fenner & Smith,
    and held various senior executive positions with the firm Blyth, Eastman, Dillon & Company.  In 1980, co-founded
    Gilford Securities, Inc., a member of the NYSE, and in 1992 founded a hedge fund, Gilford Partners.  Has served on several
    boards including the North Central College Trustees in Naperville, Illinois; Board of Trustees Sacred Heart Schools Chicago;
    Crested Butte Academy in Crested Butte, Colorado; and Mary Wood Country Day School in Rancho Mirage, California. |  | 1,663,000                                                                                                                    |  |  | 1.3                                                                                                                              | % |  | Oct 17/08     





47









|Name, Jurisdiction of
    Residence zand Position(1)                                                                                          |  | Principal occupation or employment during the past 5
    years                                                                                                                                                                                                                                                                                                                                                                         |  | Number of Dejour
    Common Shares
    beneficially owned,
    directly or indirectly,
    or controlled or
    directed (2) |  |  | Percentage of Dejour
    Common Shares
    beneficially owned,
    directly or indirectly,
    or controlled or
    directed (2) |   |  | Director Since
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------- |  |  | -------------------------------------------------------------------------------------------------------------------------------- | - |  | --------------
|Craig Sturrock
        (3)British Columbia, Canada
        Director
        (Age: 68)                                                         |  | Tax lawyer since 1971.  Currently, he is a partner at Thorsteinssons LLP, and his practice
    focuses primarily on civil and criminal tax litigation.                                                                                                                                                                                                                                                                                 |  | 650,000                                                                                                                      |  |  | 0.5                                                                                                                              | % |  | Aug 22/05     
|Darren
        Devine(3)British Columbia, Canada
        Director
        (Age:
        44)                                                   |  | Since 2003, Mr. Devine has been the principal of Chelmer Consulting Corp., a corporate finance
    consultancy. Prior to founding Chelmer Consulting, Mr. Devine practiced law with the firm of Du Moulin Black LLP, in Vancouver,
    British Columbia. Mr. Devine is a qualified Barrister and Solicitor in British Columbia, and a qualified solicitor in England
    and Wales.                                                    |  | -                                                                                                                            |  |  | -                                                                                                                                |   |  | Dec 17/09     
|Mathew WongBritish Columbia, Canada
        Chief Financial Officer
        (Age: 37)                                                         |  | Chartered Accountant worked at Ernst & Young LLP from 1995 to 2000.  Since then,
    he worked as the Corporate Accounting Manager for Mitsubishi Canada Limited and CFO for Dejour Enterprise Ltd.  Mr. Wong
    is a Chartered Accountant (CA) in British Columbia,  Canada, a Certified Public Accountant (CPA) in Washington State,
    USA and a Chartered Financial Analyst (CFA).                                               |  | 122                                                                                                                          |  |  | -                                                                                                                                |   |  | N/A           
|Phil
        Bretzloff, BA, LLB
        British
        Columbia, Canada
        Vice
        President and General Counsel
        (Age: 63) |  | Mr. Bretzloff has acted for oil, gas and energy companies, including extensive work for Canadian
    and offshore private and public corporations. Between 1980 and 1995, he was Senior Counsel for Petro-Canada. Subsequently,
    he was a Partner for 8 years with Cumming Blackett Bretzloff Todesco, Gowlings, and Baker & McKenzie, where his clients
    included PetroChina, Shell, Exxon Mobil, GazProm and Veba Oil and Gas. |  | 59,500                                                                                                                       |  |  | 0.04                                                                                                                             | % |  | N/A           
|Neyeska MutEVP Operations, Dejour Energy (USA) Corp.
        (Age: 54)                                                                        |  | Engineer. Since 2000, she has been President of Nycon Energy Consulting working as an advisor
    to two major oil companies. Prior to forming Nycon Energy Consulting Mrs. Mut pursued international opportunities with Atlantic
    Richfield Corporation. Mr. Mut has been with Dejour since 2008.                                                                                                                                  |  | 50,001                                                                                                                       |  |  | 0.04                                                                                                                             | % |  | N/A           







48









| | (1) | Each director will serve until the next annual general meeting of the Company or until a successor is duly elected or appointed
in accordance with the Notice of Articles and Articles of the Company and the Business Corporations Act(British Columbia).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | The number of common shares beneficially owned, directly or indirectly, or over which control or direction is exercised is
based upon information furnished to the Company by individual directors and executive officers.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Member of audit committee.
| | --- | --------------------------

| | (4) | Member of reserve committee.
| | --- | ----------------------------



Board
of Directors



Brief biographies for each member of Dejour's
board of directors are set forth below:



Robert L. Hodgkinson:Mr. Hodgkinson
was the founder and Chairman of Optima Petroleum, which drilled wells in Alberta and the Gulf of Mexico before merging to form
Petroquest Energy, a NASDAQ traded company. Subsequently, he founded and was CEO of Australian Oil Fields, which would later merge
to become Resolute Energy/Cardero Energy Inc. Mr. Hodgkinson was also a Vice-President and partner of Canaccord Capital Corporation,
and an early stage investor and original lease financier in Synenco Energy's Northern Lights Project in the Alberta oil sands.



Stephen Mut: Mr. Mut most recently
served as chief executive officer of a unit of Shell Exploration and Production Company. Prior to joining Shell in 2000, Mr. Mut
dedicated much of his career to operational and new business venture activities in the oil and gas, refining and marketing, and
chemical and mining sectors at Atlantic Richfield Corporation, where he served in various internationally based executive roles
in both upstream and downstream businesses. His global expertise has contributed to industry successes in Europe, South America,
the Asia Pacific and the United States.



Harrison Blacker:Mr. Blacker is
an accomplished senior executive with over 30 years of expertise managing oil and gas operations with major corporations in the
United States, South America, China and the Middle East. Prior to joining Dejour, Mr. Blacker was CEO of China Oman Energy Company,
a joint venture between Oman Oil Company, IPIC and China Gas Holdings, importing and distributing LNG and LPG from the Middle East
into China. Mr. Blacker held positions as VP of Business Development and Senior Investor Advisor with Oman Oil Company and Portfolio
Manager, Latin American Business Unit and General Manager/ President of Venezuela Energy with Atlantic Richfield Corporation. Mr.
Blacker began his career with Amoco Production Company working in offshore construction and field operations in the Gulf of Mexico.



Richard Patricio:Mr. Patricio is
Vice President Corporate & Legal Affairs and Secretary of Pinetree Capital Ltd. and Brownstone Ventures Inc. Mr. Patricio previously
practiced law at a top tier law firm in Toronto and worked as in-house General Counsel for a senior TSX listed company. Mr. Patricio
is a lawyer qualified to practice in the Province of Ontario.



Robert Holmes:Mr. Holmes began
his career as an Investment Executive with Merrill, Lynch, Pierce, Fenner & Smith, and subsequently held various senior executive
positions with the firm Blyth, Eastman, Dillon & Company (purchased by Paine Webber & Co.). In 1980, Mr. Holmes co-founded
Gilford Securities, Inc., a member of the NYSE, and in 1992 founded a hedge fund, Gilford Partners. He has served on several boards
including the North Central College Trustees in Naperville, Illinois; Board of Trustees Sacred Heart Schools Chicago; Crested Butte
Academy in Crested Butte, Colorado; and Mary Wood Country Day School in Rancho Mirage, California. He graduated with a BA from
North Central College in 1965.



Craig Sturrock:Mr. Sturrock has
served as a director and founding member of various public and private companies. Admitted to the British Columbia Bar in 1969,
he joined Thorsteinssons LLP, tax lawyers in 1971. He served for 15 years as a tax lawyer and partner at Birnie, Sturrock &
Company returning to Thorsteinssons as a partner in 1989. He is an author and speaker for the Canadian and British Columbia Bar
Associations, the Continuing Legal Education Society of British Columbia and the Canadian Tax Foundation. He is also a former member
of the Board of Governors of the Canadian Tax Foundation.



Darren Devine: Mr. Devine is the
principal of Chelmer Consulting Corp., which provides corporate finance advisory services to private and public companies. Mr.
Devine is a qualified Barrister and Solicitor in British Columbia, and a qualified solicitor in England and Wales.  Prior
to forming Chelmer Consulting, Mr. Devine practiced exclusively in the areas of corporate finance and securities law with a focus
on cross-border finance, stock exchange listings and mergers and acquisitions with the firm DuMoulin Black LLP in Vancouver, British
Columbia.







49









Family Relationship



Mr. Stephen Mut, director, is the husband
of Mrs. Neyeska Mut, EVP Operations.  Other than that, there are no family relationship between any directors or executives
officers of the Company.



Arrangements



There are no known arrangements or understandings
with any major shareholders, customers, suppliers or others, pursuant to which any of the Company’s officers or directors
was selected as an officer or director of the Company, other than indicated immediately above and at “Item 7. Major Shareholders
and Related Party Transactions - Related Party Transactions.”



Cease
Trade Orders, Bankruptcies, Penalties or Sanctions



To the knowledge of the Company, no director
or executive officer of the Company is, or has been in the last ten years, a director, chief executive officer or chief financial
officer of an issuer that, while that person was acting in that capacity, (a) was the subject of a cease trade order or similar
order or an order that denied the issuer access to any exemptions under Canadian securities legislation, for a period of more
than 30 consecutive days, or (b) was subject to an event that resulted, after that person ceased to be a director, chief executive
officer or chief financial officer, in the issuer being the subject of a cease trade or similar order or an order that denied
the issuer access to any exemption under Canadian securities legislation, for a period of more than 30 consecutive days. To the
knowledge of the Company, no director or executive officer of the Company, or a shareholder holding a sufficient number of securities
in the Company to affect materially the control of the Company, is or has been in the last ten years, a director or executive
officer of an issuer that, while or acting in that capacity within a year of that person ceasing to act in that capacity, became
bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings,
arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets. To the knowledge
of the Company, in the past ten years, no such person has become bankrupt, made a proposal under any legislation related to bankruptcy
or insolvency, or was subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver
manager or trustee appointed to hold their assets.



Conflicts
of Interest



Certain of the Company's directors and
officers serve or may agree to serve as directors or officers of other reporting companies or have significant shareholdings in
other reporting companies and, to the extent that such other companies may participate in ventures in which the Company may participate,
the directors of the Company may have a conflict of interest in negotiating and concluding terms respecting the extent of such
participation. In the event that such a conflict of interest arises at a meeting of the Company's directors, a director who has
such a conflict will abstain from voting for or against the approval of such participation or such terms and such director will
not participate in negotiating and concluding terms of any proposed transaction. From time to time, several companies may participate
in the acquisition, exploration and development of natural resource properties thereby allowing for their participation in larger
programs, permitting involvement in a greater number of programs and reducing financial exposure in respect of any one program.
It may also occur that a particular company will assign all or a portion of its interest in a particular program to another of
these companies due to the financial position of the company making the assignment. Under the laws of the Province of British
Columbia, the directors of the Company are required to act honestly, in good faith and in the best interests of the Company. In
determining whether or not the Company will participate in a particular program and the interest therein to be acquired by it,
the directors will primarily consider the degree of risk to which the Company may be exposed and its financial position at that
time. See also "Description of the Business – Risk Factors".



50







| | B. | Compensation
| | -- | ------------



Basis of Compensation for Executive
Officers



The Company compensates its executive
officers through a combination of base compensation, bonuses and Common Stock options. The base compensation provides an immediate
cash incentive for the executive officers. Bonuses encourage and reward exceptional performance over the financial year. Common
Stock options ensure that the executive officers are motivated to achieve long term growth of the Company and continuing increases
in shareholder value. In terms of relative emphasis, the Company places more importance on Common Stock options as long term incentives.
Bonuses are related to performance and may form a greater or lesser part of the entire compensation package in any given year.
Each of these means of compensation is briefly reviewed in the following sections.



Base Compensation



Base compensation, including that of the
Chief Executive Officer, are set by the Compensation Committee and approved by the Board of Directors on the basis of the applicable
executive officer’s responsibilities, experience and past performance. The compensation program is intended to provide a
base compensation competitive among companies of a comparable size and character in the oil and gas industry. In making such an
assessment, the Board considers the objectives set forth in the Company’s business plan and the performance of executive
officers and employees in executing the plan in combination with the overall result of the activities undertaken.



Common Stock Options



The Company provides long term incentive
compensation to its executive officers through the Common Stock Option Plan, which is considered an integral part of the Company’s
compensation program. Upon the recommendation of management and approval by the Board of Directors, stock options are granted
under the Company’s Option Plan to new directors, officers and key employees, usually upon their commencement of employment
with the Company. The Board approves the granting of additional stock options from time to time based on its assessment of the
appropriateness of doing so in light of the long term strategic objectives of the Company, its current stage of development, the
need to retain or attract key technical and managerial personnel in a competitive industry environment, the number of stock options
already outstanding, overall market conditions, and the individual’s level of responsibility and performance within the
Company.



The Board views the granting of stock
options as a means of promoting the success of the Company and creating and enhancing returns to its shareholders. As such, the
Board does not grant stock options in excessively dilutive numbers. Total options outstanding are presently limited to 10% of
the total number of shares outstanding under the rules of the TSX. Grant sizes are, therefore, determined by various factors including
the number of eligible individuals currently under the Option Plan and future hiring plans of the Company.



The Board granted a total of 2,046,000
stock options to the executive officers in 2011.



51









|                            |  | Annual Compensation |      |  | Long Term Compensation |     |         |                           | 
|--------------------------- |  | ------------------- | ---- |  | ---------------------- | --- | ------- | ------------------------- | 
|                            |  |                     |      |  |                        |     |         |                           | 
|Name and Principal Position |  | Year                |      |  | Annual
    Salary      |     |         | Consulting 
    Fees  ($) | 
|Robert L.                   |  |                     | 2011 |  |                        | $   | 78,000  |                           | 
|Hodgkinson,                 |  |                     | 2010 |  |                        | $   | 78,000  |                           | 
|Chief Executive             |  |                     | 2009 |  |                        | $   | 78,000  |                           | 
|Officer                     |  |                     |      |  |                        |     |         |                           | 
|                            |  |                     |      |  |                        |     |         |                           | 
|Mathew Wong,                |  |                     | 2011 |  |                        | $   | 78,000  |                           | 
|Chief Financial             |  |                     | 2010 |  |                        | $   | 78,000  |                           | 
|Officer                     |  |                     | 2009 |  |                        | $   | 78,000  |                           | 
|                            |  |                     |      |  |                        |     |         |                           | 
|Harrison Blacker,           |  |                     | 2011 |  |                        | US$ | 295,000 |                           | 
|Director and                |  |                     | 2010 |  |                        | US$ | 250,000 |                           | 
|President                   |  |                     | 2009 |  |                        | US$ | 203,646 |                           | 
|of Dejour Energy            |  |                     |      |  |                        |     |         |                           | 
|(USA)                       |  |                     |      |  |                        |     |         |                           | 
|                            |  |                     |      |  |                        |     |         |                           | 
|Craig Sturrock,             |  |                     | 2011 |  |                        |     | Nil     |                           | 
|Director                    |  |                     | 2010 |  |                        |     | Nil     |                           | 
|                            |  |                     | 2009 |  |                        |     | Nil     |                           | 
|                            |  |                     |      |  |                        |     |         |                           | 
|Robert Holmes,              |  |                     | 2011 |  |                        |     | Nil     |                           | 
|Director                    |  |                     | 2010 |  |                        |     | Nil     |                           | 
|                            |  |                     | 2009 |  |                        |     | Nil     |                           | 
|                            |  |                     |      |  |                        |     |         |                           | 
|Richard Patricio,           |  |                     | 2011 |  |                        |     | Nil     |                           | 
|Director                    |  |                     | 2010 |  |                        |     | Nil     |                           | 
|                            |  |                     | 2009 |  |                        |     | Nil     |                           | 
|                            |  |                     |      |  |                        |     |         |                           | 
|Stephen Mut,                |  |                     | 2011 |  |                        |     | Nil     |                           | 
|Director & Co-              |  |                     | 2010 |  |                        |     | Nil     |                           | 
|Chairman                    |  |                     | 2009 |  |                        |     | Nil     |                           | 
|                            |  |                     |      |  |                        |     |         |                           | 
|Darren Devine,              |  |                     | 2011 |  |                        |     | Nil     |                           | 
|Director                    |  |                     | 2010 |  |                        |     | Nil     |                           | 
|                            |  |                     | 2009 |  |                        |     | Nil     |                           | 
|                            |  |                     |      |  |                        |     |         |                           | 
|Neyeska Mut,                |  |                     | 2011 |  |                        | US$ | 200,470 |                           | 
|EVP Operations              |  |                     | 2010 |  |                        | US$ | 200,470 |                           | 
|Of Dejour Energy            |  |                     | 2009 |  |                        | US$ | 163,300 |                           | 
|(USA)                       |  |                     |      |  |                        |     |         |                           | 
|                            |  |                     |      |  |                        |     |         |                           | 
|Phil Bretzloff              |  |                     | 2011 |  |                        |     | Nil     |                           | 
|Vice President &            |  |                     | 2010 |  |                        |     | Nil     |                           | 
|General Counsel             |  |                     | 2009 |  |                        |     | Nil     |                           | 







*US$58,000 was paid for relocation expenses reimbursement.

52





Stock Option Grants

|Name                      |  | Number of Options Granted |  | Exercise Price per Share |      |  | Grant Date |                 |  | Expiration Date |                
|------------------------- |  | ------------------------- |  | ------------------------ | ---- |  | ---------- | --------------- |  | --------------- | ---------------
|Robert Hodgkinson         |  | 300,000                   |  | $                        | 0.35 |  |            | March 16, 2011  |  |                 | March 15, 2014 
|Mathew Wong               |  | 300,000                   |  | $                        | 0.35 |  |            | March 16, 2011  |  |                 | March 15, 2014 
|Harrison Blacker          |  | 300,000                   |  | $                        | 0.35 |  |            | March 16, 2011  |  |                 | March 15, 2014 
|Craig Sturrock            |  | 100,000                   |  | $                        | 0.35 |  |            | March 16, 2011  |  |                 | March 15, 2014 
|Robert Holmes             |  | 100,000                   |  | $                        | 0.35 |  |            | March 16, 2011  |  |                 | March 15, 2014 
|Richard Patricio          |  | 100,000                   |  | $                        | 0.35 |  |            | March 16, 2011  |  |                 | March 15, 2014 
|Darren Devine             |  | 100,000                   |  | $                        | 0.35 |  |            | March 16, 2011  |  |                 | March 15, 2014 
|Stephen Mut               |  | 300,000                   |  | $                        | 0.35 |  |            | March 16, 2011  |  |                 | March 15, 2014 
|Neyeska Mut               |  | 306,000                   |  | $                        | 0.35 |  |            | March 16, 2011  |  |                 | March 15, 2014 
|Phil Bretzloff            |  | 140,000                   |  | $                        | 0.35 |  |            | March 16, 2011  |  |                 | March 15, 2014 
|Employees and Consultants |  | 200,000                   |  | $                        | 0.35 |  |            | January 4, 2011 |  |                 | January 3, 2012
|                          |  | 280,000                   |  | $                        | 0.35 |  |            | January 4, 2011 |  |                 | January 3, 2013
|                          |  | 686,500                   |  | $                        | 0.35 |  |            | March 16, 2011  |  |                 | March 15, 2014 



Director Compensation



The Company has compensation agreements
for its Directors who are not executive officers. Under the agreements, Directors receive $2,500 per meeting for the first 4 meetings
each year, and $1,500 for each meeting thereafter. The Board of Directors may award special remuneration to any Director undertaking
any special services on behalf of the Company other than services ordinarily required of a Director. Per an amendment to the agreements
approved by the Board of Directors, effective January 1, 2010, the Directors received $1,000 per quarter plus $500 for each meeting.



Long Term Incentive Plan Awards



Long term incentive plan awards ("LTIP")
means any plan providing compensation intended to serve as an incentive for performance to occur over a period longer than one
financial year, whether the performance is measured by reference to financial performance of the Company or an affiliate of the
Company, the price of the Company's shares, or any other measure, but does not include option or stock appreciation rights plans
or plans for compensation through restricted shares or units. The Company did not award any LTIPs to any executive officer during
the most recently completed financial year ended December 31, 2011. There are no pension plan benefits in place for the executive
officers.



Stock Appreciation Rights



Stock appreciation rights ("SARs")
means a right, granted by the Company or any of its subsidiaries as compensation for services rendered or in connection with office
or employment, to receive a payment of cash or an issue or transfer of securities based wholly or in part on changes in the trading
price of the Company's shares. No SARs were granted to, or exercised by, any executive officer of the Company during the most
recently completed financial year ended December 31, 2011.



Termination and Change of Control Remuneration



The Company has management contracts with the following executive
officers or the companies controlled by the executive officers:



53







|Named Executive Officer |  | Annual Base Salary and / or Consulting Fees |         | Compensation Package on Termination of Contract, other than for termination
    with cause |                                               | Compensation Package on Termination of Contract, in the event of a change in control
|----------------------- |  | ------------------------------------------- | ------- | ------------------------------------------------------------------------------------------ | --------------------------------------------- | ------------------------------------------------------------------------------------
|                        |  |                                             |         |                                                                                            |                                               |                                                                                     
|Robert Hodgkinson       |  | $                                           | 255,000 |                                                                                            | 1 times annual base salary and consulting fee |                                                                                     
|Mathew Wong             |  | $                                           | 229,000 |                                                                                            | 1 times annual base salary and consulting fee |                                                                                     
|Harrison Blacker        |  | US$                                         | 310,000 |                                                                                            | 1 times annual base salary                    |                                                                                     
|Neyeska Mut             |  | US$                                         | 200,470 |                                                                                            | 1 times annual base salary                    |                                                                                     



Bonus/Profit Sharing/Non-Cash Compensation



The Board adopted a bonus plan for eligible
executives, which include the senior executives of the Company or any subsidiary of the Company, including but not limited to
the CEO, President, Executive Vice-President and CFO who, by the nature of their positions are, in the opinion of the Committee,
in a senior position to contribute to the success of the Company.



The bonus plan includes both non-discretionary
and discretionary portions.



| | A) | Executives Non-Discretionary;
| | -- | -----------------------------



Each Eligible Executives will
receive a USD$100,000 award should:



| | i) | Total Shareholder Return % exceeds
                                                              Total XEG Return % by a minimum of 10% and in addition;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------



| | ii) | Total Shareholder Return is positive
                                                               (the share price of Dejour shares is higher at the end of the year,
                                                               in comparison to, the price of the shares at the beginning of the
                                                               year).
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For example, for fiscal 2011,
if Total Shareholder Return % is 20%, while Total XEG Return is 5%, then Dejour’s stock outperformed the XEG by 15% and
a USD$100,000 award is payable to each executives. However, this award would only be payable in the event that during the same
period shareholder return is positive.



| | B) | Executives Discretionary;
| | -- | -------------------------



The Compensation Committee, upon
the recommendation of the CEO, shall review (i) performance goals and objectives (“Performance Targets') for the Company
and the subsidiaries for such period and (ii) target awards (“Target Awards') for each Participant which shall be based
on, up to 30% of the Participant's base compensation, provided however, the Performance Targets for each Executive Participants
shall be exactly the same during each year, calculated based on the same percentage of each Participants base compensation, unless
otherwise agreed by the Participants.



Such Performance Targets shall include but not be
limited to the following:



| | · | Increase in
                                                                                                               oil & gas production;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Achievement
                                                                                                               of financial stability
                                                                                                               and working capital
                                                                                                               position including
                                                                                                               compliance with
                                                                                                               the Company loan
                                                                                                               covenants;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Increase in
                                                                                                               Proved Developed
                                                                                                               Production (PDP)
                                                                                                               Reserves;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Increase in
                                                                                                               Proved and Probable
                                                                                                               (2P) reserves;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Creating significant
                                                                                                               positive impact
                                                                                                               on the Company
                                                                                                               business as demonstrated
                                                                                                               by significant
                                                                                                               accomplishments
                                                                                                               not in the base
                                                                                                               budget/business
                                                                                                               plan;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Increase in
                                                                                                               Operating Cash
                                                                                                               flow and Adjusted
                                                                                                               EBITDA;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Reduce operation
                                                                                                               costs;
| | - | --------------------------------------------------------------------------------------------------------------------------------------

| | · | Reducing overhead
                                                                                                               costs;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------

| | · | Other factors
                                                                                                               or extraordinary
                                                                                                               success, that in
                                                                                                               the opinion of
                                                                                                               the Committee,
                                                                                                               enhance shareholder
                                                                                                               value
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



54







For purposes of the bonus plan, “XEG” is
defined as the iSharesTM CDN Energy Sector Index Fund, trading under the symbol “XEG”
on the TSX. Total Shareholder Return and Total XEG Return are based on the 20 days average closing shares price of Dejour
shares and XEG on the TSX at the end of each fiscal year.



Pension/Retirement Benefits



No funds were set aside or accrued by the Company during Fiscal
2011 to provide pension, retirement or similar benefits for Directors or Senior Management.



| | C. | Board Practices
| | -- | ---------------



Compensation Committee



The Company has a Compensation Committee
composed of three Directors, Robert Holmes, Craig Sturrock and Richard Patricio.



Role of the Compensation Committee



The Compensation Committee exercises general
responsibility regarding overall executive compensation. The Board of Directors sets the annual compensation, bonus and other
benefits of the Chief Executive Officer and approves compensation for all other executive officers of the Company after considering
the recommendations of the Compensation Committee.



Audit Committee



The Company’s Board of Directors
has a separately-designated standing Audit Committee established for the purpose of overseeing the accounting and financial reporting
processes of the Company and audits of the Company’s annual financial statements in accordance with Section 3(a)(58)(A)
of the Exchange Act.  As of the date of this annual report on Form 20-F, the Company’s Audit Committee is comprised
of Craig Sturrock, Robert Holmes and Darren Devine.



In the opinion of the Company’s
Board of Directors, all the members of the Audit Committee are independent (as determined under Rule 10A-3 of the Exchange Act
and Section 803A of the NYSE Amex Company Guide).  The Audit Committee meets the composition requirements set forth
by Section 803B(2) of the NYSE Amex Company Guide.  All three members of the Audit Committee are financially literate,
meaning they are able to read and understand the Company’s financial statements and to understand the breadth and level
of complexity of the issues that can reasonably be expected to be raised by the Company’s financial statements.



The members of the Audit Committee do
not have fixed terms and are appointed and replaced from time to time by resolution of the Board of Directors.



Terms of Reference
for the Audit Committee



Audit Committee Mandate



The primary function of the audit committee
is to assist the Board in fulfilling its financial oversight responsibilities by reviewing the financial reports and other financial
information provided by the Company to regulatory authorities and Shareholders, the Company’s systems of internal controls
regarding finance and accounting and the Company’s auditing, accounting and financial reporting processes. Consistent with
this function, the audit committee will encourage continuous improvement of, and should foster adherence to, the Company’s
policies, procedures and practices at all levels. The audit committee’s primary duties and responsibilities are to:



| | · | Serve
                                                                                                               as an independent
                                                                                                               and objective party
                                                                                                               to monitor the
                                                                                                               Company’s
                                                                                                               financial reporting
                                                                                                               and internal control
                                                                                                               system and review
                                                                                                               the Company’s
                                                                                                               financial statements;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Review
                                                                                                               and appraise the
                                                                                                               performance of
                                                                                                               the Company’s
                                                                                                               external auditors;
                                                                                                               and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



55





| | · | Provide
                                                                                                               an open avenue
                                                                                                               of communication
                                                                                                               among the Company’s
                                                                                                               auditors, financial
                                                                                                               and senior management
                                                                                                               and the Board.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Composition



The audit committee shall be comprised
of three Directors as determined by the Board, the majority of whom shall be free from any relationship that, in the opinion of
the Board, would interfere with the exercise of his or her independent judgment as a member of the audit committee.



At least one member of the audit committee
shall have accounting or related financial management expertise. All members of the audit committee that are not financially literate
will work towards becoming financially literate to obtain a working familiarity with basic finance and accounting practices. For
the purposes of the Company's Charter, the definition of “financially literate” is the ability to read and understand
a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable
to the breadth and complexity of the issues that can presumably be expected to be raised by the Company's financial statements.



The members of the audit committee shall
be elected by the Board at its first meeting following the annual Shareholders’ meeting. Unless a Chair is elected by the
full Board, the members of the audit committee may designate a Chair by a majority vote of the full audit committee membership.



Meetings



The audit committee shall meet a least
twice annually, or more frequently as circumstances dictate. As part of its job to foster open communication, the audit committee
will meet at least annually with the Chief Financial Officer and the external auditors in separate sessions.



Responsibilities and Duties



To fulfill its responsibilities and duties,
the audit committee shall:



Documents/Reports Review



| | (a) | Review and update this Charter annually.
| | --- | ----------------------------------------

| | (b) | Review the Company's financial statements,
                                                            MD&A and any annual and interim earnings, press releases before
                                                            the Company publicly discloses this information and any reports or
                                                            other financial information (including quarterly financial statements),
                                                            which are submitted to any governmental body, or to the public, including
                                                            any certification, report, opinion, or review rendered by the external
                                                            auditors.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | Approve, on behalf of the Board, the
                                                            Corporation’s interim financial statements to be filed pursuant
                                                            to section 4.3 of NI 51-102, before the Corporation publicly discloses
                                                            such information.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



External
Auditors



| | (a) | Review annually, the performance of
                                                            the external auditors who shall be ultimately accountable to the Board
                                                            and the audit committee as representatives of the Shareholders of
                                                            the Company.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Obtain annually, a formal written
                                                            statement of external auditors setting forth all relationships between
                                                            the external auditors and the Company, consistent with Independence
                                                            Standards Board Standard 1.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | Review and discuss with the external
                                                            auditors any disclosed relationships or services that may impact the
                                                            objectivity and independence of the external auditors.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (d) | Take, or recommend that the full Board
                                                            take, appropriate action to oversee the independence of the external
                                                            auditors.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (e) | Recommend to the Board the selection
                                                            and, where applicable, the replacement of the external auditors nominated
                                                            annually for Shareholder approval.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (f) | At each meeting, consult with the
                                                            external auditors, without the presence of management, about the quality
                                                            of the Company’s accounting principles, internal controls and
                                                            the completeness and accuracy of the Company's financial statements.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (g) | Review and approve the Company's hiring
                                                            policies regarding partners, employees and former partners and employees
                                                            of the present and former external auditors of the Company.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



56





| | (h) | Review with management and the external
                                                            auditors the audit plan for the year-end financial statements and
                                                            intended template for such statements.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (i) | Review and pre-approve all audit and
                                                            audit-related services and the fees and other compensation related
                                                            thereto, and any non-audit services, provided by the Company’s
                                                            external auditors. The pre-approval requirement is waived with respect
                                                            to the provision of non-audit services if:
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | i. | the aggregate amount of all such
                                                               non-audit services provided to the Company constitutes not more
                                                               than five percent of the total amount of revenues paid by the Company
                                                               to its external auditors during the fiscal year in which the non-audit
                                                               services are provided;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ii. | such services were not recognized
                                                                by the Company at the time of the engagement to be non-audit services;
                                                                and
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | iii. | such services are promptly brought
                                                                 to the attention of the audit committee by the Company and approved
                                                                 prior to the completion of the audit by the audit committee or
                                                                 by one or more members of the audit committee who are members
                                                                 of the Board to whom authority to grant such approvals has been
                                                                 delegated by the audit committee.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Provided the pre-approval of the non-audit
services is presented to the audit committee's first scheduled meeting following such approval such authority may be delegated
by the audit committee to one or more independent members of the audit committee.



Financial
Reporting Processes



| | (a) | In consultation with the external
                                                            auditors, review with management the integrity of the Company's financial
                                                            reporting process, both internal and external.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Consider the external auditors’
                                                            judgments about the quality and appropriateness of the Company’s
                                                            accounting principles as applied in its financial reporting.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | Consider and approve, if appropriate,
                                                            changes to the Company’s auditing and accounting principles
                                                            and practices as suggested by the external auditors and management.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (d) | Review significant judgments made
                                                            by management in the preparation of the financial statements and the
                                                            view of the external auditors as to appropriateness of such judgments.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (e) | Following completion of the annual
                                                            audit, review separately with management and the external auditors
                                                            any significant difficulties encountered during the course of the
                                                            audit, including any restrictions on the scope of work or access to
                                                            required information.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (f) | Review any significant disagreement
                                                            among management and the external auditors in connection with the
                                                            preparation of the financial statements.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (g) | Review with the external auditors
                                                            and management the extent to which changes and improvements in financial
                                                            or accounting practices have been implemented.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (h) | Review any complaints or concerns
                                                            about any questionable accounting, internal accounting controls or
                                                            auditing matters.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (i) | Review certification process.
| | --- | -----------------------------

| | (j) | Establish a procedure for the confidential,
                                                            anonymous submission by employees of the Company of concerns regarding
                                                            questionable accounting or auditing matters.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Other



Review
any related-party transactions



Audit Committee Oversight



At no time since the commencement of the
Company’s most recently completed financial year was a recommendation of the audit committee to nominate or compensate an
external auditor not adopted by the Board of Directors.



| | D. | Employees
| | -- | ---------



The Company had the equivalent of approximately
18 full-time employees and consultants during 2011, of which 10 are located in Canada and 8 in USA.



57







| | E. | Share Ownership
| | -- | ---------------



Directors and Officer Beneficial
Ownership



The following table discloses as of April
26, 2012, Directors and Senior Management who beneficially own the Company's voting securities, consisting solely of common shares,
and the amount of the Company's voting securities owned by the Directors and Senior Management as a group.



Shareholdings of Directors and Senior
Management as of April 26, 2012



|Title of Class |  | Name of Beneficial Owner   |  | Notes |  | Amount and Nature of Beneficial
    Ownership |            |  | Percent of Class | 
|-------------- |  | -------------------------- |  | ----- |  | --------------------------------------------- | ---------- |  | ---------------- | 
|               |  |                            |  |       |  |                                               |            |  |                  | 
|Common         |  | Robert L. Hodgkinson       |  | (1)   |  |                                               | 8,783,658  |  |                  | 
|Common         |  | Harrison Blacker           |  | (2)   |  |                                               | 1,618,678  |  |                  | 
|Common         |  | Mathew H. Wong             |  | (3)   |  |                                               | 605,872    |  |                  | 
|Common         |  | Craig Sturrock             |  | (4)   |  |                                               | 1,092,500  |  |                  | 
|Common         |  | Robert Holmes              |  | (5)   |  |                                               | 2,708,000  |  |                  | 
|Common         |  | Richard Patricio           |  | (6)   |  |                                               | 295,000    |  |                  | 
|Common         |  | Stephen Mut                |  | (7)   |  |                                               | 2,676,001  |  |                  | 
|Common         |  | Darren Devine              |  | (8)   |  |                                               | 250,000    |  |                  | 
|Common         |  | Neyeska Mut                |  | (9)   |  |                                               | 523,001    |  |                  | 
|Common         |  | Phil Bretzloff             |  | (10)  |  |                                               | 333,250    |  |                  | 
|               |  | Total Directors/Management |  |       |  |                                               | 18,885,960 |  |                  | 



| | (1) | Of these shares, 7,187,840 are represented
                                                          by common shares, 914,000 are represented by vested stock options and
                                                          681,818 are represented by currently exercisable share purchase warrants.
                                                          1,500,000 of these shares are owned by 7804 Yukon Inc., a private company
                                                          owned by Robert Hodgkinson; 3,600,499 are common shares owned by Hodgkinson
                                                          Equities Corp., a private company owned by Robert Hodgkinson. A further
                                                          405,000 stock options have been granted but not yet vested.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Of these shares, 525,678 are represented
                                                          by common shares, 943,000 are represented by vested stock options and
                                                          150,000 are represented by currently exercisable share purchase warrants.
                                                          A further 390,000 stock options have been granted but not yet vested.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Of these shares, 122 are represented
                                                          by common shares, 549,500 are represented by vested stock options and
                                                          56,250 are represented by currently exercisable share purchase warrants.
                                                          98 of these common shares are held by 390855 BC Ltd., a private company
                                                          owned by Mathew Wong; 24 common shares are owned by Pui Ngor Lee, Mr.
                                                          Wong’s mother. A further 267,500 stock options have been granted
                                                          but not yet vested.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Of these shares, 650,000 are represented
                                                          by common shares, 292,500 are represented by vested stock options and
                                                          150,000 are represented by currently exercisable share purchase warrants.
                                                          A further 107,500 stock options have been granted but not yet vested.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | Of these shares, 1,663,000 are represented
                                                          by common shares, 295,000 are represented by vested stock options and
                                                          750,000 are represented by currently exercisable share purchase warrants.
                                                          A further 105,000 stock options have been granted but not yet vested.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (6) | Of these shares, 295,000 are represented
                                                          by vested stock options. A further 105,000 stock options have been granted
                                                          but not yet vested.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (7) | Of these shares, 1,701,001 are represented
                                                          by common shares, 600,000 are represented by vested stock options and
                                                          375,000 are represented by currently exercisable share purchase warrants.
                                                          A further 50,000 stock options have been granted but not yet vested.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (8) | Of these shares, 250,000 are represented
                                                          by vested stock options. A further 50,000 stock options have been granted
                                                          but not yet vested.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (9) | Of these shares, 50,001 are represented
                                                          by common shares and 473,000 are represented by vested stock options.
                                                          A further 227,000 stock options have been granted but not yet vested.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (10) | Of these shares, 59,500 are represented
                                                           by common shares and 273,750 are represented by vested stock options.
                                                           A further 126,250 stock options have been granted but not yet vested.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



All percentages based on 130,786,069 shares
outstanding as of April 26, 2012.



58







Stock Option Plan



We have a Stock Option Plan (the
“Option Plan”), the principal purposes of whichis to (i) advance our interests by aiding us, and our subsidiaries,
in motivating, attracting and retaining key employees and directors capable of assuring the future success of the Company; and
(ii) secure for us and our shareholders the benefits inherent in the ownership of our common shares by key employees and directors
of the Company and our subsidiaries. We also have a United States stock incentive sub-plan that was
initially approved in 2009 and amended in 2012 (the “Sub-Plan”) and forms a part of the Option Plan. Any option granted
under the Sub-Plan is also subject to the terms and conditions of the Option Plan. Where there is a conflict between the terms
and conditions of the Sub-Plan and the terms and conditions of the Option Plan, the terms and conditions of the Option Plan govern.



Directors, officers, employees and other insiders of us or
any of our subsidiaries, as well as any person or corporation engaged to provide services for us or for any entity controlled
by us for an initial, renewable or extended period of twelve months or more (or a lesser period of time if approved by the committee
that administers the Option Plan and acceptable to the Toronto Stock Exchange (the “TSX”) (including individuals employed
by such person or corporation), are eligible to participate in the Option Plan. Eligible participants who are natural persons
resident in the United States, United States citizens, or are otherwise subject to United States tax law may participate in the
Sub-Plan.



At the time of grant of any option, the aggregate number of
common shares reserved for issuance under the Option Plan (which includes the Sub-Plan) that may be made subject to options any
time and from time to time, together with common shares reserved for issuance at that time under any of our other share compensation
arrangements, may not exceed 10% of the total number of issued and outstanding common shares, on a non-diluted basis, on the date
of grant of the option. Of this 10%, the number of common shares reserved for issuance to any one participant pursuant to the
Sub-Plan in any year may not exceed 5% of our total outstanding common shares on a non-diluted basis. Common shares subject to
any option (or portion thereof) under the Option Plan that has been cancelled or otherwise terminated prior to the issuance or
transfer of such common shares will again be available for options under the Option Plan. The number of common shares authorized
under the Option Plan may be increased, decreased or fixed by the Board of Directors. Subject to adjustment in accordance with
the Sub-Plan, an aggregate of 12,800,000 common shares, less those common shares issued under the Option Plan, may be issued pursuant
to stock options issued under the Sub-Plan. If a stock option terminates, is forfeited or is cancelled without the issuance of
any common shares, or any common shares covered by a stock option or to which a stock option relates are not issued for any other
reason, then the number of common shares counted against the aggregate number of common shares available under the Sub-Plan with
respect to such stock option, to the extent of any such termination, forfeiture, cancellation or other event, will again be available
for granting stock options under the Sub-Plan.



The option exercise price will be determined by the committee
that administers the Option Plan or the Sub-Plan administrator, as applicable. The exercise price may not be less than the last
closing price per common share on the TSX on the trading day immediately preceding the day the options are granted, or if the
common shares are not listed on the TSX, on the most senior of any other exchange on which the common shares are then traded,
on the last trading day immediately preceding the date of grant of such options.



The Option Plan may be terminated by the committee that administers
the Option Plan at any time. The Sub-Plan terminates at midnight on January 5, 2022, unless it is terminated before then by our
Board of Directors. Any option outstanding under the Option Plan or Sub-Plan at the time of termination shall remain in effect
until such option has been exercised, has expired, has been surrendered to us or has been terminated.



A copy of the Option Plan and Sub-Plan is incorporated by reference
into this Form 20-F as Exhibits 4.17 and 4.18, respectively.



Stock Options Outstanding



The names and titles of the Directors/Executive
Officers of the Company to whom outstanding stock options have been granted and the number of common shares subject to such options
is set forth in the following table as of April 26, 2012:



59





Stock Options Outstanding as of April
26, 2012



|Name                     |  | Number of Options Held |           |  | Number of Options Vested |  |           | Exercise Price per Share |  |   | Grant Date |  |  | Expiration Date |           
|------------------------ |  | ---------------------- | --------- |  | ------------------------ |  | --------- | ------------------------ |  | - | ---------- |  |  | --------------- | ----------
|                         |  |                        |           |  |                          |  |           |                          |  |   |            |  |  |                 |           
|Robert Hodgkinson        |  |                        | 375,000   |  |                          |  | 262,500   |                          |  | $ | 0.45       |  |  |                 | 10/28/2008
|                         |  |                        | 275,000   |  |                          |  | 165,000   |                          |  | $ | 0.45       |  |  |                 | 5/5/2009  
|                         |  |                        | 350,000   |  |                          |  | 350,000   |                          |  | $ | 0.35       |  |  |                 | 2/4/2010  
|                         |  |                        | 19,000    |  |                          |  | 19,000    |                          |  | $ | 0.35       |  |  |                 | 2/16/2010 
|                         |  |                        | 300,000   |  |                          |  | 187,500   |                          |  | $ | 0.35       |  |  |                 | 3/16/2011 
|Harrison Blacker         |  |                        | 300,000   |  |                          |  | 210,000   |                          |  | $ | 0.45       |  |  |                 | 10/28/2008
|                         |  |                        | 300,000   |  |                          |  | 180,000   |                          |  | $ | 0.45       |  |  |                 | 5/5/2009  
|                         |  |                        | 400,000   |  |                          |  | 400,000   |                          |  | $ | 0.35       |  |  |                 | 2/4/2010  
|                         |  |                        | 33,000    |  |                          |  | 33,000    |                          |  | $ | 0.35       |  |  |                 | 2/16/2010 
|                         |  |                        | 300,000   |  |                          |  | 187,500   |                          |  | $ | 0.35       |  |  |                 | 3/16/2011 
|Mathew Wong (1)          |  |                        | 175,000   |  |                          |  | 122,500   |                          |  | $ | 0.45       |  |  |                 | 10/28/2008
|                         |  |                        | 125,000   |  |                          |  | 75,000    |                          |  | $ | 0.45       |  |  |                 | 5/5/2009  
|                         |  |                        | 200,000   |  |                          |  | 200,000   |                          |  | $ | 0.35       |  |  |                 | 2/4/2010  
|                         |  |                        | 17,000    |  |                          |  | 17,000    |                          |  | $ | 0.35       |  |  |                 | 2/16/2010 
|                         |  |                        | 300,000   |  |                          |  | 187,500   |                          |  | $ | 0.35       |  |  |                 | 3/16/2011 
|Craig Sturrock           |  |                        | 100,000   |  |                          |  | 70,000    |                          |  | $ | 0.45       |  |  |                 | 10/28/2008
|                         |  |                        | 50,000    |  |                          |  | 30,000    |                          |  | $ | 0.45       |  |  |                 | 5/5/2009  
|                         |  |                        | 150,000   |  |                          |  | 150,000   |                          |  | $ | 0.35       |  |  |                 | 2/4/2010  
|                         |  |                        | 100,000   |  |                          |  | 62,500    |                          |  | $ | 0.35       |  |  |                 | 3/16/2011 
|Robert Holmes            |  |                        | 100,000   |  |                          |  | 70,000    |                          |  | $ | 0.45       |  |  |                 | 10/28/2008
|                         |  |                        | 50,000    |  |                          |  | 32,500    |                          |  | $ | 0.45       |  |  |                 | 02/12/2009
|                         |  |                        | 150,000   |  |                          |  | 150,000   |                          |  | $ | 0.35       |  |  |                 | 2/4/2010  
|                         |  |                        | 100,000   |  |                          |  | 62,500    |                          |  | $ | 0.35       |  |  |                 | 3/16/2011 
|Richard Patricio         |  |                        | 100,000   |  |                          |  | 70,000    |                          |  | $ | 0.45       |  |  |                 | 10/28/2008
|                         |  |                        | 50,000    |  |                          |  | 32,500    |                          |  | $ | 0.45       |  |  |                 | 02/12/2009
|                         |  |                        | 150,000   |  |                          |  | 150,000   |                          |  | $ | 0.35       |  |  |                 | 2/4/2010  
|                         |  |                        | 100,000   |  |                          |  | 62,500    |                          |  | $ | 0.35       |  |  |                 | 3/16/2011 
|Stephen Mut              |  |                        | 100,000   |  |                          |  | 100,000   |                          |  | $ | 0.45       |  |  |                 | 6/29/2009 
|                         |  |                        | 250,000   |  |                          |  | 250,000   |                          |  | $ | 0.35       |  |  |                 | 2/4/2010  
|                         |  |                        | 300,000   |  |                          |  | 262,500   |                          |  | $ | 0.35       |  |  |                 | 3/16/2011 
|Darren Devine (2)        |  |                        | 200,000   |  |                          |  | 200,000   |                          |  | $ | 0.35       |  |  |                 | 2/4/2010  
|                         |  |                        | 100,000   |  |                          |  | 62,500    |                          |  | $ | 0.35       |  |  |                 | 3/16/2011 
|Neyeska Mut              |  |                        | 120,000   |  |                          |  | 84,000    |                          |  | $ | 0.45       |  |  |                 | 10/28/2008
|                         |  |                        | 80,000    |  |                          |  | 52,000    |                          |  | $ | 0.45       |  |  |                 | 2/12/2009 
|                         |  |                        | 175,000   |  |                          |  | 175,000   |                          |  | $ | 0.35       |  |  |                 | 2/4/2010  
|                         |  |                        | 19,000    |  |                          |  | 19,000    |                          |  | $ | 0.35       |  |  |                 | 2/16/2010 
|                         |  |                        | 306,000   |  |                          |  | 191,250   |                          |  | $ | 0.35       |  |  |                 | 3/16/2011 
|Phil Bretzloff           |  |                        | 75,000    |  |                          |  | 52,500    |                          |  | $ | 0.45       |  |  |                 | 10/28/2008
|                         |  |                        | 75,000    |  |                          |  | 48,750    |                          |  | $ | 0.45       |  |  |                 | 2/12/2009 
|                         |  |                        | 110,000   |  |                          |  | 110,000   |                          |  | $ | 0.35       |  |  |                 | 2/4/2010  
|                         |  |                        | 140,000   |  |                          |  | 87,500    |                          |  | $ | 0.35       |  |  |                 | 3/16/2011 
|Total Officers/Directors |  |                        | 6,719,000 |  |                          |  | 5,234,000 |                          |  |   |            |  |  |                 |           



| | (1) | 125,000 options granted on May 5, 2009 were issued to 390855 B.C.
                                                            Ltd., a private company owned by Mathew Wong.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | 200,000 options granted on February 4, 2010 were issued to Chelmer
                                                            Investments Corp., a private company owned by Darren Devine. On October
                                                            25, 2010, these options were re-issued to the name of Darren Devine
                                                            with the same exercise price, vesting term and expiration date.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



60







ITEM
7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.



| | A. | Major Shareholders
| | -- | ------------------



Shareholders



The Company is aware of one person who
each beneficially own 5% or more of the Registrant's voting securities. The following table lists as of April 26, 2012 persons
and/or companies holding 5% or more beneficial interest in the Company’s outstanding common stock.



5% or Greater Shareholders as of April
26, 2012



|Title of Class |  | Name of Owner            |  | Amount and Nature of
    Beneficial Ownership |           |  | Percent of Class | 
|-------------- |  | ------------------------ |  | --------------------------------------------- | --------- |  | ---------------- | 
|               |  |                          |  |                                               |           |  |                  | 
|Common         |  | Robert L. Hodgkinson (1) |  |                                               | 8,783,658 |  |                  | 

| | (1) | Of these shares, 7,187,840 are represented
                                                          by common shares, 914,000 are represented by vested stock options and
                                                          681,818 are represented by currently exercisable share purchase warrants.
                                                          1,500,000 of these shares are owned by 7804 Yukon Inc., a private company
                                                          owned by Robert Hodgkinson; 3,600,499 are common shares owned by Hodgkinson
                                                          Equities Corp., a private company owned by Robert Hodgkinson. A further
                                                          405,000 stock options have been granted but not yet vested.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



All
percentages based on 130,786,069 shares outstanding as of April 26, 2012.



Changes in
ownership by major shareholders



To the best of the Company’s knowledge
there have been no changes in the ownership of the Company’s shares other than disclosed herein.



Voting Rights



The Company’s major shareholders
do not have different voting rights.



Shares Held
in the United States



As of April 26, 2012, there were approximately
7,534 registered holders of the Company’s shares in the United States, with combined holdings of 90,890,625 common shares.



Change of
Control



As of April 26, 2012, there were no arrangements
known to the Company which may, at a subsequent date, result in a change of control of the Company.



Control by
Others



To the best of the Company’s knowledge,
the Company is not directly or indirectly owned or controlled by another corporation, any foreign government, or any other natural
or legal person, severally or jointly.



| | B. | Related Party Transactions
| | -- | --------------------------



Other than as disclosed below, from January
1, 2009 through December 31, 2011, the Company did not enter into any transactions or loans between the Company and any (a) enterprises
that directly or indirectly through one or more intermediaries, control or are controlled by, or are under common control with
the Company; (b) associates; (c) individuals owning, directly or indirectly, an interest in the voting power of the Company that
gives them significant influence over the Company, and close members of any such individual’s family; (d) key management
personnel and close members of such individuals' families; or (e) enterprises in which a substantial interest in the voting power
is owned, directly or indirectly by any person described in (c) or (d) or over which such a person is able to exercise significant
influence.



61







| | (a) | Loan from Hodgkinson Equity Corporation
                                                           (“HEC”)
| | --- | ----------------------------------------------------------------------------------------------------------



HEC loan to the Company



On June 22, 2009, as amended
on September 30, 2009 and December 31, 2009, the Company entered into an agreement with HEC in regard to the outstanding debt
of $1,800,000 assumed from DEAL by the Company. Pursuant to the agreements, $450,000 of the debt was converted into 1,363,636
units consisting of 1,363,636 common shares and 681,818 common share purchase warrants exercisable at a price of $0.55 for a period
of 5 years. The fair value of the units was estimated to be $450,000. The remaining $1,350,000 was converted into a 12% note due
on January 1, 2011 and the Company was required to pay 3% fee on the outstanding balance of the loan as at December 31, 2009.
As a result of the sale of 5% working interest in the Drake/Woodrush area to HEC in December 2009 (effective June 1, 2009), both
parties agreed to reduce the loan balance by the purchase price of $911,722 including taxes and adjustments. In addition, the
loan balance was further reduced by a payment of $50,351. As at December 31, 2009, a balance of $387,927 remained outstanding.
As at December 31, 2010, a balance of $250,000 remained outstanding. In January 2011, the remaining balance of loan from HEC was
repaid in full in cash (see Note 9 to the consolidated financial statements for details).



| | (b) | Loan from Brownstone Ventures Inc.
                                                             (“Brownstone”)
| | --- | --------------------------------------------------------------------------------------------------------------



On June 22, 2009, as amended
on September 30, 2009 and December 31, 2009, the Company entered into an agreement with Brownstone in regard to the outstanding
debt of $4,604,040 (US$3,780,000). Pursuant to the agreement, $2,200,000 (US$2,000,000) of the debt was converted into 6,666,667
units consisting of 6,666,667 common shares and 3,333,333 common share purchase warrants exercisable at a price of $0.55 for a
period of 5 years. The fair value of the units was estimated to be US$2,000,000. The remaining $2,070,140 (US$1,780,000) of the
debt was converted into a Canadian dollar denominated 12% note due on January 1, 2011.



As a part of the debt settlement
on June 22, 2009, the Company also issued Brownstone 2,000,000 common share purchase warrants exercisable at $0.50 for a period
of 2 years, with an option to force the exercise of the warrants if the Company’s common shares trade at a price of $0.80
or greater for 30 consecutive calendar days.



As at December 31, 2009, a
balance of $1,957,474 remained outstanding comprised of the loan balance of $2,070,140 minus unamortized portion of finance fees
of $112,666. In December 2010, the loan was paid off in full in cash.



| | (c) | During 2011, compensation awarded
                                                             to key management included a total of salaries and consulting fees
                                                             of $1,771,981 (2010 - $1,215,191 and 2009 - $1,470,947) and non-cash
                                                             stock-based compensation of $451,071 (2010 - $486,018 and 2009 -
                                                             $188,668). Key management includes the Company’s officers and
                                                             directors. The salaries and consulting fees are included in general
                                                             and administrative expenses. Included in accounts payable and accrued
                                                             liabilities at December 31, 2011 is $396,618 (December 31, 2010 -
                                                             $12,000 and December 31, 2009 - $Nil) owing to a company controlled
                                                             by an officer of the Company.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (d) | In 2011, the Company incurred a total
                                                             of $2,301 (2010 - $268,440 and 2009 - $382,748) in interest expense
                                                             and finance costs to a company controlled by an officer of the Company
                                                             and Brownstone.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (e) | Included in interest and other income,
                                                             in 2011, is $30,000 (2010 - $30,000 and 2009 - $30,000) received
                                                             from the companies controlled by officers of the Company for rental
                                                             income.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (f) | In July 2008, Brownstone Ventures
                                                             Inc. (“Brownstone”) became a 28.53% working interest
                                                             partner in the US properties. Previously, Brownstone controlled more
                                                             than 10% of outstanding common shares of the Company. Effective September
                                                             28, 2011, Brownstone ceased to control more than 10% of outstanding
                                                             common shares of the Company. Included in accounts receivable at
                                                             December 31, 2011 is $Nil (2010 - $168,771 and 2009 - $72,752) owing
                                                             from Brownstone.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



62







| | (g) | In December 2009, a company controlled
                                                             by the CEO of the Company (“HEC”) became a 5% working
                                                             interest partner in the Woodrush property. Included in accounts receivable
                                                             at December 31, 2011 is $Nil (2010 - $967 and 2009 - $Nil) owing
                                                             from HEC. Included in accounts payable and accrued liabilities at
                                                             December 31, 2011 is $53,668 (2010 - $166,139 and 2009 - $63,679)
                                                             owing to HEC.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (h) | In 2011, we completed a private placement
                                                             of 11,010,000 units issued at US$0.30 per unit. Certain directors
                                                             and officers of the Company purchased 2,000,000 units of this offering
                                                             (see Note 13 to the consolidated financial statements for details).
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (i) | In December 2011, HEC exercised 250,000
                                                             warrants with an exercise price of US$0.35 each that were issued
                                                             in February 2011.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (j) | Included in the total salaries and
                                                             consulting fees incurred during 2009 was $107,000 paid to a former
                                                             officer of the Company to terminate the consulting agreement.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



C. Interests of Experts and Counsel



Not Applicable.



63







ITEM
8. FINANCIAL INFORMATION.



| | A. | Consolidated Statements and Other Financial Information
| | -- | -------------------------------------------------------



Financial Statements



|Description                                                                          |  | Page       
|------------------------------------------------------------------------------------ |  | -----------
|                                                                                     |  |            
|Consolidated Financial Statements for the Years Ended
    December 31, 2011 and 2010 |  | F-1 -  F-48
|                                                                                     |  |            
|Supplementary
Oil and Gas Reserve Estimation and Disclosures - Unaudited             |  | F-49 - F-56



Legal Proceedings



The Directors and the management of the
Company do not know of any material, active or pending, legal proceedings against them; nor is the Company involved as a plaintiff
in any material proceeding or pending litigation.



The Directors and the management of the
Company know of no active or pending proceedings against anyone that might materially adversely affect an interest of the Company.



Dividend Policy



The Company has not paid
any dividends on its common shares. The Company may pay dividends on its common shares in the future if it generates profits.
Any decision to pay dividends on common shares in the future will be made by the board of directors on the basis of the earnings,
financial requirements and other conditions existing at such time.



| | B. | Significant
                                                          Changes
| | -- | -----------------------------------------------------------------------------



None.



64







ITEM
9. THE OFFER AND LISTING



| | A. | Offering and Listing Details
| | -- | ----------------------------



The Company’s common shares are
traded on the Toronto Stock Exchange and on the NYSE Amex, in both cases under the symbol “DEJ.”  The following
tables set forth for the periods indicated, the high and low closing prices in Canadian dollars of our common shares traded on
the Toronto Stock Exchange and in United States dollars on the NYSE Amex. The Company traded on the Toronto Stock Exchange
Venture Exchange in Vancouver, British Columbia, Canada, until November 20, 2008 when it began trading on the Toronto Stock Exchange.
The Company changed its symbol to “DEJ” after a one for three share consolidation effective October 1, 2003.
The Company changed its Toronto Stock Exchange trading symbol on May 23, 2007 to “DEJ” to coincide with its listing
on the American Stock Exchange (now NYSE Amex) on the same day under the symbol “DEJ”.



The following table contains the annual
high and low market prices for the five most recent fiscal years:



Toronto Stock Exchange (Cdn$)



|        |  | High |      |  | Low |  
|------- |  | ---- | ---- |  | --- | -
|2011    |  | $    | 0.61 |  |     | $
|2010    |  | $    | 0.48 |  |     | $
|2009    |  | $    | 0.76 |  |     | $
|2008(1) |  | $    | 2.17 |  |     | $
|2007    |  | $    | 3.28 |  |     | $



(1) Common shares listed on Toronto Stock Exchange on November
20, 2008.



NYSE Amex (US$)



|        |  | High |      |  | Low |  
|------- |  | ---- | ---- |  | --- | -
|2011    |  | $    | 0.61 |  |     | $
|2010    |  | $    | 0.50 |  |     | $
|2009    |  | $    | 0.67 |  |     | $
|2008    |  | $    | 2.17 |  |     | $
|2007(1) |  | $    | 2.95 |  |     | $

(1) Shares listed for trading on NYSE Amex on May 7, 2007



The following table contains the high
and low market prices for our common shares on the Toronto Stock Exchange and the NYSE Amex for each fiscal quarter for the two
most recent fiscal years and any subsequent period:



Toronto Stock Exchange (Cdn$)



|     |  | High |      |  | Low |  
|---- |  | ---- | ---- |  | --- | -
|2012 |  |      |      |  |     |  
|Q1   |  | $    | 0.46 |  |     | $
|2011 |  |      |      |  |     |  
|Q4   |  | $    | 0.61 |  |     | $
|Q3   |  | $    | 0.34 |  |     | $
|Q2   |  | $    | 0.44 |  |     | $
|Q1   |  | $    | 0.51 |  |     | $
|2010 |  |      |      |  |     |  
|Q4   |  | $    | 0.38 |  |     | $
|Q3   |  | $    | 0.41 |  |     | $
|Q2   |  | $    | 0.45 |  |     | $
|Q1   |  | $    | 0.48 |  |     | $



(1) Common shares listed on Toronto Stock Exchange
on November 20, 2008.



65







NYSE Amex (US$)



|     |  | High |      |  | Low |  
|---- |  | ---- | ---- |  | --- | -
|2012 |  |      |      |  |     |  
|Q1   |  | $    | 0.57 |  |     | $
|2011 |  |      |      |  |     |  
|Q4   |  | $    | 0.61 |  |     | $
|Q3   |  | $    | 0.40 |  |     | $
|Q2   |  | $    | 0.45 |  |     | $
|Q1   |  | $    | 0.53 |  |     | $
|2010 |  |      |      |  |     |  
|Q4   |  | $    | 0.38 |  |     | $
|Q3   |  | $    | 0.44 |  |     | $
|Q2   |  | $    | 0.50 |  |     | $
|Q1   |  | $    | 0.47 |  |     | $

(1) Shares listed for trading on NYSE Amex on May 7, 2007



The following table contains the high
and low market prices for our common shares on the Toronto Stock Exchange and the NYSE Amex for each of the most recent six months:



Toronto Stock Exchange (Cdn$)



|               |  | High |      |  | Low |  
|-------------- |  | ---- | ---- |  | --- | -
|October, 2011  |  | $    | 0.40 |  |     | $
|November, 2011 |  | $    | 0.44 |  |     | $
|December, 2011 |  | $    | 0.61 |  |     | $
|January, 2012  |  | $    | 0.55 |  |     | $
|February, 2012 |  | $    | 0.50 |  |     | $
|March, 2012    |  | $    | 0.46 |  |     | $



NYSE Amex (US$)



|               |  | High |      |  | Low |  
|-------------- |  | ---- | ---- |  | --- | -
|October, 2011  |  | $    | 0.39 |  |     | $
|November, 2011 |  | $    | 0.44 |  |     | $
|December, 2011 |  | $    | 0.61 |  |     | $
|January, 2012  |  | $    | 0.57 |  |     | $
|February, 2012 |  | $    | 0.51 |  |     | $
|March, 2012    |  | $    | 0.49 |  |     | $



On April 20, 2012, the closing price of
our common shares on the TSX was Cdn $0.29 per common share and on the NYSE Amex was US $0.30 per common share.



| | B. | Plan of Distribution
| | -- | --------------------



Not Applicable.



66







| | C. | Markets
| | -- | -------



Our common shares, no par value, are traded
on the TSX under the symbol “DEJ” and are traded on the NYSE Amex under the symbol "DEJ".



| | D. | Selling Shareholders
| | -- | --------------------



Not Applicable.



| | E. | Dilution
| | -- | --------



Not Applicable.



| | F. | Expenses of the Issue
| | -- | ---------------------



Not Applicable.



67







ITEM
10. ADDITIONAL INFORMATION



| | A. | Share Capital
| | -- | -------------



Not Applicable.



| | B. | Memorandum and Articles of Association
| | -- | --------------------------------------



Dejour Energy Inc. (formerly Dejour Enterprises
Ltd.) is incorporated under the laws of British Columbia, Canada. The Company was originally incorporated as “Dejour Mines
Limited” on March 29, 1968 under the laws of the Province of Ontario. By articles of amendment dated October 30, 2001, the
issued shares were consolidated on the basis of one (1) new for every fifteen (15) old shares and the name of the Company was
changed to Dejour Enterprises Ltd. On June 6, 2003, the shareholders approved a resolution to complete a one-for-three-share consolidation,
which became effective on October 1, 2003. In 2005, the Company was continued in British Columbia under the Business Corporations
Act (British Columbia) (the “Act”). Effective March 9, 2011, the Company changed its name from Dejour Enterprises
Ltd. to Dejour Energy Inc.



There are no restrictions on what business
the Company may carry on in the Articles of Incorporation.



Under Article 17 of the Company’s
Articles and under Part 5, Division 3 of the Act, a director must declare its interest in any existing or proposed contract or
transaction with the Company and is not allowed to vote on any transaction or contract with the Company in which has a disclosable
interest, unless all directors have a disclosable interest in that contract or transaction, in which case any or all of those
directors may vote on such resolution. A director may hold any office or place of profit with the Company in conjunction with
the office of director, and no director shall be disqualified by his office from contracting with the Company. A director or his
firm may act in a professional capacity for the Company and he or his firm shall be entitled to remuneration for professional
services. A director may become a director or other officer or employee of, or otherwise interested in, any corporation or firm
in whom the Company may be interested as a shareholder or otherwise. The director shall not be accountable to the Company for
any remuneration or other benefits received by him from such other corporation or firm subject to the provisions of the Act.



Article 16 of the Company’s Articles
addresses the powers and duties of the directors. Directors must, subject to the Act, manage or supervise the management of the
business and affairs of the Company and have the authority to exercise all such powers which are not required to be exercised
by the shareholders as governed by the Act. Article 19 of the Company’s Articles addresses Committees of the Board of Directors.
Directors may, by resolution, create and appoint an executive committee consisting of the director or directors that they deem
appropriate. This executive committee has, during the intervals between meetings of the Board, all of the directors’ powers,
except the power to fill vacancies in the Board, the power to remove a Director, the power to change the membership of, or fill
vacancies in, any committee of the Board and any such other powers as may be set out in the resolution or any subsequent directors’
resolution. Directors may also by resolution appoint one or more committees other than the executive committee.



These committees may be delegated any
of the directors’ powers except the power to fill vacancies on the board of directors, the power to remove a director, the
power to change the membership or fill vacancies on any committee of the directors, and the power to appoint or remove officers
appointed by the directors. Article 18 of the Company’s Articles details the proceedings of directors. A director may, and
the Secretary or Assistant Secretary, if any, on the request of a director must call a meeting of the directors at any time. The
quorum necessary for the transaction of the business of the directors may be fixed by the directors and if not so fixed shall
be deemed to a majority of the directors. If the number of directors is set at one, it quorum is deemed to be one director.



Article 8 of the Company’s Articles
details the borrowing powers of the directors. They may, on behalf of the Company:



| | · | Borrow
                                                                                                               money in a manner
                                                                                                               and amount, on
                                                                                                               any security, from
                                                                                                               any source and
                                                                                                               upon any terms
                                                                                                               and conditions
                                                                                                               as they deem appropriate;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



68







| | · | Issue
                                                                                                               bonds, debentures,
                                                                                                               and other debt
                                                                                                               obligations either
                                                                                                               outright or as
                                                                                                               security for any
                                                                                                               liability or obligation
                                                                                                               of the Company
                                                                                                               or any other person
                                                                                                               at such discounts
                                                                                                               or premiums and
                                                                                                               on such other terms
                                                                                                               as they consider
                                                                                                               appropriate;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Guarantee
                                                                                                               the repayment of
                                                                                                               money by any other
                                                                                                               person or the performance
                                                                                                               of any obligation
                                                                                                               of any other person;
                                                                                                               and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Mortgage,
                                                                                                               charge, or grant
                                                                                                               a security in or
                                                                                                               give other security
                                                                                                               on, the whole or
                                                                                                               any part of the
                                                                                                               present or future
                                                                                                               assets and undertaking
                                                                                                               of the Company.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



A director need not be a shareholder of
the Company, and there are no age limit requirements pertaining to the retirement or non-retirement of directors. The directors
are entitled to the remuneration for acting as directors, if any, as the directors may from time to time determine. If the directors
so decide, the remuneration of directors, if any, will be determined by the shareholders. The remuneration may be in addition
to any salary or other remuneration paid to any officer or employee of the Company as such who is also a director. The Company
must reimburse each director for the reasonable expenses that he or she may incur in and about the business of the Company. If
any director performs any professional or other services for the Company that in the opinion of the directors are outside the
ordinary duties of a director, or if any director is otherwise specially occupied in or about the Company’s business, he
or she may be paid remuneration fixed by the directors, or, at the option of that director, fixed by ordinary resolution and such
remuneration may be either in addition to, or in substitution for, any other remuneration that he or she may be entitled to receive.
Unless other determined by ordinary resolution, the directors on behalf of the Company may pay a gratuity or pension or allowance
on retirement to any director who has held any salaried office or place of profit with the Company or to his or her spouse or
dependents and may make contributions to any fund and pay premiums for the purchase or provision of any such gratuity, pension
or allowance.



Article 21 of the Company’s Articles
provides for the mandatory indemnification of directors, former directors, and alternate directors, as well as his or hers heirs
and legal personal representatives, or any other person, to the greatest extent permitted by the Act. The indemnification includes
the mandatory payment of expenses actually and reasonably incurred by such person in respect of that proceeding. The failure of
a director, alternate director, or officer of the Company to comply with the Act or the Company’s Articles does not invalidate
any indemnity to which he or she is entitled. The directors may cause the Company to purchase and maintain insurance for the benefit
of eligible parties who:



| | (a) | is or was a director, alternate director,
                                                           officer, employee or agent of the Company;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | is or was a director, alternate director,
                                                           officer employee or agent of a corporation at a time when the corporation
                                                           is or was an affiliate of the Company;
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | at the request of the Company, is or
                                                           was a director, alternate director, officer, employee or agent of a
                                                           corporation or of a partnership, trust, joint venture or other unincorporated
                                                           entity;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (d) | at the request of the Company, holds
                                                           or held a position equivalent to that of a director, alternate director
                                                           or officer of a partnership, trust, joint venture or other unincorporated
                                                           entity;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



against any liability incurred by him
or her as such director, alternate director, officer, employee or agent or person who holds or held such equivalent position



Under Article 9 of the Company’s
Articles and subject to the Act, the Company may alter its authorized share structure by directors’ resolution or ordinary
resolution, in each case determined by the directors, to:



| | (a) | create one or more classes or series
                                                           of shares or, if none of the shares of a series of a class or series
                                                           of shares are allotted or issued, eliminate that class or series of
                                                           shares;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



69







| | (b) | increase, reduce or eliminate the maximum
                                                           number of shares that the Company is authorized to issue out of any
                                                           class or series of shares or establish a maximum number of shares that
                                                           the company is authorized to issue out of any class or series of shares
                                                           for which no maximum is established;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | subdivide or consolidate all or any
                                                           of its unissued, or fully paid issued, shares;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------



| | (d) | if the Company is authorized to issue
                                                           shares of a class or shares with par value;
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------



| | (i) | decrease the par value of those
                                                               shares; or
| | --- | ---------------------------------------------------------------------------------------------------------



| | (ii) | if none of the shares of that
                                                                class of shares are allotted or issued, increase the par value
                                                                of those shares;
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (e) | change all or any of its unissued,
                                                           or fully paid issued, shares with par value into shares without par
                                                           value or any of its unissued shares without par value into shares with
                                                           par value;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (f) | alter the identifying name of any of
                                                           its shares; or
| | --- | --------------------------------------------------------------------------------------------------------------



by ordinary resolution otherwise alter
its share or authorized share structure.



Subject to Section9.2 of the Company’s
Articles and the Act, the Company may:



| | (1) | by directors’ resolution or ordinary
                                                           resolution, in each case determined by the directors, create special
                                                           rights or restrictions for, and attach those special rights or restrictions
                                                           to, the shares of any class or series of shares, if none of those shares
                                                           have been issued, or vary or delete any special rights or restrictions
                                                           attached to the shares of any class or series of shares, if none of
                                                           those shares have been issued; and
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | by special resolution of the shareholders of the class
or series affected, do any of the acts in Section 9.1 of the Company’s Articles if any of the shares of the class or series
of shares has been issued.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company may by resolution of its directors
or by ordinary resolution, in each case as determined by the directors, authorize an alteration of its Notice of Articles in order
to change its name.



The directors may, whenever they think
fit, call a meeting of shareholders. An annual general meeting shall be held once every calendar year at such time (not being
more than 15 months after holding the last preceding annual meeting) and place as may be determined by the Directors.



There are no limitations upon the rights
to own securities.



There are no provisions that would have
the effect of delaying, deferring, or preventing a change in control of the Company.



There is no special ownership threshold
above which an ownership position must be disclosed. However, any ownership level above 10% must be disclosed to the TSX and all
applicable Canadian Securities Commission.



Description of Share Capital



The Company is authorized to issue an
unlimited number of common shares, preferred shares and series 1 preferred shares of which, as of April 26, 2012, 130,786,069
common shares, are issued and outstanding. The rights, preferences and restrictions attaching to each
class of the Company’s shares are as follows:



70







Common Shares



All the common
shares of the Company are of the same class and, once issued, rank equally as to dividends, voting powers, and participation in
assets.  All common shareholders are entitled to receive notice of, attend and be heard at any meeting of shareholders of
the Company, excepting a meeting of the holders of shares of another class, as such, and excepting a meeting of the holders of
a particular series, as such. Holders of shares of common stock are entitled to one vote for each share held of record on all
matters to be acted upon by the shareholders, including the election of directors.Except as otherwise required by law
the holders of the Company’s common shares will possess all voting power. Generally, all matters to be voted on by shareholders
must be approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by
all common shares that are present in person or represented by proxy. Subject to the special rights and restrictions attached
to the shares of any class or series of classes, one holder of common shares issued, outstanding and entitled to vote, represented
in person or by proxy, is necessary to constitute a quorum at any meeting of our shareholders.



Upon liquidation, dissolution or winding
up of the Company, whether voluntary or involuntary, or other disposition of the property or assets of the Company, holders of
shares of common stock are entitled to receive pro rata the assets of Company, if any, remaining after payments of all debts and
liabilities to the holders of preferred shares or any other shares ranking senior to shares of common stock.  No shares have
been issued subject to call or assessment.  There are no pre-emptive or conversion rights and no provisions for redemption
or purchase for cancellation, surrender, or sinking or purchase funds.



The holders of the Company’s common
shares will be entitled to such cash dividends as may be declared from time to time by our Board of Directors but such dividend
will rank junior to the holders of preferred shares and series 1 preferred shares.



In the event of any merger or consolidation
with or into another company in connection with which the Company’s common shares are converted into or exchangeable for
shares, other securities or property (including cash), all holders of the Company’s common shares will be entitled to receive
the same kind and amount of shares and other securities and property (including cash).



There are no
indentures or agreements limiting the payment of dividends on the Company’s common shares and there are no special liquidation
rights or subscription rights attaching to the Company’s common shares.



Preferred Shares



Preferred shares may, at any time and
from time to time, be issued in one or more series and the Company may, by directors’ resolution or ordinary resolution,
do one or more of the following:



| | · | determine
                                                                                                               the maximum number
                                                                                                               of shares of any
                                                                                                               of those series
                                                                                                               of preferred shares
                                                                                                               that the Company
                                                                                                               is authorized to
                                                                                                               issue, determine
                                                                                                               that there is no
                                                                                                               maximum number
                                                                                                               or alter any determination
                                                                                                               made or otherwise,
                                                                                                               in relation to
                                                                                                               a maximum number
                                                                                                               of those shares,
                                                                                                               and authorize the
                                                                                                               alteration of the
                                                                                                               Notice of Articles
                                                                                                               accordingly;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | alter
                                                                                                               the Articles of
                                                                                                               the Company, and
                                                                                                               authorize the alteration
                                                                                                               of the Notice of
                                                                                                               Articles, to create
                                                                                                               an identifying
                                                                                                               name by which the
                                                                                                               shares of any of
                                                                                                               those series of
                                                                                                               preferred shares
                                                                                                               may be identified
                                                                                                               or to alter any
                                                                                                               identifying name
                                                                                                               created for those
                                                                                                               shares; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | alter
                                                                                                               the Articles of
                                                                                                               the Company, and
                                                                                                               authorize the alteration
                                                                                                               of the Notice of
                                                                                                               Articles, to attach
                                                                                                               special rights
                                                                                                               or restrictions
                                                                                                               to the shares of
                                                                                                               any of those series
                                                                                                               of preferred shares
                                                                                                               or to alter any
                                                                                                               special rights
                                                                                                               or restrictions
                                                                                                               attached to those
                                                                                                               shares, subject
                                                                                                               to the special
                                                                                                               rights and restrictions
                                                                                                               attached to the
                                                                                                               preferred shares.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If the alterations, determinations or
authorizations contemplated above are to be made in relation to a series of shares of which there are issued shares, those alterations,
determinations or authorizations may be made by ordinary resolution. However, no special rights or restrictions attached to a
series of preferred shares shall confer on the series of preferred shares priority over another series of preferred shares respecting
(i) dividends or (ii) return of capital on the dissolution of the Company or on the occurrence of any event that entitles the
shareholders holding the shares of all series of preferred shares to a return of capital.



All holders of preferred shares shall
not be entitled to receive notice of, attend and be heard at any meeting of or vote at any meeting of shareholders of the Company,
except any specific meeting of the holders of preferred shares.



71







The holders of the Company’s preferred
shares will be entitled to such cash dividends as may be declared from time to time by our Board of Directors and shall rank senior
to the holders of our common shares and any other shares of the Company ranking junior to the preferred shares.



Upon liquidation, dissolution or winding
up of the Company, whether voluntary or involuntary, or other disposition of the property or assets of the Company, holders of
the holders of the Preferred Shares, including the Series 1 Preferred Shares, shall be entitled to receive, for each preferred
share held, from the property and assets of the Company, a sum equivalent to the amount paid up thereon together with the premium
(if any) thereon and any dividends declared thereon before any amount shall be paid or any property or asset of the Company is
distributed to the holders of the common shares or any other shares ranking junior to the preferred shares with respect to repayment
of capital. After payment to the holders of the preferred shares of the amount so payable to them, the holders of the preferred
shares shall not be entitled to share in any further distribution of the property or assets of the Company except as specifically
provided in special rights and restrictions attached to any particular series of preferred shares



Series 1 Preferred Shares



The Company may, at any time and from
time to time, issue series 1 preferred shares. The Company may, by directors’ resolution or ordinary resolution passed before
the issue of any series 1 preferred shares, in each case as determined by the directors or, if there are issued series 1 preferred
shares, by ordinary resolution, do one or more of the following:



| | · | determine
                                                                                                               the maximum number
                                                                                                               of the series 1
                                                                                                               preferred shares
                                                                                                               that the Company
                                                                                                               is authorized to
                                                                                                               issue, determine
                                                                                                               that there is no
                                                                                                               maximum number
                                                                                                               or alter any determination
                                                                                                               made in relation
                                                                                                               to a maximum number
                                                                                                               of those shares,
                                                                                                               and authorize the
                                                                                                               alteration of the
                                                                                                               Notice of Articles
                                                                                                               accordingly;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | alter
                                                                                                               the Articles of
                                                                                                               the Company, and
                                                                                                               authorize the alteration
                                                                                                               of the Notice of
                                                                                                               Articles, to alter
                                                                                                               the name of the
                                                                                                               series 1 preferred
                                                                                                               shares; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | alter
                                                                                                               the Articles of
                                                                                                               the Company, and
                                                                                                               authorize the alteration
                                                                                                               of the Notice of
                                                                                                               Articles, to attach
                                                                                                               special rights
                                                                                                               or restrictions
                                                                                                               to the series 1
                                                                                                               preferred shares
                                                                                                               or to alter any
                                                                                                               special rights
                                                                                                               or restrictions
                                                                                                               attached to those
                                                                                                               shares, subject
                                                                                                               to the special
                                                                                                               rights and restrictions
                                                                                                               attached to the
                                                                                                               preferred shares.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The special rights and restrictions that
may be attached to the series 1 preferred shares may include, without in any way limiting or restricting the generality of such
paragraph, rights and restrictions respecting the following:



| | · | the
                                                                                                               rate or amount
                                                                                                               of dividends, whether
                                                                                                               cumulative, non-cumulative
                                                                                                               or partially cumulative
                                                                                                               and the dates,
                                                                                                               places and currencies
                                                                                                               of payment thereof;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the
                                                                                                               consideration for,
                                                                                                               and the terms and
                                                                                                               conditions of,
                                                                                                               any purchase for
                                                                                                               cancellation or
                                                                                                               redemption thereof,
                                                                                                               including redemption
                                                                                                               after a fixed term
                                                                                                               or at a premium,
                                                                                                               conversion or exchange
                                                                                                               rights;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the
                                                                                                               terms and conditions
                                                                                                               of any share purchase
                                                                                                               plan or sinking
                                                                                                               fund;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the
                                                                                                               restrictions respecting
                                                                                                               the payment of
                                                                                                               dividends on, or
                                                                                                               the repayment of
                                                                                                               capital in respect
                                                                                                               of, any other shares
                                                                                                               of the Company;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | voting
                                                                                                               rights; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------



| | · | the
                                                                                                               issuance of any
                                                                                                               shares of any other
                                                                                                               class or series
                                                                                                               of shares of the
                                                                                                               Company or any
                                                                                                               evidences of indebtedness
                                                                                                               or any other securities
                                                                                                               convertible into
                                                                                                               or exchangeable
                                                                                                               for such shares
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



No special rights or restrictions attached
to the series 1 preferred shares confers on the series 1 preferred shares priority over another series of preferred shares respecting
(i) dividends or (ii) return of capital on the dissolution of the Company or on the occurrence of any event that entitles the
shareholders holding the shares of all series of preferred shares to a return of capital.



72







All holders of series 1 preferred shares
are not entitled to receive notice of, attend and be heard at any meeting of or vote at any meeting of shareholders of the Company,
except any specific meeting of the holders of series 1 preferred shares.



The holders of the Company’s series
1 preferred shares will be entitled to such cash dividends as may be declared from time to time by the Company’s Board of
Directors and will rank senior to the holders of the Company’s common shares and any other shares of the Company ranking
junior to the preferred shares.



Dividend Record



The Company has not paid any dividends
on its common shares and has no policy with respect to the payment of dividends.



Ownership of Securities and Change
of Control



There are no limitations on the rights
to own securities, including the rights of non-resident or foreign shareholders to hold or exercise voting rights on the securities
imposed by foreign law or by the constituent documents of the Company.



Any person who beneficially owns, directly
or indirectly, or exercises control or direction over more than 10% of the Company’s voting shares is considered an insider,
and must file an insider report with the Canadian regulatory commissions within ten days of becoming an insider, disclosing any
direct or indirect beneficial ownership of, or control or direction over securities of the Company. In addition, if the Company
itself holds any of its own securities, the Company must disclose such ownership.



There are no provisions in the Company’s
Articles or Notice of Articles that would have an effect of delaying, deferring or preventing a change in control of the Company
operating only with respect to a merger, acquisition or corporate restructuring involving the Company or its subsidiaries.



Differences from Requirements in
the United States



Except for the Company’s quorum
requirements, certain requirements related to related party transactions and the requirement for notice of shareholder meetings,
discussed above, there are no significant differences in the law applicable to the Company, in the areas outlined above, in Canada
versus the United States. In most states in the United States, a quorum must consist of a majority of the shares entitled to vote.
Some states allow for a reduction of the quorum requirements to less than a majority of the shares entitled to vote. Having a
lower quorum threshold may allow a minority of the shareholders to make decisions about the Company, its management and operations.
In addition, most states in the United States require that a notice of meeting be mailed to shareholders prior to the meeting
date. Additionally, in the United States, a director may not be able to vote on the approval of any transaction in which the director
has an interest.



| | C. | Material Contracts
| | -- | ------------------



The following are material contracts to which the Company is
a party:



Bank Line of Credit and Bridge Loan



In March 2010, the Company
negotiated a credit facility for a bridge loan of up to $5,000,000 with a due date of September 22, 2010. This facility was secured
by a first floating charge over all the assets of DEAL, and bore interest at 12% per annum. At December 31, 2011, the Canadian
oil and natural gas interests and properties with a carrying amount of $nil (December 31, 2010 - $12,418,812) were held as collateral
for the loan. By agreement, the due date of the loan was extended to October 31, 2011. Pursuant to the agreement, outstanding
advances were due to be fully repaid no later than October 31, 2011 or, upon the earlier of non-core asset sales of DEAL. During
the year ended December 31, 2011, the Company made total monthly principal payments of $700,000 and repaid the outstanding balance
of $4,100,000 in full. This facility was used to support the development of the Company’s oil and gas properties in the
Drake/Woodrush area.



73







In September 2011, the Company obtained
a $7 million revolving operating demand loan (“line of credit”), including a letter of credit facility to a maximum
of $700,000 for a maximum one year term, from a Canadian Bank to refinance the bridge loan and to provide operating funds. The
line of credit is at an interest rate of Prime + 1% (total 4% p.a. currently) and collateralized by a $10,000,000 debenture over
all assets of DEAL and a $10,000,000 guarantee from Dejour Energy Inc. In December 2011, the Company renewed the line of credit
with the Canadian Bank. The next review date is scheduled on or before May 1, 2012, but subject to change at the discretion of
the bank. As at December 31, 2011, a total of $5,545,457 of this facility was utilized.



According to the terms of the facility,
DEAL is required to maintain a working capital ratio of greater than 1:1 at all times. The working capital ratio is defined as
the ratio of (i) current assets (including any undrawn and authorized availability under the facility) less unrealized hedging
gains to (ii) current liabilities (excluding current portion of outstanding balances of the facility) less unrealized hedging
losses. As at December 31, 2011, the Company is in compliance with the working capital ratio requirement.



HEC loan to DEAL



On May 15, 2008, DEAL issued a promissory
note for up to $2,000,000 to HEC, a private company controlled by the CEO of the Company. The promissory
note is secured by the assets, equipment, fixtures, inventory and accounts receivable of DEAL, bears interest at the Royal Bank
of Canada Prime Rate per annum, and has a loan fee of 1% of the outstanding amount per month. The principal, interest and loan
fee were payable on demand after August 15, 2008. Upon securing the bank line of credit in August 2008, HEC signed a subordination
and postponement agreement which restricted the principal repayment of the promissory note subject to the bank’s prior approval
and DEAL meeting certain loan covenants. As at December 31, 2008, $1,950,000 had been advanced on the promissory note. Repayments
of $90,642 and $59,358 were made on March 5, 2009 and on April 3, 2009 respectively. As at June 22, 2009, the Company assumed
from DEAL the remaining outstanding balance of $1,800,000.



HEC loan to the Company



On August 11, 2008, the Company borrowed
$600,000 from HEC. The loan was secured by all assets of the Company, repayable on demand, bore interest at the Canadian prime
rate per annum, and had a loan fee of 1% of the outstanding amount per month. At December 31, 2008 $600,000 had been advanced
to the Company. On March 19, 2009, a repayment of $600,000 was made and as at December 31, 2009, no
balance remained outstanding.



On September 12, 2008, as consideration
for HEC agreeing to postpone the $2,000,000 promissory note and providing the additional loan of $600,000, HEC was granted an
option to become a working interest partner with DEAL. Upon electing to become a working interest partner, HEC must pay DEAL an
amount equal to 10% of the actual price paid for the acquisition of the Montney (Buick Creek) property in northeastern British
Columbia. HEC is also required to pay its pro-rata share of the operating costs. On February 26, 2009, HEC exercised its option
and elected to become a 10% working interest partner in DEAL’s Montney (Buick Creek) property. The option price was $90,642.



On June 22, 2009, as amended on September
30, 2009 and December 31, 2009, the Company entered into an agreement with HEC in regard to the outstanding debt of $1,800,000
assumed from DEAL by the Company. Pursuant to the agreements, $450,000 of the debt was converted into 1,363,636 units consisting
of 1,363,636 common shares and 681,818 common share purchase warrants exercisable at a price of $0.55 for a period of 5 years.
The fair value of the units was estimated to be $450,000. The remaining $1,350,000 was converted into a 12% note due on January
1, 2011 and the Company was required to pay 3% fee on the outstanding balance of the loan as at December 31, 2009. As a result
of the sale of 5% working interest in the Drake/Woodrush area to HEC in December 2009 (effective June 1, 2009), both parties agreed
to reduce the loan balance by the purchase price of $911,722 including taxes and adjustments. In addition, the loan balance was
further reduced by a payment of $50,351. As at December 31, 2009, a balance of $387,927 remained outstanding. In December 2010,
a repayment of $137,927 was made to HEC by the Company. As at December 31, 2010, a balance of $250,000 remained outstanding. Subsequent
to December 31, 2010, the loan was repaid in full in cash.



Brownstone loan to the Company



On June 18, 2008, a promissory note with
a face value of $4,078,800 (US $4,000,000) was issued to Brownstone. Brownstone owned more than 10% of outstanding common shares
of the Company and one of Brownstone’s directors also serves on the board of directors of the Company. The
promissory note was securedby a general security agreement issued by the Company in favour of Brownstone, and
bore interest at 5% per annum. The principal and interest were repayable by the earlier of the completion of an equity and/or
debt financing, and July 1, 2009. During the year ended December 31, 2008, a repayment of $222,948 (US$220,000) was made and at
December 31, 2008 a balance of $4,604,040 (US$3,780,000) owed.



74







On June 22, 2009, as amended on September
30, 2009 and December 31, 2009, the Company entered into an agreement with Brownstone in regard to the outstanding debt of $4,604,040
(US$3,780,000). Pursuant to the agreement, $2,200,000 (US$2,000,000) of the debt was converted into 6,666,667 units consisting
of 6,666,667 common shares and 3,333,333 common share purchase warrants exercisable at a price of $0.55 for a period of 5 years.
The fair value of the units was estimated to be US$2,000,000. The remaining $2,070,140 (US$1,780,000) of the debt was converted
into a Canadian dollar denominated 12% note due on January 1, 2011. As at December 31, 2009, a balance of $1,957,474 remained
outstanding comprised of the loan balance of $2,070,140 minus unamortized portion of finance fees of $112,666. In December 2010,
the loan was paid off in full in cash.



As a part of the debt settlement on June
22, 2009, the Company also issued Brownstone 2,000,000 common share purchase warrants exercisable at $0.50 for a period of 2 years,
with an option to force the exercise of the warrants if the Company’s common shares trade at a price of $0.80 or greater
for 30 consecutive calendar days.



Purchase and Sale Agreement between
the Registrant and Pengrowth Corporation dated April 17, 2009



In April 2009, the Company’s Canadian
subsidiary, DEAL, entered into a purchase and sale agreement with Pengrowth Corporation. Under the agreement, DEAL agreed to sell
100% of its working interest in the Carson Creek area to Pengrowth for gross proceeds of $2,100,000.



In 2009, the Company’s Canadian
subsidiary, DEAL, entered into the following purchase and sale Agreements in regard to the disposition of a total 25% working
interest in the Drake/Woodrush area for total gross proceeds of $4,500,000:



|Date of agreement |  | Transferee                   |  | Working interest % |    |   | Gross Proceeds |  
|----------------- |  | ---------------------------- |  | ------------------ | -- | - | -------------- | -
|June 10, 2009     |  | John James Robinson          |  |                    | 3  | % |                | $
|June 15, 2009     |  | C.U. YourOilRig Corp.        |  |                    | 10 | % |                | $
|July 8, 2009      |  | Woodrush Energy Partners LLC |  |                    | 6  | % |                | $
|July 31, 2009     |  | RockBridge Energy Inc.       |  |                    | 1  | % |                | $
|December 31, 2009 |  | HEC                          |  |                    | 5  | % |                | $



| | D. | Exchange Controls
| | -- | -----------------



There are no governmental laws, decrees,
or regulations in Canada relating to restrictions on the export or import of capital, or affecting the remittance of interest,
dividends, or other payments to non-resident holders of the Company’s common stock. Any remittances of dividends to United
States residents are, however, subject to a 15% withholding tax (10% if the shareholder is a corporation owning at least 10% of
the outstanding Common Stock of the Company) pursuant to Article X of the reciprocal tax treaty between Canada and the United
States.



Except as provided in the Investment Canada
Act (the “ICA”), there are no limitations specific to the rights of non-Canadians to hold or vote the common shares
of the Company under the laws of Canada or the Province of British Columbia or in the charter documents of the Company.



Management of the Company considers that
the following general summary is materially complete and fairly describes those provisions of the ICA pertinent to an investment
by an American investor in the Company.



The ICA requires a non-Canadian making
an investment which would result in the acquisition of control of a Canadian business, the gross value of the assets of which
exceed certain threshold levels or the business activity of which is related to Canada’s cultural heritage or national identity,
to either notify, or file an application for review with, Investment Canada, the federal agency created by the ICA.



The notification procedure involves a
brief statement of information about the investment of a prescribed form which is required to be filed with Investment Canada
by the investor at any time up to 30 days following implementation of the investment. It is intended that investments requiring
only notification will proceed without government intervention unless the investment is in a specific type of business activity
related to Canada’s cultural heritage and national identity.



75







If an investment is reviewable under the
ICA, an application for review in the form prescribed is normally required to be filed with Investment Canada prior to the investment
taking place and the investment may not be implemented until the review has been completed and the Minister responsible for Investment
Canada is satisfied that the investment is likely to be of net benefit to Canada. If the Minister is not satisfied that the investment
is likely to be of net benefit to Canada, the non-Canadian must not implement the investment or, if the investment has been implemented,
may be required to divest himself of control of the business that is the subject of the investment.



The following investments by non-Canadians
are subject to notification under the ICA:



| | (a) | an investment to establish a new Canadian business; and
| | --- | -------------------------------------------------------



| | (b) | an investment to acquire control of a Canadian business that is
                                                           not reviewable pursuant to the ICA.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------



An investment is reviewable under the
ICA if there is an acquisition by a non-Canadian of a Canadian business and the asset value of the Canadian business being acquired
equals or exceeds the following thresholds:



| | (a) | for non-WTO Investors, the threshold
                                                           is $5,000,000 for a direct acquisition and over $50,000,000 for an
                                                           indirect acquisition. The $5,000,000 threshold will apply however for
                                                           an indirect acquisition if the asset value of the Canadian business
                                                           being acquired exceeds 50% of the asset value of the global transaction;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | except as specified in paragraph (c)
                                                           below, a threshold is calculated annually for reviewable direct acquisitions
                                                           by or from WTO Investors. The threshold for 2012 is $330,000,000. Pursuant
                                                           to Canada’s international commitments, indirect acquisitions
                                                           by or from WTO Investors are not reviewable; and
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | the limits set out in paragraph (a)
                                                           apply to all investors for acquisitions of a Canadian business that
                                                           is a cultural business.:
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



WTO Investor as defined in the ICA means:



(a)          
an individual, other than a Canadian, who is a national of a WTO Member or who has the right of 	permanent residence in
relation to that WTO Member;



| | (b) | a government of a WTO Member, whether federal, state
or local, or an agency thereof;
| | --- | ------------------------------------------------------------------------------------



| |  | an entity that is not a Canadian-controlled
                                                        entity, and that is a WTO investor-controlled entity, as determined in
                                                        accordance with the ICA;
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | a corporation or limited partnership:
| | --- | -------------------------------------



| | (i) | that is not a Canadian-controlled
                                                               entity, as determined pursuant to the ICA;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------

| | (ii) | that is not a WTO investor within
                                                                the meaning of the ICA;
| | ---- | -------------------------------------------------------------------------------------------------------------------------

| | (iii) | of which less than a majority
                                                                 of its voting interests are owned by WTO investors;
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------

| | (iv) | that is not controlled in fact
                                                                through the ownership of its voting interests; and
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------

| | (v) | of which two thirds of the members
                                                               of its board of directors, or of which two thirds of its general
                                                               partners, as the case may be, are any combination of Canadians
                                                               and WTO investors;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (d) | a trust:
| | --- | --------



| | (i) | that is not a Canadian-controlled
                                                               entity, as determined pursuant to the ICA;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------

| | (ii) | that is not a WTO investor within
                                                                the meaning of the ICA;
| | ---- | -------------------------------------------------------------------------------------------------------------------------

| | (iii) | that is not controlled in fact
                                                                 through the ownership of its voting interests, and
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------

| | (iv) | of which two thirds of its trustees
                                                                are any combination of Canadians and WTO investors, or
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------



76







| | (e) | any other form of business organization specified by
the regulations that is controlled by a WTO investor.
| | --- | ----------------------------------------------------------------------------------------------------------



WTO Member as defined in the ICA means a member of the World
Trade Organization.



Generally, an acquisition is direct if
it involves the acquisition of control of the Canadian business or of its Canadian parent or grandparent and an acquisition is
indirect if it involves the acquisition of control of a non-Canadian parent or grandparent of an entity carrying on the Canadian
business. Control may be acquired through the acquisition of actual or de jure voting control of a Canadian corporation or through
the acquisition of substantially all of the assets of the Canadian business. No change of voting control will be deemed to have
occurred if less than one-third of the voting control of a Canadian corporation is acquired by an investor.



The ICA specifically exempts certain transactions
from either notification or review. Included among the category of transactions is the acquisition of voting shares or other voting
interests by any person in the ordinary course of that person’s business as a trader or dealer in securities.



| | E. | Taxation
| | -- | --------



CANADIAN FEDERAL INCOME TAX CONSIDERATIONS



The following summary describes the principal
Canadian federal income tax considerations generally applicable to a holder who is the beneficial holder of common shares of the
Company and who, at all relevant times, for the purposes of the application of the Income Tax Act(Canada) and the Income
Tax Regulations (collectively, the “Canada Tax Act”) (i) deals at arm’s length with the Company, (ii)
is not affiliated with the Company, (iii) holds the common shares as capital property, and (iv) who, for the purposes of the Canada
Tax Act and the Canada – United States Income Tax Convention (the “Treaty”), is at all relevant times
resident in and only in the United States, is a qualifying person entitled to all of the benefits of the Treaty, and (v) does
not use or hold and is not deemed to use or hold the shares in carrying on a business in Canada (a “U.S. Holder”).
Special rules, which are not discussed below, may apply to a U.S. Holder that is an insurer or authorized foreign bank that carries
on business in Canada and elsewhere.



This summary is based on the current provisions
of the Canada Tax Act and the current published administrative policies and assessing practices of the Canada Revenue Agency (“CRA”)
published in writing prior to the date hereof. This summary also takes into account all specific proposals to amend the Canada
Tax Act and Regulations publicly announced by the Minister of Finance (Canada) prior to the date hereof (collectively, the “Tax
Proposals”) and assumes all Tax Proposals will be enacted in the form proposed. There is no certainty that the Tax Proposals
will be enacted in the form proposed, if at all. This summary does not otherwise take into account or anticipate any changes in
laws or administrative policy or assessing practice whether by judicial, regulatory, administrative or legislative decision or
action nor does it take into account provincial, territorial or foreign income tax legislation or considerations.



This summary is of a general nature only
and is not, and is not intended to be, nor should it be construed to be, legal or tax advice to any particular purchaser of Units.
This summary is not exhaustive of all Canadian federal income tax considerations. Accordingly, purchasers should consult their
own tax advisors regarding the income tax consequences of purchasing Units based on their particular circumstances.



Dividends



Dividends paid or credited or deemed to
be paid or credited to a U.S. Holder by the Company will be subject to Canadian withholding tax at the rate of 25% under the Canada
Tax Act, subject to any reduction in the rate of withholding to which the U.S. Holder is entitled under the Treaty. For example,
if the U.S. Holder is entitled to benefits under the Treaty and is the beneficial owner of the dividends, the applicable rate
of Canadian withholding tax is generally reduced to 15%. The rate of Canadian withholding tax for such U.S. Holder will generally
be further reduced under the Treaty to 5% if such holder is a corporation that beneficially owns at least 10% of the voting shares
of the Company, and may be further reduced to nil if such holder is a qualifying pension fund or charity.



77







Dispositions



A U.S. Holder will not be subject to tax
under the Canada Tax Act on any capital gain realized on a disposition of a common share (including a deemed disposition on death),
unless the common share is or is deemed to be “taxable Canadian property” to the U.S. Holder for the purposes of the
Canada Tax Act and the U.S. Holder is not entitled to relief under the Treaty.



Generally, provided the Shares are listed
on a “designated stock exchange” as defined in the Canada Tax Act (which includes the TSX) at the time of disposition,
the Shares will not constitute taxable Canadian property of a U.S. Holder, unless at any time during the 60-month period immediately
preceding the disposition, the U.S. Holder, persons with whom the U.S. Holder did not deal at arm’s length, or the U.S.
Holder together with all such persons, owned 25% or more of the issued shares of any class of shares of the Company and more than
50% of the fair market value of those shares was derived directly or indirectly from any one or combination of (i) real or immovable
property situated in Canada,(ii) Canadian resource properties, (iii) timber resource properties, and (iv) options in respect of,
or interests in, or for civil rights law rights in, property described in any of (i) to (iii), whether or not that property exists.



U.S. Holders whose common shares may constitute
taxable Canadian property should consult with their own tax advisors.



CERTAIN UNITED STATES FEDERAL INCOME
TAX CONSIDERATIONS



The following is a general summary of
certain material U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from and relating
to the acquisition, ownership, and disposition of common shares of the Company.



This summary is for general information
purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations
that may apply to a U.S. Holder arising from and relating to the acquisition, ownership, and disposition of common shares. In
addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may
affect the U.S. federal income tax consequences to such U.S. Holder, including specific tax consequences to a U.S. Holder under
an applicable tax treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal
income tax advice with respect to any U.S. Holder. Each U.S. Holder should consult its own tax advisor regarding the U.S. federal,
U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences relating to
the acquisition, ownership and disposition of common shares.



No legal opinion from U.S. legal counsel
or ruling from the Internal Revenue Service (the “IRS”) has been requested, or will be obtained, regarding the U.S.
federal income tax consequences of the acquisition, ownership, and disposition of common shares. This summary is not binding on
the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, the positions taken in this
summary. In addition, because the authorities on which this summary is based are subject to various interpretations, the IRS and
the U.S. courts could disagree with one or more of the positions taken in this summary.



Scope of this Summary



Authorities



This summary is based on the Internal
Revenue Code of 1986, as amended (the “Code”), Treasury Regulations (whether final, temporary, or proposed), published
rulings of the IRS, published administrative positions of the IRS, U.S. court decisions, the Convention Between Canada and the
United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the “Treaty”),
and U.S. court decisions that are applicable and, in each case, as in effect and available, as of the date of this document. Any
of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such
change could be applied on a retroactive or prospective basis which could affect the U.S. federal income tax considerations described
in this summary. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation
that, if enacted, could be applied on a retroactive or prospective basis.



78







U.S. Holders



For purposes of this summary, the term
"U.S. Holder" means a beneficial owner of common shares that is for U.S. federal income tax purposes:



| | · | an
                                                                                                             individual who is
                                                                                                             a citizen or resident
                                                                                                             of the U.S.;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | a
                                                                                                             corporation (or other
                                                                                                             entity taxable as
                                                                                                             a corporation for
                                                                                                             U.S. federal income
                                                                                                             tax purposes) organized
                                                                                                             under the laws of
                                                                                                             the U.S., any state
                                                                                                             thereof or the District
                                                                                                             of Columbia;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | an
                                                                                                             estate whose income
                                                                                                             is subject to U.S.
                                                                                                             federal income taxation
                                                                                                             regardless of its
                                                                                                             source; or
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | a
                                                                                                             trust that (a) is
                                                                                                             subject to the primary
                                                                                                             supervision of a
                                                                                                             court within the
                                                                                                             U.S. and the control
                                                                                                             of one or more U.S.
                                                                                                             persons for all substantial
                                                                                                             decisions or (b)
                                                                                                             has a valid election
                                                                                                             in effect under applicable
                                                                                                             Treasury regulations
                                                                                                             to be treated as
                                                                                                             a U.S. person.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Non-U.S. Holders



For purposes of this summary, a “non-U.S.
Holder” is a beneficial owner of common shares that is not a U.S. Holder. This summary does not address the U.S. federal
income tax consequences to non-U.S. Holders arising from and relating to the acquisition, ownership, and disposition of common
shares. Accordingly, a non-U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. federal alternative
minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences (including the potential application
of and operation of any income tax treaties) relating to the acquisition, ownership, and disposition of common shares.



U.S. Holders Subject to Special U.S.
Federal Income Tax Rules Not Addressed



This summary does not address the U.S.
federal income tax considerations applicable to U.S. Holders that are subject to special provisions under the Code, including
the following U.S. Holders: (a) U.S. Holders that are tax-exempt organizations, qualified retirement plans, individual retirement
accounts, or other tax-deferred accounts; (b) U.S. Holders that are financial institutions, underwriters, insurance companies,
real estate investment trusts, or regulated investment companies; (c) U.S. Holders that are dealers in securities or currencies
or U.S. Holders that are traders in securities that elect to apply a mark-to-market accounting method; (d) U.S. Holders that have
a “functional currency” other than the U.S. dollar; (e) U.S. Holders that own common shares as part of a straddle,
hedging transaction, conversion transaction, constructive sale, or other arrangement involving more than one position; (f) U.S.
Holders that acquired common shares in connection with the exercise of employee stock options or otherwise as compensation for
services; (g) U.S. Holders that hold common shares other than as a capital asset within the meaning of Section 1221 of the Code
(generally, property held for investment purposes); (h) partnerships and other pass-through entities (and investors in such partnerships
and entities); or (i) U.S. Holders that own or have owned (directly, indirectly, or by attribution) 10% or more of the total combined
voting power of the outstanding shares of the Company. This summary also does not address the U.S. federal income tax considerations
applicable to U.S. Holders who are: (a) U.S. expatriates or former long-term residents of the U.S. subject to Section 877 of the
Code; (b) persons that have been, are, or will be a resident or deemed to be a resident in Canada for purposes of the Act; (c)
persons that use or hold, will use or hold, or that are or will be deemed to use or hold common shares in connection with carrying
on a business in Canada; (d) persons whose common shares constitute “taxable Canadian property” under the Act; or
(e) persons that have a permanent establishment in Canada for the purposes of the Treaty. U.S. Holders that are subject to special
provisions under the Code, including U.S. Holders described immediately above, should consult their own tax advisor regarding
the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences
relating to the acquisition, ownership and disposition of common shares.



If an entity that is classified as a partnership
(or pass-through entity) for U.S. federal income tax purposes holds common shares, the U.S. federal income tax consequences to
such partnership and the partners of such partnership generally will depend on the activities of the partnership and the status
of such partners. Partners of entities that are classified as partnerships for U.S. federal income tax purposes should consult
their own tax advisor regarding the U.S. federal income tax consequences arising from and relating to the acquisition, ownership,
and disposition of common shares.



79







Tax Consequences Not Addressed



This summary does not address the U.S.
federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences to
U.S. Holders of the acquisition, ownership, and disposition of common shares. Each U.S. Holder should consult its own tax advisor
regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and foreign
tax consequences of the acquisition, ownership, and disposition of common shares.



U.S. Federal Income Tax Consequences
of the Acquisition, Ownership, and Disposition of Common Shares



If the Company is not considered a “passive
foreign investment company” (a “PFIC”, as defined below) at any time during a U.S. Holder’s holding period,
the following sections will generally describe the U.S. federal income tax consequences to U.S. Holders of the acquisition, ownership,
and disposition of the Company’s common shares.



Distributions on Common Shares



A U.S. Holder that receives a distribution,
including a constructive distribution, with respect to a common share will be required to include the amount of such distribution
in gross income as a dividend (without reduction for any Canadian income tax withheld from such distribution) to the extent of
the current or accumulated “earnings and profits” of the Company, as computed for U.S. federal income tax purposes.
A dividend generally will be taxed to a U.S. Holder at ordinary income tax rates. To the extent that a distribution exceeds the
current and accumulated “earnings and profits” of the Company, such distribution will be treated first as a tax-free
return of capital to the extent of a U.S. Holder’s tax basis in the common shares and thereafter as gain from the sale or
exchange of such common shares (see “Sale or Other Taxable Disposition of Common Shares” below). However, the Company
does not intend to maintain the calculations of earnings and profits in accordance with U.S. federal income tax principles, and
each U.S. Holder should therefore assume that any distribution by the Company with respect to the common shares will constitute
ordinary dividend income. Dividends received on common shares generally will not be eligible for the “dividends received
deduction.”



For taxable years beginning before January
1, 2013, a dividend paid by the Company generally will be taxed at the preferential tax rates applicable to long-term capital
gains if (a) the Company is a “qualified foreign corporation” (as defined below), (b) the U.S. Holder receiving
such dividend is an individual, estate, or trust, and (c) certain holding period requirements are met. The Company generally
will be a “qualified foreign corporation” under Section 1(h)(11) of the Code (a “QFC”) if (a) the
Company is eligible for the benefits of the Treaty, or (b) common shares of the Company are readily tradable on an established
securities market in the U.S. However, even if the Company satisfies one or more of such requirements, the Company will not be
treated as a QFC if the Company is a PFIC for the taxable year during which the Company pays a dividend or for the preceding taxable
year. (See the section below under the heading "Passive Foreign Investment Company Rules").



If the Company is a QFC, but a U.S. Holder
otherwise fails to qualify for the preferential tax rate applicable to dividends discussed above, a dividend paid by the Company
to a U.S. Holder, including a U.S. Holder that is an individual, estate, or trust, generally will be taxed at ordinary income
tax rates (and not at the preferential tax rates applicable to long-term capital gains). The dividend rules are complex, and each
U.S. Holder should consult its own tax advisor regarding the dividend rules.



Sale or Other Taxable Disposition of
Common Shares



A U.S. Holder will recognize gain or loss
on the sale or other taxable disposition of common shares in an amount equal to the difference, if any, between (a) the amount
of cash plus the fair market value of any property received and (b) such U.S. Holder’s tax basis in such common shares
sold or otherwise disposed of. Subject to the PFIC rules discussed below, any such gain or loss generally will be capital gain
or loss, which will be long-term capital gain or loss if, at the time of the sale or other disposition, such common shares are
held for more than one year.



Gain or loss recognized by a U.S. Holder
on the sale or other taxable disposition of common shares generally will be treated as “U.S. source” for purposes
of applying the U.S. foreign tax credit rules unless the gain is subject to tax in Canada and is sourced as “foreign source”
under the Treaty and such U.S. Holder elects to treat such gain or loss as “foreign source.”



80







Preferential tax rates apply to long-term
capital gains of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term
capital gains of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under
the Code.



Receipt of Foreign Currency



The amount of any distribution paid in
foreign currency to a U.S. Holder in connection with the ownership of common shares, or on the sale, exchange or other taxable
disposition of common shares, generally will be equal to the U.S. dollar value of such foreign currency based on the exchange
rate applicable on the date of receipt (regardless of whether such foreign currency is converted into U.S. dollars at that time).
A U.S. Holder that receives foreign currency and converts such foreign currency into U.S. dollars at a conversion rate other than
the rate in effect on the date of receipt may have a foreign currency exchange gain or loss, which generally would be treated
as U.S. source ordinary income or loss. If the foreign currency received is not converted into U.S. dollars on the date of receipt,
a U.S. Holder will have a basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Any U.S. Holder
who receives payment in foreign currency and engages in a subsequent conversion or other disposition of the foreign currency may
have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and generally will be U.S. source
income or loss for foreign tax credit purposes. Each U.S. Holder should consult its own U.S. tax advisor regarding the U.S. federal
income tax consequences of receiving, owning, and disposing of foreign currency.



Foreign Tax Credit



A U.S. Holder who pays (whether directly
or through withholding) Canadian income tax with respect to dividends paid on common shares generally will be entitled, at the
election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income tax paid. Generally, a credit
will reduce a U.S. Holder’s U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction will reduce
a U.S. Holder’s income subject to U.S. federal income tax. This election is made on a year-by-year basis and applies to
all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a year.



Complex limitations apply to the foreign
tax credit, including the general limitation that the credit cannot exceed the proportionate share of a U.S. Holder’s U.S.
federal income tax liability that such U.S. Holder’s “foreign source” taxable income bears to such U.S. Holder’s
worldwide taxable income. In applying this limitation, a U.S. Holder’s various items of income and deduction must be classified,
under complex rules, as either “foreign source” or “U.S. source.” Generally, dividends paid by a foreign
corporation should be treated as foreign source for this purpose, and gains recognized on the sale of stock of a foreign corporation
by a U.S. Holder should be treated as U.S. source for this purpose, except as otherwise provided in an applicable income tax treaty,
and if an election is properly made under the Code. However, the amount of a distribution with respect to the common shares that
is treated as a “dividend” may be lower for U.S. federal income tax purposes than it is for Canadian federal income
tax purposes, resulting in a reduced foreign tax credit allowance to a U.S. Holder. In addition, this limitation is calculated
separately with respect to specific categories of income. Dividends paid by the Company generally will constitute “foreign
source” income and generally will be categorized as “passive income.”



The foreign tax credit rules are complex,
and each U.S. Holder should consult its own tax advisor regarding the foreign tax credit rules.



Additional Tax on Passive Income



For tax years beginning
after December 31, 2012, certain individuals, estates and trusts whose income exceeds certain thresholds will be required to pay
a 3.8% Medicare surtax on “net investment income” including, among other things, dividends and net gain from disposition
of property (other than property held in a trade or business). U.S. Holders should consult with their own tax advisors regarding
the effect, if any, of this tax on their ownership and disposition of common shares.



81







Information Reporting; Backup Withholding
Tax For Certain Payments



Under U.S. federal income tax law and
regulations, certain categories of U.S. Holders must file information returns with respect to their investment in, or involvement
in, a foreign corporation. For example, recently enacted legislation generally imposes new U.S. return disclosure obligations
(and related penalties) on U.S. Holders that hold certain specified foreign financial assets in excess of $50,000. The definition
of specified foreign financial assets includes not only financial accounts maintained in foreign financial institutions, but also,
unless held in accounts maintained by a financial institution, any stock or security issued by a non-U.S. person, any financial
instrument or contract held for investment that has an issuer or counterparty other than a U.S. person and any interest in a foreign
entity. U. S. Holders may be subject to these reporting requirements unless their common shares are held in an account at a domestic
financial institution. Penalties for failure to file certain of these information returns are substantial. U.S. Holders of common
shares should consult with their own tax advisors regarding the requirements of filing information returns, these rules, including
the requirement to file an IRS Form 8938.



Payments made within the U.S., or by a
U.S. payor or U.S. middleman, of dividends on, and proceeds arising from the sale or other taxable disposition of, common shares
generally will be subject to information reporting and backup withholding tax, at the rate of 28% (and increasing to 31% for payments
made after December 31, 2012), if a U.S. Holder (a) fails to furnish such U.S. Holder’s correct U.S. taxpayer identification
number (generally on Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the
IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails
to certify, under penalty of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and
that the IRS has not notified such U.S. Holder that it is subject to backup withholding tax. However, certain exempt persons,
such as corporations, generally are excluded from these information reporting and backup withholding tax rules. Any amounts withheld
under the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder’s U.S. federal income tax
liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in a timely manner. Each
U.S. Holder should consult its own tax advisor regarding the information reporting and backup withholding rules.



Passive Foreign Investment Company
Rules



If the Company were to constitute a PFIC
(as defined below) for any year during a U.S. Holder’s holding period, then certain different and potentially adverse tax
consequences would apply to such U.S. Holder’s acquisition, ownership and disposition of common shares.



The Company generally will be a PFIC under
Section 1297 of the Code if, for a tax year, (a) 75% or more of the gross income of the Company for such tax year is passive income
(the “income test”) or (b) 50% or more of the value of its average quarterly assets held by the Company either produce
passive income or are held for the production of passive income, based on the fair market value of such assets (the “asset
test”). “Gross income” generally includes all revenues less the cost of goods sold, plus income from investments
and from incidental or outside operations or sources, and “passive income” includes, for example, dividends, interest,
certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions.
Active business gains arising from the sale of commodities generally are excluded from passive income if substantially all (85%
or more) of a foreign corporation’s commodities are (a) stock in trade of such foreign corporation or other property of
a kind which would properly be included in inventory of such foreign corporation, or property held by such foreign corporation
primarily for sale to customers in the ordinary course of business, (b) property used in the trade or business of such foreign
corporation that would be subject to the allowance for depreciation under Section 167 of the Code, or (c) supplies of a type regularly
used or consumed by such foreign corporation in the ordinary course of its trade or business, and certain other requirements are
satisfied.



In addition, for purposes of the PFIC
income test and asset test described above, if the Company owns, directly or indirectly, 25% or more of the total value of the
outstanding shares of another foreign corporation, the Company will be treated as if it (a) held a proportionate share of the
assets of such other foreign corporation and (b) received directly a proportionate share of the income of such other foreign corporation.
In addition, for purposes of the PFIC income test and asset test described above, “passive income” does not include
any interest, dividends, rents, or royalties that are received or accrued by the Company from a “related person” (as
defined in Section 954(d)(3) of the Code), to the extent such items are properly allocable to the income of such related person
that is not passive income.



Under certain attribution rules, if the
Company is a PFIC, U.S. Holders will be deemed to own their proportionate share of any subsidiary of the Company which is also
a PFIC (a ‘‘Subsidiary PFIC’’), and will be subject to U.S. federal income tax on (i) a distribution on
the shares of a Subsidiary PFIC or (ii) a disposition of shares of a Subsidiary PFIC, both as if the holder directly held the
shares of such Subsidiary PFIC.



82







The Company does not believe that it was
a PFIC during the tax year ending December 31, 2011. However, PFIC classification is fundamentally factual in nature, generally
cannot be determined until the close of the tax year in question, and is determined annually. Additionally, the analysis depends,
in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. Furthermore,
if for any given year the Company reaches either of the test standards (i.e., “income test” and “asset test”),
it remains a PFIC forever, no matter how active it becomes in the future. Consequently, there can be no assurance that the Company
has never been and will not become a PFIC for any tax year during which U.S. Holders hold common shares.



If the Company were a PFIC in any tax
year and a U.S. Holder held common shares, such holder generally would be subject to special rules with respect to “excess
distributions” made by the Company on the common shares and with respect to gain from the disposition of common shares.
An “excess distribution” generally is defined as the excess of distributions with respect to the common shares received
by a U.S Holder in any tax year over 125% of the average annual distributions such U.S. Holder has received from the Company during
the shorter of the three preceding tax years, or such U.S. Holder’s holding period for the common shares. Generally, a U.S.
Holder would be required to allocate any excess distribution or gain from the disposition of the common shares ratably over its
holding period for the common shares. Such amounts allocated to the year of the disposition or excess distribution would be taxed
as ordinary income, and amounts allocated to prior tax years would be taxed as ordinary income at the highest tax rate in effect
for each such year and an interest charge at a rate applicable to underpayments of tax would apply.



While there are U.S. federal income tax
elections that sometimes can be made to mitigate these adverse tax consequences (including, without limitation, the “QEF
Election” and the “Mark-to-Market Election”), such elections are available in limited circumstances and must
be made in a timely manner. U.S. Holders should be aware that, for each tax year, if any, that the Company is a PFIC, the Company
can provide no assurances that it will satisfy the record keeping requirements of a PFIC, or that it will make available to U.S.
Holders the information such U.S. Holders require to make a QEF Election under Section 1295 of the Code with respect of the Company
or any Subsidiary PFIC. U.S. Holders are urged to consult their own tax advisers regarding the potential application of the PFIC
rules to the ownership and disposition of common shares, and the availability of certain U.S. tax elections under the PFIC rules.



| | F. | Dividends and Paying Agents
| | -- | ---------------------------



Not Applicable.



| | G. | Statements by Experts
| | -- | ---------------------



Not Applicable.



| | H. | Documents on Display
| | -- | --------------------



We are subject to the informational requirements
of the Exchange Act and file reports and other information with the SEC. You may read and copy any of our reports and other information
at, and obtain copies upon payment of prescribed fees from, the Public Reference Room maintained by the SEC at 100 F Street,
N.E., Washington, D.C. 20549. In addition, the SEC maintains a Website that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the SEC at http://www.sec.gov. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.



We are required to file reports and other
information with the securities commissions in Canada. You are invited to read and copy any reports, statements or other information,
other than confidential filings, that we file with the provincial securities commissions. These filings are also electronically
available from the Canadian System for Electronic Document Analysis and Retrieval (“SEDAR”) (http://www.sedar.com),
the Canadian equivalent of the SEC’s electronic document gathering and retrieval system.



We “incorporate by reference”
information that we file with the SEC, which means that we can disclose important information to you by referring you to those
documents. The information incorporated by reference is an important part of this Form 20-F and more recent information
automatically updates and supersedes more dated information contained or incorporated by reference in this Form 20-F.



83







As a foreign private issuer, we are exempt
from the rules under the Exchange Act prescribing the furnishing and content of proxy statements to shareholders.



We will provide without charge to each
person, including any beneficial owner, to whom a copy of this annual report has been delivered, on the written or oral request
of such person, a copy of any or all documents referred to above which have been or may be incorporated by reference in this annual
report (not including exhibits to such incorporated information that are not specifically incorporated by reference into
such information). Requests for such copies should be directed to us at the following address: 598
– 999 Canada Place, Vancouver, British Columbia, Canada V6C 3E1, Telephone: (604) 638-5050, Facsimile: (604) 638-5051.



| | I. | Subsidiary Information
| | -- | ----------------------



Not applicable.



84







ITEM
11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



The Company is engaged primarily in mineral
and oil and gas exploration and production and manages related industry risk issues directly. The Company may be at risk for environmental
issues and fluctuations in commodity pricing. Management is not aware of and does not anticipate any significant environmental
remediation costs or liabilities in respect of its current operations.



The Company’s functional currency
is the Canadian dollar. The Company operates in foreign jurisdictions, giving rise to significant exposure to market risks from
changes in foreign currency rates. The financial risk is the risk to the Company’s operations that arises from fluctuations
in foreign exchange rates and the degree of volatility of these rates. Currently, the Company does not use derivative instruments
to reduce its exposure to foreign currency risk.



The Company also has exposure to a number
of risks from its use of financial instruments including: credit risk, liquidity risk, and market risk. This note presents information
about the Company’s exposure to each of these risks and the Company’s objectives, policies and processes for measuring
and managing risk, and the Company’s management of capital.



The Board of Directors has overall responsibility
for the establishment and oversight of the Company’s risk management framework. The Board has implemented and monitors compliance
with risk management policies. The Company’s risk management policies are established to identify and analyze the risks
faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to market conditions and
the Company’s activities.



| | (a) | Credit Risk
| | --- | -----------



Credit risk arises from credit exposure
to receivables due from joint venture partners and marketers included in accounts receivable. The maximum exposure to credit risk
is equal to the carrying value of the financial assets.



The Company is exposed to third party
credit risk through its contractual arrangements with its current or future joint venture partners, marketers of its petroleum
and natural gas production and other parties. In the event such entities fail to meet their contractual obligations to the Company,
such failures may have a material adverse effect on the Company’s business, financial condition, and results of operations.



The objective of managing the third party
credit risk is to minimize losses in financial assets. The Company assesses the credit quality of the partners, taking into account
their financial position, past experience, and other factors. The Company mitigates the risk of non-collection of certain amounts
by obtaining the joint venture partners’ share of capital expenditures in advance of a project and by monitoring accounts
receivable on a regular basis. As at December 31, 2011 and 2010, no accounts receivable has been deemed uncollectible or written
off during the year.



As at December 31, 2011, the Company’s
receivables consist of $64,583 (2010 - $195,514) from joint interest partners, $774,100 (2010 - $408,700) from oil and natural
gas marketers and $48,498 (2010 - $84,412) from other trade receivables.



The Company considers all amounts outstanding
for more than 90 days as past due. Currently, there is no indication that amounts are non-collectable; thus an allowance for doubtful
accounts has not been set up. As at December 31, 2011, $5,787 (2010 - $152,056) of accounts receivable are past due, all of which
are considered to be collectable.



| | (b) | Liquidity Risk
| | --- | --------------



Liquidity risk is the risk that the Company
will not be able to meet its financial obligations as they become due. The Company’s approach to managing liquidity is to
ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due, under both normal and stressed
conditions without incurring unacceptable losses or risking harm to the Company’s reputation.



As
the industry in which the Company operates is very capital intensive, the majority of the Company’s spending is related
to its capital programs. The Company prepares annual capital expenditure budgets, which are regularly monitored and updated as
considered necessary. Further, the Company utilizes authorizations for expenditures on both operated and non-operated projects
to further manage capital expenditures. To facilitate the capital expenditure program, the Company has a bank line of credit facility
(note 8). The Company also attempts to match its payment cycle with collection of oil and natural gas revenues on the 25thof each month.



85







Accounts
payable are considered due to suppliers in one year or less while the bridge loan was repaid in full during the year ended December
31, 2011. The bank line of credit, which is scheduled to be reviewed on or before May 1, 2012, is repayable upon demand.



| | (c) | Market Risk
| | --- | -----------



Market
risk is the risk that changes in market prices, such as foreign exchange rates, commodity prices, and interest rates will affect
the Company’s net earnings. The objective of market risk management is to manage and control market risk exposures within
acceptable limits, while maximizing returns. The Company utilizes financial derivatives to manage certain market risks. All such
transactions are conducted in accordance with the risk management policy that has been approved by the Board of Directors.



| | (d) | Foreign Currency Exchange
                                                                   Risk
| | --- | -------------------------------------------------------------------------------------------------



Foreign
currency exchange rate risk is the risk that the fair value of financial instruments or future cash flows will fluctuate as a
result of changes in foreign exchange rates. Although substantially all of the Company’s oil and natural gas sales are denominated
in Canadian dollars, the underlying market prices in Canada for oil and natural gas are impacted by changes in the exchange rate
between the Canadian and United States dollars. Given that changes in exchange rate have an indirect influence, the impact of
changing exchange rates cannot be accurately quantified. The Company had no forward exchange rate contracts in place as at or
during the year ended December 31, 2011 and 2010.



The Company was exposed to the following foreign currency risk
at December 31, 2011:



|                                         |  | 2011 |            |   | 2010 | 
|---------------------------------------- |  | ---- | ---------- | - | ---- | 
|Expressed in foreign currencies          |  | CND$ |            |   | CND$ | 
|Cash and cash equivalents                |  |      | 1,772,982  |   |      | 
|Accounts receivable                      |  |      | 69,667     |   |      | 
|Accounts payable and accrued liabilities |  |      | (1,346,564 | ) |      | 
|Balance sheet exposure                   |  |      | 496,085    |   |      | 



The following foreign exchange rates applied for the year ended
and as at December 31:



|                       |  | 2011 |        |  | 2010 | 
|---------------------- |  | ---- | ------ |  | ---- | 
|YTD average USD to CAD |  |      | 1.0170 |  |      | 
|December 31, 2011      |  |      | 0.9893 |  |      | 



The Company has performed a sensitivity
analysis on its foreign currency denominated financial instruments. Based on the Company’s foreign currency exposure noted
above and assuming that all other variables remain constant, a 10% appreciation of the US dollar against the Canadian dollar would
result in the decrease of net loss of $49,609 at December 31, 2011 (2010 - $54,276). For a 10% depreciation of the above foreign
currencies against the Canadian dollar, assuming all other variables remain constant, there would be an equal and opposite impact
on net loss.



| | (e) | Interest Rate Risk
| | --- | ------------------



Interest
rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. During the year ended
December 31, 2011, interest rate fluctuations on the Company’s credit facility have no significant impact on its net loss
because the Company had no floating rate debt in place at or during the year ended December 31, 2011. The Company had no interest
rate swaps or financial contracts in place at or during the year ended December 31, 2011 and 2010.



86







| | (f) | Commodity Price Risk
| | --- | --------------------



Commodity
price risk is the risk that the fair value of financial instruments or future cash flows will fluctuate as a result of changes
in commodity prices. Commodity prices for oil and natural gas are impacted by world economic events that dictate the levels of
supply and demand. The Company has attempted to mitigate commodity price risk on its future sales of crude oil through the use
of financial derivative sales contracts.



With respect to the commodity contracts
in place at December 31, 2011, an increase of US$10/barrel in the price of oil, assuming all other variables remain constant,
would have positively impacted income before taxes by approximately $120,000 (2010 - $Nil). A similar decline in commodity prices
would be an equal and opposite impact on income before taxes. The Company had no commodity contracts in place at December 31,
2010.



| | (g) | Capital Management Strategy
| | --- | ---------------------------



The Company’s policy on capital
management is to maintain a prudent capital structure so as to maintain financial flexibility, preserve access to capital markets,
maintain investor, creditor and market confidence, and to allow the Company to fund future developments. The Company considers
its capital structure to include share capital, cash and cash equivalents, bank line of credit, and working capital. In order
to maintain or adjust capital structure, the Company may from time to time issue shares or enter into debt agreements and adjust
its capital spending to manage current and projected operating cash flows and debt levels.



The Company’s current borrowing
capacity is based on the lender’s review of the Company’s oil and gas reserves. The Company is also subject to various
covenants. Compliance with these covenants is monitored on a regular basis and at December 31, 2011, the Company is in compliance
with all covenants.



The Company’s share capital is not
subject to any external restrictions. The Company has not paid or declared any dividends, nor are any contemplated in the foreseeable
future. There have been no changes to the Company’s capital management strategy during the year ended December 31, 2011.



ITEM
12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES



A.-C.



Not applicable.



| | D. | American Depositary Receipts
| | -- | ----------------------------



The Company does not have securities registered as American
Depositary Receipts.



87







PART II



ITEM
13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES



None.



ITEM
14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS



A. – D.



None.



| | E. | Use of Proceeds
| | -- | ---------------



Not Applicable.



ITEM
15. CONTROLS AND PROCEDURES



| | A. | Disclosure Controls and Procedures
| | -- | ----------------------------------



As of the end of the fiscal year ended
December 31, 2011, an evaluation of the effectiveness of the Company’s “disclosure controls and procedures”
(as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), was performed by the Company’s management, under the supervision and with the participation of the Company’s
Chief Executive Officer and Chief Financial Officer. Based on that evaluation, the Company’s
CEO and CFO have concluded that the Company’s disclosure controls and procedures were not effective to give reasonable assurance
that the information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i)
recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and (ii) accumulated
and communicated to management, including its principal executive and principal financial officers, or persons performing similar
functions, as appropriate to allow timely decisions regarding required disclosure.



The reason that our management concluded
that our disclosure controls and procedures were not effective is because a few submissions required to be furnished on Form 6-K
were inadvertently filed late. The applicable information was filed on a timely basis with the Canadian securities regulators
on SEDAR and was publicly accessible on www.SEDAR.com and on the Company’s website, but was not timely furnished
on Edgar on Form 6-K. We have taken steps designed to ensure that future information required to be furnished on Form 6-K will
be so furnished on a timely basis.



| | B. | Management’s Report on Internal Control over Financial
                                                                 Reporting
| | -- | ---------------------------------------------------------------------------------------------------------------------------------



The Company’s
management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, is responsible
for establishing and maintaining adequate internal control over the Company’s internal control over financial reporting,
as such term is defined in Rule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting
is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and
fair presentation of financial statements for external purposes in accordance with International Financial Reporting Standards.It should be noted that a control system, no matter how well conceived or operated, can only provide reasonable assurance,
not absolute assurance, that the objectives of the control system are met. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with policies and procedures may deteriorate.



The Company’s management, (with
the participation of the Company’s Chief Executive Officer and the Company’s Chief Financial Officer), conducted an
evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2011. This
evaluation was based on the criteria set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on its assessment, management has concluded that, as
of December 31, 2011, the Company’s internal control over financial reporting was effective andmanagement’s
assessment did not identify material weaknesses.



88







| | C. | Attestation
                                                                                                          Report of the Registered
                                                                                                          Public Accounting Firm
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Because
the Company is not an “accelerated filer” or “large accelerated filer” within the meaning of such terms
under the Exchange Act, this Annual Report is not required to include an attestation report of the Company’s independent
auditors regarding the Company’s internal control over financial reporting.



| | D. | Changes
                                                                                                          in Internal Control
                                                                                                          over Financial Reporting
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



During the fiscal year ended December
31, 2011, the Company improved staff training and the review of financial statement close process and used 3rd party
consulting assistance to address certain weaknesses in the Company’s internal control over financial reporting that were
identified in 2010.



ITEM
16. [RESERVED]



ITEM
16A. AUDIT COMMITTEE FINANCIAL EXPERT



The Company does not have any audit committee
financial expert that serves on the Company’s audit committee. In 2011, the Company adopted the International Financial
Reporting Standards (“IFRS”), previously we prepared our financial statements in accordance with Canadian generally
accepted accounting principles. The audit committee members do not yet have sufficient experience and in-depth of understanding
of IFRS such that they meet the SEC definition of audit committee financial expert.



ITEM
16B. CODE OF ETHICS



The Board of Directors of the Company
has adopted a Code of Conduct and Ethics that outlines the Company’s values and its commitment to ethical business practices
in every business transaction. This code applies to all directors, officers, and employees of the Company and its subsidiaries
and affiliates. A copy of the Company’s Code of Business Conduct and Ethics is available on the Company’s website
at www.dejour.com.



Reporting
Unethical and Illegal Conduct/Ethics Questions



The Company is committed to taking prompt
action against violations of the Code of Conduct and Ethics and it is the responsibility of all directors, officers and employees
to comply with the Code and to report violations or suspected violations to the Company’s Compliance Officer. Employees
may also discuss their concerns with their supervisor who will then report suspected violations to the Compliance Officer.



The Compliance Officer is appointed by
the Board of Directors and is responsible for investigating and resolving all reported complaints and allegations and shall advise
the President and CEO, the CFO and/or the Audit Committee.



During the fiscal year ended December
31, 2011, the Company did not substantially amend, waive, or implicitly waive any provision of the Code with respect to any of
the directors, executive officers or employees subject to it.



89







ITEM
16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES



The following table sets out the fees
billed to the Company by BDO Canada LLP for professional services rendered during fiscal years ended December 31, 2011 and December
31, 2010. During these years, BDO Canada LLP was our external auditors.



|                           |  | Year ended December 31, 2011 |         |  | Year ended December 31, 2010 |  
|-------------------------- |  | ---------------------------- | ------- |  | ---------------------------- | -
|Audit Fees (1)             |  | $                            | 152,639 |  |                              | $
|Audit Related Services (2) |  | $                            | 251,853 |  |                              | $
|Tax Fees (3)               |  |                              | Nil     |  |                              |  
|All Other Fees (4)         |  |                              | 24,691  |  |                              |  



Notes:

| | (1) | Audit fees consist of fees for
                                                                  the audit of the Company’s annual financial statements
                                                                  and review of the Company’s quarterly financial statements,
                                                                  or services that are normally provided in connection with statutory
                                                                  and regulatory filings or engagements.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Audit-related fees consist of
                                                                  fees for assurance and related services that are reasonably
                                                                  related to the performance of the audit or review of the Company’s
                                                                  financial statements and are not reported as Audit fees. During
                                                                  fiscal 2011 and 2010, the services provided in this category
                                                                  included reviews on IFRS conversion, consultation on accounting
                                                                  and audit-related matters, and review of reserves disclosure.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Tax fees consist of fees for
                                                                  tax compliance services, tax advice and tax planning. During
                                                                  fiscal 2011 and 2010, the services provided in this category
                                                                  included assistance and advice in relation to the preparation
                                                                  of corporate income tax returns.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | The services provided in this
                                                                 category included all other services fees that are not reported
                                                                 as other categories and consist of Canadian Public Accountability
                                                                 Board,, US gatekeeper review and administration fees.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Pre-Approval
Policies and Procedures



Generally, in the past, prior to engaging
the Company’s auditors to perform a particular service, the Company’s audit committee has, when possible, obtained
an estimate for the services to be performed. The audit committee in accordance with procedures for the Company approved all of
the services described above.



In relation to the pre-approval of all
audit and audit-related services and fees the Company’s audit committee charter provides that the audit committee shall:



Review and pre-approve all audit
and audit-related services and the fees and other compensation related thereto, and any non-audit services, provided by the Company’s
external auditors. The pre-approval requirement is waived with respect to the provision of non-audit services if:



| | i. | the aggregate amount of all such non-audit
                                                            services provided to the Company constitutes not more than five percent
                                                            of the total amount of revenues paid by the Company to its external
                                                            auditors during the fiscal year in which the non-audit services are
                                                            provided;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ii. | such services were not recognized
                                                             by the Company at the time of the engagement to be non-audit services;
                                                             and
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | iii. | such services are promptly brought
                                                              to the attention of the Committee by the Company and approved prior
                                                              to the completion of the audit by the Committee or by one or more
                                                              members of the Committee who are members of the Board to whom authority
                                                              to grant such approvals has been delegated by the Committee.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Provided the pre-approval of
the non-audit services is presented to the Committee’s first scheduled meeting following such approval such authority may
be delegated by the Committee to one or more independent members of the Committee.



We did not rely on the de minimus
exemption provided by Section (c)(7)(i)(C) of Rule 2-01 of SEC Regulation S-X in 2011.



ITEM
16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES



None.



90







ITEM
16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PERSONS



The Company did not repurchase any common shares in the fiscal
year ended December 31, 2011.



ITEM
16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT



Effective on August 20, 2010, we terminated the services of
our principal registered independent public accountant, Dale Matheson Carr-Hilton Labonte LLP (“DMCL”).



In DMCL’s principal accountant reports
on our financial statements for each of the fiscal years ended December 31, 2009 and 2008, no adverse opinion was issued and no
opinion of DMCL was modified as to audit scope or accounting principles. No audit reports of DMCL in each of the past two fiscal
years contained any adverse opinion or a disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope, or
accounting principles.



The change in auditor was recommended and approved by our audit
committee.



In the two most recent fiscal years and
any interim period preceding the dismissal of DMCL, we are not aware of any disagreements with DMCL on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved
to the satisfaction of DMCL, would have caused it to make references to the subject matter of the disagreement(s) in connection
with its report.



We are not aware of any reportable events (as set forth in
Item 16F(a)(1)(v) of Form 20-F) that have occurred during the two most recent fiscal years and the interim period preceding the
dismissal of DMCL.



On August 20, 2010, we engaged BDO Canada
LLP (“BDO”) as its new principal registered independent accountant effective on August 20, 2010, to audit our financial
records. BDO is registered with the Public Company Accounting Oversight Board. During the two most recent fiscal years and the
interim period preceding the appointment of BDO, we did not consult BDO regarding the application of accounting principles to
a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on our financial statements,
and neither a written report nor oral advice was provided to us that it considered an important factor in reaching a decision
as to any accounting, auditing or financial reporting issue; or any matter that was either the subject of a disagreement (as defined
in Item 16F(a)(1)(iv) of Form 20-F) or a reportable event (as described in Item 16F(a)(1)(v) of Form 20-F).



ITEM
16G. CORPORATE GOVERNANCE



The Company’s common shares are
listed on the NYSE Amex. Section 110 of the NYSE Amex Company Guide permits the NYSE Amex to consider the laws, customs and practices
of foreign issuers in relaxing certain NYSE Amex listing criteria, and to grant exemptions from NYSE Amex listing criteria based
on these considerations. A company seeking relief under these provisions is required to provide written certification from independent
local counsel that the non-complying practice is not prohibited by home country law. A description of the significant ways in
which the Company’s governance practices differ from those followed by domestic companies pursuant to NYSE Amex standards
is as follows:



Shareholder Meeting Quorum
Requirement: The NYSE Amex minimum quorum requirement for a shareholder meeting is one-third of the outstanding shares of
common stock. In addition, a company listed on NYSE Amex is required to state its quorum requirement in its bylaws. The Company’s
quorum requirement is set forth in its Articles and bylaws. A quorum for a meeting of members of the Company is one holder of
common shares issued, outstanding and entitled to vote, represented in person or by proxy.



Proxy Delivery Requirement:
NYSE Amex requires the solicitation of proxies and delivery of proxy statements for all shareholder meetings, and requires that
these proxies shall be solicited pursuant to a proxy statement that conforms to SEC proxy rules. The Company is a “foreign
private issuer” as defined in Rule 3b-4 under the Exchange Act, and the equity securities of the Company are accordingly
exempt from the proxy rules set forth in Sections 14(a), 14(b), 14(c) and 14(f) of the Exchange Act. The Company solicits proxies
in accordance with applicable rules and regulations in Canada.



91







Shareholder Approval Requirement:The Company will follow Toronto Stock Exchange rules for shareholder approval of new issuances of its common shares. Following
Toronto Stock Exchange rules, shareholder approval is required for certain issuances of shares that: (i) materially affect control
of the Company; or (ii) provide consideration to insiders in aggregate of 10% or greater of the market capitalization of the listed
issuer and have not been negotiated at arm’s length. Shareholder approval is also required, pursuant to TSX rules, in the
case of private placements: (x) for an aggregate number of listed securities issuable greater than 25% of the number of securities
of the listed issuer which are outstanding, on a non-diluted basis, prior to the date of closing of the transaction if the price
per security is less than the market price; or (y) that during any six month period are to insiders for listed securities or options,
rights or other entitlements to listed securities greater than 10% of the number of securities of the listed issuer which are
outstanding, on a non-diluted basis, prior to the date of the closing of the first private placement to an insider during the
six month period.



The foregoing is consistent with the laws,
customs and practices in Canada.



In addition, the Company may from time-to-time
seek relief from NYSE Amex corporate governance requirements on specific transactions under Section 110 of the NYSE Amex Company
Guide by providing written certification from independent local counsel that the non-complying practice is not prohibited by our
home country law, in which case, the Company shall make the disclosure of such transactions available on the Company’s website
at www.dejour.com. Information contained on its website is not part of this annual report.



ITEM 16H – MINE SAFETY DISCLOSURE



Not Applicable.



92







PART III



ITEM
17. FINANCIAL STATEMENTS



The Company has elected to provide financial
statements pursuant to Item 18.



ITEM
18. FINANCIAL STATEMENTS



On January 1, 2011, the Company adopted
International Financial Reporting Standards (“IFRS”) for financial reporting purposes, using a transition date of
January 1, 2010. The Company’s annual audited Consolidated Financial Statements for the year ended December 31,
2011, including 2010 required comparative information, have been prepared in accordance with IFRS, as issued by the International
Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee
(“IFRIC”). Financial statements prior to the fiscal year ended December 31, 2010 were prepared in accordance with
Canadian generally accepted accounting principles (“Canadian GAAP”).



Report
of Independent Registered Chartered Accountants, dated March 29, 2012



Consolidated
Balance Sheets at December 31, 2011, December 31, 2010 and January 1, 2010



Consolidated Statements of Comprehensive
Loss for the years ending December 31, 2011 and December 31, 2010



Consolidated Statements of Changes in
Shareholder’s Equity for the years ended December 31, 2011 and 2010



Consolidated Statements of Cash Flows
for the years ended December 31, 2011 and 2010



Notes to the Consolidated Financial Statements



Supplementary
Oil and Gas Reserve Estimation and Disclosures - Unaudited



93







ITEM
19. EXHIBITS



Financial Statements





|Description                                                                          |  | Page       
|------------------------------------------------------------------------------------ |  | -----------
|                                                                                     |  |            
|Consolidated Financial Statements for the Years Ended
    December 31, 2011 and 2010 |  | F-1 -  F-48
|                                                                                     |  |            
|Supplementary
Oil and Gas Reserve Estimation and Disclosures - Unaudited             |  | F-49 - F-56



|Exhibit
    
    Number |  | Description                                                                                                                               
|----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------
|                        |  |                                                                                                                                           
|1.1                     |  | Articles (1)                                                                                                                              
|                        |  |                                                                                                                                           
|1.2                     |  | Notice of Articles (1)                                                                                                                    
|                        |  |                                                                                                                                           
|1.3                     |  | Certificate of Continuation (1)                                                                                                           
|                        |  |                                                                                                                                           
|1.4                     |  | Notice of Alteration (1)                                                                                                                  
|                        |  |                                                                                                                                           
|1.5                     |  | Certificate of Name Change (1)                                                                                                            
|                        |  |                                                                                                                                           
|1.6                     |  | Amendment to Articles to Include Special Rights (1)                                                                                       
|                        |  |                                                                                                                                           
|4.1                     |  | Participation Agreement between the Registrant, Retamco Operating, Inc. and Brownstone Ventures (US) dated July 14, 2006(3)               
|                        |  |                                                                                                                                           
|4.2                     |  | Purchase and Sale Agreement between the Registrant, Retamco Operating, Inc., and Brownstone Ventures (US) Inc. dated June
    17, 2008 (4)
|                        |  |                                                                                                                                           
|4.3                     |  | Loan Agreement between DEAL and HEC dated May 15, 2008 (5)                                                                                
|                        |  |                                                                                                                                           
|4.4                     |  | Loan Agreement between the Company and HEC dated August 11, 2008 (5)                                                                      
|                        |  |                                                                                                                                           
|4.5                     |  | Loan Agreement between the Company and HEC dated June 22, 2009 (5)                                                                        
|                        |  |                                                                                                                                           
|4.6                     |  | Loan Agreement betweenthe Company and Brownstone Ventures (US) Inc. dated June 22,
    2009 (5)                                           
|                        |  |                                                                                                                                           
|4.7                     |  | Purchase and Sale Agreement between the Registrant and Pengrowth Corporation dated April 17, 2009 (5)                                     
|                        |  |                                                                                                                                           
|4.8                     |  | Purchase and Sale Agreement between the Registrant and John James Robinson dated June 10, 2009 (5)                                        
|                        |  |                                                                                                                                           
|4.9                     |  | Purchase and Sale Agreement between the Registrant and C.U. YourOilRig Corp. dated June 15, 2009 (5)                                      
|                        |  |                                                                                                                                           
|4.10                    |  | Purchase and Sale Agreement between the Registrant and Woodrush Energy Partners LLC dated July 8, 2009 (5)                                
|                        |  |                                                                                                                                           
|4.11                    |  | Purchase and Sale Agreement between the Registrant and RockBridge Energy Inc. dated July 31, 2009 (5)                                     
|                        |  |                                                                                                                                           
|4.12                    |  | Purchase and Sale Agreement between the Registrant and HEC dated December 31, 2009 (5)                                                    
|                        |  |                                                                                                                                           
|4.13                    |  | Loan Agreement between the Registrant and Toscana Capital Corporation dated February 19, 2010 (6)                                         
|                        |  |                                                                                                                                           
|4.14                    |  | Amended Loan Agreement between the Registrant and Toscana Capital Corporation dated September 1, 2010 (6)                                 
|                        |  |                                                                                                                                           
|4.15                    |  | Credit Facility Agreement between DEAL and Canadian Western Bank dated August 3, 2011 *                                                   



94







|Exhibit
    
    Number |  | Description                                                                                    
|----------------------- |  | -----------------------------------------------------------------------------------------------
|                        |  |                                                                                                
|4.16                    |  | Credit Facility Renewal Letter between DEAL and Canadian Western Bank dated December 29, 2011 *
|                        |  |                                                                                                
|4.17                    |  | Option Plan (1)                                                                                
|                        |  |                                                                                                
|4.18                    |  | Option Plan (Sub-Plan) (1)                                                                     
|                        |  |                                                                                                
|8.1                     |  | List of Subsidiaries                                                                           
|                        |  |                                                                                                
|12.1                    |  | Certification of CEO Pursuant to Rule 13a-14(a) *                                              
|                        |  |                                                                                                
|12.2                    |  | Certification of CFO Pursuant to Rule 13a-14(a) *                                              
|                        |  |                                                                                                
|13.1                    |  | Certification of CEO Pursuant to 18 U.S.C. Section 1350 *                                      
|                        |  |                                                                                                
|13.2                    |  | Certification of CFO Pursuant to 18 U.S.C. Section 1350 *                                      
|                        |  |                                                                                                
|15.1                    |  | Consent of BDO Canada  LLP *                                                                   
|                        |  |                                                                                                
|15.2                    |  | Letter from Dale Matheson Carr-Hilton Labonte LLP *                                            
|                        |  |                                                                                                
|15.3                    |  | Consent Letter from AJM Deloitte, LLP. *                                                       
|                        |  |                                                                                                
|15.4                    |  | Consent Letter from Gustavson Associates *                                                     
|                        |  |                                                                                                
|15.5                    |  | Consent Letter from GLJ Petroleum Consultants Ltd.*                                            



| | (1) | Incorporated by reference to the Registrant’s
                                                          registration statement on Form S-8, filed with the commission on February
                                                          16, 2012.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Incorporated by reference to the Registrant’s
                                                          annual report on Form 20-F, filed July 14, 2006.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Incorporated by reference to the Registrant’s
                                                          annual report on Form 20-F/A amendment no. 2, filed December 7, 2007.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | Incorporated by reference to the Registrant’s
                                                          annual report on Form 20-F, filed on June 30, 2009.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

| | (5) | Incorporated by reference to the Registrant’s
                                                          annual report on Form 20-F, filed on June 30, 2010.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

| | (6) | Incorporated by reference to the Registrant’s
                                                          annual report on Form 20-F, filed on June 30, 2011.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------



*Filed herein



95







SIGNATURES



The registrant hereby certifies that it
meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this
annual report on its behalf.



|       |               |  | DEJOUR Energy Inc.       | 
|------ | ------------- |  | ------------------------ | 
|       |               |  |                          | 
|Dated: | April 27 2012 |  | /s/ Robert L. Hodgkinson | 
|       |               |  | Robert L. Hodgkinson     | 
|       |               |  | Chairman & CEO           | 



96













(formerly operating as Dejour Enterprises
Ltd.)



CONSOLIDATED FINANCIAL STATEMENTS (AUDITED)



December 31, 2011







F-1









| | Tel: 403 266 5608
        Fax: 403 233 7833
        www.bdo.ca | BDO Canada LLP
        620, 903 - 8th Avenue SW
        Calgary AB T2P 0P7 Canada
| | -------------------------------------------------------------- | ---------------------------------------------------------------------------------










Independent Auditor's Report










To the Shareholders of Dejour Energy
Inc.



We have audited the accompanying consolidated
financial statements of Dejour Energy Inc. (the "Company") and its subsidiaries, which comprise the consolidated balance
sheets as at December 31, 2011, December 31, 2010 and January 1, 2010 and the consolidated statements of comprehensive loss, changes
in shareholders' equity and cash flows for the years ended December 31, 2011 and December 31, 2010, and a summary of significant
accounting policies and other explanatory information.



Management's Responsibility for the Consolidated Financial
Statements



Management is responsible for the preparation
and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards,
and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements
that are free from material misstatement, whether due to fraud or error.



Auditor's Responsibility



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. Those standards require that we comply with ethical requirements and plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are free from material misstatement.



An audit involves performing procedures
to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend
on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's
preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An
audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made
by management, as well as evaluating the overall presentation of the consolidated financial statements.



We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our audit opinion.



Opinion



In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of Dejour Energy Inc. and its subsidiaries as at December
31, 2011, December 31, 2010 and January 1, 2010, and their financial performance and cash flows for the years ended December 31,
2011 and December 31, 2010 in accordance with International Financial Reporting Standards.



Emphasis of Matter



Without qualifying our audit opinion, we
draw attention to Note 2 in the consolidated financial statements that indicates that the Company has a working capital deficiency
of $7,756,435 and an accumulated deficit of $76,509,825. These conditions, along with the other matters described in Note 2, indicate
the existence of a material uncertainty that may cast significant doubt about the Company's ability to continue as a going concern.



|                  
|------------------
|Chartered Accounts
|                  
|Calgary, Alberta  
|March 29, 2012    



BDO Canada
LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and
forms part of the international BDO network of independent member firms.



F-2







DEJOUR ENERGY INC.

CONSOLIDATED BALANCE SHEETS

(Expressed in Canadian Dollars)

|                                           |  |      |    |  |              |  |             |              |  |  |             |  
|------------------------------------------ |  | ---- | -- |  | ------------ |  | ----------- | ------------ |  |  | ----------- | -
|                                           |  |      |    |  | December 31, |  |             | December 31, |  |  | January 1,  |  
|                                           |  | Note |    |  | 2011         |  |             | 2010         |  |  | 2010        |  
|                                           |  |      |    |  | $            |  |             | $            |  |  | $           |  
|ASSETS                                     |  |      |    |  |              |  |             |              |  |  |             |  
|Current                                    |  |      |    |  |              |  |             |              |  |  |             |  
|Cash and cash equivalents                  |  |      |    |  |              |  | 2,487,850   |              |  |  | 4,757,525   |  
|Accounts receivable                        |  |      | 24 |  |              |  | 887,181     |              |  |  | 688,626     |  
|Share subscription receivable              |  |      | 13 |  |              |  | 516,246     |              |  |  | -           |  
|Prepaids and deposits                      |  |      |    |  |              |  | 100,848     |              |  |  | 92,738      |  
|Current Assets                             |  |      |    |  |              |  | 3,992,125   |              |  |  | 5,538,889   |  
|Non-current                                |  |      |    |  |              |  |             |              |  |  |             |  
|Deposits                                   |  |      |    |  |              |  | 403,764     |              |  |  | 442,261     |  
|Exploration and evaluation assets          |  |      | 5  |  |              |  | 5,282,652   |              |  |  | 10,257,259  |  
|Property and equipment                     |  |      | 6  |  |              |  | 19,759,897  |              |  |  | 14,174,981  |  
|Total Assets                               |  |      |    |  |              |  | 29,438,438  |              |  |  | 30,413,390  |  
|                                           |  |      |    |  |              |  |             |              |  |  |             |  
|LIABILITIES                                |  |      |    |  |              |  |             |              |  |  |             |  
|Current                                    |  |      |    |  |              |  |             |              |  |  |             |  
|Bank line of credit and bridge loan        |  |      | 8  |  |              |  | 5,545,457   |              |  |  | 4,800,000   |  
|Accounts payable and accrued liabilities   |  |      | 24 |  |              |  | 3,957,893   |              |  |  | 2,472,746   |  
|Unrealized financial instrument loss       |  |      |    |  |              |  | -           |              |  |  | -           |  
|Loans from related parties                 |  |      | 9  |  |              |  | -           |              |  |  | 250,000     |  
|Warrant liability                          |  |      | 10 |  |              |  | 2,245,210   |              |  |  | 1,092,762   |  
|Flow-through shares liability              |  |      | 12 |  |              |  | -           |              |  |  | 187,145     |  
|Current Liabilities                        |  |      |    |  |              |  | 11,748,560  |              |  |  | 8,802,653   |  
|Non-current                                |  |      |    |  |              |  |             |              |  |  |             |  
|Decommissioning liability                  |  |      | 11 |  |              |  | 1,338,853   |              |  |  | 706,082     |  
|Other liabilities                          |  |      |    |  |              |  | 43,989      |              |  |  | 31,708      |  
|Total Liabilities                          |  |      |    |  |              |  | 13,131,402  |              |  |  | 9,540,442   |  
|SHAREHOLDERS' EQUITY                       |  |      |    |  |              |  |             |              |  |  |             |  
|Share capital                              |  |      | 13 |  |              |  | 85,075,961  |              |  |  | 79,385,883  |  
|Contributed surplus                        |  |      | 15 |  |              |  | 8,133,877   |              |  |  | 7,638,609   |  
|Deficit                                    |  |      |    |  |              |  | (76,509,825 | )            |  |  | (65,466,543 | )
|Accumulated other comprehensive loss       |  |      | 22 |  |              |  | (392,977    | )            |  |  | (685,002    | )
|Total Shareholders' Equity                 |  |      |    |  |              |  | 16,307,036  |              |  |  | 20,872,947  |  
|Total Liabilities and Shareholders' Equity |  |      |    |  |              |  | 29,438,438  |              |  |  | 30,413,390  |  



|Approved on behalf of the Board: |  |                           | 
|-------------------------------- |  | ------------------------- | 
|                                 |  |                           | 
|/s/ Robert Hodgkinson            |  | /s/ Craig Sturrock        | 
|Robert Hodgkinson – Director     |  | Craig Sturrock – Director | 



The accompanying notes are an integral part of these consolidated
financial statements.



F-3







DEJOUR ENERGY INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE
LOSS

(Expressed in Canadian Dollars)

|                                              |  |      |    |  |                         |  
|--------------------------------------------- |  | ---- | -- |  | ----------------------- | -
|                                              |  |      |    |  | Year ended December 31, |  
|                                              |  | Note |    |  | 2011                    |  
|                                              |  |      |    |  |                         | $
|REVENUES AND OTHER INCOME                     |  |      |    |  |                         |  
|Gross revenues                                |  |      |    |  |                         |  
|Royalties                                     |  |      |    |  |                         |  
|Revenues, net of royalties                    |  |      |    |  |                         |  
|Financial instrument gain (loss)              |  |      |    |  |                         |  
|Other income                                  |  |      |    |  |                         |  
|Total Revenues and Other
    Income           |  |      | 21 |  |                         |  
|                                              |  |      |    |  |                         |  
|EXPENSES                                      |  |      |    |  |                         |  
|Operating and transportation                  |  |      |    |  |                         |  
|General and administrative                    |  |      |    |  |                         |  
|Finance costs                                 |  |      |    |  |                         |  
|Stock based compensation                      |  |      | 14 |  |                         |  
|Foreign exchange loss                         |  |      |    |  |                         |  
|Amortization, depletion and impairment losses |  |      | 7  |  |                         |  
|Change in fair value of warrant liability     |  |      | 10 |  |                         |  
|Total Expenses                                |  |      |    |  |                         |  
|                                              |  |      |    |  |                         |  
|Loss before income taxes                      |  |      |    |  |                         |  
|                                              |  |      |    |  |                         |  
|Deferred income tax recovery                  |  |      | 18 |  |                         |  
|                                              |  |      |    |  |                         |  
|Net loss for the year                         |  |      |    |  |                         |  
|Foreign currency translation adjustment       |  |      |    |  |                         |  
|                                              |  |      |    |  |                         |  
|Comprehensive loss                            |  |      |    |  |                         |  
|                                              |  |      |    |  |                         |  
|Net loss per common share - basic and diluted |  |      | 16 |  |                         |  



The accompanying notes are an integral part of these consolidated
financial statements.



F-4







DEJOUR ENERGY INC.

CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS’ EQUITY

(Expressed in Canadian Dollars)

|                                                                |  |      |    |  |           |  |             |         |  |   |             |  |   |         |           |   |          |  |             |        | 
|--------------------------------------------------------------- |  | ---- | -- |  | --------- |  | ----------- | ------- |  | - | ----------- |  | - | ------- | --------- | - | -------- |  | ----------- | ------ | 
|                                                                |  |      |    |  | Number    |  |             | Share   |  |   | Contributed |  |   |         |           |   |          |  |             | Total  | 
|                                                                |  | Note |    |  | of Shares |  |             | Capital |  |   | Surplus     |  |   | Deficit |           |   | AOCI(L)* |  |             | Equity | 
|                                                                |  |      |    |  |           |  |             |         |  | $ |             |  | $ |         |           | $ |          |  | $           |        | 
|Balance as at January 1, 2011                                   |  |      |    |  |           |  | 110,180,545 |         |  |   | 79,385,883  |  |   |         | 7,638,609 |   |          |  | (65,466,543 | )      | 
|Shares issued via private placements, net of
    issuance costs |  |      | 13 |  |           |  | 11,010,000  |         |  |   | 2,693,813   |  |   |         |           |   |          |  |             |        | 
|Issue of shares on exercise of warrants and options             |  |      | 13 |  |           |  | 5,701,841   |         |  |   | 2,090,647   |  |   |         |           |   |          |  |             |        | 
|Warrant liability reallocated on exercise of
    warrants       |  |      | 13 |  |           |  |             |         |  |   | 738,548     |  |   |         |           |   |          |  |             |        | 
|Contributed surplus reallocated on exercise of
    options      |  |      | 13 |  |           |  |             |         |  |   | 167,070     |  |   |         | (167,070  | ) |          |  |             |        | 
|Stock-based compensation                                        |  |      | 14 |  |           |  |             |         |  |   | -           |  |   |         | 662,338   |   |          |  |             |        | 
|Net loss                                                        |  |      |    |  |           |  |             |         |  |   |             |  |   |         |           |   |          |  | (11,043,282 | )      | 
|Foreign currency
    translation adjustment                     |  |      |    |  |           |  |             |         |  |   |             |  |   |         |           |   |          |  |             |        | 
|Balance as at December 31, 2011                                 |  |      |    |  |           |  | 126,892,386 |         |  |   | 85,075,961  |  |   |         | 8,133,877 |   |          |  | (76,509,825 | )      | 
|                                                                |  |      |    |  |           |  |             |         |  |   |             |  |   |         |           |   |          |  |             |        | 
|Balance as at January 1, 2010                                   |  |      |    |  |           |  | 95,791,038  |         |  |   | 75,810,350  |  |   |         | 6,873,166 |   |          |  | (60,342,637 | )      | 
|Shares issued via private placements, net of
    issuance costs |  |      | 13 |  |           |  | 14,389,507  |         |  |   | 3,575,533   |  |   |         |           |   |          |  |             |        | 
|Stock-based compensation                                        |  |      | 14 |  |           |  |             |         |  |   |             |  |   |         | 765,443   |   |          |  |             |        | 
|Net loss                                                        |  |      |    |  |           |  |             |         |  |   |             |  |   |         |           |   |          |  | (5,123,905  | )      | 
|Realized financial instrument loss                              |  |      |    |  |           |  |             |         |  |   |             |  |   |         |           |   |          |  |             |        | 
|Foreign currency
    translation adjustment                     |  |      |    |  |           |  |             |         |  |   |             |  |   |         |           |   |          |  |             |        | 
|Balance as at December 31, 2010                                 |  |      |    |  |           |  | 110,180,545 |         |  |   | 79,385,883  |  |   |         | 7,638,609 |   |          |  | (65,466,543 | )      | 



* Accumulated other comprehensive income (loss)



The accompanying notes are an integral part of these consolidated
financial statements.



F-5







DEJOUR ENERGY INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in Canadian Dollars)

|                                                         |  |      |    |  |                         | 
|-------------------------------------------------------- |  | ---- | -- |  | ----------------------- | 
|                                                         |  |      |    |  | Year ended December 31, | 
|                                                         |  | Note |    |  | 2011                    | 
|                                                         |  |      |    |  | $                       | 
|                                                         |  |      |    |  |                         | 
|CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES           |  |      |    |  |                         | 
|Net loss for the year                                    |  |      |    |  |                         | 
|Adjustment for items not affecting cash:                 |  |      |    |  |                         | 
|Amortization, depletion and impairment losses            |  |      |    |  |                         | 
|Stock based compensation                                 |  |      |    |  |                         | 
|Non-cash finance costs                                   |  |      |    |  |                         | 
|Non-cash general and administrative expenses             |  |      |    |  |                         | 
|Deferred income tax recovery                             |  |      |    |  |                         | 
|Change in fair value of warrant liability                |  |      |    |  |                         | 
|Amortization of deferred leasehold inducement            |  |      |    |  |                         | 
|                                                         |  |      |    |  |                         | 
|Changes in non-cash operating working capital            |  |      | 16 |  |                         | 
|Total Cash Flows from
    (used in) Operating Activities |  |      |    |  |                         | 
|                                                         |  |      |    |  |                         | 
|CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES           |  |      |    |  |                         | 
|Deposits                                                 |  |      |    |  |                         | 
|Exploration and evaluation expenditures                  |  |      |    |  |                         | 
|Additions to property and equipment                      |  |      |    |  |                         | 
|Proceeds from sale of property and equipment             |  |      |    |  |                         | 
|Changes in non-cash investing working capital            |  |      | 16 |  |                         | 
|Total Cash Flows from
    (used in) Investing Activities |  |      |    |  |                         | 
|                                                         |  |      |    |  |                         | 
|CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES           |  |      |    |  |                         | 
|Advance (repayment) of line of credit                    |  |      |    |  |                         | 
|Advance (repayment) of bridge loan                       |  |      |    |  |                         | 
|Repayment of loans from related parties                  |  |      |    |  |                         | 
|Advance of loan from creditor                            |  |      |    |  |                         | 
|Shares issued on exercise of warrants                    |  |      |    |  |                         | 
|Shares issued for cash, net of share issue costs         |  |      |    |  |                         | 
|Changes in non-cash financing working capital            |  |      | 16 |  |                         | 
|Total Cash Flows from
    (used in) Financing Activities |  |      |    |  |                         | 
|                                                         |  |      |    |  |                         | 
|INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS         |  |      |    |  |                         | 
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR             |  |      |    |  |                         | 
|CASH AND CASH EQUIVALENTS, END OF YEAR                   |  |      |    |  |                         | 



Supplemental cash flow information - Note 16



The accompanying notes are an integral part of these consolidated
financial statements.



F-6







|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              



NOTE 1 – CORPORATE INFORMATION



Dejour Energy Inc. (the “Company”)
is a public company trading on the New York Stock Exchange AMEX (“NYSE-AMEX”) and the Toronto Stock Exchange (“TSX”),
under the symbol “DEJ.” The Company is in the business of exploring and developing energy projects with a focus on
oil and gas in North America. On March 9, 2011, the Company changed its name from Dejour Enterprises Ltd. to Dejour Energy Inc.
The address of its registered office is 598 – 999 Canada Place, Vancouver, British Columbia.



The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries, Dejour Energy (USA) Corp. (“Dejour USA”), incorporated
in Nevada, Dejour Energy (Alberta) Ltd. (“DEAL”), incorporated in Alberta, Wild Horse Energy Ltd. (“Wild Horse”),
incorporated in Alberta and 0855524 B.C. Ltd., incorporated in B.C. All intercompany transactions are eliminated upon consolidation.



The consolidated financial statements
are presented in Canadian dollars, which is also the functional currency of the parent company. These consolidated financial statements
were authorized and approved for issuance by the Board of Directors on March 29, 2012.



NOTE 2 – BASIS OF PRESENTATION
AND ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS



| | (a) | Statement of compliance
| | --- | -----------------------



The financial statements of the Company
for the year ended December 31, 2011 are prepared in accordance with International Financial Reporting Standards (“IFRS”)
as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial
Reporting Interpretations Committee (“IFRIC”). These are the Company’s first consolidated annual financial statements
presented in accordance with IFRS.



The preparation of these consolidated
financial statements resulted in changes to the accounting policies as compared with the most recent annual financial statements
prepared under Canadian generally accepted accounting principles (“GAAP”). The accounting policies set out below have
been applied consistently to all periods presented in these consolidated financial statements. These consolidated financial statements
should be read in conjunction with the Company’s 2010 annual financial statements and the explanation of how the transition
to IFRS has affected the reported financial position, financial performance and cash flows of the Company provided in note 25.



| | (b) | Going concern
| | --- | -------------



The financial
statements were prepared on a going concern basis. The going concern basis assumes that the Company will continue in operation
for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal
course of business.The Company has a working capital deficiency of $7,756,435 and accumulated deficit of $76,509,825. 
Whether and when the Company can attain profitability is uncertain.  These uncertainties cast significant doubt upon the
Company’s ability to continue as going concern.



As described in note 8, in September 2011,
the Company obtained a $7 million revolving operating demand loan (“line of credit”) from a Canadian Bank to refinance
the bridge loan and to provide funds for general corporate purposes. As described in note 13, during the year ended December 31,
2011, the Company raised gross proceeds of $5.4 million on the issue of shares. Subsequent to December 31, 2011, the Company received
$1.2 million from the exercise of options and warrants. The Company's ability to continue as a going concern is dependent upon
attaining profitable operations and obtaining sufficient financing to meet obligations and continue exploration and development
activities. There is no assurance that these activities will be successful. These consolidated annual financial statements do
not reflect the adjustments to the carrying values of assets and liabilities, the reported expenses, and the balance sheet classifications
used that would be necessary if the going concern assumption were not appropriate.



F-7







|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              



NOTE 2 – BASIS OF PRESENTATION
AND ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (continued)



| | (c) | Basis of measurement
| | --- | --------------------



The consolidated annual financial statements
have been prepared on the historical cost basis except for the revaluation of certain financial assets and liabilities to fair
value, including derivative instruments, as explained in the accounting policies in note 3.



| | (d) | Use of estimates and judgments
| | --- | ------------------------------



The preparation of consolidated annual
financial statements in compliance with IFRS requires management to make certain critical accounting estimates. It also requires
management to exercise judgment in applying the Company’s accounting policies. The areas involving a higher degree of judgment
or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 4.



| | (e) | Functional and presentation
                                                                   currency
| | --- | -------------------------------------------------------------------------------------------------------



These consolidated annual financial statements
are presented in Canadian dollars, which is the Company’s presentation currency. Subsidiaries measure items using the currency
of the primary economic environment in which the entity operates with entities having a functional currency different from the
parent company, translated into Canadian dollars.



NOTE 3 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES



The accounting policies set out below
have been applied consistently to all periods presented in these consolidated annual financial statements and have been applied
consistently by the Company’s entities.



| | (a) | Basis of consolidation
| | --- | ----------------------



The consolidated annual financial statements
include the financial statements of the Company and subsidiaries controlled by the Company. Subsidiaries are fully consolidated
from the date of acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date
that such control ceases. All intra-group balances, transactions, income and expenses are eliminated in full on consolidation.



The financial statements of the subsidiaries
are prepared using the same reporting period as the parent company, using consistent accounting policies.



Exploration, development, and production
activities may be conducted jointly with others and accordingly, the Company only reflects its proportionate interest in such
activities from the date that joint control commences until the date that it ceases.



| | (b) | Foreign currency
| | --- | ----------------



Items included in the financial statements
of each consolidated entity in the group are measured using the currency of the primary economic environment in which the entity
operates (the “functional currency”). The consolidated financial statements are presented in Canadian dollars, which
is the Company’s functional currency.



The financial statements of entities within
the consolidated group that have a functional currency different from that of the Company (“foreign operations”) are
translated into Canadian dollars as follows: assets and liabilities – at the closing rate as at the balance sheet date,
and income and expenses – at the average rate of the period (as this is considered a reasonable approximation to actual
rates). All resulting changes are recognized in other comprehensive income (loss) as cumulative translation differences.



F-8







|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              



NOTE 3 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)



| | (b) | Foreign currency (continued)
| | --- | ----------------------------



When the Company disposes of its entire
interests in a foreign operation, or loses control, joint control, or significant influence over a foreign operation, the foreign
currency gains or losses accumulated in other comprehensive income (loss) related to the foreign operation are recognized in profit
or loss. If an entity disposes of part of an interest in a foreign operation which remains a subsidiary, a proportionate amount
of foreign currency gains or losses accumulated in other comprehensive income related to the subsidiary are reallocated between
controlling and non-controlling interests.



Transactions in foreign currencies are
translated into the functional currency at exchange rates at the date of the transactions. Foreign currency differences arising
on translation are recognized in profit or loss. Foreign currency monetary assets and liabilities are translated at the functional
currency exchange rate at the balance sheet date. Non- monetary items that are measured at historical cost in a foreign currency
are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value
in a foreign currency are translated using the exchange rates at the date when the fair value was determined.



Exchange differences recognized in the
profit or loss statement of the Company’s entities’ separate financial statements on the translation of monetary items
forming part of the Company’s net investment in the foreign operation are reclassified to foreign exchange reserve on consolidation.



| | (c) | Cash and cash equivalents
| | --- | -------------------------



Cash and cash equivalents consist of cash
and highly liquid investments having maturity dates of three months or less from the date of acquisition that are readily convertible
to cash.



| | (d) | Resource properties
| | --- | -------------------



Exploration and evaluation (“E&E”)
costs



Pre-license costs are expensed in the
period in which they are incurred.



E&E costs are initially capitalized
as either tangible or intangible E&E assets according to the nature of the assets acquired. Intangible E&E assets may
include costs of license acquisition, technical services and studies, seismic acquisition, exploration drilling and testing and
directly attributable overhead and administration expenses. The costs are accumulated in cost centers by well, field or exploration
area pending determination of technical feasibility and commercial viability.



E&E assets are assessed for impairment
if sufficient data exists to determine technical feasibility and commercial viability or facts and circumstances suggest that
the carrying amount exceeds the recoverable amount. For purposes of impairment testing, exploration and evaluation assets are
assessed at the individual asset level. If it is not possible to estimate the recoverable amount of the individual asset, exploration
and evaluation assets are allocated to cash-generating units (CGU’s). Such CGU’s are not larger than an operating
segment.



F-9







|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              



NOTE 3 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)



| | (d) | Resource properties (continued)
| | --- | -------------------------------



Exploration assets are not depleted and
are carried forward until technical feasibility and commercial viability of extracting a mineral resource is considered to be
determinable or sufficient/continued progress is made in assessing the commercial viability of the E&E assets. The technical
feasibility and commercial viability of extracting a mineral resource is considered to be determinable when proven reserves are
determined to exist. A review of each exploration license or field is carried out, at least annually, to confirm whether the Company
intends further appraisal activity or to otherwise extract value from the property. When this is no longer the case, the costs
are written off. Upon determination of proven reserves, E&E assets attributable to those reserves are first tested for impairment
and then reclassified from E&E assets to oil and natural gas properties.



The Company may occasionally enter into
joint venture arrangements, whereby the Company will transfer part of an oil and gas interest, as consideration, for an agreement
by the transferee to meet certain exploration and evaluation expenditures which would have otherwise been undertaken by the Company.
The Company does not record any expenditures made by the transferee. Any cash consideration received from the agreement is credited
against the costs previously capitalized to the oil and gas interest given up by the Company, with any excess cash accounted for
as a gain on disposal. When a project is deemed to no longer have commercially viable prospects to the Company, exploration and
evaluation expenditures in respect of that project are deemed to be impaired. As a result, those exploration and evaluation expenditure
costs, in excess of estimated recoveries, are written off to the statement of comprehensive income (loss).



Oil and gas properties and other property
and equipment costs



Items of property and equipment, which
include oil and gas development and production assets, are measured at cost less accumulated depletion and depreciation and accumulated
impairment losses.



The initial cost of an asset comprises
its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, the initial estimate
of the decommissioning obligation and, for qualifying assets, borrowing costs. The purchase price or construction cost is the
aggregate amount paid and the fair value of any other consideration given to acquire the asset.



When significant parts of an item of property
and equipment, including oil and natural gas interests, have different useful lives, they are accounted for as separate items
(major components).



Depletion and Depreciation



Oil and gas development and production
assets are depreciated, by significant component, on a unit-of-production basis over proved and probable reserve volumes, taking
into account estimated future development costs necessary to bring those reserves into production. Future development costs are
estimated by taking into account the level of development required to produce the reserves. These estimates are reviewed by independent
reserve engineers at least annually. Proved and probable reserves are estimated using independent reserve engineer reports and
represent the estimated quantities of oil, natural gas and gas liquids.



Other property and equipment are depreciated
based on a declining balance basis, which approximates the estimated useful lives of the asset, at the following rates:



|Office furniture and equipment | 20%          
|------------------------------ | -------------
|Computer equipment             | 45%          
|Vehicle                        | 30%          
|Leasehold improvements         | term of lease



Depreciation methods, useful lives and
residual values are reviewed at each reporting date. Other property and equipment are allocated to each of the Company’s
primary cash-generating units, based on estimated future net revenue, consistent with the recoverable values applied in the most
recent impairment test.



F-10







|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              



NOTE 3 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)



| | (d) | Resource properties (continued)
| | --- | -------------------------------



Derecognition



The carrying amount of an item of property
and equipment is derecognized on disposal, when no beneficial interest is retained, or when no future economic benefits are expected
from its use or disposal. The gain or loss arising from derecognition is included in profit or loss when the item is derecognized
and is measured as the difference between the net disposal proceeds, if any, and the carrying amount of the item. The date of
disposal is the date when the Company is no longer subject to the risks of and is no longer the beneficiary of the rewards of
ownership. Where the asset is derecognized, the date of disposal coincides with the date the revenue from the sale of the asset
is recognized.



On the disposition of an undivided interest
in a property, where an economic benefit remains, the Company recognizes the farm out only on the receipt of consideration by
reducing the carrying amount of the related property with any excess recognized in profit or loss of the period.



Major maintenance and repairs



The costs of day-to-day servicing are
expensed as incurred. These primarily include the costs of labor, consumables and small parts. Material costs of replaced parts,
turnarounds and major inspections are capitalized as it is probable that future economic benefits will be received. The carrying
value of a replaced part is derecognized in accordance with the derecognition principles above.



| | (e) | Provisions
| | --- | ----------



A provision is recognized if, as a result
of a past event, the Company has a present legal or constructive obligation that can be estimated reliably and it is probable
that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risk specific
to the liability.



Decommissioning liability



A decommissioning liability is recognized
when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of
resources will be required to settle the obligation, and a reliable estimate of the amount of obligation can be made. A corresponding
amount equivalent to the provision is also recognized as part of the cost of the related asset. The amount recognized is management’s
estimated cost of decommissioning, discounted to its present value using a risk free rate. Changes in the estimated timing of
decommissioning or decommissioning cost estimates are dealt with prospectively by recording an adjustment to the provision and
a corresponding adjustment to the related asset unless the change arises from production. The unwinding of the discount on the
decommissioning provision is included as a finance cost. Actual costs incurred upon settlement of the decommissioning liability
are charged against the provision to the extent the provision was established.



| | (f) | Earnings (loss) per share
| | --- | -------------------------

| |  | 
| |  | 



Basic earnings (loss) per share figures
have been calculated using the weighted average number of common shares outstanding during the respective periods.



Diluted earnings (loss) per common share
is calculated by dividing the profit or loss applicable to common shares by the sum of the weighted average number of common shares
issued and outstanding and all additional common shares that would have been outstanding if potentially dilutive instruments were
converted. The diluted earnings (loss) per share figure is equal to that of basic earnings (loss) per share since the effects
of options and warrants have been excluded as they are anti-dilutive.



F-11







|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              



NOTE 3 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)



| | (g) | Share based payments
| | --- | --------------------



Where equity-settled share options are
awarded to employees, the fair value of the options at the date of grant is charged to profit or loss over the vesting period.
Performance vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting
date so that, ultimately, the cumulative amount recognized over the vesting period is based on the number of options that will
eventually vest. Where equity instruments are granted to employees, they are recorded at the instruments grant date fair value.



Where the terms and conditions of options
are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification,
is also charged to profit or loss over the remaining vesting period.



Where equity instruments are granted to
non-employees, they are recorded at the fair value of the goods or services received in profit or loss, unless they are related
to the issuance of shares. Amounts related to the issuance of shares are recorded as a reduction of share capital.



When the value of goods or services received
in exchange for the share-based payment to non-employees cannot be reliably estimated, the fair value of the share-based payment
is measured by use of a valuation model. The expected life used in the model is adjusted, based on management’s best estimate,
for the effects of non-transferability, exercise restrictions, and behavioural considerations.



All equity-settled share based payments
are reflected in contributed surplus, until exercised. Upon exercise, shares are issued from treasury and the amount reflected
in contributed surplus is credited to share capital along with any consideration received.



Where a grant of options is cancelled
or settled during the vesting period, excluding forfeitures when vesting conditions are not satisfied, the Company immediately
accounts for the cancellation as an acceleration of vesting and recognizes the amount that otherwise would have been recognized
for services received over the remainder of the vesting period. Any payment made to the employee on the cancellation is accounted
for as the repurchase of an equity interest except to the extent the payment exceeds the fair value of the equity instrument granted,
measured at the repurchase date. Any such excess is recognized as an expense.



| | (h) | Revenue recognition
| | --- | -------------------



Revenue from the sale of oil and petroleum
products is recognized when the significant risks and rewards of ownership have been transferred, which is when title passes to
the customer. This generally occurs when the product is physically transferred into a vessel, pipe or other delivery mechanism.
Revenue is stated after deducting sales taxes, excise duties and similar levies.



Revenue from the production of oil and
natural gas in which the Company has an interest with other producers is recognized based on the Company’s working interest
and the terms of the relevant production sharing contracts.



| | (i) | Financial instruments
| | --- | ---------------------



Financial assets



Financial assets are classified as into
one of the following categories. All transactions related to financial instruments are recorded on a trade date basis. The Company's
accounting policy for each category is as follows:



F-12







|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              



NOTE 3 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)



| | (i) | Financial instruments (continued)
| | --- | ---------------------------------



Loans and receivables



These assets are non-derivative financial
assets resulting from the delivery of cash or other assets by a lender to a borrower in return for a promise to repay on a specified
date or dates, or on demand. They are initially recognized at fair value plus transaction costs that are directly attributable
to their acquisition or issue and subsequently carried at amortized cost, using the effective interest rate method, less any impairment
losses. Amortized cost is calculated taking into account any discount or premium on acquisition and includes fees that are an
integral part of the effective interest rate and transaction costs. Gains and losses are recognized in the profit or loss when
the loans and receivables are derecognized or impaired, as well as through the amortization process.



Held-to-maturity investments



Held to maturity investments are initially
measured at fair value and are subsequently measured at amortized cost using the effective interest rate method, less any impairment
losses. The Company does not currently have any held-to-maturity investments.



Available-for-sale assets



Available-for-sale assets are measured
at fair value, with unrealized gains and losses recorded in other comprehensive income until the asset is realized or impairment
is viewed as other than temporary, at which time they will be recorded in profit or loss. The Company does not currently have
any available-for-sale assets.



Financial assets at fair value through
profit or loss



An instrument is classified at fair value
through profit or loss if it is held for trading or is designated as such upon initial recognition. Financial instruments are
designated at fair value through profit or loss if the Company manages such investments and makes purchase and sale decisions
based on their fair value in accordance with the Company’s risk management or investment strategy. Upon initial recognition,
attributable transaction costs are recognized in profit or loss when incurred. Financial instruments at fair value through profit
or loss are measured at fair value, and changes therein are recognized in profit or loss. The Company does not have any financial
assets at fair value through profit or loss.



Financial liabilities



Financial liabilities are classified as
either fair value through profit or loss or other financial liabilities, based on the purpose for which the liability was incurred.



The Company’s other financial liabilities
comprise of trade payables and accrued liabilities, loans payable to related parties and bank line of credit. These liabilities
are initially recognized at fair value, net of any transaction costs directly attributable to the issuance of the instrument and
subsequently carried at amortized cost using the effective interest rate method, which ensures that any interest expense over
the period of repayment is at a constant rate on the balance of the liability carried in the balance sheet. Interest expense in
this context includes initial transaction costs and premiums payable on redemption, as well as any interest or coupon payable
while the liability is outstanding.



Trade and other payables represent liabilities
for goods and services provided to the Company prior to the end of the period which are unpaid. Trade payable amounts are unsecured
and are usually paid within 30 days of recognition.



Financial liabilities are classified as
held-for-trading if they are acquired for the purpose of selling in the near term. Derivatives are also categorized as held for
trading unless they are designated as hedges.



F-13







|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              



NOTE 3 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)



| | (i) | Financial instruments (continued)
| | --- | ---------------------------------



The Company has derivative financial instruments
in the form of warrants issued in US dollars and contracts entered into to manage its exposure to volatility in commodity prices.
These commodity contracts are not used for trading or other speculative purposes. Such derivative financial instruments are initially
recognized at fair value at the date at which the derivatives are issued and are subsequently re-measured at fair value. These
derivatives do not qualify for hedge accounting and changes in fair value are recognized immediately in profit and loss. The Company
does not have any further derivative instruments.



Financial assets



At each reporting date, the Company assesses
whether there is objective evidence that a financial asset is impaired. If such evidence exists, the Company recognizes an impairment
loss, as follows:



Financial assets carried at amortized
cost: The loss is the difference between the amortized cost of the loan or receivable and the present value of the estimated future
cash flows, discounted using the instrument’s original effective interest rate. The carrying amount of the asset is reduced
by this amount either directly or indirectly through the use of an allowance account.



Impairment losses on financial assets
carried at amortized cost are reversed in subsequent periods if the amount of the loss decreases and the decrease can be related
objectively to an event occurring after the impairment was recognized.



| | (j) | Impairment
| | --- | ----------



Non-financial assets



The carrying value of long-term assets
is reviewed at each period for indicators that the carrying value of an asset or a CGU may not be recoverable. The Company uses
geographical proximity, geological similarities, analysis of shared infrastructure, commodity type, assessment of exposure to
market risks and materiality to define its CGUs. If indicators of impairment exist, the recoverable amount of the asset or CGU
is estimated. If the carrying value of the asset or CGU exceeds the recoverable amount, the asset or CGU is written down with
an impairment recognized in profit or loss.



For the purpose of impairment testing,
assets are grouped together in CGUs, which are the smallest group of assets that generates cash inflows from continuing use that
are largely independent of the cash inflows of other assets or groups of assets. The recoverable amount of an asset or CGU is
the greater of its value in use and its fair value less costs to sell. Fair value is determined to be the amount for which the
asset could be sold in an arm’s length transaction. For resource properties, fair value less costs to sell may be determined
by using discounted future net cash flows of proved and probable reserves using forecast prices and costs. Value in use is determined
by estimating the net present value of future net cash flows expected from the continued use of the asset or CGU. Refer to note
3(d) for more details.



| | (k) | Taxes
| | --- | -----



Income taxes



Income tax expense comprises current and
deferred tax. Income tax expense is recognized in profit or loss except to the extent that it relates to items recognized directly
in equity, in which case it is recognized in equity.



Current tax is the expected tax payable
on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment
to tax payable in respect of previous years.



F-14







|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              



NOTE 3 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)



| | (k) | Taxes (continued)
| | --- | -----------------



Deferred tax is recognized for temporary
differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation
purposes. Deferred tax is not recognized on temporary differences on the initial recognition of assets or liabilities in a transaction
that is not a business combination and affects neither accounting profit nor taxable profit. In addition, deferred tax is not
recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax
rates that are expected to be applied to temporary differences when the asset is realized or the liability is settled, based on
the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset
if there is a legally enforceable right to offset, and they relate to income taxes levied by the same tax authority on the same
taxable entity, or on different tax entities, when they intend to settle current tax liabilities and assets on a net basis or
their tax assets and liabilities will be realized simultaneously.



A deferred tax asset is recognized to
the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilized.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related
tax benefit will be realized.



Production taxes



Royalties, resource rent taxes and revenue-based
taxes are accounted for under International Accounting Standards (‘IAS’) 12 when they have characteristics of an income
tax. This is considered to be the case when they are imposed under Government authority and the amount is payable based on taxable
income, rather than based on quantity produced or as a percentage of revenue, after adjustment for temporary differences. For
such arrangements, current and deferred tax is provided on the same basis as described above for other forms of taxation. Obligations
arising from royalty arrangements that do not satisfy these criteria are recognized as current provisions included as a reduction
of revenues.



| | (l) | Share capital
| | --- | -------------



The Company’s common shares, stock
options, share purchase warrants and flow-through shares are classified as equity instruments only to the extent that they do
not meet the definition of a financial liability or financial asset. Incremental costs directly attributable to the issue of equity
instruments are shown in equity as a deduction, net of tax, from the proceeds.



| | (m) | Flow-through shares
| | --- | -------------------



The Company will from time to time, issue
flow-through common shares to finance a significant portion of its exploration program. Pursuant to the terms of the flow-through
share agreements, these shares transfer the tax deductibility of qualifying resource expenditures to investors. On issuance, the
Company separates the flow-through share into i) a flow-through share premium, equal to the estimated premium, if any, investors
pay for the flow-through feature, which is recognized as a liability and; ii) share capital. Upon expenditures being incurred,
the Company derecognizes the liability and recognizes a deferred tax liability for the amount of tax reduction renounced to the
shareholders. The premium is recognized as deferred income tax recovery and the related deferred tax is recognized as a tax provision.
To the extent that the Company has available tax pools for which the benefit has not been previously recognized, that are probable
to be utilized, a deferred income tax recovery is recognized at the time of renunciation of the tax pools. The Company may also
be subject to a Part XII.6 tax on flow-through proceeds renounced under the Look-back Rule, in accordance with Government of Canada
flow-through regulations. When applicable, this tax is accrued as a financial expense until paid.



F-15







|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              



NOTE 3 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)



| | (n) | Borrowing costs
| | --- | ---------------



Borrowing costs directly associated with
the acquisition, construction or production of a qualifying asset are capitalized when a substantial period of time is required
to make the asset ready for its intended use. To the extent general borrowings are used for the purpose of obtaining a qualifying
asset, the related costs are capitalized based on the weighted average of the borrowing costs applicable to the total outstanding
borrowings in the period other than those made specifically for the purpose of the acquisition, construction or production of
a qualifying asset. All other borrowing costs are recognized as an expense in the period in which they are incurred.



| | (o) | Future accounting pronouncements
| | --- | --------------------------------



Certain pronouncements were issued by
the IASB or the IFRIC that are mandatory for accounting periods beginning after January 1, 2011 or later periods.



The Company has early adopted the amendments
to IFRS 1 which replaces references to a fixed date of ‘1 January 2004’ with ‘the date of transition to IFRS’.
This eliminates the need for the Company to restate derecognition transactions that occurred before the date of transition to
IFRS. The amendment is effective for year-ends beginning on or after July 1, 2011; however, the Company has early adopted the
amendment. The impact of the amendment and early adoption is that the Company only applies IAS 39 derecognition requirements to
transactions that occurred after the date of transition.



The following new standards, amendments
and interpretations, that have not been early adopted in these consolidated annual financial statements. The Company is currently
assessing the impact, if any, of this new guidance on the Company’s future results and financial position:



| | · | IFRS
                                                                                                          7, Financial Instruments:
                                                                                                          Disclosures, which requires
                                                                                                          disclosure of both gross
                                                                                                          and net information
                                                                                                          about financial instruments
                                                                                                          eligible for offset
                                                                                                          in the balance sheet
                                                                                                          and financial instruments
                                                                                                          subject to master netting
                                                                                                          arrangements. Concurrent
                                                                                                          with the amendments
                                                                                                          to IFRS 7, the IASB
                                                                                                          also amended IAS 32,
                                                                                                          Financial Instruments:
                                                                                                          Presentation to clarify
                                                                                                          the existing requirements
                                                                                                          for offsetting financial
                                                                                                          instruments in the balance
                                                                                                          sheet. The amendments
                                                                                                          to IAS 32 are effective
                                                                                                          as of January 1, 2014.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | IFRS
                                                                                                          9 Financial Instruments
                                                                                                          is part of the IASB's
                                                                                                          wider project to replace
                                                                                                          IAS 39 Financial Instruments:
                                                                                                          Recognition and Measurement.
                                                                                                          IFRS 9 retains but simplifies
                                                                                                          the mixed measurement
                                                                                                          model and establishes
                                                                                                          two primary measurement
                                                                                                          categories for financial
                                                                                                          assets: amortized cost
                                                                                                          and fair value. The
                                                                                                          basis of classification
                                                                                                          depends on the entity's
                                                                                                          business model and the
                                                                                                          contractual cash flow
                                                                                                          characteristics of the
                                                                                                          financial asset. The
                                                                                                          standard is effective
                                                                                                          for annual periods beginning
                                                                                                          on or after January
                                                                                                          1, 2015.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | IFRS
                                                                                                           10 Consolidated Financial
                                                                                                           Statements is the result
                                                                                                           of the IASB’s
                                                                                                           project to replace
                                                                                                           Standing Interpretations
                                                                                                           Committee 12, Consolidation
                                                                                                           – Special Purpose
                                                                                                           Entities and the consolidation
                                                                                                           requirements of IAS
                                                                                                           27, Consolidated and
                                                                                                           Separate Financial
                                                                                                           Statements. The new
                                                                                                           standard eliminates
                                                                                                           the current risk and
                                                                                                           rewards approach and
                                                                                                           establishes control
                                                                                                           as the single basis
                                                                                                           for determining the
                                                                                                           consolidation of an
                                                                                                           entity. The standard
                                                                                                           is effective for annual
                                                                                                           periods beginning on
                                                                                                           or after January 1,
                                                                                                           2013.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | IFRS
                                                                                                           11 Joint Arrangements
                                                                                                           is the result of the
                                                                                                           IASB’s project
                                                                                                           to replace IAS 31,
                                                                                                           Interests in Joint
                                                                                                           Ventures. The new standard
                                                                                                           redefines joint operations
                                                                                                           and joint ventures
                                                                                                           and requires joint
                                                                                                           operations to be proportionately
                                                                                                           consolidated and joint
                                                                                                           ventures to be equity
                                                                                                           accounted. Under IAS
                                                                                                           31, joint ventures
                                                                                                           could be proportionately
                                                                                                           consolidated. The standard
                                                                                                           is effective for annual
                                                                                                           periods beginning on
                                                                                                           or after January 1,
                                                                                                           2013.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | IFRS
                                                                                                          12 Disclosure of Interests
                                                                                                          in Other Entities outlines
                                                                                                          the required disclosures
                                                                                                          for interests in subsidiaries
                                                                                                          and joint arrangements.
                                                                                                          The new disclosures
                                                                                                          require information
                                                                                                          that will assist financial
                                                                                                          statement users to evaluate
                                                                                                          the nature, risks and
                                                                                                          financial effects associated
                                                                                                          with an entity’s
                                                                                                          interests in subsidiaries
                                                                                                          and joint arrangements.
                                                                                                          The standard is effective
                                                                                                          for annual periods beginning
                                                                                                          on or after January
                                                                                                          1, 2013.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-16







|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              



NOTE 3 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)



| | (o) | Future accounting pronouncements (continued)
| | --- | --------------------------------------------



| | · | IFRS
                                                                                                          13 Fair Value Measurement
                                                                                                          defines fair value,
                                                                                                          requires disclosures
                                                                                                          about fair value measurements
                                                                                                          and provides a framework
                                                                                                          for measuring fair value
                                                                                                          when it is required
                                                                                                          or permitted within
                                                                                                          the IFRS standards.
                                                                                                          The standard is effective
                                                                                                          for annual periods beginning
                                                                                                          on or after January
                                                                                                          1, 2013.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | IFRIC
                                                                                                          20 Stripping costs in
                                                                                                          the production phase
                                                                                                          of a mine, IFRIC 20
                                                                                                          clarifies the requirements
                                                                                                          for accounting for the
                                                                                                          costs of the stripping
                                                                                                          activity in the production
                                                                                                          phase when two benefits
                                                                                                          accrue: (i) unusable
                                                                                                          ore that can be used
                                                                                                          to produce inventory
                                                                                                          and (ii) improved access
                                                                                                          to further quantities
                                                                                                          of material that will
                                                                                                          be mined in future periods.
                                                                                                          IFRIC 20 is effective
                                                                                                          for annual periods beginning
                                                                                                          on or after January
                                                                                                          1, 2013 with earlier
                                                                                                          application permitted
                                                                                                          and includes guidance
                                                                                                          on transition for pre-existing
                                                                                                          stripping assets. The
                                                                                                          Company is currently
                                                                                                          evaluating the impact
                                                                                                          the new guidance is
                                                                                                          expected to have on
                                                                                                          its consolidated financial
                                                                                                          statements.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following new standards, amendments
and interpretations that have not been early adopted in these consolidated financial statements, are not expected to have an effect
on the Company’s future results and financial position:



| | · | IFRS
                                                                                                          1: Severe Hyperinflation
                                                                                                          (Effective for periods
                                                                                                          beginning on or after
                                                                                                          July 1, 2011)
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | IAS
                                                                                                          12: Deferred Tax: Recovery
                                                                                                          of Underlying Assets
                                                                                                          (Amendments to IAS 12
                                                                                                          (Effective for periods
                                                                                                          beginning on or after
                                                                                                          January 1, 2012)
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Note
4 - Critical Accounting Estimates and Judgments



The Company makes estimates and assumptions
about the future that affect the reported amounts of assets and liabilities. Estimates and judgments are continually evaluated
based on historical experience and other factors, including expectations of future events that are believed to be reasonable under
the circumstances. In the future, actual experience may differ from these estimates and assumptions.



The effect of a change in an accounting
estimate is recognized prospectively by including it in profit or loss in the period of the change, if the change affects that
period only; or in the period of the change and future periods, if the change affects both.



Information about critical judgments in
applying accounting policies that have the most significant risk of causing material adjustment to the carrying amounts of assets
and liabilities recognized in the consolidated annual financial statements within the next financial year are discussed below:



Decommissioning liability



Decommissioning provisions have been recognized
based on the Company’s internal estimates. Assumptions, based on the current economic environment, have been made which
management believes are a reasonable basis upon which to estimate the future liability. These estimates take into account any
material changes to the assumptions that occur when reviewed regularly by management. Estimates are reviewed at least annually
and are based on current regulatory requirements. Significant changes in estimates of contamination, restoration standards and
techniques will result in changes to provisions from period to period. Actual decommissioning costs will ultimately depend on
future market prices for the decommissioning costs which will reflect the market conditions at the time the decommissioning costs
are actually incurred. The final cost of the currently recognized decommissioning provisions may be higher or lower than currently
provided for.



Exploration and evaluation expenditure



The application of the Company’s
accounting policy for exploration and evaluation expenditure requires judgment in determining whether it is likely that future
economic benefits will flow to the Company, which is based on assumptions about future events or circumstances. Estimates and
assumptions made may change if new information becomes available. If, after the expenditure is capitalized, information becomes
available suggesting that the recovery of the expenditure is unlikely, the amount capitalized is written off in profit or loss
in the period the new information becomes available.



F-17







|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              



Note
4 - Critical Accounting Estimates and Judgments(continued)



Income taxes



The Company recognizes the net future
tax benefit related to deferred tax assets to the extent that it is probable that the deductible temporary differences will reverse
in the foreseeable future. Assessing the recoverability of deferred tax assets requires the Company to make significant estimates
related to expectations of future taxable income. Estimates of future taxable income are based on forecast cash flows from operations
and the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ
significantly from estimates, the ability of the Company to realize the net deferred tax assets recorded at the reporting date
could be impacted. Additionally, future changes in tax laws in the jurisdictions in which the Company operates could limit the
ability of the Company to obtain tax deductions in future periods. All tax filings are subject to audit and potential reassessment.
Accordingly, the actual income tax liability may differ significantly from the estimated and recorded amounts.



Share-based payment transactions



The Company measures the cost of equity-settled
transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating
fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent
on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation
model including the expected life of the share option, volatility and dividend yield.



Impairment



A CGU is defined as the lowest grouping
of integrated assets that generate identifiable cash inflows that are largely independent of the cash inflows of other assets
or groups of assets. The allocation of assets into CGUs requires significant judgment and interpretations with respect to the
integration between assets, the existence of active markets, similar exposure to market risks, shared infrastructures, and the
way in which management monitors the operations. The recoverable amounts of CGUs and individual assets have been determined based
on the higher of fair value less costs to sell or value-in-use calculations. The key assumptions the Company uses in estimating
future cash flows for recoverable amounts are anticipated future commodity prices, expected production volumes and future operating
and development costs. Changes to these assumptions will affect the recoverable amounts of CGUs and individual assets and may
then require a material adjustment to their related carrying value.



Derivative financial instruments



When estimating the fair value of derivative
financial instruments, the Company uses third-party models and valuation methodologies that utilize observable market data. In
addition to market information, the Company incorporates transaction specific details that market participants would utilize in
a fair value measurement, including the impact of non-performance risk. However, these fair value estimates may not necessarily
be indicative of the amounts that could be realized or settled in a current market transaction.



Reserves



The estimate of reserves is used in forecasting
the recoverability and economic viability of the Company’s oil and gas properties, and in the depletion and impairment calculations.
The process of estimating reserves is complex and requires significant interpretation and judgment. It is affected by economic
conditions, production, operating and development activities, and is performed using available geological, geophysical, engineering,
and economic data. Reserves are evaluated at least annually by the Company’s independent reserve evaluators and updates
to those reserves, if any, are estimated internally. Future development costs are estimated using assumptions as to the number
of wells required to produce the commercial reserves, the cost of such wells and associated production facilities and other capital
costs.



F-18







|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              



NOTE 5 – EXPLORATION AND EVALUATION (“E&E”)
ASSETS

|                                            |  |            |         |  |             |  |          |               |  |  |            |  
|------------------------------------------- |  | ---------- | ------- |  | ----------- |  | -------- | ------------- |  |  | ---------- | -
|                                            |  | Canadian   |         |  | Canadian    |  |          | United States |  |  |            |  
|                                            |  | Uranium    |         |  | Oil and Gas |  |          | Oil and Gas   |  |  |            |  
|                                            |  | Properties |         |  | Interests   |  |          | Interests     |  |  | Total      |  
|                                            |  | $          |         |  | $           |  |          | $             |  |  | $          |  
|Cost:                                       |  |            |         |  |             |  |          |               |  |  |            |  
|Balance at January 1, 2010                  |  |            | 533,085 |  |             |  | 915,782  |               |  |  | 29,234,869 |  
|Additions                                   |  |            | -       |  |             |  | 87,457   |               |  |  | 462,172    |  
|Disposals                                   |  |            | -       |  |             |  | (962,179 | )             |  |  | (640,995   | )
|Foreign currency translation and other      |  |            | -       |  |             |  | -        |               |  |  | (1,555,167 | )
|Balance at December 31, 2010                |  |            | 533,085 |  |             |  | 41,060   |               |  |  | 27,500,879 |  
|Additions                                   |  |            | -       |  |             |  | 22,727   |               |  |  | 966,980    |  
|Transfer to property and equipment (Note 6) |  |            | -       |  |             |  | -        |               |  |  | (1,352,620 | )
|Change in decommissioning provision         |  |            | -       |  |             |  | 9,246    |               |  |  | -          |  
|Disposals                                   |  |            | -       |  |             |  | (1,481   | )             |  |  | -          |  
|Foreign currency translation and other      |  |            | -       |  |             |  | -        |               |  |  | 657,088    |  
|Balance at December 31, 2011                |  |            | 533,085 |  |             |  | 71,552   |               |  |  | 27,772,327 |  



|                                       |  |            |        |   |             |  |   |               |  |  |             |  
|-------------------------------------- |  | ---------- | ------ | - | ----------- |  | - | ------------- |  |  | ----------- | -
|                                       |  | Canadian   |        |   | Canadian    |  |   | United States |  |  |             |  
|                                       |  | Uranium    |        |   | Oil and Gas |  |   | Oil and Gas   |  |  |             |  
|                                       |  | Properties |        |   | Interests   |  |   | Interests     |  |  | Total       |  
|                                       |  | $          |        |   | $           |  |   | $             |  |  | $           |  
|Accumulated impairment losses:         |  |            |        |   |             |  |   |               |  |  |             |  
|Balance at January 1, 2010             |  |            | -      |   |             |  | - |               |  |  | (17,966,191 | )
|Impairment losses (Note 7)             |  |            | (9,880 | ) |             |  | - |               |  |  | (822,015    | )
|Foreign currency translation and other |  |            | -      |   |             |  | - |               |  |  | 980,321     |  
|Balance at December 31, 2010           |  |            | (9,880 | ) |             |  | - |               |  |  | (17,807,885 | )
|Impairment losses (Note 7)             |  |            | -      |   |             |  | - |               |  |  | (4,886,261  | )
|Foreign currency translation and other |  |            | -      |   |             |  | - |               |  |  | (390,286    | )
|Balance at December 31, 2011           |  |            | (9,880 | ) |             |  | - |               |  |  | (23,084,432 | )



|                     |  |            |         |  |             |  |         |               |  |  |            | 
|-------------------- |  | ---------- | ------- |  | ----------- |  | ------- | ------------- |  |  | ---------- | 
|                     |  | Canadian   |         |  | Canadian    |  |         | United States |  |  |            | 
|                     |  | Uranium    |         |  | Oil and Gas |  |         | Oil and Gas   |  |  |            | 
|                     |  | Properties |         |  | Interests   |  |         | Interests     |  |  | Total      | 
|                     |  | $          |         |  | $           |  |         | $             |  |  | $          | 
|Carrying amounts:    |  |            |         |  |             |  |         |               |  |  |            | 
|At January 1, 2010   |  |            | 533,085 |  |             |  | 915,782 |               |  |  | 11,268,678 | 
|At December 31, 2010 |  |            | 523,205 |  |             |  | 41,060  |               |  |  | 9,692,994  | 
|At December 31, 2011 |  |            | 523,205 |  |             |  | 71,552  |               |  |  | 4,687,895  | 



Exploration and evaluation (“E&E”)
assets consist of the Company’s exploration projects which are pending the determination of proven reserves.



F-19







|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              



NOTE 5 – EXPLORATION AND EVALUATION
(“E&E”) ASSETS (continued)



United States Exploration and Evaluation Properties



As at December 31, 2011, the Company holds
approximately 103,000 net acres (December 31, 2010 - 110,000 net acres) of oil and gas leases in the Piceance, Parados and Uinta
Basins in the US Rocky Mountains, of which approximately 99,000 net acres (December 31, 2010 - 107,000 net acres) were classified
as E&E assets.



During the year ended December 31, 2011,
the Company determined certain leases in the Piceance Basin in the US Rocky Mountains were technically feasible and commercially
viable. Accordingly, $1,352,620 of accumulated exploration and evaluation costs were transferred to property and equipment.



During the year ended December 31, 2011,
the Company capitalized $38,257 (December 31, 2010 – $228,443) of general and administrative costs to its US oil and gas
interests.



The E&E asset impairment is $4,886,261
and $822,015 for the year ended December 31, 2011 and December 31, 2010, respectively. The impairment was recognized upon a review
of each exploration license or field, carried out, at least annually, to confirm whether the Company intends further appraisal
activity or to otherwise extract value from the property. The impairment was recognized based on the difference between the carrying
value of the assets and their recoverable amounts. The recoverable amount was the higher of fair value less costs to sell or value
in use. The fair value was estimated based on comparable market prices for which the asset could be sold in an arm’s length
transaction less estimated costs to sell. The recoverable amount was $nil on expired leases.



NOTE 6 – PROPERTY AND EQUIPMENT

|                                                  |  |             |            |  |               |  |           |           |  |  |         |  
|------------------------------------------------- |  | ----------- | ---------- |  | ------------- |  | --------- | --------- |  |  | ------- | -
|                                                  |  | Canadian    |            |  | United States |  |           | Corporate |  |  |         |  
|                                                  |  | Oil and Gas |            |  | Oil and Gas   |  |           | and Other |  |  |         |  
|                                                  |  | Interests   |            |  | Interests     |  |           | Assets    |  |  | Total   |  
|                                                  |  | $           |            |  | $             |  |           | $         |  |  | $       |  
|Cost:                                             |  |             |            |  |               |  |           |           |  |  |         |  
|Balance at January 1, 2010                        |  |             | 11,693,001 |  |               |  | 1,445,467 |           |  |  | 273,543 |  
|Additions                                         |  |             | 4,132,386  |  |               |  | 340,150   |           |  |  | 26,945  |  
|Change in decommissioning provision               |  |             | 366,410    |  |               |  | -         |           |  |  | -       |  
|Foreign currency translation and other            |  |             | -          |  |               |  | (89,962   | )         |  |  | (2,431  | )
|Balance at December 31, 2010                      |  |             | 16,191,797 |  |               |  | 1,695,655 |           |  |  | 298,057 |  
|Additions                                         |  |             | 6,457,404  |  |               |  | 866,097   |           |  |  | 28,867  |  
|Transfer from exploration and evaluation (Note 5) |  |             | -          |  |               |  | 1,352,620 |           |  |  | -       |  
|Change in decommissioning provision               |  |             | 500,284    |  |               |  | 121,030   |           |  |  | -       |  
|Disposals                                         |  |             | -          |  |               |  | -         |           |  |  | (2,407  | )
|Foreign currency translation and other            |  |             | -          |  |               |  | 40,372    |           |  |  | 1,395   |  
|Balance at December 31, 2011                      |  |             | 23,149,485 |  |               |  | 4,075,774 |           |  |  | 325,912 |  



F-20







|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              



NOTE 6 – PROPERTY
AND EQUIPMENT (continued)

|                                                           |  |             |            |   |               |  |          |           |  |  |          |  
|---------------------------------------------------------- |  | ----------- | ---------- | - | ------------- |  | -------- | --------- |  |  | -------- | -
|                                                           |  | Canadian    |            |   | United States |  |          | Corporate |  |  |          |  
|                                                           |  | Oil and Gas |            |   | Oil and Gas   |  |          | and Other |  |  |          |  
|                                                           |  | Interests   |            |   | Interests     |  |          | Assets    |  |  | Total    |  
|                                                           |  | $           |            |   | $             |  |          | $         |  |  | $        |  
|Accumulated amortization, depletion and impairment losses: |  |             |            |   |               |  |          |           |  |  |          |  
|Balance at January 1, 2010                                 |  |             | -          |   |               |  | -        |           |  |  | (158,622 | )
|Amortization and depletion (Note 7)                        |  |             | (3,453,777 | ) |               |  | -        |           |  |  | (38,927  | )
|Impairment losses (Note 7)                                 |  |             | (360,268   | ) |               |  | -        |           |  |  | -        |  
|Foreign currency translation and other                     |  |             | -          |   |               |  | -        |           |  |  | 1,066    |  
|Balance at December 31, 2010                               |  |             | (3,814,045 | ) |               |  | -        |           |  |  | (196,483 | )
|Amortization and depletion (Note 7)                        |  |             | (2,366,156 | ) |               |  | -        |           |  |  | (37,198  | )
|Impairment losses (Note 7)                                 |  |             | (937,939   | ) |               |  | (424,078 | )         |  |  | -        |  
|Disposals                                                  |  |             | -          |   |               |  | -        |           |  |  | 1,169    |  
|Foreign currency translation and other                     |  |             | -          |   |               |  | (15,832  | )         |  |  | (712     | )
|Balance at December 31, 2011                               |  |             | (7,118,140 | ) |               |  | (439,910 | )         |  |  | (233,224 | )



|                     |  |             |            |  |               |  |           |           |  |  |         | 
|-------------------- |  | ----------- | ---------- |  | ------------- |  | --------- | --------- |  |  | ------- | 
|                     |  | Canadian    |            |  | United States |  |           | Corporate |  |  |         | 
|                     |  | Oil and gas |            |  | Oil and Gas   |  |           | and Other |  |  |         | 
|                     |  | Interests   |            |  | Interests     |  |           | Assets    |  |  | Total   | 
|                     |  | $           |            |  | $             |  |           | $         |  |  | $       | 
|Carrying amounts:    |  |             |            |  |               |  |           |           |  |  |         | 
|At January 1, 2010   |  |             | 11,693,001 |  |               |  | 1,445,467 |           |  |  | 114,921 | 
|At December 31, 2010 |  |             | 12,377,752 |  |               |  | 1,695,655 |           |  |  | 101,574 | 
|At December 31, 2011 |  |             | 16,031,345 |  |               |  | 3,635,864 |           |  |  | 92,688  | 



Canadian Oil and Gas Interests



At December 31, 2011, the Company had
5 property leases held on its behalf by a third party.



Amortization and depletion is computed
using the unit of production method by reference to the total production for the CGU over the estimated net proven reserves of
oil and gas for the CGU determined by independent consultants. The calculation of amortization and depletion for the year ended
December 31, 2011 included estimated future development costs of $Nil (December 31, 2010 - $3,970,000) associated with the development
of proved undeveloped reserves.



During the year ended December 31, 2011,
the Company capitalized $87,424 (December 31, 2010 – $694,628) of general and administrative costs to its Canadian oil and
gas interests.



At December 31, 2011, the Company performed
an impairment test on certain oil and gas interests to assess the recoverable value of these properties when indicators of impairment
were present.



The Developed and Proved (D&P) asset
impairment is $937,939 and $360,268 for the year ended December 31, 2011 and December 31, 2010, respectively. The impairment was
recognized because the carrying value of certain cash generating units exceeded the recoverable amount. The impairment was recognized
based on the difference between the carrying value of cash generating unit and their recoverable amounts. The recoverable amount
was the higher of fair value less costs to sell or value in use. The fair value was estimated based on observable market prices
for which the asset could be sold in a comparable arm’s length transaction, less estimated costs to sell.



F-21







|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              



NOTE 6 – PROPERTY AND EQUIPMENT
(continued)



The benchmark prices on which the December
31, 2011 impairment indicators were assessed are as follows:





|     |  |  | Natural gas   |      |  | Condensate               |  |        | Crude oil      | 
|---- |  |  | ------------- | ---- |  | ------------------------ |  | ------ | -------------- | 
|     |  |  | (AECO)        |      |  | (Edmonton Pentanes Plus) |  |        | (Edmonton Par) | 
|     |  |  | Cdn $ / mmbtu |      |  | Cdn $ / bbl              |  |        | Cdn $ / bbl    | 
|2012 |  |  |               | 3.50 |  |                          |  | 102.90 |                | 
|2013 |  |  |               | 4.10 |  |                          |  | 105.00 |                | 
|2014 |  |  |               | 4.70 |  |                          |  | 107.10 |                | 
|2015 |  |  |               | 5.15 |  |                          |  | 109.20 |                | 
|2016 |  |  |               | 5.55 |  |                          |  | 111.40 |                | 





|Each benchmark price increased on average approximately 2%
    from 2017 and thereafter
|---------------------------------------------------------------------------------------



United States Oil and Gas Interests



During the year ended December 31, 2011,
the Company capitalized $617,090 (December 31, 2010 – $325,510) of general and administrative costs to its US oil and gas
interests. During fiscal 2011 and 2010, the Company did not have any production from its US oil and gas interests and accordingly
did not deplete any of its US oil and gas interests.



The D&P asset impairment is $424,078
and $Nil for the year ended December 31, 2011 and December 31, 2010, respectively. The impairment was recognized upon a review
of each exploration license or field, carried out, at least annually, to confirm whether the Company intends further appraisal
activity or to otherwise extract value from the property. The impairment was recognized based on the difference between the carrying
value of the assets and their recoverable amounts. The recoverable amount was the higher of fair value less costs to sell or value
in use. The fair value was determined based on the amount for which the asset could be sold in a comparable arm’s length
transaction, less estimated costs to sell.



The benchmark prices on which the December
31, 2011 impairment indicators were assessed are as follows:





|                    |  |  | Natural gas |     
|------------------- |  |  | ----------- | ----
|                    |  |  | (Henry Hub) |     
|                    |  |  | US$ / mmbtu |     
|2012                |  |  |             | 2.50
|2013                |  |  |             | 3.17
|2014                |  |  |             | 3.53
|2015                |  |  |             | 3.61
|2016                |  |  |             | 3.86
|2017                |  |  |             | 4.13
|2018                |  |  |             | 4.41
|2019                |  |  |             | 4.68
|2020                |  |  |             | 4.95
|2021                |  |  |             | 5.22
|2022                |  |  |             | 5.49
|2023                |  |  |             | 5.77
|2024 and thereafter |  |  |             | 6.05



* At December 31, 2011, the US$
to CAD$ exchange rate was 1.0170.



F-22







|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              



NOTE 7 – AMORTIZATION, DEPLETION
AND IMPAIRMENT LOSSES



|                                                  |  | Year ended December 31, |          
|------------------------------------------------- |  | ----------------------- | ---------
|                                                  |  | 2011                    |          
|                                                  |  | $                       |          
|Exploration and Evaluation Assets ( E & E assets) |  |                         |          
|Impairment losses (Note 5)                        |  |                         | 4,886,261
|                                                  |  |                         |          
|Property and Equipment (D & P assets)             |  |                         |          
|Amortization and depletion (Note 6)               |  |                         | 2,403,354
|Impairment losses (Note 6)                        |  |                         | 1,362,017
|                                                  |  |                         | 8,651,632



NOTE 8 – BANK LINE OF CREDIT AND
BRIDGE LOAN



In March 2010, the Company
negotiated a credit facility for a bridge loan of up to $5,000,000 with a due date of September 22, 2010. This facility was secured
by a first floating charge over all the assets of DEAL, and bore interest at 12% per annum. At December 31, 2011, the Canadian
oil and natural gas interests and properties with a carrying amount of $nil (December 31, 2010 - $12,418,812) were held as collateral
for the loan. By agreement, the due date of the loan was extended to October 31, 2011. Pursuant to the agreement, outstanding
advances were due to be fully repaid no later than October 31, 2011 or, upon the earlier of non-core asset sales of DEAL. During
the year ended December 31, 2011, the Company made total monthly principal payments of $700,000 and repaid the outstanding balance
of $4,100,000 in full. This facility was used to support the development of the Company’s oil and gas properties in the
Drake/Woodrush area.



In September 2011, the Company obtained
a $7 million revolving operating demand loan (“line of credit”), including a letter of credit facility to a maximum
of $700,000 for a maximum one year term, from a Canadian Bank to refinance the bridge loan and to provide operating funds. The
line of credit is at an interest rate of Prime + 1% (total 4% p.a. currently) and collateralized by a $10,000,000 debenture over
all assets of DEAL and a $10,000,000 guarantee from Dejour Energy Inc. In December 2011, the Company renewed the line of credit
with the Canadian Bank. The next review date is scheduled on or before May 1, 2012, but subject to change at the discretion of
the bank. As at December 31, 2011, a total of $5,545,457 of this facility was utilized.



According to the terms of the facility,
DEAL is required to maintain a working capital ratio of greater than 1:1 at all times. The working capital ratio is defined as
the ratio of (i) current assets (including any undrawn and authorized availability under the facility) less unrealized hedging
gains to (ii) current liabilities (excluding current portion of outstanding balances of the facility) less unrealized hedging
losses. As at December 31, 2011, the Company is in compliance with the working capital ratio requirement.



NOTE 9 – LOANS FROM RELATED PARTIES



|As at                                    |  | Note |   |  | December 31, 2011 |  |   | December 31, 2010 |  |  | January 1, 2010 | 
|---------------------------------------- |  | ---- | - |  | ----------------- |  | - | ----------------- |  |  | --------------- | 
|                                         |  |      |   |  | $                 |  |   | $                 |  |  | $               | 
|Hodgkinson Equities Corporation  (“HEC”) |  |      | a |  |                   |  | - |                   |  |  | 250,000         | 
|Brownstone Ventures Inc. (“Brownstone”)  |  |      | b |  |                   |  | - |                   |  |  | -               | 
|Total                                    |  |      |   |  |                   |  | - |                   |  |  | 250,000         | 



F-23







|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              



NOTE 9 – LOANS FROM RELATED PARTIES
(continued)



| | (a) | At January 1, 2010, the Company had
                                                            a 12% loan with a balance of $387,927 due on January 1, 2011 from
                                                            HEC. HEC is a private company controlled by the CEO of the Company.
                                                            The loan was secured by the assets, equipment, fixtures and accounts
                                                            receivable of DEAL. During the year ended December 31, 2010, a loan
                                                            repayment of $137,927 was made to HEC by the Company. As at December
                                                            31, 2010, a balance of $250,000 remained outstanding. During the year
                                                            ended December 31, 2011, the loan was repaid in full in cash.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | At January 1, 2010, the Company had
                                                            a 12% loan with a balance of $1,957,474 due on January 1, 2011 from
                                                            Brownstone. Previously,
                                                            Brownstone controlled more than 10% of outstanding common shares of
                                                            the Company. Effective September 28, 2011, Brownstone ceased to control
                                                            more than 10% of outstanding common shares of the Company.The
                                                            loan was collateralized by the assets of Dejour USA. During the year
                                                            ended December 31, 2010, the loan was repaid in full in cash.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



NOTE
10 – WARRANT liability



Warrants that have their exercise prices
denominated in currencies other than the Company’s functional currency of Canadian dollars are accounted for as derivative
financial liabilities and are recorded at the fair value at each reporting date with the change in fair value for the period recorded
in the statement of comprehensive loss for the period.



|                                          |  | # |            |   | $ | 
|----------------------------------------- |  | - | ---------- | - | - | 
|                                          |  |   |            |   |   | 
|Balance at January 1, 2010                |  |   | 8,075,000  |   |   | 
|Change in fair value                      |  |   | -          |   |   | 
|Balance at December 31, 2010              |  |   | 8,075,000  |   |   | 
|Granted, investor warrants                |  |   | 5,505,002  |   |   | 
|Exercise of warrants – value reallocation |  |   | (3,460,418 | ) |   | 
|Expired warrants                          |  |   | -          |   |   | 
|Change in fair value                      |  |   | -          |   |   | 
|Balance at December 31, 2011              |  |   | 10,119,584 |   |   | 



As described in Note 13, in February 2011,
the Company issued 5,505,002 investor warrants each of which entitles the holder to purchase one common share of the Company at
an exercise price of US$0.35 until February 10, 2012. The fair value of these warrants was estimated using the Hull-White Trinomial
option pricing model under the following weighted average inputs:



|As at                   |  | December 31,
2011 |      |   | February 11,
2011 |     |      | December 31,
2010 | 
|----------------------- |  | ----------------- | ---- | - | ----------------- | --- | ---- | ----------------- | 
|                        |  |                   |      |   |                   |     |      |                   | 
|Exercise price          |  | US$               | 0.39 |   |                   | US$ | 0.35 |                   | 
|Share price             |  | US$               | 0.52 |   |                   | US$ | 0.31 |                   | 
|Expected volatility     |  |                   | 83   | % |                   |     | 58   | %                 | 
|Expected life           |  | 2.29 years        |      |   | 1 year            |     |      | 3.98 years        | 
|Dividends               |  |                   | 0.0  | % |                   |     | 0.0  | %                 | 
|Risk-free interest rate |  |                   | 0.3  | % |                   |     | 0.3  | %                 | 



During the year ended December 31, 2011,
3,460,418 US$ warrants were exercised. Subsequent to December 31, 2011, an additional 2,419,584 US$ warrants were exercised.



F-24







|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              



NOTE 11 – DECOMMISSIONING LIABILITY



The total decommissioning liabilities
were estimated based on the Company’s net ownership interest in all wells and facilities, the estimated cost to abandon
and reclaim the wells and facilities and the estimated timing of the cost to be incurred in future periods. The Company estimated
the total undiscounted amount of the cash flows required to settle the decommissioning liabilities as at December 31, 2011 to
be approximately $1,634,816 (December 31, 2010 - $990,000). These decommissioning liabilities are expected to be settled over
the next 20 years with the majority of costs incurred between 2018 and 2025.



|                                      |  | Canadian Oil and Gas Properties (1) |           |   | United States Oil and Gas Properties (1) |  |         | Total | 
|------------------------------------- |  | ----------------------------------- | --------- | - | ---------------------------------------- |  | ------- | ----- | 
|                                      |  | $                                   |           |   | $                                        |  |         | $     | 
|Balance at January 1, 2010            |  |                                     | 322,504   |   |                                          |  | -       |       | 
|Liabilities incurred during the year  |  |                                     | 331,618   |   |                                          |  | -       |       | 
|Change in estimated future cash flows |  |                                     | 34,792    |   |                                          |  | -       |       | 
|Unwinding of discount                 |  |                                     | 17,168    |   |                                          |  | -       |       | 
|Balance at December 31, 2010          |  |                                     | 706,082   |   |                                          |  | -       |       | 
|Liabilities incurred during the year  |  |                                     | 231,767   |   |                                          |  | 118,567 |       | 
|Change in estimated future cash flows |  |                                     | 277,764   |   |                                          |  | 2,463   |       | 
|Actual costs incurred                 |  |                                     | (18,332   | ) |                                          |  | -       |       | 
|Unwinding of discount                 |  |                                     | 19,642    |   |                                          |  | 900     |       | 
|Balance at December 31, 2011          |  |                                     | 1,216,923 |   |                                          |  | 121,930 |       | 



(1)relates to property and
equipment



The present value of the decommissioning
liability was calculated using the following weighted average inputs:



|                         |  | Canadian Oil and Gas Properties |      |   | United States Oil and Gas Properties | 
|------------------------ |  | ------------------------------- | ---- | - | ------------------------------------ | 
|As at December 31, 2011: |  |                                 |      |   |                                      | 
|Discount rate            |  |                                 | 1.67 | % |                                      | 
|Inflation rate           |  |                                 | 2.00 | % |                                      | 
|                         |  |                                 |      |   |                                      | 
|As at December 31, 2010: |  |                                 |      |   |                                      | 
|Discount rate            |  |                                 | 2.78 | % |                                      | 
|Inflation rate           |  |                                 | 2.00 | % |                                      | 



F-25







|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              



NOTE 12 – FLOW-THROUGH SHARES
LIABILITY



The following is a continuity schedule
of the liability portion of the flow-through shares issuances:



|                                                                     |  | Issued in    |          |   | Issued in  |  |          | Issued in      |  |  | Issued in     |   |  |       |         
|-------------------------------------------------------------------- |  | ------------ | -------- | - | ---------- |  | -------- | -------------- |  |  | ------------- | - |  | ----- | --------
|                                                                     |  | October 2009 |          |   | March 2010 |  |          | September 2010 |  |  | December 2010 |   |  | Total |         
|                                                                     |  | $            |          |   | $          |  |          | $              |  |  | $             |   |  | $     |         
|Balance at January 1, 2010                                           |  |              | 271,033  |   |            |  | -        |                |  |  | -             |   |  |       | -       
|Liability incurred on flow-through shares issued                     |  |              | -        |   |            |  | 130,830  |                |  |  | 90,000        |   |  |       | 187,145 
|Settlement of flow-through share liability on incurring expenditures |  |              | (271,033 | ) |            |  | (130,830 | )              |  |  | (90,000       | ) |  |       | -       
|Balance at December 31, 2010                                         |  |              | -        |   |            |  | -        |                |  |  | -             |   |  |       | 187,145 
|Settlement of flow-through share liability on incurring expenditures |  |              | -        |   |            |  | -        |                |  |  | -             |   |  |       | (187,145
|Balance at December 31, 2011                                         |  |              | -        |   |            |  | -        |                |  |  | -             |   |  |       | -       



NOTE 13 – SHARE CAPITAL



Authorized



The Company is authorized to issue an
unlimited number of common voting shares, an unlimited number of first preferred shares issuable in series, and an unlimited number
of second preferred shares issuable in series.No preferred shares have been issued and the terms of preferred shares have
not been defined.



Issued and outstanding



|                                                              |  | Common Shares |            
|------------------------------------------------------------- |  | ------------- | -----------
|                                                              |  | # of Shares   |            
|Balance at January 1, 2010                                    |  |               | 95,791,038 
|- Shares issued via private placements, net of issuance costs |  |               | 14,389,507 
|- Flow through share liability                                |  |               | -          
|                                                              |  |               |            
|Balance at December 31, 2010                                  |  |               | 110,180,545
|- Issue of shares on exercise of warrants and options         |  |               | 4,751,841  
|- Warrant liability reallocated on exercise of warrants       |  |               | -          
|- Contributed surplus reallocated on exercise of options      |  |               | -          
|- Shares issued via private placements, net of issuance costs |  |               | 11,010,000 
|- Subscriptions receivable on exercise of options             |  |               | 950,000    
|                                                              |  |               |            
|Balance at December 31, 2011                                  |  |               | 126,892,386



During the year ended December 31,
2011, the Company completed the following:



At December 31, 2011 the Company had subscriptions
receivable in the amount of $516,246. The subscriptions receivable balance was received in full subsequent to year end.



F-26







|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              



NOTE 13 – SHARE CAPITAL (continued)



In February 2011, the Company completed
a private placement of 11,010,000 units at US$0.30 per unit. Each unit consists of one common share and one-half of one common
share purchase warrant. Each whole warrant entitles the holder to acquire one additional common share of the Company at US$0.35
per common share on or before February 10, 2012. Gross proceeds raised were $3,288,641 (US$3,303,000). In connection with this
private placement, the Company paid finders’ fees of $196,694 (US$199,710) and other related costs of $119,602. The grant
date fair value of the warrants, estimated to be $310,616, has been recognized as a derivative financial liability (Note 10).
Issue costs of $32,084 related to the warrants were expensed. Directors and Officers of the Company purchased 2,000,000 units
of this offering.



In January 2011, the Company renounced
$888,940 flow-through funds to investors, using the look-back rule. The flow-through funds had been fully spent by February 28,
2011. As a result of the renunciation, a deferred income tax recovery of $187,145 was recognized on settlement of the flow-through
share liability.



During the year ended December 31,
2010, the Company completed the following:



In December 2010, the Company renounced
$1,767,567 flow-through funds to investors, using the general rule. The flow-through funds had been fully spent by December 31,
2010. As a result of the renunciation, a deferred income tax recovery of $220,830 was recognized on settlement of the flow-through
share liability.



In December 2010, the Company completed
a private placement and issued 2,339,315 flow-through shares at $0.38 per share. Gross proceeds raised were $888,940. In connection
with this private placement, the Company paid finders’ fees of $53,337 and other related costs of $61,862. The Company also
issued 140,359 agent’s warrants, exercisable at $0.38 per share on or before December 23, 2011. The grant date fair values
of the agent’s warrants, estimated to be $4,211, have been included in share capital on a net basis and accordingly have
not been recorded as a separate component of shareholders’ equity. Directors and Officers of the Company purchased 513,157
shares of this offering.



In November 2010, the Company completed
a private placement and issued 7,142,858 units at $0.28 per unit. Each unit consists of one common share and 0.65 of a common
share purchase warrant. Each whole common share purchase warrant is exercisable into one common share of the Company at $0.40
per share on or before November 17, 2015. Gross proceeds raised were $2,000,000. In connection with this private placement, the
Company paid finders’ fees of $120,000 and other related costs of $123,423. The grant date fair values of the warrants,
estimated to be $381,078, have been included in share capital on a net basis and accordingly have not been recorded as a separate
component of shareholders’ equity.



In September 2010, the Company completed
a private placement and issued 2,000,000 flow-through shares at $0.375 per share. Gross proceeds raised were $750,000. In connection
with this private placement, the Company paid finders’ fees of $37,500 and other related costs of $38,890.



In March 2010, the Company completed a
private placement and issued 2,907,334 flow-through units at $0.35 per unit. Each unit consists of one common share and one-half
of a common share purchase warrant. Each whole common share purchase warrant is exercisable into one common share of the Company
at $0.45 per share on or before March 3, 2011. Gross proceeds raised were $1,017,567. In connection with this private placement,
the Company paid finders’ fees of $54,575 and other related costs of $52,819. The Company also issued 37,423 agent’s
warrants, exercisable at $0.45 per common share on or before March 3, 2011. The grant date fair values of the warrants and agent’s
warrants, estimated to be $45,563 and $2,245 respectively, have been included in share capital on a net basis and accordingly
have not been recorded as a separate component of shareholders’ equity. Directors and Officers of the Company purchased
412,500 units of this offering and no finders’ fee was paid on their participation in the offering.



In January 2010, the Company renounced
$1,626,199 flow-through funds to investors, using the look-back rule. The flow-through funds had been fully spent by February
28, 2010. As a result of the renunciation, a deferred income tax recovery of $271,033 was recognized on settlement of the flow-through
share liability.



F-27







|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              



NOTE 14 – STOCK OPTIONS AND SHARE
PURCHASE WARRANTS



| | (a) | Stock Options
| | --- | -------------



The Stock Option Plan (the “Plan”)
is a 10% “rolling” plan pursuant to which the number of common shares reserved for issuance is 10% of the Company’s
issued and outstanding common shares as constituted on the date of any grant of options.



The Plan provides for the grant of options
to purchase common shares to eligible directors, senior officers, employees and consultants of the Company (“Participants”).
The exercise periods and vesting periods of options granted under the Plan are to be determined by the Company with approval from
the Board of Directors. The expiration of any option will be accelerated if the participant’s employment or other relationship
with the Company terminates. The exercise price of an option is to be set by the Company at the time of grant but shall not be
lower than the market price (as defined in the Plan) at the time of grant.



The following table summarizes information
about outstanding stock option transactions:



|                              |  | Number of |            |   | Weighted average | 
|----------------------------- |  | --------- | ---------- | - | ---------------- | 
|                              |  | options   |            |   | exercise price   | 
|                              |  |           |            |   | $                | 
|Balance at January 1, 2010    |  |           | 4,416,682  |   |                  | 
|Options granted               |  |           | 3,573,000  |   |                  | 
|Options cancelled (forfeited) |  |           | (400,000   | ) |                  | 
|Options expired               |  |           | (643,182   | ) |                  | 
|Balance at December 31, 2010  |  |           | 6,946,500  |   |                  | 
|Options granted               |  |           | 3,212,500  |   |                  | 
|Options exercised             |  |           | (1,150,000 | ) |                  | 
|Options cancelled (forfeited) |  |           | (200,000   | ) |                  | 
|Options expired               |  |           | (305,000   | ) |                  | 
|Balance at December 31, 2011  |  |           | 8,504,000  |   |                  | 



Details of the outstanding and exercisable
stock options as at December 31, 2011 are as follows:



|  |      |  | Outstanding |  |           | Exercisable      | 
|- | ---- |  | ----------- |  | --------- | ---------------- | 
|  |      |  |             |  |           | Weighted average | 
|  |      |  | Number      |  |           | exercise         | 
|  |      |  | of options  |  |           | price            | 
|  |      |  |             |  |           | $                | 
|$ | 0.35 |  |             |  | 5,185,500 |                  | 
|$ | 0.45 |  |             |  | 3,318,500 |                  | 
|  |      |  |             |  | 8,504,000 |                  | 



F-28







|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              



NOTE 14 – STOCK OPTIONS AND SHARE
PURCHASE WARRANTS (continued)



(a) Stock Options (continued)



The fair value of the options issued during
the period was estimated using the Black Scholes option pricing model with the following weighted average inputs:



|For the year ended December 31 |  | 2011 |            |   | 2010 |  
|------------------------------ |  | ---- | ---------- | - | ---- | -
|                               |  |      |            |   |      |  
|Fair value at grant date       |  | $    | 0.15       |   |      | $
|                               |  |      |            |   |      |  
|Exercise price                 |  | $    | 0.35       |   |      | $
|Share price                    |  | $    | 0.36       |   |      | $
|Expected volatility            |  |      | 74.33      | % |      |  
|Expected option life           |  |      | 2.10 years |   |      |  
|Dividends                      |  |      | 0.0        | % |      |  
|Risk-free interest rate        |  |      | 1.65       | % |      |  



Expected volatility
is based on historical volatility and average weekly stock prices were used to calculate volatility. Management believes that
the annualized weekly average of volatility is the best measure of expected volatility. A weighted average forfeiture rate of
9.92% (2010 – 10.10%) is used when recording stock based compensation. This estimate is adjusted to the actual forfeiture
rate. Stock based compensation of $662,338 (December 31, 2010 - $765,443) was expensed during the year ended December 31, 2011.



| | (b) | Share Purchase Warrants
| | --- | -----------------------



The following table summarizes information about warrant transactions:



|                             |  | Number of |            |   | Weighted average | 
|---------------------------- |  | --------- | ---------- | - | ---------------- | 
|                             |  | Warrants  |            |   | Exercise price   | 
|                             |  |           |            |   | $                | 
|Balance at January 1, 2010   |  |           | 14,736,150 |   |                  | 
|Warrants granted             |  |           | 6,274,305  |   |                  | 
|Balance at December 31, 2010 |  |           | 21,010,455 |   |                  | 
|Warrants granted             |  |           | 5,505,002  |   |                  | 
|Warrants exercised           |  |           | (4,551,841 | ) |                  | 
|Warrants expired             |  |           | (3,540,026 | ) |                  | 
|Balance at December 31, 2011 |  |           | 18,423,590 |   |                  | 



Details of the outstanding and exercisable warrants as at December
31, 2011 are as follows:



|  |         |  | Outstanding |  |            | Exercisable      | 
|- | ------- |  | ----------- |  | ---------- | ---------------- | 
|  |         |  |             |  |            | Weighted average | 
|  |         |  | Number      |  |            | exercise         | 
|  |         |  | of warrants |  |            | price            | 
|  |         |  |             |  |            | $                | 
|$ | 0.40    |  |             |  | 3,642,856  |                  | 
|$ | 0.55    |  |             |  | 4,015,151  |                  | 
|$ | 0.35 US |  |             |  | 2,419,584  |                  | 
|$ | 0.40 US |  |             |  | 7,700,000  |                  | 
|$ | 0.46 US |  |             |  | 645,999    |                  | 
|  |         |  |             |  | 18,423,590 |                  | 









F-29









|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              



NOTE 14 – STOCK OPTIONS AND SHARE
PURCHASE WARRANTS (continued)



| | (b) | Share Purchase Warrants (continued)
| | --- | -----------------------------------



Warrants that have their exercise prices
denominated in currencies other than the Company’s functional currency of Canadian dollars are accounted for as derivative
financial liabilities (Note 10).



NOTE 15 – CONTRIBUTED SURPLUS



Contributed
surplus is used to recognize the value of stock option grants and share warrants prior to exercise. Details
of changes in the Company's contributed surplus balance are as follows:



|                                         |  |   |          
|---------------------------------------- |  | - | ---------
|                                         |  | $ |          
|Balance at January 1, 2010               |  |   | 6,873,166
|Stock based compensation                 |  |   | 765,443  
|Balance at December 31, 2010             |  |   | 7,638,609
|Stock based compensation                 |  |   | 662,338  
|Exercise of options – value reallocation |  |   | (167,070 
|Balance at December 31, 2011             |  |   | 8,133,877





NOTE 16 – SUPPLEMENTAL INFORMATION



| | (a) | Changes in operating non-cash working capital consisted of the following:
| | --- | -------------------------------------------------------------------------





|                                         |  | Year ended December 31, |          
|---------------------------------------- |  | ----------------------- | ---------
|                                         |  | 2011                    |          
|                                         |  | $                       |          
|Changes in non-cash working capital:     |  |                         |          
|Accounts receivable                      |  |                         | (714,801 
|Prepaids and deposits                    |  |                         | (8,110   
|Accounts payable and accrued liabilities |  |                         | 1,485,147
|                                         |  |                         | 762,236  
|                                         |  |                         |          
|Comprised of:                            |  |                         |          
|Operating activities                     |  |                         | (73,931  
|Investing activities                     |  |                         | 888,236  
|Financing activities                     |  |                         | (52,069  
|                                         |  |                         | 762,236  
|                                         |  |                         |          
|Other cash flow information:             |  |                         |          
|Cash paid for interest                   |  |                         | 439,987  
|Income taxes paid                        |  |                         | -        





F-30













|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              







NOTE 16 – SUPPLEMENTAL INFORMATION
(continued)



| | (b) | Per share amounts:
| | --- | ------------------



Basic loss per share amounts has been
calculated by dividing the net loss for the year attributable to the shareholders of the Company by the weighted average number
of common shares outstanding. The basic and diluted net loss per share is the same as there are no dilutive effects on earnings.
The following table summarizes the common shares used in calculating basic and diluted net loss per common share:



|                                           |  |                         |            
|------------------------------------------ |  | ----------------------- | -----------
|                                           |  | Year ended December 31, |            
|                                           |  | 2011                    |            
|Weighted average common shares outstanding |  |                         |            
|Basic                                      |  |                         | 120,300,214
|Diluted                                    |  |                         | 120,300,214













NOTE 17 – RELATED PARTY TRANSACTIONS



Except as disclosed elsewhere, during
the year ended December 31, 2011 and 2010, the Company entered into the following transactions with related parties:



| | (a) | Compensation awarded to key management included a total of salaries and consulting fees of $1,771,981
(2010 - $1,215,191) and non-cash stock-based compensation of $451,071 (2010 - $486,018). Key management includes the Company’s
officers and directors. The salaries and consulting fees are included in general and administrative expenses. Included in accounts
payable and accrued liabilities at December 31, 2011 is $396,618 (December 31, 2010 - $12,000 and January 1, 2010 - $Nil) owing
to a company controlled by an officer of the Company.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | The Company incurred a total of $2,301 (2010 - $268,440) in finance costs to a company controlled
by an officer of the Company.
| | --- | -------------------------------------------------------------------------------------------------------------------------------



| | (c) | Included in interest and other income is $30,000 (2010 - $30,000) received from the companies controlled
by officers of the Company for rental income.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------



| | (d) | In July 2008, Brownstone Ventures Inc. (“Brownstone”) became a 28.53% working interest
partner in the US properties. Previously, Brownstone controlled more than 10% of outstanding common shares of the Company. Effective
September 28, 2011, Brownstone ceased to control more than 10% of outstanding common shares of the Company. Included in accounts
receivable at December 31, 2011 is $Nil (December 31, 2010 - $168,771 and January 1, 2010 - $72,752) owing from Brownstone.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (e) | In December 2009, a company controlled by the CEO of the Company (“HEC”) became a 5%
working interest partner in the Woodrush property. Included in accounts receivable at December 31, 2011 is $Nil (December 31, 2010
- $967 and January 1, 2010 - $Nil) owing from HEC. Included in accounts payable and accrued liabilities at December 31, 2011 is
$53,668 (December 31, 2010 - $166,139 and January 1, 2010 - $63,679) owing to HEC.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (f) | In December 2011, HEC exercised 250,000 warrants with an exercise price of US$0.35 each that were
issued in February 2011.
| | --- | --------------------------------------------------------------------------------------------------------------------------



F-31













|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              







NOTE 18 –INCOME TAXES



The actual income tax provisions differ
from the expected amounts calculated by applying the Canadian combined federal and provincial corporate income tax rates to the
Company’s loss before income taxes. The components of these differences are as follows:





|                                                                   |  | 2011 |             |   | 2010 | 
|------------------------------------------------------------------ |  | ---- | ----------- | - | ---- | 
|                                                                   |  | $    |             |   | $    | 
|Loss before income taxes                                           |  |      | (11,230,427 | ) |      | 
|Corporate tax rate                                                 |  |      | 33.36       | % |      | 
|                                                                   |  |      |             |   |      | 
|Expected tax recovery                                              |  |      | (3,746,974  | ) |      | 
|Increase (decrease) resulting from:                                |  |      |             |   |      | 
|Differences in foreign tax rates and change in effective tax rates |  |      | (319,388    | ) |      | 
|Impact of foreign exchange rate changes                            |  |      | (219,610    | ) |      | 
|Change in unrecognized deferred tax assets                         |  |      | 3,582,881   |   |      | 
|Stock based compensation and share issue costs                     |  |      | 220,956     |   |      | 
|Non deductible amounts                                             |  |      | 347,217     |   |      | 
|Other adjustments                                                  |  |      | (52,227     | ) |      | 
|                                                                   |  |      |             |   |      | 
|Deferred income tax recovery                                       |  |      | (187,145    | ) |      | 







No deferred tax asset has been recognized in respect of the
following losses and deductable temporary differences as it is not considered probable that the sufficient future taxable profit
will allow the deferred tax assets to be recovered.





|                                               |  | 2011 |            |  | 2010 | 
|---------------------------------------------- |  | ---- | ---------- |  | ---- | 
|                                               |  | $    |            |  | $    | 
|Deferred income tax assets                     |  |      |            |  |      | 
|Non-capital losses available                   |  |      | 11,211,431 |  |      | 
|Capital losses available                       |  |      | 1,030,304  |  |      | 
|Resource tax pools in excess of net book value |  |      | 6,226,327  |  |      | 
|Share issue costs and other                    |  |      | 228,199    |  |      | 
|Unrecognized deferred tax assets               |  |      | 18,696,261 |  |      | 





F-32













|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              







NOTE 18 –INCOME TAXES (continued)



The Company has the approximate amounts of tax pools available
as follows:





|                                         |  | 2011 |            |  | 2010 | 
|---------------------------------------- |  | ---- | ---------- |  | ---- | 
|As at December 31                        |  | $    |            |  | $    | 
|                                         |  |      |            |  |      | 
|Canada:                                  |  |      |            |  |      | 
|Exploration and development expenditures |  |      | 18,439,000 |  |      | 
|Unamortized share issue costs            |  |      | 913,000    |  |      | 
|Capital losses                           |  |      | 8,242,000  |  |      | 
|Non-capital losses                       |  |      | 18,416,000 |  |      | 
|                                         |  |      | 46,010,000 |  |      | 
|                                         |  |      |            |  |      | 
|United States:                           |  |      |            |  |      | 
|Exploration and development expenditures |  |      | 28,553,000 |  |      | 
|Non-capital losses                       |  |      | 11,883,000 |  |      | 
|                                         |  |      | 40,436,000 |  |      | 
|                                         |  |      |            |  |      | 
|Total                                    |  |      | 86,446,000 |  |      | 





The described 2011 US tax pools are
updated for a typographical correction from the amount disclosed in the Company’s annual consolidated financial statements
filed on SEDAR.



The exploration and development expenditures can be carried
forward to reduce future income taxes indefinitely. The non-capital losses for income tax purposes expire as follows:





|      |  | Canada |            |  | United States |  |            | Total | 
|----- |  | ------ | ---------- |  | ------------- |  | ---------- | ----- | 
|      |  | $      |            |  | $             |  |            |       | 
|$2015 |  |        | 1,729,000  |  |               |  | -          |       | 
|2026  |  |        | -          |  |               |  | 480,000    |       | 
|2027  |  |        | 4,151,000  |  |               |  | -          |       | 
|2028  |  |        | 4,674,000  |  |               |  | 2,020,000  |       | 
|2029  |  |        | 3,373,000  |  |               |  | 6,397,000  |       | 
|2030  |  |        | 2,081,000  |  |               |  | 1,112,000  |       | 
|2031  |  |        | 2,408,000  |  |               |  | 1,874,000  |       | 
|      |  |        | 18,416,000 |  |               |  | 11,883,000 |       | 





NOTE 19 – COMMITMENTS



In connection with the issuance of flow-through
shares by the Company during the year ended December 31, 2010, the Company was required to expend $2.7 million of eligible exploration
expenditures by December 31, 2011. $1.8 million was expended by December 31, 2010 and $0.9 million was expended by February 28,
2011.



The Company has entered into a lease agreement
for a vehicle that is used to accelerate the production in the waterflood at Woodrush. Future minimum annual lease payments under
the lease are as follows:





|     |  | $ |       
|---- |  | - | ------
|2012 |  |   | 41,042
|2013 |  |   | 34,202
|     |  |   | 75,244





F-33













|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              







NOTE 19 – COMMITMENTS (continued)



The Company has entered into lease agreements
on office premises for its various locations. Under the terms of the lease for one of its subsidiaries, the Company has an option
to automatically extend the term for a period of one year. Future minimum annual lease payments under the leases are as follows:





|     |  | $ |        
|---- |  | - | -------
|2012 |  |   | 181,984
|2013 |  |   | 73,051 
|2014 |  |   | 48,701 
|     |  |   | 303,736





NOTE 20 – PERSONNEL EXPENSES



The aggregate compensation expense of key
management was as follows:





|                                         |  | Year ended December 31, |          
|---------------------------------------- |  | ----------------------- | ---------
|                                         |  | 2011                    |          
|                                         |  | $                       |          
|Salaries, benefits and fees              |  |                         | 1,771,981
|Non-cash stock-based compensation        |  |                         | 451,071  
|                                         |  |                         | 2,223,052
|Capitalized portion of salaries and fees |  |                         | (154,368 
|                                         |  |                         | 2,068,684





NOTE 21 – OPERATING SEGMENTS



Segment information is provided on the
basis of geographic segments as the Company manages its business through two geographic regions – Canada and the United States.
The two geographic segments presented reflect the way in which the Company’s management reviews business performance. The
Company’s revenue and losses of each geographic segment are as follows:





|                                              |  |        |            |   |               |  |            |       | 
|--------------------------------------------- |  | ------ | ---------- | - | ------------- |  | ---------- | ----- | 
|                                              |  | Canada |            |   | United States |  |            | Total | 
|                                              |  | 2011   |            |   | 2010          |  |            | 2011  | 
|                                              |  | $      |            |   | $             |  |            | $     | 
|Years ended December 31                       |  |        |            |   |               |  |            |       | 
|Revenues and other income                     |  |        | 7,171,363  |   |               |  | 6,878,384  |       | 
|Segmented loss                                |  |        | (4,662,246 | ) |               |  | (3,506,122 | )     | 
|Amortization, depletion and impairment losses |  |        | 3,330,809  |   |               |  | 3,862,852  |       | 
|Interest expense                              |  |        | 439,771    |   |               |  | 576,549    |       | 
|Income tax recovery                           |  |        | 187,145    |   |               |  | 491,863    |       | 
|                                              |  |        |            |   |               |  |            |       | 
|As at December 31                             |  |        |            |   |               |  |            |       | 
|Total capital expenditures                    |  |        | 6,480,131  |   |               |  | 4,219,843  |       | 





F-34











|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              







NOTE 22 – ACCUMULATED OTHER COMPREHENSIVE LOSS



The components of accumulated other comprehensive
loss were as follows:





|As at                                   |  | December 31, 2011 |         |  | December 31, 2010 |  |         | January 1, 2010 | 
|--------------------------------------- |  | ----------------- | ------- |  | ----------------- |  | ------- | --------------- | 
|                                        |  | $                 |         |  | $                 |  |         | $               | 
|Unrealized financial instrument loss    |  |                   | -       |  |                   |  | -       |                 | 
|Foreign currency translation adjustment |  |                   | 392,977 |  |                   |  | 685,002 |                 | 
|                                        |  |                   | 392,977 |  |                   |  | 685,002 |                 | 







NOTE 23 – DETERMINATION OF FAIR
VALUES



A number of the Company’s accounting
policies and disclosures require the determination of fair value, for financial assets and liabilities. Fair values have been determined
for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions
made in determining fair values is disclosed in the notes specific to that financial asset or financial liability. Due to the use
of subjective judgments and uncertainties in the determination of these fair values the values should not be interpreted as being
realizable in an immediate settlement of the financial instruments.



The following tables provide fair value
measurement information for financial assets and liabilities as at December 31, 2011 and December 31, 2010. The carrying value
of cash and cash equivalents, accounts receivable, bank line of credit, and accounts payable and accrued liabilities included in
the consolidated statement of financial position approximate their fair value due to the short term nature of the instruments or
the indexed rate of interest on the bank debt.





|December 31, 2011                        |  | Carrying Amount |           |  | Fair Value |  |           | Quoted Prices in Active Markets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |      
|---------------------------------------- |  | --------------- | --------- |  | ---------- |  | --------- | ----------------------------------------- |  |  | --------------------------------------------- |  |  | ----------------------------------------- | -----
|                                         |  | $               |           |  | $          |  |           | $                                         |  |  | $                                             |  |  | $                                         |      
|Financial Assets:                        |  |                 |           |  |            |  |           |                                           |  |  |                                               |  |  |                                           |      
|Cash and cash equivalents                |  |                 | 2,487,850 |  |            |  | 2,487,850 |                                           |  |  | 2,487,850                                     |  |  |                                           | -    
|Accounts receivable                      |  |                 | 887,181   |  |            |  | 887,181   |                                           |  |  | 887,181                                       |  |  |                                           | -    
|Subscription receivable                  |  |                 | 516,246   |  |            |  | 516,246   |                                           |  |  | 516,246                                       |  |  |                                           | -    
|                                         |  |                 |           |  |            |  |           |                                           |  |  |                                               |  |  |                                           |      
|Financial Liabilities:                   |  |                 |           |  |            |  |           |                                           |  |  |                                               |  |  |                                           |      
|Accounts payable and accrued liabilities |  |                 | 3,957,893 |  |            |  | 3,957,893 |                                           |  |  | 3,957,893                                     |  |  |                                           | -    
|Bank line of credit                      |  |                 | 5,545,457 |  |            |  | 5,545,457 |                                           |  |  | 5,545,457                                     |  |  |                                           | -    
|Fair value of commodity contracts        |  |                 | 9,800     |  |            |  | 9,800     |                                           |  |  | -                                             |  |  |                                           | 9,800







|December 31, 2010                        |  | Carrying Amount |           |  | Fair Value |  |           | Quoted Prices in Active Markets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |  
|---------------------------------------- |  | --------------- | --------- |  | ---------- |  | --------- | ----------------------------------------- |  |  | --------------------------------------------- |  |  | ----------------------------------------- | -
|                                         |  | $               |           |  | $          |  |           | $                                         |  |  | $                                             |  |  | $                                         |  
|Financial Assets:                        |  |                 |           |  |            |  |           |                                           |  |  |                                               |  |  |                                           |  
|Cash and cash equivalents                |  |                 | 4,757,525 |  |            |  | 4,757,525 |                                           |  |  | 4,757,525                                     |  |  |                                           | -
|Accounts receivable                      |  |                 | 688,626   |  |            |  | 688,626   |                                           |  |  | 688,626                                       |  |  |                                           | -
|                                         |  |                 |           |  |            |  |           |                                           |  |  |                                               |  |  |                                           |  
|Financial Liabilities:                   |  |                 |           |  |            |  |           |                                           |  |  |                                               |  |  |                                           |  
|Accounts payable and accrued liabilities |  |                 | 2,472,746 |  |            |  | 2,472,746 |                                           |  |  | 2,472,746                                     |  |  |                                           | -
|Bridge loan                              |  |                 | 4,800,000 |  |            |  | 4,800,000 |                                           |  |  | 4,800,000                                     |  |  |                                           | -
|Loan from related party                  |  |                 | 250,000   |  |            |  | 250,000   |                                           |  |  | -                                             |  |  |                                           | -





F-35













|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              









NOTE 23 – DETERMINATION OF FAIR
VALUES (continued)



The Company classifies the fair value of
financial instruments according to the following hierarchy based on the amount of observable inputs used to value the instruments:



| | • | Level 1: Values based on unadjusted quoted prices in active markets that are accessible at the
measurement date for identical assets or liabilities.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Level 2: Values based on quoted prices in markets that are not active or model inputs that are
observable either directly or indirectly for substantially the full term of the asset or liability.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Level 3: Values based on prices or valuation techniques that require inputs that are both unobservable
and significant to the overall fair value measurement.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------



NOTE 24 – FINANCIAL INSTRUMENTS
AND CAPITAL MANAGEMENT



The Company’s functional currency
is the Canadian dollar. The Company operates in the United States, giving rise to exposure to market risks from changes in foreign
currency rates. Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk.



The Company also has exposure to a number
of risks from its use of financial instruments including: credit risk, liquidity risk, and market risk. This note presents information
about the Company’s exposure to each of these risks and the Company’s objectives, policies and processes for measuring
and managing risk, and the Company’s management of capital.



| | (a) | Credit Risk
| | --- | -----------



Credit risk arises from credit exposure
to receivables due from joint venture partners and marketers included in accounts receivable. The maximum exposure to credit risk
is equal to the carrying value of the financial assets.



The Company is exposed to third party credit
risk through its contractual arrangements with its current or future joint venture partners, marketers of its petroleum and natural
gas production and other parties. In the event such entities fail to meet their contractual obligations to the Company, such failures
may have a material adverse effect on the Company’s business, financial condition, and results of operations.



The objective of managing the third party
credit risk is to minimize losses in financial assets. The Company assesses the credit quality of the partners, taking into account
their financial position, past experience, and other factors. The Company mitigates the risk of non-collection of certain amounts
by obtaining the joint venture partners’ share of capital expenditures in advance of a project and by monitoring accounts
receivable on a regular basis. As at December 31, 2011 and 2010, no accounts receivable has been deemed uncollectible or written
off during the year.



As at December 31, 2011, the Company’s
receivables consist of $64,583 (2010 - $195,514) from joint interest partners, $774,100 (2010 - $408,700) from oil and natural
gas marketers and $48,498 (2010 - $84,412) from other trade receivables.



The Company considers all amounts outstanding
for more than 90 days as past due. Currently, there is no indication that amounts are non-collectable; thus an allowance for doubtful
accounts has not been set up. As at December 31, 2011, $5,787 (2010 - $152,056) of accounts receivable are past due, all of which
are considered to be collectable.



| | (b) | Liquidity Risk
| | --- | --------------



Liquidity risk is the risk that the Company
will not be able to meet its financial obligations as they become due. The Company’s approach to managing liquidity is to
ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due, under both normal and stressed
conditions without incurring unacceptable losses or risking harm to the Company’s reputation.



F-36











|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              









NOTE
24 – FINANCIAL INSTRUMENTS AND CAPITAL MANAGEMENT (continued)



(b)	Liquidity Risk (continued)



As
the industry in which the Company operates is very capital intensive, the majority of the Company’s spending is related to
its capital programs. The Company prepares annual capital expenditure budgets, which are regularly monitored and updated as considered
necessary. Further, the Company utilizes authorizations for expenditures on both operated and non-operated projects to further
manage capital expenditures. To facilitate the capital expenditure program, the Company has a bank line of credit facility (note
8). The Company also attempts to match its payment cycle with collection of oil and natural gas revenues on the 25th
of each month.



Accounts
payable are considered due to suppliers in one year or less while the bridge loan was repaid in full during the year ended December
31, 2011. The bank line of credit, which is scheduled to be reviewed on or before May 1, 2012, is repayable upon demand.



| | (c) | Market Risk
| | --- | -----------



Market
risk is the risk that changes in market prices, such as foreign exchange rates, commodity prices, and interest rates will affect
the Company’s net earnings. The objective of market risk management is to manage and control market risk exposures within
acceptable limits, while maximizing returns. The Company utilizes financial derivatives to manage certain market risks. All such
transactions are conducted in accordance with the risk management policy that has been approved by the Board of Directors.



| | (i) | Foreign Currency Exchange Risk
| | --- | ------------------------------



Foreign
currency exchange rate risk is the risk that the fair value of financial instruments or future cash flows will fluctuate as a result
of changes in foreign exchange rates. Although substantially all of the Company’s oil and natural gas sales are denominated
in Canadian dollars, the underlying market prices in Canada for oil and natural gas are impacted by changes in the exchange rate
between the Canadian and United States dollars. Given that changes in exchange rate have an indirect influence, the impact of changing
exchange rates cannot be accurately quantified. The Company had no forward exchange rate contracts in place as at or during the
year ended December 31, 2011 and 2010.



The Company was exposed to the following foreign currency risk
at December 31:





|                                         |  | 2011 |            |   | 2010 | 
|---------------------------------------- |  | ---- | ---------- | - | ---- | 
|Expressed in foreign currencies          |  | CND$ |            |   | CND$ | 
|Cash and cash equivalents                |  |      | 1,772,982  |   |      | 
|Accounts receivable                      |  |      | 69,667     |   |      | 
|Accounts payable and accrued liabilities |  |      | (1,346,564 | ) |      | 
|Balance sheet exposure                   |  |      | 496,085    |   |      | 







The following foreign exchange rates applied for the year ended
and as at December 31:





|                                 |  | 2011   |        |  | 2010   | 
|-------------------------------- |  | ------ | ------ |  | ------ | 
|YTD average USD to CAD           |  | 1.0170 |        |  | 0.9946 | 
|December 31, reporting date rate |  |        | 0.9893 |  |        | 







The Company has performed a sensitivity
analysis on its foreign currency denominated financial instruments. Based on the Company’s foreign currency exposure noted
above and assuming that all other variables remain constant, a 10% appreciation of the US dollar against the Canadian dollar would
result in the decrease of net loss of $49,609 at December 31, 2011 (2010 - $54,276). For a 10% depreciation of the above foreign
currencies against the Canadian dollar, assuming all other variables remain constant, there would be an equal and opposite impact
on net loss.



F-37













|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              









NOTE 24 – FINANCIAL INSTRUMENTS
AND CAPITAL MANAGEMENT (continued)



| | (ii) | Interest Rate Risk
| | ---- | ------------------



Interest
rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. During the year ended
December 31, 2011, interest rate fluctuations on the Company’s credit facility have no significant impact on its net loss
because the Company had no floating rate debt in place at or during the year ended December 31, 2011. The Company had no interest
rate swaps or financial contracts in place at or during the year ended December 31, 2011 and 2010.



| | (iii) | Commodity Price Risk
| | ----- | --------------------



Commodity
price risk is the risk that the fair value of financial instruments or future cash flows will fluctuate as a result of changes
in commodity prices. Commodity prices for oil and natural gas are impacted by world economic events that dictate the levels of
supply and demand. The Company has attempted to mitigate commodity price risk on its future sales of crude oil through the use
of financial derivative sales contracts. The following table summarizes the Company’s crude oil
risk management positions at December 31, 2011:



|Instrument type                               | Contract Month | Volume                  | Price per barrel
|--------------------------------------------- | -------------- | ----------------------- | ----------------
|Western Texas Instrument (“WTI”) Sold Futures | February 2012  | 4,000 barrels per month | US$98           
|Western Texas Instrument (“WTI”) Sold Futures | March 2012     | 4,000 barrels per month | US$98           
|Western Texas Instrument (“WTI”) Sold Futures | April 2012     | 4,000 barrels per month | US$98           



With respect to the commodity contracts
in place at December 31, 2011, an increase of US$10/barrel in the price of oil, assuming all other variables remain constant, would
have positively impacted income before taxes by approximately $120,000 (2010 - $Nil). A similar decline in commodity prices would
be an equal and opposite impact on income before taxes. The Company had no commodity contracts in place at December 31, 2010.



| | (d) | Capital Management Strategy
| | --- | ---------------------------



The Company’s policy on capital management
is to maintain a prudent capital structure so as to maintain financial flexibility, preserve access to capital markets, maintain
investor, creditor and market confidence, and to allow the Company to fund future developments. The Company considers its capital
structure to include share capital, cash and cash equivalents, bank line of credit, and working capital. In order to maintain or
adjust capital structure, the Company may from time to time issue shares or enter into debt agreements and adjust its capital spending
to manage current and projected operating cash flows and debt levels.



The Company’s current borrowing capacity
is based on the lender’s review of the Company’s oil and gas reserves. The Company is also subject to various covenants.
Compliance with these covenants is monitored on a regular basis and at December 31, 2011, the Company is in compliance with all
covenants (note 8).



The
Company’s share capital is not subject to any external restrictions.The Company has not paid or declared any dividends,
nor are any contemplated in the foreseeable future. There have been no changes to the Company’s capital management strategy
during the year ended December 31, 2010.



F-38













|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              









NOTE 25 – TRANSITION TO IFRS



As disclosed in note 2, these consolidated
financial statements represent the Company’s first annual consolidated financial statements prepared in accordance with IFRS.
Previously, the Company prepared its consolidated financial statements in accordance with pre-change over Canadian GAAP (“previous
GAAP”).



The accounting policies in note 2 have
been applied in preparing the consolidated financial statements for the year ended December 31, 2011, the consolidated financial
statements for the year ended December 31, 2010 and the opening IFRS balance sheet on January 1, 2010.



In preparing the opening IFRS consolidated
balance sheet and the consolidated comparative financial statements for the year ended December 31, 2010, the Company has adjusted
amounts reported previously in financial statements that were prepared in accordance with previous GAAP.



IFRS 1 requires the presentation of comparative
information as at the January 1, 2010 transition date and subsequent comparative periods as well as the consistent and retrospective
application of IFRS accounting policies. To assist with the transition, IFRS 1 permits certain mandatory and optional exemptions
for first-time adopters to alleviate the retrospective application of all IFRSs.



The accompanying reconciliations present
the adjustments made to the Company’s previous GAAP balance sheet and statement of comprehensive loss to comply with IFRS
1. A summary of the significant accounting policy changes and applicable exemptions are discussed following the reconciliations.
The reconciliations presented include the Company’s consolidated balance sheets as at January 1, 2010 and December 31, 2010,
consolidated statement of changes in shareholders’ equity for the year ended December 31, 2010, and consolidated statement
of comprehensive loss for the year ended December 31, 2010.



First-Time Adoption Exemptions Applied



The IFRS 1 applicable exemptions and exceptions
applied in the conversion from previous GAAP to IFRS are as follows:



| | i. | The Company has elected not to apply IFRS 3 ‘Business Combinations’ retrospectively
to business combinations that applied before the date of transition (January 1, 2010).
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ii. | The Company has elected not to retrospectively apply IFRS 2 to equity instruments that were granted
and had vested before the Transition Date (January 1, 2010). As a result of applying this exemption, the Company will apply the
provisions of IFRS 2 only to all outstanding equity instruments that are unvested as at the Transition Date to IFRS.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | iii. | The Company has elected to apply the transition provisions in IFRIC 19 ‘Extinguishing Financial
Liabilities with Equity Instruments’ as permitted on first time adoption of IFRS.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | iv. | The Company has elected an IFRS 1 exemption whereby, upon transition to IFRS, its Canadian oil
and gas properties were measured as follows:
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------



| | (a) | Exploration and evaluation Canadian assets were reclassified from oil and gas properties as exploration
and evaluation assets at the amount that was recorded under previous GAAP. Exploration and evaluation assets on transition are
those unproved properties excluded from the full cost pool under previous GAAP; and
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | the remaining balance of the Canadian oil and gas properties included in the previous GAAP full
cost pool was allocated to CGUs and components pro-rata using proved plus probable reserve dollar values.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On adoption of IFRS 1, the Canadian
exploration and evaluation assets and oil and gas properties were tested for impairment. The impairment tests compared the carrying
value of the assets to their recoverable amounts. The recoverable amount is the higher of fair value less costs to sell or value
in use. There was no impairment charge recognized in the opening deficit at January 1, 2010.



F-39









|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              









NOTE 25 – TRANSITION TO IFRS (continued)



| | v. | As a result of applying the IFRS 1 exemption for Canadian oil and gas assets previously accounted
for under the full cost approach under previous GAAP, the adjustment for the revaluation of the decommissioning liability was recognized
in opening deficit as at January 1, 2010.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | vi. | The Company has elected to apply the transitional provisions of IAS 23, ‘Borrowing Costs’
which permits prospective capitalization of borrowing costs on qualifying assets from the Transition Date.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | vii. | The Company has elected not to retrospectively separate the liability and equity components of
compound instruments for which the liability component is no longer outstanding at the date of transition to IFRS.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | viii. | The Company has elected not to retrospectively apply the requirements for cumulative translation
differences that existed at the date of transition to IFRS. Therefore the cumulative translation differences for all foreign operations
are deemed to be zero at the date of transition to IFRS.
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The remaining IFRS 1 exemptions were not
applicable or material to the presentation of the Company’s consolidated balance sheet at the date of transition to IFRS
on January 1, 2010.



MandatoryExceptions



| | i. | Derecognition of financial assets and liabilities
| | -- | -------------------------------------------------



The Company has applied the
derecognition requirements in IAS 39, ‘Financial Instruments: Recognition and Measurement’, prospectively from the
transition date. As a result, any non-derivative financial assets or non-derivative financial liabilities derecognized prior to
the transition date in accordance with previous GAAP have not been reviewed for compliance with IAS 39.



| | ii. | Estimates
| | --- | ---------



The estimates previously made
by the Company under previous GAAP were not revised for the application of IFRS except where necessary to reflect any difference
in accounting policy. As a result, the Company has not used hindsight to revise estimates.



F-40









|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              









NOTE 25 – TRANSITION TO IFRS (continued)



Consolidated Balance Sheet Reconciliation as at January
1, 2010:



|                                           |  |      |      |  |          |  |             |            |  |  |             |  
|------------------------------------------ |  | ---- | ---- |  | -------- |  | ----------- | ---------- |  |  | ----------- | -
|                                           |  |      |      |  |          |  |             | Effect of  |  |  |             |  
|                                           |  | Note |      |  | Canadian |  |             | transition |  |  |             |  
|                                           |  | 25   |      |  | GAAP     |  |             | to IFRS    |  |  | IFRS        |  
|                                           |  |      |      |  | $        |  |             | $          |  |  | $           |  
|ASSETS                                     |  |      |      |  |          |  |             |            |  |  |             |  
|Current                                    |  |      |      |  |          |  |             |            |  |  |             |  
|Cash and cash equivalents                  |  |      |      |  |          |  | 2,732,696   |            |  |  | -           |  
|Accounts receivable                        |  |      |      |  |          |  | 724,773     |            |  |  | -           |  
|Prepaids and deposits                      |  |      |      |  |          |  | 126,266     |            |  |  | -           |  
|                                           |  |      |      |  |          |  |             |            |  |  |             |  
|Current Assets                             |  |      |      |  |          |  | 3,583,735   |            |  |  | -           |  
|Non-current                                |  |      |      |  |          |  |             |            |  |  |             |  
|Deposits                                   |  |      |      |  |          |  | 429,402     |            |  |  | -           |  
|Exploration and evaluation assets          |  |      | a, b |  |          |  | -           |            |  |  | 12,717,545  |  
|Uranium properties                         |  |      | a    |  |          |  | 533,085     |            |  |  | (533,085    | )
|Property and equipment                     |  |      | a, b |  |          |  | 41,339,654  |            |  |  | (28,086,265 | )
|                                           |  |      |      |  |          |  |             |            |  |  |             |  
|Total Assets                               |  |      |      |  |          |  | 45,885,876  |            |  |  | (15,901,805 | )
|                                           |  |      |      |  |          |  |             |            |  |  |             |  
|LIABILITIES                                |  |      |      |  |          |  |             |            |  |  |             |  
|Current                                    |  |      |      |  |          |  |             |            |  |  |             |  
|Bank line of credit                        |  |      |      |  |          |  | 850,000     |            |  |  | -           |  
|Accounts payable and accrued liabilities   |  |      |      |  |          |  | 2,653,483   |            |  |  | -           |  
|Unrealized financial instrument loss       |  |      |      |  |          |  | 99,894      |            |  |  | -           |  
|Loans from related parties                 |  |      |      |  |          |  | 2,345,401   |            |  |  | -           |  
|Warrant liability                          |  |      | f    |  |          |  | -           |            |  |  | 1,160,858   |  
|Flow-through shares liability              |  |      | g    |  |          |  | -           |            |  |  | 271,033     |  
|                                           |  |      |      |  |          |  |             |            |  |  |             |  
|Current Liabilities                        |  |      |      |  |          |  | 5,948,778   |            |  |  | 1,431,891   |  
|Non-current                                |  |      |      |  |          |  |             |            |  |  |             |  
|Deferred leasehold inducement              |  |      |      |  |          |  | 39,913      |            |  |  | -           |  
|Decommissioning liability                  |  |      | c    |  |          |  | 208,516     |            |  |  | 113,988     |  
|Total Liabilities                          |  |      |      |  |          |  | 6,197,207   |            |  |  | 1,545,879   |  
|                                           |  |      |      |  |          |  |             |            |  |  |             |  
|SHAREHOLDERS' EQUITY                       |  |      |      |  |          |  |             |            |  |  |             |  
|Share capital                              |  |      | f, g |  |          |  | 72,559,504  |            |  |  | 3,250,846   |  
|Contributed surplus                        |  |      | e    |  |          |  | 6,614,805   |            |  |  | 258,361     |  
|Deficit                                    |  |      |      |  |          |  | (39,385,746 | )          |  |  | (20,956,891 | )
|Accumulated other comprehensive loss       |  |      | d    |  |          |  | (99,894     | )          |  |  | -           |  
|Total Shareholders' Equity                 |  |      |      |  |          |  | 39,688,669  |            |  |  | (17,447,684 | )
|Total Liabilities and Shareholders' Equity |  |      |      |  |          |  | 45,885,876  |            |  |  | (15,901,805 | )











F-41













|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              









NOTE 25 – TRANSITION TO IFRS (continued)



Consolidated Balance Sheet Reconciliation as at December
31, 2010:



|                                           |  |      |      |  |          |  |             |            |  |  |             |  
|------------------------------------------ |  | ---- | ---- |  | -------- |  | ----------- | ---------- |  |  | ----------- | -
|                                           |  |      |      |  |          |  |             | Effects of |  |  |             |  
|                                           |  | Note |      |  | Canadian |  |             | transition |  |  |             |  
|                                           |  | 25   |      |  | GAAP     |  |             | to IFRS    |  |  | IFRS        |  
|                                           |  |      |      |  | $        |  |             | $          |  |  | $           |  
|ASSETS                                     |  |      |      |  |          |  |             |            |  |  |             |  
|Current                                    |  |      |      |  |          |  |             |            |  |  |             |  
|Cash and cash equivalents                  |  |      |      |  |          |  | 4,757,525   |            |  |  | -           |  
|Accounts receivable                        |  |      |      |  |          |  | 688,626     |            |  |  | -           |  
|Prepaids and deposits                      |  |      |      |  |          |  | 92,738      |            |  |  | -           |  
|                                           |  |      |      |  |          |  |             |            |  |  |             |  
|Current Assets                             |  |      |      |  |          |  | 5,538,889   |            |  |  | -           |  
|Non-current                                |  |      |      |  |          |  |             |            |  |  |             |  
|Deposits                                   |  |      |      |  |          |  | 442,261     |            |  |  | -           |  
|Exploration and evaluation assets          |  |      | a, b |  |          |  | -           |            |  |  | 10,257,259  |  
|Uranium properties                         |  |      |      |  |          |  | 523,205     |            |  |  | (523,205    | )
|Property and equipment                     |  |      | a, b |  |          |  | 39,850,811  |            |  |  | (25,675,830 | )
|                                           |  |      |      |  |          |  |             |            |  |  |             |  
|Total Assets                               |  |      |      |  |          |  | 46,355,166  |            |  |  | (15,941,776 | )
|                                           |  |      |      |  |          |  |             |            |  |  |             |  
|LIABILITIES                                |  |      |      |  |          |  |             |            |  |  |             |  
|Current                                    |  |      |      |  |          |  |             |            |  |  |             |  
|Bridge loan                                |  |      |      |  |          |  | 4,800,000   |            |  |  | -           |  
|Accounts payable and accrued liabilities   |  |      |      |  |          |  | 2,472,746   |            |  |  | -           |  
|Loans from related parties                 |  |      |      |  |          |  | 250,000     |            |  |  | -           |  
|Warrant liability                          |  |      | f    |  |          |  | -           |            |  |  | 1,092,762   |  
|Flow-through shares liability              |  |      | g    |  |          |  | -           |            |  |  | 187,145     |  
|                                           |  |      |      |  |          |  |             |            |  |  |             |  
|Current Liabilities                        |  |      |      |  |          |  | 7,522,746   |            |  |  | 1,279,907   |  
|Non-current                                |  |      |      |  |          |  |             |            |  |  |             |  
|Deferred leasehold inducement              |  |      |      |  |          |  | 31,708      |            |  |  | -           |  
|Decommissioning liability                  |  |      | c    |  |          |  | 541,218     |            |  |  | 164,864     |  
|                                           |  |      |      |  |          |  |             |            |  |  |             |  
|Total Liabilities                          |  |      |      |  |          |  | 8,095,672   |            |  |  | 1,444,771   |  
|                                           |  |      |      |  |          |  |             |            |  |  |             |  
|SHAREHOLDERS' EQUITY                       |  |      |      |  |          |  |             |            |  |  |             |  
|Share capital                              |  |      | f, g |  |          |  | 75,575,012  |            |  |  | 3,810,871   |  
|Contributed surplus                        |  |      | e    |  |          |  | 7,235,106   |            |  |  | 403,503     |  
|Deficit                                    |  |      |      |  |          |  | (44,550,624 | )          |  |  | (20,915,919 | )
|Accumulated other comprehensive loss       |  |      | d    |  |          |  | -           |            |  |  | (685,002    | )
|                                           |  |      |      |  |          |  |             |            |  |  |             |  
|Total Shareholders' Equity                 |  |      |      |  |          |  | 38,259,494  |            |  |  | (17,386,547 | )
|                                           |  |      |      |  |          |  |             |            |  |  |             |  
|Total Liabilities and Shareholders' Equity |  |      |      |  |          |  | 46,355,166  |            |  |  | (15,941,776 | )





F-42













|DEJOUR ENERGY INC.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|For the Year Ended December 31, 2011 and 2010 
|(Expressed in Canadian dollars)               
|                                              









NOTE 25 – TRANSITION TO IFRS (continued)



Reconciliation of Consolidated Statement of Comprehensive
Loss for the Year ended December 31, 2010:

|                                               |  |      |   |  |          |  |            |            |  |  |          |  
|---------------------------------------------- |  | ---- | - |  | -------- |  | ---------- | ---------- |  |  | -------- | -
|                                               |  |      |   |  |          |  |            | Effects of |  |  |          |  
|                                               |  | Note |   |  | Canadian |  |            | transition |  |  |          |  
|                                               |  | 25   |   |  | GAAP     |  |            | to IFRS    |  |  | IFRS     |  
|                                               |  |      |   |  | $        |  |            | $          |  |  | $        |  
|Revenue                                        |  |      |   |  |          |  |            |            |  |  |          |  
|Gross revenues                                 |  |      |   |  |          |  | 8,085,627  |            |  |  | -        |  
|Royalties                                      |  |      |   |  |          |  | (1,311,767 | )          |  |  | -        |  
|Revenues, net of royalties                     |  |      |   |  |          |  | 6,773,860  |            |  |  | -        |  
|Financial instrument gain                      |  |      |   |  |          |  | 67,922     |            |  |  | -        |  
|Other income                                   |  |      |   |  |          |  | 36,602     |            |  |  | -        |  
|Total Revenues and Other Income                |  |      |   |  |          |  | 6,878,384  |            |  |  | -        |  
|                                               |  |      |   |  |          |  |            |            |  |  |          |  
|Expenses                                       |  |      |   |  |          |  |            |            |  |  |          |  
|Operating and transportation                   |  |      |   |  |          |  | 2,604,666  |            |  |  | 4,223    |  
|General and administrative                     |  |      | b |  |          |  | 3,423,905  |            |  |  | (40,639  | )
|Finance costs                                  |  |      | c |  |          |  | 1,107,426  |            |  |  | (15,334  | )
|Stock based compensation                       |  |      | e |  |          |  | 620,301    |            |  |  | 145,142  |  
|Foreign exchange loss                          |  |      |   |  |          |  | 27,692     |            |  |  | -        |  
|Amortization, depletion and  impairment losses |  |      | a |  |          |  | 5,227,272  |            |  |  | (542,405 | )
|Change in fair value of warrant  liability     |  |      | f |  |          |  | -          |            |  |  | (68,097  | )
|Total Expenses                                 |  |      |   |  |          |  | 13,011,262 |            |  |  | (517,110 | )
|                                               |  |      |   |  |          |  |            |            |  |  |          |  
|Loss before income taxes                       |  |      |   |  |          |  | (6,132,878 | )          |  |  | 517,110  |  
|Deferred income tax recovery                   |  |      | g |  |          |  | 968,000    |            |  |  | (476,137 | )
|                                               |  |      |   |  |          |  |            |            |  |  |          |  
|Net loss for the year                          |  |      |   |  |          |  | (5,164,878 | )          |  |  | 40,973   |  
|Foreign currency translation adjustment        |  |      | d |  |          |  | -          |            |  |  | (685,002 | )
|                                               |  |      |   |  |          |  |            |            |  |  |          |  
|Comprehensive loss                             |  |      |   |  |          |  | (5,164,878 | )          |  |  | (644,029 | )
|                                               |  |      |   |  |          |  |            |            |  |  |          |  
|Net loss per common share - basic and diluted  |  |      |   |  |          |  | (0.052     | )          |  |  |          |  





F-43











DEJOUR ENERGY INC.

NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Year Ended December 31, 2011 and
2010

(Expressed in Canadian dollars)








NOTE 25 – TRANSITION TO IFRS (continued)



Reconciliation of Consolidated Statement
of Changes in Shareholders’ Equity for the Year ended December 31, 2010:



|                                        |  |      |   |  |          |  |             | Effects of |  |  |             |  
|--------------------------------------- |  | ---- | - |  | -------- |  | ----------- | ---------- |  |  | ----------- | -
|                                        |  | Note |   |  | Canadian |  |             | transition |  |  |             |  
|                                        |  | 25   |   |  | GAAP     |  |             | to IFRS    |  |  | IFRS        |  
|                                        |  |      |   |  | $        |  |             | $          |  |  | $           |  
|Share Capital                           |  |      |   |  |          |  |             |            |  |  |             |  
|Balance, beginning of year              |  |      |   |  |          |  | 72,559,504  |            |  |  | 3,250,846   |  
|Common shares issued for cash           |  |      |   |  |          |  | 3,983,508   |            |  |  | -           |  
|Flow through shares liability           |  |      | g |  |          |  | (968,000    | )          |  |  | 560,025     |  
|Balance, end of year                    |  |      |   |  |          |  | 75,575,012  |            |  |  | 3,810,871   |  
|                                        |  |      |   |  |          |  |             |            |  |  |             |  
|Contributed surplus                     |  |      |   |  |          |  |             |            |  |  |             |  
|Balance, beginning of year              |  |      |   |  |          |  | 6,614,805   |            |  |  | 258,361     |  
|Stock-based compensation                |  |      | e |  |          |  | 620,301     |            |  |  | 145,142     |  
|Balance, end of year                    |  |      |   |  |          |  | 7,235,106   |            |  |  | 403,503     |  
|                                        |  |      |   |  |          |  |             |            |  |  |             |  
|Accumulated Deficit                     |  |      |   |  |          |  |             |            |  |  |             |  
|Balance, beginning of year              |  |      |   |  |          |  | (39,385,746 | )          |  |  | (20,956,891 | )
|Net loss                                |  |      |   |  |          |  | (5,164,878  | )          |  |  | 40,973      |  
|Balance, end of year                    |  |      |   |  |          |  | (44,550,624 | )          |  |  | (20,915,918 | )
|                                        |  |      |   |  |          |  |             |            |  |  |             |  
|AOCI(L) *                               |  |      |   |  |          |  |             |            |  |  |             |  
|Balance, beginning of year              |  |      |   |  |          |  | (99,894     | )          |  |  | -           |  
|Realized financial instrument loss      |  |      |   |  |          |  | 99,894      |            |  |  | -           |  
|Unrealized financial instrument loss    |  |      |   |  |          |  | -           |            |  |  | -           |  
|Foreign currency translation adjustment |  |      | d |  |          |  | -           |            |  |  | (685,002    | )
|Balance, end of year                    |  |      |   |  |          |  | -           |            |  |  | (685,002    | )
|                                        |  |      |   |  |          |  |             |            |  |  |             |  
|Total Shareholders' Equity              |  |      |   |  |          |  | 38,259,494  |            |  |  | (17,386,546 | )



* Accumulated Other Comprehensive Income (Loss)



F-44







DEJOUR ENERGY INC.

NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Year Ended December 31, 2011 and
2010

(Expressed in Canadian dollars)








NOTE 25 – TRANSITION TO IFRS (continued)



Explanatory Notes on the Transition to IFRS:



| | (a) | IFRS 6 – ‘Exploration for and Evaluation of Mineral Resources’, IAS 16 – ‘Property and equipment’
and IAS 38 – ‘Intangible Assets’
| | --- | ----------------------------------------------------------------------------------------------------------------------------------



| | i. | Exploration and evaluation (“E&E”) assets and impairment
| | -- | --------------------------------------------------------



Under previous GAAP, exploration
and evaluation (“E&E”) costs were capitalized as oil and gas properties in accordance with the full cost accounting
guidelines available to oil and gas companies. Under IFRS, the Company capitalizes these costs initially as E&E assets. Once
technical feasibility and commercial viability of an area has been determined, the capitalized costs are transferred to property
and equipment, subject to an impairment assessment at that time. The technical feasibility and commercial viability of extracting
a mineral resource is considered to be determinable when proven reserves are determined to exist. Under IFRS, unrecoverable exploration
and evaluation costs associated with an area and costs incurred prior to obtaining the legal rights to explore an area are expensed.
This did not result in a material difference on transition.



During the twelve months ended
December 31, 2010, the Company transferred $Nil of capitalized exploration and evaluation costs to property and equipment and expensed
$Nil of unsuccessful exploration and evaluation assets.



Under previous GAAP, E&E
assets were included in property and equipment whereas under IFRS, E&E assets are disclosed as a separate class of assets.
At January 1, 2010, the Company reclassified undeveloped land and unproved properties of $12,184,460, with a cost of $30,150,651
and accumulated impairment of $17,966,191, from property and equipment to exploration and evaluation assets. In addition, the uranium
properties of $533,085 were reclassified as exploration and evaluation assets on the date of transition. At December 31, 2010,
the transfer was $10,257,259, which included reclassification of uranium properties of $523,205 as E&E assets and exploration
and evaluation capital expenditures in 2010 net of dispositions and impairment charge.



Under previous GAAP, the Company
was required to recognize an impairment loss if the carrying amount exceeds the undiscounted cash flows from proved reserves for
the country cost centre. If an impairment loss was to be recognized, it was then measured at the amount the carrying value exceeds
the sum of the fair value of the proved and probable reserves and the costs of unproved properties. Impairments recognized under
previous GAAP cannot be reversed.



Under IFRS, the Company is
required to recognize and measure an impairment loss if the carrying value exceeds the recoverable amount for a cash-generating
unit (“CGU”). Oil & gas assets are grouped into CGUs based on their ability to generate largely independent cash
flows. Under IFRS, the recoverable amount is the higher of fair value less cost to sell and value in use. Impairment losses, other
than goodwill, can be reversed when there is a subsequent increase in the recoverable amount.



Upon adoption of IFRS, the
Company recognized an additional impairment charge of $14,744,690 in the opening deficit at January 1, 2010, relating to certain
E&E assets in the US. Additional impairment charge of $822,015 was recorded for the year ended December 31, 2010. The impairment
charge was based on the difference between the net book value of the assets and the recoverable amount. The recoverable amount
was determined using the fair value less costs to sell based on the amount for which the asset could be sold in an arm’s
length transaction. Under previous GAAP, these assets were included in the US cost centre ceiling test, which also included oil
and gas development and production assets and was not impaired as at December 31, 2009.



F-45







DEJOUR ENERGY INC.

NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Year Ended December 31, 2011 and
2010

(Expressed in Canadian dollars)








NOTE 25 – TRANSITION TO IFRS (continued)



| | (a) | IFRS 6 – ‘Exploration for and Evaluation of Mineral Resources’, IAS 16 – ‘Property and equipment’
and IAS 38 – ‘Intangible Assets’ (continued)
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------



| | ii. | Property and equipment and impairment
| | --- | -------------------------------------



Under previous GAAP, the Company
applied a two part impairment test to the net carrying amount of oil and gas assets, whereby the first step compared the net carrying
value of the asset to the aggregate of estimated undiscounted future net cash flows from production of proved reserves and the
cost of unproved properties less impairment. If the net carrying value of the oil and gas assets exceeded the amount ultimately
recoverable, the amount of impairment was determined through the performance of the second part of the test. The deficit, if any,
of the discounted estimated future cash flows from proved and probable reserves plus the cost of unproved properties, net of impairment
allowances, less the book value of the related assets was recognized as impairment on properties. Impairments recognized under
previous GAAP were not reversed.



Under IFRS, property and equipment
are aggregated into cash-generating units based on their ability to generate largely independent cash flows. If the carrying value
of the cash-generating unit exceeds its recoverable amount, the cash-generating unit is written down with an impairment loss recognized
in profit or loss. Impairments recognized under IFRS are reversed when there has been a subsequent increase in the recoverable
amount. Impairment reversals are recognized in profit or loss and the carrying amount of the cash-generating unit is increased
to its recoverable amount as if no impairment had been recognized in prior periods.



On applying the IFRS 1 election,
property and equipment were tested for impairment. There was no impairment charge recognized in the accumulated deficit at January
1, 2010. For the year ended December 31, 2010, the Company recognized an impairment charge of $360,268. The impairment tests compared
the difference between the January 1, 2010 and the December 31, 2010 net book value of the assets and the recoverable amounts.
The recoverable amount was determined using the fair value less costs to sell based on discounted future cash flows of proved and
probable reserves using forecast prices and costs.



| | iii. | Amortization and depletion adjustments
| | ---- | --------------------------------------



Property and equipment as at
January 1, 2010 were determined to be $13,253,389, being the remainder of the full cost pool balance under previous GAAP. For the
year ended December 31, 2010, the Company has property and equipment capital expenditures of $4,472,535, decommissioning provision
of $366,410, accumulated depletion and impairment losses of 3,814,045 and a decrease due to foreign currency translation of $103,308.
Consistent with previous GAAP, these costs are capitalized as property and equipment under IFRS. Under previous GAAP, development
and production costs were depleted on a unit-of-production basis for oil and gas properties for each country cost centre, based
on proved reserves. Under IFRS, these costs are depleted using the unit-of-production method that is now applied on a componentized
basis for each CGU, based on proved and probable reserves. Certain components within a CGU have been combined, where appropriate,
as outlined in note 3. The IFRS 1 exemption permitted the Company to allocate its Canadian development and production costs to
the component level using proved and probable reserve dollar values for each area as at January 1, 2010. The Company allocated
its U.S. development and production costs using the amounts capitalized for each area under previous GAAP on the date of transition.



The Company has also adjusted
amortization and depletion expenses for the comparative period to reflect the revised carrying values of property and equipment.
This resulted in a decrease of $1,724,688 in amortization and depletion expenses for the year ended December 31, 2010.



F-46







DEJOUR ENERGY INC.

NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Year Ended December 31, 2011 and
2010

(Expressed in Canadian dollars)








NOTE 25 – TRANSITION TO IFRS (continued)



| | (b) | Divestitures
| | --- | ------------



Under Canadian GAAP, proceeds
from the sale of oil and gas properties were deducted from the full cost pool without recognition of a gain or loss unless the
deduction resulted in a change to the country cost centre depletion rate of 20 percent or greater, in which case a gain or loss
was recorded.



Under IFRS, gains or losses
are recorded on divestitures and are calculated as the difference between the proceeds and the net book value of the asset disposed.
For the year ended December 31, 2010, the Company recognized a $40,639 net gain on divestitures under IFRS compared to Canadian
GAAP results. Accounting for divestitures under IFRS resulted in a decrease of $40,639 to the Company’s Canadian GAAP net
loss for the year ended December 31, 2010.



| | (c) | Decommissioning liability adjustments
| | --- | -------------------------------------



Under previous GAAP, the decommissioning
liability was measured as the estimated fair value of the retirement and decommissioning expenditures expected to be incurred.
Liabilities were not re-measured to reflect period end market discount rates.



Under IFRS, the decommissioning
liability is measured as the best estimate of the expenditure to be incurred and requires that the decommissioning liability be
re-measured using period end market discount rates.



In accordance with IFRS and
the IFRS 1 exemption, the Company has adjusted the decommissioning liability in accordance with IAS 37. This resulted in an increase
of $113,988 to the decommissioning liability and the accumulated deficit as at January 1, 2010, an increase of $164,864 to the
decommissioning liability as at December 31, 2010.



As a result of the change in
the discount rate, accretion expense decreased by $15,334 for the year ended December 31, 2010. In addition, under previous GAAP,
the unwinding of the discount was classified with amortization, depletion and accretion. Under IFRS, the accretion is classified
as finance costs as required. This resulted in the reclassification of accretion expense of $17,168 for the year ended December
31, 2010.



| | (d) | Foreign exchange translation
| | --- | ----------------------------



In accordance with IFRS transitional
provisions, the Company elected to reset the cumulative translation adjustment, which includes gains and losses arising from the
translation of foreign operations, to zero at the date of transition to IFRS. The cumulative translation adjustment reset was $1,157,115
with an offsetting increase to opening deficit, as a result of the re-translation of the Company’s foreign subsidiaries’
non-monetary assets and liabilities using the rate of exchange at the balance sheet date versus the applicable historical rate.



Under IFRS, the subsidiaries,
with the exception of Dejour USA, have a functional currency that is the same as the Company. Financial statements of the subsidiary
with a functional currency different from that of the Company are translated into Canadian dollars whereby assets and liabilities
are translated at the rate of exchange at the balance sheet date, revenues and expenses are translated at average monthly exchange
rates, and gains and losses in translation are recognized in the shareholders’ equity section as accumulated other comprehensive
income (loss). Under previous GAAP, foreign exchange gains and losses on the translation of the integrated subsidiary’s operations
were recognized in the statement of comprehensive loss. This change in accounting increased the accumulated other comprehensive
loss by $685,002 for the year ended December 31, 2010.



F-47







DEJOUR ENERGY INC.

NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Year Ended December 31, 2011 and
2010

(Expressed in Canadian dollars)








NOTE 25 – TRANSITION TO IFRS (continued)



| | (d) | Foreign exchange translation (continued)
| | --- | ----------------------------------------



This represents a change in
the translation method compared to previous GAAP for Dejour USA whereby monetary assets and liabilities were translated at the
rate of exchange at the balance sheet date, and non-monetary items were translated at the historical rate applicable on the date
of the transaction giving rise to the non-monetary balance. Revenues and expenses were translated at monthly average exchange rates
and gains or losses in translation were recognized in income as they occurred. Exchange differences recognized in the profit or
loss statement of Dejour USA on the translation of monetary items forming part of the Company’s net investment in foreign
operations were reclassified to foreign exchange reserve on consolidation.



| | (e) | Share based payments
| | --- | --------------------



Under previous GAAP, the Company
recognized an expense related to share-based payments on a straight-line basis through the date of full vesting and recognized
forfeitures as they occurred. Under IFRS, the Company is required to recognize the expense over the individual vesting periods
for the graded vesting awards and estimate a forfeiture rate on the date of grant. This increased contributed surplus and increased
the deficit by $258,361 at the date of transition and resulted in an increase in stock-based compensation expense of $145,142 for
the year ended December 31, 2010.



| | (f) | Derivative financial instruments
| | --- | --------------------------------



The Company has outstanding
warrants which entitle the holder to acquire a fixed number of common shares for a fixed US dollar price per share. In accordance
with IFRS, an obligation to issue shares for a price that is not fixed in the Company’s functional currency, and that does
not qualify as a rights offering, must be classified as a derivative liability and measured at fair value with changes recognized
in profit or loss as they arise. Under previous GAAP, the warrants were classified as equity and changes in fair value were not
recognized. This change in accounting increased liabilities at January 1, 2010 by $1,161,858 ($1,092,762 at December 31, 2010),
decreased share capital by $963,004 ($963,004 at December 31, 2010) and increased the accumulated deficit by $197,855 at January
1, 2010 ($129,759 at December 31, 2010) and decreased the net loss by $68,096 for the year ended December 31, 2010.



| | (g) | Flow-through shares
| | --- | -------------------



The Company provides certain
share subscribers with a flow-through component for tax incentives available on qualifying Canadian exploration expenditures, which
are renounced by the Company. Under IFRS, on issuance of flow-through shares, the Company bifurcates the flow-through share into
i) a flow-through share premium, equal to the estimated premium, if any, investors pay for the flow-through feature, which is recognized
as a liability and; ii) share capital. Upon the resource property expenditures being incurred, the Company derecognizes the liability
and recognizes a deferred tax liability for the amount of the tax reduction renounced to the shareholders. Under previous GAAP,
the deferred tax liabilities resulting from the renunciation of the qualified expenditures by the Company were recorded as a reduction
of share capital on the date of the renouncement filing. This change in accounting increased liabilities at January 1, 2010 by
$271,033 ($187,145 at December 31, 2010), increased share capital at January 1, 2010 by $4,213,850 ($4,773,875 at December 31,
2010) and increased the accumulated deficit by $4,484,883 at January 1, 2010 ($4,961,020 at December 31, 2010) and increased the
net loss by $476,137 for the year ended December 31, 2010.



| | (h) | Statement of cash flows
| | --- | -----------------------



The transition to IFRS did not
result in any significant impact to the Company’s operating, investing and financing cash flows for the year ended December
31, 2010.



F-48







SUPPLEMENTARY OIL AND GAS RESERVE ESTIMATION
AND DISCLOSURES – ASC 932 (UNAUDITED)



Select supplementary oil and gas reserve
estimation and disclosure are provided in accordance with U.S. disclosure requirements. The standards of the SEC require that proved
reserves be estimated using existing economic conditions (constant pricing).  Based on this methodology, the Company’s
results have been calculated utilizing the 12-month average price for each of the years presented within this supplementary disclosure.



The Company’s 2011 and 2010 financial
results were prepared in accordance with IFRS.  As the Company’s IFRS transition date was January 1, 2010, 2009
results were prepared in accordance with US GAAP.



The Company reports in Canadian currency
and therefore the Reserves Data pertaining to the Company’s reserves in the United States set forth in the tables below has
been converted to Canadian dollars at the prevailing conversion rate at December 31, 2011. The conversion rate used per Bank of
Canada is 1.0170.



| | (a) | Net proved oil and gas reserves
| | --- | -------------------------------



As at December 31, 2011, the Company’s
oil and gas reserves are located in both Canada and the United States.



In 2011, Deloitte & Touche LLP (“AJM
Deloitte” or “AJM”) of Calgary, Alberta, independent petroleum engineering consultants based in Calgary, Alberta
were retained by the Company to evaluate the Canadian properties of the Company. Their report, titled “Reserve Estimation
and Economic Evaluation, Dejour Energy (Alberta) Ltd.”, is dated March 23, 2012 and has an effective date of December 31,
2011. In 2010, the Company engaged independent qualified reserve evaluators, GLJ Petroleum Consultants Ltd. (“GLJ”)
to review the Company’s proved developed and undeveloped oil and gas reserves in Canada.

Gustavson Associates (“Gustavson”),
an independent petroleum engineering consultants based in Denver, Colorado were retained by the Company to evaluate the US properties
of the Company. Their report, titled “Reserve and Resources Evaluation Report, Dejour Energy (USA) Corp., Leasehold Uintah,
Grand, and Emery Counties, Utah and Moffat, Rio Blanco, Garfield, Mesa, Delta, and Gunnison Counties, Colorado, USA” is dated
February 15, 2012 and has an effective date of January 1, 2012.



In accordance with applicable securities
laws, AJM Deloitte, and Gustavson Associates (“Gustavson”), have used both constant and forecast prices and costs in
estimating the reserves and future net cash flows contained in their reports. Actual future net cash flows will be affected by
other factors, such as actual production levels, supply and demand for oil and natural gas, curtailments or increases in consumption
by oil and natural gas purchasers, changes in governmental regulation or taxation and the impact of inflation on costs.



The tables in this section set forth oil
and gas information prepared by the Company in accordance with U.S. disclosure standards, including Accounting Standards Codification
932 (“ASC 932”). Reserves have been estimated in accordance with the US Securities and Exchange Commission’s
(“SEC”) definitions and guidelines. The changes in our net proved reserve quantities are outlined below.



Net reserves are Dejour royalty and working
interest remaining reserves, less all Crown, freehold, and overriding royalties and interests that are not owned by Dejour.



Proved reserves are those estimated quantities
of crude oil, natural gas and natural gas liquids that can be estimated with a high degree of certainty to be economically recoverable
under existing economic and operating conditions. It is likely that the actual remaining quantities recovered will exceed the estimated
proved reserves.



Proved developed reserves are those reserves
that are expected to be recovered from existing wells and installed facilities or, if facilities have not been installed, that
would involve a low expenditure (e.g. when compared to the cost of drilling a well) to put the reserves on production. Developed
reserves may be subdivided into producing and non-producing.



Proved undeveloped reserves are those reserves
that are expected to be recovered from known accumulations where a significant expenditure (e.g. when compared to the cost of drilling
a well) is required to render them capable of production.



The Company cautions users of this information
as the process of estimating crude oil and natural gas reserves is subject to a level of uncertainty. The reserves are based on
economic and operating conditions; therefore, changes can be made to future assessments as a result of a number of factors, which
can include new technology, changing economic conditions and development activity.



F-49





| | (a) | CONSTANT PRICES AND COSTS - YEAR ENDED DECEMBER 31, 2011
| | --- | --------------------------------------------------------



Net Proved Developed and

Proved Undeveloped Reserves



|                    |  | Canada     |     |   | United States |  |   | Total       | 
|------------------- |  | ---------- | --- | - | ------------- |  | - | ----------- | 
|                    |  | Light and  |     |   | Natural Gas   |  |   |             | 
|                    |  | Medium Oil |     |   | Liquids       |  |   | Natural Gas | 
|                    |  | (Mbbl)     |     |   | (Mbbl)        |  |   | (MMcf)      | 
|                    |  |            |     |   |               |  |   |             | 
|December 31, 2010   |  |            | 167 |   |               |  | 4 |             | 
|Discoveries         |  |            | -   |   |               |  | - |             | 
|Extensions          |  |            | -   |   |               |  | - |             | 
|Infill Drilling     |  |            | -   |   |               |  | - |             | 
|Improved Recovery   |  |            |     |   |               |  | - |             | 
|Technical Revisions |  |            | 190 |   |               |  | - |             | 
|Dispositions        |  |            | -   |   |               |  | - |             | 
|Economic Factors    |  |            | -   |   |               |  | - |             | 
|Production          |  |            | (40 | ) |               |  | - |             | 
|December 31, 2011   |  |            | 317 |   |               |  | 4 |             | 
|                    |  |            |     |   |               |  |   |             | 
|Developed           |  |            | 317 |   |               |  | 4 |             | 
|Undeveloped         |  |            | -   |   |               |  | - |             | 
|Total               |  |            | 317 |   |               |  | 4 |             | 



F-50







CONSTANT PRICES AND COSTS - YEAR ENDED
DECEMBER 31, 2010



Net Proved Developed and

Proved Undeveloped
Reserves



|                    |  | Canada     |     |   | United States |  |    | Total       | 
|------------------- |  | ---------- | --- | - | ------------- |  | -- | ----------- | 
|                    |  | Light and  |     |   | Natural Gas   |  |    |             | 
|                    |  | Medium Oil |     |   | Liquids       |  |    | Natural Gas | 
|                    |  | (Mbbl)     |     |   | (Mbbl)        |  |    | (MMcf)      | 
|                    |  |            |     |   |               |  |    |             | 
|December 31, 2009   |  |            | 98  |   |               |  | 4  |             | 
|Discoveries         |  |            | -   |   |               |  | -  |             | 
|Improved Recovery   |  |            | 66  |   |               |  | -  |             | 
|Technical Revisions |  |            | 70  |   |               |  | 2  |             | 
|Dispositions        |  |            | -   |   |               |  | -  |             | 
|Economic Factors    |  |            | -   |   |               |  | -  |             | 
|Production          |  |            | (67 | ) |               |  | (2 | )           | 
|December 31, 2010   |  |            | 167 |   |               |  | 4  |             | 
|                    |  |            |     |   |               |  |    |             | 
|Developed           |  |            | 74  |   |               |  | 4  |             | 
|Undeveloped         |  |            | 93  |   |               |  | -  |             | 
|Total               |  |            | 167 |   |               |  | 4  |             | 



F-51





| | (b) | Capitalized Costs
| | --- | -----------------



|As at December 31,                     |  | 2011       |             |   | 2010                     |   |             | 2009          | 
|-------------------------------------- |  | ---------- | ----------- | - | ------------------------ | - | ----------- | ------------- | 
|                                       |  | (Per IFRS) |             |   | (As Restated under IFRS) |   |             | (Per US GAAP) | 
|Canada                                 |  |            |             |   |                          |   |             |               | 
|Proved oil and gas properties          |  | $          | 23,149,485  |   |                          | $ | 16,191,797  |               | 
|Unproved oil and gas properties        |  |            | 71,552      |   |                          |   | 41,060      |               | 
|Total capital costs                    |  |            | 23,221,037  |   |                          |   | 16,232,857  |               | 
|Accumulated depletion and depreciation |  |            | (5,819,933  | ) |                          |   | (3,453,777  | )             | 
|Impairment                             |  |            | (1,298,207  | ) |                          |   | (360,268    | )             | 
|Net capitalized costs                  |  | $          | 16,102,897  |   |                          | $ | 12,418,812  |               | 
|                                       |  |            |             |   |                          |   |             |               | 
|United States                          |  |            |             |   |                          |   |             |               | 
|Proved oil and gas properties          |  | $          | 4,075,774   |   |                          | $ | 1,695,655   |               | 
|Unproved oil and gas properties        |  |            | 27,772,327  |   |                          |   | 27,500,879  |               | 
|Total capital costs                    |  |            | 31,848,101  |   |                          |   | 29,196,534  |               | 
|Impairment                             |  |            | (23,524,342 | ) |                          |   | (17,807,885 | )             | 
|Net capitalized costs                  |  | $          | 8,323,759   |   |                          | $ | 11,388,649  |               | 
|                                       |  |            |             |   |                          |   |             |               | 
|Total                                  |  |            |             |   |                          |   |             |               | 
|Proved oil and gas properties          |  | $          | 27,225,259  |   |                          | $ | 17,887,452  |               | 
|Unproved oil and gas properties        |  |            | 27,843,879  |   |                          |   | 27,541,939  |               | 
|Total capital costs                    |  |            | 55,069,138  |   |                          |   | 45,429,391  |               | 
|Accumulated depletion and depreciation |  |            | (5,819,933  | ) |                          |   | (3,453,777  | )             | 
|Impairment                             |  |            | (24,822,549 | ) |                          |   | (18,168,153 | )             | 
|Net capitalized costs                  |  | $          | 24,426,656  |   |                          | $ | 23,807,461  |               | 



| | Note: | Capitalized costs were disclosed under US GAAP as of December
31, 2010 and 2009. Effective January 1, 2011, the Company has adopted IFRS. Therefore, 2010 figures were restated under IFRS.
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-52







| | (c) | Costs Incurred
| | --- | --------------



|For the years ended December 31 |  | 2011       |           |  | 2010                     |   |           | 2009          | 
|------------------------------- |  | ---------- | --------- |  | ------------------------ | - | --------- | ------------- | 
|                                |  | (Per IFRS) |           |  | (As Restated under IFRS) |   |           | (Per US GAAP) | 
|Canada                          |  |            |           |  |                          |   |           |               | 
|Property acquisition costs (1)  |  |            |           |  |                          |   |           |               | 
|Proved oil and gas properties   |  | $          | 47,158    |  |                          | $ | 10,659    |               | 
|Unproved oil and gas properties |  |            | 8,548     |  |                          |   | 26,601    |               | 
|Exploration costs (2)           |  |            | 32,482    |  |                          |   | 60,856    |               | 
|Development costs (3)           |  |            | 6,410,244 |  |                          |   | 4,121,724 |               | 
|Capital Expenditures            |  | $          | 6,498,432 |  |                          | $ | 4,219,840 |               | 
|                                |  |            |           |  |                          |   |           |               | 
|United States                   |  |            |           |  |                          |   |           |               | 
|Property acquisition costs (1)  |  |            |           |  |                          |   |           |               | 
|Proved oil and gas properties   |  | $          | 40,143    |  |                          | $ | 14,640    |               | 
|Unproved oil and gas properties |  |            | 146,062   |  |                          |   | 220,937   |               | 
|Exploration costs (2)           |  |            | 38,287    |  |                          |   | 556,347   |               | 
|Development costs (3)           |  |            | 1,608,585 |  |                          |   | -         |               | 
|Capital Expenditures            |  | $          | 1,833,077 |  |                          | $ | 791,924   |               | 
|                                |  |            |           |  |                          |   |           |               | 
|Total                           |  |            |           |  |                          |   |           |               | 
|Property acquisition costs (1)  |  |            |           |  |                          |   |           |               | 
|Proved oil and gas properties   |  | $          | 87,301    |  |                          | $ | 25,299    |               | 
|Unproved oil and gas properties |  |            | 154,610   |  |                          |   | 247,538   |               | 
|Exploration costs (2)           |  |            | 70,769    |  |                          |   | 617,203   |               | 
|Development costs (3)           |  |            | 8,018,829 |  |                          |   | 4,121,724 |               | 
|Capital Expenditures            |  | $          | 8,331,509 |  |                          | $ | 5,011,764 |               | 



| | (1) | Acquisitions are not net of disposition of properties.
| | --- | ------------------------------------------------------

| | (2) | Geological and geophysical capital expenditures and drilling costs for exploraton wells drilled
| | --- | -----------------------------------------------------------------------------------------------

| | (3) | Includes equipping and facilities capital expenditures
| | --- | ------------------------------------------------------



F-53







| | (d) | Results of Operations of Producing Activities
| | --- | ---------------------------------------------



|For the years ended December 31                             |  | 2011   |            |   | 2010   |   |            | 2009      | 
|----------------------------------------------------------- |  | ------ | ---------- | - | ------ | - | ---------- | --------- | 
|                                                            |  | (IFRS) |            |   | (IFRS) |   |            | (US GAAP) | 
|Canada                                                      |  |        |            |   |        |   |            |           | 
|Oil and gas sales, net of royalties and commodity contracts |  | $      | 7,196,464  |   |        | $ | 6,773,860  |           | 
|Operating costs and capital taxes                           |  |        | (1,975,294 | ) |        |   | (2,101,046 | )         | 
|Transportation costs                                        |  |        | (507,959   | ) |        |   | (507,843   | )         | 
|Depletion, depreciation and accretion                       |  |        | (2,392,870 | ) |        |   | (3,485,186 | )         | 
|Income taxes (1)                                            |  |        | -          |   |        |   | -          |           | 
|Results of operations                                       |  | $      | 2,320,341  |   |        | $ | 679,785    |           | 
|                                                            |  |        |            |   |        |   |            |           | 
|United States                                               |  |        |            |   |        |   |            |           | 
|Oil and gas sales, net of royalties and commodity contracts |  | $      | -          |   |        | $ | -          |           | 
|Operating costs and capital taxes                           |  |        | (16,227    | ) |        |   | -          |           | 
|Transportation costs                                        |  |        | -          |   |        |   | -          |           | 
|Depletion, depreciation and accretion                       |  |        | (10,483    | ) |        |   | (7,518     | )         | 
|Income taxes (1)                                            |  |        | -          |   |        |   | -          |           | 
|Results of operations                                       |  | $      | (26,710    | ) |        | $ | (7,518     | )         | 
|                                                            |  |        |            |   |        |   |            |           | 
|Total                                                       |  |        |            |   |        |   |            |           | 
|Oil and gas sales, net of royalties and commodity contracts |  | $      | 7,196,464  |   |        | $ | 6,773,860  |           | 
|Lease operating costs and capital taxes                     |  |        | (1,991,521 | ) |        |   | (2,101,046 | )         | 
|Transportation costs                                        |  |        | (507,959   | ) |        |   | (507,843   | )         | 
|Depletion, depreciation and accretion                       |  |        | (2,403,353 | ) |        |   | (3,492,704 | )         | 
|Income taxes (1)                                            |  |        | -          |   |        |   | -          |           | 
|Results of operations                                       |  | $      | 2,293,631  |   |        | $ | 672,267    |           | 



| | (1) | Dejour is currently not taxable.
| | --- | --------------------------------



| | (e) | Standardized Measure of Discounted Future Net Cash Flows and Changes Therein
| | --- | ----------------------------------------------------------------------------



The standardized measure of discounted
future net cash flows is based on estimates made by AJM Deloitte (2010 by GLJ) and Gustavson of net proved reserves. Future cash
inflows are computed based on the average of the first day constant prices in each of the 12 months for the year ended December
31, 2011 and cost assumptions applied against annual future production from proved crude oil and natural gas reserves. Future development
and production costs are computed based on the average of the first day constant prices in each of the 12 months for the year ended
December 31, 2011 and assume the continuation of existing economic conditions. Future income taxes are calculated by applying statutory
income tax rates. The Company is currently not taxable. The standardized measure of discounted future net cash flows is computed
using a 10 percent discount factor.



The Company cautions users of this information
that the discounted future net cash flows relating to proved oil and gas reserves are neither an indication of the fair market
value of our oil and gas properties, nor of the future net cash flows expected to be generated from such properties. The discounted
future cash flows do not include the fair market value of exploratory properties and probable or possible oil and gas reserves,
nor is consideration given to the effect of anticipated future changes in crude oil and natural gas prices, development, asset
retirement and production costs and possible changes to tax and royalty regulations. The prescribed discount rate of 10 percent
is arbitrary and may not appropriately reflect future interest rates.



F-54







Standardized Measure of Discounted Future
Net Cash Flows



As at December 31, 2011



|(in thousands of Canadian dollars)                      |  | Canada |         |   | USA |   |          | Total | 
|------------------------------------------------------- |  | ------ | ------- | - | --- | - | -------- | ----- | 
|                                                        |  |        |         |   |     |   |          |       | 
|Future cash from revenues after royalties               |  | $      | 32,005  |   |     | $ | 298,776  |       | 
|Future production costs                                 |  |        | (10,900 | ) |     |   | (72,833  | )     | 
|Future development costs                                |  |        | (150    | ) |     |   | (88,377  | )     | 
|Future income taxes                                     |  |        | (931    | ) |     |   | -        |       | 
|Future net cash flows                                   |  |        | 20,024  |   |     |   | 137,566  |       | 
|Less: 10% annual discount factor                        |  |        | (1,565  | ) |     |   | (104,104 | )     | 
|                                                        |  |        |         |   |     |   |          |       | 
|Standardized measure of discounted future net cash flow |  | $      | 18,459  |   |     | $ | 33,462   |       | 



As at December 31, 2010



|(in thousands of Canadian dollars)                      |  | Canada |        |   | USA |   |         | Total | 
|------------------------------------------------------- |  | ------ | ------ | - | --- | - | ------- | ----- | 
|                                                        |  |        |        |   |     |   |         |       | 
|Future cash from revenues after royalties               |  | $      | 15,777 |   |     | $ | 228,318 |       | 
|Future production costs                                 |  |        | (8,833 | ) |     |   | (44,116 | )     | 
|Future development costs                                |  |        | (3,172 | ) |     |   | (79,711 | )     | 
|Future income taxes                                     |  |        | -      |   |     |   | (15,982 | )     | 
|Future net cash flows                                   |  |        | 3,772  |   |     |   | 88,509  |       | 
|Less: 10% annual discount factor                        |  |        | (841   | ) |     |   | (62,561 | )     | 
|                                                        |  |        |        |   |     |   |         |       | 
|Standardized measure of discounted future net cash flow |  | $      | 2,931  |   |     | $ | 25,948  |       | 



F-55







| | (f) | Changes in Standardized Measure of Discounted Future Net Cash Flows
| | --- | -------------------------------------------------------------------



For the Year Ended December 31, 2011



|(in thousands of Canadian dollars)                                   |  | Canada |        |   | USA |   |         | Total | 
|-------------------------------------------------------------------- |  | ------ | ------ | - | --- | - | ------- | ----- | 
|                                                                     |  |        |        |   |     |   |         |       | 
|Present Value At 10%, January 1, 2011                                |  | $      | 2,931  |   |     | $ | 25,948  |       | 
|                                                                     |  |        |        |   |     |   |         |       | 
|Sales and transfers of oil and gas produced, net of production costs |  |        | (4,713 | ) |     |   | -       |       | 
|Net changes in prices, production costs and royalties                |  |        | 3,143  |   |     |   | (25,191 | )     | 
|Extensions, discovery, less related costs                            |  |        | -      |   |     |   | 840     |       | 
|Development costs incurred during the period                         |  |        | 6,410  |   |     |   | -       |       | 
|Revisions of previous quantity estimates                             |  |        | -      |   |     |   | -       |       | 
|Accretion of discount                                                |  |        | -      |   |     |   | -       |       | 
|Net change in income taxes                                           |  |        | -      |   |     |   | -       |       | 
|Changes resuling from technical revisions and others                 |  |        | 10,688 |   |     |   | 31,865  |       | 
|                                                                     |  |        |        |   |     |   |         |       | 
|Present Value At 10%, December 31, 2011                              |  | $      | 18,459 |   |     | $ | 33,462  |       | 



For the Year Ended December 31, 2010



|(in thousands of Canadian dollars)                                   |  | Canada |        |   | USA |   |        | Total | 
|-------------------------------------------------------------------- |  | ------ | ------ | - | --- | - | ------ | ----- | 
|                                                                     |  |        |        |   |     |   |        |       | 
|Present Value At 10%, January 1, 2010                                |  | $      | 2,113  |   |     | $ | 14,272 |       | 
|                                                                     |  |        |        |   |     |   |        |       | 
|Sales and transfers of oil and gas produced, net of production costs |  |        | (4,169 | ) |     |   | -      |       | 
|Net changes in prices, production costs and royalties                |  |        | 1,259  |   |     |   | 13,548 |       | 
|Extensions, discovery, less related costs                            |  |        | 700    |   |     |   | -      |       | 
|Development costs incurred during the period                         |  |        | 3,179  |   |     |   | -      |       | 
|Revisions of previous quantity estimates                             |  |        | 1,565  |   |     |   | (1,106 | )     | 
|Accretion of discount                                                |  |        | 211    |   |     |   | -      |       | 
|Net change in income taxes                                           |  |        | -      |   |     |   | -      |       | 
|Other                                                                |  |        | (1,927 | ) |     |   | (766   | )     | 
|                                                                     |  |        |        |   |     |   |        |       | 
|Present Value At 10%, December 31, 2010                              |  | $      | 2,931  |   |     | $ | 25,948 |       | 



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