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,
2009________





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: 333-137571





POWER OIL & GAS
INC.


(Exact
name of Registrant as specified in its charter)





Alberta,
Canada


(Jurisdiction
of incorporation or organization)





4620 Manilla Road S.E.,
Calgary, Alberta, Canada T2G 4B7


(Address
of principal executive offices)





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





None





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





Common Stock, Fully Paid and
Non-Assessable Common Shares Without Par Value


(Title of
Class)





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





1


Indicate
the number of outstanding shares of each of the issuer's classes of capital or
common stock as of the close of the period covered by the annual
report:  42,140,935 common shares as of December 31, 2009 and
42,818,875 common shares as of June 29, 2010.  No preferred shares
issued and outstanding.


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]


Note –
Checking the box above will not relieve any registrant required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from
their obligations under those Sections.





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 ninety days.  Yes [X]   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.





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          Other [
X]     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 [
X] Item 18 [  ]





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act)Yes
[  ]  No [X]





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Date 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 [X]








Index to
Exhibits on Page 63


2











POWER
OIL & GAS INC.





FORM
20-F ANNUAL REPORT 2009





TABLE
OF CONTENTS








Oil
      and Gas Glossary
            4Introduction
            5Part
      IItem
      1.
            Identity
      of Directors, Senior Management and Advisors
            7Item
      2.
            Offer
      Statistics and Expected Timetable
            7Item
      3.
            Key
      Information
            7Item
      4.
            Information
      on the Company
            20Item
      4A.
            Unresolved
      Staff Comments
            31Item
      5.
            Operating
      and Financial Review and Prospects
            31Item
      6.
            Directors,
      Senior Management and Employees
            40Item
      7.
            Major
      Shareholders and Related Party Transactions
            46Item
      8.
            Financial
      Information
            48Item
      9.
            The
      Offer and Listing
            51Item
      10.
            Additional
      Information
            51Item
      11.
            Quantitative
      and Qualitative Disclosures About Market Risk
            57Item
      12.
            Description
      of Other Securities Other Than Equity Securities
            57Part
      IIItem
      13.
            Defaults,
      Dividend Arrearages and Delinquencies
            58Item
      14.
            Material
      Modifications to the Rights of Security Holders and Use of
      Proceeds
            58Item
      15.
            Controls
      and Procedures
            58Item
      16.
            Reserved
            60Part
      IIIItem
      17.
            Financial
      Statements
            62Item
      18.
            Financial
      Statements
            62Item
      19.
            Exhibits
            63Financial
      StatementsSignature
      Page








3





GLOSSARY








Term
            DefinitionAdsorption
            The
      accumulation of gases, liquids, or solutes on the surface of a solid or
      liquid.Basin
            A
      depressed area where sediments have accumulated during geologic time and
      considered to be prospective for oil and gas deposits.Coal
            A
      carbon-rich rock derived from plant material (peat)Development
            The
      phase in which a proven oil or gas field is brought into production by
      drilling production (development) wells.Drilling
            The
      using of a rig and crew for the drilling, suspension, production testing,
      capping, plugging and abandoning, deepening, plugging back, sidetracking,
      re-drilling or reconditioning of a well.Drilling
      logs
            Recorded
      observations made of rock chips cut from the formation by the drill bit,
      and brought to the surface with the mud, as well as rate of penetration of
      the drill bit through rock formations. Used by geologists to obtain
      formation data.Exploration
            The
      phase of operations which covers the search for oil or gas by carrying out
      detailed geological and geophysical surveys followed up where appropriate
      by exploratory drilling. Compare to "Development"
phase.Fracturing
            The
      application of hydraulic pressure to the reservoir formation to create
      fractures through which oil or gas may move to the
    wellbore.Methane
            The
      simplest of the various hydrocarbons and is the major hydrocarbon
      component of natural gas, and in fact is commonly known as natural gas. It
      is colorless, odorless, and burns efficiently without many
      byproductsMineral
      Lease
            A
      legal instrument executed by a mineral owner granting exclusive right to
      another to explore, drill, and produce oil and gas from a piece of
      landPermeability
            A
      measure of the ability of a rock to transmit fluid through pore
      spaces.Reserves
            Generally
      the amount of oil or gas in a particular reservoir that is available for
      production.Reservoir
            The
      underground rock formation where oil and gas has accumulated. It consists
      of a porous rock to hold the oil or gas, and a cap rock that prevents its
      escape





4





INTRODUCTION





We were
formed as a corporation under the federal laws of Canada pursuant to the Canada
Business Corporations Act on April 25, 2005 under the name Liberty Gold
Corp.  On June 23, 2006, at an annual general and special meeting of
shareholders, a majority of the shareholders of the Company approved a change in
business of the Company from mineral exploration to oil and gas exploration and
extraction.  At the same meeting, a majority of the shareholders of
the Company approved a change in name of the Company to Liberty Petroleum
Inc.  On May 23, 2008 at a special meeting of shareholders, a majority
of the Company’s shareholders approved a change in name of the Company to Power
Oil & Gas Inc.





We are
currently an oil and gas exploration stage company and anticipate acquiring,
exploring, and if warranted and feasible, developing oil and gas
properties.





In this
Annual Report, the “Company”, “Power Oil & Gas Inc.”, “Power”, "we", "our",
and "us", refer to Power Oil & Gas Inc. (unless the context otherwise
requires).  Summary discussions of documents referred to in this 20-F
may not be complete, and we refer you to the actual documents for more complete
information.  Our principal corporate offices are located at 4620
Manilla Road S.E., Calgary, Alberta, T2G 4B7.





BUSINESS
OF POWER OIL & GAS INC.





Power Oil
& Gas Inc., (the “Company") is principally a company engaged in the
acquisition and exploration of oil and gas properties.  On March 15,
2006, the Company entered into an agreement giving it the exclusive right and
option to acquire a 100% interest in a mineral exploration property known as the
GQ Property located in the Kamloops Mining District of British Columbia,
Canada.  In relation to the Company’s decision to pursue opportunities
in the oil and gas industry, it terminated the GQ Property option on May 31,
2006.





On June
14, 2006, the Company entered into a Petroleum, Natural Gas and General Rights
Conveyance (the “Agreement”) with Stone Petroleums Ltd., Supernova Resources
Ltd., 349385 Alberta Ltd. and Torland Ltd. (together, the “Vendor”) whereby the
Company acquired a 100% interest in a petroleum and natural gas (“PN&G”)
lease with the government of Alberta.  The underlying lease acquired
by the Company is Alberta PN&G lease 0405070015 (the “Lease”), and the
property to which the Lease pertains is located in the Milk River area of
Alberta. Upon signing the Agreement, the Company paid the Vendor $7,500 and paid
closing costs of $938 and agreed to assume the underlying lease payments to the
province of Alberta.  In addition, the Vendor is entitled to an
overriding 5% royalty on all petroleum substances produced from the Milk River
Property, if any.  The Vendor is entitled to a first and paramount
lien upon all of the petroleum substances produced or allocated to the Property
to secure the payment of any amounts due and payable to the Vendor relating to
the royalty.





On July
23, 2008, the Company entered into an assignment and assumption agreement with
Giant Oil & Gas Inc. et al, a company related by common directors, whereby
the Company purchased a 100% right and interest in 10 Alberta Crown Petroleum
and Natural Gas Lease Agreements for a total of 1,911 hectares in the Taber,
Grand Forks area of Alberta, Canada.  Upon signing the Agreement, the
Company paid the Vendor $30,331and agreed to assume the underlying lease
payments to the province of Alberta.





For all
of its current properties, the Company has obtained the Petroleum and Natural
Gas rights only.





5


FINANCIAL
AND OTHER INFORMATION





In this
Annual Report, unless otherwise specified, all dollar amounts are expressed in
Canadian Dollars (“CDN$” or “$”).  The Government of Canada permits a
floating exchange rate to determine the value of the Canadian Dollar against the
U.S. Dollar (US$).





FORWARD-LOOKING
STATEMENTS





This
Annual Report includes forward-looking statements, principally in ITEM #4,
“Information on the Company” and ITEM #5, “Operating and Financial Review and
Prospects".  We have based these forward-looking statements largely on
our current expectations and projections about future events and financial
trends affecting our business.  These forward-looking statements are
subject to risks, uncertainties and assumptions including, among other things,
the factors discussed in this Annual Report under ITEM #3, “Key Information,
Risk Factors" and factors described in documents that we may furnish from time
to time to the Securities and Exchange Commission.





The words
"believe", "may", "estimate", "continue", "anticipate", "intend", "expect", and
similar words are intended to identify forward-looking statements.  In
light of these risks and uncertainties, the forward-looking information, events
and circumstances discussed in this Annual Report might not
occur.  Our actual results and performance could differ substantially
from those anticipated in our forward-looking statements.  We
undertake no obligation to update publicly or revise any forward-looking
statements because of new information, future events or otherwise.





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.





3.A.
Selected Financial Data





The
selected financial data of the Company for the fiscal years ended December 31,
2009, 2008, 2007 and 2006 and for the fiscal period from April 25, 2005
(inception) to December 31, 2005 were derived from the financial statements of
the Company that have been audited by Smythe Ratcliffe LLP, independent
Chartered Accountants, as indicated in their audit reports, which are included
elsewhere in this Annual Report.  The selected financial data should
be read in conjunction with the financial statements and other financial
information included elsewhere in this 20-F.





The
Company has not declared any dividends since incorporation and does not
anticipate that it will do so in the foreseeable future.  The present
policy of the Company is to retain all available funds for use in its operations
and the expansion of its business.





The
selected financial information disclosed below has been derived from financial
statements of the Company, which have been prepared in accordance with Canadian
Generally Accepted Accounting Principles (GAAP).  There are no
material numerical differences between Canadian GAAP and US GAAP, as applicable
to the Company.





7


Selected
Financial Information




All
      in Canadian $ except Common Shares issued
            For
      Year Ended December 31, 2009
            For
      Year Ended December 31, 2008
            For
      Year Ended December 31, 2007
            For
      Year Ended December 31, 2006
            For
      the Period April 25, 2005 (Inception) to December 31,
  2005Operating
      Revenues
            -
            -
            -
            -
            -Interest
      Income
            -
            $151
            $2,451
            $2,673
            -Loss
      from Operations
            $(2,327,920)
            $(131,360)
            $(61,618)
            $(34,692)
            $(8,950)Net
      Loss
            $(2,327,920)
            $(131,360)
            $(61,618)
            $(34,692)
            $(8,950)Loss
      per Share – Basic and Diluted
            $(0.06)
            $(0.01)
            $(0.01)
            $(0.01)
            $(0.01)Total
      Assets
            $173,236
            $100,466
            $38,676
            $105,248
            $130,525Net
      Assets
            $136,696
            $(35,092)
            $29,215
            $90,833
            $125,525Total
      Liabilities
            $36,540
            $135,558
            $9,461
            $14,415
            $5,000Working
      Capital (Deficiency)
            $(29,767)
            $(77,208)
            $19,881
            $82,395
            $125,525Share
      Capital
            $242,271
            $134,475
            $134,475
            $134,475
            $134,475Common
      Shares Issued
            42,140,935
            41,709,750
            41,709,750
            41,709,750
            41,709,750Shares
      to be Issued
            477,940
            -
            -
            -
            -Dividends
      Declared
            -
            -
            -
            -
            -





3.A.3.
Exchange Rates





In this
Annual Report, unless otherwise specified, all dollar amounts are expressed in
Canadian Dollars (CDN$).  The Government of Canada permits a floating
exchange rate to determine the value of the Canadian Dollar against the U.S.
Dollar (US$).





Set forth
below are the exchange rates for the Canadian Dollar at the end of five periods
ended December 31st since the Company’s inception on April 25, 2005, the average
rates for the period and the range of high and low rates for the
period.  The data for May 2010 and for each month during the most
recent six months is also provided.





For
purposes of this table, the rate of exchange means the noon buying rate in New
York City for cable transfers in foreign currencies as certified for customs
purposes by the Federal Reserve Bank of New York.  The table sets
forth the number of Canadian Dollars required under that formula to buy one U.S.
Dollar.  The average rate means the average of the exchange rates on
the last day of each month during the period.


8


Table
No. 2


U.S.
Dollar/Canadian Dollar











Period
            Average
            High
            Low
            CloseMay
      2010
            1.04
            1.04
            1.03
            1.04April
      2010
            1.01
            1.00
            1.00
            1.01March
      2010
            1.02
            1.03
            1.02
            1.02February
      2010
            1.06
            1.06
            1.05
            1.05January
      2010
            1.04
            1.05
            1.04
            1.04December
      2009
            1.05
            1.06
            1.05
            1.06Fiscal
      Year Ended December 31, 2009
            1.14
            1.03
            1.30
            1.05Fiscal
      Year Ended December 31, 2008
            1.07
            0.97
            1.30
            1.22Fiscal
      Year Ended December 31, 2007
            1.07
            0.91
            1.19
            0.98Fiscal
      Year Ended December 31, 2006
            1.13
            1.10
            1.17
            1.17Fiscal
      Year Ended December 31, 2005
            1.21
            1.15
            1.27
            1.17





3.B.
Capitalization and Indebtedness





--- Not
applicable ---





3.C.
Reasons for the Offer and Use of Proceeds





--- Not
applicable ---





3.D.
Risk Factors





This
investment has a high degree of risk.  Before you invest you should
carefully consider the risks and uncertainties described below and the other
information in this prospectus.  If any of the following risks
actually occur, our business, operating results and financial condition could be
harmed and the value of our stock could go down.  This means you could
lose all or a part of your investment.





RISKS
RELATING TO OUR COMPANY





1.
            We
      are an exploration stage company, with limited operating history in oil
      and gas exploration and we have focused primarily on establishing our
      operations, all of which raises substantial doubt as to our ability to
      successfully develop profitable business operations and makes an
      investment in our common shares very
risky.





On June
23, 2006 at an annual general and special meeting of shareholders, a majority of
the shareholders of the Company approved the change in the name of the Company
from Liberty Gold Corp. to Liberty Petroleum Inc.  At the same
meeting, a majority of the Company’s shareholders also approved the change in
business of the Company from mineral exploration to oil and gas
exploration.  On May 23, 2008 at a special meeting of shareholders, a
majority of the Company’s shareholders approved a change in name of the Company
to Power Oil & Gas Inc.  As a result we have only recently
commenced oil and gas exploration operations.





9


Our
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered in establishing a business in the oil and natural gas
industries. We have yet to generate any revenues from operations and have been
focused on organizational, start-up, property acquisition, and fund raising
activities. Since we have not generated any revenues, we will have to raise
additional capital to fund our operations for the next twelve months, which we
may do through loans from existing shareholders, the sale of our equity
securities or strategic arrangement with a third party in order to continue our
business operations.  There is nothing at this time on which to base
an assumption that our business operations will prove to be successful or that
we will ever be able to operate profitably. Our future operating results will
depend on many factors, including:





•
      our ability to raise adequate working
capital;


•
      success of our development and
exploration;


•
      demand for natural gas and oil;


•
      the level of our competition;


•
      our ability to attract and maintain key management and employees;
      and


•
      our ability to efficiently explore, develop and produce sufficient
      quantities of marketable natural gas or oil in a highly competitive and
      speculative environment while maintaining quality and controlling
      costs.





To
achieve profitable operations, we must, alone or with others, successfully
execute on the factors stated above.  If we are not successful in
executing any of the above stated factors, our business will not be profitable
and may never even generate any revenue, which make our common shares a less
attractive investment and may harm the trading of our common shares, if a market
ever develops.





2.
            The
      field of oil and gas exploration is difficult to predict because of
      technological advancements and market factors, which factors our
      management may not correctly assess and it may make it difficult for
      investors to sell their our common
shares.





Because
the nature of our business is expected to change as a result of shifts in the
market price of oil and natural gas, competition, and the development of new and
improved technology, management forecasts are not necessarily indicative of
future operations and should not be relied upon as an indication of future
performance.





Our
Management may incorrectly estimate projected occurrences and events within the
timetable of our business plan, which would have an adverse effect on our
results of operations and, consequently, make our common shares a less
attractive investment and harm the future trading of our common shares trading
on the OTC Bulletin Board.  Investors may find it difficult to sell
their shares on the OTC Bulletin Board should a market ever develop for our
shares.





3.
            Because
      we have no plan to generate revenue unless and until our exploration
      program is successful in finding productive wells, we will need to raise a
      substantial amount of additional capital in order to fund our operations
      for the next twelve months and in order to develop our property and
      acquire and develop new properties.  If the prospects for our
      property are not favorable or the capital markets are tight, we would not
      be able to raise the necessary capital and we will not be able to pursue
      our business plan, which would likely cause our common shares to become
      worthless.





10


Cash on
hand is insufficient to fund our anticipated operating needs of approximately
$124,000 for the next twelve months. As we have no plan to generate revenue
unless and until our exploration program is successful in finding productive
wells, we will require substantial additional capital to fund our operations for
the next twelve months and in order to participate in the development of our
property, which has not had any production of oil or natural gas, as well as for
the future acquisition and/or development of other
properties.  Because we currently do not have any cash flow from
operations we need to raise additional capital, which may be in the form of
loans from current shareholders and/or from public and private equity
offerings.  Our ability to access capital will depend on our success
in participating in properties that are successful in exploring for and
producing oil and gas at profitable prices.  It will also be dependent
upon the status of the capital markets at the time such capital is
sought.  Should sufficient capital not be available, the development
of our business plan could be delayed and, accordingly, the implementation of
our business strategy would be adversely affected. In such event it would not be
likely that investors would obtain a profitable return on their investments or a
return of their investments at all.





4.
            Even if we discover
      unconventional tight gas on our properties, a great deal more effort has
      to be put into extracting gas from a tight formation than a conventional
      natural gas deposit, where once drilled, the gas can usually be extracted
      quite readily, and easily.  Several techniques exist that allow
      natural gas to be extracted, including fracturing and acidizing, however,
      these techniques are very costly.  Accordingly, we will require
      substantial additional capital to fund our operations and should we fail
      to do so, we will not be able to pursue our business plan, which would
      likely cause our common shares to become
  worthless.





Currently,
we are focused primarily on exploring our properties to determine the potential
for hosting natural gas in the form of unconventional tight
gas.  Unconventional tight gas is stuck in very tight formations
underground, trapped in unusually impermeable, hard rock, or in a sandstone or
limestone formations that are unusually impermeable and non-porous (tight
sand).  We have no revenues, and we do not have any plan to generate
revenue unless and until our exploration program is successful in finding
productive wells.  However, even if we discover unconventional tight
gas on our properties, a great deal more effort has to be put into extracting
gas from a tight formation than a conventional natural gas deposit, where once
drilled, the gas can usually be extracted quite readily, and
easily.  Several techniques exist that allow natural gas to be
extracted, including fracturing and acidizing, however, these techniques are
very costly.  Accordingly, we will require substantial additional
capital to fund our operations.  Because we currently do not have any
cash flow from operations, we will need to raise additional capital, which may
be in the form of loans from current shareholders and/or from public and private
equity offerings.  Should sufficient capital not be available, the
development of our business plan could be delayed and, accordingly, the
implementation of our business strategy would be adversely
affected.  In such event it would not be likely that investors would
obtain a profitable return on their investments or a return of their investments
at all.





5.
            We
      have an irrevocable option to repurchase an aggregate of 30,000,000 common
      shares held by our directors, and unaffiliated stockholders have no
      protection against our future potential decision to repurchase
      such  shares pursuant to current or potentially modified
      contracts, even if such repurchase would essentially use all or
      substantially all of the company’s working capital and essentially cause
      the company to become insolvent.





11


We have
an irrevocable option to repurchase 16,000,000 common shares held by Pratt
Barndollar, a member of our Board of Directors and 14,000,000 common shares held
by Manny Dhinsa, our Director, Chairman, President, Chief Executive Officer,
Chief Operating Officer, and Secretary,.  This repurchase option is
exercisable by us if, at any time on or before April 30, 2025, the holder of
such shares ceases to be a director of the Company.   For further
information on such agreements, see our disclosure below under the section
entitled “Material Contracts.”





The
exercise price of such repurchase option is $0.01 per share, amounting in the
aggregate to $160,000 for the shares held by Mr. Barndollar and $140,000 for the
shares held by Mr. Dhinsa.  Unaffiliated stockholders have no
protection against our future potential decision to repurchase the shares of the
two directors pursuant to current or potentially modified contracts, even if
such repurchase would essentially use all or substantially all of the company’s
working capital and essentially cause the company to become
insolvent.





6.
            We
      are heavily dependent on contracted third parties and upon Manny Dhinsa,
      who is our Director, Chairman, President, Chief Executive and Operating,
      Officer, and Secretary.  The loss of Mr. Dhinsa, whose
      knowledge, leadership and technical expertise upon which we rely, would
      harm our ability to execute our business plan and continue our operations
      until we found a suitable
replacement.





We are
dependent on the continued contributions of Manny Dhinsa, whose knowledge and
leadership would be difficult to replace.  Our success is also heavily
dependent on our ability to retain and attract experienced engineers,
geoscientists and other technical and professional staff.  We do not
currently have any consulting agreements in place with either Mr. Dhinsa or
third parties under which we can ensure that we will have sufficient expertise
to undertake our planned exploration program.  We do not maintain any
key person insurance on Mr. Dhinsa.   If we were to lose his
services, our ability to execute our business plan would be harmed and we may be
forced to cease operations until such time as we could hire a suitable
replacement for Mr. Dhinsa.





7.
            Volatility
      of oil and gas prices and markets, over which we have no control, could
      make it difficult for us to achieve profitability and investors are likely
      to lose their investment in our common
shares.





Our
ability to achieve profitability is substantially dependent on prevailing prices
for natural gas and oil.  The amounts of, and price obtainable for,
any oil and gas production that we achieve will be affected by market factors
beyond our control.  If these factors are not favorable over time to
our financial interests, it is likely that owners of our common shares will lose
their investments. Such factors include:





•
      worldwide or regional demand for energy, which is affected by economic
      conditions;


•
      the domestic and foreign supply of natural gas and
  oil;


•
      weather conditions;


•
      domestic and foreign governmental
regulations;


•
      political conditions in natural gas and oil producing
    regions;


•
      the ability of members of the Organization of Petroleum Exporting
      Countries to agree upon and maintain oil prices and production levels;
      and


•
      the price and availability of other
fuels.





8.
            Drilling
      wells is speculative, often involving significant costs that are difficult
      to project and may be more than our estimates, unsuccessful drilling of
      wells or successful drilling of wells that are, nonetheless, unprofitable,
      any one of which is likely to reduce the profitability of our business and
      negatively affect our results of
operations.


12





Developing
and exploring for natural gas and oil involves a high degree of operational and
financial risk, which precludes definitive statements as to the time required
and costs involved in reaching certain objectives.  The budgeted costs
of drilling, completing and operating wells are often exceeded and can increase
significantly when drilling costs rise due to a tightening in the supply of
various types of oilfield equipment and related services.  Drilling
may be unsuccessful for many reasons, including title problems, weather, cost
overruns, equipment shortages and mechanical difficulties.  Moreover,
the successful drilling of a natural gas or oil well does not ensure a profit on
investment.  Exploratory wells bear a much greater risk of loss than
development wells.  A variety of factors, both geological and
market-related, can cause a well to become uneconomical or only marginally
economic and the results of our operations will be negatively affected as
well.





9.
            The
      natural gas and oil business involves numerous uncertainties and operating
      risks that can prevent us from realizing profits and can cause substantial
      losses.





Our
development, exploitation and exploration activities may be unsuccessful for
many reasons, including weather, cost overruns, equipment shortages and
mechanical difficulties. Moreover, the successful drilling of a natural gas and
oil well does not ensure a profit on investment.  A variety of
factors, both geological and market-related, can cause a well to become
uneconomical or only marginally economical.





The
natural gas and oil business involves a variety of operating risks,
including:





•
      fires;


•
      explosions;


•
      blow-outs and surface cratering;


•
      uncontrollable flows of oil, natural gas, and formation
    water;


•
      natural disasters, such as hurricanes and other adverse weather
      conditions;


•
      pipe, cement, or pipeline failures;


•
      casing collapses;


•
      embedded oil field drilling and service
tools;


•
      abnormally pressured formations;
and


•
      environmental hazards, such as natural gas leaks, oil spills, pipeline
      ruptures and discharges of toxic
gases.





If we
experience any of these problems, it could affect well bores, gathering systems
and processing facilities, which could adversely affect our ability to conduct
operations. We could also incur substantial losses as a result of:





•
      injury or loss of life;


•
      severe damage to and destruction of property, natural resources and
      equipment;


•
      pollution and other environmental
damage;


•
      clean-up responsibilities;


•
      regulatory investigation and
penalties;


•
      suspension of our operations; and


•
      repairs to resume operations.


13





10.
            If
      we commence drilling, we do not currently have any contracts with
      equipment providers, we may face the unavailability or high cost of
      drilling rigs, equipment, supplies, personnel and other services which
      could adversely affect our ability to execute on a timely basis our
      development, exploitation and exploration plans within our budget and, as
      a result, negatively impact our financial condition and results of
      operations.





If we
commence drilling, shortages or an increase in cost of drilling rigs, equipment,
supplies or personnel could delay or interrupt our operations, which could
negatively impact our financial condition and results of
operations.  Drilling activity in the geographic areas in which we
conduct drilling activities may increase, which would lead to increases in
associated costs, including those related to drilling rigs, equipment, supplies
and personnel and the services and products of other vendors to the
industry.  Increased drilling activity in these areas may also
decrease the availability of rigs.  We do not currently have any
contracts with providers of drilling rigs and, consequently we may not be able
to obtain drilling rigs when we need them.  Therefore, our drilling
and other costs may increase further and necessary equipment and services may
not be available to us at economical prices.





11.
            We
      are subject to complex laws and regulations, including environmental
      regulations, which can significantly increase our costs and possibly force
      our operations to cease.





If we
commence drilling and experience any leakage of crude oil and/or gas from the
subsurface portions of a well, our gathering system could cause degradation of
fresh groundwater resources, as well as surface damage, potentially resulting in
suspension of operation of a well, fines and penalties from governmental
agencies, expenditures for remediation of the affected resource, and liabilities
to third parties for property damages and personal injuries.  In
addition, any sale of residual crude oil collected as part of the drilling and
recovery process could impose liability on us if the entity to which the oil was
transferred fails to manage the material in accordance with applicable
environmental health and safety laws.





Drilling
operations generally involve a high degree of risk. Hazards such as unusual or
unexpected geological formations, power outages, labor disruptions, blow-outs,
sour gas leakage, fire, inability to obtain suitable or adequate machinery,
equipment or labor, and other risks are involved. We may become subject to
liability for pollution or hazards against which it cannot adequately insure or
which it may elect not to insure. Incurring any such liability may have a
material adverse effect on our financial position and operations.





Development,
production and sale of natural gas and oil in Canada are subject to extensive
laws and regulations, including environmental laws and
regulations.  We may be required to make large expenditures to comply
with environmental and other governmental regulations.  Matters
subject to regulation include:





•
      location and density of wells;


•
      the handling of drilling fluids and obtaining discharge permits for
      drilling operations;


•
      accounting for and payment of royalties on production from state, federal
      and Indian lands;


•
      bonds for ownership, development and production of natural gas and oil
      properties;


•
      transportation of natural gas and oil by
  pipelines;


•
      operation of wells and reports concerning operations;
  and


•
      taxation.





14


Under
these laws and regulations, we could be liable for personal injuries, property
damage, oil spills, discharge of hazardous materials, remediation and clean-up
costs and other environmental damages.  Failure to comply with these
laws and regulations also may result in the suspension or termination of our
operations and subject us to administrative, civil and criminal
penalties.  Moreover, these laws and regulations could change in ways
that substantially increase our costs.  Accordingly, any of these
liabilities, penalties, suspensions, terminations or regulatory changes could
materially adversely affect our financial condition and results of operations
enough to possibly force us to cease our business operations.





12.
            The
      potential profitability of oil and gas ventures depends upon various
      factors beyond the control of our company, which may materially affect our
      financial performance.





The
potential profitability of oil and gas properties is dependent upon many factors
beyond our control.  For instance, world prices and markets for oil
and gas are unpredictable, highly volatile, potentially subject to governmental
fixing, pegging, controls, or any combination of these and other factors, and
respond to changes in domestic, international, political, social, and economic
environments. Additionally, due to worldwide economic uncertainty, the
availability and cost of funds for production and other expenses have become
increasingly difficult, if not impossible, to project.  These changes
and events may materially affect our financial performance.





13.
            Our
      auditors’ opinion in our December 31, 2009 financial statements includes
      an explanatory paragraph in respect of there being substantial doubt about
      our ability to continue as a going concern.   We will need
      to raise additional capital in order to fund our operations for the next
      twelve months, and if we fail to raise such capital investors may lose
      some or all of their investment in our common
  shares.





We have
incurred net losses of $2,564,540 from April 25, 2005 (inception) to December
31, 2009.  Our financial statements do not include any adjustments
relating to the recoverability and classification of recorded assets, or the
amounts of and classification of liabilities that might be necessary in the
event the Company cannot continue in existence.  We anticipate
generating losses for at least the next 12 months.  Therefore, there
is substantial doubt about our ability to continue operations in the future as a
going concern.  We will need to obtain additional funds in order to
fund our operations for the next twelve months.  Our plans to deal
with this cash requirement include loans from existing shareholders, raising
additional capital from the public or private sale of equity or entering into a
strategic arrangement with a third party.  If we cannot continue as a
viable entity, our shareholders may lose some or all of their investment in our
company.





14.
            If
      we do not maintain the property lease payments on our properties, we will
      lose our interests in the properties as well as losing all monies incurred
      in connection with the properties.





We have
26 Petroleum and Natural Gas leases in Alberta, Canada.  Our leases
require annual lease payments to the Alberta provincial
government.  See Item 4.D of this Form 20-F for a more detailed
description of the property obligations.  If we do not continue to
make the annual lease payments, we will lose our ability to explore and develop
the properties and we will not retain any kind of interest in the
properties.





15.
            We
      may not be able to compete with current and potential exploration
      companies, some of whom have greater resources and experience than we do
      in locating and commercializing oil and natural gas reserves and, as a
      result, we may fail in our ability to maintain or expand our
      business.





15


The
natural gas and oil market is intensely competitive, highly fragmented and
subject to rapid change.  We may be unable to compete successfully
with our existing competitors or with any new competitors.  We compete
with many exploration companies which have significantly greater personnel,
financial, managerial, and technical resources than we do.  This
competition from other companies with greater resources and reputations may
result in our failure to maintain or expand our business.





16.
            We
      expect losses to continue in the next 12 months because we have no oil or
      gas reserves and, consequently, no revenue to offset
    losses.





Based
upon the fact that we currently do not have any oil or gas reserves, we expect
to incur operating losses in next 12 months.  The operating losses
will occur because there are expenses associated with the acquisition of, and
exploration of natural gas and oil properties which do not have any
income-producing reserves.  Failure to generate revenues may cause us
to go out of business.  We will require additional funds to achieve
our current business strategy and our inability to obtain additional financing
will interfere with our ability to expand our current business
operations.





17.
            Since
      our directors work for other natural resource exploration companies, their
      other activities for those other companies may involve a conflict of
      interest with regard to their time, could slow down our operations or
      negatively affect our
profitability.





Our
officers and directors are not required to work exclusively for us and do not
devote all of their time to our operations.  In fact, our directors
work for other natural resource exploration companies.  Therefore, it
is possible that a conflict of interest with regard to their time may arise
based on their employment by such other companies.  Their other
activities may prevent them from devoting full-time to our operations which
could slow our operations and may reduce our financial results because of the
slow down in operations.  It is expected that each of our directors
will devote approximately 1 hour per week to our operations on an ongoing basis,
and when required will devote whole days and even multiple days at a stretch
when property visits are required or when extensive analysis of information is
needed.





18.
Our principal shareholders, officers and directors own a controlling interest in
our voting stock and investors will not have any voice in our management, which
could result in decisions adverse to our general shareholders.





Our
officers and directors, in the aggregate, beneficially own approximately or have
the right to vote approximately 70.5% of our outstanding common stock. As a
result, these stockholders, acting together, will have the ability to control
substantially all matters submitted to our stockholders for approval
including:





·
            election  of  our  board  of  directors;


·
            removal  of  any  of  our  directors;


·
            amendment  of  our  Articles
      of
      Incorporation  or  bylaws;  and


·
            adoption
      of measures that could delay or prevent a change in control or impede a
      merger, takeover or other business combination involving
    us.





16


As a
result of their ownership and positions, our directors and executive officers
collectively are able to influence all matters requiring shareholder approval,
including the election of directors and approval of significant corporate
transactions.  In addition, it is possible for our directors and
executive officers to modify their share purchase agreements such that they
could force the repurchase of their shares and remain on the
board.  Also, sales of significant amounts of shares held by our
directors and executive officers, or the prospect of these sales, could affect
the market price of our common stock if the marketplace does not orderly adjust
to the increase in shares in the market and the value of your investment in the
Company may decrease.  Management's stock ownership may discourage a
potential acquirer from making a tender offer or otherwise attempting to obtain
control of us, which in turn could reduce our stock price or prevent our
stockholders from realizing a premium over our stock price.








19.
            We
      have no employees and our only officer works one day per week on our
      business and our directors work only one hour per week on our
      business.  Consequently, we may not be able to monitor our
      operations and respond to matters when they arise in a prompt or timely
      fashion.  Until we have additional capital or generate revenue,
      we will have to rely on consultants and service providers, which will
      increase our expenses and increase our
losses.





We do not
have any employees, our only officer works on our business one day per week and
our directors each spends one hour a week on our business.  With
practically no personnel, we have a limited ability to monitor our operations,
such as the progress of oil and gas exploration, and to respond to inquiries
from third parties, such as regulatory authorities or potential business
partners.  Though we may rely on third party service providers, such
as accountants and lawyers, to address some of our matters, until we raise
additional capital or generate revenue, we will have to rely on consultants and
third party service providers to monitor our operations, which will increase our
expenses and have a negative effect on our results of operations.





RISKS
RELATING TO OUR COMMON SHARES





20.
            We
      may, in the future, issue additional common shares, which would reduce
      investors’ percent of ownership and may dilute our share
      value.





Our
Articles of Incorporation authorize the issuance of an unlimited number of
common shares without par value and an unlimited number of preferred shares
without par value.  The future issuance of our unlimited authorized
common shares may result in substantial dilution in the percentage of our common
shares held by our then existing shareholders. We may value any common shares
issued in the future on an arbitrary basis.  The issuance of common
shares for future services or acquisitions or other corporate actions may have
the effect of diluting the value of the shares held by our investors, and might
have an adverse effect on any trading market for our common shares.





21.
            Our
      common shares are subject to the "Penny Stock" Rules of the SEC and we
      have no established market for our securities, which makes transactions in
      our stock cumbersome and may reduce the value of an investment in our
      stock.





The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes the
definition of a "penny stock," for the purposes relevant to us, as any equity
security that has a market price of less than USD $5.00 per share or with an
exercise price of less than USD $5.00 per share, subject to certain
exceptions.  For any transaction involving a penny stock, unless
exempt, the rules require:





·
            that
      a broker or dealer approve a person’s account for transactions in penny
      stocks; and


·
            the
      broker or dealer receive from the investor a written agreement to the
      transaction, setting forth the identity and quantity of the penny stock to
      be purchased.


17





In order
to approve a person's account for transactions in penny stocks, the broker or
dealer must:





·
            obtain
      financial information and investment experience objectives of the person;
      and


·
            make
      a reasonable determination that the transactions in penny stocks are
      suitable for that person and the person has sufficient knowledge and
      experience in financial matters to be capable of evaluating the risks of
      transactions in penny stocks.





The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the Commission relating to the penny stock
market, which, in highlight form:





·
            sets
      forth the basis on which the broker or dealer made the suitability
      determination; and


·
            that
      the broker or dealer received a signed, written agreement from the
      investor prior to the transaction.





Generally,
brokers may be less willing to execute transactions in securities subject to the
"penny stock" rules.  This may make it more difficult for investors to
dispose of our common shares and cause a decline in the market value of our
stock.





Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions.  Finally, monthly statements have
to be sent disclosing recent


price
information for the penny stock held in the account and information on the
limited market in penny stocks.





22.
            We
      have registered 33,740,875 common shares underlying our warrants that may
      be available for future sale.  The sale of these shares may
      depress the market price of our common shares and shareholders could
      suffer a loss on their investment.





As of
June 29, 2010, we had warrants outstanding to purchase an aggregate of
33,740,875 common shares.  We have registered the 33,740,875 common
shares underlying the warrants and all of these warrants will be freely tradable
under U.S. federal law upon their respective vesting dates of May 26, 2009 with
respect to the 10,640,875 Class A warrants, November 26, 2011 with respect to
the 11,550,000 Class B warrants, and May 26, 2012 with respect to the 11,550,000
Class C warrants. If such warrants are exercised in full and converted to common
shares, our shareholders may experience a decline in the price of our common
shares as such common shares are sold into the open market.  If such
decline in the price of our common shares were to materialize, shareholders
could suffer a loss on their investment.





23.
            State
      securities laws may limit secondary trading, which may restrict the states
      in which and conditions under which you can sell the shares offered by
      this prospectus.





Secondary
trading in common shares sold in this offering will not be possible in any state
until the common shares are qualified for sale under the applicable securities
laws of the state or there is confirmation that an exemption, such as listing in
certain recognized securities manuals, is available for secondary trading in the
state.  If we fail to register or qualify, or to obtain or verify an
exemption for the secondary trading of, the common shares in any particular
state, the common shares could not be offered or sold to, or purchased by, a
resident of that state. In the event that a significant number of states refuse
to permit secondary trading in our common shares, the liquidity for the common
shares could be significantly impacted thus causing you to realize a loss on
your investment.


18





24.
            We
      are a “foreign private issuer”, and you may not have access to the
      information you could obtain about us if we were not a “foreign private
      issuer”.





We are
considered a "foreign private issuer" under the Securities Act of 1933, as
amended. As an issuer incorporated in Canada, we will be required to prepare our
annual and interim financial statements in accordance with Canadian generally
accepted accounting principles. For purpose of our annual disclosure obligations
in the United States, we will annually file in the United States financial
statements prepared in accordance with Canadian GAAP together with
reconciliation to US GAAP.  In addition, as a foreign private issuer
we will not have to file quarterly reports with the SEC nor will our directors,
officers and 10% stockholders be subject to Section 16(b) of the Exchange Act.
As a foreign private issuer we will not be subject to the proxy rules of Section
14 of the Exchange Act. Furthermore, Regulation FD does not apply to non-U.S.
companies and will not apply to us. Accordingly, you may not be able to obtain
information about us as you could obtain if we were not a “foreign private
issuer”.





25.
            Because
      we do not intend to pay any cash dividends on our common shares, our
      stockholders will not be able to receive a return on their shares unless
      they sell them.





We intend
to retain any future earnings to finance the development and expansion of our
business. We do not anticipate paying any cash dividends on our common shares in
the foreseeable future.  Unless we pay dividends, our stockholders
will not be able to receive a return on their shares unless they sell
them.





26.
            We
      may become a passive foreign investment company, or PFIC, which could
      result in adverse U.S. tax consequences to U.S.
  investors.





If we are
a “passive foreign investment company” or “PFIC” as defined in Section 1297 of
the Code, U.S. Holders will be subject to U.S. federal income taxation under one
of two alternative tax regimes at the election of each such U.S. Holder. Section
1297 of the Code defines a PFIC as a corporation that is not formed in the
United States and either (i) 75% or more of its gross income for the taxable
year is “passive income”, which generally includes interest, dividends and
certain rents and royalties or (ii) the average percentage, by fair market value
(or, if we elect, adjusted tax basis), of its assets that produce or are held
for the production of “passive income” is 50% or more.  Whether we are
a PFIC in any year and the tax consequences relating to PFIC status will depend
on the composition of our income and assets, including cash. U.S. Holders should
be aware, however, that if we become a PFIC, we may not be able or willing to
satisfy record-keeping requirements that would enable U.S. Holders to make an
election to treat us as a “qualified electing fund” for purposes of one of the
two alternative tax regimes applicable to a PFIC, which would result in adverse
tax consequences to our shareholders who are U.S. citizens.





27.
            Because
      we are formed under the Canadian Business Corporations Act in Canada and
      all of our assets, officers, and directors are located outside the United
      States, it may be difficult for an investor to enforce within the United
      States any judgments obtained against us or any of our officers and
      directors.





19


All of
our assets are located outside of the United States and we do not currently
maintain a permanent place of business within the United States. In addition,
all of our officers and directors are nationals and/or residents of countries
other than the United States, and all or a substantial portion of such persons'
assets are located outside the United States. As a result, it may be difficult
for an investor to effect service of process or enforce within the United States
any judgments obtained against us or our officers or directors, including
judgments predicated upon the civil liability provisions of the securities laws
of the United States or any state thereof. In addition, there is uncertainty as
to whether the courts of Canada would recognize or enforce judgments of United
States courts obtained against us or our directors and officers predicated upon
the civil liability provisions of the securities laws of the United States or
any state thereof.  There is even uncertainty as to whether the
Canadian courts would have jurisdiction to hear original actions brought in
Canada against us or our directors and officers predicated upon the securities
laws of the United States or any state thereof.








ITEM
4.  INFORMATION ON THE COMPANY





4.A.
History and Development of the Company





Power Oil
& Gas Inc., (the “Company”) is principally a company engaged in the
acquisition and exploration of oil and gas properties.  On March 15,
2006, the Company entered into an agreement giving it the exclusive right and
option to acquire a 100% interest in a mineral exploration property known as the
GQ Property located in the Kamloops Mining District of British Columbia,
Canada.  In relation to the Company’s decision to pursue opportunities
in the oil and gas industry, it terminated the GQ Property option on May 31,
2006.





On June
14, 2006, the Company entered into a Petroleum, Natural Gas and General Rights
Conveyance  with Stone Petroleums Ltd., Supernova Resources Ltd.,
349385 Alberta Ltd. and Torland Ltd., whereby the Company acquired a 100%
interest in a petroleum and natural gas (“PN&G”) lease with the government
of Alberta.  The underlying lease acquired by the Company is Alberta
PN&G lease 0405070015, and the property to which the Lease pertains is
located in the Milk River area of Alberta. Upon signing the Agreement, the
Company paid the Vendor $7,500 and paid closing costs of $938 and agreed to
assume the underlying lease payments to the province of Alberta.  In
addition, the Vendor is entitled to an overriding 5% royalty on all petroleum
substances produced from the Milk River Property, if any.  The Vendor
is entitled to a first and paramount lien upon all of the petroleum substances
produced or allocated to the Property to secure the payment of any amounts due
and payable to the Vendor relating to the royalty.





On July
23, 2008, the Company entered into an Assignment and Assumption agreement with
Giant Oil & Gas Inc. et al, a company related by a common director, whereby
the Company purchased a 100% right and interest in 10 Alberta Crown Petroleum
and Natural Gas Lease Agreements for a total of 1,911 hectares in the Taber,
Grand Forks area of Alberta, Canada.  Upon signing the Agreement, the
Company paid the Vendor $30,331 and agreed to assume the underlying lease
payments to the province of Alberta





20


On June
30, 2009, the Company entered into a petroleum, natural gas and general rights
conveyance with Stone Petroleums Ltd., Supernova Resources Ltd., 349385 Alberta
Ltd. and Torland Ltd., whereby the Company acquired a 100% interest in a
petroleum and natural gas (“PN&G”) lease for a total of 1280 hectares with
the government of Alberta.  The underlying lease acquired by the
Company is Alberta P&NG lease 0405060026, and the property to which the
lease pertains is located in the Bow Island area of Alberta.  Upon
signing the Agreement, the Company paid the Vendor $14,124 and agreed to assume
the underlying lease payments to the province of Alberta.  In
addition, the Vendor is entitled to an overriding 2% royalty on all petroleum
substances produced from the Property, if any.  The Vendor is entitled
to a first and paramount lien upon all of the petroleum substances produced or
allocated to the Property to secure the payment of any amounts due and payable
to the Vendor relating to the royalty.  This lease expires on June 2,
2010 but can be renewed.





On August
20, 2009, the Company acquired 100% interest in 13 petroleum and natural gas
(“P&NG”) leases with the government of Alberta.  The underlying
leases acquired by the Company are Alberta PN&G lease numbers 0409080267,
0409080268, 0409080271, 0409080272, 0409080274, 0409080280, 0409080283,
0409080284, 0409080286, 0409080287, 0409080288, 0409080310 and 0409080311, and
the property to which the leases pertain to cover 3,328 hectares of land located
in the Bow Island area of Alberta for the total amount of
$38,433.  All of the leases were acquired through a public auction
process that requires the Company to submit sealed bids for land packages being
auctioned by the provincial government.  Upon being notified that it
has submitted the highest bid for a specific land parcel the Company immediately
pays the government the bid price and enters into a formal five year extendable
lease with the government.  The bid price includes the first year’s
minimum annual lease payments.




On
September 3, 2009, the Company acquired 100% interest in 2 petroleum and natural
gas (“P&NG”) leases with the government of Alberta.  The
underlying leases acquired by the Company are Alberta PN&G lease numbers
0409090046 and 0409090047, and the property to which the Leases pertain to cover
512 hectares of land located in the Provost area of Alberta for the total amount
of $4,337.  All of the leases were acquired through a public auction
process that requires the Company to submit sealed bids for land packages being
auctioned by the provincial government.  Upon being notified that it
has submitted the highest bid for a specific land parcel the Company immediately
pays the government the bid price and enters into a formal five year extendable
lease with the government.  The bid price includes the first year’s
minimum annual lease payments.





On
October 29, 2009, the Company acquired 100% interest in 1 petroleum and natural
gas (“P&NG”) lease with the government of Alberta.  The underlying
lease acquired by the Company is Alberta PN&G lease number 0409100445, and
the property to which the lease pertains to covers 2816 hectares of land located
in the Medicine Hat area of Alberta for the total amount of
$31,601.  The lease was acquired through a public auction process that
requires the Company to submit sealed bids for land packages being auctioned by
the provincial government.  Upon being notified that it has submitted
the highest bid for a specific land parcel the Company immediately pays the
government the bid price and enters into a formal five year extendable lease
with the government.  The bid price includes the first year’s minimum
annual lease payments.





OnMarch 6, 2010, the
Company surrendered P&NG lease number 0407030073 with the Province of
Alberta, previously acquired from Giant Oil & Gas Inc. on July 23, 2008, due
to the lack of potential for unconventional tight gas sands.  The
company no longer holds any interest in the property and all amounts paid for
this lease are non-refundable.This transaction
decreased the Company’s total PN&G leases to 27 for an aggregate 9,847
hectares.





21


OnMarch 9, 2010, the
Company surrendered P&NG lease number 0407030650 with the Province of
Alberta, previously acquired from Giant Oil & Gas Inc. on July 23, 2008, due
to the lack of potential for unconventional tight gas sands.  The
company no longer holds any interest in the property and all amounts paid for
this lease are non-refundable.This transaction
decreased the Company’s total PN&G leases to 26 for an aggregate 9,591
hectares.





Our
office is located at 4620 Manilla Road, S.E., Calgary, Alberta, Canada, T2G
4B7.  Our telephone number is (403) 261-3070.  Our internet
address is www.poweroilinc.com.





We are a
company in the early stages of engaging in the exploration and development of
oil and gas properties.





No
commercially viable natural gas deposit may exist on our
properties.  Our plan of operations is to carry out geological
analysis of these properties in order to ascertain whether it possesses deposits
of natural gas.  We can provide no assurance to investors that our
property contains a commercially viable natural gas deposit until appropriate
exploratory work is done and an evaluation based on that work concludes further
work programs are justified.  At this time, we definitely have no
known reserves on our property.





For the
period from April 25 2005 (inception) to December 31, 2009, we did not generate
any revenue.








4.B.
Business Overview





Historical
Corporate Development





Power Oil
& Gas Inc., (the “Company") is principally a company engaged in the
acquisition and exploration of oil and gas properties.  On March 15,
2006, the Company entered into an agreement giving it the exclusive right and
option to acquire a 100% interest in a mineral exploration property known as the
GQ Property located in the Kamloops Mining District of British Columbia,
Canada.  In relation to the Company’s decision to pursue opportunities
in the oil and gas industry, it terminated the GQ Property option on May 31,
2006.





We are a
company in the early stages of engaging in the exploration and development of
oil and gas properties.  To accomplish our objective, our strategy is
to acquire exploration prospects. On June 14, 2006, the Company entered into a
Petroleum, Natural Gas and General Conveyance Agreement with Stone Petroleums
Ltd. et al whereby the Company acquired a 100% interest in a petroleum and
natural gas lease in the Milk River area of Alberta, Canada.  The
rights associated with the lease relate to petroleum and natural
gas.  On July 23, 2008, the Company entered into an assignment and
assumption agreement with Giant Oil & Gas Inc. et al whereby the Company
purchased a 100% right and interest in 10 Alberta Crown Petroleum and Natural
Gas Lease Agreements for a total of 1,911 hectares in the Taber, Grand Forks
area of Ablerta, Canada.  Upon signing the Agreement, the Company
agreed to assume the underlying lease payments to the province of
Alberta.





On July
23, 2008, the Company entered into an Assignment and Assumption agreement with
Giant Oil & Gas Inc. et al, a company related by a common director, whereby
the Company purchased a 100% right and interest in 10 Alberta Crown Petroleum
and Natural Gas Lease Agreements for a total of 1,911 hectares in the Taber,
Grand Forks area of Alberta, Canada.  Upon signing the Agreement, the
Company paid the Vendor $30,331 and agreed to assume the underlying lease
payments to the province of Alberta





22


On June
30, 2009, the Company entered into a petroleum, natural gas and general rights
conveyance with Stone Petroleums Ltd., Supernova Resources Ltd., 349385 Alberta
Ltd. and Torland Ltd., whereby the Company acquired a 100% interest in a
petroleum and natural gas (“PN&G”) lease for a total of 1280 hectares with
the government of Alberta.  The underlying lease acquired by the
Company is Alberta P&NG lease 0405060026, and the property to which the
lease pertains is located in the Bow Island area of Alberta.  Upon
signing the Agreement, the Company paid the Vendor $14,124 and agreed to assume
the underlying lease payments to the province of Alberta.  In
addition, the Vendor is entitled to an overriding 2% royalty on all petroleum
substances produced from the Property, if any.  The Vendor is entitled
to a first and paramount lien upon all of the petroleum substances produced or
allocated to the Property to secure the payment of any amounts due and payable
to the Vendor relating to the royalty.  This lease expires on June 2,
2010 but can be renewed.





On August
20, 2009, the Company acquired 100% interest in 13 petroleum and natural gas
(“P&NG”) leases with the government of Alberta.  The underlying
leases acquired by the Company are Alberta PN&G lease numbers 0409080267,
0409080268, 0409080271, 0409080272, 0409080274, 0409080280, 0409080283,
0409080284, 0409080286, 0409080287, 0409080288, 0409080310 and 0409080311, and
the property to which the leases pertain to cover 3,328 hectares of land located
in the Bow Island area of Alberta for the total amount of
$38,433.  All of the leases were acquired through a public auction
process that requires the Company to submit sealed bids for land packages being
auctioned by the provincial government.  Upon being notified that it
has submitted the highest bid for a specific land parcel the Company immediately
pays the government the bid price and enters into a formal five year extendable
lease with the government.  The bid price includes the first year’s
minimum annual lease payments.





On
September 3, 2009, the Company acquired 100% interest in 2 petroleum and natural
gas (“P&NG”) leases with the government of Alberta.  The
underlying leases acquired by the Company are Alberta PN&G lease numbers
0409090046 and 0409090047, and the property to which the Leases pertain to cover
512 hectares of land located in the Provost area of Alberta for the total amount
of $4,337.  All of the leases were acquired through a public auction
process that requires the Company to submit sealed bids for land packages being
auctioned by the provincial government.  Upon being notified that it
has submitted the highest bid for a specific land parcel the Company immediately
pays the government the bid price and enters into a formal five year extendable
lease with the government.  The bid price includes the first year’s
minimum annual lease payments.





On
October 29, 2009, the Company acquired 100% interest in 1 petroleum and natural
gas (“P&NG”) lease with the government of Alberta.  The underlying
lease acquired by the Company is Alberta PN&G lease number 0409100445, and
the property to which the lease pertains to covers 2816 hectares of land located
in the Medicine Hat area of Alberta for the total amount of
$31,601.  The lease was acquired through a public auction process that
requires the Company to submit sealed bids for land packages being auctioned by
the provincial government.  Upon being notified that it has submitted
the highest bid for a specific land parcel the Company immediately pays the
government the bid price and enters into a formal five year extendable lease
with the government.  The bid price includes the first year’s minimum
annual lease payments.





OnMarch 6, 2010, the
Company surrendered P&NG lease number 0407030073 with the Province of
Alberta, previously acquired from Giant Oil & Gas Inc. on July 23, 2008, due
to the lack of potential for unconventional tight gas sands.  The
company no longer holds any interest in the property and all amounts paid for
this lease are non-refundable.This transaction
decreased the Company’s total PN&G leases to 27 for an aggregate 9,847
hectares.





23


OnMarch 9, 2010, the
Company surrendered P&NG lease number 0407030650 with the Province of
Alberta, previously acquired from Giant Oil & Gas Inc. on July 23, 2008, due
to the lack of potential for unconventional tight gas sands.  The
company no longer holds any interest in the property and all amounts paid for
this lease are non-refundable.This transaction
decreased the Company’s total PN&G leases to 26 for an aggregate 9,591
hectares.





The
Company’s specific goal is to explore the properties for potential
unconventional tight gas sands.  However, extensive analysis of these
properties will be required before we can make an evaluation as to the economic
feasibility of developing or finding valuable natural gas on these grounds. In
addition, there is no assurance that we will be able to make the payments
required by the lease agreement for the property.  There is no
assurance that the property will ever generate any revenue.





We have
limited finances and require additional funding in order to accomplish our
exploration, development and acquisition objectives. There is no assurance that
we will have revenues in the future or that we will be able to secure other
funding necessary for our future growth and expansion.  There is also
no assurance that our oil and natural gas exploration activities will produce
commercially viable reserves.  Our efforts to extract oil and gas may
be unprofitable.





We may
seek relationships with other mineral exploration and development companies that
will allow us to exploit idle and/or undeveloped resources.





MATERIAL
EFFECTS OF GOVERNMENT REGULATIONS





Development,
production and sale of natural gas and oil in Canada are subject to extensive
laws and regulations, including environmental laws and
regulations.  The oil and gas leases currently leased by the Company
are owned by the Province of Alberta and are managed by the Department of
Energy.  We may be required to make large expenditures to comply with
environmental and other governmental regulations.  Matters subject to
regulation include:





•
      location and density of wells;


•
      the handling of drilling fluids and obtaining discharge permits for
      drilling operations;


•
      accounting for and payment of royalties on production from state, federal
      and Indian lands;


•
      bonds for ownership, development and production of natural gas and oil
      properties;


•
      transportation of natural gas and oil by
  pipelines;


•
      operation of wells and reports concerning operations;
  and


•
      taxation.





Under
these laws and regulations, we could be liable for personal injuries, property
damage, oil spills, discharge of hazardous materials, remediation and clean-up
costs and other environmental damages.  Failure to comply with these
laws and regulations also may result in the suspension or termination of our
operations and subject us to administrative, civil and criminal
penalties.  Moreover, these laws and regulations could change in ways
that substantially increase our costs.  Accordingly, any of these
liabilities, penalties, suspensions, terminations or regulatory changes could
materially adversely affect our financial condition and results of operations
enough to possibly force us to cease our business operations.





ANTICIPATED
CHANGES TO FACILITIES AND EMPLOYEES





Management
of the Company anticipates no changes to either facilities or employees in the
near future.





24


SEASONALITY,
DEPENDENCY UPON PATENTS, LICENSES, CONTRACTS, PROCESSES, SOURCES AND AVAILIBILTY
OF RAW MATERIALS





Certain
of the Company’s properties may be in remote locations and subject to
significant temperature variations and changes in working
conditions.  It may not be possible to actively explore the Company’s
property in Alberta throughout the year because seasonal changes in the
weather.  If exploration is pursued at the wrong time of year, the
Company may incur additional costs to address issues relating to the
weather.





If we
commence drilling, shortages or an increase in cost of drilling rigs, equipment,
supplies or personnel could delay or interrupt our operations, which could
impact our financial condition and results of operations.  Drilling
activity in the geographic areas in which we conduct drilling activities may
increase, which would lead to increases in associated costs, including those
related to drilling rigs, equipment, supplies and personnel and the services and
products of other vendors to the industry. Increased drilling activity in these
areas may also decrease the availability of rigs.  We do not have any
contracts with providers of drilling rigs and, consequently we may not be able
to obtain drilling rigs when we need them.  Therefore, our drilling
and other costs may increase further and necessary equipment and services may
not be available to us at economical prices.





COMPETITION





The oil
and gas exploration industry is intensely competitive, highly fragmented and
subject to rapid change.  We may be unable to compete successfully
with our existing competitors or with any new competitors.  We compete
with many exploration companies that have significantly greater personnel,
financial, managerial, and technical resources than we do.  This
competition from other companies with greater resources and reputations may
result in our failure to maintain or expand our business.





4.C.
Organizational Structure





The
Company is not part of a group and has no subsidiaries.





4.D.
Property, Plant And Equipment





CORPORATE
OFFICES





We do not
own any real property.  We currently lease our corporate headquarters
at 4620 Manilla Road S.E., Calgary, Alberta T2G 4B7.    We
do not have any policies regarding investments in real estate, securities or
other forms of property.





A
detailed description of the Company’s exploration properties with additional
information for the properties of major significance to the Company is outlined
below.





PETROLEUM AND NATURAL GAS
LEASES





The
      Company has an interest in 26 petroleum and natural gas (“PN&G”)
      leases in Alberta, Canada.





25


Unconventional
Tight Gas Sands Background




Canada
has large deposits of natural gas in rock formations that are especially
difficult and expensive to produce. The gas in these difficult-to-produce
formations is often referred to as “unconventional”. Most commonly, the
formations are low permeability, or “tight” sandstones and limestones, coal
seams, organic shales, or interbedded combinations of these
formations.




Unconventional
gas is found in virtually all Canadian sedimentary basins with the gas resource
estimated at over 60 trillion cubic metres. Over the last several decades, new
technologies have allowed it to be commercially developed. Between 20 to 30% of
Canada's current natural gas production is unconventional. In the United States,
unconventional gas accounts for over 40% of gas production.




Tight
sandstones and limestones are Canada's most important unconventional gas
resource in terms of production. A recent study, funded in part by the Canadian
government, indicates that between 85 and 113 million cubic metres per day of
Canada's gas production is from tight gas formations. Historically, it has not
been the practice in Canada to distinguish between conventional and
unconventional gas production from sandstones and limestones. Over the last
decade or so, the contribution of tight zones to production has been
increasingly recognized and targeted for development.




Significant
tight gas production occurs in shallow gas plays in Alberta, and the deep basin
of Alberta.  Over the years there has been significant success in
accessing natural gas locked in these tight gas reservoirs primarily through the
application of horizontal drilling technology.  As conventional
sandstones and limestones continue to decline in production, these tight
formations will become increasingly important as industry currently shows a high
level of interest in this play.





Acquisition
of Interests





On June
14, 2006, the Company entered into a Petroleum, Natural Gas and General Rights
Conveyance (the “Agreement”) with Stone Petroleums Ltd., Supernova Resources
Ltd., 349385 Alberta Ltd., and Torland Ltd. (together the “Vendor”) whereby the
Company acquired a 100% interest in a Petroleum and Natural Gas (“PN&G”)
lease with the government of the Province of Alberta.  The underlying
lease acquired by the Company is Alberta PN&G lease 0405070015, and the
property to which the lease pertains is located in the Milk River area of
Alberta, as further described below. Upon signing of the Agreement the Company
paid the Vendor $7,500 and paid closing costs of $938 and agreed to assume the
underlying lease payments to the Province of Alberta.  In addition,
the Vendor is entitled to an overriding 5% royalty on all petroleum substances
produced from the Milk River Property, if any.  The Vendor is entitled
to a first and paramount lien upon all of the petroleum substances produced or
allocated to the property to secure the payment of any amounts due and payable
to the Vendor relating to the royalty.





On July
23, 2008, the Company entered into an assignment and assumption agreement with
Giant Oil & Gas Inc. et al whereby the Company purchased a 100% right and
interest in 10 Alberta Crown Petroleum and Natural Gas Lease Agreements for a
total of 1,911 hectares in the Taber, Grand Forks area of Alberta,
Canada.  Upon signing the Agreement, the Company paid the Vendor
$30,331.48 and agreed to assume the underlying lease payments to the province of
Alberta





26


On June
30, 2009, the Company entered into a petroleum, natural gas and general rights
conveyance with Stone Petroleums Ltd., Supernova Resources Ltd., 349385 Alberta
Ltd. and Torland Ltd., whereby the Company acquired a 100% interest in a
petroleum and natural gas (“PN&G”) lease for a total of 1280 hectares with
the government of Alberta.  The underlying lease acquired by the
Company is Alberta P&NG lease 0405060026, and the property to which the
lease pertains is located in the Bow Island area of Alberta.  Upon
signing the Agreement, the Company paid the Vendor $14,124 and agreed to assume
the underlying lease payments to the province of Alberta.  In
addition, the Vendor is entitled to an overriding 2% royalty on all petroleum
substances produced from the Property, if any.  The Vendor is entitled
to a first and paramount lien upon all of the petroleum substances produced or
allocated to the Property to secure the payment of any amounts due and payable
to the Vendor relating to the royalty.  This lease expires on June 2,
2010 but can be renewed.





On August
20, 2009, the Company acquired 100% interest in 13 petroleum and natural gas
(“P&NG”) leases with the government of Alberta.  The underlying
leases acquired by the Company are Alberta PN&G lease numbers 0409080267,
0409080268, 0409080271, 0409080272, 0409080274, 0409080280, 0409080283,
0409080284, 0409080286, 0409080287, 0409080288, 0409080310 and 0409080311, and
the property to which the leases pertain to cover 3,328 hectares of land located
in the Bow Island area of Alberta for the total amount of
$38,433.  All of the leases were acquired through a public auction
process that requires the Company to submit sealed bids for land packages being
auctioned by the provincial government.  Upon being notified that it
has submitted the highest bid for a specific land parcel the Company immediately
pays the government the bid price and enters into a formal five year extendable
lease with the government.  The bid price includes the first year’s
minimum annual lease payments.





On
September 3, 2009, the Company acquired 100% interest in 2 petroleum and natural
gas (“P&NG”) leases with the government of Alberta.  The
underlying leases acquired by the Company are Alberta PN&G lease numbers
0409090046 and 0409090047, and the property to which the Leases pertain to cover
512 hectares of land located in the Provost area of Alberta for the total amount
of $4,337.  All of the leases were acquired through a public auction
process that requires the Company to submit sealed bids for land packages being
auctioned by the provincial government.  Upon being notified that it
has submitted the highest bid for a specific land parcel the Company immediately
pays the government the bid price and enters into a formal five year extendable
lease with the government.  The bid price includes the first year’s
minimum annual lease payments.





On
October 29, 2009, the Company acquired 100% interest in 1 petroleum and natural
gas (“P&NG”) lease with the government of Alberta.  The underlying
lease acquired by the Company is Alberta PN&G lease number 0409100445, and
the property to which the lease pertains to covers 2816 hectares of land located
in the Medicine Hat area of Alberta for the total amount of
$31,601.  The lease was acquired through a public auction process that
requires the Company to submit sealed bids for land packages being auctioned by
the provincial government.  Upon being notified that it has submitted
the highest bid for a specific land parcel the Company immediately pays the
government the bid price and enters into a formal five year extendable lease
with the government.  The bid price includes the first year’s minimum
annual lease payments.





OnMarch 6, 2010, the
Company surrendered P&NG lease number 0407030073 with the Province of
Alberta, previously acquired from Giant Oil & Gas Inc. on July 23, 2008, due
to the lack of potential for unconventional tight gas sands.  The
company no longer holds any interest in the property and all amounts paid for
this lease are non-refundable.This transaction
decreased the Company’s total PN&G leases to 27 for an aggregate 9,847
hectares.





27


OnMarch 9, 2010, the
Company surrendered P&NG lease number 0407030650 with the Province of
Alberta, previously acquired from Giant Oil & Gas Inc. on July 23, 2008, due
to the lack of potential for unconventional tight gas sands.  The
company no longer holds any interest in the property and all amounts paid for
this lease are non-refundable.This transaction
decreased the Company’s total PN&G leases to 26 for an aggregate 9,591
hectares.





Location





All of
the Company’s leases are located in the Province of Alberta with a focus on the
Taber/Grand Forks/Bow Island areas and the Medicine Hat/Atlee Buffalo
areas.  Both areas are known to have significant potential and a
demonstrated history of production.





The
Taber/Grand Forks/Bow Island group of leases covers approximately 4,600 hectares
or 11,365 acres in southern Alberta.





The
Medicine Hat/Atlee-Buffalo group of leases covers more than 3300 hectares or
8,200 acres in southern Alberta.





Property
Lease Information





The
Company’s properties are comprised of 26 leases with the government of the
province of Alberta, Canada.  The leases are for an initial term of
five years with a commencement date equal to the date of
acquisition.  The leases are renewable if certain conditions are
met.  All leases require the payment of the first year’s minimum
annual lease payments at the time of acquisition.  In general, minimum
annual lease payments are $3.50 per hectare.


28





Lease
      Number
            Hectares
            Lease
      Commencement Date
            Annual
      Lease Payments0405060026
            1280
            June
      2, 2005
            $4,4800405070015
              0407020077
            256
              128
            July
      14, 2005
              February
      8, 2007
            $896
              $4480407040015
              0407040018
              0407040020
              0407050502
              0407080296
              0407080298
              0407080302
              0409080267
              0409080268
              0409080271
              0409080272
              0409080274
              0409080280
              0409080283
              0409080284
              0409080286
              0409080287
              0409080288
              0409080310
              0409080311
              0409090046
              0409090047
              0409100445
              Total
            250.912
              192
              128
              256
              124.32
              128
              192
              256
              256
              256
              256
              256
              256
              256
              256
              256
              256
              256
              256
              256
              256
              256
              2816
              9,591
            April
      5, 2007
              April
      5, 2007
              April
      5, 2007
              May
      31, 2007
              August
      23, 2007
              August
      23, 2007
              August
      23, 2007
              August
      20, 2009
              August
      20, 2009
              August
      20, 2009
              August
      20, 2009
              August
      20, 2009
              August
      20, 2009
              August
      20, 2009
              August
      20, 2009
              August
      20, 2009
              August
      20, 2009
              August
      20, 2009
              August
      20, 2009
              August
      20, 2009
              September
      3, 2009
              September
      3, 2009
              October
      29, 2009
            $878.19
              $672
              $448
              $896
              $435.12
              $448
              $672
              $896
              $896
              $896
              $896
              $896
              $896
              $896
              $896
              $896
              $896
              $896
              $896
              $896
              $896
              $896
              $9,856
              $33,569





Regional
Geology





Alberta
contains vast amounts of coal distributed throughout the southern Plains,
Foothills, and Mountains.  Originally deposited in relatively
flat-lying peat swamps, organic matter (peat) was buried by sediments derived
from uplift (mountain building), in the west and gradually changed into coal
with increasing heat and pressure of burial.  Over time, the coals
were uplifted and partially eroded away, resulting in the present distribution
of coal across the Plains.  Coal-bearing strata dip gently westward
toward the Mountains where coals are folded and abruptly turn toward the surface
to be exposed in the Foothills.





Coal
typically occurs within a coal zone as discrete seams and/or packages with
several thin and thick seams interbedded with non-coaly rock layers or
beds.  A coal zone may be traceable over a large geographic
area.  Coal zones are found in strata ranging in age from Late
Jurassic (approximately 145 millions years old) to Tertiary (approximately 65
million years old).





29


The
oldest and deepest coals of the Alberta Plains belong to the Lower Cretaceous
Mannville Group coals.  The Mannville coals are widely distributed
across the Alberta Plains, are thick, continuous and contain some of the highest
gas contents of any coals in the Alberta Plains.  Typically six or
more seams with cumulative coal thickness ranging from 2 to 14 meters occur over
a stratigraphic interval of 40 to 100 meters.  The thickest coals
extend from southeast Grande Prairie in a widening wedge between Edmonton and
Calgary to the Coronation area with coals occurring at depths ranging from about
800 meters to 2800 meters.





Upper
Cretaceous through Tertiary-aged coal also occurs across the Plains with older
coals being overlain by progressively younger rocks and coals.  Three
coal zones are recognized within the Upper Cretaceous Belly River
Group:  the McKay Coal Zone, near the base of the Belly River Group;
the Taber Coal Zone, located in the middle; and the Lethbridge Coal Zone, at the
top of the Belly River Group.  Compared to the Mannville coals, the
overall thin coals and restricted lateral continuity of the Belly River Group
coal seams have resulted in limited exploration efforts in these
coals.





The rank
of coal in Alberta ranges from very low (lignite) to high
(anthracite).  Coal near the surface in the Plains is generally of
sub-bituminous rank with lignite occurring in the north and northeast part of
the Plains, and high volatile bituminous C in the northwest and southwest areas
of the Plains.  Coal rank increases with burial depth.  In
the Plains, coal rank increases towards the west as seams dip and become
progressively deeper toward the mountains.  With increasing depth also
comes increasing overburden pressure, which may restrict
permeability.





To date,
Horseshoe Canyon coals with relatively low gas contents, but with favourable
fracturing are being successfully exploited for unconventional production in the
south-central plains.  Mannville coals are showing potentially
favourable amounts of fracturing and high gas contents in some locations are
undergoing evaluation in the north central to central plains.





Property
Geology





The
Company’s Properties have not undergone any drilling.  Drill log
information from wells drilled on adjacent properties is publicly available.
Based on a review of these drill logs, there is an indication that Belly River
and Mannville coals may be present.





Previous
Work





The
Properties are very early stage properties and have not had any drilling
performed on it.  The Properties are located in an area that is known
to host Belly River and Mannville coals.





Planned
Work by the Company for 2010





The
Province of Alberta maintains a significant publicly-available database of
drilling information from all wells drilled under leases issued by the
provincial government.  Companies who drill on government land in
Alberta are required to submit their drill results to the
province.  Therefore, previous drilling undertaken on land adjacent to
the Company’s holding, or drilling on the Company’s land by companies exploring
for other resources (oil sands for example) are required to submit their drill
log data to the Alberta government.  As a result, there is a large
database of drill results available to the public.  The Company
intends to undertake a comprehensive review of this drill log data from
surrounding properties in order to gain a better understanding of the
exploration potential of the properties.  The Company does not
currently have agreements in place with qualified geologists who can undertake
this review.  Currently, the Company is attempting to engage
consultants to perform the reviews.





30


The
review of the data will include preparing detailed geological maps using
existing drill log data with the aim of identifying potential drill targets and
to obtain a better understanding of potential strategies for acquiring new land
holdings.  The Company will not undertake any drilling in 2010, as the
review of available information will take between twelve to eighteen months to
complete commencing  January 2010.  Therefore, the Company
is not expecting to undertake any drilling until at least 2011.





ITEM
4A.  UNRESOLVED STAFF COMMENTS





--- Not
applicable ---





ITEM
5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS





The
following discussion for the fiscal year ended December 31, 2009, 2008, 2007 and
2006 should be read in conjunction with the financial statements of the Company
and the notes thereto.





Certain
statements contained in the foregoing MD&A and elsewhere in this 20-F
constitute forward-looking statements.  Such forward-looking
statements involve a number of known and unknown risks, uncertainties and other
factors which may cause actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking
statements.  Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date of the
financial statements were made, and readers are advised to consider such
forward-looking statements in light of the risks set forth in section 3.D.
above.





OVERALL
PERFORMANCE





The
following table sets forth the audited statement of operations data for Power
Oil & Gas Inc., for the fiscal years indicated:





Periods
      Ended December 312009
            
            
            2008
            
            
            2007
            
            
            2006Operating
      revenue
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Interest
      income
            
            
            -
            
            
            $
            151
            
            
            $
            2,451
            
            
            $
            2,673Expenses
            
            $
            214,175
            
            
            $
            145,391
            
            
            $
            64,069
            
            
            $
            37,365Loss
      from operations
            
            $
            (214,221
            )
            
            $
            (145,640
            )
            
            $
            (61,618
            )
            
            $
            (34,692
            )Net
      loss
            
            $
            (214,221
            )
            
            $
            (145,640
            )
            
            $
            (61,618
            )
            
            $
            (34,692
            )Net
      loss per share:Basic
      and diluted
            
            $
            0.06
            
            
            $
            0.00
            
            
            $
            0.00
            
            
            $
            0.00Weighted
      average number of
              common
      shares outstanding
            
            
            41,989,725
            
            
            
            41,709,750
            
            
            
            41,709,750
            
            
            
            41,709,750





31


Results
of Operations of Fiscal 2009 vs. Fiscal 2008





We are a
natural resource exploration company in the exploration stage with an objective
of acquiring, exploring, and, if warranted and feasible, developing oil and gas
properties.  Oil and natural gas exploration and development requires
significant capital and our assets and resources are limited. Therefore, we
participate in the oil and gas industry through the optioning of oil and gas
exploration and development projects.





Revenue
- Cost of Revenue





We did
not earn any revenues during the years ended December 31, 2009 or
2008.  We do not anticipate earning revenues until such time as we
have entered into commercial production of our oil and gas properties. We can
provide no assurance that we will discover commercially exploitable levels of
oil or gas on our properties, or if such resources are discovered, that we will
enter into commercial production of our oil and gas properties.





General
and Administrative Expenses





For the
year ended December 31, 2009 we had a net loss of $2,327,920 of the like
consisting of: (a) $30,125 in professional fees related to the preparation of
our financial statements; (b) $14,620 in office expenses; (c) $8,800 for
consulting fees; (e) $1,500 in Directors’ fees, and (f) $2,272,427 in stock
based compensation.





For the
year ended December 31, 2008 we had a net loss of $131,360 consisting of: (a)
$5,948 in listing and filing fees related to the preparation of the Company’s
20-F and the Company’s name change; (b) $36,250 in professional fees related to
the preparation of our financial statements (c) $5,210 in office expenses; (d)
$1,650 for transfer agent costs (e) $15,000 for Directors’ fees, and (f) $60,573
in stock based compensation; and (g) $151 in interest income.





The
increase in the loss in 2009 compared to 2008 is primarily related to the fact
that in 2009 the Company incurred an expense for stock based compensation of
$2,272,427 versus $60,573 for 2008.  In addition, consulting fees
increased to $8,800 in 2009 compared to $Nil in 2008.





Results
of Operations of Fiscal 2008 vs. Fiscal 2007





We are a
natural resource exploration company in the exploration stage with an objective
of acquiring, exploring, and, if warranted and feasible, developing oil and gas
properties.  Oil and natural gas exploration and development requires
significant capital and our assets and resources are limited. Therefore, we
participate in the oil and gas industry through the optioning of oil and gas
exploration and development projects.





Revenue
- Cost of Revenue





We did
not earn any revenues during the years ended December 31, 2008 or
2007.  We do not anticipate earning revenues until such time as we
have entered into commercial production of our oil and gas properties. We can
provide no assurance that we will discover commercially exploitable levels of
oil or gas on our properties, or if such resources are discovered, that we will
enter into commercial production of our oil and gas properties.





32


General
and Administrative Expenses





For the
year ended December 31, 2008 we had a net loss of $131,360 of the like
consisting of: (a) $5,948 in listing and filing fees related to the preparation
of the Company’s 20-F and the Company’s name change; (b) $36,250 in professional
fees related to the preparation of our financial statements (c) $5,210 in office
expenses; (d) $1,650 for transfer agent costs (e) $15,000 in Directors’ fees,
(f) $60,573 in stock based compensation, and (g) $151 in interest
income.





For the
year ended December 31, 2007 we had a net loss of $61,618 consisting of: (a)
$21,404 in listing and filing fees related to the preparation of the Company’s
20-F and the updating of the F-1 registration statement; (b) $15,700 in
professional fees related to the preparation of our financial statements (c)
$7,966 in office expenses; (d) $4,000 in rent; (e) $1,499 for transfer agent
costs (f) $13,500 for Directors’ fees, and (g) $2,451 in interest
income.





The
increase in the loss in 2008 compared to 2007 is primarily related to the fact
that in 2008 the Company incurred an expense for stock based compensation of
$60,573 versus $Nil for 2007.  We did not have any rent charges in
2008 versus $4,000 in 2007.  In 2008 listing and filing fees decreased
to $5,948 compared to $21,404 in 2007.





5.B.  Liquidity
and Capital Resources





Liquidity





We are an
oil and gas exploration company with an objective of acquiring, exploring, and
if warranted and feasible, developing oil and gas properties. We have members on
our board of directors who have extensive experience in the oil and gas
industry. However, exploration activities of properties without any proven
reserves require a considerable amount of time and money, and the subsequent
return on investment for our shareholders would be very long term
indeed.  Should we make a finding of natural gas on our properties, we
would consider our alternatives to such finding, including the possibility of
selling any findings to a major oil and gas company. By selling its findings to
another oil and gas company, it would provide an immediate return to our
shareholders without the long time frame and cost of putting an oil or gas
operation into operation ourselves, and it would also provide future capital for
the company to continue operations.





Since our
incorporation we have financed our operations almost exclusively through the
sale of our common shares to investors.  As we are an oil and gas
exploration and development company with no producing resource properties, we do
not generate operating income or cash flow from our business
operations.  Until a significant discovery is found, our working
capital requirements will be dependent upon the amount of our exploration budget
for any given year.  We expect to continue to finance operations
through the sale of equity.  However, there is no guarantee that we
will be successful in arranging financing on acceptable terms.








On
October 14, 2008 and November 6, 2008 the Company entered into two bridge loan
agreements with two separate investors for $57,672.50 and $59,472.50
respectively.  The loans carry an interest rate of the Bank of Canada
Rate +1% per annum, and may be converted to common stock of Power Oil & Gas
at the discretion of the Borrower or Lender at a conversion rate based on fair
market value of the Company’s common shares, which will be determined by the
Borrower and the Lender on the date of conversion.  The funds will be
used for operating capital purposes and the acquisition of exploration
properties.  The 2008, 2007, and 2006 operations were funded through
two private placements and the two bridge loan agreements. Such proceeds are not
sufficient to enable us to continue our planned operations.


33





On August
25, 2009 we received $107,796.25 CDN$ in proceeds from the exercise of
warrants.





On
October 14, 2009, the Company entered into an agreement with an investor who is
the lender of a loan under a loan agreement dated October 14, 2008 to exchange
the outstanding loan balance for shares of common stock of the Company through
the exercise of warrants held by the investor.  The loan amount of
$57,672.50 plus accrued interest of $1,221.52 for a total of $58,894.02 was
settled for warrants with an exercise price of CDN$ $0.25 per warrant resulting
in the issuance of 235,577 restricted shares of Common Stock.  Any
fractional share of common stock or warrant issuable upon the exchange for
shares of the loan was rounded up to the next nearest whole share of common
stock or warrant.





On
November 6, 2009, the Company entered into an agreement with an investor who is
the lender of a loan under a loan agreement dated November 6, 2008 to exchange
the outstanding loan balance for shares of common stock of the Company through
the exercise of warrants held by the investor.  The loan amount of
$59,472.50 plus accrued interest of $1,118.08 for a total of $60,590.58 was
settled for warrants with an exercise price of CDN$ $0.25 per warrant resulting
in the issuance of 242,363 restricted shares of Common Stock.  Any
fractional share of common stock or warrant issuable upon the exchange for
shares of the loan was rounded up to the next nearest whole share of common
stock or warrant.





On March
3, 2010 we received $50,000 CDN$ in proceeds from the exercise of
warrants.





During
2009, we used $38,416 for operating activities, a decrease of $19,132 over
2008.  The decrease in 2009 from 2008 was primarily due to an increase
in the 2009 net loss ($2,327,920) compared to the net loss in 2008
($131,360).     In 2009 there was an increase of
accounts payable and accrued liabilities of $18,127.





Investing
activities in 2009 related to $124, 347 cash used for the acquisition of oil and
gas interests and annual property payments.  In 2008, we received
proceeds from $20,000 in short-term investments and used $32, 782 cash for the
acquisition of oil and gas interests and annual property payments.





During
2008, we used $55,548 for operating activities, a decrease of $9,979 over
2007.  The decrease in 2008 from 2007 was primarily due to an increase
in the 2008 net loss ($131,360) compared to the net loss in 2007
($61,618).     In 2008 there was an increase of
accounts payable and accrued liabilities of $8,952 while in 2007 there was a
decrease of $4,954.





In 2008
there was an inflow from bridge loans payable of $117,145 while 2007 was
nil.





Investing
activities in 2008 related to $20,000 received from proceeds of short term
investments and cash used for the acquisition of oil and gas interests and
annual property payments totaling $32,782.  In 2007, we received from
proceeds of $70,673 from short-term investments and used cash to make our annual
property payment of $896.





We had
cash of $3,644 as of December 31, 2009. We anticipate that we will incur through
the end of our next fiscal year:





·
            $63,000
      in connection with work expenditures, lease payments and the initial
      geological analysis of the oil and gas
leases;





·
            $61,000
      for operating expenses, including working capital and general,
      administrative and professional legal and accounting expenses associated
      with our being a reporting issuer under the Securities Exchange Act of
      1934.


34





At
December 31, 2009 we had a working capital deficiency of ($29,767). Therefore,
current cash on hand is not sufficient for the next twelve months as proposed in
our plan of operations.  We shall require additional funding and we
anticipate that such funding will be in the form of equity financing from the
sale of our common shares.  However, we cannot provide investors with
any assurance that we will be able to raise sufficient funding from the sale of
our common shares to fund additional phases of the exploration program, should
we decide to proceed.  We believe that debt financing will not be an
alternative for funding any further phases in our exploration
program.  The risky nature of this enterprise and lack of tangible
assets places debt financing beyond the credit-worthiness required by most banks
or typical investors of corporate debt until such time as an economically viable
operation can be demonstrated.  We do not have any arrangements in
place for any future equity financing.





Critical
accounting estimates





The
preparation of financial statements in conformity with Canadian GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, and disclosures of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and
expenses for the reporting period.  Actual results could differ from
these estimates and would impact future results of operations and cash
flows.





The
Company follows the full cost method for accounting for its oil and natural gas
property interests as prescribed by the Canadian Institute of Chartered
Accountants, (“CICA”) Accounting Guideline 16 - Oil and Gas Accounting – Full
Cost.  Under this method all costs related to the acquisition of, the
exploration for, and the development of oil and natural gas reserves are
capitalized on a country-by-country basis.  These capitalized costs
are depleted or depreciated on a unit-of-production basis on the estimated
proved reserves.  Certain costs associated with the acquisition and
exploration of unproven properties are excluded from depletion and depreciation
until it is determined whether proved reserves are attributable to the
properties. Where the Company has entered into option agreements for the
acquisition of an interest in oil and gas properties that provide for periodic
payments, amounts unpaid are not recorded as a liability since they are paid
entirely at the Company’s option.  Estimates of undiscounted future
cash flows that we use for conducting impairment tests are subject to
significant judgment decisions based on assumptions of highly uncertain future
factors such as, crude oil and natural gas prices, production quantities,
estimates of recoverable reserves, and production and transportation costs.
Given the significant assumptions required and the strong possibility that
actual future factors will differ, we consider the impairment test to be a
critical accounting procedure.





5.C.
Research and Development, Patents and Licenses etc.





---
Not applicable ---





5.D.
Trends.





--- No
Disclosure Necessary ---





5.E.
Off-Balance Sheet Arrangements.





We do not
have any off balance sheet arrangements as of December 31, 2009 and December 31,
2008 or of the date of this report.





35


5.F.Contractual
Obligations.





We have
the following contractual obligations as expressed in CDN$ dollars at December
31, 2009:





Contractual Obligations
            
            Payments due by periodTotal
            
            
            Less
      than 1 year
            
            
            1-3
      years
            
            
            3-5
      years
            
            
            More
      than five yearsAnnual
      Lease Payments:Property
      Leases
            
            $
            102,978.62
            
            
            $
            28,193.31
            
            
            $
            51,489.31
            
            
            $
            23,296
            
            
            $
            0Capital
      (Finance) Lease Obligations
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0Operating
      Lease Obligations
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0Purchase
      Obligations
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0Other
      Long-Term Liabilities Reflected on the Company’s Balance Sheet Under the
      GAAP of the primary financial statements
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0Total
            
            $
            102,978.62
            
            
            $
            28,193.31
            
            
            $
            51,489.31
            
            
            $
            23,296
            
            
            $
            0





On June
14, 2006, the Company entered into a Petroleum, Natural Gas and General Rights
Conveyance with Stone Petroleums Ltd., Supernova Resources Ltd., 349385 Alberta
Ltd., and Torland Ltd. (collectively the “Vendor”) whereby the Company acquired
a 100% interest in a petroleum and natural gas lease with the government of the
Province of Alberta.  Upon signing of the agreement, the Company paid
the Vendor $8,438 (including closing costs) and agreed to assume the underlying
lease payments to the Province of Alberta of the greater of $3.50 per hectare or
$50 per year.  The Lease expires on July 14, 2010 but can be
renewed.





On July
23, 2008, the Company entered into an assignment and assumption agreement with
Giant Oil & Gas Inc. et al whereby the Company purchased a 100% right and
interest in 10 Alberta Crown Petroleum and Natural Gas Lease Agreements for a
total of 1,911 hectares in the Taber, Grand Forks area of Ablerta,
Canada.  Upon signing the Agreement, the Company paid the Vendor
$30,331.48 and agreed to assume the underlying lease payments to the province of
Alberta of $3.50 per hectare.  These leases all expire in 2012 but can
be renewed.





On June
30, 2009, the Company entered into a petroleum, natural gas and general rights
conveyance with Stone Petroleums Ltd., Supernova Resources Ltd., 349385 Alberta
Ltd. and Torland Ltd., whereby the Company acquired a 100% interest in a
petroleum and natural gas (“PN&G”) lease for a total of 1280 hectares with
the government of Alberta.  The underlying lease acquired by the
Company is Alberta P&NG lease 0405060026, and the property to which the
lease pertains is located in the Bow Island area of Alberta.  Upon
signing the Agreement, the Company paid the Vendor $14,124 and agreed to assume
the underlying lease payments to the province of Alberta.  In
addition, the Vendor is entitled to an overriding 2% royalty on all petroleum
substances produced from the Property, if any.  The Vendor is entitled
to a first and paramount lien upon all of the petroleum substances produced or
allocated to the Property to secure the payment of any amounts due and payable
to the Vendor relating to the royalty.  This lease expires on June 2,
2010 but can be renewed.





36


On August
20, 2009, the Company acquired 100% interest in 13 petroleum and natural gas
(“P&NG”) leases with the government of Alberta.  The underlying
leases acquired by the Company are Alberta PN&G lease numbers 0409080267,
0409080268, 0409080271, 0409080272, 0409080274, 0409080280, 0409080283,
0409080284, 0409080286, 0409080287, 0409080288, 0409080310 and 0409080311, and
the property to which the leases pertain to cover 3,328 hectares of land located
in the Bow Island area of Alberta for the total amount of
$38,433.  All of the leases were acquired through a public auction
process that requires the Company to submit sealed bids for land packages being
auctioned by the provincial government.  Upon being notified that it
has submitted the highest bid for a specific land parcel the Company immediately
pays the government the bid price and enters into a formal five year extendable
lease with the government.  The bid price includes the first year’s
minimum annual lease payments.





On
September 3, 2009, the Company acquired 100% interest in 2 petroleum and natural
gas (“P&NG”) leases with the government of Alberta.  The
underlying leases acquired by the Company are Alberta PN&G lease numbers
0409090046 and 0409090047, and the property to which the Leases pertain to cover
512 hectares of land located in the Provost area of Alberta for the total amount
of $4,337.  All of the leases were acquired through a public auction
process that requires the Company to submit sealed bids for land packages being
auctioned by the provincial government.  Upon being notified that it
has submitted the highest bid for a specific land parcel the Company immediately
pays the government the bid price and enters into a formal five year extendable
lease with the government.  The bid price includes the first year’s
minimum annual lease payments.





On
October 29, 2009, the Company acquired 100% interest in 1 petroleum and natural
gas (“P&NG”) lease with the government of Alberta.  The underlying
lease acquired by the Company is Alberta PN&G lease number 0409100445, and
the property to which the lease pertains to covers 2816 hectares of land located
in the Medicine Hat area of Alberta for the total amount of
$31,601.  The lease was acquired through a public auction process that
requires the Company to submit sealed bids for land packages being auctioned by
the provincial government.  Upon being notified that it has submitted
the highest bid for a specific land parcel the Company immediately pays the
government the bid price and enters into a formal five year extendable lease
with the government.  The bid price includes the first year’s minimum
annual lease payments.





OnMarch 6, 2010, the
Company surrendered P&NG lease number 0407030073 with the Province of
Alberta, previously acquired from Giant Oil & Gas Inc. on July 23, 2008, due
to the lack of potential for unconventional tight gas sands.  The
company no longer holds any interest in the property and all amounts paid for
this lease are non-refundable.This transaction
decreased the Company’s total PN&G leases to 27 for an aggregate 9,847
hectares.





OnMarch 9, 2010, the
Company surrendered P&NG lease number 0407030650 with the Province of
Alberta, previously acquired from Giant Oil & Gas Inc. on July 23, 2008, due
to the lack of potential for unconventional tight gas sands.  The
company no longer holds any interest in the property and all amounts paid for
this lease are non-refundable.This transaction
decreased the Company’s total PN&G leases to 26 for an aggregate 9,591
hectares.





At
December 31, 2009 and 2008, the Company had trade payables and accrued
liabilities of $36,541.  All of these obligations are unsecured and
due in less than one year.





37




Recent
Accounting Pronouncements Applicable to the U.S.




ASC 105




In June
2009, the FASB issued new guidance which is now part of ASC 105-10 (formerly
Statement of Financial Accounting Standards No. 168, “The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles”, (“SFAS 168”)).  SFAS 168 replaces FASB Statement No. 162,
“The Hierarchy of Generally Accepted Accounting Principles”, and establishes the
FASB Accounting Standards Codification as the source of authoritative accounting
principles recognized by the FASB to be applied by nongovernmental entities in
the preparation of financial statements in conformity with GAAP.  SFAS
168 is effective for interim and annual periods ending after September 15,
2009.  The adoption of SFAS 168 did not have a material impact on the
Company’s financial statements.




ASC 740 (FIN
48)




In June
2006, the FASB issued FASB ASC 740 Income Taxes (Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, (“FIN 48”)).  FIN 48
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements and prescribes a recognition threshold and
measurement attribute for the financial statements recognition and measurement
of a tax position taken or expected to be taken in a tax return.  The
Company has evaluated its tax positions for the years ended December 31, 2009,
2008 and 2007 and determined that it has no uncertain tax positions requiring
financial recognition.




Under FIN
48, the impact of an uncertain income tax position on income tax expense must be
recognized at the largest amount that is more-likely-than-not to be
sustained.  An uncertain income tax position will not be recognized if
it has 50% or less likelihood of being sustained.




We accrue
interest and penalties on our uncertain tax positions as a component of our
provision for income taxes.  There was no amount of interest and
penalties accrued during 2009, 2008 or 2007.  We file our income tax
return in Canada.  Our income tax returns are generally considered
closed to examination for years prior to 2005.




ASC 815




In June
2008, the FASB ratified FASB ASC 815-40 (EITF Issue 07-5 (EITF 07-5), -
Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an
Entity’s Own Stock).  FASB ASC 815-40 provides that an entity should
use a two step approach to evaluate whether an equity-linked financial
instrument (or embedded feature) is indexed to its own stock, including
evaluating the instrument’s contingent exercise and settlement
provisions.  It also clarifies the impact of foreign currency
denominated strike prices and market-based employee stock option valuation
instruments.  FASB ASC 815-40 is effective for fiscal years beginning
after December 15, 2008 and interim periods within those years.  On
January 1, 2009, the Company adopted this pronouncement.  There was no
material impact on our financial position, results of operations or cash
flows.




38




ASC 825




In April
2009, the FASB issued guidance which is now part of ASC 825-10, “Financial
Instruments” (formerly Financial Staff Position SFAS 107-1 and Accounting
Principles Board (APB) Opinion No. 28-1, “Interim Disclosures about Fair Value
of Financial Instruments” (SFAS 107-1 and APB 28-1). This statement amends
FASB Statement No. 107, “Disclosures about Fair Values of Financial
Instruments”, to require disclosures about fair value of financial instruments
in interim financial statements as well as in annual financial statements. The
statement also amends APB Opinion No. 28, “Interim Financial Reporting”, to
require those disclosures in all interim financial statements. This statement is
effective for interim periods ending after June 15, 2009.




ASC 855




In May
2009, the FASB issued new guidance for accounting for subsequent events. The new
guidance, which is now part of ASC 855-10, “Subsequent Events” (formerly, SFAS
No. 165, “Subsequent Events”) is consistent with existing auditing standards in
defining subsequent events as events or transactions that occur after the
balance sheet date but before the financial statements are issued or are
available to be issued, but it also requires the disclosure of the date through
which an entity has evaluated subsequent events and the basis for that date. The
new guidance defines two types of subsequent events: “recognized subsequent
events” and “non-recognized subsequent events.” Recognized subsequent events
provide additional evidence about conditions that existed at the balance sheet
date and must be reflected in the company’s financial statements. Non-recognized
subsequent events provide evidence about conditions that arose after the balance
sheet date and are not reflected in the financial statements of a company.
Certain non-recognized subsequent events may require disclosure to prevent the
financial statements from being misleading. The new guidance was effective on a
prospective basis for interim or annual periods ending after June 15,
2009.





In
February, 2010, the FASB issued ASU No. 2010-09, Subsequent Events (Topic 855)
Amendments to Certain Recognition and Disclosure Requirements.  The
amendments remove that requirement for an SEC filer to disclose a date in both
issued and revised financial statements.  Revised financial statements
include financial statements revised as a result of either correction of an
error or retrospective application of U.S. GAAP.  Additionally, the
Board has clarified that if the financial statements have been revised, then an
entity that is not an SEC filer should disclose both the date that the financial
statements were issued or available to be issued and the date the revised
financial statements were issued or available to be issued.  Those
amendments remove potential conflicts with the SEC’s literature.  All
of the amendments in this Update are effective upon issuance of the final
Update, except for the use of the issued date for conduit debt
obligors.  That amendment is effective for interim or annual periods
ending after June 15, 2010.




ASU
2009-05




In
August 2009, the FASB issued Accounting Standards Update No. 2009-05,
“Measuring Liabilities at Fair Value” (“ASU 2009-05”). This update provides
amendments to Accounting Standards Codification (“ASC”) Topic 820, “Fair Value
Measurements and Disclosure”, for the fair value measurement of liabilities when
a quoted price in an active market is not available. ASU 2009-05 is effective
for reporting periods beginning after August 28, 2009.





39


ASU
2009-06




In
September 2009, the FASB issued ASU No. 2009-06, “Income Taxes (Topic 740) –
Implementation Guidance on Accounting for Uncertainty in Income Taxes and
Disclosure Amendments for Nonpublic Entities.  This update is to
address the need for additional implementation guidance on accounting for
uncertainty in income taxes.  The implementation guidance will apply
to financial statements on nongovernmental entities that are presented in
conformity with U.S. GAAP.  The effective date is for entities that
are currently applying the standards for accounting for uncertainty in income
taxes, the guidance and disclosure amendments are effective for financial
statements issued for interim and annual periods ending after September 15,
2009.  For those entities that have deferred the application of
accounting for uncertainty in income taxes in accordance with paragraph
740-10-65-1(e), the guidance and disclosure amendments are effective upon
adoption of those standards.  The adoption of this standard did not
have a material effect on the Company’s financial statements.




ITEM
6.  DIRECTORS, SENIOR MANAGEMENT, AND EMPLOYEES





6.A.
Directors and Senior Management





Directors
and Senior Management


June 29,
2010




The
following table sets forth certain information regarding the members of our
board of directors and our executive officers:





Name
            Age
            Positions
      and Offices HeldManny
      Dhinsa
            38
            Director,
      Chairman, President, Chief Executive
              Officer,
      Chief Operating Officer, and SecretaryPratt
      Barndollar
            51
            DirectorRob
      Sandhu
            34
            DirectorKeith
      Diakiw
            37
            Director





Our
directors hold office until the next annual meeting of our shareholders or until
their successors are duly elected and qualified.  None of our
directors have any family relationships with any of our other directors or
executive officers.  Set forth below is a summary description of the
principal occupation and business experience of each of our directors and
executive officers for at least the last five years.





Manny Dhinsa is an
accomplished petroleum specialist who has been working in the Alberta oil patch
for more than a decade. His clients have included world-class oil and gas
companies such as Encana, Nexen, Devon and CNRL. He has been involved in
advanced exploration programs throughout Alberta, Saskatchewan and northeast
British Columbia, including heavy oil exploration in the Lloydminster area
(CNRL) and Encana's natural gas resource in the Greater Sierra
play.  Mr. Dhinsa graduated from the University of Alberta with a
Bachelor of Science degree in geology.





40


PRATT BARNDOLLAR, age 51, is
an experienced geophysicist who has served as senior geoscience manager and
interpreter for large and small oil companies during the span of his
career.  He has broad US and international experience in prospect
evaluation, operations and planning and currently holds the position of Manager,
Exploration Planning at Talisman Energy Inc. Between 2006 and 2008 he was Vice
President, Exploration of Napa Energy Ltd.  Mr. Barndollar served as
Chief Geophysicist and Exploration Portfolio Manager for Devon Energy between
2002 and 2005, Senior Geophysicist for Samson Canada between 2000 and 2002,
Chief Geophysicist for Apache Canada between 1997 and 2000, and Senior Explorer
and Project Leader for Phillips Petroleum between 1982 and 1997.  Mr.
Barndollar earned two Bachelor of Science degrees from Kansas State
University, in Geophysics and Civil Engineering.  His professional
affiliations include the Association of Professional Engineers, Geologists, and
Geophysicists of Alberta; Texas Board of Professional Geoscientists; American
Association of Petroleum Geologists; Canadian Society of Petroleum Geologists;
and the Canadian Society of Exploration Geophysicists.





Rob Sandhu has served on our
Board of Directors since May 15, 2007.  Since October 2007 he has also
served as the President, CEO, and Director of Giant Oil & Gas Inc., a
publicly traded oil and gas exploration company. He is an oil and natural gas
drilling specialist who has been working as a professional petroleum driller
since 1999. During the preceding five years Mr. Sandhu has worked for the
Halliburton Group as a directional driller and as a drilling operator for
Phoenix Technology Income Trust. From 2000 to 2004 he was a field supervisor for
Precision Drilling Technical Services Group.  He has field drilling
experience throughout Alberta. Mr. Sandhu has technical training from the
Southern Alberta Institute of Technology in Calgary.





Keith Diakiw, age 37, has
served on our Board of Directors since May 15, 2007.  He is a
professional geologist who has field experience in Canada and Brazil.  Mr.
Diakiw is currently working as a Production Geologist for Canadian Natural
Resources Ltd. in Fort McMurray, Alberta, Canada.  From 2005 to 2006
he was employed by Wellsite Masters Ltd. as a Well Site Geologist for an oil
sands drilling program.  From 2003 to 2004, he worked as a Field Engineer
for Schlumberger D&M in Brazil on offshore platforms, while in 2003, he was
employed by EnCana Corporation as a Contract Geologist and successfully
completed his NW Alberta shallow gas play project.  Prior to 2003, Mr.
Diakiw was attending the University of Alberta where he successfully earned a
Bachelor of Science





Involvement
in Certain Legal Proceedings





We are
not aware of any material legal proceedings that have occurred within the past
five years concerning any director, director nominee, or control person which
involved a criminal conviction, a pending criminal proceeding, a pending or
concluded administrative or civil proceeding limiting one's participation in the
securities or banking industries, or a finding of securities or commodities law
violations.





There are
no family relationships between any two or more Directors or Senior
Management.





There are
no arrangements or understandings with major shareholders, customers, suppliers
or others, pursuant to which any person referred to above was selected as a
Director or member of senior management.





41


6.B.
Compensation





Cash
Compensation





Except as
described herein, none of our officers or directors have received or earned any
compensation or bonus for services rendered in the fiscal years ended December
31, 2009 or 2008.  Commencing September 2006, Mr. Nott, and Commencing
May 15, 2007, Mr. Sandhu and Mr. Diakiw, each has received $500 per month to
serve as a Director of the Company.  Mr. Nott received remuneration
from January to June 2008 as he resigned in June 2008.   During
the fiscal year ended December 31, 2009, total Directors’ Fees were $1,500 (2008
- $15,000).  The monthly fees owing to Mr. Sandhu have been
temporarily suspended as of January 2009 in order to conserve operating
capital.  Mr. Diakiw will receive monthly fees for the first quarter
of 2009 and then will be suspended in order to conserve operating
capital.





We do not
maintain key-man life insurance for any of our executive officers or
directors.





At the
Company’s Annual General Meeting held June 28, 2007, a majority of the Company’s
shareholders approved the Company’s 2007 stock option plan.  The stock
option plans provides for the granting of up to a maximum of 5,000,000 common
stock options.  To date, a total of 400,000 options have been granted
under the plan, whereas 200,000 have an exercise price of $.50 USD per option
and 200,000 have an exercise price of $.50 CDN$ per option.  The
options granted in USD were granted on June 30, 2008 and the effective exchange
rate was $1.0197 USD per $1 CDN$.





Outstanding
Equity Awards as at December 31, 2009





Name
            No.  of
      Options Granted
            Exer-cise
      Price per Option
            Grant
      Date
            Expiration
      Date
            Mkt.
      Value of Securities Underlying Options on Date of Grant
            Number
      of Securities Underlying Unexercised Options, Exercisable
            Number
      of Securities Under-lying Un-exercised Options,
    Un-exercisable
            Grant
      Date Fair Value of Stock Options(1)Manny
      Dhinsa(2)
            100,000
            $.50
            08/10/09
            08/10/10
            $2.08
            -
            100,000
            -Manny
      Dhinsa(2)
            100,000
            $.50
            08/10/09
            08/10/11
            $2.08
            -
            100,000
            -Pratt
      Barndollar(3)
            200,000
            $.51
      USD
            06/30/08
            06/30/18
            $1.80
            200,000
            -
            $78,760Rob
      Sandhu
              Keith
      Diakiw
            -
              
              -
            -
              
              -
            -
              
              -
            -
              
              -
            -
              
              -
            -
              
              -
            -
              
              -
            -
              
              -


(1) The
figures in this column represent the grant date fair value of stock option
grants as determined using the Black-Scholes model. For more information
regarding the assumptions used to value stock option grants, please refer to
note 5(b) of the Company’s audited financial statements for the fiscal year
ended December 31, 2008 filed with this Form 20-F.





(2) Mr.
Dhinsa was granted 200,000 options on August 10, 2009.  The options
vest in equal installments of 100,000 every twelve months commencing August 10,
2010 and ending August 10, 2011.





(3) Mr.
Barndollar was granted 600,000 options on June 30, 2008.  The options
vest in equal installments of 200,000 every twelve months commencing June 30,
2009 and ending June 30, 2011.  On June 30, 2009 Mr. Barndollar
stepped down as Chief Executive Officer, Chief Financial Officer, President
Treasurer and Secretary of the Company but remained on the Board of
Directors.  Subsequently on August 10, 2009, 200,000 of Mr.
Barndollars options that vest on June 30, 2010 and 200,000 options that vest on
June 30, 2011 were cancelled.


42





Change
of Control Remuneration.





The
Company had no plans or arrangements in respect of remuneration received or that
may be received by Executive Officers of the Company in Fiscal 2009 to
compensate such officers in the event of termination of employment (as a result
of resignation, retirement, change of control) or a change of responsibilities
following a change of control.





6.C.
Board Practices





6.C.1.
Terms of Office.





Refer to
ITEM 6.A.1.





6.C.2.
Directors’ Service Contracts.





With the
exceptions of Rob Sandhu, and Keith Diakiw, there are no Director Service
contracts.  Pursuant to respective agreements dated May 15, 2007
between the Company and Mr. Sandhu and Mr. Diakiw, commencing May 15, 2007, Mr.
Sandhu and Mr. Diakiw each began receiving $500 per month to serve as a Director
of the Company.





The
monthly fees owing to Mr. Sandhu have been suspended as of January 1, 2009 in
order to conserve cash flow.  The monthly fees owing to Mr. Diakiw
have been suspended as of April 1, 2009 in order to conserve cash
flow.  The respective service contracts will terminate upon the
respective Director ceasing to serve as a Director of the Company.





6.C.3.
Board of Director Committees.





The Audit
Committee oversees the accounting and financial reporting processes of the
Company and all audits and external reviews of the financial statements of the
Company on behalf of the Board, and has general responsibility for oversight of
internal controls, accounting and auditing activities of the Company. Until
September 2008, the Company’s Audit Committee consists of the following three
directors, all of who are financially literate and knowledgeable about the
Company’s affairs: Paul Uppal, Duncan Budge and Michael Nott. Mr. Duncan Budge
is the audit committee’s financial expert member as a qualified accountant with
over 25 years experience in business.As
of September 2008 the Board of Directors is empowered to appoint a new audit
committee for the Corporation.





The
Committee reviews, on a continuous basis, any reports prepared by the Company's
external auditors relating to the Company's accounting policies and procedures,
as well as internal control procedures and systems. The Committee is also
responsible for examining all financial information, including annual financial
statements, prepared for securities commissions and similar regulatory bodies
prior to filing or delivery of the same. The Audit Committee also oversees the
annual audit process, the Company's internal accounting controls, any complaints
and concerns regarding accounting, internal controls or auditing matters and the
resolution of issues identified by the Company's external auditors. The Audit
Committee recommends to the Board the firm of independent auditors to be
nominated for appointment by the shareholders and the compensation of the
auditors. The Audit Committee meets on an as needed basis.





43


6.D.
Employees





We have
no employees at this time. We utilize outside contractors where possible, and
rely on the industry expertise of management and our Board of Directors. These
contractors will be responsible for surveying, geology, engineering,
exploration, and excavation. The geologists will evaluate the information
derived from the exploration and excavation and the engineers will advise us on
the economic feasibility of removing the mineralized material. We presently
employ no member of our management team.  We do not foresee any
significant changes in the number of employees or consultants we will have over
the next twelve months, unless the growth of our business demands
it.





6.E.
Share Ownership





The
following table lists, as of June 29, 2010 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




Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission (the "SEC") and generally includes voting or investment
power with respect to securities.  In accordance with SEC rules,
shares of common shares issuable upon the exercise of options or warrants which
are currently exercisable or which become exercisable within 60 days following
the date of the information in this table are deemed to be beneficially owned
by, and outstanding with respect to, the holder of such option or
warrant.  Except as indicated by footnote, and subject to community
property laws where applicable, to our knowledge, each person listed is believed
to have sole voting and investment power with respect to all shares of common
shares owned by such person.





44





Name
      of Beneficial Owner
            
            Number
      of Shares
              of
      common shares
              Beneficially
      Owned *
            
            Percent
      of
              common
      shares
              Beneficially
      OwnedPratt
      Barndollar
            
            16,200,000(1)(2)
            
            37.8%Manny
      Dhinsa
            
            14,000,000(1)
            
            32.7%Keith
      Diakiw
              Rob
      Sandhu
            
            -
              -
            
            -
              -All
      directors and executive officers as a group  (four
      persons)
            
            30,200,000
            
            70.5%





*              Based
on 42,818,875 shares outstanding as of June 29, 2010.





(1)
            16,000,000
      shares owned by Mr. Barndollar and 14,000,000 shares owned by Mr. Dhinsa
      are subject to our option to purchase all or any portion of these shares
      are a purchase price of CDN $0.01 per share.  We are not
      obligated to repurchase the shares at any time or for any reason (such as
      termination of employment, resignation from the Board or as officer, a
      change of control of the Company or failure to reach performance
      goals).  Our repurchase right will continue with respect to and
      for so long as any of the 30 million shares issued to Messrs. Barndollar
      and Dhinsa are held by them (or any of their affiliates or family
      members), and will survive the resignation as an officer or director of
      the Company by Mr. Barndollar and/or Mr. Dhinsa.  We may
      exercise our right of repurchase as to some or all of the shares held
      (directly or indirectly) by theses Directors by delivering a notice of
      such exercise to Mr. Barndollar and/or Mr. Dhinsa not less than ten
      business days prior to the closing of such repurchase.  Messrs.
      Barndollar and Dhinsa agree that they shall not, directly or indirectly,
      sell, exchange, pledge, hypothecate, transfer, gift, grant an irrevocable
      proxy with respect to, devise, assign or in any other way dispose of,
      encumber or grant a security interest in, any of the shares or any
      interest therein.  Messrs. Barndollar and Dhinsa also agree and
      acknowledge that said restriction is in addition to all applicable
      securities laws and regulation.





(2)
            Represents
      options that are currently exercisable or that are exercisable within 60
      days of the date of this report.  Mr. Barndollar was granted
      200,000 stock options on June 30, 2008 at an exercise price of $.51 that
      are fully vested on June 30, 2009.





Our major
shareholders do not have voting rights that differ from the other holders of
shares of our common shares.





Stock
Options





On June
28, 2007, the stockholders of the Company approved the Company’s 2007 stock
option plan whereby the Company may grant options to its directors, consultants
and employees for up to 5,000,000 shares of common stock.  The
exercise price of each option equals the market price of the Company’s stock on
the date of grant.  Options vest over a three-year period, unless
otherwise specified by the Board of Directors.  All options have a ten
year term. 400,000 options have been granted to date.





45


ITEM
7.  MAJOR SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS





7.A.
Major Shareholders.





7.A.1.a.
Holdings By Major Shareholders.





The
Company has two shareholders who own more than 5% of the issued
shares.  As at June 29, 2010 Pratt Barndollar and Manny Dhinsa own an
aggregate 30,200,000 shares, or 70.5% of the common shares.





7.A.1.b.
Significant Changes in Major Shareholders’ Holdings.





On
September 10, 2008, one of our founding Directors, Mr. Paul Uppal, resigned as a
Director, and, pursuant to a share assignment agreement dated September 10,
2008, gifted his 16,000,000 common shares to Pratt Barndollar, our new
President, CEO and Director.  Pursuant to the share assignment
agreement, the common shares gifted to Mr. Barndollar are subject to the same
terms and conditions as were in our agreement with Mr. Uppal, including the
repurchase option held by us with respect to Mr. Uppals’s shares.





On
September 10, 2008, Mr. Duncan Budge, resigned as our Director, and, pursuant to
a share assignment agreement dated September 10, 2008, gifted his 14,000,000
common shares to Manny Dhinsa, our Director.  Pursuant to the share
assignment agreement, the common shares gifted to Mr. Dhinsa are subject to the
same terms and conditions as were in our agreement with Mr. Budge, including the
repurchase option held by us with respect to Mr. Budge’s shares.





On August
17, 2006, one of founding Directors, Mr. Greg Crowe, resigned as our director,
and, pursuant to a share purchase agreement dated August 17, 2006, he sold his
14,000,000 common shares at a price of $0.0001 to Duncan Budge, who is our
director.  Pursuant to the share purchase agreement, the common shares
purchased by Mr. Budge are subject to the same terms and conditions as were in
our agreement with Mr. Crowe, including the repurchase option held by us with
respect to Mr. Crowe’s shares.   For further information on such
agreements, see our disclosure under the sub-section entitled “Material
Contracts.”





7.A.1.c.
Different Voting Rights.





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





7.A.2.
Canadian Share Ownership.





On June
29, 2010 the Company’s shareholders’ list showed At 42,818,875 common shares
outstanding which were held by approximately 48 stockholders of
record.  Of the shares issued and outstanding 34,902,975 are held by
shareholders with Canadian addresses.





The
Company’s shares began trading in January 2008 under the stock symbol LTYPF on
the OTC Bulletin Board.  In June 2008 the symbol was changed to PWOIF
to reflect the name change from Liberty Petroleum Inc. to Power Oil & Gas
Inc.





46


7.A.4.
Change of Control of Company Arrangements.





There are
no arrangements, known to the Company, the operation of which may at a
subsequent date result in a change in control of the Company.





7.B.
Related Party Transactions





In May
2004, pursuant to an agreement, we issued 16,000,000 common shares to Paul
Uppal, one of our officers, directors and founder.   On September
10, 2008 Mr. Uppal, resigned as our director, and, pursuant to a share
assignment agreement dated September 10, 2008, he gifted his 16,000,000 common
shares to Mr. Pratt Barndollar, who is our President, CEO and
Director.  Pursuant to the share assignment agreement, the common
shares given to Mr. Barndollar are subject to the same terms and conditions as
were in our agreement with Mr. Uppal, including the repurchase option held by us
with respect to Mr. Uppal’s shares.  Such shares are restricted and
the certificates representing such shares contain a restrictive
legend.





In May
2004, we also issued 14,000,000 common shares to one of our directors and
founder, Greg Crowe.  On August 17, 2006 Mr. Crowe, resigned as our
director, and, pursuant to a share purchase agreement dated August 17, 2006, he
sold his 14,000,000 common shares at a price of $0.0001 to Mr. Duncan Budge, who
is our director.  Pursuant to the share purchase agreement, the common
shares purchased by Mr. Budge are subject to the same terms and conditions as
were in our agreement with Mr. Crowe, including the repurchase option held by us
with respect to Mr. Crowe’s shares.   On September 10, 2008, Mr.
Duncan Budge, resigned as our Director, and, pursuant to a share assignment
agreement dated September 10, 2008, gifted his 14,000,000 common shares to Manny
Dhinsa, our Director.  Pursuant to the share assignment agreement, the
common shares gifted to Mr. Dhinsa are subject to the same terms and conditions
as were in our agreement with Mr. Budge, including the repurchase option held by
us with respect to Mr. Budge’s shares.





The
common shares issued to Mr. Barndollar and Mr. Dhinsa are subject to our right,
exercisable at any time, to purchase any or all of these shares from Mr.
Barndollar and Mr. Dhinsa at a purchase price of CDN$0.01 per
share.  We have this right until we, in our sole discretion, decide to
terminate the agreement.  The exercise price of such repurchase option
is $0.01 per share, amounting in the aggregate to $160,000 for the shares held
by Mr. Barndollar and $140,000 for the shares held by Mr. Dhinsa. Unaffiliated
stockholders have no protection against our future potential decision to
repurchase the shares of the two directors pursuant to current or potentially
modified contracts, even if such repurchase would essentially use all or
substantially all of the company’s working capital and essentially cause the
company to become insolvent.





Shareholder
Loans





There are
no loans to shareholders.





Amounts
Owing to Senior Management/Directors





At
December 31, 2009 and 2008 no amounts were owed to senior management or
directors.  There have been no transactions since inception, or
proposed transactions, which have materially affected or will materially affect
the Company in which any director, executive officer, or beneficial holder of
more than 5% of the outstanding common shares, or any of their respective
relatives, spouses, associates or affiliates has had or will have any direct or
material indirect interest.  Management believes the transactions
referenced above were on terms at least as favorable to the Company as the
Company could have obtained from unaffiliated parties.


47





7.C.
Interests of Experts and Counsel





--- Not
applicable ---





ITEM
8.  FINANCIAL INFORMATION





8.A.  Statements
and Other Financial Information





The
Company's financial statements are stated in Canadian Dollars (CDN$) and are
prepared in accordance with Canadian Generally Accepted Accounting Principles
(GAAP), the application of which, in the case of the Company, conforms in all
material respects for the periods presented with United States GAAP, as
discussed in footnotes to the financial statements.





The
financial statements as required under ITEM #17 are attached hereto and found
immediately following the text of this Annual Report.  The audit
report of Smythe Ratcliffe LLP is included herein immediately preceding the
financial statements.





Audited
Financial Statements:





Fiscal
periods ended December 31, 2009, 2008, 2007, 2006, and 2005.




8.A.7.
Legal/Arbitration 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.





8.A.8.
Policy on Dividend Distributions





The
Company has never declared or paid a dividend to its
shareholders.  The Company does not have any policy on dividend
distributions.





8.B.
Significant Changes





On March
15, 2006, the Company entered into an agreement giving it the exclusive right
and option to acquire a 100% interest in a mineral exploration property known as
the GQ Property located in the Kamloops Mining District of British Columbia,
Canada.  In relation to the Company’s decision to pursue opportunities
in the oil and gas industry, it terminated the GQ Property option on May 31,
2006.





48


On June
14, 2006, the Company entered into a petroleum, natural gas and general rights
conveyance (the “Agreement”) with Stone Petroleums Ltd., Supernova Resources
Ltd., 349385 Alberta Ltd. and Torland Ltd. (together, the “Vendor”) whereby the
Company acquired a 100% interest in a petroleum and natural gas (“PN&G”)
lease with the government of Alberta.  The underlying lease acquired
by the Company is Alberta PN&G lease 0405070015 (the “Lease”), and the
property to which the Lease pertains is located in the Milk River area of
Alberta. Upon signing the Agreement, the Company paid the Vendor $7,500 and paid
closing costs of $938 and agreed to assume the underlying lease payments to the
province of Alberta.  In addition, the Vendor is entitled to an
overriding 5% royalty on all petroleum substances produced from the Milk River
Property, if any.  The Vendor is entitled to a first and paramount
lien upon all of the petroleum substances produced or allocated to the Property
to secure the payment of any amounts due and payable to the Vendor relating to
the royalty.





On June
23, 2006, at an annual general and special meeting of shareholders, a majority
of the shareholders of the Company approved a change in business of the Company
from mineral exploration to oil and gas exploration and
extraction.  At the same meeting, a majority of the shareholders of
the Company approved a change in name of the Company to Liberty Petroleum
Inc.





On August
14, 2006, Mr. Duncan Budge was appointed to the Board of Directors.





On August
17, 2006 Mr. Crowe, resigned as our director, and, pursuant to a share purchase
agreement dated August 17, 2006, he sold his 14,000,000 common shares at a price
of $0.0001 to Mr. Duncan Budge, who is our director.  Pursuant to the
share purchase agreement, the common shares purchased by Mr. Budge are subject
to the same terms and conditions as were in our agreement with Mr. Crowe,
including the repurchase option held by us with respect to Mr. Crowe’s
shares.





On August
21, 2006 Mr. Michael Nott was appointed to the Board of Directors.





On May
15, 2007 Mr. Rob Sandhu and Mr. Keith Diakiw were appointed to the Board of
Directors.





On June
28, 2007 at an annual general meeting of shareholders, a majority of the
shareholders of the Company approved the Company’s 2007 Stock Option
Plan.





On June
28, 2007 Mr. Paul Uppal was appointed President, Secretary, and
Treasurer.





On May
23, 2008 at a special meeting of the shareholders, a majority of the
shareholders of the Company approved a change in name of the Company to Power
Oil & Gas Inc.





On June
1, 2008, Mr. Pratt Barndollar was appointed CEO, CFO President, Secretary,
Treasurer and Director.





On July
23, 2008, the Company entered into an assignment and assumption agreement with
Giant Oil & Gas Inc. et al whereby the Company purchased a 100% right and
interest in 10 Alberta Crown Petroleum and Natural Gas Lease Agreements for a
total of 1,911 hectares in the Taber, Grand Forks area of Ablerta,
Canada.  Upon signing the Agreement, the Company paid the Vendor
$30,331.48 and agreed to assume the underlying lease payments to the province of
Alberta.





On
September 10, 2008 Manny Dhinsa was appointed to the Board of
Directors.





49


On
September 10, 2008, one of our founding Directors, Mr. Paul Uppal, resigned as a
Director, and, pursuant to a share assignment agreement dated September 10,
2008, gifted his 16,000,000 common shares to Pratt Barndollar, our new
President, CEO and Director.  Pursuant to the share assignment
agreement, the common shares gifted to Mr. Barndollar are subject to the same
terms and conditions as were in our agreement with Mr. Uppal, including the
repurchase option held by us with respect to Mr. Uppals’s shares.





On
September 10, 2008, Mr. Duncan Budge, resigned as our Director, and, pursuant to
a share assignment agreement dated September 10, 2008, gifted his 14,000,000
common shares to Manny Dhinsa, our Director.  Pursuant to the share
assignement agreement, the common shares gifted to Mr. Dhinsa are subject to the
same terms and conditions as were in our agreement with Mr. Budge, including the
repurchase option held by us with respect to Mr. Budge’s shares.





On
October 14, 2008 and November 6, 2008 the Company entered into two bridge loan
agreements with two separate investors for $57,672.50 and $59,472.50
respectively.  The loans carry an interest rate of the Bank of Canada
Rate +1, and may be converted to common stock of Power Oil &
Gas.





On June
30, 2009 Pratt Barndollar resigned as CEO, CFO President, Secretary, and
Treasurer but maintained his directorship on the Board.





On June
30, 2009 Manny Dhinsa was appointed CEO, CFO President, Secretary, and
Treasurer





On June
30, 2009, the Company entered into a petroleum, natural gas and general rights
conveyance with Stone Petroleums Ltd., Supernova Resources Ltd., 349385 Alberta
Ltd. and Torland Ltd., whereby the Company acquired a 100% interest in a
petroleum and natural gas (“PN&G”) lease for a total of 1280 hectares with
the government of Alberta.  The underlying lease acquired by the
Company is Alberta P&NG lease 0405060026, and the property to which the
lease pertains is located in the Bow Island area of Alberta.  Upon
signing the Agreement, the Company paid the Vendor $14,124 and agreed to assume
the underlying lease payments to the province of Alberta.  In
addition, the Vendor is entitled to an overriding 2% royalty on all petroleum
substances produced from the Property, if any.  The Vendor is entitled
to a first and paramount lien upon all of the petroleum substances produced or
allocated to the Property to secure the payment of any amounts due and payable
to the Vendor relating to the royalty.  This lease expires on June 2,
2010 but can be renewed.





On August
20, 2009, the Company acquired 100% interest in 13 petroleum and natural gas
(“P&NG”) leases with the government of Alberta.  The underlying
leases acquired by the Company are Alberta PN&G lease numbers 0409080267,
0409080268, 0409080271, 0409080272, 0409080274, 0409080280, 0409080283,
0409080284, 0409080286, 0409080287, 0409080288, 0409080310 and 0409080311, and
the property to which the leases pertain to cover 3,328 hectares of land located
in the Bow Island area of Alberta for the total amount of $38,433.




On
September 3, 2009, the Company acquired 100% interest in 2 petroleum and natural
gas (“P&NG”) leases with the government of Alberta.  The
underlying leases acquired by the Company are Alberta PN&G lease numbers
0409090046 and 0409090047, and the property to which the Leases pertain to cover
512 hectares of land located in the Provost area of Alberta for the total amount
of $4,337.





On
October 29, 2009, the Company acquired 100% interest in 1 petroleum and natural
gas (“P&NG”) lease with the government of Alberta.  The underlying
lease acquired by the Company is Alberta PN&G lease number 0409100445, and
the property to which the lease pertains to covers 2816 hectares of land located
in the Medicine Hat area of Alberta for the total amount of
$31,601.





50


OnMarch 6, 2010, the
Company surrendered P&NG lease number 0407030073 with the Province of
Alberta, previously acquired from Giant Oil & Gas Inc. on July 23, 2008, due
to the lack of potential for unconventional tight gas sands.  The
company no longer holds any interest in the property and all amounts paid for
this lease are non-refundable.This transaction
decreased the Company’s total PN&G leases to 27 for an aggregate 9,847
hectares.





OnMarch 9, 2010, the
Company surrendered P&NG lease number 0407030650 with the Province of
Alberta, previously acquired from Giant Oil & Gas Inc. on July 23, 2008, due
to the lack of potential for unconventional tight gas sands.  The
company no longer holds any interest in the property and all amounts paid for
this lease are non-refundable.This transaction
decreased the Company’s total PN&G leases to 26 for an aggregate 9,591
hectares.





ITEM
9.  THE OFFER AND LISTING





9.C.
Markets





Admission
to Quotation on the OTC Bulletin Board





Our
shares began trading in January 2008 under the stock symbol LTYPF on the OTC
Bulletin Board. In June 2008 the symbol was changed to PWOIF to reflect the name
change from Liberty Petroleum Inc. to Power Oil & Gas Inc.  There
is currently no established public trading market for our
securities.  As a result, a market may never develop or if developed
may not be maintained.  As a result an investor may find it more
difficult to dispose of, or to obtain accurate quotations as to the market value
of our securities. The OTC Bulletin Board differs from national and regional
stock exchanges in that it:





(1)
      is not situated in a single location but operates through communication of
      bids, offers and confirmations between broker-dealers,
  and





(2)
            securities
      admitted to quotation are offered by one or more Broker-dealers rather
      than the  "specialist" common to stock
  exchanges.





To
qualify for quotation on the OTC Bulletin Board, an equity security must have at
least one registered broker-dealer, known as the market maker, willing to list
bid or sale quotations and to sponsor the company listing.





The
following description of our capital stock is a summary and is qualified in its
entirety by the provisions of our Articles of Incorporation, which were
previously filed as an exhibit to the Company’s registration statement on Form
F-1 filed with the Commission on September 25, 2006.





ITEM
10.  ADDITIONAL INFORMATION





10.A.
Share Capital





--- Not
applicable ---





51


10.B.  Memorandum
and Articles of Association





The
Company’s Articles of Incorporation were filed with the Director under the
Canada Business Corporations Act on April 25, 2005. The Company, having a
primary place of business in the Province of British Columbia, was also issued a
Certificate of Registration as an extraprovincial company under the Business
Corporations Act, British Columbia on May 6, 2005.  In addition, the
Company also was issued a Certificate of Registration as an extraprovincial
company in Alberta on July 17, 2006.  On June 28, 2006 the Company
filed its Articles of Amendment changing its name to Liberty Petroleum Inc. and
changing its purpose to “oil and natural gas exploration”.  On May 23,
2008 the Company filed its Articles of Amendment changing its name to Power Oil
& Gas Inc.  In September 2008 the Company deregistered as an
extraprovincial Company in British Columbia.





The
directors of the Company are empowered under the Articles of Incorporation and
By-Laws, and in accordance with the Canada Business Corporations Act, to (1)
borrow money upon the credit of the Company; (2) issue, reissue, sell or pledge
the debt obligations of the Company; (3) give a guarantee on behalf of the
Company to secure performance of an obligation of any person; and (4) charge,
mortgage, hypothecate, pledge or otherwise create a security interest in all or
any of the currently owned or subsequently acquired property and assets of the
Company, including, without limitation, real and personal property, movable and
immovable property, tangible and intangible assets, book debts, right, powers,
franchises and undertakings, to secure any obligation of the
Company.  The Company’s Articles of Incorporation and By-Laws do not
place any restrictions on the voting powers of interested
directors.  With respect to the directors of the Company, in
accordance with section 3 of the By-Laws of the Company and the Canada Business
Corporations Act , as long as an interested director has complied with the
applicable provisions of the Canada Business Corporations Act, any director
shall not be disqualified by his office from contracting with the Company, nor
shall any contract or arrangement entered into by or on behalf of the Company
with any director or in which any director is in any way interested be liable to
be voided, nor shall any director so contracting or interested be liable to
account to the Company for any profit realized from such contract or arrangement
by reason of that director or officer holding that office or of the fiduciary
relationship thereby established provided that such officer or director shall
have complied with the provisions of the Canada Business Corporations
Act





The
holders of the Company’s Common shares are entitled to receive notice of, and
attend and vote at all, meetings of shareholders.   Currently,
there are no specific rights, preferences and restrictions attaching to each of
the Company’s Preferred shares.  The Company may issue Preferred
shares in one or more series and, pursuant to Schedule A to the Company’s
Articles of Incorporation, the directors may, by majority resolution, alter the
Articles of Incorporation to create, define and attach rights and restrictions
to the shares of each series.





Pursuant
to section 6 of the Company’s By-Laws, the quorum at meetings of the Company’s
shareholders shall be constituted by the presence of two shareholders entitled
to vote at any such meeting holding or representing by proxy not less than
one-twentieth of the shares entitled to be voted at such meeting.





There are
no limitations on the rights of non-resident or foreign shareholders to hold or
exercise voting rights on the securities of the Company imposed by foreign law
or by the Articles of Incorporation or any other constituent document of the
Company.





52


10.C.
Material Contracts





Since
inception (April 25, 2005), the Company has entered into the material contracts
listed below:





1.
            Property
      Option Agreement giving the Company the exclusive right and option to
      acquire a 100% interest in a mineral exploration property known as the GQ
      Property located in the Kamloops Mining District of British
      Columbia.  The Company could have exercised its option by making
      cash payments totaling $103,000 and incurring net expenditures on the
      property of at least $110,000 by March 15, 2010.  The Company
      paid the initial $3,000 deposit as required under the agreement but did
      not commence exploration.  In relation to the Company’s decision
      to pursue opportunities in the oil and gas industry, it terminated the GQ
      Property option on May 31, 2006.





2.
            We
      have an agreement with Pratt Barndollar, our Director, Chairman,
      President, Chief Executive Officer, Chief Operating Officer, and
      Secretary, which allows us at any time to send a notice to Mr. Barndollar
      that we are purchasing all or any portion of his 16,000,000 shares. The
      irrevocable option which he granted us is exercisable at any time at an
      exercise price of CDN $0.01 per share.  We have the same option
      right with respect to 14,000,000 shares owned by Mr. Manny Dhinsa, a
      director. Under these agreements, if we elect to exercise our option to
      purchase their shares, we shall pay the applicable purchase price thereof
      no later than 10 business days after the delivery of a
    notice.





3.
            On
      June 14, 2006 the Company acquired a 100% interest in an Alberta oil sands
      lease (the “Milk River Property”).  The rights to the Milk River
      Property were acquired for $8,438 (including closing costs) which was paid
      upon signing.  The rights that were acquired relate to the
      petroleum and natural gas rights only.  The Milk River Property
      covers 256 hectares of land in the Milk River area of Alberta, which is
      approximately 77 kilometers south of Medicine Hat in the Plains region of
      Alberta.  The lease, which expires in July 2010, gives the
      Company the right to explore the Milk River Property covered by the
      lease.  Power’s acquisition of the lease includes an overriding
      5% royalty agreement with the vendor.  The royalty is to be paid
      on a well-to-well basis and is payable on all petroleum substances
      produced by any well on the Milk River Property.  The Milk River
      Property is subject to an annual lease payment payable to the government
      of Alberta in the amount of $896 until expiry on July 14,
      2010.





4.   On
      March 25, 2008, by way of letter agreements with each individual warrant
      holder, the Company and each respective warrant holder have agreed to
      extend the Warrant Commencement Date has been extended from May 26, 2008
      to May 26, 2009 with respect to the Class A Warrants, to November 26, 2009
      with respect to the Class B Warrants, and to May 26, 2010 with respect to
      the Class C Warrants.  All other terms of the Warrant agreements
      remain unchanged.





5.   On
      July 23, 2008, the Company entered into an assignment and assumption
      agreement with Giant Oil   & Gas Inc. et al whereby the
      Company purchased a 100% right and interest in 10 Alberta Crown Petroleum
      and Natural Gas Lease Agreements for a total of 1,911 hectares in the
      Taber, Grand Forks area of Alberta, Canada.  Upon signing the
      Agreement, the Company paid the Vendor $30,331.48 and agreed to assume the
      underlying lease payments to the province of Alberta.  The
      leases give the Company the right to explore the properties and are
      subject to annual lease payments payable to the government of Alberta in
      the amount of $6,689.31until expiry in
2012.





53


6.  On
      June 30, 2009, the Company entered into a petroleum, natural gas and
      general rights conveyance with Stone Petroleums Ltd., Supernova Resources
      Ltd., 349385 Alberta Ltd. and Torland Ltd., whereby the Company acquired a
      100% interest in a petroleum and natural gas (“PN&G”) lease for a
      total of 1280 hectares with the government of Alberta.  The
      underlying lease acquired by the Company is Alberta P&NG lease
      0405060026, and the property to which the lease pertains is located in the
      Bow Island area of Alberta.  Upon signing the Agreement, the
      Company paid the Vendor $14,124 and agreed to assume the underlying lease
      payments to the province of Alberta.  In addition, the Vendor is
      entitled to an overriding 2% royalty on all petroleum substances produced
      from the Property, if any.  The Vendor is entitled to a first
      and paramount lien upon all of the petroleum substances produced or
      allocated to the Property to secure the payment of any amounts due and
      payable to the Vendor relating to the royalty.  This lease
      expires on June 2, 2010 but can be
renewed.





7.
            On
      August 20, 2009, the Company acquired 100% interest in 13 petroleum and
      natural gas (“P&NG”) leases with the government of
      Alberta.  The underlying leases acquired by the Company are
      Alberta PN&G lease numbers 0409080267, 0409080268, 0409080271,
      0409080272, 0409080274, 0409080280, 0409080283, 0409080284, 0409080286,
      0409080287, 0409080288, 0409080310 and 0409080311, and the property to
      which the leases pertain to cover 3,328 hectares of land located in the
      Bow Island area of Alberta for the total amount of
  $38,433.





8.
            On
      September 3, 2009, the Company acquired 100% interest in 2 petroleum and
      natural gas (“P&NG”) leases with the government of
      Alberta.  The underlying leases acquired by the Company are
      Alberta PN&G lease numbers 0409090046 and 0409090047, and the property
      to which the Leases pertain to cover 512 hectares of land located in the
      Provost area of Alberta for the total amount of
  $4,337.





9.
            On
      October 29, 2009, the Company acquired 100% interest in 1 petroleum and
      natural gas (“P&NG”) lease with the government of
      Alberta.  The underlying lease acquired by the Company is
      Alberta PN&G lease number 0409100445, and the property to which the
      lease pertains to covers 2816 hectares of land located in the Medicine Hat
      area of Alberta for the total amount of
$31,601.





10.
      On November 19, 2009, by way of letter agreements with each individual
      warrant holder, the Company and each respective warrant holder have agreed
      to re-extend the Warrant Commencement Date from November 26, 2009, to
      November 26, 2011 with respect to the Class B Warrants, and from May 26,
      2010, to May 26, 2012 with respect to the Class C Warrants.  In
      addition, the warrant expiry date has been extended from May 26, 2010 to
      May 26, 2012 with respect to the Class A Warrants, and from May 26, 2011
      to May 26, 2013 with respect to the Class B Warrants, and from May 26,
      2012 to May 26, 2014 with respect to the Class C Warrants. All other terms
      of the Warrant agreements remain
unchanged.





11.
            OnMarch 6, 2010, the
      Company surrendered P&NG lease number 0407030073 with the Province of
      Alberta, previously acquired from Giant Oil & Gas Inc. on July 23,
      2008, due to the lack of potential for unconventional tight gas
      sands.  The company no longer holds any interest in the property
      and all amounts paid for this lease are non-refundable.This transaction
      decreased the Company’s total PN&G leases to 27 for an aggregate 9,847
      hectares.





12.
            OnMarch 9, 2010, the
      Company surrendered P&NG lease number 0407030650 with the Province of
      Alberta, previously acquired from Giant Oil & Gas Inc. on July 23,
      2008, due to the lack of potential for unconventional tight gas
      sands.  The company no longer holds any interest in the property
      and all amounts paid for this lease are non-refundable.This transaction
      decreased the Company’s total PN&G leases to 26 for an aggregate 9,591
      hectares.





54


10.D.
Exchange Controls







There are
no government laws, decrees or regulations in Canada, which restrict the export
or import of capital or, subject to the following sentence, which affect the
remittance of dividends or other payments to nonresident holders of our common
shares. However, any such remittance to a resident of the United States is
generally subject to non-resident tax pursuant to Article X of the 1980
Canada-United States Income Tax Convention. See “Material Income Tax
Considerations” above for additional discussion on tax matters.




There are
currently no limitations of general application imposed by Canadian federal or
provincial laws on the rights of non-residents of Canada to hold or vote our
common shares. There are also no such limitations imposed by the articles of
incorporation with respect to our common shares. There are, however, certain
requirements on the acquisition of control of our securities by non-residents of
Canada. The Investment Canada Act requires notification to and, in certain
cases, advance review and approval by, the Government of Canada, of the
acquisition by a “non-Canadian” of “control” of a “Canadian business”, all as
defined in the Investment Canada Act. Generally speaking, in order for an
acquisition to be subject to advance review and approval, the asset value of the
Canadian business being acquired must meet or exceed certain monetary
thresholds.





10.E.
Taxation





Canadian
Federal Income Tax Considerations





The
following is a brief summary of some of the principal Canadian federal income
tax consequences to a holder of common shares of the Company (a "U.S. Holder")
who deals at arm's length with the Company, holds the shares as capital property
and who, for the purposes of the Income Tax Act (Canada) (the "Act") and the
Canada – United States Income Tax Convention (the "Treaty"), is at all relevant
times resident in the United States, is not and is not deemed to be resident in
Canada and does not use or hold and is not deemed to use or hold the shares in
carrying on a business in Canada. Special rules, which are not discussed below,
may apply to a U.S. Holder that is an insurer that carries on business in Canada
and elsewhere.





Under the
Act and the Treaty, a U.S. Holder of common shares will generally be subject to
a 15% withholding tax on dividends paid or credited or deemed by the Act to have
been paid or credited on such shares. The withholding tax rate is 5% where the
U.S. Holder is a corporation that beneficially owns at least 10% of the voting
shares of the Company and the dividends may be exempt from such withholding in
the case of some U.S. Holders such as qualifying pension funds and
charities.





In
general, a U.S. Holder will not be subject to Canadian income tax on capital
gains arising on the disposition of shares of the Company unless (i) at any time
in the five-year period immediately preceding the disposition, 25% or more of
the shares of any class or series of the capital stock of the Company was owned
by (or was under option of or subject to an interest of) 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 such persons and (ii) the value of the common
shares of the Company at the time of the disposition derives principally from
real property (as defined in the Treaty) situated in Canada. For this purpose,
the Treaty defines real property situated in Canada to include rights to explore
for or exploit mineral deposits and other natural resources situated in Canada,
rights to amounts computed by reference to the amount or value of production
from such resources, certain other rights in respect of natural resources
situated in Canada and shares of a corporation the value of whose shares is
derived principally from real property situated in Canada.





55


A U.S.
Holder who is subject to Canadian income tax in respect of a capital gain
realized on a disposition of a common share must include one-half of the capital
gain (taxable capital gain) in computing the Holder's taxable income earned in
Canada.  The Holder may, subject to certain limitations, deduct
one-half of any capital loss (allowable capital loss) arising on a disposition
of taxable Canadian property from taxable capital gains realized in the year of
disposition in respect of taxable Canadian property and, to the extent not so
deductible, from such taxable capital gains realized in any of the three
preceding years or any subsequent year.





United
States Taxation





For
federal income tax purposes, an individual who is a citizen or resident of the
United States or a domestic corporation ("U.S. Taxpayer") will recognize a gain
or loss on the sale of the Company's common shares equal to the difference
between the proceeds from such sale and the adjusted tax basis of the common
shares.  The gain or loss will be a capital gain or capital loss if
the Company's common shares are a capital asset in U.S. Taxpayer's
hands.





For
federal income tax purposes, a U.S. Taxpayer will be required to include in
gross income dividends received on the Company's common shares.  A
U.S. Taxpayer who pays Canadian tax on a dividend on common shares will be
entitled, subject to certain limitations, to a credit (or alternatively, a
deduction) against federal income tax liability.  A domestic
corporation that owns at least 10% of the voting shares should consult its tax
advisor as to applicability of the deemed paid foreign tax credit with respect
to dividends paid on the Company's common shares.





Under a
number of circumstances, United States Investor acquiring shares of the Company
may be required to file an information return with the Internal Revenue Service
Center where they are required to file their tax returns with a duplicate copy
to the Internal Revenue Service Center, Philadelphia, PA 19255.  In
particular, any United States Investor who becomes the owner, directly or
indirectly, of 10% or more of the shares of the Company will be required to file
such a return.  Other filing requirements may apply, and United States
Investors should consult their own tax advisors concerning these
requirements.





The US
Internal Revenue Code provides special anti-deferral rules regarding certain
distributions received by US persons with respect to, and sales and other
dispositions (including pledges) of stock of, a passive foreign investment
company.  A foreign corporation, such as the Company, will be treated
as a passive foreign investment company if 75% or more of its gross income is
passive income for a taxable year or if the average percentage of its assets (by
value) that produce, or are held for the production of, passive income is at
least 50% for a taxable year.  The Company believes that it may be a
passive foreign investment company for the taxable year ended December 31,
2009.  Individual investors should consult with there own tax advisors
regarding the tax implications in their own situation.





10.F.
Dividends and Paying Agents





--- Not
applicable ---





10.G.
Statement by Experts





--- Not
applicable ---








56


ITEM
11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





FOREIGN
CURRENCY EXCHANGE RATE SENSITIVITY




The
Company's operating expenses and liabilities are primarily incurred in Canadian
dollars.




To the
extent the Company engages in transactions in US dollars, the results of the
Company’s operations are subject to currency transaction risk and currency
translation risk. The operating results and financial position of the Company
are reported in Canadian dollars in the Company’s financial statements. The
fluctuation of the US dollar in relation to the Canadian dollar will
consequently have an impact upon the operations of the Company and may also
affect the value of the Company’s assets and the amount of shareholders’
equity.




The
Company’s functional currency is the Canadian dollar and its expenses are
predominantly incurred in Canadian dollars. The Company incurs a relatively
small portion of its expenses in U.S. dollars.




The
Company is exposed to foreign currency risk with respect to its foreign exchange
derivative. The foreign exchange derivative arises from the Company having
issued stock options during 2008 with an exercise price stated in a currency
other than the Canadian dollar. For the year ended December 31, 2009, the
Company incurred a mark-to-market unrealized loss on the foreign exchange
derivative of $80. As the stock options exercise price is stated in the US
dollar, a fluctuation of $0.01 in the difference between the futures price and
the current exchange rate for the US dollar to Canadian dollar exchange rate
could result in a $6,000 fluctuation in earnings.







INTEREST
RATE SENSITIVITY





The
Company currently has no significant long-term or short-term debt requiring
interest payments. Thus, the Company has not entered into any agreement or
purchased any instrument to hedge against possible interest rate risks at this
time.





The
Company's interest earning investments are primarily short-term, or can be held
to maturity, and thus, any reductions in carrying values due to future interest
rate declines are believed to be immaterial. However, as the Company has a
significant cash or near-cash position, which is invested in such instruments,
reductions in interest rates will reduce the interest income from these
investments.





ITEM
12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY
SECURITIES





12.A.
Debt Securities





The
Company has no debt outstanding.





12.B.
Warrants and Rights





We have
warrants outstanding to purchase an aggregate of 33,540,875 common shares. Of
these warrants, 10,440,875 are exercisable at $0.25 per share, which are
exercisable beginning May 26, 2009 and expire May 26, 2012; 11,550,000 are
exercisable at $0.50 per share, which are exercisable beginning November 26,
2011 and expire May 26, 2013; and 11,550,000 are exercisable at $1.00 per share,
which are exercisable beginning May 26, 2012 and expire May 26, 2014. The
warrants are non-transferable and provide for a cashless exercise
option.





57


We have
the right, in our sole and absolute discretion, to (i) accelerate the exercise
date of the warrants to a date which is prior to the date the warrants can be
exercised and /or (ii) reduce the exercise price. If we exercise our right to do
so, we shall provide notice thereof to the warrant holder.





12.C.
Other Securities





--- Not
applicable ---





12.D.
American Depository Shares





--- Not
applicable ---


PART
II





ITEM
13.  DEFAULTS, DIVIDEND ARREARAGES AND
DELINQUENCIES





There
have been no defaults, dividend arrearages or delinquencies.








ITEM
14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF
SECURITY


HOLDERS
AND USE OF PROCEEDS





There
have been no modifications to securities of any class of the
Company.





ITEM
15.  CONTROLS AND PROCEDURES





Evaluation of Disclosure
Controls and Procedures





As
required by Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange
Act”), the Company’s management carried out an evaluation of the effectiveness
of the design and operation of its disclosure controls and procedures as of
December 31, 2009, being the date of the Company’s most recently completed
fiscal year end. This evaluation was carried out under the supervision and with
the participation of our Principal Executive Officer and Principal Financial
Officer, Mr. Manny Dhinsa.  Based upon that evaluation, our principal
executive officer and principal financial officer concluded that our disclosure
controls and procedures are not effective due to the material weakness noted in
the Internal Controls over Financial Reporting below.





Internal Controls over
Financial Reporting





The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act. Under the supervision of the Company’s
Principal Executive Officer, 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 of financial statements
for external purposes in accordance with generally accepted accounting
principles (“GAAP”). The Company’s controls include policies and procedures
that:





 ̈
            pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect the transactions and dispositions of the assets of the
      Company;


 ̈
            provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with GAAP;
      and


58


 ̈
            provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of the Company’s assets that
      could have a material effect on the annual financial statements or interim
      financial statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. 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 the
policies or procedures may deteriorate.





Management
conducted an evaluation of the design and operation of the Company’s internal
control over financial reporting as of December 31, 2009, based on the criteria
set forth in Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. This evaluation included
review of the documentation of controls, evaluation of the design effectiveness
of controls, testing of the operating effectiveness of controls and a conclusion
on this evaluation. Based on this evaluation, management concluded that our
internal control over financial reporting was not effective as of December 31,
2009 due to the following material weakness:





·
            Our
      company’s administration is composed of a small number of administrative
      individuals resulting in a situation where limitations on segregation of
      duties exist. In order to remedy this situation we would need to hire
      additional staff to provide greater segregation of duties. Currently, it
      is not feasible to hire additional staff to obtain optimal segregation of
      duties.  Management will reassess this matter in the following
      year to determine whether improvement in segregation of duty is
      feasible.





Limitations of Controls and
Procedures





The
Company’s management, including the Principal Executive Officer and Principal
Financial Officer, believe that any disclosure controls and procedures or
internal controls over financial reporting, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, they cannot provide absolute
assurance that all control issues and instances of fraud, if any, within the
Company have been prevented or detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more
people, or by unauthorized override of the control. The design of any systems of
controls also is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Accordingly,
because of the inherent limitations in a cost effective control system,
misstatements due to error or fraud may occur and not be detected.





Attestation Report of
Registered Public Accounting Firm





This
annual report does not include an attestation report of the Company’s
independent registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by the
Company’s independent registered public accounting firm pursuant to temporary
rules of the SEC that permit the Company to provide only management’s report in
this annual report.





59


Changes in Internal Controls
over Financial Reporting





During
the most recently completed fiscal year ended December 31, 2009, there were no
changes in the Company’s internal control over financial reporting that have
materially affected, or are reasonably likely to affect, the Company’s internal
control over financial reporting.





ITEM
16.  RESERVED





ITEM
16A.  AUDIT COMMITTEE FINANCIAL EXPERT





Until September 2008 the Company’s
Audit Committee consists of three directors, all of who are financially literate
and knowledgeable about the Company’s affairs.  Mr. Duncan Budge was
the audit committee’s financial expert member as a qualified accountant with
over 25 years experience in business. In addition to serving on the Board of
Power Oil & Gas Inc., he also has served on the Board and was the Audit
Committee Chair of Patriot Gold Corp., Strata Oil & Gas Inc., and Giant Oil
& Gas Inc.As of September 2008 the Board of
Directors is empowered to appoint a new audit committee for the
Corporation.





ITEM
16B.  CODE OF ETHICS





The
Company has not adopted a formal code of ethics that applies to the Company's
principal executive officer, principal financial officer, principal accounting
officer or controller, persons performing similar functions and other officers
of the Company.





Item
16C. PRINCIPAL ACCOUNTING FEES AND SERVICES





The audit
committee is directly responsible for the appointment, compensation and
oversight of auditors; the audit committee has in place procedures for receiving
complaints and concerns about accounting and auditing matters; and has the
authority and the funding to engage independent counsel and other outside
advisors.





The Audit
Committee may delegate to one or more designated members of the Audit Committee
the authority to grant pre-approvals required by this
policy/procedure.  The decisions of any Audit Committee member to whom
authority is delegated to pre-approve a service shall be presented to the full
Audit Committee at its next scheduled meeting.





Fees,
including reimbursements for expenses, for professional services rendered by
Smythe Ratcliffe LLP in 2009 and 2008, the Company’s auditors.





Fiscal
      Year ended December 31, 2009 and 2008
            
            Fiscal
      Year
            
            
            Fiscal
      YearPrincipal
      Accountant Fees and Services
            
            2009
            
            
            2008Audit
      Fees
            
            $
            30,125
            
            
            $
            17,500Audit
      Related
            
            $
            1,500
            
            
            $
            1,500Tax
      Fees
            
            $
            1,000
            
            
            $
            1,000All
      Other Fees
            
            $Nil
            
            
            $NilTotal
            
            $
            32,625
            
            
            $
            20,000





Audit
related fees relate to services provided to review the Company’s annual
financial statements and related disclosures.


60





ITEM
16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT
COMMITTEES





--- Not
applicable ---





ITEM
16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS





There
have been no purchases of the Company's common shares by the Company
or


affiliated
purchasers during the period covered by this report.


61





PART
III





ITEM
17.  FINANCIAL STATEMENTS





The
Company's financial statements are stated in Canadian dollars (CDN$) and are
prepared in accordance with Canadian Generally Accepted Accounting Principles
(GAAP), the application of which, in the case of the Company, conforms in all
material respects for the periods presented with United States GAAP, except as
discussed in footnotes to the financial statements.





The
financial statements as required under ITEM 17 are attached hereto and found
immediately following the text of this Annual Report.  The audit
report of Smythe Ratcliffe LLP, is included herein immediately preceding the
audited financial statements.





ITEM
18.  FINANCIAL STATEMENTS





The
Company has elected to provide financial statements pursuant to ITEM
17.


62





ITEM
19.  EXHIBITS





Exhibit
              Numbers
            Description
      of Document1.1(1)
            Articles  of  Incorporation  of  the  Company1.2(1)
            Articles
      of Amendment1.3(1)
            By-Laws  of  the  Company2.1(1)
            Specimen  Common  Stock  Certificate2.2(1)
            Form
      of Subscription Agreement2.3(1)
            Form
      of Class A Warrant2.4(1)
            Form
      of Class B Warrant2.5(1)
            Form
      of Class C Warrant2.6(1)
            Agreement
      between the Company and Paul Uppal dated April 30, 20052.7(1)
            Agreement
      between the Company and Greg Crowe dated April 30, 20052.8(1)
            Agreement
      among Greg Crowe, Duncan Budge, and the Company dated August 17,
      20064.1(1)
            Property
      Option Agreement between Warner Gruenwald and the Company dated March 15,
      20064.2(1)
            Petroleum,
      Natural Gas and General Rights Conveyance Agreement dated June 14, 2006,
      among the Company, Stone Petroleums Ltd., Supernova Resources Ltd., 349385
      Alberta Ltd., and Torland Ltd.4.3(1)
            Royalty
      Agreement dated June 14, 2006, among the Company, Stone Petroleums Ltd.,
      Supernova Resources Ltd., 349385 Alberta Ltd., and Torland
      Ltd.*12.1
            Certification
      of Principal Executive and Financial Officer*13.1
            Section
      1350 Certification





(1)
Previously filed as an exhibit to the Company’s registration statement on Form
F-1 filed with the Commission on September 25, 2006.





* Filed
herewith.





63




POWER
OIL & GAS INC.
 (An
Exploration Stage Company)
 
 Financial
Statements
 December
31, 2009 and 2008
 (Expressed
in Canadian Dollars)
 
 
 
 
 
 
 
 
 Index
              PageReport
      of Independent Registered Public Accounting Firm
              F -
      1Financial
      StatementsBalance
      Sheets
              F -
      2Statements
      of Operations
              F -
      3Statements
      of Shareholders’ Deficiency
              F -
      4Statements
      of Cash Flows
              F -
      5Notes
      to Financial Statements
              F -
      6  –  F - 22
 
 
 
  
  
 
 
 
 REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 TO
THE SHAREHOLDERS OF POWER OIL & GAS INC.
 (An
Exploration Stage Company)
 
 We have
audited the balance sheets of Power Oil & Gas Inc. (an Exploration Stage
Company) as at December 31, 2009 and 2008 and the statements of operations,
shareholders’ deficiency and cash flows for the three years ended
December 31, 2009.  These financial statements are the
responsibility of the Company’s management.  Our responsibility is to
express an opinion on these financial statements based on our
audits.
 
 We
conducted our audits in accordance with Canadian generally accepted auditing
standards and the standards of the Public Company Accounting Oversight Board
(United States).  Those standards require that we plan and perform an
audit to obtain reasonable assurance whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
 
 In our
opinion, these financial statements present fairly, in all material respects,
the financial position of the Company as at December 31, 2009 and 2008 and the
results of its operations and its cash flows for the three years ended
December 31, 2009 in accordance with Canadian generally accepted accounting
principles.
 
 “Smythe
Ratcliffe LLP” (signed)
 
 Chartered
Accountants
 
 Vancouver,
Canada
 June 29,
2010
 
 
 COMMENTS
BY AUDITORS FOR US READERS ON CANADA – UNITED STATES REPORTING
DIFFERENCES
 
 In the
United States, reporting standards for auditors require the addition of an
explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by matters such as that described in note 1 to the
financial statements.  Our report to the shareholders dated June 29,
2010 is expressed in accordance with Canadian reporting standards, which do not
permit a reference to such an uncertainty in the auditor’s report when the
uncertainty is adequately disclosed in the financial statements.
 
 “Smythe
Ratcliffe LLP” (signed)
 
 Chartered
Accountants
 
 Vancouver,
Canada
 June 29,
2010
 
  F -
1
  POWER
OIL & GAS INC.
 (An
Exploration Stage Company)
 Balance Sheets
 December
31
 (Expressed
in Canadian Dollars)
 
 2009
              
              
              2008(Restated
      –
                Note
      5)AssetsCurrentCash
              
              $
              3,644
              
              
              $
              56,611Goods
      and services tax receivable
              
              
              2,119
              
              
              
              729Prepaid
      expenses
              
              
              1,010
              
              
              
              1,0106,773
              
              
              
              58,350Oil and Gas Property Interests(note 4)
              
              
              166,463
              
              
              
              42,116$
              173,236
              
              
              $
              100,466Liabilities
      and Shareholders’ Equity (Deficiency)Current
      LiabilitiesAccounts
      payable and accrued liabilities
              
              $
              36,540
              
              
              $
              18,413Bridge
      loan payable (note 6)
              
              
              -
              
              
              
              117,14536,540
              
              
              
              135,558Shareholders’
      Equity (Deficiency)Capital
      StockAuthorized1,000,000,000
      common shares without par value1,000,000,000
      preferred shares without par valueIssued
      and outstanding42,140,935
      (2008 - 41,709,750) common shares (notes 7 and 8)
              
              
              242,271
              
              
              
              134,475Obligation
      to issue shares (note 6)
              
              
              119,485
              
              
              
              -Contributed
      surplus
              
              
              2,339,480
              
              
              
              67,053Deficit
      accumulated during the exploration stage
              
              
              (2,564,540
              )
              
              
              (236,620
              )136,696
              
              
              
              (35,092
              )$
              173,236
              
              
              $
              100,466
 
 Nature of
Operations and Going Concern (note 1)
 
 Approved
on behalf of the Board:
 
 “Manny
Dhinsa”
 __________________________________
 Manny
Dhinsa, President
 
 “Pratt
Barndollar”
 __________________________________
 Pratt
Barndollar, Director
  See notes
to financial statements.
 F -
2
  POWER
OIL & GAS INC.
 (An
Exploration Stage Company)
 Statements
of Operations
 Years
Ended December 31
 (Expressed
in Canadian Dollars)
 
 2009
              
              
              2008
              
              
              2007(Restated
      –
                Note
      5)ExpensesStock-based compensation (note
      7(d))
              
              $
              2,272,427
              
              
              $
              67,053
              
              
              $
              -Professional
fees
              
              
              30,125
              
              
              
              36,250
              
              
              
              15,700Office and
sundry
              
              
              12,245
              
              
              
              5,210
              
              
              
              7,966Consulting fees
              
              
              8,800
              
              
              
              -
              
              
              
              -Interest
              
              
              2,340
              
              
              
              -
              
              
              
              -Directors’ fees
              
              
              1,500
              
              
              
              15,000
              
              
              
              13,500Listing and filing
      fees
              
              
              185
              
              
              
              5,948
              
              
              
              21,404Transfer agent
    fees
              
              
              218
              
              
              
              1,650
              
              
              
              1,499Rent
              
              
              -
              
              
              
              -
              
              
              
              4,000Total
      Expenses
              
              
              2,327,840
              
              
              
              131,111
              
              
              
              64,069OtherInterest income
              
              
              -
              
              
              
              (151
              )
              
              
              (2,451
              )Foreign exchange
      loss
              
              
              80
              
              
              
              400
              
              
              
              -Net
      Loss and Comprehensive Loss for Year
              
              $
              (2,327,920
              )
              
              $
              (131,360
              )
              
              $
              (61,618
              )Basic
      and Diluted Loss Per Share
              
              $
              (0.06
              )
              
              $
              (0.01
              )
              
              $
              (0.01
              )Weighted
      Average Number of Common Shares Outstanding
              
              
              41,989,725
              
              
              
              41,709,750
              
              
              
              41,709,750
 
  See notes
to financial statements.
 F -
3
  POWER
OIL & GAS INC.
 (An
Exploration Stage Company)
 Statements
of Shareholders’ Deficiency
 Years
Ended December 31
 (Expressed
in Canadian Dollars)
 
 Number
      of Common Shares
                
                
                Capital
                  Stock
                
                
                Shares
      to be Issued
                
                
                Contributed
                  Surplus
                
                
                Deficit
      Accumulated During the Exploration Stage
                
                
                Total(Restated
      – Note 5)Balance,
      December 31, 2006
                
                
                41,709,750
                
                
                $
                134,475
                
                
                $
                -
                
                
                $
                -
                
                
                $
                (43,642
                )
                
                $
                90,833Net
      loss for year
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (61,618
                )
                
                
                (61,618
                )Balance,
      December 31, 2007
                
                
                41,709,750
                
                
                
                134,475
                
                
                
                -
                
                
                
                -
                
                
                
                (105,260
                )
                
                
                29,215Stock-based
      compensation (note 7(d))
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                67,053
                
                
                
                -
                
                
                
                67,053Net
      loss for year
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (131,360
                )
                
                
                (131,360
                )Balance,
      December 31, 2008
                
                
                41,709,750
                
                
                
                134,475
                
                
                
                -
                
                
                
                67,053
                
                
                
                (236,620
                )
                
                
                (35,092
                )warrants
      exercised
                
                
                431,185
                
                
                
                107,796
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                107,796Shares
      to be issued  via exercise of options (note 6)
                
                
                -
                
                
                
                -
                
                
                
                119,485
                
                
                
                -
                
                
                
                -
                
                
                
                119,485Stock-based
      compensation (note 7(d))
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2,272,427
                
                
                
                -
                
                
                
                2,272,427Net
      loss for year
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (2,327,920
                )
                
                
                (2,327,920
                )Balance,
      December 31, 2009
                
                
                42,140,935
                
                
                $
                242,271
                
                
                $
                119,485
                
                
                $
                2,339,480
                
                
                $
                (2,564,540
                )
                
                $
                136,696
 
  See notes
to financial statements.
 F -
4
  POWER
OIL & GAS INC.
 (An
Exploration Stage Company)
 Statements
of Cash Flows
 Years
Ended December 31
 (Expressed
in Canadian Dollars)
 
 2009
              
              
              2008
              
              
              2007(Restated
      –
                Note 5)Operating
      ActivitiesNet loss for the
      year
              
              $
              (2,327,920
              )
              
              $
              (131,360
              )
              
              $
              (61,618
              )Adjustments to reconcile net
      loss to net cash used in operating activitiesStock-based
      compensation
              
              
              2,272,427
              
              
              
              67,053
              
              
              
              -Receivables
              
              
              (1,390
              )
              
              
              (193
              )
              
              
              143Interest on bridge loan settled
      by obligation to issue shares
              
              
              2,340Prepaid expenses
              
              
              -
              
              
              
              -
              
              
              
              902Accounts payable and accrued
      liabilities
              
              
              18,127
              
              
              
              8,952
              
              
              
              (4,954
              )Cash
      Used in Operating Activities
              
              
              (36,416
              )
              
              
              (55,548
              )
              
              
              (65,527
              )Investing
      ActivitiesProceeds from short-term
      investments
              
              
              -
              
              
              
              20,000
              
              
              
              70,673Expenditures on oil and gas
      property interests
              
              
              (124,347
              )
              
              
              (32,782
              )
              
              
              (896
              )Cash
      Provided by (Used in) Investing Activities
              
              
              (124,347
              )
              
              
              (12,782
              )
              
              
              69,777Financing
      ActivitiesIssuance of capital
      stock
              
              
              107,796
              
              
              
              -
              
              
              
              -Bridge loan
    payable
              
              
              -
              
              
              
              117,145
              
              
              
              -Cash
      Provided by Financing Activities
              
              
              107,796
              
              
              
              117,145
              
              
              
              -Inflow
      (Outflow) of Cash
              
              
              (52,967
              )
              
              
              48,815
              
              
              
              4,250Cash,
      Beginning of Year
              
              
              56,611
              
              
              
              7,796
              
              
              
              3,546Cash,
      End of Year
              
              $
              3,644
              
              
              $
              56,611
              
              
              $
              7,796Supplementary
      InformationObligation to issue shares in
      settlement of bridge loan (note 6)
              
              $
              119,485
              
              
              $
              -
              
              
              $
              -
 
 
 
  See notes
to financial statements.
 F -
5
 POWER
OIL & GAS INC.
 (An
Exploration Stage Company)
 Notes
to Financial Statements
 Years
Ended December 31, 2009, 2008 and 2007
 (Expressed
in Canadian Dollars)
  1.
              NATURE
      OF OPERATIONS AND GOING CONCERN
 
 Power Oil
& Gas Inc. (the “Company”) was incorporated under the Canada Business Corporations Acton
April 25, 2005.
 
 The
Company is primarily engaged in the acquisition and exploration of oil and gas
property interests in North America.
 
 At
December 31, 2009, the Company had a working capital deficiency of $29,767 (2008
- $77,208) and an accumulated deficit of $2,564,540 (2008 -
$236,620).  The Company will require additional financing or outside
participation to undertake further acquisitions and exploration and subsequent
development of future oil and gas property interests and to meet its
administrative overhead costs in 2010.
 
 The
Company’s financial statements have been prepared assuming the going concern
concept. The application of the going-concern concept is dependent upon the
Company’s ability to generate future profitable operations and receive continued
financial support from its creditors and shareholders or raise additional equity
financing. The current financial equity market conditions and the challenging
funding environment make it difficult to raise funds by placement of common
shares. There is no assurance that the Company will be successful with any
financing ventures. Management is actively engaged in the review and due
diligence on new projects, is seeking to raise the necessary capital to meet its
funding requirements and has undertaken available cost cutting measures. There
can be no assurance that management’s plan will be successful. Therefore a
significant uncertainty exists in relation to the Company’s ability to continue
as a going concern.
 
 If the
going concern assumption were not appropriate for these financial statements
then adjustments would be necessary in the carrying values of assets and
liabilities, the reported expenses and the balance sheet classifications used.
Such adjustments would be material.
 
 The
business of oil and gas exploration involves a high degree of risk and there can
be no assurance that current exploration programs will result in profitable
operations. The Company has no revenue, and has significant cash requirements to
meet its administrative overhead and maintain its oil and gas interests. The
recoverability of amounts shown for oil and gas property interests is dependent
on several factors. These include the discovery of economically recoverable
reserves, the ability of the Company to obtain the necessary financing to
complete the development of these properties, and future profitable production
or proceeds from disposition of oil and gas interests.
 
 2.
              SIGNIFICANT
      ACCOUNTING POLICIES
 
 The
financial statements of the Company have been prepared in accordance with
Canadian generally accepted accounting principles (“GAAP”). The functional and
reporting currency of the Company is the Canadian dollar.  Canadian
GAAP differs in certain respects from accounting principles generally accepted
in the United States (see note 11). The significant accounting policies are
summarized as follows.
 
  F -
6
 POWER
OIL & GAS INC.
 (An
Exploration Stage Company)
 Notes
to Financial Statements
 Years
Ended December 31, 2009, 2008 and 2007
 (Expressed
in Canadian Dollars)
  2.           SIGNIFICANT ACCOUNTING
POLICIES (Continued)
 
 (a)
              Use
      of estimates
 
 The
preparation of financial statements in conformity with Canadian GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and
expenses for the reporting period.  Significant areas requiring the
use of estimates include the carrying value of oil and gas property interests,
estimates of accrued liabilities, variables used in the calculation of
stock-based compensation and the determination of the valuation allowance for
future income tax assets.  Management believes the estimates are
reasonable; however, actual results could differ from these estimates and could
impact future results of operations and cash flows.
 
 (b)
              Financial
      instruments
 
 The
Company classifies its financial instruments into one of these five categories:
held-for-trading, held-to-maturity, loans and receivables, available-for-sale
financial assets or other financial liabilities. All financial instruments are
measured in the balance sheet at fair value, except for loans and receivables,
held-to-maturity investments and other financial liabilities, which are measured
at amortized cost. Subsequent measurement and changes in fair value will depend
on their initial classification as follows: held-for-trading financial assets
are measured at fair value and changes in fair value are recognized in net
income; available-for-sale financial instruments are measured at fair value with
changes in fair value recorded in other comprehensive income until the
investment is no longer recognized or impaired, at which time the amounts would
be recorded in net income.
 
 Transaction
costs that are directly attributable to the acquisition or issuance of financial
instruments that are classified as other than held-for-trading, which are
expensed as incurred, are included in the initial carrying value of such
instruments.
 
 (c)
              Oil
      and gas property interests
 
 The
Company follows the full cost method of accounting for petroleum and natural gas
interests whereby all costs of exploration for and development of petroleum and
natural gas reserves are capitalized.  These costs include leasehold
acquisition costs, geological and geophysical expenses, drilling costs of
successful as well as unsuccessful wells and overhead charges related directly
to exploration and development activities.
 
 If the
interests are sold, the proceeds of the interests will be applied against
capitalized costs unless such a sale significantly impacts the rate of
depletion.
 
  F -
7
 POWER
OIL & GAS INC.
 (An
Exploration Stage Company)
 Notes
to Financial Statements
 Years
Ended December 31, 2009, 2008 and 2007
 (Expressed
in Canadian Dollars)
  2.           SIGNIFICANT ACCOUNTING
POLICIES (Continued)
 
 (c)           Oil
and gas property interests (continued)
 
 Costs
associated with unproven reserves are reviewed by management to determine
whether they have become impaired. The ceiling test is calculated by comparing
the carrying value of oil and gas interest to the sum of undiscounted cash flows
expected to result from future production of proved reserves and carrying value
of unproved properties, net of any impairments. Estimates of future net revenues
are based on expected future commodity prices and costs rather than those
existing at the measurement date. It is possible that changes could occur that
would adversely affect management’s estimates resulting in further write-downs
of the carrying value of the interest. If impairment occurs, the carrying value
of the related interest will be reduced to reflect the estimated net realizable
value.
 
 The
amounts shown for petroleum and natural gas interests represent costs incurred
to date less depletion and impairment if any, and do not necessarily reflect
present or future values.
 
 (d)
              Future
      income taxes
 
 The
Company follows the asset and liability method of accounting for future income
taxes.  Under this method, future tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax basis, and losses carried forward.  Future tax
assets and liabilities are measured using substantively enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.  The effect on
future tax assets and liabilities of a change in tax rates is recognized in
operations in the period in which the change is enacted or substantially
enacted.  The amount of future income tax assets is limited to the
amount of the benefit that is more likely than not to be realized.
 
 (e)
              Stock-based
      compensation
 
 The
Company accounts for stock-based compensation using a fair value based method
with respect to all stock-based payments to directors, employees and
non-employees.  For directors and employees, the fair value of the
option is measured at the date of grant.  For non-employees, the fair
value of the options is measured on the earlier of the date at which the
counterparty performance is complete, the date the performance commitment is
reached or the date at which the equity instruments are granted if they are
fully vested and non-forfeitable.  For directors, employees and
non-employees, the fair value of the option is accrued and charged either to
operations or mineral property interests, with the offset credit to contributed
surplus, over the vesting period.  If and when the stock options are
exercised, the applicable amounts from contributed surplus are transferred to
capital stock.
 
  F -
8
 POWER
OIL & GAS INC.
 (An
Exploration Stage Company)
 Notes
to Financial Statements
 Years
Ended December 31, 2009, 2008 and 2007
 (Expressed
in Canadian Dollars)
  2.           SIGNIFICANT ACCOUNTING
POLICIES (Continued)
 
 (f)
              Loss
      per share
 
 Basic
loss per share is calculated using the weighted average number of common shares
outstanding during the year. The Company uses the treasury stock method for
calculating diluted loss per share. Under this method, the dilutive effect on
earnings per share is calculated presuming the exercise of outstanding options,
warrants and similar instruments. It assumes that the proceeds would be
used to purchase common shares at the average market price during the period.
However, the calculation of diluted loss per share excludes the effects of
various conversions and exercise of options and warrants that would be
anti-dilutive.
 
 Shares
held in escrow, other than where their release is subject to the passage of
time, are not included in the calculation of the weighted average number of
common shares outstanding.
 
 (g)
              Asset
      retirement obligations (“ARO”)
 
 The
Company recognizes an estimate of the liability associated with an ARO in the
financial statements at the time the liability can be reasonably estimated. The
estimated fair value of the ARO is recorded as a long-term liability, with a
corresponding increase in the carrying amount of the related
asset.  The capitalized amount is depleted on a unit-of-production
basis based upon proven oil and gas reserves.  The liability amount is
increased each reporting period due to the passage of time and the amount of
accretion is charged to operations in the period.  The ARO can also
increase or decrease due to changes in the estimates of timing of cash flows or
changes in the original estimated undiscounted cost.  Actual costs
incurred upon settlement of the ARO are charged against the ARO to the extent of
the liability recorded.  At present, the Company has no material AROs
to record in the financial statements.
 
 (h)
              Foreign
      currency transactions
 
 Amounts
held or transacted in foreign currency are translated into Canadian dollars as
follows:
 
 (i)
              Monetary
      assets and liabilities at the rate of exchange in effect at the balance
      sheet date;
 
 (ii)
              Non-monetary
      items at the historical exchange rate;
and
 
 (iii)
              Expenses,
      at the exchange rate on the date of the
  transaction.
 
 Gains and
losses arising from translation are included in the current year’s
loss.
 
  F -
9
 POWER
OIL & GAS INC.
 (An
Exploration Stage Company)
 Notes
to Financial Statements
 Years
Ended December 31, 2009, 2008 and 2007
 (Expressed
in Canadian Dollars)
  2.           SIGNIFICANT ACCOUNTING
POLICIES (Continued)
 
 (i)
              Future
      accounting change
 
 International
Financial Reporting Standards (“IFRS”)
 
 In 2008,
the Canadian Accounting Standards Board (“AcSB”) confirmed that the transition
to IFRS from Canadian GAAP will be effective for fiscal years beginning on or
after January 1, 2011 for publicly accountable enterprises.  The
Company will therefore be required to present IFRS financial statements for its
March 31, 2011 interim financial statements.  The effective date will
require the restatement for comparative purposes of amounts reported by the
Company for the interim periods and for the year ended December 31, 2010 and
earlier where applicable.  While the Company has begun assessing the
adoption of IFRS for 2011, the financial reporting impact of the transition to
IFRS cannot be reasonably estimated at this time.
 
 3.
              FINANCIAL
      INSTRUMENTS
 
 The
Company’s financial instruments consist of cash, accounts payable and accrued
liabilities, and bridge loan payable.  The Company has designated its
cash as held-for-trading; and accounts payable and accrued liabilities and
bridge loan payable as other liabilities.
 
 (a)
              Fair
      value
 
 The
carrying values of cash and accounts payable and accrued liabilities approximate
their fair values because of the short-term maturity of these financial
instruments. The carrying value of the bridge loan payable is equal to its fair
value as the loan interest rate approximates a market interest
rate.
 
 (b)
              Foreign
      currency risk
 
 The
Company is not exposed to significant foreign currency risk.
 
 (c)
              Liquidity
      risk
 
 Liquidity
risk is the risk that the Company will not be able to meet its financial
obligations as they fall due. The Company manages its liquidity risk by
forecasting cash flows required by operations and anticipated investing and
financing activities. At December 31, 2009, the Company had accounts
payable, other than accrued liabilities, of $11,541 (2008 - $63), which were due
within 30 days, and loans payable of $Nil (2008 - $117,145). The Company
does not have sufficient cash at December 31, 2009 to meet short-term business
requirements such as overhead costs and oil and gas lease payments. Management
is currently planning on equity, third-party and related party financing to
manage its liquidity and settlement of liabilities. The Company will be required
to raise additional debt or equity to meet its obligations for 2010. There is no
assurance that management’s strategy will be successful.
 
  F -
10
 POWER
OIL & GAS INC.
 (An
Exploration Stage Company)
 Notes
to Financial Statements
 Years
Ended December 31, 2009, 2008 and 2007
 (Expressed
in Canadian Dollars)
  3.           FINANCIAL INSTRUMENTS(Continued)
 
 (d)
              Interest
      rate risk
 
 The
Company is not exposed to interest rate risk due to the short-term nature of its
monetary assets and liabilities.  Future cash flows from interest
income on cash will be affected by interest rate fluctuations.
 
 (e)
              Other
      price risk
 
 Other
price risk is the risk that fair value or future cash flows of a financial
instrument will fluctuate because of changes in market prices, other than those
arising from interest rate risk or foreign currency risk. The Company is not
exposed to significant other price risk on its financial
instruments.
 
 (f)
              Credit
      risk
 
 Credit
risk is the risk of financial loss to the Company if a customer or counterparty
to a financial instrument fails to meet its contractual obligations. The Company
is exposed to minimal credit risk with respect to its cash as this financial
instrument is held at a major Canadian financial institution.
 
 4.
              OIL
      AND GAS PROPERTY INTERESTS
 
 The
cumulative costs of the Company’s unproven oil and gas interests are as
follows:
 
 2009
              
              
              2008Balance,
      beginning of the year
              
              $
              42,116
              
              
              $
              9,334Lease
      and acquisition costs
              
              
              96,091
              
              
              
              32,782Geological
      and geophysical
              
              
              27,628
              
              
              
              -Camp,
      field supplies and travel
              
              
              628
              
              
              
              -Total
      costs for the year
              
              
              124,347
              
              
              
              32,782Balance,
      end of the year
              
              $
              166,463
              
              
              $
              42,116
 
 On June
14, 2006, the Company entered into a petroleum, natural gas and general rights
conveyance (the “Agreement”) with Stone Petroleums Ltd., Supernova Resources
Ltd., 349385 Alberta Ltd. and Torland Ltd. (together, the “Vendor”) whereby the
Company acquired a 100% interest in a petroleum and natural gas (“P&NG”)
lease with the government of Alberta.  The underlying lease acquired
by the Company is Alberta P&NG lease 0405070015 (the “Lease”), and the
property to which the Lease pertains is located in the Milk River area of
Alberta (the “Property”). Upon signing the Agreement, the Company paid the
Vendor $7,500, paid closing costs of $938 and agreed to assume the underlying
lease payments to the province of Alberta.  In addition, the Vendor is
entitled to an overriding 5% royalty on all petroleum substances produced from
the Property, if any.  The Vendor is entitled to a first and paramount
lien upon all of the petroleum substances produced or allocated to the Property
to secure the payment of any amounts due and payable to the Vendor relating to
the royalty.  In 2009, total lease payments were $896 (2008 -
$2,451).
 
  F -
11
 POWER
OIL & GAS INC.
 (An
Exploration Stage Company)
 Notes
to Financial Statements
 Years
Ended December 31, 2009, 2008 and 2007
 (Expressed
in Canadian Dollars)
  4.           OIL AND GAS PROPERTY INTERESTS(Continued)
 
 On July
23, 2008, the Company entered into an assumption agreement with Giant Oil &
Gas Inc., a company related by common directors, whereby the Company acquired
all of the rights and obligations of ten Alberta Crown Petroleum and Natural Gas
Lease Agreements for the total amount of $30,331, which was equal to the
carrying value of the ten leases.
 
 On June
30, 2009, the Company entered into a petroleum, natural gas and general rights
conveyance (the “Agreement”) with Stone Petroleums Ltd., Supernova Resources
Ltd., 349385 Alberta Ltd. and Torland Ltd. (together, the “Vendor”) whereby the
Company acquired a 100% interest in a petroleum and natural gas (“PN&G”)
lease with the government of Alberta.  The underlying lease acquired
by the Company is Alberta P&NG lease 0405060026 (the “Lease”), and the
property to which the Lease pertains is located in the Bow Island area of
Alberta (the “Property”).  Upon signing the Agreement, the Company
paid the Vendor $14,124 and agreed to assume the underlying lease payments to
the province of Alberta.  In addition, the Vendor is entitled to an
overriding 2% royalty on all petroleum substances produced from the Property, if
any.  The Vendor is entitled to a first and paramount lien upon all of
the petroleum substances produced or allocated to the Property to secure the
payment of any amounts due and payable to the Vendor relating to the
royalty.
 
 On August
20, 2009, the Company acquired 100% interest in 13 petroleum and natural gas
(“P&NG”) leases with the government of Alberta.  The underlying
leases acquired by the Company are Alberta PN&G lease numbers 0409080267,
0409080268, 0409080271, 0409080272, 0409080274, 0409080280, 0409080283,
0409080284, 0409080286, 0409080287, 0409080288, 0409080310 and 0409080311 (the
“Leases”), and the property to which the Leases pertain are located in the Bow
Island area of Alberta for the total amount of $38,433.
 
 On
September 3, 2009, the Company acquired 100% interest in 2 petroleum and natural
gas (“P&NG”) leases with the government of Alberta.  The
underlying leases acquired by the Company are Alberta PN&G lease numbers
0409090046 and 0409090047 (the “Leases), and the property to which the Leases
pertain are located in the Provost area of Alberta for the total amount of
$4,337.
 
 On
October 29, 2009, the Company acquired 100% interest in 1 petroleum and natural
gas (“P&NG”) lease with the government of Alberta.  The underlying
lease acquired by the Company is Alberta PN&G lease number 0409100445 (the
“Lease), and the property to which the Lease pertains is located in the Medicine
Hat area of Alberta for the total amount of $31,601.
 
 Total
annual lease payments for 2009 paid to the Government of Alberta amounted to
$7,586 (2008 - $2,451). As at December 31, 2009, the Company has 28 leases
requiring total annual lease payments of $33,569 through to 2012.
 
  F -
12
 POWER
OIL & GAS INC.
 (An
Exploration Stage Company)
 Notes
to Financial Statements
 Years
Ended December 31, 2009, 2008 and 2007
 (Expressed
in Canadian Dollars)
  5.
              RESTATEMENT
 
 In 2008,
the Company recorded a derivative in respect to the foreign exchange element of
certain warrants.  It has now been determined that there is no such
derivative.  The financial statements for the year ended December 31,
2008 have been restated as follows:
 
 As
      Previously Reported
              
              
              Adjustment
              
              
              As
      RestatedStatement
      of OperationsStock-based
      compensation
              
              $
              60,573
              
              
              $
              6,480
              
              
              $
              67,053Loss
      on foreign exchange derivative
              
              $
              20,760
              
              
              $
              (20,760
              )
              
              $
              -Net
      loss and comprehensive loss
              
              $
              145,640
              
              
              $
              (14,280
              )
              
              $
              131,360Foreign
      exchange derivative liability
              
              $
              (14,280
              )
              
              $
              14,280
              
              
              $
              -Shareholders’
      Equity (Deficiency)Deficit
      accumulated during the exploration stage
              
              $
              (250,900
              )
              
              $
              14,280
              
              
              $
              (236,620
              )
 
 6.
              BRIDGE
      LOAN PAYABLE
 
 On
November 6, 2008, the Company entered into a $117,145 bridge loan agreement with
two unrelated parties.  The loan bears interest at the Bank of Canada
Prime Rate of 2% (2008 - 3.50%) plus 1% per annum.  Loan principal and
accrued interest in the amount of $57,672 is due on October 14, 2009 and $59,473
was due on November 6, 2009. The loan is unsecured and may be converted to
common shares of the Company in 2009 at the discretion of the Borrower or Lender
at a conversion rate based on the quoted market value of the Company’s common
shares, which will be determined by the Borrower and the Lender on the date of
conversion.
 
 During
the year ended December, 31, 2009, the Company entered into agreements whereby
the lenders exercised previously held Class A warrants for the purchase of
477,940 restricted shares of common stock at $0.25 per share and then set-off
the proceeds of the exercise against the outstanding loan balance of $119,485
(including accrued interest).  The shares from the exercise of the
warrants are presented as an obligation to issue shares.  The shares
were issued in April 2010.
 
 7.
              CAPITAL
      STOCK
 
 (a)
              Common
      shares
 
 During
the year ended December 31, 2009, the Company issued 431,185 common shares upon
exercise of share purchase warrants at $0.25 per common share for gross proceeds
of $107,796.
 
  F -
13
 POWER
OIL & GAS INC.
 (An
Exploration Stage Company)
 Notes
to Financial Statements
 Years
Ended December 31, 2009, 2008 and 2007
 (Expressed
in Canadian Dollars)
  7.           CAPITAL STOCK
(Continued)
 
 (b)
              Stock
      options
 
 The
Company has established a stock option plan whereby the Board of Directors may,
from time to time, grant options to directors, officers, employees and
consultants of the Company.  Under the Plan, the aggregate number of
shares that may be issued under the plan shall not exceed 5,000,000
shares.  Additional options may be granted at the discretion of the
Board of Directors.  The expiry date for each option shall be set by
the Board of Directors at the time of issue of the options and shall not be more
than ten years after the grant date.  The exercise price of each
option shall be determined by the Board of Directors and in default of any
specific determination, shall be equal to 100% of the fair market value per
share on the date of grant
 
 In 2008,
600,000 stock options were granted to a director and officer of the Company,
which vest over a four-year period.
 
 In 2009,
200,000 stock options were granted to a director and officer of the Company,
which vest over a two-year period.  In addition, 400,000 stock options
previously issued to a director and officer were cancelled.
 
 During
the year ended December 31, 2009, the Company recognized stock-based
compensation of $172,075 (2008 - $67,053; 2007 - $Nil) related to these options.
At December 31, 2009, there is $70,031 (2008 - $143,247; 2007 - $Nil) in
unrecognized stock-based compensation, which will be recognized in future
periods as the options vest.
 
 An
estimated forfeiture rate of zero has been assumed and the fair value of each
option granted was estimated as at the date of grant using the Black-Scholes
option pricing model with the following weighted-average assumptions and
resulting fair value:
 
 2009
              
              
              2008Risk-free
      interest rate
              
              
              3.37
              %
              
              
              4.12
              %Dividend
      yield
              
              
              0
              %
              
              
              0
              %Expected
      volatility
              
              
              168
              %
              
              
              133
              %Expected
      option life (years)
              
              
              10
              
              
              
              10Forfeiture
      rate
              
              
              0
              %
              
              
              0
              %Weighted
      average fair value
              
              $
              0.49
              
              
              $
              1.21
 
 Expected
volatilities are based on industry comparables using available data and other
factors due to the fact that the Company’s stock has only limited trading
history.  When applicable, the Company will use historical data to
estimate option exercise, forfeiture, and employee termination within the
valuation model.  For non-employees, the expected term of the options
approximate the full term of the options.
 
  F -
14
 POWER
OIL & GAS INC.
 (An
Exploration Stage Company)
 Notes
to Financial Statements
 Years
Ended December 31, 2009, 2008 and 2007
 (Expressed
in Canadian Dollars)
  7.           CAPITAL STOCK
(Continued)
 
 (b)           Stock
options (continued)
 
 The
following table sets forth a summary of stock option activity:
 
 Number
      of Options
              
              
              Weighted
      Average Exercise PriceBalance,
      December 31, 2007 and 2008
              
              
              600,000
              
              
              $
              1.02Options
      granted
              
              
              200,000
              
              
              $
              0.50Options
      cancelled
              
              
              (400,000
              )
              
              $
              1.30Balance,
      December 31, 2009
              
              
              400,000
              
              
              $
              0.51
 
 The
following table summarizes information concerning outstanding and exercisable
common stock options under the 2007 Plan at December 31, 2009:
 
 Exercise
                Price
              Options
                Outstanding
              Expiry
      date
              Number
      of Options Currently Exercisable
              Weighted
      Average
                Life$
      0.52
              200,000
              June
      30, 2018
              200,000
              8.50
      years$
      0.50
              200,000
              June
      30, 2019
              -
              9.50
      years400,000
              
              200,000
              9.00
      years
 
 At
December 31, 2009, the intrinsic value of the Company’s outstanding stock
options was $627,991 (2008 - $Nil).
 
 (c)
              Share
      purchase warrants
 
 As at
December 31, 2009, the Company has share purchase warrants outstanding entitling
the holders to acquire common shares as follows:
 
 Class
              Exercise
                Price
              Expiry
                Date
              Outstanding
      at
                December
      31, 2007 and 2008
              Issued
              Exercised
              Expired
              Outstanding
      at
                December
      31, 2009
              Weighted
      Average Remaining Contractual
                Life
      (Years)A
              $
      0.25
              May
      26, 2012
              11,550,000
              -
              909,125
              -
              10,640,875
              2.25B
              $
      0.50
              May
      26, 2013
              11,550,000
              -
              -
              -
              11,550,000
              3.52C
              $
      1.00
              May
      26, 2014
              11,550,000
              -
              -
              -
              11,550,000
              4.52$
      0.58
              
              34,650,000
              -
              909,125
              -
              33,740,875
              3.43
 
  F -
15
 POWER
OIL & GAS INC.
 (An
Exploration Stage Company)
 Notes
to Financial Statements
 Years
Ended December 31, 2009, 2008 and 2007
 (Expressed
in Canadian Dollars)
  7.           CAPITAL STOCK
(Continued)
 
 (c)           Share
purchase warrants (continued)
 
 During
2008, the vesting dates of the share purchase warrants were extended.
Originally, all of the warrants were to have become exercisable on May 26,
2008.  On March 25, 2008, by way of letter agreements with each
individual warrant holder, the Company and each respective warrant holder have
agreed to extend the vesting of the Company’s Class A, Class B and Class C
warrants. As a result of the agreements between the Company and the respective
warrant holders, the warrant vesting date has been extended to May 26, 2009 with
respect to the Class A warrants, to November 26, 2009 with respect to the Class
B warrants, and to May 26, 2010 with respect to the Class C
warrants.  All other terms of the warrant agreements remain unchanged
and accordingly there is no change in the fair value to be
recognized.
 
 On
November 19, 2009, by way of letter agreements with each individual warrant
holder, the Company and each respective warrant holder have agreed to extend the
vesting of the Company’s Class B and Class C warrants.  As a result of
the letter agreements between the Company and the respective warrant holders,
the warrant vesting date has been extended from November 26, 2009 to November
26, 2011 with respect to the Class B warrants and from May 26, 2010 to May 26,
2012 with respect to Class C warrants.  In addition, the warrant
expiry date has been extended from May 26, 2010 to May 26, 2012 with respect to
the Class A warrants, from May 26, 2011 to May 26, 2013 with respect to the
Class B warrants, and from May 26, 2012 to May 26, 2014 with respect to the
Class C warrants.
 
 All other
terms of the warrant agreements remained unchanged.The aggregate fair value of
the modification to the warrants determined using the Black-Scholes pricing
model was $4,313,782 that will be amortized over the revised vesting term(s).
The fair value of the original warrants and the fair value of the modified
warrants were estimated as at the date of modification using the Black-Scholes
option pricing model with the following weighted-average assumptions: risk-free
interest rate of 2.03%, dividend yield of 0.00%, volatility of 118.25%, expected
life of 3.43 years and fair-value of $0.89. During the year ended December 31,
2009, the Company recognized stock-based compensation of $2,100,352 (2008 -
$Nil; 2007 - $Nil) related to the modification of these warrants. At December
31, 2009 there is $2,213,430 (2008 - $Nil; 2007 - $Nil) in
unrecognized stock-based compensation, which will be recognized in future
periods as the warrants vest.
 
 The
Company has the right, at its sole discretion, to accelerate the maturity date
and to lower the exercise price of all of the warrants.
 
 (d)
              Stock-based
      compensation
 
 For the
year ended December 31, 2009, the Company has recognized $2,272,427 (2008 -
$67,053; 2007 - $Nil) in stock-based compensation attributed as
follows:
 
 2009
              
              
              2008
              
              
              2007Management
      services (note 7(b))
              
              $
              172,075
              
              
              $
              67,053
              
              
              $
              -Modification
      cost (note 7(c))
              
              
              2,100,352
              
              
              
              -
              
              
              
              -$
              2,272,427
              
              
              $
              67,053
              
              
              $
              -
 
  F -
16
 POWER
OIL & GAS INC.
 (An
Exploration Stage Company)
 Notes
to Financial Statements
 Years
Ended December 31, 2009, 2008 and 2007
 (Expressed
in Canadian Dollars)
  8.
              SHARE
      REPURCHASE OPTION
 
 The
Company holds an irrevocable right to repurchase all or a portion of the
30,000,000 shares owned by two of its Directors for a price of $0.01 per
share.  The right can be exercised by the Company at any time and at
its sole discretion.  The Company is not obligated to repurchase the
shares at any time or for any reason (such as termination of employment, a
change of control of the Company or failure to reach performance
goals).  The repurchase right held by the Company will continue with
respect to and for so long as any of the 30,000,000 shares issued to these
directors are held by them (or any of their affiliates or family members), and
will survive any such director’s resignation as an officer or director of the
Company.  The Company may exercise its right of repurchase on some or
all of the shares held, directly or indirectly, by these directors by delivering
a notice of such exercise to such director(s) not less than seven calendar days
prior to the closing of such repurchase.  The directors agree that
they shall not, directly or indirectly, sell, exchange, pledge, hypothecate,
transfer, gift, grant an irrevocable proxy with respect to, devise, assign or in
any other way dispose of, encumber or grant a security interest in any of the
shares or any interest therein. The directors also agree and acknowledge that
said restriction is in addition to all applicable securities laws and
regulations.
 
 9.
              INCOME
      TAXES
 
 The
reconciliation of income tax provision computed at Canadian statutory rates of
30% (2008 - 31%; 2007 - 34.12%) to the reported income tax provision is as
follows:
 
 2009
              
              
              2008
              
              
              2007(note
      5)Income
      tax benefit
              
              $
              698,376
              
              
              $
              38,714
              
              
              $
              21,024Stock-based
      compensation
              
              
              (681,728
              )
              
              
              (18,778
              )
              
              
              -16,648
              
              
              
              19,936
              
              
              
              21,024Change
      in future income taxes resulting from enacted tax rate
      reduction
              
              
              (4,470
              )
              
              
              (8,479
              )
              
              
              (17,740
              )Change
      in valuation allowance
              
              
              (12,178
              )
              
              
              (11,457
              )
              
              
              (3,284
              )Income
      tax provision
              
              $
              -
              
              
              $
              -
              
              
              $
              -
 
 The
significant components of future income tax assets are as follows:
 
 2009
              
              
              2008Non-capital
      losses
              
              $
              225,491
              
              
              $
              169,998Temporary
      difference
              
              
              (431
              )
              
              
              (431
              )225,060
              
              
              
              169,567Income
      tax rate
              
              
              25
              %
              
              
              26
              %Income
      tax asset
              
              
              56,265
              
              
              
              44,087Valuation
      allowance
              
              
              (56,265
              )
              
              
              (44,087
              )$
              -
              
              
              $
              -
 
  F -
17
 POWER
OIL & GAS INC.
 (An
Exploration Stage Company)
 Notes
to Financial Statements
 Years
Ended December 31, 2009, 2008 and 2007
 (Expressed
in Canadian Dollars)
  9.
              INCOME TAXES(Continued)
 
 The
valuation allowance reflects the Company’s estimate that the tax assets more
likely than not will not be realized.
 
 The
Company has accumulated non-capital losses for income tax purposes of
$225,491.  The losses expire in the following years:
 
 2015
              
              $
              8,9502026
              
              
              35,1232027
              
              
              61,6182028
              
              
              64,3072029
              
              
              55,493$
              225,491
 
 10.
              RELATED
      PARTY TRANSACTIONS
 
 During
the year ended December 31, 2009, directors’ fees in aggregate of $1,500
(2008 - $15,000; 2007 - $13,500) were paid to the directors of the Company
and management fees of $8,800 (2008 - $Nil; 2007 - $Nil) were paid to an officer
of the Company.  As of April 2009, the Director’s fees were
temporarily suspended in order to conserve working capital.  These
transactions are in the normal course of operations and are measured at the
exchange amount, which is the amount agreed to by the related parties, except as
noted in note 4.  There was $1,260 (2008 - $Nil) of management fees in
accounts payable at year-end.
 
 11.
              DIFFERENCES
      BETWEEN CANADIAN AND UNITED STATES
GAAP
 
 (a)  Recent US
accounting pronouncements
 
 (i)
              In
      April 2009, the Financial Accounting Standards Board (“FASB”) issued
      guidancem which is now part of Accounting Standards Codification (“ASC”)
      825-10, “Financial Instruments” (formerly Financial Staff Position SFAS
      107-1 and Accounting Principles Board (APB) Opinion No. 28-1, “Interim
      Disclosures about Fair Value of Financial Instruments” (SFAS 107-1 and APB
      28-1). This statement amends FASB Statement No. 107,
      “Disclosures about Fair Values of Financial Instruments”, to require
      disclosures about fair value of financial instruments in interim financial
      statements as well as in annual financial statements. The statement also
      amends APB Opinion No. 28, “Interim Financial Reporting”, to require those
      disclosures in all interim financial statements. This statement is
      effective for interim periods ending after June 15,
  2009.
 
  F -
18
 POWER
OIL & GAS INC.
 (An
Exploration Stage Company)
 Notes
to Financial Statements
 Years
Ended December 31, 2009, 2008 and 2007
 (Expressed
in Canadian Dollars)
  11.
              DIFFERENCESBETWEEN CANADIAN AND UNITED
      STATES GAAP(Continued)
 
 (a)  Recent US
accounting pronouncements (continued)
 
 (ii)
              In
      May 2009, the FASB issued new guidance for accounting for subsequent
      events. The new guidance, which is now part of ASC 855-10, “Subsequent
      Events” (formerly, SFAS No. 165, “Subsequent Events”) is consistent with
      existing auditing standards in defining subsequent events as events or
      transactions that occur after the balance sheet date but before the
      financial statements are issued or are available to be issued, but it also
      requires the disclosure of the date through which an entity has evaluated
      subsequent events and the basis for that date. The new guidance defines
      two types of subsequent events: “recognized subsequent events” and
      “non-recognized subsequent events.” Recognized subsequent events provide
      additional evidence about conditions that existed at the balance sheet
      date and must be reflected in the company’s financial statements.
      Non-recognized subsequent events provide evidence about conditions that
      arose after the balance sheet date and are not reflected in the financial
      statements of a company. Certain non-recognized subsequent events may
      require disclosure to prevent the financial statements from being
      misleading. The new guidance was effective on a prospective basis for
      interim or annual periods ending after June 15,
  2009.
 
 (iii)
              In
      June 2009, the FASB issued new guidance which is now part of ASC 860
      (formerly SFAS No. 166), “Accounting for Transfers of Financial Assets, an
      amendment to SFAS No. 140” (“SFAS 166”). SFAS 166 eliminates the concept
      of a "qualifying special-purpose entity", changes the requirements for
      derecognizing financial assets, and requires additional disclosures in
      order to enhance information reported to users of financial statements by
      providing greater transparency about transfers of financial assets,
      including securitization transactions, and an entity's continuing
      involvement in and exposure to the risks related to transferred financial
      assets. SFAS 166 is effective for fiscal years beginning after November
      15, 2009. The Company will adopt ASC 860 on July 1, 2010. The Company has
      determined that the adoption of ASC 860 will have no impact on its
      consolidated financial statements.
 
 (iv)
              In
      June 2009, the FASB issued new guidance which is now part of ASC 810
      (formerly SFAS No.167), “Amendments to FASB Interpretation No. 46(R)”
      (“SFAS 167”).  The amendments include: (1) the elimination of
      the exemption for qualifying special purpose entities, (2) a new approach
      for determining who should consolidate a variable-interest entity, and (3)
      changes to when it is necessary to reassess who should consolidate a
      variable-interest entity.  SFAS 167 is effective for the first
      annual reporting period beginning after November 15, 2009 and for interim
      periods within that first annual reporting period. ASC 810 becomes
      effective for the Company’s fiscal 2011 year-end and interim reporting
      periods thereafter. The Company does not expect ASC 810 to have a material
      impact on its financial statements.
 
  F -
19
 POWER
OIL & GAS INC.
 (An
Exploration Stage Company)
 Notes
to Financial Statements
 Years
Ended December 31, 2009, 2008 and 2007
 (Expressed
in Canadian Dollars)
  11.
              DIFFERENCESBETWEEN CANADIAN AND UNITED
      STATES GAAP(Continued)
 
 (a)  Recent US
accounting pronouncements (continued)
 
 (v)
              In
      June 2009, the FASB issued new guidance, which is now part of ASC 105-10
      (formerly SFAS No. 168, “The FASB Accounting Standards Codification and
      the Hierarchy of Generally Accepted Accounting Principles”), (“SFAS 168”).
      SFAS 168 replaces FASB Statement No. 162, "The Hierarchy of Generally
      Accepted Accounting Principles", and establishes the FASB Accounting
      Standards Codification as the source of authoritative accounting
      principles recognized by the FASB to be applied by nongovernmental
      entities in the preparation of financial statements in conformity with
      GAAP. SFAS 168 is effective for interim and annual periods ending after
      September 15, 2009.
 
 (vi)
              In
      August 2009, the FASB issued Accounting Standards Update No. 2009-05,
      “Measuring Liabilities at Fair Value” (“ASU 2009-05”). This update
      provides amendments to ASC Topic 820, “Fair Value Measurements and
      Disclosure”, for the fair value measurement of liabilities when a quoted
      price in an active market is not available. ASU 2009-05 is effective for
      reporting periods beginning after August 28,
  2009.
 
 (vii)
              In
      January 2010, the FASB issued ASU. 2010-06, “Fair Value Measurements
      and Disclosures (ASC 820): Improving Disclosures about Fair Value
      Measurements” which amends the disclosure requirements related to
      recurring and nonrecurring fair value measurements. This update requires
      new disclosures on significant transfers of assets and liabilities between
      Level 1 and Level 2 of the fair value hierarchy (including the reasons for
      these transfers) and the reasons for any transfers in or out of Level 3.
      This update also requires a reconciliation of recurring Level 3
      measurements about purchases, sales, issuances and settlements on a gross
      basis. In addition to these new disclosure requirements, this update
      clarifies certain existing disclosure requirements. For example, this
      update clarifies that reporting entities are required to provide fair
      value measurement disclosures for each class of assets and liabilities
      rather than each major category of assets and liabilities. This update
      also clarifies the requirement for entities to disclose information about
      both the valuation techniques and inputs used in estimating Level 2 and
      Level 3 fair value measurements.
 
 (viii)
              In
      January 2010, the FASB issued ASU 2010-01, “Equity (Topic 505): Accounting
      for Distributions to Shareholders with Components of Stock and Cash (A
      Consensus of the FASB Emerging Issues Task Force)”. This amendment to
      Topic 505 clarifies the stock portion of a distribution to shareholders
      that allows them to elect to receive cash or stock with a limit on the
      amount of cash that will be distributed is not a stock dividend for
      purposes of applying Topics 505 and 260. Effective for interim and annual
      periods ending on or after December 15, 2009, and would be applied on a
      retrospective basis.
 
  F -
20
 POWER
OIL & GAS INC.
 (An
Exploration Stage Company)
 Notes
to Financial Statements
 Years
Ended December 31, 2009, 2008 and 2007
 (Expressed
in Canadian Dollars)
  11.           DIFFERENCESBETWEEN CANADIAN AND UNITED STATES
GAAP(Continued)
 
 (a)           Recent
US accounting pronouncements (continued)
 
 (ix)
              In
      February 2010, FASB issued ASU 2010-09, “Subsequent Event (Topic 855)
      Amendments to Certain Recognition and Disclosure Requirements”. ASU
      2010-09 removes the requirement for an SEC filer to disclose a date
      through which subsequent events have been evaluated in both issued and
      revised financial statements. Revised financial statements include
      financial statements revised as a result of either correction of an error
      or retrospective application of GAAP. All of the amendments in ASU 2010-09
      are effective upon issuance of the final ASU, except for the use of the
      issued date for conduit debt obligors. That amendment is effective for
      interim or annual periods ending after June 15,
  2010.
 
 (b)
              Cumulative
      development stage reporting
 
 The
Company is not required and has opted to not report such cumulative financial
information for Canadian reporting and for US GAAP purposes; the Company is
considered an exploration stage company.  ASC 915, Development Stage
Entities requires the disclosure of cumulative-to-date information for each line
item on the statements of operations and cash flows plus annual summaries of
each component of shareholders’ equity since inception.  Under Canadian
GAAP, Accounting Guideline “AcG 11 – Enterprises in the Development Stage”
issued by the Canadian Institute of Chartered Accountants, does not require
reporting of this information.  Had the financial statements been prepared
in accordance with US GAAP such information would have been
disclosed.
 
 The
Company currently has no reconciling items to its financial statements prepared
in accordance with Canadian GAAP to comply with US GAAP.
 
 12.
              CAPITAL
      MANAGEMENT
 
 The
Company considers its capital to be its shareholders’ equity.  The
Company’s objectives when managing its capital are to safeguard the Company’s
ability to continue as a going concern in order to pursue the development of its
oil and gas property interests and to maintain a flexible capital structure,
which optimizes the costs of capital at an acceptable risk.
 
 The
Company manages the capital structure and makes adjustments to it in light of
changes in economic conditions and the risk characteristics of the underlying
assets.  To maintain or adjust the capital structure, the Company may
attempt to issue new shares, issue new debt, acquire or dispose of assets, or
adjust the amount of cash and term deposits.
 
 In order
to facilitate the management of its capital requirements, the Company prepares
expenditure budgets that are updated as necessary depending on various factors,
including successful capital deployment and general industry
conditions.
 
 In order
to maximize ongoing development efforts, the Company does not pay out
dividends.  The Company’s investment policy is to invest its
short-term excess cash in highly liquid short-term interest-bearing investments,
selected with regard to the expected timing of expenditures from continuing
operations. There were no changes in the Company’s approach to capital
management during the year ended December 31, 2009. The Company is not subject
to externally imposed capital requirements.
 
  F -
21
 POWER
OIL & GAS INC.
 (An
Exploration Stage Company)
 Notes
to Financial Statements
 Years
Ended December 31, 2009, 2008 and 2007
 (Expressed
in Canadian Dollars)
  13.
              SUBSEQUENT
      EVENTS
 
 (a)
              In
      March 2010, the Company surrendered two P&NG leases due to the lack of
      potential for gas sands.  The Company no longer holds any
      interest in the property and all amounts paid for the leases are
      non-refundable.
 
 (b)
              On
      March 3, 2010, the Company issued 200,000 common shares upon exercise of
      share purchase warrants at $0.25 per common share for gross proceeds of
      $50,000.
 
  F -
22





Signature
Page





Pursuant
to the requirements of Section 12g of the Securities Exchange Act of 1934, the
Registrant certifies that it meets all of the requirements for filing on Form
20-F and has duly caused this Annual Report to be signed on its behalf by the
undersigned, thereunto duly authorized.





Registrant:





Power Oil
& Gas Inc., SEC File No. 333-137571





Dated:
      June 29, 2010
            By:
      /s/ Manny DhinsaName:
      Manny DhinsaTitle:
      Director, Chairman, President,Chief
      Executive Officer, Chief Financial Officer, and
  SecretaryDated:
      June 29, 2010
            By:
      /s/ Pratt
  BarndollarName:
      Pratt BarndollarTitle:
      DirectorDated:
      June 29, 2010
            By:
      /s/ Keith DiakiwName:
      Keith DiakiwTitle:
      DirectorDated:
      June 29, 2010
            By:
      /s/ Rob SandhuName:
      Rob SandhuTitle:
      Director