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 MAY 31, 2001

                                       or

[ ]  Transition  Report  Pursuant to Section 13 or 15(d) of the  Securities
     Exchange Act of 1934

              For the transition period from _________ to _________

                        Commission file number: 000-30390

                              HILTON PETROLEUM LTD.
             (Exact name of Registrant as specified in its charter)

                              HILTON PETROLEUM LTD.
                 (Translation of Registrant's name into English)

                             YUKON TERRITORY, CANADA
                 (Jurisdiction of incorporation or organization)

      1305 - 1090 WEST GEORGIA STREET, VANCOUVER, BRITISH COLUMBIA, V6E 3V7
                    (Address of principal executive offices)

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

                                      NONE

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

                           COMMON STOCK, NO PAR VALUE
                                (Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.

                                 NOT APPLICABLE
                                (Title of Class)

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.

                   34,902,159 COMMON SHARES AS OF MAY 31, 2001

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

Yes      X        No
    -----------      ---------

Indicate by check mark which financial statement item the registrant has elected
to follow.

Item 17     X     Item 18                                          Page 1 of 101
        ---------         ---------

                                       -1-

<PAGE>



GENERAL INFORMATION:

UNLESS OTHERWISE INDICATED, ALL REFERENCES HEREIN ARE TO UNITED STATES DOLLARS.

                                    GLOSSARY

The following is a glossary of oil and gas terms used in this report:


anticlines          Underground  mountain-shaped  strata covered with caprock or
                    an impervious  layer.

BBL or barrel       34.972 Imperial gallons or 42 U.S. gallons.

BCF                 One billion cubic feet.

BO                  Barrels of oil.

BOE                 Barrels of oil equivalent.

BOPD                Barrels of oil per day.

BW                  Barrels  of water.

BWPD                Barrels of water per day.

farm-in             Acquisition of all or part of the operating  rights from the
                    working interest owner to an assignee,  by the assumption of
                    all or some of the burden of development to earn an interest
                    in the property.  The vendor  usually  retains an overriding
                    royalty but may retain any type of interest.

farm-out            Transfer  of all or part of the  operating  rights  from the
                    working  interest  owner to an assignee,  who assumes all or
                    some of the burden of  development in return for an interest
                    in the property.  The assignor usually retains an overriding
                    royalty but may retain any type of interest.

grossacres          The  total  number  of acres in which  the  Company  holds a
                    working  interest  or the right to earn a working  interest.

gross reserves      The total reserves estimated to be economically recoverable.

gross wells         The total number of wells in which the Company has a working
                    interest.

isopach maps        Maps  showing  variations  in the  thickness of a particular
                    sedimentary  bed and the  interval  or spacing  between  one
                    sedimentary  bed and another.  liquids Crude oil and natural
                    gas liquids.

MBO                 One thousand barrels of oil.

MCF                 One thousand cubic feet.

MCFE                One thousand cubic feet equivalent.

md                  Millidarcies - a term used to measure the relative ease with
                    which oil and gas can flow.

MMBOE               One million barrels of oil equivalent.

MMCFD               One million cubic feet per day.


                                       -2-

<PAGE>




net acres           The  gross  acres  multiplied  by  the  percentage   working
                    interest  therein  owned or to be owned by the Company.

net reserves        The  Company's  lessor  royalty,   overriding  royalty,  and
                    working  interest  share of  reserves  from the  properties,
                    after  deduction of all freehold,  and overriding  royalties
                    payable to others.

net revenue         The percentage interest in which the lessor has the right to
interest            receive a specified fractional share of the mineral produced
                    from the property or value thereof.

net wells           The  gross  wells  multiplied  by  the  percentage   working
                    interest therein owned or to be owned by the Company.

NGLs                Natural gas liquids.

present value       The present value of estimated future net revenues  computed
                    by  applying  current  prices  of oil  and gas  reserves  to
                    estimated  future  production of proved oil and gas reserves
                    as of the date of the latest balance sheet  presented,  less
                    estimated future expenditures (based on current costs) to be
                    incurred in developing  and  producing  the proved  reserves
                    computed using a discount factor of ten percent and assuming
                    continuation of existing economic conditions.

proved oil and      Proved oil and gas reserves are the estimated  quantities of
gas reserves        crude oil,  natural  gas,  and  natural  gas  liquids  which
                    geological and engineering  data demonstrate with reasonable
                    certainty  to be  recoverable  in future  years  from  known
                    reservoirs under existing economic and operating conditions,
                    i.e.  prices and costs as of the date the  estimate is made.
                    Prices include  consideration  of changes in existing prices
                    provided  only  by  contractual  arrangements,  but  not  on
                    escalations based upon future conditions.

                    (i)  Reservoirs   are   considered    proved   if   economic
                         producibility is supported by either actual  production
                         or conclusive  formation  test. The area of a reservoir
                         considered proved includes:

                         (A)  that portion delineated by drilling and defined by
                              gas-oil and/or oil-water contacts, if any; and

                         (B)  the   immediately   adjoining   portions  not  yet
                              drilled,  but  which can be  reasonably  judged as
                              economically  productive on the basis of available
                              geological and engineering data. In the absence of
                              information  on fluid  contacts,  the lowest known
                              structural occurrence of hydrocarbons controls the
                              lower proved limit of the reservoir.

                   (ii)  Reserves  which can be  produced  economically  through
                         application of improved  recovery  techniques  (such as
                         fluid   injection)   are   included  in  the   "proved"
                         classification  when  successful  testing  by  a  pilot
                         project,  or the  operation of an installed  program in
                         the  reservoir,  provides  support for the  engineering
                         analysis on which the project or program was based.


                                       -3-

<PAGE>




                   (iii) Estimates  of  proved   reserves  do  not  include  the
                         following:

                         (A)  oil  that  may   become   available   from   known
                              reservoirs   but  is   classified   separately  as
                              "indicated additional reserves",

                         (B)  crude oil,  natural  gas, and natural gas liquids,
                              the  recovery  of which is subject  to  reasonable
                              doubt  because  of   uncertainty  as  to  geology,
                              reservoir characteristics, or economic factors,

                         (C)  crude oil,  natural  gas, and natural gas liquids,
                              that may occur in undrilled prospects, and

                         (D)  crude oil,  natural  gas, and natural gas liquids,
                              that  may be  recovered  from  oil  shales,  coal,
                              gilsonite and other such sources.

proved developed    Reserves  that  can  be  expected  to be  recovered  through
oil and gas         existing   wells  with  existing   equipment  and  operating
reserves            methods.  Additional  oil and gas  expected  to be  obtained
                    through the application of fluid injection or other improved
                    recovery techniques for supplementing the natural forces and
                    mechanisms of primary recovery should be included as "proved
                    developed reserves" only after testing by a pilot project or
                    after the  operation of an installed  program has  confirmed
                    through production  response that increased recovery will be
                    achieved.

proved undeveloped  Reserves that are expected to be recovered from new wells on
reserves            undrilled acreage, or from existing wells where a relatively
                    major expenditure is required for recompletion.  Reserves on
                    undrilled  acreage shall be limited to those  drilling units
                    offsetting  productive units that are reasonably  certain of
                    production when drilled. Proved reserves for other undrilled
                    units are  claimed  only where it can be  demonstrated  with
                    certainty  that there is continuity  of production  from the
                    existing  productive  formation.  Under no circumstances are
                    estimates for proved  undeveloped  reserves  attributable to
                    any acreage for which an application  of fluid  injection or
                    other improved  recovery  technique is contemplated,  unless
                    such techniques  have been proved  effective by actual tests
                    in the area and in the same reservoir.

proved properties   Properties with proved reserves.

unproved properties Properties with no proved reserves.

reversionary        A portion of an economic  interest  that will be returned to
interest            its former owner after a predetermined  amount of production
                    or income has been produced.

undeveloped         Lands on which there are no current reserves assigned.
acreage

water flooding      The secondary  recovery method in which water is forced down
                    injection  wells  laid out in  various  patterns  around the
                    producing  wells.  The water injected  displaces the oil and
                    forces it to the producing wells.


working interest    The  interest  held by a company  in an oil or  natural  gas
                    property,  which interest  normally bears its  proportionate
                    share  of  the  costs  of  exploration,   development,   and
                    operation  as  well as any  royalties  or  other  production
                    burdens.


                                       -4-

<PAGE>




workover            A major  remedial  operation on a completed well to restore,
                    maintain, or improve the well's production.  Workovers _ use
                    workover  rigs and can take many forms such as  acidizing or
                    fracing the well or removal of sand or paraffin buildup. The
                    term workover is also used for deepening an existing well or
                    plugging back to produce from a shallower formation.

FORWARD LOOKING STATEMENTS

Pursuant to the "safe harbor"  provisions of the Private  Securities  Litigation
Reform Act of 1995 (the "PSLRA"), the Company cautions readers regarding forward
looking  statements  found in the  following  discussion  and  elsewhere in this
registration  statement and in any other  statement made by, or on the behalf of
the  Company,  whether or not in future  filings with the SEC.  Forward  looking
statements are statements not based on historical  information  and which relate
to future  operations,  strategies,  financial  results  or other  developments.
Forward looking  statements are necessarily based upon estimates and assumptions
that are inherently  subject to significant  business,  economic and competitive
uncertainties and contingencies,  many of which are beyond the Company's control
and many of which,  with respect to future  business  decisions,  are subject to
change.  These  uncertainties  and  contingencies  can affect actual results and
could cause  actual  results to differ  materially  from those  expressed in any
forward  looking  statements  made by or on behalf of the  Company.  The Company
disclaims any obligation to update forward  looking  statements.  Readers should
also  understand  that under Section  27A(b)(2)(D)  of the  Securities  Act, and
Section   21E(b)(2)(D)  of  the  Securities  Exchange  Act,  the  "safe  harbor"
provisions  of the PSLRA do not apply to statements  made in connection  with an
initial public offering.


                                       -5-

<PAGE>




                                     PART I

ITEM 1.  DIRECTORS, SENIOR MANAGEMENT AND ADVISORS.
--------------------------------------------------------------------------------

Not applicable.


ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE.
--------------------------------------------------------------------------------

Not applicable.


ITEM 3.  KEY INFORMATION.
--------------------------------------------------------------------------------

SELECTED FINANCIAL DATA

The  selected  financial  data of the Company for the years ended May 31,  2001,
2000 and 1999,  was derived from the  financial  statements of the Company which
have been audited by D & H Group (formerly Dyke & Howard), independent Chartered
Accountants,  as indicated  in their report which is included  elsewhere in this
report.  The selected  financial data set forth for the years ended May 31, 1998
and 1997 are  derived  from the  Company's  audited  financial  statements,  not
included herein.

The  information  in the following  table was  extracted  from the more detailed
consolidated  financial  statements and related notes included herein and should
be read in conjunction  with such financial  statements and with the information
appearing  under the heading "Item 9.  Management's  Discussion  and Analysis of
Financial Condition and Results of Operations."

Reference is made to Note 13 of the Company's  consolidated financial statements
included herein for a discussion of the material  differences  between  Canadian
generally  accepted  accounting  principles  ("GAAP") and U.S.  GAAP,  and their
effect on the Company's financial statements.

<TABLE>
<CAPTION>

                                                                      YEAR ENDED MAY 31,
                                                               (IN '000S, EXCEPT PER SHARE DATA)
                                                   -------------------------------------------------------------------
                                                      2001          2000          1999          1998           1997
                                                      ----          ----          ----          ----           ----
<S>                                             <C>            <C>         <C>           <C>              <C>

Revenues                                            $5,229        $4,574        $3,774        $2,945         $2,487
Interest Income and Other                             $101          $279           $96          $143           $186
Production Costs                                    $1,903        $2,312        $2,157        $1,378         $1,033
General and Administrative                          $1,292        $1,149        $1,291          $865           $360
Interest Expense on Long-Term Debt                  $1,480        $1,786        $1,997          $968            $34
Depreciation and Depletion                          $1,455        $1,541        $2,244        $5,678           $635
Site Restoration                                         -             -             -             -             $9
Legal and Litigation                                     -          $239          $303          $176            $64
Corporate Finance Fees                                   -             -          $327             -              -
Gain on Sale of Petroleum Interests                  $(212)            -             -       $(2,147)             -
Gain on Sale of Marketable Securities                 $(25)        $(173)            -         $(895)             -
Write-down of investment                              $956             -             -             -              -
Non-controlling Interest                                 -             -             -           $11              -
Earnings (Loss)                                    $(1,519)      $(2,240)      $(4,450)      $(2,924)          $538
Earnings (Loss) Per Share                          $(0.05)       $(0.09)       $(0.28)       $(0.22)          $0.05
Weighted Average Number of Shares                   31,702        23,984        16,110        13,201         10,845
Dividends per Share                                  $0.00         $0.00         $0.00         $0.00          $0.00

</TABLE>


                                       -6-

<PAGE>


<TABLE>
<CAPTION>

                                                                      YEAR ENDED MAY 31,
                                                               (IN '000S, EXCEPT PER SHARE DATA)
                                                  -------------------------------------------------------------------
                                                      2001          2000          1999          1998           1997
                                                      ----          ----          ----          ----           ----
<S>                                             <C>           <C>          <C>           <C>             <C>
Working Capital (Deficiency)                        $1,787       (12,670)       $4,047       $(3,047)        $1,385
Resource Assets                                    $29,721       $35,052       $25,568       $22,268        $10,748
Investment                                            $807        $1,705             -             -              -
Other Assets                                          $202          $272          $310        $2,811            $39
Non-current Obligations                             $3,482        $2,965       $16,256       $13,501         $1,754
Non-Controlling Interest                                 -             -           $23           $23            $34
Shareholders' Equity                               $29,035       $21,394       $13,646        $8,507        $10,348
Total Assets                                       $36,055       $42,083       $33,637       $26,506        $12,773

</TABLE>

On April 1, 1999,  the  Company  completed  the  acquisition  of  Stanford  (the
"Amalgamation"), whereby the Company issued 8,462,140 shares of its common stock
for 16,078,569  shares of Stanford.  In addition,  all  outstanding  convertible
debentures,   warrants  and  stock  options  in  Stanford  were  converted  into
convertible  debentures,  warrants and stock  options of the Company on the same
basis. Completion of the transaction resulted in the shareholders of the Company
and Stanford,  on a fully-diluted  basis,  each owning  approximately 50% of the
combined  company.  Members of management  of the Company were also  significant
minority  shareholders  of both the  Company  and  Stanford  and are also former
management of Stanford. Accordingly, the transaction has been accounted for as a
"continuity-of-interests".  Under this basis,  the combined company reflects the
assets and liabilities at the values recorded by the Company and Stanford,  with
adjustments to put the accounting  methods used by the combining  companies on a
common basis and the elimination of any intercompany transactions.  In addition,
these adjustments have been made  retroactively and the financial  statements of
the combined company have been restated.

ADJUSTMENT TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

(a)  The  consolidated  financial  statements  of the Company have been prepared
     according to Canadian GAAP which differ in certain  material  respects from
     US GAAP. Material differences between Canadian and US GAAP and their effect
     on the Company's  consolidated  financial  statements are summarized in the
     tables below.

<TABLE>
<CAPTION>

                                                                                   2001            2000            1999
                                                                                     $               $               $
<S>                                                                           <C>             <C>             <C>


Consolidated Statements of Operations and Comprehensive Income

Loss for the year

      Canadian GAAP                                                              (1,518,858)     (2,239,652)     (4,449,472)
      Expenses incurred in business combination (i)                                       -               -        (232,801)
      Stock option plan (vi)                                                       (213,116)        (48,608)       (139,494)
      Other compensation expense (ix)                                              (151,495)       (460,394)       (620,614)
      Write-down of investment (iv)                                                 956,253               -               -
      Accretion of liability component of long-term debt (x)                         77,145               -               -
      Beneficial conversion feature on convertible debt securities (xi)            (377,814)              -               -
                                                                               -------------   -------------   -------------
      US GAAP                                                                    (1,227,885)     (2,748,654)     (5,442,381)
                                                                               -------------   -------------   -------------

Other Comprehensive Income

      Unrealized holding gain (loss) on
           available-for-sale marketable securities (ii)                         (1,216,041)      1,335,077         67,943
      Less deferred income taxes                                                          -               -        (31,253)
      Reclassification adjustment for gain on available
          for sale marketable securities included in net loss                       (25,345)              -              -
                                                                               -------------   -------------  -------------
                                                                                 (1,241,386)      1,335,077         36,690
                                                                               -------------   -------------  -------------
Comprehensive income (loss) for the year                                         (2,469,271)     (1,413,577)    (5,405,691)
                                                                               =============   =============  =============
      Earnings (loss) per share basic and fully diluted - US GAAP                     (0.08)          (0.11)         (0.34)
                                                                               =============   =============  =============

</TABLE>


                                       -7-

<PAGE>


<TABLE>
<CAPTION>


                                                                                    2001            2000
                                                                                      $               $
<S>                                                                            <C>             <C>

Consolidated Balance Sheets

Total Assets
      Canadian GAAP                                                               36,055,162      42,082,707
      Available for sale securities (ii)                                                   -       1,348,788
      Capital contributions with respect to related party transactions (iii)       1,846,667       1,846,667
      Capital distributions with respect to related party transaction (iv)                 -      (1,004,889)
                                                                               -------------   -------------
      US GAAP                                                                     37,901,829      44,273,273
                                                                               =============   =============
Total Liabilities
      Canadian GAAP                                                                7,020,543      20,688,321
      Equity component of long-term debt (x)                                         694,310               -
      Accretion of liability component of long-term debt                             (77,145)              -
                                                                               -------------   -------------
      US GAAP                                                                      7,637,708      20,688,321
                                                                               =============   =============
Shareholders' Equity
      Canadian GAAP                                                               29,034,619      21,394,386
      Equity component of long-term debt (x)                                        (694,310)              -
      Accretion of long-term component of long-term debt (x)                          77,145               -
      Cumulative capital contributions with
           respect to related party transactions (iii)                             1,846,667       1,846,667
      Capital distribution with respect to related party transaction (iv)                  -      (1,004,889)
      Available for sale securities (ii)                                                   -       1,348,788
                                                                               -------------   -------------
      US GAAP                                                                     30,264,121      23,584,952
                                                                               =============   =============

</TABLE>


          (i)  Expenses incurred in business combination

               US  GAAP  requires  expenses  incurred  relating  to  a  business
               combination similar to a  pooling-of-interests  transaction to be
               expensed in the period incurred, whereas under Canadian GAAP such
               costs are reflected as a capital transaction.

         (ii)  Marketable securities

               US GAAP requires  marketable  securities  which are classified as
               available for sale to be carried at fair value,  as determined by
               quoted published market prices,  with unrealized losses and gains
               on  available  for sale  securities  to be included as a separate
               component of  shareholders'  equity.  In  addition,  net realized
               gains and losses on security  transactions would be determined on
               the  specific  identification  cost  basis  and  included  in the
               determination of earnings for the year.

        (iii)  Capital contributions with respect to related party transactions

               The  Company  has sold  certain  of its  petroleum  interests  to
               Trimark Oil & Gas Ltd. ("Trimark"),  a publicly traded company in
               which the Company owns  approximately  8.9% and in which  certain
               officers  and  directors  of the  Company are also  officers  and
               directors  of  Trimark,   for  a  combination   of  monetary  and
               non-monetary   consideration.   US  GAAP  requires  that  certain
               transfers  of  non-monetary  assets  to a  related  party  by its
               promoters  or  shareholders  should  generally be recorded at the
               transferor's   historical  cost,  whereas  under  Canadian  GAAP,
               transfers  of  non-monetary  assets may be recorded  based on the
               fair  value  of  the   consideration   received   under   certain
               circumstances.  Under  Canadian  GAAP,  these  transactions  were
               recorded  at  their  fair  values.  The  transactions  have  been
               adjusted to reflect the sale of the petroleum  interests based on
               the Company's historical cost basis.

         (iv)  Capital distribution with respect to related party transaction

               The Company has purchased  800,000 shares of Trimark for monetary
               consideration.  US GAAP requires that  transfers of  non-monetary
               assets from certain related parties should  generally be recorded
               at the transferor's historical cost, whereas under Canadian GAAP,
               transfers of non-monetary assets may be

                                       -8-

<PAGE>



               recorded  based  on the  agreed  exchange  amount  under  certain
               circumstances.   Under   Canadian  GAAP  this   transaction   was
               recognized at the agreed  exchange  amount.  The  transaction has
               been  adjusted  in 2000 and 1999 to reflect  the  purchase of the
               shares  based on the  transferor's  historical  cost basis.  This
               adjustment is no longer  necessary in 2001 as the  investment was
               written down to fair value at May 31, 2001.

          (v)  Ceiling test on petroleum interests

               US GAAP  requires  that the net book  value of  proved  petroleum
               interests  not exceed the sum of the present  value of  estimated
               future net revenues (determined using current prices of petroleum
               production less estimated  future  expenditures to be incurred in
               developing and producing the proved  reserves,  discounted at ten
               percent).  This ceiling test was performed effective May 31, 2001
               and it was  determined  that no  write-down  of proved  petroleum
               interests was necessary.

         (vi)  Stock options granted to consultants and non-employees

               The Company  grants stock options which reserve common shares for
               issuance to consultants and other  non-employees.  Under Canadian
               GAAP,  such  stock  options  are not  recognized  for  accounting
               purposes. Under US GAAP the Company has adopted the provisions of
               Statements  of  Financial   Accounting   Standards  ("SFAS")  123
               "Accounting  for Stock  Based  Compensation"  for  stock  options
               granted to consultants and non-employees.

               Accordingly,  the Company has recognized stock based compensation
               for these stock option grants using the fair value method.

               The fair value of each option  granted to a  consultant  or other
               non-employee  is  estimated  on  the  date  of  grant  using  the
               Black-Scholes Option Pricing Model with the following assumptions
               used for grants  during the years  ended May 31,  2001,  2000 and
               1999:
<TABLE>
<CAPTION>

                                                        2001             2000              1999
<S>                                               <C>             <C>               <C>

Risk-free interest rate                                4.50%             6.75%             6.25%
Expected volatility                                     107%              92%              120%
Expected lives                                        3 years         2 - 3 years       2 - 3 years


</TABLE>

        (vii)  Stock option plan for employees and directors

               The Company has a stock option plan which reserves  common shares
               for issuance to employees and directors.  The Company has adopted
               the disclosure  only provisions of SFAS No. 123 for stock options
               granted to employees and directors.  Accordingly, no compensation
               cost  has  been   recognized  for  the  stock  option  plan.  Had
               compensation  costs  for the  Company's  stock  option  plan been
               determined  based on the fair  value at the grant date for awards
               during the years  ended May 31,  2001,  2000 and 1999  consistent
               with the  provisions  of SFAS No.  123,  the  Company's  earnings
               (loss) and earnings (loss) per share would have been increased to
               the proforma amounts indicated below:

<TABLE>
<CAPTION>

                                                            2001             2000            1999
                                                             $                $                $
<S>                                                   <C>             <C>              <C>

Earnings (loss) - as reported under US GAAP              (1,227,885)      (2,748,654)     (5,442,381)
Earnings (loss) - proforma                               (1,918,509)      (2,824,740)     (7,717,965)

Earnings (loss) per share - as reported under US GAAP      (0.04)           (0.11)          (0.34)
Earnings (loss) per share - proforma                       (0.06)           (0.12)          (0.48)

</TABLE>


                                      -9-

<PAGE>

               The fair market  value of each  option  granted to an employee or
               director  is  estimated  on the date of grant  using  the Black -
               Scholes Option Pricing Model with the following  assumptions used
               for grants during the years ended May 31, 2001, 2000 and 1999:

<TABLE>
<CAPTION>

                                                          2001             2000            1999
<S>                                                <C>             <C>              <C>


Risk-free interest rate                                  4.79%            6.75%            6.25%
Expected volatility                                       109%             92%             120%
Expected lives                                          3 years        2 - 3 years      2 - 3 years

</TABLE>

       (viii)  Private  Placements  of Common  Stock and Special  Warrants  with
               Related Parties

               US GAAP requires  disclosure of private  placements  conducted by
               the  Company  where  directors  and  officers  of the Company are
               participants.  During  the year  ended May 31,  2001,  directors,
               officers and  companies  controlled  by the directors or officers
               acquired  2,250,000 shares or special warrants (2000 - 2,706,500;
               1999 - 3,883,334) of the Company,  pursuant to private placements
               conducted by the Company, for cash proceeds of $1,893,684 (2000 -
               $5,494,547; 1999 - $5,389,530).

       (ix)    Private Placements of Common Stock

               The  Company  conducts  the  majority  of its  equity  financings
               pursuant to private  placements.  Under the policies of the CDNX,
               on which the  Company's  common stock is listed,  the Company may
               provide a discount off the market price of the  Company's  common
               stock.  US GAAP does not permit a discount from the market price.
               US GAAP  requires  the  recognition  of the  market  value of the
               Company's  common  stock as a credit  to  share  capital,  with a
               charge to operations for the portion of the discount  relating to
               equity  financings  conducted  with officers and directors of the
               Company  and a  charge  to  shareholders'  equity,  as a  capital
               distribution,  for the discount relating to the remaining portion
               of the equity financings.

               Under US GAAP, loss and capital  distributions for the year ended
               May 31, 2001 would increase by $148,800 (2000 - $460,394;  1999 -
               $620,614)   and  $nil  (2000  -   $231,117;   1999  -   $98,112),
               respectively,  and  share  capital,  as at  May  31,  2001  would
               increase  by  $1,731,717  (2000 -  $1,582,917).  There  is no net
               change to shareholders' equity.

        (x)    Accretion of Liability Component of Long-term Debt

               Under  Canadian  GAAP,  compound  financial  instruments  such as
               convertible  debentures  are required to be accounted  for at the
               fair value of their components.  Such accounting is not permitted
               under US GAAP unless the  components are  detachable,  which they
               are not in this case.

       (xi)    Beneficial Conversion Feature on Convertible Debt Securities

               Under US GAAP,  additional  interest expense is recognized when a
               convertible  debt  security  is  issued  with  an "in  the  money
               conversion rate". This additional  interest expense is recognized
               in the year of issue when,  as in the  Company's  case,  the debt
               security is convertible  at the time of issue.  No such charge is
               required under Canadian GAAP.

     (b)  The  Company's  consolidated  statements  of cash flow  comply with US
          GAAP.

     (c)  New Technical Pronouncements

          In  September  2000,  SFAS  No.  140  "Accounting  for  Transfers  and
          Servicing of Financial Assets and  Extinguishments  of Liabilities - A
          Replacement  of FASB  Statement No. 125" was issued.  Adoption of SFAS
          No. 140 is not expected to have an impact on the  Company's  financial
          statements.

          In June  2001,  SFAS  No.  141  "Business  Combinations"  was  issued.
          Adoption  of SFAS No.  141 is not  expected  to have an  impact on the
          Company's financial statements.

                                       -10-

<PAGE>



          Also in June 2001, SFAS No. 142 "Goodwill and Other Intangible Assets"
          was issued. Adoption of SFAS No. 142 is not expected to have an impact
          on the Company's financial statements.

EXCHANGE RATE HISTORY

The following table sets forth the average exchange rate for one Canadian dollar
expressed  in terms of one U.S.  dollar for the fiscal years ended May 31, 2001,
2000, 1999, 1998 and 1997.

PERIOD                                                  AVERAGE
------                                                  -------

June 1, 2000 - May 31, 2001                              0.6596
June 1, 1999 - May 31, 2000                              0.6792
June 1, 1998 - May 31, 1999                              0.6616
June 1, 1997 - May 31, 1998                              0.7068
June 1, 1996 - May 31, 1997                              0.7316

The  following  table sets forth high and low  exchange  rates for one  Canadian
dollar  expressed  in terms of one U.S.  dollar for the  six-month  period ended
November 30, 2001.

Month                                  High                       Low
-----                                  ----                       ---

June 2001                             0.6604                     0.6516
July 2001                             0.6622                     0.6472
August 2001                           0.6547                     0.6456
September 2001                        0.6437                     0.6330
October 2001                          0.6418                     0.6287
November 2001                         0.6363                     0.6241

Exchange  rates are based upon 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 noon rate of exchange on November  30, 2001 , reported by the United  States
Federal  Reserve Bank of New York for the  conversion  of Canadian  dollars into
United States dollars was CDN$1.5717 (US$0.6363 = CDN$1.00).

RISK FACTORS

The  Company's  business  is subject to numerous  risk  factors,  including  the
following:

Due to the nature of the Company's business and the present stage of exploration
on its oil and gas prospects,  the following risk factors apply to the Company's
operations:

ACCUMULATED LOSSES

During the year ended May 31, 2001,  and three months ended August 31, 2001, the
Company  incurred  losses of  approximately  $1.5  million  and  $12.5  million,
respectively,  and as at August 31, 2001, the Company had an accumulated deficit
of approximately $25.2 million. To date the Company's oil and gas production has
not generated sufficient operating cash flows to provide working capital for the
Company's ongoing overhead,  the funding of its petroleum property  acquisitions
and the  exploration  and  development  of  these  properties.  There  can be no
assurances that the Company will be able to successfully  develop its properties
and achieve profitability from its operations.

EXPLORATION AND PRODUCTION RISKS

The business of exploring  for and  producing oil and gas involves a substantial
risk of investment  loss which even a combination of  experience,  knowledge and
careful  evaluation  may not be able to  overcome.  Drilling  oil and gas  wells
involves  the risk  that  the  wells  will be  unproductive  or  that,  although
productive, the wells do not produce oil and/or gas

                                      -11-

<PAGE>



in economic quantities.  Other hazards, such as unusual or unexpected geological
formations,  pressures,  fires, blowouts, loss of circulation of drilling fluids
or other conditions may substantially  delay or prevent  completion of any well.
Adverse  weather  conditions can also hinder drilling  operations.  A productive
well may become  uneconomic in the event water or other  deleterious  substances
are  encountered,  which impair or prevent the production of oil and/or gas from
the well. In addition,  production  from any well may be  unmarketable  if it is
impregnated with water or other  deleterious  substances.  As with any petroleum
property,  there can be no assurance  that oil and gas will be produced from the
properties in which the Company has interests. In addition, the marketability of
oil and gas which may be  acquired or  discovered,  will be affected by numerous
factors beyond the control of the Company.  These factors  include the proximity
and  capacity  of  oil  and  gas  pipelines  and  processing  equipment,  market
fluctuations of prices, taxes, royalties,  land tenure, allowable production and
environmental  protection.  The  extent of these  factors  cannot be  accurately
predicted,  but any one or a  combination  of these  factors  may  result in the
Company not  receiving  an  adequate  return on  invested  capital.  There is no
assurance that additional crude oil or natural gas in commercial quantities will
be discovered by the Company.

FINANCING RISKS

As at  October  31,  2001,  the  Company  had a working  capital  deficiency  of
approximately  $103,000. The Company has anticipated exploration and development
expenditures,  completion  costs and ongoing  overhead for the remainder of 2001
and for 2002 totaling approximately $5.2 million.

The  Company  has  primarily  relied  on the  sale  of its  equity  capital  and
disposition  of petroleum  interests to fund the  acquisition,  exploration  and
development of its petroleum  properties.  It has no assurance  that  additional
funding will be available to it for  exploration and development of its projects
or to fulfil its obligations  under any applicable  agreements.  There can be no
assurance  that the Company will be able to generate  sufficient  operating cash
flow or  obtain  adequate  financing  in the  future  or that the  terms of such
financing will be favorable.  Failure to generate additional operating cash flow
or obtain  additional  financing  could  result in  substantial  dilution of the
Company's petroleum  interests,  or delay or indefinite  postponement of further
exploration  and  development  of its projects  with the  possible  loss of such
properties.

As of  the  date  of  this  report,  the  Company  has  initiated  a  number  of
alternatives to provide funding for its commitments.  See "Item 5. Operating and
Financial Review and Prospects - Liquidity and Capital Resources."

UNINSURABLE RISKS

Although management believes the operator of any properties in which the Company
and  its  subsidiaries  may  acquire   interests,   will  acquire  and  maintain
appropriate  insurance  coverage in accordance with standard industry  practice,
the Company and its subsidiaries  may suffer losses from uninsurable  hazards or
from hazards which the operator has chosen not to insure against because of high
premium  costs or other  reasons.  The  Company and its  subsidiaries  intend to
continue to engage in the drilling of both  exploratory and  development  wells.
Exploratory  wells  have much  greater  dry hole  risk  than do wells  which are
drilled offsetting established production.  The Company and its subsidiaries may
become subject to liability for pollution, fire, explosion, blow-outs, cratering
and oil spills against which are in excess of coverages,  if any,  maintained by
the  operator.  Such events  could result in  substantial  damage to oil and gas
wells,  producing facilities and other property and personal injury. The payment
of any such  liabilities  may have a material,  adverse  effect on the Company's
financial position.

Anadarko,  the operator of the East Lost Hills Joint Venture and the San Joaquin
Joint Venture,  maintains for each well a $20 million operator's control of well
and pollution  coverage and $30 million liability  coverage on the ongoing drill
programs.

As of the date of this  report  the  Company is not the  operator  of any of its
petroleum  and natural gas interests  and does not maintain  insurance  coverage
relating thereto.

NO ASSURANCE OF TITLES

It is the practice of the Company in  acquiring  oil and gas leases or undivided
interests in oil and gas leases not to undergo the expense of retaining  lawyers
to examine the title to the mineral interest to be placed under lease or already
placed under lease.  Rather,  the Company will rely upon the judgment of oil and
gas lease brokers or landsmen who perform

                                      -12-

<PAGE>



the field work in  examining  records  in the  appropriate  governmental  office
before  attempting  to place  under  lease a  specific  mineral  interest.  This
practice is widely  followed in the oil and gas industry.  Prior to the drilling
of an oil and gas well,  however,  it is the normal  practice in the oil and gas
industry for the person or company  acting as the operator of the well to obtain
a preliminary title review of the spacing unit within which the proposed oil and
gas well is to be drilled to ensure there are no obvious  deficiencies  in title
to the well;  however,  neither the Company nor the person or company  acting as
operator of the well will obtain  counsel to examine  title to such spacing unit
until  the well is about to go into  production.  It  frequently  happens,  as a
result of such examinations,  that certain curative work must be done to correct
deficiencies in the  marketability  of the title, and such curative work entails
expense.  The work might include obtaining  affidavits of heirship or causing an
estate  to be  administered.  It does  happen,  from  time  to  time,  that  the
examination  made by the  title  lawyers  reveals  that the oil and gas lease or
leases are  worthless,  having been  purchased in error from a person who is not
the owner of the mineral interest  desired.  In such instances,  the amount paid
for such oil and gas lease or leases is generally  lost. To date the Company has
not lost title to any of its oil and gas leases, nor is it aware that any of its
currently held properties is subject to being lost as a result of faulty titles.

ENVIRONMENTAL REGULATIONS

In general, the exploration and production activities of the Company are subject
to  certain  federal,   state  and  local  laws  and  regulations   relating  to
environmental  quality and pollution control. Such laws and regulations increase
the costs of these  activities  and may  prevent  or delay the  commencement  or
continuance of a given operation. Compliance with these laws and regulations has
not had a material effect on the Company's  operations or financial condition to
date.  Specifically,  the Company is subject to legislation  regarding emissions
into the environment, water discharges, and storage and disposition of hazardous
wastes.  In addition,  legislation  has been  enacted  which  requires  well and
facility  sites to be  abandoned  and  reclaimed  to the  satisfaction  of state
authorities.  However,  such laws and regulations are frequently changed and the
Company  is  unable to  predict  the  ultimate  cost of  compliance.  Generally,
environmental  requirements  do not appear to affect the Company any differently
or to any greater or lesser extent than other companies in the industry.

The Company believes that its operations comply, in all material respects,  with
all applicable environmental regulations.

GOVERNMENTAL REGULATIONS

Oil and gas exploration, development and production are subject to various types
of regulation by local,  state and federal agencies.  Legislation  affecting the
oil and gas industry is under constant review for amendment and expansion. Also,
numerous  departments  and agencies,  both federal and state,  are authorized by
statute to issue and have issued  rules and  regulations  binding on the oil and
gas  industry  and its  individual  members,  some of  which  carry  substantial
penalties  for  failure  to  comply.  The  regulatory  burden on the oil and gas
industry  increases the  Company's  cost of doing  business  and,  consequently,
affects  its  profitability.  There is no  assurance  that laws and  regulations
enacted  in the  future  will not  adversely  affect  the oil and gas  industry.
However,  since these regulations  generally apply to all oil and gas producers,
management  of the Company  believes that these  regulations  should not put the
Company at a material disadvantage to other oil and gas producers.

Most states in which the Company and its subsidiaries own and operate properties
have statutes,  rules and regulations  governing  conservation matters including
the unitization or pooling of oil and gas properties,  establishment  of maximum
rates of production from oil and gas wells and the spacing of such wells.

Oil and gas mineral rights may be held by individuals  or  corporations  and, in
certain circumstances, by governments having jurisdiction over the area in which
such mineral rights are located. As a general rule, parties holding such mineral
rights grant licenses or leases to third parties to facilitate  the  exploration
and  development of these mineral  rights.  The terms of the leases and licenses
are generally  established to require timely  development.  Notwithstanding  the
ownership of mineral rights, the government of the jurisdiction in which mineral
rights are located generally retains authority over the manner of development of
those rights.

In addition to royalties paid to freehold owners, each state generally imposes a
production or severance  tax with respect to  production  and sale of crude oil,
natural gas and natural gas liquids within their respective  jurisdictions.  For
the most part,  state production taxes are applied as a percentage of production
or sales. Payment of these taxes are in the normal

                                      -13-

<PAGE>



course of  operations in the oil and gas industry and should not have a material
impact on the Company's financial condition.

NATURAL GAS AND OIL PRICES

In recent decades, there have been periods of both worldwide  overproduction and
underproduction of hydrocarbons and periods of both increased and relaxed energy
conservation  efforts. Such conditions have resulted in periods of excess supply
of, and reduced demand for,  crude oil on a worldwide  basis and for natural gas
on a domestic basis. These periods have been followed by periods of short supply
of, and increased  demand for, crude oil and, to a lesser  extent,  natural gas.
The excess or short  supply of crude oil has placed  pressures on prices and has
resulted in dramatic price  fluctuations even during relatively short periods of
seasonal  market  demand.  The price of natural gas has exhibited  market demand
fluctuations;  however,  because  most of the  natural gas  consumed  within the
United States is produced within the United States, the price of natural gas did
not historically  exhibit the dramatic price  fluctuations that crude oil prices
have experienced under conditions of high import levels.  Recently, the price of
natural gas has fluctuated dramatically due to changes in demand and significant
fluctuations of supplies.  The Company's  financial results can be significantly
affected by prices received from  production of oil and gas as commodity  prices
fluctuate widely in response to changing market forces. Specifically, a decrease
in the price of oil or gas may reduce the revenue the Company  receives from its
oil and gas operations and/or may increase the Company's impairment or depletion
expenses  for a given  period.  In  addition,  a  decrease  in price may cause a
decrease in the present value of the  Company's  estimated oil and gas reserves.
Conversely,  an  increase  in the price of oil or gas may  increase  the revenue
received  from the  Company's  oil and gas  operations  and/or may  decrease the
Company's  impairment or depletion  expenses for a given period.  An increase in
price may cause an increase in the present value of the Company's  estimated oil
and gas reserves.

Subsequent to May 31, 2001,  the price for natural gas decreased  significantly.
During  the three  months  ended  August  31,  2001,  the  Company  recorded  an
impairment  charge of  approximately  $11.9 million to reflect the impact on the
Company's  petroleum  and natural gas  interests of the ceiling  test  performed
effective August 31, 2001.  Approximately  $9.0 million of the impairment charge
was based upon the fall in market  prices for  natural  gas between May 31, 2001
and August 31, 2001.

Derivative  instruments  are  commonly  used by oil and gas  producers  to limit
exposure to fluctuations  experienced in the price of natural gas and crude oil.
In December 1999, the Company  renegotiated  its loan facility and under the new
arrangement,  the  Company  was  required  to hedge a  portion  of its  existing
petroleum production. The hedge contracts were closed in March 2001, on the sale
of the Company's Enserch Properties and the retirement of the loan facility,  as
described in "Item 5.  Operating and Financial  Review and Prospects - Liquidity
and Capital  Resources." As of the date of this report the Company does not have
any derivative instruments in place.

COMPETITION

The oil and gas industry is intensely  competitive and the Company competes with
other  companies which have greater  resources.  Many of such companies not only
explore  for and  produce  crude oil and  natural gas but also carry on refining
operations and market  petroleum and other products on a worldwide  basis.  Such
companies may be able to pay more for  productive oil and natural gas properties
and  exploratory  prospects,  and to define,  evaluate,  bid for and  purchase a
greater number of properties and prospects than the Company's financial or human
resources permit. The Company's ability to acquire additional  properties and to
discover  reserves in the future will be dependent  upon its ability to evaluate
and  select  suitable  properties  and to  consummate  transactions  in a highly
competitive  environment.  There  is also  competition  between  the oil and gas
industry and other  industries  with respect to the supply of energy and fuel to
industrial,  commercial and individual customers. There is no assurance that the
Company will be able to effectively compete against such companies.

RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH

Because of its small  size,  the  Company  desires  to grow  rapidly in order to
achieve  certain  economies of scale.  Although  there is no assurance that this
rapid  growth  will occur,  to the extent  that it does  occur,  it will place a
significant  strain  on the  Company's  financial,  technical,  operational  and
administrative  resources.  As the Company  expands its activities and increases
the number of projects it is evaluating or in which it is  participating,  there
will  be  additional   demands  on  the  Company's   financial,   technical  and
administrative  resources.  The failure to  continue  to upgrade  the  Company's
technical,  administrative,  operating  and  financial  control  systems  or the
occurrence of unexpected expansion difficulties,

                                      -14-

<PAGE>



including the recruitment and retention of  geoscientists  and engineers,  could
have a material adverse effect on the Company's  business,  financial  condition
and results of operations.

DEPENDENCE UPON KEY PERSONNEL

The  success of the  Company's  operations  and  activities  is  dependent  to a
significant  extent on the efforts and abilities of its management.  The loss of
services of any of its  management  could have a material  adverse effect on the
Company.  The  Company  has not  obtained  "key  man"  insurance  for any of its
management.

Mr.  Busby  is the  Chief  Executive  Officer  of the  Company.  The loss of the
services of Mr. Busby may  adversely  affect the  business and  prospects of the
Company.  Mr.  Busby's  services  are  provided  through  Boone  Petroleum  Inc.
("Boone").  See "Item 7. Major  Shareholders  and Related Party  Transactions  -
Related Party Transactions."

ADEQUATE LABOR

Corporate  accounting,  management and administration are provided,  in part, by
Chase Management Ltd. ("Chase"),  a company owned by Mr. Nick DeMare, a director
of the Company. In addition, as of the date of this report, Hilton U.S. employed
a total of two  full-time  employees.  In the event the Company  needs to employ
additional  personnel,  it will need to recruit qualified personnel to staff its
operations.  The Company believes that such personnel currently are available at
reasonable  salaries and wages in the geographic  areas in which the Company and
its  subsidiaries  operate.  There  can  be no  assurance,  however,  that  such
personnel will be available in the future.  In addition,  it cannot be predicted
whether the labor  staffing at any of the Company's  projects will be unionized,
which may result in potentially higher operating costs.

DIVIDEND RISKS

The Company has not paid any  dividends on its common shares and does not intend
to pay dividends on its common shares in the immediate  future.  Any decision to
pay  dividends  on its common  shares in the future will be made by the board of
directors on the Company on the basis of earnings,  financial  requirements  and
other such conditions that may exist at that time.

ADVERSE TAX CONSEQUENCES TO U.S. INVESTORS

The  Company  has not  determined  whether it met the  definition  of a "passive
foreign  investment  company" (a "PFIC") during 2001.  There can be no assurance
that it will not be treated as a PFIC in 2001 or thereafter.

If 75% or more of the  Company's  annual gross income has ever  consisted of, or
ever consists of, "passive" income or if 50% or more of the average value of the
Company's  assets in any year has ever consisted of, or ever consists of, assets
that produce, or are held for the production of, such "passive" income, then the
Company would be or would become a PFIC. The Company has not provided assurances
that it has not been and does not expect to become a PFIC.  Please note that the
application of the PFIC provisions of the Code to resource companies is somewhat
unclear.

If the Company were to be a PFIC, then a U.S. Holder would be required to pay an
interest  charge  together  with tax  calculated at maximum tax rates on certain
"excess  distributions"  (defined to include  gain on the sale of stock)  unless
such U.S.  Holder made an  election  either to (1) include in his or her taxable
income  certain  undistributed  amounts of the  Company's  income or (2) mark to
market his or her Company  common  shares at the end of each taxable year as set
forth in Section 1296 of the Code.

The PFIC rules are very complex.  U.S.  shareholders are strongly  encouraged to
consult  with  their tax  advisors  concerning  all of the tax  consequences  of
investing in the Company's  common shares and the possible  benefits of making a
tax election given their circumstances.  See "Item 10. Additional  Information -
Taxation."

PRICE FLUCTUATIONS:  SHARE PRICE VOLATILITY

In recent years, the securities  markets in Canada have experienced a high level
of price and volume  volatility,  and the market  prices of  securities  of many
companies,  particularly junior resource exploration companies like the Company,
have  experienced wide  fluctuations  which have not necessarily been related to
the operating performance, underlying

                                      -15-

<PAGE>



asset values or prospects of such companies. In particular,  the per share price
of the Company's common stock on the Canadian Venture Exchange fluctuated from a
low of CDN$0.25 to a high of CDN$3.35 during the 12-month period ending November
30, 2001 and closed at CDN$0.51 on November 30, 2001.  There can be no assurance
that these price fluctuations will not continue to occur.

CURRENCY FLUCTUATIONS

For accounting  purposes,  the U.S.  dollar is used as the Company's  functional
currency.  To date,  all equity  financing  and  certain  of the debt  financing
conducted by the Company have been conducted in Canadian  dollars.  In addition,
the Company  maintains  its  corporate  office in  Vancouver,  Canada,  and will
maintain certain of its cash holdings in Canadian dollars. Recently the Canadian
dollar has experienced a devaluation against the United States dollar. Gains and
losses  resulting  from the  fluctuation  of  foreign  exchange  rates have been
included in the determination of income.  Continued  devaluation of the Canadian
dollar  may have a  material  and  adverse  effect on the  Company's  ability to
conduct financings in the future or fund its ongoing capital obligations.

CONFLICTS OF INTEREST

Certain of the  directors  also serve as  directors  of other  companies or have
significant  shareholdings in other companies and, to the extent that such other
companies may participate in ventures in which the Company may participate,  the
directors  of the Company may have a conflict  of  interest in  negotiating  and
concluding terms relating to the extent of such participation. In the event that
such a conflict of  interest  arises at a meeting of the board of  directors,  a
director  who has such a  conflict  will  disclose  the nature and extent of his
interest to the board of  directors  and abstain  from voting for or against the
approval of such a participation or such terms.

In accordance with the laws of the Yukon Territory, the directors of the Company
are required to act honestly and in good faith with a view to the best interests
of the  Company.  In  determining  whether the  Company  will  participate  in a
particular  program and the interest therein to be acquired by it, the directors
will  primarily  consider the degree of risk to which the Company may be exposed
and its financial position at that time.

See also "Item 7. Major  Shareholders  and Related Party  Transactions - Related
Party Transactions."

PENNY STOCK REGULATION

The SEC has adopted  rules that regulate  broker-dealer  practices in connection
with  transactions  in  "penny  stock".  Generally,   penny  stocks  are  equity
securities with a price of less than $5.00 (other than securities  registered on
certain national  securities  exchanges or quoted on the NASDAQ system).  If the
Company's  shares are traded for less than $5 per share,  as they currently are,
the  shares  will be  subject  to the SEC's  penny  stock  rules  unless (1) the
Company's net tangible assets exceed $5,000,000 during the Company's first three
years of continuous  operations or  $2,000,000  after the Company's  first three
years of continuous operations; or (2) the Company has had average revenue of at
least  $6,000,000  for the last three  years.  The penny stock  rules  require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure  document prescribed by the
SEC that  provides  information  about penny  stocks and the nature and level of
risks in the  penny  stock  market.  The  broker-dealer  also must  provide  the
customer  with  current  bid and  offer  quotations  for the  penny  stock,  the
compensation  of the broker- dealer and its  salesperson in the  transaction and
monthly account  statements showing the market value of each penny stock held in
the customer's account. In addition, the penny stock rules require that prior to
a  transaction  in a penny  stock not  otherwise  exempt from those  rules,  the
broker-dealer must make a special written  determination that the penny stock is
a suitable  investment  for the  purchaser and receive the  purchaser's  written
agreement to the transaction. These requirements may have the effect of reducing
the level of trading  activity in the secondary  market for a stock that becomes
subject to the penny  stock  rules.  Should a trading  market for the  Company's
stock  commence in the United  States,  the Company's  Common Stock could become
subject to the penny stock  rules,  the holders of the Common  Stock may find it
difficult to sell the Common Stock of the Company.  These rules may restrict the
ability of brokers to sell the common stock and may reduce the secondary  market
for the common stock. A limited secondary market may result in a decrease in the
shareholder value and/or a partial or total loss of an investor's investment.

                                      -16-

<PAGE>




ENFORCEMENT OF LEGAL PROCESS

Service of process upon individuals or firms that are not resident in the United
States may be difficult to obtain within the United States.  Some of the members
of the Board of Directors and senior  management of the Company  reside  outside
the United  States.  Any  judgment  obtained  in the United  States  against the
Company or such persons may not be  collectible  within the United  States.  The
Company has not appointed anyone to accept service of process on its behalf.


ITEM 4.   INFORMATION ON THE COMPANY.
--------------------------------------------------------------------------------

HISTORY AND DEVELOPMENT OF THE COMPANY

NAME AND INCORPORATION

The  Company  was  incorporated  under the Company  Act  (British  Columbia)  on
September 7, 1989, as "No. 207 Sail View Ventures Ltd.",  and remained  inactive
until  1994 when the  Company  changed  its name to its  current  name,  "Hilton
Petroleum Ltd." In conjunction with the  Amalgamation  with Stanford on April 1,
1999,  the Company  changed  its  domicile  through  continuation  from  British
Columbia to the Yukon Territory under the Business Corporations Act (Yukon). See
"Item 3. Key Information - Selected Financial Data."

The Company's  common shares were listed on the  Vancouver  Stock  Exchange (the
"VSE") through November 28, 1999.  Effective  November 29, 1999, the VSE and the
Alberta Stock  Exchange (the "ASE") merged and began  operations as the Canadian
Venture  Exchange (the "CDNX").  The CDNX classifies  listed  companies into two
different  tiers  based  on  standards,   which  include  historical   financial
performance, stage of development and financial resources. The Company trades on
the CDNX under the symbol "HTP" and is classified as a Tier I company. Tier I is
the CDNX's  premier  tier and is reserved for the CDNX's most  advanced  issuers
with the most  significant  financial  resources.  Tier I issuers  benefit  from
decreased filing  requirements and improved service  standards.  The majority of
the companies listed on the CDNX are Tier II companies.

Effective  February 7, 2001, the Company's common stock was approved for trading
on the  Over-the-Counter  Bulletin Board operated by the National Association of
Securities Dealers under the symbol "HTPTF".

The  Company's  corporate  office is located  at Suite 1305 - 1090 West  Georgia
Street,  Vancouver,  British Columbia, V6E 3V7. The Company's principal business
office is located at Suite 205-A, 5000 California Avenue, Bakersfield, CA 93309.

The  Company's  registered  office is located at 3081 - 3rd Avenue,  Whitehorse,
Yukon,  Canada.  The phone number of the  Company's  registered  office is (867)
668-4405 and the corporate office is (604) 685-9316.

The Company does not have a registered agent in the United States.

EXPLORATION EXPENDITURES

During fiscal 1999,  2000 and 2001,  the Company  incurred  $6.5 million,  $11.7
million and $8.3 million,  respectively,  on the  acquisition,  exploration  and
development of its petroleum  interests.  During the period from June 1, 2001 to
October 31,  2001,  the  Company  had  incurred  approximately  $3.0  million in
acquisition costs, and exploration and development expenditures. During the past
three fiscal  years,  the Company has devoted its  resources in  developing  its
petroleum  and natural gas  prospects  in  California,  as described in "Item 4.
Information on the Company - Material  Properties".  In order to provide funding
for the development of its California properties and retire certain of its debt,
the Company sold the majority of its properties  located  outside of California.
See "Item 5.  Operating  and  Financial  Review and  Prospects -  Liquidity  and
Capital   Resources."  The  Company  is  continuing  its  participation  in  the
exploration and development of its California properties.

                                      -17-

<PAGE>



BUSINESS OVERVIEW

The Company,  through Hilton U.S. and STB Energy,  is engaged in the business of
acquiring  leasehold  interests  in  petroleum  and natural gas rights,  and the
exploration  for and  development,  production and sale of petroleum and natural
gas in the  continental  United  States,  primarily  in the San  Joaquin  Basin,
California.

In November 1994, the Company acquired a property portfolio  assembled by Hilton
U.S.,  consisting  of  interests  in  significant  acreage  positions in several
different  areas  located  in  Adams  County,  Colorado.  As of the date of this
report, the Company had abandoned or sold all of these properties.

As a result of the  Arrangement  between the Company and  Stanford,  the Company
holds interests in various properties located in the United States. Prior to the
Amalgamation,  Stanford was involved in the drilling and  completion  of natural
gas wells,  principally in Alberta.  In July, 1997, Stanford sold all of its oil
and gas interests in Alberta.  In order to replace these oil and gas  production
assets,  in November,  1997,  STB Energy  entered into an agreement with Enserch
Exploration,  Inc.  ("Enserch")  whereby  STB Energy  purchased  an initial  90%
interest  in a  significant  producing  asset base  located in Texas,  Oklahoma,
Louisiana and New Mexico (the "Enserch  Properties") for the sum of $16,290,000.
Effective  September 1, 1998, STB Energy  acquired the remaining 10% interest in
the Enserch Properties for the sum of $2 million.  On March 8, 2001, the Company
sold the Enserch  Properties and other minor petroleum and natural gas interests
to Exco Resources Inc.  ("Exco"),  an arm's length party. See "Item 5. Operating
Results and Financial Review and Prospects - Liquidity and Capital Resources".




                                      -18-

<PAGE>






                    [HILTON PROSPECT AND WELL LOCATIONS MAP]




                                      -19-

<PAGE>



2001 - 2002 EXPLORATION BUDGET

As of the date of this report the Company has active exploration and development
projects ongoing in California.  The Company  anticipates that it could incur up
to $3.76 million in exploration  and development  expenditures  from November 1,
2001 to December 31, 2002 determined as follows:

     1.   East Lost Hills - the partners  have agreed to  side-track  the ELH #4
          well,  at a cost of $6 million  and  complete  drilling  of the ELH #9
          well,  projected at $6 million.  The Company  anticipates its share of
          drilling and completion costs to be approximately  $1.46 million.  The
          partners  have also  determined to drill a water  disposal  well, at a
          cost of $3.10 million, to facilitate increased production from the ELH
          #1 well. The Company's  share of this cost is $376,000.  No additional
          budgets have been proposed by the  operator.  Depending on the results
          from the current  program,  the Company  anticipates that the operator
          may propose to drill  additional  wells in 2002.  No amounts have been
          budgeted  for  any  additional   drilling.   The  Company's  share  of
          exploration and development costs at East Lost Hills for the remainder
          of 2001 and for 2002, is estimated to be $1.83 million.

     2.   San  Joaquin - drilling  commenced  on the Pyramid  Hills  Prospect in
          mid-November  2001 at a cost of $14 million.  The  Company's  share is
          $1.70 million.

     3.   Regional California - the Company anticipates that it will participate
          in the  drilling  of a  replacement  well  on the  Basil  Prospect.  A
          definitive  date and budget has not yet been proposed by the operator.
          However,  management of the Company expects that the replacement  well
          will be drilled  between July 2002 and September 15, 2002 at a cost of
          $700,000, with the Company's share at $227,000.

The $3.76  million  budget  assumes  that all wells  currently  in progress  and
planned will in fact all be drilled and completed.  These  projections  and work
schedules are contingent on many factors, many of which are beyond the Company's
control.  Work  schedules  can and will  change  based on  results in the field.
Actual  costs may vary  significantly  from  current  estimates.  The  estimates
provided are management's estimates of expenditures to be incurred.

SALES AND REVENUE DISTRIBUTION

The Company  sells its share of  petroleum,  natural gas and natural gas liquids
produced from its wells to a variety of purchasers at the wellhead in the United
States.  All of its sales  are  conducted  with  unaffiliated  customers.  These
purchasers  provide a ready market for all of the Company's  production  and pay
the local  market  price,  which can  fluctuate  based  upon  prevailing  market
conditions.  Due to the number of purchasers in each area,  management  does not
believe that the loss of one or a number of purchasers  would pose a significant
risk to the  continuity  of the  Company's  operations.  The  Company  does  not
maintain significant  inventories of petroleum or natural gas liquids. There are
currently no plans by management to engage in any further oil and gas activities
in Canada.

Total revenues reported for fiscal 1999, 2000 and 2001, were as follows:

<TABLE>
<CAPTION>

                                                                     ($ IN 000)
                                                    --------------------------------------------
                                                                YEARS ENDED MAY 31,
                                                    --------------------------------------------
                                                       2001            2000             1999
<S>                                              <C>            <C>               <C>


Petroleum and Natural Gas Sales
     - United States                                $     5,229     $     4,574       $    3,744
     - Canada                                                 -               -               29
                                                    -----------     -----------      -----------
                                                          5,229           4,574            3,773
                                                    -----------     -----------      -----------
Interest and Other Income
     - United States                                         60             256               22
     - Canada                                                41              23               74
                                                    -----------     -----------      -----------
                                                            101             279               96
                                                    -----------     -----------      -----------
Total Revenue                                       $     5,330      $    4,853       $    3,869
                                                    ===========     ===========      ===========

</TABLE>


                                      -20-
<PAGE>


GOVERNMENT REGULATION

Competitive  Business  Conditions,  Competitive  Position  in the  Industry  and
Methods of Competition

The Company's  petroleum and natural gas exploration  activities in the state of
California are being undertaken in a highly competitive and speculative business
atmosphere.  In seeking any other suitable  petroleum and natural gas properties
for  acquisition,  the  Company is  competing  with a number of other  companies
located in the state of California  and elsewhere,  including  large oil and gas
companies and other  independent  operators  with greater  financial  resources.
Management does not believe that the Company's initial  competitive  position in
the petroleum and natural gas industry will be significant.

Management does not foresee any  difficulties in procuring  drilling rigs or the
manpower to run them in the area of its operations;  however,  several  factors,
including  increased  competition  in the area,  may limit the  availability  of
drilling rigs, rig operators and related  personnel  and/or  equipment;  such an
event  may  have  a  significant  adverse  impact  on the  profitability  of the
Company's operations.

Competition in the petroleum and natural gas exploration  industry exists in the
form of competition  to acquire the most promising  acreage blocks and obtaining
the most  favorable  prices for  transporting  the  product.  The  Company,  and
ventures  in  which it  participates,  is  relatively  small  compared  to other
petroleum  and  natural  gas  exploration  companies  and  may  have  difficulty
acquiring   additional   acreage   and/or   projects  and   arranging   for  the
transportation  of product,  in the event the  Company,  or ventures in which it
participates, is successful in its exploration efforts.

GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL LAWS

The  Company  and any  venture in which it  participates,  is required to obtain
permits for drilling oil or gas wells.

Exploration and production activities relating to oil and gas leases are subject
to numerous  environmental laws, rules and regulations.  The Federal Clean Water
Act requires the Company to construct a fresh water containment  barrier between
the surface of each drilling site and the underlying water table.

Various federal,  state and local laws and regulations covering the discharge of
materials into the environment,  or otherwise  relating to the protection of the
environment,  may affect the Company's operations and costs through their effect
on oil and gas exploration, development and production operations. Environmental
laws and  regulations  have changed  substantially  and rapidly over the last 20
years, and the Company anticipates that there will be continuing  changes.  Laws
and regulations  protecting the environment have generally become mo e stringent
in recent years,  and may in certain  circumstances  impose "strict  liability,"
rendering a  corporation  liable for  environmental  damages  without  regard to
negligence or fault on the part of such  corporation.  Such laws and regulations
may expose the Company to liability  for the conduct of operations or conditions
caused by others,  or for acts of the Company which were in compliance  with all
applicable  laws at the time  such  acts  were  performed.  Increasingly  strict
environmental  restrictions and limitations have resulted in increased operating
costs for the Company and other businesses  throughout the United States, and it
is possible that the costs of compliance with environmental laws and regulations
will continue to increase.  The  modification of existing laws or regulations or
the adoption of new laws or regulations relating to environmental  matters could
have a material  adverse effect on the Company's  operations.  In addition,  the
Company's existing and proposed  operations could result in liability for fires,
blowouts,  oil  spills,  discharge  of  hazardous  materials  into  surface  and
subsurface  aquifers  and other  environmental  damage,  any one of which  could
result in personal  injury,  loss of life,  property  damage or  destruction  or
suspension of operations.

The  Comprehensive  Environmental  Response,   Compensation  and  Liability  Act
("CERCLA"),  also known as the "Superfund" law, requires payments for cleanup of
certain  abandoned  waste  disposal  sites,  even  though  such  waste  disposal
activities were undertaken in compliance with regulations applicable at the time
of disposal.  Under the  Superfund  legislation,  one party may,  under  certain
circumstances,  be required to bear more than its proportional  share of cleanup
costs at a site where it has  responsibility  pursuant  to the  legislation,  if
payments cannot be obtained from other  responsible  parties.  Other legislation
mandates  cleanup of  certain  wastes at  facilities  that are  currently  being
operated.  States also have regulatory  programs that can mandate waste cleanup.
CERCLA  authorizes  the  Environmental  Protection  Agency  ("EPA") and, in some
cases, third parties to take actions in response to threats to the public health
or the

                                      -21-

<PAGE>



environment and to seek to recover from the  responsible  classes of persons the
costs they incur.  The scope of financial  liability  under these laws  involves
inherent uncertainties.

It is not  anticipated  that the Company  will be required in the near future to
expend  amounts that are material in relation to its total capital  expenditures
program by reason of environmental  laws and  regulations,  but inasmuch as such
laws and  regulations are frequently  changed,  the Company is unable to predict
the ultimate cost of compliance.

The Company believes it is presently in compliance with all applicable  federal,
state or local  environmental  laws,  rules or regulations;  however,  continued
compliance  (or  failure to comply) and future  legislation  may have an adverse
impact on the Company's present and contemplated business operations.

The  foregoing  is only a brief  summary of some of the  existing  environmental
laws,  rules and  regulations  to which the Company's  business  operations  are
subject,  and there are many others,  the effects of which could have an adverse
impact on the Company.  Future legislation in this area will no doubt be enacted
and revisions will be made in current laws. No assurance can be given as to what
effect these  present and future laws,  rules and  regulations  will have on the
Company's current and future operations.

PRINCIPAL OIL AND GAS PROPERTIES

MATERIAL PROPERTIES

EAST LOST HILLS JOINT VENTURE AND SAN JOAQUIN JOINT VENTURE, CALIFORNIA

In  January  1998,  STB  Energy  agreed  to  acquire a 26.25%  capital  interest
(19.6875% working interest,  15.75% net revenue interest) in various oil and gas
leases (the "East Lost Hills Joint Venture") located in Kern County,  California
for a cash purchase  price of $852,855.  The agreement  required that STB Energy
pay 26.25% of the cost on the first well ("capital  interest"),  even though STB
Energy was earning a 19.6875%  interest on  production  from the well  ("working
interest").  On March 26, 1998,  STB Energy agreed to reduce its interest in the
East Lost Hills  Joint  Venture,  to a  19.6875%  capital  interest  (14.765625%
working interest, 11.8125% net revenue interest) and a proportionate decrease in
its purchase price to $639,709.  During April, 1998, STB Energy agreed to assign
one-third of its remaining interest in the East Lost Hills Joint Venture to each
of Hilton U.S. and KOB Energy Inc. ("KOB  Energy").  On May 29, 1998, STB Energy
completed  formal  agreements  with Hilton U.S. and KOB Energy and completed the
assignments,  whereby  STB Energy,  Hilton U.S.  and KOB Energy each then held a
6.5625%  capital  interest  (4.921875%  working  interest,  3.9375%  net revenue
interest) in the East Lost Hills Joint Venture.  The assignment of the interests
to Hilton U.S.  and KOB Energy were  conducted on the same terms as STB Energy's
acquisition of the interest. At the time of the transaction, the Company had not
completed its Arrangement with Stanford, the parent of STB Energy. KOB Energy is
a wholly-owned subsidiary of Kookaburra Resources Ltd. ("Kookaburra"),  a public
company  trading on the Toronto Stock Exchange.  Nick DeMare,  a director of the
Company,  is also a director of Kookaburra.  See "Item 7. Major Shareholders and
Related Party Transactions - Related Party Transactions."

On October 27, 1998,  STB Energy and Hilton U.S.  each agreed to increase  their
respective  interests  in the East Lost  Hills  Joint  Venture  to a 7%  capital
interest (5.25% working interest, 4.2% net revenue interest).

In February 1999, Berkley Petroleum Corp.  ("Berkley") agreed to purchase,  from
Armstrong  Resources LLC ("Armstrong")  additional  interests in various oil and
gas  prospects  (the "San  Joaquin  Joint  Venture")  in the San Joaquin  Basin.
Neither Berkley nor Armstrong are affiliates of the Company,  and to the best of
the  Company's  knowledge  Berkley and Armstrong  are not  affiliated  with each
other.  In order to reduce its  financial  commitments,  Berkley  allowed  other
companies  to  participate  with it in the  acquisition.  On February  25, 1999,
Hilton  U.S.  agreed to  acquire,  for a purchase  price of  $3,850,000,  an 11%
capital interest, of which 4% was reserved for Trimark Resources, Inc. ("Trimark
Inc.").  On February 26, 1999, the Company entered into an agreement to sell the
4% capital  interest  (3% working  interest)  to Trimark  Inc.  for  $1,450,000.
Trimark Inc. is a wholly-owned subsidiary of Trimark Oil & Gas Ltd. ("Trimark"),
a Canadian  public  company  which has certain  directors and officers in common
with the Company. See "Item 7. Major Shareholders and Related Party Transactions
- Related Party Transactions." The original agreement with Berkley and Armstrong
requires that the Company pay 7% of the costs of the first three wells ("capital
interest") and 5.25% of the costs on all subsequent  wells.  The Company's share
of net revenues,  if any, will be approximately  4.375% ("net revenue interest")
in the San Joaquin Joint Venture.  The Company's agreement with Trimark Inc. was
on identical

                                      -22-

<PAGE>



terms as its  agreement  with Berkley  other than a promote fee of $50,000.  The
Company  is  obligated  to fund its  pro-rata  share of the  exploration  costs.
Anadarko is the operator of the San Joaquin Joint Venture.

As a  condition  of  Berkley's  acquisition  of the San  Joaquin  Joint  Venture
properties,  Berkley  acquired,  on  a  reversionary  basis,  Armstrong's  17.5%
interest in the East Lost Hills Joint  Venture.  After a specified  level of oil
and gas revenue is generated  the 17.5%  interest will be returned to Armstrong.
As part of the  Company's  acquisition  of the 11%  interest  in the San Joaquin
Joint  Venture,   the  Company   acquired  an  initial  1.925%  (11%  of  17.5%)
reversionary  working  interest in the East Lost Hills Joint  Venture.  As noted
above,  4% of the  interest in the San  Joaquin  Joint  Venture was  acquired by
Trimark.  Accordingly, 0.7% (4% of 17.5%) of the 1.925% reversionary interest in
the East Lost Hills Joint Venture was also acquired by Trimark.

On March 8, 1999, the Company  entered into an agreement to sell to Trimark Inc.
a 1%  working  interest  in the East Lost  Hills  Joint  Venture  for the sum of
$2,000,000 and Trimark Inc. sold its 0.7% reversionary interest in the East Lost
Hills Joint Venture to the Company for the sum of $700,000. The $700,000 payable
on the purchase was netted against the $2,000,000  receivable  from Trimark Inc.
Of the  remaining  $1,300,000  receivable,  $600,000  was  received  in cash and
$700,000 was paid by the issuance of 1,160,000 of Trimark's  common  shares at a
deemed  price of CDN$0.90  per share.  The Company is also  obligated to pay its
proportionate share of all on-going exploration activities.

On June 15,  1999,  Hilton  U.S.  entered  into an  agreement  with  Berkley and
acquired a further net 4% capital  interest (2.25% working  interest) in the San
Joaquin Joint Venture for $1,400,000. In order to finance this acquisition,  the
Company  established a Colorado  limited  liability  company,  Hilton  Petroleum
Greater  San Joaquin  Basin LLC  ("Hilton  LLC").  Hilton LLC had in turn raised
funds from  arm's-length  investors.  Hilton LLC sold 20 membership  units, at a
price of $97,500 per unit,  for an aggregate of $1,950,000  pursuant to Rule 506
of Regulation D promulgated by the Securities and Exchange  Commission under the
Securities  Act of 1933, as amended.  Hilton LLC used the proceeds from the sale
of its membership units to purchase from the Company a 2.25% working interest in
the San Joaquin Joint Venture for $1,550,000.  Hilton LLC was required to pay 4%
of the costs to drill the initial wells on each of the initial  three  prospects
in the San  Joaquin  Joint  Venture,  as  discussed  below.  The Company was the
manager and  operator of Hilton LLC.  Hilton LLC members  were  required to fund
their pro-rata share of all the capital requirements of Hilton LLC. In the event
that a member  failed  to pay its  additional  cash call  capital  contributions
within a specified time period that defaulting  member's  interest in Hilton LLC
would revert to the  Company.  If the default  occurred  within 24 months of the
initial capital contribution,  the member would, no sooner than 12 months if the
default occurred before 12 months,  receive common shares of the Company, at the
then prevailing  prices, for his investment cost. If such failure occurred after
24 months then the Company would fund the capital contribution of the defaulting
member and retain that  member's  share of cash flow until 300% of the defaulted
cash call was repaid to the Company.  During the Company's fiscal year ended May
31, 2001,  Hilton LLC members did not pay cash calls of $1,966,740  and an event
of default  occurred  within the first 12 months.  The Company issued  1,558,730
common  shares for the  investment  cost of the LLC units and, as a result,  the
Hilton LLC members' interests were acquired by the Company.

As part of the  acquisition of the 4% capital  interest  which was  subsequently
sold to  Hilton  LLC,  the  Company  also  acquired,  as part of the  $1,400,000
purchase price, an additional  0.7% (4% of 17.5%)  reversionary  interest in the
East Lost Hills Joint Venture, which was valued at approximately $700,000 of the
$1,400,000 purchase price. The 0.7% reversionary interest was not sold to Hilton
LLC with the 4% capital interest.

As of November 30, 2001, the Company's  working interests in the East Lost Hills
and Greater San Joaquin Joint Ventures can be summarized as follows:

<TABLE>
<CAPTION>

                                                                          HELD BY           HELD BY
                                                          TOTAL          STB ENERGY       HILTON U.S.
<S>                                                  <C>               <C>               <C>


East Lost Hills Joint Venture
    Non Reversionary                                      9.500%            5.250%           4.250%
    Reversionary                                          2.625%                -            2.625%
                                                        --------          -------          -------
                                                         12.125%            5.250%           6.875%
                                                        ========          =======          =======
San Joaquin Joint Venture                                 8.250%                -            8.250%
                                                        ========          =======          =======

</TABLE>

The Company's share of net revenues is approximately 9.1% in the East Lost Hills
Joint  Venture.   The  Company's  share  of  net  revenues,   if  any,  will  be
approximately 6.1875% in the San Joaquin Joint Venture.

                                      -23-

<PAGE>



As of October 31,  2001,  the Company had spent  approximately  $1.4  million in
leasehold  acquisition  costs and $16.1 million in exploration  and  development
expenditures on the East Lost Hills Joint Venture. In addition,  the Company had
spent approximately $2.0 million in leasehold acquisition costs and $1.8 million
in exploration  and  development  expenditures on the San Joaquin Joint Venture.
See "Item 4.  Information on the Company - Principal  Properties - Petroleum and
Natural Gas Properties - Material Properties - East Lost Hills Joint Venture and
San Joaquin Joint Venture, California."

Based on the current  approved  work  schedule  and the  progress of the current
drilling  program,  management  has budgeted $1.83 million for  exploration  and
development  on the East Lost Hills Joint  Venture and $1.70  million on the San
Joaquin Joint Venture for the remainder of 2001 and for 2002.

OTHER PROPERTIES

REGIONAL CALIFORNIA

The Company  participated in a regional  exploration  program in the San Joaquin
Basin of  California  and to date a number of prospects  have been drill tested.
The prospects  have much  shallower  target  horizons and the costs to drill are
substantially  less  than  the  East  Lost  Hills  prospects.  The  Company  had
approximately a 32% capital  interest before payout (24% working  interest after
payout) in the prospects tested.

MISSISSIPPI PROSPECTS

The Company holds an undivided 25% working  interest (19% - 19.5425% net revenue
interests) in four oil and gas prospects known as the Smithtown, Hershey, Marble
Creek and Piave  Prospects  under  approximately  10,454  gross acres (2,614 net
acres) located in Greene County, Mississippi.

The  Mississippi  Prospects are located in the interior Salt Basin which is part
of the northeastern rim of the Gulf of Mexico. The Company has agreed to farmout
its  interest if the  operator is able to commence  drilling on the  Mississippi
Prospects  by February 12,  2002.  Under the terms of the  proposed  farmout the
Company has agreed to farmout all of its working  interest in return for a 0.25%
overriding royalty interest convertible to a 3.75% working interest after payout
of the initial test well. As of the date of this annual report,  drilling on the
Mississippi Prospects had not commenced.

OTHER ASSETS

As of November 30, 2001,  the Company held  1,640,000  common shares of Trimark,
representing approximately 8.9% of the issued and outstanding shares of Trimark.
The  quoted  market  value  of the  Trimark  shares  at  November  30,  2001 was
approximately $160,000.

EMPLOYEES

The Company's  management  functions are provided by private  companies owned by
officers  and  directors  of the Company.  See "Item 7. Major  Shareholders  and
Related Party Transactions - Related Party Transactions." The Bakersfield office
employs two full-time  employees.  In addition,  the Company employs a number of
consultants to perform specific functions, on an as needed basis.

ORGANIZATIONAL STRUCTURE

The  following  chart sets forth the names of the  Company  and the  significant
subsidiaries,  their respective jurisdictions of incorporation and the Company's
ownership  interests  therein as of the date of this  report.  Unless  otherwise
indicated  herein,  the term "Company"  means  collectively  the Company and its
subsidiaries.




                                      -24-

<PAGE>



                               ORGANIZATION CHART

                        ---------------------------------
                        |      Hilton Petroleum Ltd.    |
                        |       (Yukon Territory)       |
                        ---------------------------------
                                       |
                                       |
           ----------------------------|-------------------------
           |                           |                        |
           |                           |                        |
-------------------------     --------------------   --------------------------
| Hilton Petroleum Inc. |     |  HTP Energy Inc. |   | Stanford Oil & Gas Ltd.|
|      (Nevada)         |     |   (California)   |   |   (Yukon Territory)    |
|        100%           |     |       100%       |   |         100%           |
-------------------------     --------------------   --------------------------
                                                                |
                                                                |
                                                        --------------------
                                                        |  STB Energy, Inc.|
                                                        |     (Texas)      |
                                                        |       100%       |
                                                        --------------------

SUBSIDIARIES

HILTON PETROLEUM, INC.

The  Company  owns all of the  outstanding  shares  of  Hilton  Petroleum,  Inc.
("Hilton U.S."), a Nevada corporation, which was formed on June 15, 1993. Hilton
U.S.  currently  holds  the  East  Lost  Hills  and San  Joaquin  Joint  Venture
properties located in California.

HTP ENERGY INC.

The  Company  owns  all of the  outstanding  shares  of HTP  Energy  Inc.  ("HTP
Energy"), a California corporation,  which was incorporated on October 10, 2001.
As of the date of this report,  HTP Energy holds all of the Company's  petroleum
properties  other  than  the East  Lost  Hills  and San  Joaquin  joint  venture
properties.

STANFORD OIL & Gas Ltd.

As a result of an  arrangement  (the  "Arrangement")  between  the  Company  and
Stanford Oil & Gas Ltd.  ("Stanford"),  a Yukon Territory  company,  the Company
acquired all of the issued and outstanding  shares of Stanford on April 1, 1999.
Under the terms of the  Arrangement the Company issued  8,462,140  shares of its
common  stock for  16,078,569  issued  shares of Stanford on the basis of 0.5263
common shares of the Company for every one issued share of Stanford.

The Company's Canadian  exploration and development  activities are conducted by
Stanford. Stanford currently does not have any significant oil and gas interests
in Canada.  Stanford's sole significant  asset is currently its shareholdings in
STB Energy.

STB ENERGY INC.

STB Energy Inc. ("STB Energy"),  a Texas corporation  incorporated on August 29,
1995, is a wholly-owned  subsidiary of Stanford. STB Energy has interests in oil
and gas properties located primarily in California.

PRINCIPAL PROPERTIES

PETROLEUM AND NATURAL GAS PROPERTIES

The Company's  principal  business is the acquisition of leasehold  interests in
petroleum  and natural  gas rights,  and the  exploration  for and  development,
production  and  sale  of  petroleum  and  natural  gas.  All of  the  Company's
properties are located in the continental United States.

                                      -25-

<PAGE>




The Company owns interests in petroleum and natural gas properties in the United
States, identified as follows:

MATERIAL PROPERTIES

EAST LOST HILLS JOINT VENTURE AND SAN JOAQUIN JOINT VENTURE, CALIFORNIA

LOCATION

The East Lost Hills Joint  Venture and the San  Joaquin  Joint  Venture are both
situated  in  the  San  Joaquin  Basin,  approximately  45  miles  northwest  of
Bakersfield, California.

PROPERTY DESCRIPTION

The San Joaquin  Basin has proved to be one of the most  productive  hydrocarbon
producing basins in the continental  United States.  To date, the  approximately
14,000  square mile basin has  produced in excess of 13 mmboe,  and  contains 25
fields classified as giant,  with cumulative  production of more than 100 mmboe.
The San Joaquin  Basin  contains  six of the 25 largest oil fields in the U.S.A.
and produces more than 75% of California's oil and gas production.

The Lost Hills Field is an anticlinal  structure  formed by what appears to be a
combination  of  compressional  forces from the west,  as well as  right-lateral
motion  associated  with movement of the San Andreas fault system.  The Monterey
and Temblor  formations are broken by a high angle thrust fault on the west side
of the structure. The East Lost Hills Joint Venture lies in the footwall side of
this thrust  fault,  directly east of and  structurally  below the existing Lost
Hills field. To date, the Lost Hills Field has produced over 115 mbo and 120 bcf
of gas from  Pleistocene,  Pliocene  and  Miocene-age  sands buried at depths of
between 2,000 to 6,000 feet.

The geological objectives at the East Lost Hills Joint Venture are stacked sands
(layers of sand stacked one over the other)  within the Temblor  Group which are
buried between 16,500 to 19,000 feet. The uppermost sand encountered by drilling
in the  Temblor  Group is called the Temblor  Sand.  Other sands which lie below
this  interval  have  various  local names,  and vary in  thickness  and lateral
distribution  from well to well.  The Temblor sands lie beneath the  Miocene-age
Monterey shale,  which is a proven source rock, as well as an excellent vertical
reservoir seal. Two  dimensional  ("2-D") seismic data reveals the presence of a
fault-bounded  structural  high at Temblor  level  situated  southeast of a well
drilled by Shell and Arco  (Shell-Arco  #1-23-22,  T25S,  R20,  section  22). An
interpretation  made by Armstrong  suggests that this well did not penetrate the
Temblor sands,  but reached total depth while still drilling in steeply  dipping
Monterey shales in the hanging wall of the Lost Hills thrust block.

EXPLORATION

EAST LOST HILLS JOINT VENTURE WORK PROGRAM

The East Lost Hills Joint Venture  holds an interest in a significant  number of
leases  totalling in excess of 32,000 acres.  In order to maintain  these leases
the East Lost Hills Joint Venture has committed to drill certain lands.

The initial test well, the Bellevue #1-17,  commenced  drilling in May 1998, and
was designed to test  prospective  Miocene  sandstone  reservoirs in the Temblor
formation at depths to an anticipated  18,500 feet. On November 23, 1998,  while
drilling at 17,640 feet,  the well blew out and ignited.  An expert well control
team was engaged to contain the fire.

A relief well,  the Bellevue  #1R-ST-3,  was  commenced on December 18, 1998, in
order to "kill" the flow of water and  hydrocarbons  flowing out of the Bellevue
#1-17 well.  On May 29, 1999,  the kill  operation was  successfully  completed.
After the successful kill operation, the Bellevue #1R-ST-3 relief well continued
with drilling  towards a bottom hole location  approximately  800 feet away from
the bottom hole  location of the Bellevue  #1-17 well.  On August 24, 1999,  the
operator  announced  that the well would be  completed,  having  reached a total
depth of 17,428 feet, approximately 180 feet into the Temblor formation. Between
October 1, 1999, and October 22, 1999,  the Bellevue  #1R-ST-3 well was prepared
for a completion  test. On October 23, 1999, the completion test was implemented
by perforating the casing and establishing  communication  with the pay zones so
that gas could flow from the pay zones into the  casing.  Initial  results  were
positive and the well flowed gas,  albeit at restricted  rates.  The gas flowed,
but  only  for a short  period  of  time  as the  flow  was  cut  off  when  the
perforations  were  plugged  off. In an attempt to  re-establish  communication,
larger

                                      -26-

<PAGE>



perforations  were  made  but this too was  unsuccessful  and the well  bore was
plugged with formation sand,  shale, and perforating  debris.  The well bore was
cleaned up and in December  1999 was  production  tested and flowed gas at rates
ranging between 1.3 and 5.0 mmcfpd. Condensate and water was obtained during the
test.  Pressure  build-up  analysis  indicated that only the uppermost sand unit
encountered  in the Bellevue  #1R-ST-3 well was  contributing  to the flow.  The
operator  had  considered  either a  re-drill  or  re-entry  of this well  bore.
Management  believes  minimal  maintenance  costs  will be  incurred  until  the
decision to re-drill or re-enter the well bore is made.

On August 26, 1999,  drilling began on the ELH #1 well,  approximately two miles
northwest of the #1R-ST-3  well.  On April 12, 2000,  this well had drilled to a
total depth of 19,724 feet.  Production testing began on May 28, 2000 and, based
on the  results of the  production  testing  and other  analysis,  a natural gas
discovery  was  determined  at the East Lost Hills field.  After  completion  of
production  facilities  and a connection  pipeline,  this well  commenced  first
production on February 6, 2001.  The ELH #1 well is currently  producing  from a
zone in the lower portion of the Temblor  formation.  Production from the ELH #1
well  has  been  constrained  during  the  quarter  due to  downstream  factors,
including processing,  marketing,  water disposal and periodic power outages due
to  California's  ongoing  energy  shortage.  The Company  expects this periodic
production  curtailment  to  continue  until a  disposal  well is  drilled.  The
operator is currently permitting the drilling of a disposal well and anticipates
drilling of the well in the beginning of 2002.

The ELH #2 well,  located  approximately 1.5 miles northwest of the ELH #1 well,
was  drilled  and cased to a total  depth of  18,011  feet.  Initial  production
testing,  in early March, of the upper Temblor  interval in the well resulted in
limited  wellbore  influx of  hydrocarbons  (approximate  flow rate of 3mmcf/d),
higher than expected fluid content,  and poorer than expected pressure response.
Many of the initial  production test results on the well have been influenced by
mechanical  difficulties  associated  with  drill  pipe  that was  inadvertently
cemented  across the  testing  interval.  The ELH #2 well is  currently  shut-in
awaiting  pipeline  connection.  No definitive  date for completion of this work
program has been provided by the operator.

The ELH #3R west flank exploration well was drilled to a total measured depth of
21,769 feet to test the Temblor  interval  in a  separate,  seismically  defined
structure  from the  productive  East Lost  Hills  structure.  Due to steep dips
encountered  in the  lower  portion  of the  well,  it was  determined  that the
underlying  secondary  objective,  the  Point of Rocks  formation,  could not be
reached in the  existing  wellbore.  The well was  plugged  back to 19,370  feet
measured  depth for testing of the lower  Temblor.  Multiple  zones in the lower
Temblor  section  were  perforated  and  tested in the well.  Communication  was
established  with  the  formation  during  testing  and  no  hydrocarbons   were
recovered.  The well has been suspended pending analysis of new seismic data and
additional offset well information.

The ELH #4 well commenced  drilling on November 26, 2000 and reached total depth
of 20,800 feet on August 7, 2001.  The objective in drilling the ELH #4 well was
to achieve production rates substantially  higher than those in the ELH #1 well.
The ELH #4 well was  drilled  to a depth of  20,800  feet.  The  wire-line  logs
indicate the reservoir quality of the sand packages in ELH #4 to be very similar
to those in ELH #1. In the ELH #1 well,  there  was an area of lost  circulation
that did not occur on ELH #4. It should be noted that when  drilling  the ELH #1
substantially  higher mud weights  were used and this could  account for some or
all of the  problems of lost  circulation  at ELH #1. In drilling the ELH #4 the
well was cored in two  different  intervals  with both 4" and 3" diameter  core.
Substantial  time and  money was  spent on  obtaining  these  core  samples  and
detailed analysis of these samples has only recently been completed. In addition
work is also ongoing in analyzing  the results of the 3-D seismic  shoot,  which
covers  the entire  East Lost Hills  area.  A decision  was made to  temporarily
suspend  the well in order to consider  the results of core  samples and seismic
data.  State and Federal  regulations  require  that when a well is  temporarily
suspended  all potential  production  zones must be sealed with cement plugs set
above the zones.  During the plugging  operations on August 26, 2001, the ELH #4
well started to flow and it became necessary to flare off the gas and handle the
produced condensate during the well control operations.

The  side-track  of the ELH #4 well to position it over the top of the structure
has commenced.  This work program is expected to take approximately 100 days and
should be completed by the end of the first quarter of 2002.  The cores from the
ELH #4 well provided important data on the fracturing of the reservoir.

The  ELH #9  well  commenced  drilling  in  early  August  2001,  at a  location
approximately  2 miles  southeast of the ELH #4 well.  This well is projected to
drill to  approximately  21,000 feet and is designed to test the continuation of
the East Lost Hills structure in the south easterly  direction.  The ELH #9 well
was at 17,387 feet on November  30, 2001 and is expected to reach total depth by
the end of the first quarter 2002.


                                      -27-

<PAGE>



During the first half of  calendar  2001,  the  participants  at East Lost Hills
participated in the acquisition of approximately  165 square miles of 3D seismic
data  over the East Lost  Hills  structure  and  surrounding  acreage.  The data
acquisition  has  been  completed  and  the  seismic  data  is  currently  being
processed.  Upon final interpretation of the data, the participants expect to be
able to more  accurately map the East Lost Hills structure and will use the data
for selection of potential delineation and development well locations.

SAN JOAQUIN JOINT VENTURE WORK PROGRAM

With respect to the San Joaquin Joint Venture,  the operator  commenced drilling
the initial  exploratory well on the first of the three initial  prospects,  Cal
Canal,  in June 1999.  The Cal Canal well  penetrated  1,230 feet of the Temblor
formation  with 775 feet of net sand and was  drilled to a total depth of 18,100
feet.  The  well  completion  commenced  on  January  20,  2000.  Non-commercial
hydrocarbon  flow rates were obtained from the initial  perforated 10 foot zone.
Several  additional  zones remain to be tested.  The partners in the San Joaquin
Joint  Venture  have  decided to defer  further  completion  or deepening of the
existing well bore until information regarding reservoir quality and performance
is obtained from on-going  drilling  efforts in the San Joaquin  Basin.  The San
Joaquin Joint Venture has until February 28, 2002,  unless extended,  to further
deepen the Cal Canal well, or the leases will terminate.

The participants in this joint venture,  on the recommendations of the operator,
have determined that the Lucky Dog Prospect will not be drilled and accordingly,
the joint venture has relinquished its interest in this prospect.

Drilling  of the Pyramid  Hills  Prospect  (formerly  Pyramid  Power)  commenced
mid-November  2001 and is expected to reach total depth by the end of June 2002.
The Pyramid Hills 1-9 was at 2,452 feet at November 30, 2001.

OTHER PROPERTIES

REGIONAL CALIFORNIA

The Company  participated in a regional  exploration  program in the San Joaquin
Basin of  California  and to date a number of prospects  have been drill tested.
The prospects  have much  shallower  target  horizons and the costs to drill are
substantially  less  than  the  East  Lost  Hills  prospects.  The  Company  had
approximately a 32% capital  interest before payout (24% working  interest after
payout) in the prospects tested.

During fiscal 2001 and to date,  exploratory test wells have been drilled on the
Mica, Sequoia, Parsley, Merlot and Basil Prospects. No hydrocarbon bearing sands
were  encountered  on test wells on the Sequoia,  Parsley and Merlot  Prospects.
These wells were  plugged and  abandoned.  The Company does not intend to pursue
any further  exploration of these prospects and the operator has quitclaimed the
leases and relinquished  them to the vendor.  California  Exploration  Ltd., the
operator of the Regional California Prospects, have proposed to drill additional
wells at the Mica and Basil Prospects.

The Mica Prospect is located on the west side of the southern San Joaquin Basin.
This  project is believed to be a  stratigraphic  trap based on seismic and well
control.  An initial test well, the Mica 1-17,  commenced drilling in late March
2001.  On April 24,  2001,  the Mica 1-17 was  logged at a drill  depth of 7,881
feet.  It was  determined  that the well was outside the channel  limits and was
suspended  for  possible  future  sidetracking.  The operator has proposed a new
location to drill the Mica 2-17 well and the Company has  determined to farm-out
its interest in this prospect.

The Basil Prospect is located in the southern  portion of the Sacramento  Basin.
This prospect is believed to be a structural  fault trap documented with seismic
and well data. This well must be drilled  directional under a body of water from
a land based position. The targets are believed to be at 4,500 feet but the well
must be drilled 6,000 feet laterally to the target. The initial test well on the
Basil Prospect  commenced  drilling on July 25, 2001 and was completed on August
28, 2001 at a depth of 7,829 feet.  The Basil Prospect is adjacent to the Suisun
producing field and separated by a fault. The Suisun #25 well was  directionally
drilled to a measured depth of 7,829 feet to test the Suisun and Domengine Sands
for natural gas. At 5,550 feet the well  encountered  the trapping  fault with a
440 unit gas spike supporting the sealing ability of the fault. The Suisun Sands
were  encountered  at 6,545 feet - 132 feet high to  prognosis.  The first sands
coming in high supports throw on the fault to be greater than expected. Once the
sands were  encountered the background gas increased by nearly 200 units (1 unit
= 50 ppm  Methane).  Throughout  the Suisun  Sands the  background  gas remained
between 100 and 200 units with several  connection gas readings in excess of 300
units.  The Domengine Sands were encountered at a measured depth of 7,120 feet -
162 feet  high to  prognosis.  In the  lower  Domengine  Sands,  background  gas
readings remained in excess of 500 units. When pulling out of the hole the drill
pipe became stuck at

                                      -28-

<PAGE>



approximately  2,300 feet and after  three days of  recovery  efforts  the pipe,
below 3,216 feet  remained  stuck.  It was therefore  determined to  temporarily
suspend the well.

All indications on the mud log imply a discovery and it is intended to sidetrack
this well from the same surface location using the existing casing down to 2,186
feet. The side-track  will parallel the original hole to the same total depth of
7,829 feet. Due to  environmental  regulations  the side-track  cannot  commence
until a new  permit  has been  obtained.  A  definitive  drill date has not been
determined  but the  operator  expects  that it will be  between  July  2002 and
September 15, 2002. The estimated cost of the replacement well is $700,000, with
the Company's share at $227,365.

MISSISSIPPI PROSPECTS

The  Mississippi  Prospects are located in the interior Salt Basin which is part
of the northeastern rim of the Gulf of Mexico. The Company has agreed to farmout
its  interest if the  operator is able to commence  drilling on the  Mississippi
Prospects  by February 12,  2002.  Under the terms of the  proposed  farmout the
Company has agreed to farmout all of its working  interest in return for a 0.25%
overriding royalty interest convertible to a 3.75% working interest after payout
of the initial test well. As of the date of this annual report,  drilling on the
Mississippi  Prospects  had not  commenced.  During the quarter ended August 31,
2001,  management of the Company determined to include the leasehold acquisition
costs of $879,563  attributable to the Mississippi Prospects in its ceiling test
and impairment write-down. The majority of the leases underlying the Mississippi
Prospects do not expire until 2005.

OTHERS

In September  2000, the Company  participated  in the drilling of the Gus Landry
well on the West Simon Prospect,  situated in Jefferson Davis Parish, Louisiana.
The well  commenced  production  on September 25, 2000 and was shut-in on May 8,
2001 due to the increase in water  production.  The Gus Landry well has now been
plugged and abandoned and the leases  dropped.  The Gus Landry well had produced
approximately  102,400 MCF's gas. The Company held a 24% working interest (15.9%
net revenue interest).

On March 8, 2001, the Company  completed the sale of its Enserch  Properties and
its  interest in the Big Springs  Unit.  The Enserch  Properties  consisted of a
portfolio of oil and gas leases  comprising  approximately  50,304 acres (33,975
net acres) of  developed  acreage and 19,786  gross acres  (12,606 net acres) of
undeveloped  acreage located in Louisiana,  New Mexico,  Oklahoma and Texas. The
Big Springs Unit, located in Deuel County, Nebraska, consisted of 13 wells (3.25
net wells) and was a minor  holding of the Company.  See "Item 5.  Operating and
Financial Review and Prospects - Liquidity and Capital Resources."

The  Company  also  holds  relatively  minor  interests  in  other  oil  and gas
leaseholds,  known as the East Blossom Project (San Joaquin County, California),
and South Haskell Field (Haskell County, Texas).

OIL AND GAS RESERVES

The following  tables set forth  information  regarding  the Company's  share of
estimated  proven oil and gas reserve  quantities,  reserve value and discounted
future net revenues.  The reserve related information for the year ended May 31,
2001 was determined through  independent  engineering  evaluations  completed by
Petrotech  Engineering Ltd.  ("Petrotech"),  an independent petroleum consulting
firm. The reserve related  information for the years ended May 31, 2000 and 1999
was determined  through  independent  engineering  evaluations  completed by Lee
Keeling and Associates,  Inc. ("Lee Keeling"),  a firm of independent  petroleum
consultants.  The  Company  does  not  have  any  long-term  supply  or  similar
agreements with foreign  governments or authorities in which the Company acts as
producer.

There are numerous  uncertainties  inherent in  estimating  quantities of proved
reserves and  projecting  future rates of production  and timing of  development
expenditures.  The following reserve information  represents  estimates only and
should not be construed as being exact:

                                      -29-

<PAGE>

<TABLE>
<CAPTION>

                                                                                                       PRESENT VALUE OF
                                                                                                       ESTIMATED FUTURE
                                                                                      ESTIMATED          NET REVENUES
                                                                         GAS          FUTURE NET     BEFORE INCOME TAXES
                                              GAS          OIL        EQUIVALENT     REVENUES (2)     DISCOUNTED AT 10%
PERIOD                                      (MMCF)        (MBO)       (MMCFE)(1)        ($000)              ($000)

<S>                                        <C>          <C>           <C>           <C>                   <C>

YEAR ENDED MAY 31, 2001

Proved developed reserves                    5,155          285           6,866         55,343               27,470
Proved undeveloped reserves                      -            -               -              -                    -
                                            ------         ----          ------         ------               ------
                                             5,155          285           6,866         55,343               27,470
                                            ======         ====          ======         ======               ======
YEAR ENDED MAY 31, 2000

Proved developed reserves                   17,670          365          19,860         46,134               19,893
Proved undeveloped reserves                  1,332          381           3,618         11,816                6,989
                                            ------         ----         -------         ------               ------
                                            19,002          746          23,478         57,950               26,882
                                            ======         ====         =======         ======               ======
YEAR ENDED MAY 31, 1999

Proved developed reserves                   15,223          638          19,051         22,760               12,680
Proved undeveloped reserves                  6,765          630          10,545         14,974                9,661
                                            ------        -----         -------         ------               ------
Total proved reserves                       21,988        1,268          29,596         37,734               22,341
                                            ======        =====         =======         ======               ======

</TABLE>

(1)  Oil  production  is converted to MCFE at the rate of six MCF of natural gas
     per  barrel  of oil.  Liquids  are  converted  to MCFE at the rate of seven
     gallons of liquids per MCF of natural gas. These conversions are based upon
     the  approximate  energy  content  of natural  gas,  liquids  and oil.

(2)  Estimated future net revenue  represents  estimated future gross revenue to
     be  generated  from the  production  of proved  reserves,  net of estimated
     production and future  development costs, using oil and gas prices received
     and costs in effect as of the date of the  estimates.  The amounts shown do
     not give  effect to  non-property  related  expenses,  such as general  and
     administrative  expenses,  debt  service  and future  income tax expense or
     depreciation, depletion and amortization.

The recent volatility in petroleum and natural gas prices have had a significant
impact on the  Company's  reserve  values.  During the quarter  ended August 31,
2001,  the  Company  recorded  an  impairment  charge of  $11,926,311,  of which
approximately  $9.0  million  related to the impact of the lower  petroleum  and
natural gas prices on the Company's proven reserves.  The remaining $2.9 million
portion of the impairment charge related to unsuccessful drilling activities and
related acquisition costs at Regional California  subsequent to May 31, 2001 and
the decision to write-off leasehold costs relating to the Mississippi Prospects.

ACREAGE

The following  table sets forth as of November 30, 2001, the gross and net acres
of  developed  and  undeveloped  oil and gas  acreage  that the  Company  holds.
Additionally,  the data set forth below are based on the Company's before payout
working  interests.  In certain  cases,  the Company has a greater  after payout
working  interest.  In certain other cases, the Company has only an after payout
working  interest.  As  such,  the  amount  of  gross  and  net,  developed  and
undeveloped acreage will increase when and if certain wells pay out.

                               DEVELOPED                     UNDEVELOPED
                         ----------------------        -----------------------
                          GROSS           NET            GROSS           NET
STATE                     ACRES          ACRES           ACRES          ACRES
-----                    -------        -------        --------       --------

California                640.0           77.6         55,107.2        6,014.8
                         =======        =======        ========       ========

PRODUCTIVE OIL AND GAS WELLS

The  following  table sets forth  certain  information  regarding  the Company's
ownership as of November 30, 2001 of productive oil and gas wells,  operated and
non-operated, in the areas indicated. Additionally, the data set forth below are
based on the Company's before payout working interest. In some cases the Company
has a greater working interest after payout.  In certain other cases the Company
has only an after payout working interest.  As such, the number of gross and net
wells will increase when and if certain wells pay out.

                                      -30-

<PAGE>




                                                  GROSS               NET
STATE                                             WELLS              WELLS
-----                                             -----              -----

California                                           1                0.12
                                                  =====              =====

VOLUMES, PRICES AND PRODUCTION COSTS

The following  table sets forth  certain  information  regarding the  production
volumes,  average prices received and average  production  costs associated with
the Company's sale of oil and gas for the periods.

<TABLE>
<CAPTION>

                                                                                YEAR ENDED MAY 31,
                                                               ----------------------------------------------------
                                                                   2001               2000                1999
<S>                                                           <C>               <C>                 <C>


Net production:
   Oil (Barrels)                                                    39,182             57,586              92,029
   Gas (MCF)                                                       925,635          1,112,734           1,309,081
   Natural Gas Liquids (Gallons)                                 1,039,099          1,294,115           1,008,475
   MCF equivalent                                                1,309,172          1,643,124           2,005,323
Average sales price:
   Oil (per Barrel)                                                 $29.47             $22.89              $11.74
   Gas (per MCF)                                                     $6.09              $2.60               $1.87
   NGL (per Gallon)                                                  $0.60              $0.42               $0.24

   Average production costs per MCFE                                 $1.45              $1.41               $1.08

</TABLE>


PRINCIPAL OFFICES

The  Company's  corporate  office is located at Suite  #1305,  1090 West Georgia
Street,  Vancouver,  British Columbia,  Canada. The corporate office facility is
provided on a  month-to-month  basis by Chase as part of its agreement  with the
Company.  See "Item 7. Major  Shareholders  and  Related  Party  Transactions  -
Related Party Transactions."

The Company's  principal business office is located in Bakersfield,  California.
On October 1, 2001, the Company  relocated its office  premises from Suite 206 -
5000  California  Avenue,  Bakersfield to Suite 205A - 5000  California  Avenue,
Bakersfield,   under  a  month-to-month   sub-lease  agreement  with  California
Exploration Ltd.


ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS.
--------------------------------------------------------------------------------

The  following  discussion  of the results of  operations of the Company for the
fiscal years ended May 31, 2001,  2000,  and 1999 should be read in  conjunction
with the  consolidated  financial  statements  of the Company and related  notes
included therein.

The Company's  consolidated financial statements are prepared in accordance with
Canadian GAAP, the application of which, in the case of the Company, conforms in
all material  respects for the periods  presented  with U.S. GAAP except for the
differences  referred to in Note 13 of the consolidated  financial statements of
the Company  included  herein.  The noon rate of exchange on November  30, 2001,
reported  by the  United  States  Federal  Reserve  Bank  of New  York,  for the
conversion  of Canadian  dollars  into  United  States  dollars  was  CDN$1.5717
(US$0.6363 = CDN$1.00).  The effects of inflation and price changes have not had
a material impact on the Company's  income or net sales revenues during the past
three years.

The Company's consolidated financial statements were prepared on a going concern
basis  which  assumes  that  the  Company  will be able to  realize  assets  and
discharge liabilities in the normal course of business.


                                      -31-

<PAGE>



OVERVIEW

The Company, through its subsidiaries, Hilton U.S. and STB Energy, is engaged in
the  business  of  exploring  for  and   developing   oil  and  gas   prospects.
Substantially  all of the  Company's  oil and  gas  exploration  activities  are
conducted  jointly  with  others  and  the  consolidated  financial  information
reflects the Company's  proportionate  interest in such activities,  because the
Company owns an undivided interest in each asset and is  proportionately  liable
for its share of each liability.

The Company follows the full cost method of accounting for petroleum and natural
gas  operations.  Under this method all costs related to the exploration for and
development  of  petroleum  and  natural  gas  reserves  are  capitalized  on  a
country-by-country  basis. Costs include lease acquisition costs, geological and
geophysical  expenses,  overhead directly related to exploration and development
activities  and costs of drilling  both  productive  and  non-productive  wells.
Proceeds  from the sale of properties  are applied  against  capitalized  costs,
without any gain or loss being recognized,  unless such sale would significantly
alter the rate of depletion and depreciation.

Depletion of exploration  and development  costs and  depreciation of production
equipment is provided using the unit-of-  production method based upon estimated
proven petroleum and natural gas reserves. The costs of significant  unevaluated
properties  are excluded  from costs  subject to  depletion.  For  depletion and
depreciation purposes,  relative volumes of petroleum and natural gas production
and reserves are  converted  into  equivalent  units based upon energy  content.
Depreciation of the gathering  facility is charged to earnings over an estimated
useful life of 10 years on a straight-line basis.

In applying  the full cost method,  the Company  performs a ceiling test whereby
the  carrying  value of  petroleum  and natural gas  properties  and  production
equipment,  net of recorded deferred income taxes and the accumulated  provision
for site restoration and abandonment  costs, is compared annually to an estimate
of future net cash flow from the production of proven reserves. Net cash flow is
estimated   using  year  end  prices,   less   estimated   future   general  and
administrative   expenses,   financing  costs  and  income  taxes.  Should  this
comparison indicate an excess carrying value, the excess is charged to earnings.

RESULTS OF OPERATIONS

YEAR ENDED MAY 31, 2001 COMPARED TO YEAR ENDED MAY 31, 2000

During the year ended May 31, 2001,  the Company  recorded a loss of  $1,518,858
($0.05 per share)  compared  to a loss of  $2,239,652  ($0.09 per share) for the
comparable  2000 period,  an improvement of $720,794.  Petroleum and natural gas
revenues  increased by 14%, from $4,573,883 during 2000 to $5,228,674 in 2001. A
number of significant  transactions occurred during fiscal 2001 which affect the
comparability of the Company's  performance to fiscal 2000.  During fiscal 2001,
management  of the  Company  determined  to  focus  its  direction  towards  the
exploration,  development and production of its East Lost Hills, San Joaquin and
Regional California interests. A review of the Company's petroleum interests was
initiated and  discussions  held with  potential  buyers.  On March 8, 2001, the
Company completed the sale of substantially all of its non-California  petroleum
and natural gas interests to Exco Resources  Inc.  ("Exco").  Throughout  fiscal
2000,  and  until  the  sale  in  March  2001,  these   properties   represented
substantially all of the Company's producing  properties.  Production  commenced
from  the  ELH#1  on  February  6,  2001,  and  currently  represents  the  only
significant  producing  petroleum  and natural gas interest to the Company.  The
overall increase in revenues during fiscal 2001, has been attributable to strong
prices received by the Company for its oil and gas production.  Revenue from oil
and liquids  production  decreased 5% to $1,774,758  in 2001 from  $1,863,104 in
2000.  Production  of oil and liquids in 2001  decreased  28% to 383,537 MCFE in
2001 from 530,390 MCFE in 2000.  The average price  received for oil and liquids
in 2001 was  $4.63/MCFE  compared  to  $3.51/MCFE  in 2000,  an increase of 32%.
Revenue from natural gas  production  increased  95% to  $5,638,478 in 2001 from
$2,895,736 in 2000. Natural gas production  decreased 17% to 925,635 MCF in 2001
from 1,112,734 MCF in 2000. The average price received in 2001 was $6.09/MCF, an
increase  of 134% from  $2.60/MCF  in 2000.  In January  2000,  the  Company was
required by its banker to enter into oil and gas swap  contracts to hedge 70,000
MMBTU gas per month, at $2.385 per MMBTU, and 3,000 barrels of oil per month, at
$22.51 per barrel.  The hedge contracts were closed in February 2001, as part of
the sale of the  petroleum  interests to Exco.  These oil and natural gas hedges
reduced revenues by $2,184,564 for fiscal 2001 and $184,957 for fiscal 2000.

On an MCFE basis,  production  costs  increased  3%, from  $1.41/MCFE in 2000 to
$1.45/MCFE in 2001.  The  depreciation  and depletion  rate  increased 18%, from
$0.94/MCFE in 2000 to $1.11/MCFE in 2001.

                                      -32-

<PAGE>



General and administrative costs increased by $143,386,  approximately 12%, from
$1,149,045  in  2000  to  $1,292,431  in  2001.  The  increase  in  general  and
administrative costs in 2001 occurred primarily due to additional costs incurred
in opening a new office in Bakersfield.

Interest expense on long-term debt decreased by $305,912, approximately 17% from
$1,786,203 in 2000 to $1,480,291 in 2001,  reflecting  the decrease in long-term
debt on the retirement of the balance of the Bank One credit facility.

During fiscal 2001, the Company expended $8,332,486 on its petroleum  interests,
which was primarily  comprised of: i) $5,286,942  towards the development of the
East Lost Hills  Project,  mainly in the funding of the completion of the ELH #1
well and the  drilling of the ELH #2, #3, #4 and #9 wells;  ii) $775,961 for its
share of the gas  facility  at East  Lost  Hills;  and iii)  $2,269,583  for the
acquisition, exploration and development of other oil and gas prospects.

During fiscal 2001, the Company purchased additional shares of Berkley Petroleum
Corp.  ("Berkley"),  at a cost of  $175,568  and  subsequently  disposed  of its
holdings in Berkley for proceeds of $1,644,291, recognizing a gain of $25,345.

The  Company  recorded  a gain of  $212,473  in  fiscal  2001  from  the sale of
petroleum  interests  to Exco.  In addition  $811,950  remains in a  contractual
dispute  between  the  Company  and Exco.  The  parties  have  agreed to put the
disputed amount in escrow and proceed to arbitration.  Management of the Company
is of the opinion that the arbitration ruling will be in its favour.  Settlement
of this dispute will be recorded in income in the period of settlement.

During fiscal 2001, the Company reviewed the carrying value of its investment of
2,080,000 common shares of Trimark. A write-down of $956,253 was made to reflect
the quoted value of the Trimark shares at May 31, 2001.

YEAR ENDED MAY 31, 2000 COMPARED TO YEAR ENDED MAY 31, 1999

During the year ended May 31, 2000,  the Company  recorded a loss of  $2,239,652
($0.09 per share)  compared  to a loss of  $4,449,472  ($0.28 per share) for the
comparable 1999 period.

Petroleum and natural gas revenues increased by 21%, from $3,773,546 during 1999
to $4,573,883 in 2000.  The increase has been  directly  attributable  to strong
prices received by the Company for its oil and gas production  during the latter
part of 1999 and throughout  2000. The increased  prices received were partially
offset by a decrease in production  from the Enserch  properties and the loss of
production  due to the sale of the Company's  interests in the Linnebur wells in
the Barrel Ranch Prospect in August, 1999.

Revenue from oil and liquids increased 41% to $1,863,104 in 2000 from $1,317,808
in 1999.  Production of oil and liquids in 2000 decreased 24% to 530,390 MCFE in
2000 from  696,242  MCFE in 1999.  The  decrease  in  production  was  offset by
increased prices received for oil and gas liquids. The average price received in
2000 was $3.51/MCFE compared to $1.89/MCFE in 1999, an increase of 86%.

Revenue from natural gas increased 18% to $2,895,736 in 2000 from  $2,455,738 in
1999.  Natural  gas  production  decreased  15% to  1,112,734  MCF in 2000  from
1,309,081 MCF in 1999.  The average  price  received in 2000 was  $2.60/MCF,  an
increase of 39% from $1.87/MCF in 1999.

During the fiscal year ended May 31,  2001,  the Company has entered  into crude
oil and natural gas swap  contracts  for the  purpose of  protecting  its future
earnings  and cash flow from  operations  from the  volatility  of crude oil and
natural gas  commodity  prices.  These swap  contracts  reduce  fluctuations  in
petroleum and natural gas sales by locking in fixed forward  prices on a portion
of the Company's  petroleum and natural gas sales.  In January 2000, the Company
placed an order to hedge 70,000  MMBTU gas per month,  for a period of 18 months
at  $2.385  per  MMBTU,  and 3,000  barrels  of oil per month for a period of 12
months, at $22.51 per barrel.  These oil and natural gas hedges reduced revenues
for the year ended May 31, 2000 by $184,957. On an MCFE basis,  production costs
increased 31%, from  $1.08/MCFE in 1999 to $1.41/MCFE in 2000. The  depreciation
and depletion  rate  increased by 19%, from  $0.79/MCFE in 1999 to $0.94/MCFE in
2000.

General and administrative  costs decreased by $142,112,  approximately 11% from
$1,291,157  in  1999  to  $1,149,045  in  2000.  The  decrease  in  general  and
administrative  costs in 2000 occurred primarily due to increased efforts by the
Company  to  reduce  its  office  personnel  in its  Tulsa  office  and  reduced
management and professional fees.

                                      -33-

<PAGE>




Interest  expense on long-term debt decreased by 11%, from $1,996,761 in 1999 to
$1,786,203  in  2000  due  to  the  retirement  and  conversion  of  convertible
debentures during 2000.

Legal and litigation  costs  decreased 21%, from $302,557 in 1999 to $238,749 in
2000.  During 1999, the Company  continued to incur  significant  legal costs in
negotiating  a  settlement  with the  former  president  of the  Company.  Costs
incurred in 2000 related  primarily with the  negotiation  of a settlement  with
Texstar.

During the year ended May 31, 2000,  the Company  incurred  approximately  $11.5
million  in  expenditures  on  its  petroleum  interests,  which  was  primarily
comprised  of: i) $7.7  million in the funding of the  drilling  and  completion
costs relating to the control of the Bellevue #1-17 well and the drilling of the
Bellevue #1R-ST-3 well and the Berkley East Lost Hills #1 well; ii) $1.2 million
for funding of the  drilling of the Cal Canal  well;  iii) $1.4  million for the
purchase of additional interests in certain prospects located in the San Joaquin
basin;  iv) $0.8  million  for lease well  equipment  and  intangible  drilling,
completion and workover costs on the Enserch Properties, and v) $0.4 million for
purchase of other oil and gas  prospects.  The Company also sold  several  minor
properties in its Enserch Property portfolio for approximately  $172,000 and, in
August,  1999,  sold  all of its  interest  in the  Barrel  Ranch  Prospect  for
$469,000. The sale of these interests were applied against capitalized costs.

During the year ended May 31, 2000, the Company acquired 1,960,000 common shares
of Trimark at a recorded amount of $1,704,888.  The Company  received an initial
1,160,000  shares as partial  consideration on the sale of a 1% working interest
in the East Lost Hills Joint Venture, at a deemed value of $700,000. The Company
purchased  the  remaining   800,000  shares  of  Trimark  for  $1,004,888   (CDN
$1,480,000).  As at May 31, 2000, the Company's holdings in Trimark  represented
approximately  13.2% of  Trimark's  issued  common  stock,  and was  recorded as
long-term  investments.  During  fiscal  2000,  the Company  also  purchased  an
additional  161,400  shares of  Berkley  at a cost of  $1,281,633.  During  this
period, the Company also sold 81,900 shares of Berkley for proceeds of $682,572,
recognizing a gain of $172,516.

LIQUIDITY AND CAPITAL RESOURCES

With the ongoing  developments at East Lost Hills and the requirements of senior
management  resources,  the  Company  determined  to  focus  its  personnel  and
financial  resources towards the development of its interests in the San Joaquin
Basin  and  regional  area  of  California.   On  March  8,  2001,  the  Company
successfully  completed  the  sale of the  majority  of its  properties  located
outside of California to Exco. The Company realized net proceeds of $13,507,158,
after  considering  all closing  adjustments  and costs to close out the hedging
contracts relating to the sold properties, of which $12,695,208 was received and
the remaining  $811,950,  which is subject to a contractual  dispute between the
Company  and  Exco,  has been  placed in escrow  pending  arbitration.  From the
proceeds,  the Company utilized  $10,691,159 to retire the principal balance and
accrued  interest on the Bank One credit  facility  and  $487,574 to repay other
borrowings.

Prior to the  commencement  of production in February 2001 from the ELH #1 well,
production from the properties sold to Exco represented substantially all of the
Company's  petroleum and natural gas sales.  As additional  wells are drilled at
the East Lost Hills Joint Venture and, if successful, brought on production, the
Company anticipates that revenues will increase from operations at the East Lost
Hills  Joint  Venture.  It is not  anticipated  that  operations  will  be  self
sustaining in the next 12 months.  Future  development of the Company's business
will require additional, and substantial,  capital expenditures.  Depending upon
the  continuing  results  at East Lost  Hills and the deep  Temblor  exploration
program and at the Regional California programs,  the Company will need to raise
additional  funds to  cover  capital  expenditures.  The  disappointing  pace of
development at the San Joaquin Basin,  the current low petroleum and natural gas
prices and current  economic  climate has  resulted in very low stock prices for
the  Company,  making it very  difficult  to raise  additional  funding  without
substantial  dilution.  At this stage of its  development,  the  Company is also
reviewing  other  options,  which  may  include  the  sale of a  portion  of the
Company's  interest in the East Lost Hills Prospect.  There is no assurance that
the Company will be able to raise sufficient  funding from cash flow,  equity or
debt  financing,  or from  sales  of  interests  in its  properties  to meet its
upcoming  capital  requirements.  The  Company  does not now and does not in the
future  expect to engage in  currency  hedging  to offset  any risk of  currency
fluctuations.

During  the year ended May 31,  2001,  the  Company  raised  approximately  $6.3
million from the sale of equity and a further $3.2 million from debt  financing.
The  Company  also  retired  $14.9  million of debt.  In July 2001,  the Company
completed a private placement whereby it issued 1,673,000 units, at CDN$1.70 per
unit, for proceeds of approximately $1.9 million.  The Company also sold 440,000
shares of Trimark for net  proceeds of $98,116.  The proceeds  were  advanced to
Trimark.  As of the  date of this  report,  the  Company  and  Trimark  have not
finalized the terms of the loan.

                                      -34-

<PAGE>



As at May 31, 2001, the Company's  borrowings consist of convertible  debentures
issued totalling  CDN$2,993,500 and $2,163,000.  The convertible debentures bear
interest  at fixed  annual  rates of  between 9% and 10% and mature on April 30,
2003 (as to  CDN$1,493,500)  and  January  24,  2001  (remainder).  There are no
restrictions  on  the  use  of  the  proceeds  from  the  convertible  debenture
borrowings.

As of  October  31,  2001,  the  Company  had a working  capital  deficiency  of
approximately  $103,000.  The Company anticipates that it will continue to incur
substantial exploration and development  expenditures at the East Lost Hills and
San Joaquin joint ventures and at Regional California.  At the present time, the
Company's  share of approved  budgets for exploration and development to the end
of  calendar  2002 is $3.76  million.  Other  budgets  may be  presented  by the
operators.

The $3.76 million budget  assumes that all wells  currently in progress will all
be drilled and completed. These projections and work schedules are contingent on
many factors, many of which are beyond the Company's control. Work schedules can
and  will  change  based  on  results  in  the  field.  Actual  costs  may  vary
significantly from current estimates.

Prior to the  commencement  of petroleum and natural gas production from the ELH
#1 well, production from the Enserch Properties represented substantially all of
the Company's  petroleum  and natural gas sales.  As of the date of this report,
the ELH #1 well represents the Company's primary producing property.  Due to the
complexity and size of the East Lost Hills Prospect, the pace of development has
been slow.  Production  from the ELH #1 well remains  curtailed  until the water
disposal  well is  completed.  Daily  production  is  currently  limited  to 1.5
mmcf/day of gas, 40 bbl/day of condensate  and 6,500 bbl/day of water.  When the
disposal  well is drilled and as  additional  wells are drilled at the East Lost
Hills and San Joaquin Joint Ventures and, if successful,  brought on production,
the Company  anticipates  that revenues from operations will increase.  However,
there is no  assurance  that the  disposal  well will  result  in a  significant
increase  in  production  from  the  ELH #1  well.  It is not  anticipated  that
anticipated   operations   will  be   sufficient   to  meet  ongoing   corporate
expenditures,  fund further  acquisitions of interests in oil and gas properties
and conduct exploration and development  activities for the period to the end of
2002. The Company does not have sufficient funding for its capital  requirements
and will need to raise  additional  funds to cover capital  expenditures.  These
funds may come from equity or debt financing,  or from sales of interests in its
properties.  The current low natural  gas  prices,  pace of  development  of the
projects,  general economic conditions and lack of investor confidence have made
it difficult for the Company to raise additional funding.  There is no assurance
that  continued or  sufficient  funding will be  available.  Failure to generate
sufficient  operating  cash  flows and obtain  funding  to meet the  anticipated
capital  commitments  of the East Lost Hills and San Joaquin joint  ventures may
result in the loss of significant interests in these petroleum assets.

RESEARCH AND DEVELOPMENT

During fiscal 1999,  2000 and 2001,  the Company  incurred  $6.5 million,  $11.7
million and $8.3 million,  respectively,  on the  acquisition,  exploration  and
development of its petroleum  interests.  During the period from June 1, 2001 to
October 31,  2001,  the  Company  had  incurred  approximately  $3.0  million in
acquisition costs, and exploration and development expenditures.


ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.
--------------------------------------------------------------------------------

DIRECTORS AND SENIOR MANAGEMENT

The names,  positions held with the Company and principal  occupation during the
five years prior to the date of this report of each  director and officer of the
Company as of the date of this report, are as follows:

<TABLE>
<CAPTION>

NAME                                    POSITION WITH THE COMPANY                 TERM OF OFFICE (FOR EACH OFFICE HELD)
----                                    -------------------------                 -------------------------------------

<S>                                  <C>                                      <C>

DONALD W. BUSBY(1)                      Chairman                                  Apr/99 to present
                                        Chief Executive Officer                   Apr/99 to present
                                        President                                 Sept/99 to Mar/98
                                        Director                                  Sept/95 to present

NICK DEMARE(1)                          Director                                  Oct/89 to present

WILLIAM LEE(1)                          Director                                  Sept/95 to present

</TABLE>

                                      -35-

<PAGE>

<TABLE>
<CAPTION>

NAME                                    POSITION WITH THE COMPANY                 TERM OF OFFICE (FOR EACH OFFICE HELD)
----                                    -------------------------                 -------------------------------------

<S>                                  <C>                                      <C>
NEIL DARLING                            Director                                  May/99 to present

HARVEY LIM                              Corporate Secretary                       Jun/97 to present

</TABLE>

(1)  Member of the Audit Committee.

Each officer's and director's  term of office shall expire at the Company's next
annual general  meeting.  The Company does not have an executive  committee or a
compensation  committee.  The  Company's  audit  committee  is  responsible  for
reviewing the  Company's  financial  statements  before they are approved by the
Company's directors.

There are no family relationships between any directors or executive officers of
the Company. To the best of the Company's  knowledge,  there are no arrangements
or understandings  with major  shareholders,  customers,  suppliers,  or others,
pursuant to which any of the Company's  officers or directors was selected as an
officer or director of the Company.

Set forth  below are  brief  descriptions  of  recent  employment  and  business
experience of the Company's officers and directors.

DONALD W.  BUSBY (AGE 64),  CHAIRMAN,  CHIEF  EXECUTIVE  OFFICER,  PROMOTER  AND
DIRECTOR

Since June 1988,  Mr. Busby has been the president  and owner of DWB  Management
Ltd. Mr.  Busby,  through DWB,  provides  marketing,  financial  management  and
consulting  services to various  mineral  exploration  companies,  including the
Company.  Since August 1990, Mr. Busby has been the owner and president of Boone
Petroleum Inc., a private company owned by Mr. Busby. Mr. Busby currently serves
as an officer and director of other  public  reporting  companies.  See "Item 7.
Major Shareholders and Related Party Transactions - Related Party Transactions -
Conflicts of Interest."

NICK DEMARE (AGE 47), DIRECTOR

Mr.  DeMare holds a Bachelor of Commerce  degree from the  University of British
Columbia  and is a  member  in  good  standing  of the  Institute  of  Chartered
Accountants  of British  Columbia.  Since  May,  1991,  Mr.  DeMare has been the
President of Chase  Management  Ltd., a private  company which  provides a broad
range of administrative, management and financial services to private and public
companies  engaged  in  mineral  exploration  and  development,  gold and silver
production,  oil and gas  exploration  and production and venture  capital.  Mr.
DeMare  indirectly owns 100% of Chase. Mr. DeMare currently serves as an officer
and  director  of  other  public  reporting   companies.   See  "Item  7.  Major
Shareholders  and Related  Party  Transactions  - Related Party  Transactions  -
Conflicts of Interest."

WILLIAM LEE (AGE 48), DIRECTOR

Mr. Lee holds a Bachelor  of  Commerce  degree  from the  University  of British
Columbia  and is a  member  in  good  standing  of the  Institute  of  Chartered
Accountants of British  Columbia.  He has been a financial officer or controller
of several public and private  companies since 1986 and, prior,  thereto,  was a
Senior Audit  Manager at Deloitte & Touche.  Prior to March,  1995,  Mr. Lee was
employed as the Chief Financial Officer of Sanctuary Woods Multimedia Corp. From
March 1995 to June 1996, Mr. Lee was employed as the Chief Financial  Officer of
Wildwood  Interactive  Inc.  Since June,  1996, Mr. Lee has been employed as the
Chief Financial Officer of IMA Exploration Inc., a public company engaged in the
exploration of mineral properties.

NEIL DARLING (AGE 42), DIRECTOR

Mr. Darling holds a Bachelor of Arts Degree (Economics),  from the University of
Calgary and is a member of the Canadian  Association of Drilling Engineers.  Mr.
Darling has worked  extensively  in the energy  sector with over twenty years of
project  management,  engineering  and  operations  experience  in drilling  and
completions.  From October 1997 to present,  Mr. Darling has been a principal of
Ramdar Resource  Management  Ltd., a private  company which provides  operations
consulting  services for numerous clients in the oil and gas industry in Canada,
the United States and  internationally.  From 1993 to October 1997,  Mr. Darling
was employed with Norwest Engineering as its operations manager.

                                      -36-

<PAGE>




HARVEY LIM (AGE 43), CORPORATE SECRETARY

Mr. Lim holds a Bachelor  of  Commerce  degree  from the  University  of British
Columbia  and is a  member  in  good  standing  of the  Institute  of  Chartered
Accountants of British Columbia.  Mr. Lim was employed by Coopers & Lybrand (now
PricewaterhouseCoopers  LLC) from 1981 to 1988.  From 1988 to 1991,  Mr. Lim was
employed as controller  with Ingot  Management Ltd. Since 1991, Mr. Lim has been
employed by Chase Management Ltd. as controller.  Mr. Lim currently serves as an
officer and director of other  public  reporting  companies.  See "Item 7. Major
Shareholders  and Related  Party  Transactions  - Related Party  Transactions  -
Conflicts of Interest."

COMPENSATION

During the fiscal year ended May 31,  2001,  the  directors  and officers of the
Company, as a group, had received or charged the Company a total of $197,241 for
services  rendered  by the  directors  and  officers or  companies  owned by the
individuals.

The Company is required,  under applicable securities  legislation in Canada, to
disclose to its shareholders  details of compensation  paid to its directors and
officers.  The  following  fairly  reflects all material  information  regarding
compensation  paid  by  the  Company  to  its  directors  and  officers,   which
information has been disclosed to the Company's  shareholders in accordance with
applicable Canadian law.

"Named  Executive  Officers"  means the Chief  Executive  Officer ("CEO") of the
Company, regardless of the amount of compensation of that individual and each of
the Company's four most highly compensated  executive  officers,  other than the
CEO, who were serving as executive officers at the end of the most recent fiscal
year and whose  total  salary and bonus  amounted  to  CDN$100,000  or more.  In
addition, disclosure is also required for any individuals whose total salary and
bonus during the most recent fiscal year was CDN$100,000 whether or not they are
an executive officer at the end of the fiscal year.

EXECUTIVE COMPENSATION

During the fiscal year ended May 31, 2001,  the Company had one Named  Executive
Officer,  Donald W. Busby, Chairman and Chief Executive Officer. The table below
sets forth the compensation of the Named Executive Officer:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>

                                       ANNUAL COMPENSATION                    LONG TERM COMPENSATION
                               --------------------------------       ------------------------------------
                                                                                 AWARDS             PAYOUTS
                                                                      ---------------------------  ---------
                                                                      SECURITIES      RESTRICTED
                                                         OTHER          UNDER         SHARES OR                    ALL
                                                         ANNUAL        OPTIONS/       RESTRICTED                  OTHER
   NAME AND                                             COMPEN-         SARS            SHARE         LTIP       COMPEN-
   PRINCIPAL                     SALARY       BONUS      SATION         GRANTED         UNITS        PAYOUTS     SATION
   POSITION                      (US$)       (US$)       (US$)           (#)            (US$)         (US$)       (US$)
--------------------           --------      ------    --------       ----------      ----------     -------     --------
<S>                   <C>      <C>         <C>       <C>          <C>                <C>           <C>        <C>

Donald W. Busby,         2001     Nil         Nil         Nil          350,000           Nil           Nil       103,342
Chairman and Chief       2000     Nil         Nil         Nil            Nil             Nil           Nil       150,965
Executive                1999     Nil         Nil        3,882        1,087,676          Nil           Nil       122,033
Officer

</TABLE>

LONG TERM INCENTIVE PLAN AWARDS

Long term incentive plan awards ("LTIP") means "any plan providing  compensation
intended to serve as an incentive for  performance to occur over a period longer
than one  financial  year  whether  performance  is  measured  by  reference  to
financial  performance  of the  Company  or an  affiliate,  or the  price of the
Company's shares but does not include option or stock appreciation  rights plans
or plans for compensation  through  restricted shares or units." The Company has
not granted any LTIP's to the Named  Executive  Officer or the directors  during
the fiscal year ended May 31, 2001.

                                      -37-

<PAGE>




STOCK APPRECIATION RIGHTS

Stock appreciation rights ("SAR's") means a right, granted by the Company or any
of its subsidiaries as compensation for services  rendered or in connection with
office or  employment,  to receive a payment of cash or an issue or  transfer of
securities  based  wholly  or in part on  changes  in the  trading  price of the
Company's  shares.  No SAR's were granted to or exercised by the Named Executive
Officer or the directors during the past fiscal year ended May 31, 2001.

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth  information  concerning grants of options to the
Named Executive Officer during the past fiscal year ended May 31, 2001:


<TABLE>
<CAPTION>

                                                 % OF TOTAL
                                                   OPTIONS                               MARKET VALUE OF
                                                 GRANTED TO                                SECURITIES
                                                 DIRECTORS,                                UNDERLYING
                         SECURITIES UNDER       EMPLOYEES AND         EXERCISE OR      OPTIONS ON DATE OF
                          OPTIONS GRANTED       ASSOCIATES IN         BASE PRICE              GRANT           EXPIRATION
NAME                            (#)             FISCAL YEAR(1)      (CDN$/SECURITY)      (CDN$/SECURITY)         DATE
---------------------    ----------------      --------------        -------------      -----------------     -----------
<S>                      <C>                   <C>                   <C>                  <C>             <C>

Donald W. Busby               50,000                4.89%                1.80                 1.80            Oct.16/03
                             300,000               29.35%                2.68                 2.68            Mar.02/04
                             -------               -----
                             350,000               34.24%
                             =======               =====

</TABLE>


NOTE:

(1)  Percentage of all options granted during the last fiscal year ended May 31,
     2000.

OPTIONS EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

The following  table sets forth  details of all exercises of options  during the
past fiscal year ended May 31, 2000 and the value of  unexercised  options on an
aggregated basis as at May 31, 2001:

<TABLE>
<CAPTION>

                                                                                                  VALUE OF UNEXERCISED
                                                                       UNEXERCISED OPTIONS AT     IN-THE-MONEY OPTIONS
                                                                           FISCAL YEAR-END         AT FISCAL YEAR-END
                                  SECURITIES           AGGREGATE               (#)(3)                 (CDN$)(3)(4)
                                 ACQUIRED ON             VALUE
                                   EXERCISE            REALIZED             EXERCISABLE/              EXERCISABLE/
NAME                                (#)(1)             (CDN$)(2)            UNEXERCISABLE             UNEXERCISABLE
-------------------             ------------          ----------        -------------------        -------------------
<S>                              <C>                  <C>               <C>                        <C>

Donald W. Busby                      Nil                  N/A               1,132,189(5)               13,549/Nil

</TABLE>

NOTES:

(1)  Number of common shares acquired on the exercise of options.
(2)  Calculated  using the  difference  between the closing price on the CDNX on
     the date of exercise and the exercise price of the options.
(3)  As  freestanding  SARs have not been  granted,  the number of common shares
     relate solely to the options.
(4)  Value using the closing  price of the common  shares on the CDNX on May 31,
     2001 of CDN$1.74 per share, less the exercise price of the options.
(5)  Includes  options for 749,032 common shares granted to DWB Management Ltd.,
     a private company owned by Mr. Busby.

PENSION PLANS

The Company  does not provide  retirement  benefits  for its  directors or Named
Executive Officers.

                                      -38-

<PAGE>




PROPOSED COMPENSATION

The Company has no bonus,  profit  sharing or similar plans in place pursuant to
which cash or non-cash compensation is proposed to be paid or distributed to the
Named Executive Officer in the current or subsequent fiscal year.

COMPENSATION OF DIRECTORS

The following table sets forth  information  concerning grants of options to the
directors who are not Named Executive Officers during the past fiscal year ended
May 31, 2001:

<TABLE>
<CAPTION>

                                           % OF TOTAL
                                             OPTIONS                                MARKET VALUE OF
                                            GRANTED TO                                SECURITIES
                                            DIRECTORS,                                UNDERLYING
                    SECURITIES UNDER       EMPLOYEES AND         EXERCISE OR      OPTIONS ON DATE OF
                     OPTIONS GRANTED       ASSOCIATES IN         BASE PRICE              GRANT           EXPIRATION
    NAME                   (#)            FISCAL YEAR(1)       (CDN$/SECURITY)      (CDN$/SECURITY)         DATE
----------------   -----------------      --------------       --------------      -----------------     ----------
<S>                    <C>                  <C>                  <C>                  <C>             <C>

Nick DeMare               20,000                1.96%               1.80                 1.80            Oct.16/03
                         120,000               11.74%               2.68                 2.68            Mar. 2/04
                         -------               -----
                         140,000               13.70%
                         =======               =====

William Lee               25,000                2.44%               1.60                 1.60            Jan. 10/04
                          15,000                1.47%               2.68                 2.68            Mar. 2/04
                         -------               -----
                          40,000                3.91%
                         =======               =====

Neil Darling              10,000                0.97%               1.60                 1.60            Jan. 10/04
                          15,000                1.47%               2.68                 2.68            Mar. 2/04
                         -------               -----
                          25,000                2.44%
                         =======               =====
</TABLE>


The following  table sets forth  details of all exercises of options  during the
past  fiscal  year  ended May 31,  2001 by the  directors  who are not the Named
Executive  Officers and the value of unexercised  options on an aggregated basis
as at May 31, 2001:

<TABLE>
<CAPTION>

                                                                                                  VALUE OF UNEXERCISED
                                                                       UNEXERCISED OPTIONS AT     IN-THE-MONEY OPTIONS
                                                                          FISCAL YEAR-END          AT FISCAL YEAR-END
                                  SECURITIES          AGGREGATE                (#)(3)                 (CDN$)(3)(4)
                                 ACQUIRED ON            VALUE
                                   EXERCISE           REALIZED              EXERCISABLE/              EXERCISABLE/
NAME                               (#)(1)            (CDN$)(2)            UNEXERCISABLE              UNEXERCISABLE
-------------------------       -------------        ----------         --------------------       -------------------
<S>                               <C>                 <C>               <C>                          <C>

Nick DeMare                          Nil                 N/A               356,864(5)/Nil                Nil/Nil

William Lee                          Nil                 N/A                100,999/Nil                 5,395/Nil

Neil Darling                         Nil                 N/A                100,000/Nil                  Nil/Nil

</TABLE>

NOTES:

(1)  Number of common shares acquired on the exercise of options.
(2)  Calculated  using the  difference  between the closing price on the CDNX on
     the date of exercise and the exercise price of the options.
(3)  As  freestanding  SARs have not been  granted,  the number of common shares
     relate solely to the options.
(4)  Value using the closing  price of common shares on the CDNX on May 31, 2001
     of CDN$1.74 per share, less the exercise prices of the options.
(5)  Includes  options for 216,864  common  shares  granted to Chase,  a private
     company indirectly wholly-owned by Mr. DeMare.


                                      -39-

<PAGE>



During the fiscal year ended May 31, 2001,  Chase,  a private  company  which is
indirectly  wholly-owned  by Mr. Nick DeMare,  was paid $81,995.  Chase provides
management,  administrative and accounting services to the Company.  The Company
also paid $5,952 each to Mr.  William Lee and Ramdar  Resource  Management  Ltd.
("Ramdar"), for consulting services. Ramdar is a private company wholly-owned by
Mr. Neil Darling.

EMPLOYMENT AGREEMENTS

The Company has  directly  entered  into  management  contracts  with  companies
controlled  by  Messrs.  Busby  and  DeMare  for  accounting,  professional  and
management  services  provided to the Company.  Specifically,  the Company has a
management  contract  with Boone,  a company  owned by Mr.  Busby,  at a rate of
$7,000 per month and with Chase, a company  indirectly owned by Mr. DeMare, at a
rate of CDN$8,000 per month.

BOARD PRACTICES

AUDIT COMMITTEE

The Company's Audit Committee must be comprised of at least three directors, the
majority of whom are not employees,  control persons or members of management of
the Company or any of its  associates or  affiliates.  The board of directors of
the Company,  after each annual shareholder'  meeting must appoint or re-appoint
an audit  committee.  As of the date of this annual  report,  the members of the
audit committee were Mr. Busby, Mr. DeMare and Mr. Lee.

The Audit Committee must review the annual  financial  statements of the Company
before they are approved by the board of directors of the Company.  The board of
directors of the Company must review, and if considered appropriate, approve the
annual  financial   statements  of  the  Company  before   presentation  to  the
shareholders of the Company.

TERMINATION OF EMPLOYMENT, CHANGE IN RESPONSIBILITIES AND EMPLOYMENT CONTRACTS

During the fiscal year ended May 31, 2001,  Mr. Busby received  consulting  fees
from the Company of $90,527 paid directly to Boone,  a private  company which is
wholly-owned  by Mr. Busby.  Boone provides  marketing and financial  management
services to the Company. The Company also paid $1,600 to Rockies Oil & Gas Inc.,
a private company wholly-owned by Mr. Busby for professional  services rendered.
The Company also paid Mr.  Busby's  health  insurance  premiums of $11,215.  See
"Item 7. Major  Shareholders  and Related  Party  Transactions  - Related  Party
Transactions."

TERMINATION OF EMPLOYMENT OR CHANGE OF CONTROL

Other than as described in the Summary Compensation Table and above, the Company
has no plans or arrangements in respect of remuneration  received or that may be
received by the Named Executive Officer in the Company's most recently completed
financial year or current  financial year in view of compensating  such officers
in  the  event  of  termination  of  employment  (as a  result  of  resignation,
retirement, change of control, etc.) or a change in responsibilities following a
change of control,  where the value of such compensation exceeds CDN$100,000 per
executive officer.

EMPLOYEES

As of May 31,  2001,  the  Company  had 3  full-time  employees  in the  area of
management  and  administration.  As at May 31,  2000,  there  were 6  full-time
employees in the area of management and administration compared with 5 full-time
employees  as  at  May  31,  1999.   Exploration  activities  are  conducted  by
consultants,  laborers and technicians hired for the duration of the exploration
program.

SHARE OWNERSHIP

The following table sets forth certain  information  regarding  ownership of the
Company's shares by the Company's officers and directors as of October 31, 2001.


                                      -40-

<PAGE>


<TABLE>
<CAPTION>

                                                                SHARES AND RIGHTS BENEFICIALLY
TITLE OF CLASS            NAME AND ADDRESS OF OWNER                 OWNED OR CONTROLLED (1)       PERCENT OF CLASS (1)
------------------        --------------------------            -------------------------------   ---------------------
<S>                   <C>                                            <C>                              <C>

Common Stock              Donald W. Busby                                7,716,077(2)(3)                  18.18%
                          Bakersfield, California

Common Stock              Nick DeMare                                    4,112,754(4)(5)                  10.50%
                          Burnaby, British Columbia

Common Stock              William Lee                                      102,841(6)                      0.28%
                          Delta, British Columbia

Common Stock              Neil Darling                                     100,000(7)                      0.27%
                          Calgary, Alberta

Common Stock              Harvey Lim                                        42,000(8)                      0.11%
                          Burnaby, British Columbia

</TABLE>

(1)  Where  persons  listed on this  table  have the right to obtain additional/
     shares of common  stock  through  the  exercise of  outstanding  options or
     warrants or through the conversion of debentures,  these additional  shares
     are deemed to be outstanding for the purpose of computing the percentage of
     common stock owned by such  persons,  but are not deemed to be  outstanding
     for the purpose of  computing  the  percentage  owned by any other  person.
     Based on 36,575,159  shares of common stock  outstanding  as of October 31,
     2001.

(2)  Includes  1,127,775  shares of common  stock held by Boone  Petroleum  Inc.
     ("Boone"),  a private company  wholly-owned by Mr. Busby and 711,274 shares
     held by the Donald W. Busby 1999 Irrevocable Trust ("Busby Trust").

(3)  Includes  warrants  held by Boone to acquire an additional  766,308  common
     shares, warrants held by the Busby Trust to acquire an additional 2,705,000
     common  shares,  options held by DWB  Management  Ltd.  ("DWB"),  a private
     company  wholly-owned  by Mr. Busby,  to acquire  749,032 common shares,  a
     CDN$1,100,000 debenture, held by the Busby Trust, which is convertible into
     423,077 common shares, a $300,000 debenture, held by the Busby Trust, which
     is convertible into 353,444 common shares and a $450,000 debenture, held by
     Boone, which is convertible into 530,000 common shares.

(4)  Includes 788,602 common shares held by DNG Capital Corp. ("DNG"), a private
     company  wholly-owned  by Mr.  DeMare,  196,403  shares held by 888 Capital
     Corp. ("888") and 25,800 shares held by UEV Holdings Ltd. ("UEV").  888 and
     UEV are private companies 50% owned by Mr. DeMare.

(5)  Includes  warrants  held by DNG to acquire an additional  1,000,000  common
     shares,  warrants  held by 888 to  acquire  159,625  common  shares,  and a
     CDN$200,000  9%  convertible  debenture  and  a  $263,000  10%  convertible
     debenture held by DNG which are convertible  into a total of 458,001 common
     shares.

(6)  Includes options to acquire an additional 87,841 common shares.

(7)  Consists of options to acquire 100,000 common shares.

(8)  Includes options to acquire an additional 10,000 common shares and warrants
     to acquire an additional 17,000 common shares.

STOCK OPTIONS

Stock options to purchase  securities  from the Company are granted to directors
and  employees  of  the  Company  on  terms  and  conditions  acceptable  to the
regulatory  authorities  in Canada,  notably  the CDNX.  Stock  options  must be
approved by the Company's shareholders at an Annual General Meeting. The Company
has no formal written stock option plan.

Under the stock  option  program,  stock  options for up to 10% of the number of
issued and outstanding  shares of common stock may be granted from time to time,
provided that stock options in favor of any one  individual may not exceed 5% of
the issued and outstanding shares of common stock. No stock option granted under
the stock option program is  transferable  by the optionee other than by will or
the laws of  descent  and  distribution,  and each stock  option is  exercisable
during the lifetime of the optionee only by such optionee.

The exercise price of all stock options granted under the stock option program
must be at least equal to the fair market value of such shares of common stock
on the date of grant, and the maximum term of each stock option may not exceed
five years.

                                      -41-

<PAGE>



The exercise  prices for stock options were  determined in accordance  with CDNX
(formerly the VSE)  guidelines  and  reflected the average  closing price of the
Company's  common stock for the ten trading days on the CDNX  (formerly the VSE)
immediately  preceding  the date on which the  directors  granted  and  publicly
announced the stock options.

As of November  30,  2001,  the Company had granted an  aggregate  of  2,156,987
incentive stock options to purchase shares of the Company's  common stock to the
following persons:

<TABLE>
<CAPTION>

                                           NATURE                NO. OF           EXERCISE
OPTIONEE                                  OF OPTION              OPTIONS         PRICE/SHARE       EXPIRY DATE
--------                                  ---------              -------         -----------       -----------
                                                                                     CDN$
<S>                                   <C>                    <C>                 <C>            <C>

Donald W. Busby                           Director                50,000             1.80          Oct. 16/03
DWB Management Ltd. (1)                   Employee               349,032             2.10          Dec. 31/01
Caron Busby (3)                           Employee               100,000             2.10          Dec. 31/01
Nick DeMare                               Director                20,000             1.80          Oct. 16/03
Chase Management Ltd. (2)                 Employee               216,864             2.10          Dec. 31/01
William Lee                               Director                47,841             2.10          Dec. 31/01
Earl Helsley (4)                          Employee               100,000             2.10          Dec. 31/01
DWB Management Ltd. (1)                   Employee               400,000             1.92          May 25/02
Neil Darling                              Director                75,000             2.00          May 26/02
Ted Carlsen                               Employee                 6,250             2.70          Apr. 19/03
Harvey Lim                                Employee                10,000             1.34          Dec. 21/03
Betty Moody                               Employee                10,000             1.34          Dec. 21/03
Arabella Smith                            Employee                 5,000             1.34          Dec. 21/03
Linda Liu                                 Employee                 5,000             1.34          Dec. 21/03
Rosanna Wong                              Employee                 5,000             1.34          Dec. 21/03
Jacqueline Hibbs                          Employee                 2,000             1.34          Dec. 21/03
Greystoke Investments Ltd.                Employee                40,000             1.60          Jan. 10/04
MDC Group Inc.                            Employee                40,000             1.60          Jan. 10/04
Neil Darling                              Director                10,000             1.60          Jan. 10/04
William Lee                               Director                25,000             1.60          Jan. 10/04
Betty Moody                               Employee                20,000             2.68          Mar. 02/04
Des O'Kell                                Employee               100,000             2.68          Mar. 02/04
David Castaneda                           Employee                70,000             2.68          Mar. 02/04
Donald W. Busby                           Director               300,000             2.68          Mar. 02/04
Nick DeMare                               Director               120,000             2.68          Mar. 02/04
William Lee                               Director                15,000             2.68          Mar. 02/04
Neil Darling                              Director                15,000             2.68          Mar. 02/04
                                                               ---------
TOTAL:                                                         2,156,987
                                                               =========
</TABLE>

(1)  A private company wholly-owned by Mr. Donald Busby.
(2)  A private company indirectly wholly-owned by Mr. Nick DeMare.
(3)  Caron Busby is the wife of Donald W. Busby.
(4)  Earl Helsley is the son-in-law of Donald W. Busby.

All of these options are non-transferable and currently terminate on the earlier
of the  expiry  date or the 30th day  following  the day on which the  director,
officer or employee, as the case may be, ceases to be either a director, officer
or employee of the Company.

As of November 30, 2001,  the directors and officers of the Company,  as a group
(5 persons),  held options to purchase  1,653,737 shares of the Company's common
stock.

WARRANTS

As of November  30, 2001,  there were  non-transferable  common  share  purchase
warrants  exercisable for the purchase of 7,321,902 common shares,  which expire
at various  times  until  July 6, 2004 and may be  exercised  at various  prices
ranging from CDN $1.35 per share to CDN $3.46 per share, as follows:

                                      -42-

<PAGE>


<TABLE>
<CAPTION>


  COMMON SHARES ISSUABLE          EXERCISE PRICE/SHARE
 ON EXERCISE OF WARRANTS                  CDN$                   EXPIRY
 -----------------------         ---------------------           ------
<S>                                    <C>                   <C>

        266,308                           3.46                   March 31, 2002
      2,260,000                           1.35                   December 18,2003
         31,250                           1.77                   December 11,2002
         35,000                           1.48                   December 7, 2003
        268,750                           1.35                   January 24, 2004
        836,500                           1.88                   July 6, 2004
         40,000                           1.88                   July 6, 2002
        285,200                           1.88                   July 11,2002
      2,199,000                           1.85                   March 27, 2003
        999,894                           2.75                   July 27, 2002
        100,000                           2.75                   August 3, 2002
     ----------
      7,321,902
     ==========

</TABLE>

As of November 30, 2001,  the directors and officers of the Company,  as a group
(5 persons),  held warrants to purchase 5,269,308 shares of the Company's common
stock.

OTHER CONVERTIBLE SECURITIES

DEBENTURES

(A)  10% DEBENTURES

The debentures (the "10% Debentures") were issued in fiscal 2001 and comprise of
$2,163,000  Series A and CDN  $1,500,000  Series  B. An  aggregate  of  $300,000
principal amount were issued to the Donald W. Busby 1999 Irrevocable  Trust (the
"Busby Trust") which Mr. Donald W. Busby, an officer and director of the Company
is the settlor,  an aggregate of $450,000  principal amount were issued to Boone
Petroleum Inc.  ("Boone"),  a private  company wholly- owned by Mr. Busby and an
aggregate of $263,000 principal amount were issued to DNG Capital Corp. ("DNG"),
a private company owned by Mr. Nick DeMare,  a director of the Company.  The 10%
Debentures  bear  interest at 10% per annum,  payable  quarterly,  and mature on
January 24,  2004.  The 10%  Debentures  are  convertible,  at the option of the
holders,  into common shares of the Company, at a price of CDN$1.35 per share on
or before January 24, 2003 and CDN$1.56 per share on or before January 24, 2004.

As of November  30, 2001,  all of the  principal  amounts of the 10%  Debentures
remained outstanding.

(B)  9% DEBENTURES

In June  1999,  the  Company  issued  debentures  (the  "9%  Hilton  Convertible
Debentures")  totaling  CDN  $1,493,500,  which  mature  on April 30,  2003.  An
aggregate of CDN $1,100,000  principal amount were issued to the Busby Trust, an
aggregate of CDN $200,000  principal amount were issued to DNG, and an aggregate
of CDN $193,500  principal  amount were issued to E.J.  Holdings Ltd., a private
company  wholly-owned by E.J. Helsey, the son-in-law of Mr. Busby. The 9% Hilton
Convertible  Debentures bear interest at 9.0% per annum,  payable  quarterly and
are convertible into common shares on the following basis:

 (i) on or  before  April  30,  2002,  at a  conversion  price  of CDN  $2.60 of
     principal per share; and

(ii) May 1,  2002 to April  30,  2003,  at a  conversion  price of CDN  $2.85 of
     principal per share.

As of November 30, 2001, all of the principal amounts of the 9% Hilton
Convertible Debentures remained outstanding.



                                      -43-

<PAGE>



ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.
--------------------------------------------------------------------------------

PRINCIPAL HOLDERS OF VOTING SECURITIES

To the best of the Company's  knowledge,  it is not directly or indirectly owned
or controlled by another corporation or by any foreign government. The following
table sets forth certain information regarding ownership of the Company's shares
by the Company's  officers and directors as a group,  as well as all persons who
own greater than five percent (5%) of the Company's  outstanding  shares,  as of
October 31, 2001.

<TABLE>
<CAPTION>

                                                              SHARES AND RIGHTS BENEFICIALLY
TITLE OF CLASS            NAME AND ADDRESS OF OWNER               OWNED OR CONTROLLED (1)       PERCENT OF CLASS (1)
--------------------      --------------------------          -------------------------------   ---------------------
<S>                    <C>                                        <C>                              <C>

Common Stock              Donald W. Busby                              7,716,077(2)(3)                 18.18%
                          Bakersfield, California

Common Stock              Nick DeMare                                  4,112,754(4)(5)                 10.50%
                          Burnaby, British Columbia

Common Stock              Officers & Directors, as a group            12,073,672(2)(3)(4)(5)           26.67%
                          (5 persons)

</TABLE>


(1)  Where  persons  listed on this  table  have the right to obtain  additional
     shares of common  stock  through  the  exercise of  outstanding  options or
     warrants or through the conversion of debentures,  these additional  shares
     are deemed to be outstanding for the purpose of computing the percentage of
     common stock owned by such  persons,  but are not deemed to be  outstanding
     for the purpose of  computing  the  percentage  owned by any other  person.
     Based on 36,575,159  shares of common stock  outstanding  as of October 31,
     2001.

(2)  Includes  1,127,775  shares of common  stock held by Boone  Petroleum  Inc.
     ("Boone"),  a private company  wholly-owned by Mr. Busby and 711,274 shares
     held by the Donald W. Busby 1999 Irrevocable Trust ("Busby Trust").

(3)  Includes  warrants  held by Boone to acquire an additional  766,308  common
     shares, warrants held by the Busby Trust to acquire an additional 2,705,000
     common  shares,  options held by DWB  Management  Ltd.  ("DWB"),  a private
     company  wholly-owned  by Mr. Busby,  to acquire  749,032 common shares,  a
     CDN$1,100,000 debenture, held by the Busby Trust, which is convertible into
     423,077 common shares, a $300,000 debenture, held by the Busby Trust, which
     is convertible into 353,444 common shares and a $450,000 debenture, held by
     Boone, which is convertible into 530,000 common shares.

(4)  Includes 788,602 common shares held by DNG Capital Corp. ("DNG"), a private
     company  wholly-owned  by Mr.  DeMare,  196,403  shares held by 888 Capital
     Corp. ("888") and 25,800 shares held by UEV Holdings Ltd. ("UEV").  888 and
     UEV are private companies 50% owned by Mr. DeMare.

(5)  Includes  warrants  held by DNG to acquire an additional  1,000,000  common
     shares,  warrants  held by 888 to  acquire  159,625  common  shares,  and a
     CDN$200,000  9% Hilton  Convertible  Debenture and a $263,000 10% Debenture
     held by DNG which are convertible into a total of 458,001 common shares.

None of the Company's  principal  shareholders have different voting rights than
any of the Company's other common shareholders.

CHANGES IN SHAREHOLDINGS

There have been no significant  changes to the above listed  persons'  ownership
during the past three fiscal years.

CHANGE OF CONTROL

As of the date of this annual  report,  there are no  arrangements  known to the
Company  which may at a  subsequent  date  result in a change of  control of the
Company.

                                      -44-

<PAGE>




UNITED STATES SHAREHOLDERS

As of November 30, 2001, there were  approximately 755 registered holders of the
Company's  common  shares  in the  United  States,  with  combined  holdings  of
2,810,131  shares,  representing  7.68% of the issued  shares of the  Company on
November 30, 2001.

CONTROL BY FOREIGN GOVERNMENT OR OTHER PERSONS

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

RELATED PARTY TRANSACTIONS

Other than as  disclosed  below,  for the year ended May 31, 2001 and the period
from June 1, 2001 to November  30,  2001,  the Company has not entered  into any
transactions or loans between the Company and any (a) enterprises  that directly
or indirectly through one or more intermediaries,  control or are controlled by,
or are under common control with, the Company;  (b) associates;  (c) individuals
owning,  directly or indirectly,  an interest in the voting power of the Company
that gives them significant influence over the Company, and close members of any
such individuals' family; (d) key management personnel and close members of such
individuals' families; or (e) enterprises in which a substantial interest in the
voting power is owned,  directly or indirectly by any person described in (c) or
(d) or over which such a person is able to exercise significant influence.

1.   The Company has retained  Boone, a private  company  wholly-owned by Donald
     Busby, the Chairman, Chief Executive Officer and a director of the Company,
     to provide  marketing,  consulting  and management  services.  See "Item 6.
     Directors,   Senior   Management   and   Employees  -   Compensation."   In
     consideration therefor, Boone is currently paid a monthly fee of $7,000 and
     out-of-pocket  disbursements  incurred  by Boone on behalf of the  Company.
     Management  believes the arrangement  with Boone is fair to the Company and
     similar to terms which  could be obtained  from  unrelated  third  parties.
     During the year  ended May 31,  2001,  and the period  from June 1, 2001 to
     November   30,  2001,   the  Company   paid  Boone   $90,527  and  $42,637,
     respectively.

2.   The Company has retained Chase, a company  wholly-owned by Mr. Nick DeMare,
     a director of the  Company,  to provide  office  premises,  administrative,
     accounting and management  services.  In consideration  therefor,  Chase is
     paid a monthly fee of CDN$8,000 and out-of-pocket disbursements incurred by
     Chase on behalf of the  Company.  In  addition,  Chase may also provide the
     Company  additional  services which are billed at rates which Chase charges
     to unrelated third parties.  Management believes the arrangement with Chase
     is fair to the Company  and  similar to terms which could be obtained  from
     unrelated third parties.  During the year ended May 31, 2001 and the period
     from June 1, 2001 to November 30, 2001,  the Company paid Chase $81,995 and
     $42,299, respectively.

3.   During the year ended May 31,  2001,  the Company  assisted  Trimark in its
     financings,  whereby the Company  sold shares of Trimark  from its holdings
     and used the proceeds to purchase, in private placement offerings conducted
     by Trimark, replacement shares of Trimark. The Company received warrants to
     purchase an additional  1,890,000  shares of Trimark as part of the private
     placements.  In addition,  during the year ended May 31, 2001,  the Company
     acquired a further 120,000 shares of Trimark at a cost of $58,765.

4.   During  the year  ended May 31,  2001,  Boone  arranged a line of credit of
     $600,000, from an arms-length financial institution, to be available at the
     Company's  request.  The line of credit was secured by real estate holdings
     of Donald W. Busby. At the Company's request,  Boone borrowed $600,000 from
     the  financial  institution  and  these  funds  were then  advanced  to the
     Company.  The  repayment  of the  borrowing  was on the same  basis as that
     charged by the bank to Boone. The loan bore interest at 10% per annum, with
     blended monthly payments of $23,351.  On March 14, 2001, the Company repaid
     the borrowing.

5.   The Company has completed  previous private  placements of common stock and
     convertible  debentures,  the  subscribers  of which  include i)  companies
     wholly-owned  by  current  and former  directors,  officers  and  principal
     shareholders of the Company. The securities issued pursuant to such private
     placements were issued in accordance with the pricing policies of the CDNX,
     and its predecessor, the VSE. During the year ended

                                      -45-

<PAGE>



     May 31,  2001 and the period from June 1, 2001 to November  30,  2001,  the
     Company conducted the following private placements:

     (a)  Common Stock
<TABLE>
<CAPTION>

                                                      PURCHASE     MARKET
                                     PARTICIPATION     PRICE      PRICE(1)
PLACEE                                BY INSIDERS       CDN$        CDN$      COMMENTS
----------------------               -------------    --------    -------     --------

PERIOD FROM JUNE 1, 2001 TO NOVEMBER 30, 2001
<S>                                   <C>            <C>         <C>       <C>

1,673,000 units                                         1.70        1.88

  -  Donald W. Busby                       885,000

  -  888 Capital Corp.                     125,000                            50% owned by Nick DeMare

  -  Nick DeMare                           583,000
                                        ----------
                                         1,593,000
                                        ==========
FISCAL YEAR ENDED MAY 31, 2001

2,260,000 units                                         1.25        1.35

  -  Boone Petroleum Inc.                  500,000                            Owned by Donald W. Busby

  -  Donald W. Busby 1999                  750,000                            Donald W. Busby is the
        Irrevocable                                                           Trust settlor of the trust and
                                                                              retains the power to remove the
                                                                              trustee.

  -  DNG Capital Corp.                   1,000,000                            Owned by Nick DeMare
                                        ----------
                                         2,250,000
                                        ==========

</TABLE>

          (1) Quoted closing price on date of announcement of private placement.

     (b)  Convertible Debentures

<TABLE>
<CAPTION>

                                           CONVERSION MARKET
                                             PARTICIPATION       PRICE     PRICE(1)
PLACEE                                        BY INSIDERS         CDN$       CDN$          COMMENTS
-------------------------                  ----------------      ------     -------         ---------

FISCAL YEAR ENDED MAY 31, 2001

<S>                                       <C>                <C>         <C>            <C>

$3,263,000 10% convertible debenture                            1.35(2)      1.35

  -  Donald W. Busby                            $450,000

  -  Donald W. Busby 1999                       $300,000                                   Donald W. Busby is the
         Irrevocable                                                                       Trust settlor of the trust
                                                                                           and retains the power to remove
                                                                                           the trustee.

  -  DNG Capital Corp.                          $263,000                                   Owned by Nick DeMare
                                             -----------
                                              $1,013,000
                                             ===========

</TABLE>

          (1)  Quoted closing price on date of  announcement of convertible
               debenture financing.

          (2)  The  conversion  price is CDN$1.35 on or before  January 24,
               2003 and CDN$1.56 on or before January 24, 2004.

6.   The Company has  disposed of and acquired  certain of its  interests in the
     East Lost Hills  Joint  Venture  and the San  Joaquin  Joint  Venture  with
     Trimark.  See "Item 4.  Information  on the  Company - Business  Overview -
     Principal  Oil and Gas  Properties - Material  Properties - East Lost Hills
     Joint Venture and San Joaquin Joint Venture, California." Mr. Donald Busby,
     a director and officer of the Company,  is a director of Trimark.  Mr. Nick
     DeMare, a director of the company is a director of Trimark. Mr. Harvey Lim,
     an officer of the Company is an officer of Trimark.

See also "Item 6. Directors, Senior Management and Employees - Compensation."

                                      -46-

<PAGE>




INDEBTEDNESS OF DIRECTORS, OFFICERS, PROMOTERS AND OTHER MANAGEMENT

During the fiscal year ended May 31,  2000,  the Company  provided a  relocation
loan of  $125,000  to Mr.  Busby to assist  him in  relocating  to  Bakersfield,
California  from  Conifer,  Colorado.  The loan bears  interest at 5% per annum,
compounded  monthly,  and is due on March 27, 2002.  The $125,000  loan remained
outstanding  at May 31, 2001.  As of November  30,  2001,  $108,000 in principal
remained outstanding on the loan.

Other than as described above during the fiscal year ended May 31, 2001, none of
the  directors,  officers,  promoters or other  members of  management  or their
associates or affiliates of the Company was indebted to the Company.

CONFLICTS OF INTEREST

The table below shows that certain  directors of the Company are also directors,
officers or shareholders of other companies which are engaged in the business of
acquiring,   developing  and  exploiting  natural  resource   properties.   Such
associations  may give rise to  conflicts  of interest  from  time-to-time.  The
directors  of the Company are  required by law to act honestly and in good faith
with a view to the best  interest of the Company  and to disclose  any  interest
which they may have in any project or opportunity of the Company.  However, each
director has a similar  obligation  to other  companies  for which such director
serves as an officer or director.  The Company has no specific  internal  policy
governing conflicts of interest.  As of the date of this report, no conflicts of
interest have arisen,  except as described  below and above.  Where conflicts of
interests  arose,  the directors of the Company  disclosed  their  interests and
abstained from voting on the transaction.

The following table  identifies the name of each director of the Company and any
company,  which is a  reporting  issuer in Canada,  and for which such  director
currently serves as an officer or director:

<TABLE>
<CAPTION>

PRINCIPAL            REPORTING COMPANY                        CAPACITY                  PERIOD
---------            ------------------                       --------                  -------
<S>               <C>                                     <C>                        <C>

Donald W. Busby      Aladdin Resources Corp.                  President and Director    January 2001 - present
                     Trimark Oil & Gas Ltd.                   Chairman                  April 1999 - present
                                                              President                 September 1999 - present; and
                                                                                        February 1997 - April 1999
                                                              Chief Executive Officer   February 1997 - present
                                                              Director                  December 1998 - present

Nick DeMare          Aladdin Resources Corp.                  Director                  January 2001 - present
                                                              Secretary                 January 2001 - November 2001
                     Andean American Mining Corp.             Secretary                 December 1995 - present
                     Dial Thru International Inc.             Director                  January 1991 - present
                     GGL Diamond Corp.                        Director                  May 1989 - present
                     Golden Peaks Resources Ltd.              Director                  January 1992 - present
                     Hydromet Technologies Limited            Director                  September 2000 - present
                     Kookaburra Resources Ltd.                Director                  June 1988 - present
                     Peruvian Gold Limited                    Director                  February 1993 - present
                     Trimark Oil & Gas Ltd.                   Director                  January 1996 - present
                     Planex Ventures Ltd.                     Director                  January 2000 - present

William Lee          Aladdin Resources Corp.                  Director                  January 2001 - present
                     IMA Exploration Inc.                     Director                  June 1996 to present

Harvey Lim           Aladdin Resources Corp.                  Director                  January 2001 - November 2001
                                                              Secretary                 November 2001 - present
                     Peruvian Gold Limited                    Secretary                 October 1995 - present
                     Trimark Oil & Gas Ltd.                   Secretary                 December 1988 - present
                     Planex Ventures Ltd.                     Director                  January 2000 - present

</TABLE>

There  are no known  existing  or  potential  conflicts  of  interest  among the
Company,  promoters,  directors,  officers,  principal holders of securities and
persons providing professional services to the Company which could reasonably be
expected to affect an investor's investment decision except as described in this
section.


                                      -47-

<PAGE>



The  Company  does not have any  agreements  with  its  officers  or  directors,
including any officers or directors with a conflict of interest, with respect to
the amount of time they must spend on the Company's business.


ITEM 8.  FINANCIAL INFORMATION.
--------------------------------------------------------------------------------

DESCRIPTION                                                                 PAGE
-----------                                                                 ----
Audited Consolidated Financial Statements for the
Years Ended May 31, 2001, 2000 and 1999                                      F-1

SIGNIFICANT CHANGES

On August 31, 2001, being the end of the Company's first quarter of fiscal 2002,
a ceiling test  impairment  charge of  approximately  $11.9  million was charged
against earnings.  Approximately $9.0 million of the impairment charge was based
upon the fall in market  prices for  natural gas between May 31, 2001 and August
31, 2001 and the  remaining  $2.9 million  related to additions and transfers to
the  depletable  full cost pool during the quarter ended August 31, 2001.  Under
the full cost method,  period end prices are required to be applied in assessing
the carrying value of the Company's  petroleum and natural gas  interests.  This
assessment is conducted on a quarterly  basis;  future  ceiling test  impairment
charges may be necessary  due to the  volatility  in the market price of natural
gas and the uncertain  economic  conditions  which are expected to be present in
North America in the foreseeable future.

DIVIDEND POLICY

The Company has not paid any  dividends on its common shares and does not intend
to pay dividends on its common shares in the immediate  future.  Any decision to
pay  dividends  on its common  shares in the future will be made by the board of
directors on the Company on the basis of earnings,  financial  requirements  and
other such conditions that may exist at that time.


ITEM 9.  THE OFFER AND LISTING
--------------------------------------------------------------------------------

PRICE HISTORY

Effective  November 29, 1999, the Vancouver Stock Exchange and the Alberta Stock
Exchange  merged and began  operations as the CDNX. The CDNX  classifies  listed
companies  into two  different  tiers based on standards,  including  historical
financial performance,  stage of development, and financial resources. Tier I is
the CDNX's  premier  tier and is reserved for the CDNX's most  advanced  issuers
with the most  significant  financial  resources.  Tier I issuers  benefit  from
decreased filing  requirements and improved service  standards.  The majority of
companies listed on the CDNX are Tier II companies. The Company is classified as
a Tier I company and trades on the CDNX under the symbol "HTP".

The following table sets forth the market price ranges and the aggregate  volume
of trading of the common shares of the Company on the VSE and,  subsequently the
CDNX, for the periods indicated:

                CANADIAN VENTURE EXCHANGE STOCK TRADING ACTIVITY

                                                     SALES PRICE (CDN $)
                                               ----------------------------
YEAR ENDED                   VOLUME              HIGH                  LOW

May 31, 2001              57,231,095             $4.25                $1.00
May 31, 2000              60,856,599             $5.60                $1.20
May 31, 1999              19,661,995             $5.10                $1.80
May 31, 1998               2,949,370             $2.25                $1.45
May 31, 1997               1,256,300             $2.20                $0.88




                                      -48-

<PAGE>



                                                   SALES PRICE (CDN $)
                                               ----------------------------
QUARTER ENDED                VOLUME              HIGH                  LOW

August 31, 2001            7,074,077             $1.71                $0.43
May 31, 2001              20,443,779             $3.35                $1.42
February 28, 2001         16,978,516             $2.95                $1.15
November 30, 2000          4,515,334             $2.30                $1.00
August 31, 2000           15,293,466             $4.25                $1.40
May 31, 2000              18,713,432             $4.05                $1.30
February 28, 2000         10,184,866             $3.60                $1.20
November 30, 1999         17,796,388             $5.60                $2.40
August 31, 1999           14,161,913             $4.45                $1.88



                                                   SALES PRICE (CDN $)
                                               ----------------------------
MONTH ENDED                 VOLUME               HIGH                 LOW

November 30, 2001          1,996,575             $0.62                $0.25
October 31, 2001           4,021,044             $0.72                $0.29
September 30, 2001         2,616,526             $0.60                $0.25
August 31, 2001            3,026,614             $1.09                $0.43
July 31, 2001              1,605,068             $1.13                $0.72
June 30, 2001              2,446,395             $1.71                $1.00

On February 7, 2001, the Company's  common shares were approved for quotation on
the Over-the-Counter  Bulletin Board system operated by the National Association
of Securities Dealers under the symbol "HTPTF".

                             OTC-BB TRADING ACTIVITY

                                                     SALES PRICE (US$)
                                               ----------------------------
YEAR ENDED                  VOLUME               HIGH                 LOW

May 31, 2001(1)            2,488,400             $1.09               $0.32

(1)     Period from February 7, 2001 through February 28, 2001



                                                     SALES PRICE (US$)
                                               ----------------------------
QUATER ENDED                VOLUME               HIGH                 LOW

August 31, 2001            1,735,700             $1.09                $0.32
May 31, 2001               2,254,700             $2.03                $0.96
February 28, 2001(1)         233,700             $1.91                $1.50

(1)     Period from February 7, 2001 through February 28, 2001



                                                     SALES PRICE (US$)
                                               ----------------------------
MONTH ENDED                 VOLUME               HIGH                 LOW

November 30, 2001            546,500             $0.38                $0.27
October 31, 2001           1,733,800             $0.43                $0.21
September 30, 2001           632,700             $0.40                $0.17
August 31, 2001              747,500             $0.65                $0.32
July 31, 2001                200,500             $0.78                $0.50
June 30, 2001                787,700             $1.09                $0.69





                                      -49-

<PAGE>



ITEM 10.  ADDITIONAL INFORMATION.
--------------------------------------------------------------------------------

ARTICLES OF CONTINUANCE AND BYLAWS

The  Company  was  incorporated  under the laws of British  Columbia,  Canada on
September 7, 1989 by  registration  of its Memorandum and Articles with the B.C.
Registrar of  Companies  (the "BC  Registrar")  under the  incorporation  number
372193.  On April 4, 1999,  the Company was  continued  to the Yukon  Territory,
Canada  by the  registration  of its  Articles  of  Continuance  with the  Yukon
Registrar of Corporations under the access number 27053 (the "Yukon Registrar").

The following is a summary of all material  provisions of the Company's Articles
of  Continuance  and  Bylaws  and  certain  provisions  of  the  Yukon  Business
Corporations Act (the "Yukon Act"), applicable to the Company:

A.   DIRECTOR'S  POWER TO VOTE ON A PROPOSAL,  ARRANGEMENT  OR CONTRACT IN WHICH
     THE DIRECTOR IS MATERIALLY INTERESTED.

     A director or officer who is a party to, or who is a director or officer of
     or has a  material  interest  in any  person  who is a party to, a material
     contract or proposed  material contract must disclose the nature and extent
     of his interest in accordance with the Yukon Act. A director who holds such
     material  interest may not vote on the  transaction  but will be counted in
     the quorum  present at the meeting at which such vote is taken.  A director
     that is a party to a material contract or proposed material contract cannot
     vote on any resolution to approve the contract unless the contract is:

     1.   an  arrangement  by way of security  for money lent to or  obligations
          undertaken by a director,  or by a body  corporate in which a director
          has an interest, for the benefit of the corporation or an affiliate,

     2.   a  contract  relating  primarily  to a  director's  remuneration  as a
          director,  officer,  employee  or  agent  of  the  corporation  or  an
          affiliate;

     3.   a contract for purchasing and maintaining insurance to cover directors
          against liability incurred by them as directors as specified under the
          Yukon Act;

     4.   a contract for the indemnification of a director by the corporation as
          specified under the Yukon Act; or

     5.   a contract with an affiliate.

B.   DIRECTOR'S  POWER,  IN  THE  ABSENCE  OF AN  INDEPENDENT  QUORUM,  TO  VOTE
     COMPENSATION TO THEMSELVES OR ANY MEMBERS OF THEIR BODY.

     The  compensation  of the  directors is governed by the  Company's  By-laws
     which allow for the  determination  of remuneration to be paid by the Board
     of Directors.

C.   BORROWING POWERS EXERCISABLE BY THE DIRECTORS.

     The directors may, on behalf of the Company:

     1.   borrow money on the credit of the corporation;

     2.   issue, reissue, sell or pledge debt obligations of the corporation;

     3.   give a guarantee on behalf of the corporation to secure performance of
          an obligation of any person, subject to certain conditions detailed in
          section 46 of the Yukon Act; or

     4.   mortgage,  hypothecate, pledge or otherwise create a security interest
          in all or any  property  of the  corporation,  owned  or  subsequently
          acquired to secure any obligation of the corporation.


                                      -50-

<PAGE>



D.   RETIREMENT AND  NON-RETIREMENT OF DIRECTORS UNDER AN AGE LIMIT REQUIREMENT.

     There are no such  provisions  applicable to the Company under its Articles
     of Continuance, By-laws or the Yukon Act.

E.   NUMBER OF SHARES REQUIRED FOR A DIRECTOR'S QUALIFICATION

     A director of the Company is not be required to hold a share in the capital
     of the Company as qualification of his office.

DESCRIPTION OF COMMON SHARES

The authorized  capital of the Company consists of an unlimited number of common
shares without par value.  A complete  description is contained in the Company's
Articles of Continuance.

Of the Company's  unlimited share capital,  a total of 36,575,159  common shares
were issued and outstanding as of November 30, 2001. All of the common shares of
the Company rank equally as to voting rights, participation in a distribution of
the assets of the Company on a  liquidation,  dissolution  or  winding-up of the
Company and the  entitlement of dividends.  The holders of the common shares are
entitled to receive notice of all shareholder meetings and to attend and vote at
such  meetings.  Each common share  carries  with it the right to one vote.  The
common shares do not have preemptive or conversion  rights.  In addition,  there
are no sinking fund or redemption provisions applicable to the common shares.

The  declaration  of dividends on the common shares of the Company is within the
discretion  of the Company's  Board of  Directors.  The Company has not paid any
dividends on its common  shares and has no policy with respect to the payment of
dividends.

The Company's  issued and  outstanding  common shares are not subject to further
capital  calls by the  Company  and there  are no  provisions  in the  Company's
Articles of  Continuance or Bylaws or the Yukon Act  discriminating  against any
existing or  prospective  holder of the  Company's  common shares as a result of
such shareholder owning a substantial number of shares.

Neither the  Articles  of  Continuance  nor the Bylaws of the  Company  have any
limitations on non-resident or foreign ownership of the Company's common shares.

The Yukon Act provides that the rights and  provisions  attached to any class of
shares may not be amended unless consented to by a separate resolution passed by
a majority  of not less than 2/3 of the votes  cast,  in person or by proxy,  by
holders of shares of that class. Shareholder Meetings

The  Company's  first annual  general  meeting  must take place within  eighteen
months of the date of its incorporation and thereafter an annual general meeting
will  be  held  not  later  than  fifteen   months  from  its  last  meeting  of
shareholders, at such time and place as may be determined by the directors.

A notice of record date advising of the Company's annual general meeting and the
date for which the determination of shareholders is to be fixed must be issued 7
days in advance of the record date. The notice of meeting, information circular,
financial  statements  and proxy are to be mailed to the  shareholders  not less
than 25 days prior to the meeting date. A quorum for the transaction of business
at a general  meeting is two  shareholders  present in person or  represented by
proxy representing a minimum of 5% of the issued voting shares in the Company.

Only members who are registered  holders of the Company's shares at the close of
business  on the record  date (a date  which is not more than 50 days,  nor less
than 35 days prior to the date of the meeting) who either  attend the meeting or
who have  completed  and  delivered a form of proxy in the manner and subject to
the provisions described above shall be entitled to vote or to have their shares
voted at the meeting.

On a show of hands,  every person who is present and entitled to vote shall have
one  vote.  Whenever  a vote by show of  hands  shall  have  been  taken  upon a
question, unless a ballot thereon is so required or demanded, a declaration by

                                      -51-

<PAGE>



the  Chairman of the meeting that the vote upon the question has been carried or
carried by a particular  majority or not carried, an entry to that effect in the
minutes of the meeting shall be conclusive evidence of the fact without proof of
the number or  proportion  of the votes  recorded  in favour of or  against  any
resolution or other  proceeding in respect of the said question,  and the result
of the  vote so  taken  shall  be the  decision  of the  members  upon  the said
question.

MATERIAL CONTRACTS

1.   Form of Master  Hedging  Agreement  dated  December 17, 1999.  See "Item 5.
     Operating and Financial Review and Prospects - Results of Operations."

2.   Mutual Settlement and Release Agreement dated December 15, 1999 between the
     Company,  Texstar  Petroleum Inc.  ("Texstar") and various other plaintiffs
     pursuant to which the Company agreed to pay Texstar $1,216,115. On December
     21, 1999, the case was dismissed against all parties.

3.   Agreement  between Kern County Oil & Gas Inc.,  STB Energy,  Inc.,  Trimark
     Resources,  Inc. and Valley Oil & Gas,  L.L.C.  dated  January 13, 2000, as
     amended,  whereby the Company  purchased an undivided 24% working  interest
     (18% net revenue  interest)  in the HBY RA SUK;  11.G Black No. 1 Well (the
     "H.G. Black #1 Well"),  located in Jefferson Davis Parish,  Louisiana,  and
     the associated leasehold,  by paying $60,438 and funding its share of costs
     relating to the  plugging of the H.G.  Black #1 Well and the  drilling of a
     sidetrack and  completion of the H.G. Black #1 Well in the deeper Simon "A"
     Hackberry Sand. Valley is not an affiliate of the Company.

4.   East Blossom Property Agreement,  dated May 17, 2000, pursuant to which the
     Company  entered into a farm- out agreement  with Sunset  Exploration  Inc.
     ("Sunset"),  whereby  the  Company  agreed to earn a 65%  working  interest
     (48.75% net revenue  interest) in the first well before  payout and a 32.5%
     working  interest  (24.375%  net  revenue  interest)  after  payout  and in
     subsequent  wells  drilled  in the East  Blossom  Prospect  located  in San
     Joaquin County, California. Sunset is not an affiliate of the Company.

5.   Employment  Agreement  with DWB  Management  Ltd.  dated  September 1, 2000
     (subsequently  assigned to Boone Petroleum Inc.). See "Item 10.  Directors,
     Senior Management and Employees - Compensation - Employee Agreement."

6.   Purchase and Sale  Agreement  between STB Energy,  Inc. and Exco  Resources
     Inc. dated  February 21, 2001. See "Item 5. Operating and Financial  Review
     and Prospects - Liquidity and Capital Resources."

7.   10% Convertible Debentures.  See "Item 6. Directors,  Senior Management and
     Employees - Other Convertible Securities - Debentures."

EXCHANGE CONTROLS

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

Except as  provided  in the  Investment  Canada  Act (the  "Act"),  there are no
limitations  specific to the rights of non- Canadians to hold or vote the common
stock of the Company under the laws of Canada or in the charter documents of the
Company.

Management of the Company  considers that the following  general  summary fairly
describes those material  provisions of the Act pertinent to an investment by an
American investor in the Company.

The Act requires a non-Canadian  making an investment  which would result in the
acquisition of control of a Canadian business,  the gross value of the assets of
which exceeds certain threshold levels or the business activity of which is

                                      -52-

<PAGE>



related to Canada's cultural heritage or national identity, to either notify, or
file an  application  for review with,  Investment  Canada,  the federal  agency
created by the Investment Canada Act.

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

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

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

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

(2)  an  investment  to  acquire  control  of a  Canadian  business  that is not
     reviewable pursuant to the Act.

The following investments by a non-Canadian are subject to review under the Act:

(1)  direct  acquisitions  of control of Canadian  businesses  with assets of $5
     million  or more  unless  the  acquisition  is  being  made by an  American
     investor;

(2)  direct  acquisitions  of  control of  Canadian  businesses  with  assets of
     $152,000,000 or more by an American investor;

(3)  indirect  acquisitions of control of Canadian  businesses with assets of $5
     million or more if such assets  represent  more than 50% of the total value
     of the assets of the  entities,  the  control  of which is being  acquired,
     unless the acquisition is being made by an American investor;

(4)  indirect  acquisitions  of control of  Canadian  businesses  with assets of
     $152,000,000 or more by an American  investor if such assets represent more
     than 50% of the total value of the assets of the  entities,  the control of
     which is being acquired;

(5)  indirect  acquisitions of control of Canadian businesses with assets of $50
     million or more even if such  assets  represent  less than 50% of the total
     value  of the  assets  of the  entities,  the  control  of  which  is being
     acquired,  unless the acquisition is being made by an American  investor in
     which case there is no review; and

(6)  an  investment   subject  to  notification  that  would  not  otherwise  be
     reviewable if the Canadian business engages in the activity of publication,
     distribution or sale of books, magazines, periodicals, newspapers, audio or
     video music recordings, or music in print or machine-readable form.

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

An  American,  as defined in the Act includes an  individual  who is an American
national or a lawful,  permanent  resident of the United States, a government or
government  agency of the United  States,  an  American-controlled  corporation,
limited  partnership,  trust  or  joint  venture  and  a  corporation,   limited
partnership,  trust or joint  venture  that is  neither  American-controlled  or
Canadian-controlled  of which  two-thirds  of its  board of  directors,  general
partners or trustees,  as the case may be, are any  combination of Canadians and
Americans.

                                      -53-

<PAGE>



The  higher  thresholds  for  Americans  do not apply if the  Canadian  business
engages in  activities  in certain  sectors such as oil,  natural gas,  uranium,
financial  services  (except  insurance),   transportation   services  or  media
activities.

The Act specifically  exempts certain  transactions from either  notification or
review. Included among the category of transactions is the acquisition of voting
shares or other voting  interests  by any person in the ordinary  course of that
person's  business as a trader or dealer in securities.  Given the nature of the
Company's  business and the size of its operations,  management does not believe
the Investment  Canada Act would apply to an investment in the Company's  shares
by a U.S. investor.

TAXATION

MATERIAL CANADIAN FEDERAL INCOME TAX CONSEQUENCES

Management  of the  Company  considers  that  the  following  discussion  fairly
describes the material Canadian federal income tax consequences  applicable to a
holder of Common Stock of the Company who is a resident of the United States and
who is not a resident of Canada and who does not use or hold,  and is not deemed
to use or hold,  his shares of Common  Stock of the Company in  connection  with
carrying on a business in Canada (a "non-resident shareholder").

This summary is based upon the current provisions of the Income Tax Act (Canada)
(the  "ITA"),  the  regulations  thereunder  (the  "Regulations"),  the  current
publicly  announced  administrative  and assessing  policies of Revenue  Canada,
Taxation and all specific  proposals (the "Tax  Proposals") to amend the ITA and
Regulations  announced  by the  Minister of Finance  (Canada)  prior to the date
hereof.  This  description  is not exhaustive of all possible  Canadian  federal
income tax  consequences  and, except for the Tax Proposals,  does not take into
account or anticipate any changes in law,  whether by legislative,  governmental
or judicial action.

DIVIDENDS

Dividends  paid on the common  stock of the  Company to a  non-resident  will be
subject to  withholding  tax.  The Canada-  U.S.  Income Tax  Convention  (1980)
provides that the normal 25% withholding tax rate is reduced to 15% on dividends
paid on shares of a  corporation  resident  in Canada  (such as the  Company) to
residents of the United  States,  and also  provides for a further  reduction of
this rate to 5% where the  beneficial  owner of the  dividends is a  corporation
which is a resident of the United  States  which owns at least 10% of the voting
shares of the corporation paying the dividend.

CAPITAL GAINS

In general,  a  non-resident  of Canada is not subject to tax under the ITA with
respect  to a  capital  gain  realized  upon  the  disposition  of a share  of a
corporation  resident in Canada that is listed on a prescribed  stock  exchange.
For purposes of the ITA, the Company is listed on a prescribed  stock  exchange.
Non-residents  of Canada who dispose of shares of the Company will be subject to
income tax in Canada with respect to capital gains if:

     (a)  the non-resident holder;
     (b)  persons  with  whom  the  non-resident  holder  did not  deal at arm's
          length; or
     (c)  the non-resident  holder and persons with whom the non-resident holder
          did not deal with at arm's length,

owned  not less  than 25% of the  issued  shares  of any  class or series of the
Company at any time during the five-year period  preceding the  disposition.  In
the case of a  non-resident  holder  to whom  shares  of the  Company  represent
taxable Canadian  property and who is resident in the United States, no Canadian
taxes will be payable on a capital gain realized on such shares by reason of the
Canada-U.S. Income Tax Convention (1980) (the "Treaty") unless the value of such
shares is derived principally from real property situated in Canada. However, in
such a case, certain transitional relief under the Treaty may be available.

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

The following  discussion  summarizes the material  United States federal income
tax  consequences,  under current law,  applicable to a U.S.  Holder (as defined
below)  of  the  Company's  common  stock.  This  discussion  does  not  address
consequences peculiar to persons subject to special provisions of federal income
tax law, such as tax-exempt organizations, qualified retirement plans, financial
institutions, insurance companies, real estate investment trusts,

                                      -54-

<PAGE>



regulated investment companies, broker-dealers, nonresident alien individuals or
foreign  corporations,  and shareholders owning common stock representing 10% of
the vote and value of the Company.  In addition,  this discussion does not cover
any state, local or foreign tax consequences.

The following discussion is based upon the sections of the Internal Revenue Code
of 1986,  as amended (the  "Code"),  Treasury  Regulations,  published  Internal
Revenue Service ("IRS") rulings,  published  administrative positions of the IRS
and court decisions that are currently applicable,  any or all of which could be
materially and adversely changed,  possibly on a retroactive basis, at any time.
In addition,  this  discussion  does not consider the  potential  effects,  both
adverse and beneficial of recently proposed legislation which, if enacted, could
be  applied,  possibly  on  a  retroactive  basis,  at  any  time.  Holders  and
prospective  holders of the Company's  Common Stock should consult their own tax
advisors  about the  federal,  state,  local and  foreign  tax  consequences  of
purchasing, owning and disposing of shares of Common Stock of the Company.

U.S. HOLDERS

As used herein,  a "U.S.  Holder" is defined as (i) citizens or residents of the
U.S.,  or any state  thereof,  (ii) a  corporation  or other  entity  created or
organized  under the laws of the U.S.,  or any  political  subdivision  thereof,
(iii) an estate  the  income of which is  subject  to U.S.  federal  income  tax
regardless of source or that is otherwise  subject to U.S. federal income tax on
a net  income  basis in  respect  of the  common  stock,  or (iv) a trust  whose
administration  is subject to the primary  supervision of a U.S. court and which
has one or  more  U.S.  fiduciaries  who  have  the  authority  to  control  all
substantial  decisions  of the trust,  whose  ownership  of common  stock is not
effectively  connected  with the  conduct of a trade or  business  in the United
States and  shareholders  who  acquired  their  stock  through  the  exercise of
employee stock options or otherwise as compensation.

DISTRIBUTIONS ON SHARES OF COMMON STOCK

U.S. Holders receiving dividend distributions (including constructive dividends)
with  respect to the  Company's  common  stock are  required to include in gross
income for United  States  federal  income tax purposes the gross amount of such
distributions to the extent that the Company has current or accumulated earnings
and profits,  without  reduction for any Canadian  income tax withheld from such
distributions.  Such  Canadian tax withheld may be credited,  subject to certain
limitations,  against  the  U.S.  Holder's  United  States  federal  income  tax
liability  or,  alternatively,  may be deducted in computing  the U.S.  Holder's
United States federal taxable income by those who itemize deductions.  (See more
detailed  discussion  at  "Foreign  Tax  Credit"  below.)  To  the  extent  that
distributions exceed current or accumulated earnings and profits of the Company,
they  will be  treated  first as a return  of  capital  up to the U.S.  Holder's
adjusted  basis in the  common  stock  and  thereafter  as gain from the sale or
exchange of such shares.  Preferential tax rates for long-term capital gains are
applicable to a U.S. Holder which is an individual,  estate or trust.  There are
currently  no  preferential  tax rates for  long-term  capital  gains for a U.S.
Holder which is a corporation. Dividends paid on the Company's common stock will
not  generally  be eligible for the  dividends  received  deduction  provided to
corporations receiving dividends from certain United States corporations.

FOREIGN TAX CREDIT

A U.S. Holder who pays (or has withheld from distributions)  Canadian income tax
with respect to the ownership of the Company's common stock may be entitled,  at
the option of the U.S.  Holder,  to either a deduction  or a tax credit for such
foreign tax paid or withheld. Generally, it will be more advantageous to claim a
credit  because  a  credit  reduces  United  States  federal  income  taxes on a
dollar-for-dollar  basis, while a deduction merely reduces the taxpayer's income
subject to tax. This election is made on a year-by-year basis and applies to all
foreign  taxes paid by (or  withheld  from) the U.S.  Holder  during  that year.
Subject to certain  limitations,  Canadian  taxes  withheld will be eligible for
credit against the U.S.  Holder's United States federal income taxes.  Under the
Code,  the  limitation  on  foreign  taxes  eligible  for  credit is  calculated
separately  with respect to specific  classes of income.  Dividends  paid by the
Company  generally  will be  either  "passive"  income or  "financial  services"
income,  depending on the particular U.S.  Holder's  circumstances.  Foreign tax
credits  allowable  with respect to each class of income  cannot exceed the U.S.
federal income tax otherwise  payable with respect to such class of income.  The
consequences of the separate  limitations  will depend on the nature and sources
of each U.S.  Holder's  income and the  deductions  appropriately  allocated  or
apportioned  thereto.  The  availability  of the  foreign  tax  credit  and  the
application  of the  limitations on the credit are fact specific and holders and
prospective  holders  of common  stock  should  consult  their own tax  advisors
regarding their individual circumstances.

                                      -55-

<PAGE>




DISPOSITION OF SHARES OF COMMON STOCK

A U.S.  Holder  will  recognize  gain or loss  upon the sale of shares of common
stock equal to the difference,  if any,  between (i) the amount of cash plus the
fair market value of any property received; and (ii) the shareholder's tax basis
in the  common  stock.  This  gain or loss will be  capital  gain or loss if the
shares  are a capital  asset in the hands of the U.S.  Holder,  and such gain or
loss will be  long-term  capital  gain or loss if the U.S.  Holder  has held the
common  stock for more than one year.  Gains and losses are netted and  combined
according to special rules in arriving at the overall capital gain or loss for a
particular  tax  year.   Deductions  for  net  capital  losses  are  subject  to
significant  limitations.  For U.S.  Holders  who are  individuals,  any  unused
portion of such net  capital  loss may be  carried  over to be used in later tax
years until such net capital loss is thereby  exhausted.  For U.S. Holders which
are corporations (other than corporations  subject to Subchapter S of the Code),
an unused net  capital  loss may be carried  back three years from the loss year
and carried  forward five years from the loss year to be offset against  capital
gains until such net capital loss is thereby exhausted.

OTHER CONSIDERATIONS

The Company has not  determined  whether it meets the  definition  of a "passive
foreign  investment  company" (a "PFIC").  It is unlikely that the Company meets
the  definition  of  a  "foreign  personal  holding  company"  (a  "FPHC")  or a
"controlled foreign corporation" (a "CFC") under current U.S. law.

If more  than  50% of the  voting  power  or value  of the  Company  were  owned
(actually  or  constructively)  by U.S.  Holders  who each  owned  (actually  or
constructively)  10% or more of the voting power of the Company's  common shares
("10%  Shareholders"),  then  the  Company  would  become  a CFC  and  each  10%
Shareholder would be required to include in its taxable income as a constructive
dividend  an amount  equal to its share of certain  undistributed  income of the
Company.  If (1) more  than 50% of the  voting  power or value of the  Company's
common  shares  were  owned  (actually  or  constructively)  by  five  or  fewer
individuals  who are citizens or  residents of the United  States and (2) 60% or
more of the Company's  income consisted of certain  interest,  dividend or other
enumerated  types of income,  then the Company  would be a FPHC.  If the Company
were a FPHC,  then each U.S.  Holder  (regardless of the amount of the Company's
common  shares  owned by such U.S.  Holder)  would be required to include in its
taxable  income  as  a   constructive   dividend  its  share  of  the  Company's
undistributed income of specific types.

If 75% or more of the  Company's  annual gross income has ever  consisted of, or
ever consists of, "passive" income or if 50% or more of the average value of the
Company's  assets in any year has ever consisted of, or ever consists of, assets
that produce, or are held for the production of, such "passive" income, then the
Company would be or would become a PFIC. The Company has not provided assurances
that it has not been and does not expect to become a PFIC.  Please note that the
application of the PFIC provisions of the Code to resource companies is somewhat
unclear.

If the Company were to be a PFIC, then a U.S. Holder would be required to pay an
interest  charge  together  with tax  calculated at maximum tax rates on certain
"excess  distributions"  (defined to include  gain on the sale of stock)  unless
such U.S.  Holder made an  election  either to (1) include in his or her taxable
income  certain  undistributed  amounts of the  Company's  income or (2) mark to
market his or her Company  common  shares at the end of each taxable year as set
forth in Section 1296 of the Code.

INFORMATION REPORTING AND BACKUP WITHHOLDING

U.S. information reporting requirements may apply with respect to the payment of
dividends to U.S. Holders of the Company's  shares.  Under Treasury  regulations
currently in effect,  non-corporate holders may be subject to backup withholding
at a 31% rate with respect to dividends when such holder (1) fails to furnish or
certify a correct  taxpayer  identification  number to the payor in the required
manner,  (2) is  notified  by the IRS that it has failed to report  payments  of
interest or dividends  properly or (3) fails,  under certain  circumstances,  to
certify  that it has been  notified  by the IRS  that it is  subject  to  backup
withholding for failure to report interest and dividend payments.

INSPECTION OF DOCUMENTS

Copies of the  documents  referred to in this annual  report may be inspected at
the  Company's  corporate  office  at Suite  1305 - 1090  West  Georgia  Street,
Vancouver, British Columbia V6E 3V7, during normal business hours.

                                      -56-

<PAGE>




ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
--------------------------------------------------------------------------------

Not applicable.


ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.
--------------------------------------------------------------------------------

Not applicable.


                                     PART II

ITEM 13.  ITEM DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.
--------------------------------------------------------------------------------

Not applicable


ITEM 14.  MATERIAL  MODIFICATIONS  TO THE RIGHTS OF SECURITY  HOLDERS AND USE OF
          PROCEEDS.
--------------------------------------------------------------------------------

Not applicable.


ITEM 15.   [RESERVED]
--------------------------------------------------------------------------------

Not applicable.


ITEM 16.   [RESERVED]
--------------------------------------------------------------------------------

Not applicable.



                                      -57-

<PAGE>



                                    PART III


ITEM 17.  FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------

See pages 61 through 88.


ITEM 18.  FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------

Not applicable.


ITEM 19.  EXHIBITS.
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

EXHIBIT NUMBER                             DESCRIPTION                                                    PAGE
--------------                             -----------                                                    ----
<S>             <C>                                                                                    <C>

      1.1           Certificate of Continuance and Certificate of Registration for Hilton Petroleum        N/A
                    Ltd. (1)

      1.2           By-Laws for Hilton Petroleum Ltd. (1)                                                  N/A

      4.1           Hilton Petroleum Ltd. Acquisition of Stanford Oil & Gas Ltd. dated March 31,           N/A
                    1999 (1)

      4.2           Documents Relating to the Acquisition of Interest in East Lost Hills Joint             N/A
                    Venture and Greater San Joaquin Basin Joint Venture (1)

      4.3           Documents Relating to the Acquisition of Interest in Enserch Properties (1)            N/A

      4.4           Agreement dated September 12, 1997, between STB Energy Inc. and Trimark                N/A
                    Resources, Inc. and Trimark Oil & Gas, Inc. (1)

      4.5           Documents Relating to the Acquisition of Mississippi Prospects (1)                     N/A

      4.6           Operating Agreement of Hilton Petroleum Greater San Joaquin Basin Joint                N/A
                    Venture LLC (1)

     4.7a           Credit Agreement between STB Energy, Inc. and Bank One, Texas, National                N/A
                    Association dated November 14, 1997, as amended. (1)

     4.7b           Form of Amendment Number Four to the Credit Agreement between STB                      N/A
                    Energy, Inc. and Bank One, Texas, National Association. (2)

      4.8           8% Convertible Debenture (1)                                                           N/A

      4.9           9% Hilton Convertible Debenture (1)                                                    N/A

      4.1           9% Stanford Convertible Debenture (1)                                                  N/A

     4.11           Employment Agreement with Mr. Brad Colby (1)                                           N/A

     4.12           Share Purchase Agreement between Hilton Petroleum Ltd. and EJ Holdings                 N/A
                    Ltd. dated October 15, 1999 (1)

     4.13           Purchase and Sale Agreement between Hilton Petroleum, Inc., Boone                      N/A
                    Petroleum, Inc. and Sovereign Energy LLC dated July 7, 1999 (1)

     4.14           Form of Master (Hedging) Agreement dated December 17, 1999 (2)                         N/A

</TABLE>

                                   -58-

<PAGE>


<TABLE>
<CAPTION>

EXHIBIT NUMBER                             DESCRIPTION                                                    PAGE
--------------                             -----------                                                    ----
<S>             <C>                                                                                    <C>

     4.15           Mutual Settlement and Release Agreement dated December 15, 1999 (2)                    N/A

     4.16           Agreement between Kern County Oil & Gas Inc., STB Energy, Inc., Trimark                N/A
                    Resources, Inc. and Valley Oil & Gas, L.L.C. dated January 13, 2000, as
                    amended (3)

     4.17           East Blossom Property Agreement (3)                                                    N/A

     4.18           Employment Agreement with DWB Management Ltd. (4)                                      N/A

     4.19           Purchase and Sale Agreement between STB Energy, Inc. and EXCO Resources,               N/A
                    Inc. dated February 21, 2001 (5)

     4.20           10% Convertible Debentures                                                             89

      8.1           List of Subsidiaries                                                                   100

</TABLE>


(1)  Previously filed as an exhibit to the Company's  registration  statement on
     Form 20-F,  filed with the  Commission  on November 26,  1999.  File number
     000-30390.

(2)  Previously filed as an exhibit to the Company's  registration  statement on
     Form 20-F/A  Amendment No. 1, filed with the  Commission on March 30, 2000.
     File number 000-30390.

(3)  Previously filed as an exhibit to the Company's  Registration  Statement on
     Form 20-F/A  Amendment  No. 3, filed with the  Commission  on September 28,
     2000. File number 000-30390.

(4)  Previously filed as an exhibit to the Company's Annual Report on Form 20-F,
     filed with the Commission on December 9, 2000. File number 000-30390.

(5)  Previously  filed with the  Company's  Form 6-K  Report of Foreign  Private
     Issuer, filed with the Commission on April 9, 2001. File number 000-30390.




                                      -59-

<PAGE>



                                   SIGNATURES


The registrant hereby certifies that it meets all of the requirements for filing
on Form 20-F and that it has duly caused and authorized the  undersigned to sign
this annual report on its behalf.


                                                HILTON PETROLEUM LTD.



Dated:  December 10, 2001                       /s/ Nick DeMare
        --------------------                    --------------------------------
                                                Nick DeMare, Director



                                      -60-

<PAGE>





















--------------------------------------------------------------------------------




                              HILTON PETROLEUM LTD.


                        CONSOLIDATED FINANCIAL STATEMENTS
                               FOR THE YEARS ENDED
                           MAY 31, 2001, 2000 AND 1999

          (Expressed in United States Dollars, unless otherwise stated)


--------------------------------------------------------------------------------





























                                       F-1

                                      -61-

<PAGE>











AUDITORS' REPORT




To the Shareholders of
Hilton Petroleum Ltd.


We have audited the  consolidated  balance sheets of Hilton Petroleum Ltd. as at
May 31, 2001 and 2000 and the consolidated statements of operations, deficit and
cash  flow for the years  ended May 31,  2001,  2000 and 1999.  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.  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 consolidated  financial statements present fairly, in all
material respects,  the financial position of the Company as at May 31, 2001 and
2000 and the results of its operations and cash flow for the years ended May 31,
2001, 2000 and 1999 in accordance with Canadian  generally  accepted  accounting
principles.

Canadian generally accepted  accounting  principles vary in certain  significant
respects from  accounting  principles  generally  accepted in the United States.
Application  of accounting  principles  generally  accepted in the United States
would have affected assets and shareholders'  equity as at May 31, 2001 and 2000
and results of operations for the years ended May 31, 2001, 2000 and 1999 to the
extent summarized in Note 13 to the consolidated financial statements.



Vancouver, B.C.                                               /s/ D&H Group
October 3, 2001, except for                                Chartered Accountants
  Note 16(c) which is as of November 7, 2001



                 (D&H Group was formerly known as Dyke & Howard)







                                       F-2

                                      -62-

<PAGE>

                              HILTON PETROLEUM LTD.
                           CONSOLIDATED BALANCE SHEETS
                                  AS AT MAY 31
              (Expressed in U.S. Dollars, unless otherwise stated)

<TABLE>
<CAPTION>

                                                                                       2001                2000
                                                                                        $                    $
                                   A S S E T S
<S>                                                                             <C>                  <C>

CURRENT ASSETS
Cash                                                                                 1,960,493            2,396,422
Amounts receivable (Note 3)                                                          2,520,303              865,403
Prepaid expenses and deposits                                                          212,444              348,474
Marketable securities                                                                        -            1,443,378
Inventories                                                                            631,789                    -
                                                                                   -----------         ------------
                                                                                     5,325,029            5,053,677

PETROLEUM AND NATURAL GAS INTERESTS (Note 4)                                        29,721,112           35,051,725
CAPITAL ASSETS, net of accumulated
      depreciation of $2,619 (2000 - $74,689)                                           16,734               84,189
INVESTMENT (Note 5)                                                                    807,401            1,704,889
OTHER ASSETS (Note 6)                                                                  184,886              188,227
                                                                                   -----------         ------------
                                                                                    36,055,162           42,082,707
                                                                                   ===========         ============
                              L I A B I L I T I E S

CURRENT LIABILITIES
Accounts payable and accrued liabilities                                             3,538,045            2,819,729
Current portion of long-term debt (Note 7)                                                   -           14,903,857
                                                                                   -----------         ------------
                                                                                     3,538,045           17,723,586
LONG-TERM DEBT (Note 7)                                                              3,482,498              997,995
OTHER LIABILITIES (Note 8)                                                                   -            1,966,740
                                                                                   -----------         ------------
                                                                                     7,020,543           20,688,321
                                                                                   -----------         ------------
                      S H A R E H O L D E R S ' E Q U I T Y

SHARE CAPITAL (Note 9)                                                              41,151,991           32,687,210
EQUITY COMPONENT OF LONG-TERM DEBT (Note 7)                                            694,310                    -
DEFICIT                                                                            (12,811,682)         (11,292,824)
                                                                                   -----------         ------------
                                                                                    29,034,619           21,394,386
                                                                                   -----------         ------------
                                                                                    36,055,162           42,082,707
                                                                                   ===========         ============
</TABLE>


APPROVED BY THE BOARD

/s/ Donald W. Busby      , Director
------------------------

/s/ Nick DeMare          , Director
------------------------


              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-3

                                      -63-

<PAGE>



                              HILTON PETROLEUM LTD.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                           FOR THE YEARS ENDED MAY 31
              (Expressed in U.S. Dollars, unless otherwise stated)

<TABLE>
<CAPTION>


                                                                        2001              2000              1999
                                                                         $                 $                 $
<S>                                                               <C>               <C>               <C>

REVENUES
Petroleum and natural gas sales                                       5,228,674         4,573,883         3,773,546
                                                                    -----------       -----------       -----------

OTHER EXPENSES
Production                                                            1,902,642         2,311,617         2,156,905
General and administrative                                            1,292,431         1,149,045         1,291,157
Depreciation and depletion                                            1,455,087         1,540,672         2,244,423
Legal and litigation costs                                                    -           238,749           302,557
Corporate finance fees                                                        -                 -           327,278
                                                                    -----------       -----------       -----------
                                                                      4,650,160         5,240,083         6,322,320
                                                                    -----------       -----------       -----------
OPERATING INCOME (LOSS)                                                 578,514          (666,200)       (2,548,774)
                                                                    -----------       -----------       -----------

OTHER INCOME (EXPENSES)
Interest and other income                                               101,354           278,803            95,916
Interest expense and related charges                                          -          (238,568)                -
Interest expense on long-term debt and other liabilities             (1,480,291)       (1,786,203)       (1,996,761)
Gain on sale of petroleum and natural gas interests                     212,473                 -                 -
Gain on sale of marketable securities                                    25,345           172,516                 -
Write-down of investment (Note 5)                                      (956,253)                -                 -
                                                                    -----------       -----------       -----------
                                                                     (2,097,372)       (1,573,452)       (1,900,845)
                                                                    -----------       -----------       -----------
LOSS BEFORE NON-CONTROLLING INTEREST                                 (1,518,858)       (2,239,652)       (4,449,619)
NON-CONTROLLING INTEREST IN
     LOSS OF SUBSIDIARY                                                       -                 -               147
                                                                    -----------       -----------       -----------
NET LOSS FOR THE YEAR                                                (1,518,858)       (2,239,652)       (4,449,472)
                                                                    ===========       ===========       ===========


BASIC AND DILUTED LOSS PER SHARE                                      $ (0.05)          $ (0.09)          $ (0.28)
                                                                    ===========       ===========       ===========
WEIGHTED AVERAGE NUMBER OF
     COMMON SHARES OUTSTANDING                                       31,702,355        23,983,605        16,110,192
                                                                    ===========       ===========       ===========
</TABLE>










              The accompanying notes are an integral part of these
                       consolidated financial statements.



                                       F-4

                                      -64-

<PAGE>



                              HILTON PETROLEUM LTD.
                       CONSOLIDATED STATEMENTS OF DEFICIT
                           FOR THE YEARS ENDED MAY 31
              (Expressed in U.S. Dollars, unless otherwise stated)


<TABLE>
<CAPTION>

                                                                     2001              2000            1999
                                                                       $                 $               $
<S>                                                           <C>              <C>              <C>

DEFICIT - BEGINNING OF YEAR                                      (11,292,824)       (9,053,172)     (3,975,540)

NET LOSS FOR THE YEAR                                             (1,518,858)       (2,239,652)     (4,449,472)
                                                                ------------      ------------    ------------
                                                                 (12,811,682)      (11,292,824)     (8,425,012)
COSTS INCURRED ON
     BUSINESS COMBINATION (Note 2)                                         -                 -        (232,801)

EXCESS OF COST OF COMMON SHARES
     CANCELLED OVER ASSIGNED VALUE                                         -                 -        (395,359)
                                                                ------------      ------------    ------------
DEFICIT - END OF YEAR                                            (12,811,682)      (11,292,824)     (9,053,172)
                                                                ============      ============    ============
</TABLE>






              The accompanying notes are an integral part of these
                       consolidated financial statements.



                                       F-5

                                      -65-

<PAGE>



                              HILTON PETROLEUM LTD.
                      CONSOLIDATED STATEMENTS OF CASH FLOW
                           FOR THE YEARS ENDED MAY 31
              (Expressed in U.S. Dollars, unless otherwise stated)

<TABLE>
<CAPTION>

                                                                         2001              2000              1999
                                                                          $                 $                 $
<S>                                                              <C>               <C>               <C>
CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
Net loss for the year                                                (1,518,858)       (2,239,652)       (4,449,472)
Items not involving cash
     Depreciation and depletion                                       1,455,087         1,540,672         2,244,423
     Amortization of deferred charges                                    76,336           126,389           111,088
     Accretion of liability component of long-term debt                  77,145                 -                 -
     Gain on sale of petroleum and natural gas interests               (212,473)                -                 -
     Gain on sale of marketable securities                              (25,345)         (172,516)                -
     Non-controlling interest in loss of subsidiary                           -                 -              (147)
     Write-down of investment                                           956,253                 -                 -
     Unrealized foreign exchange loss                                   (59,203)                -                 -
                                                                    -----------       -----------       -----------
                                                                        748,942          (745,107)       (2,094,108)

Decrease (increase) in amounts receivable                            (1,529,900)        1,231,101        (1,780,330)
Decrease (increase) in prepaid expenses and deposits                    106,466          (168,315)          (66,899)
Increase in inventories                                                (631,789)                -                 -
Increase (decrease) in accounts payable and accrued liabilities         718,316           374,903          (230,109)
                                                                    -----------       -----------       -----------
                                                                       (587,965)          692,582        (4,171,446)
                                                                    -----------       -----------       -----------
FINANCING ACTIVITIES
Net proceeds from issuance of common shares                           6,361,338         9,337,563         6,139,547
Repurchase of common shares                                                   -                 -            (5,041)
Issuance of special warrants                                                  -                 -         2,408,618
Issuance of long-term debt                                            3,160,871                 -         7,333,308
Retirement of long-term debt                                        (14,903,857)         (962,737)       (2,445,267)
Increase in other assets                                               (214,498)         (141,045)          (62,751)
Increase (decrease) in other liabilities                                      -         1,966,740        (1,388,291)
Costs incurred on business combination                                        -                 -          (232,801)
                                                                    -----------       -----------       -----------
                                                                     (5,596,146)       10,200,521        11,747,322
                                                                    -----------       -----------       -----------
INVESTING ACTIVITIES
Investment                                                              (58,765)       (1,004,889)                -
Capital assets additions                                                (24,498)           (2,547)          (78,333)
Petroleum and natural gas interests expenditures                     (8,332,486)      (11,656,140)       (6,541,980)
Proceeds from sale of petroleum and natural gas interests            12,695,208           655,763         1,032,022
Amounts held in trust                                                         -                 -         2,496,208
Purchases of marketable securities                                     (175,568)       (1,281,633)         (671,801)
Proceeds from sale of marketable securities                           1,644,291           682,572                 -
                                                                    -----------       -----------       -----------
                                                                      5,748,182       (12,606,874)       (3,763,884)
                                                                    -----------       -----------       -----------
INCREASE (DECREASE) IN CASH FOR THE YEAR                               (435,929)       (1,713,771)        3,811,992

CASH - BEGINNING OF YEAR                                              2,396,422         4,110,193           298,201
                                                                    -----------       -----------       -----------
CASH - END OF YEAR                                                    1,960,493         2,396,422         4,110,193
                                                                    ===========       ===========       ===========

</TABLE>

Supplemental disclosure with respect to the consolidated statements of cash flow
(Note 15).


              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       F-6

                                      -66-

<PAGE>


                              HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2001, 2000 AND 1999
              (Expressed in U.S. Dollars, unless otherwise stated)


1.   ACCOUNTING POLICIES

     BASIS OF PRESENTATION

     These  consolidated  financial  statements  of Hilton  Petroleum  Ltd. (the
     "Company")  have  been  prepared  in  accordance  with  Canadian  generally
     accepted   accounting   principles   ("Canadian   GAAP").  The  significant
     differences  between these principles and those that would be applied under
     United States  generally  accepted  accounting  principles  ("US GAAP") are
     disclosed in Note 13.

     The  preparation  of financial  statements  in  conformity  with  generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions  that affect the reported  amount of assets and liabilities and
     disclosure  of  contingent   liabilities  at  the  date  of  the  financial
     statements,  and the reported amounts of revenues and  expenditures  during
     the reporting period. Actual results could differ from those reported.

     The consolidated  financial statements include the accounts of the Company,
     its wholly-owned  subsidiaries,  Hilton Petroleum Inc.  ("Hilton  U.S.A."),
     Stanford Oil & Gas Ltd.  ("Stanford")  and STB Energy Inc. ("STB  Energy").
     Intercompany balances and transactions are eliminated on consolidation.

     PETROLEUM AND NATURAL GAS INTERESTS

     The Company  follows the full cost method of  accounting  for petroleum and
     natural  gas  operations.  Under  this  method  all  costs  related  to the
     exploration  for and  development of petroleum and natural gas reserves are
     capitalized on a country-by-country  basis. Costs include lease acquisition
     costs,  geological and geophysical  expenses,  overhead directly related to
     exploration  and   development   activities  and  costs  of  drilling  both
     productive and non-productive  wells.  Proceeds from the sale of properties
     are  applied  against  capitalized  costs,  without  any gain or loss being
     recognized,  unless  such a sale  would  significantly  alter  the  rate of
     depletion and depreciation.

     Depletion  of  exploration  and  development   costs  and  depreciation  of
     production equipment is provided using the unit-of-production  method based
     upon  estimated  proven  petroleum and natural gas  reserves.  The costs of
     significant  unevaluated  properties  are  excluded  from costs  subject to
     depletion.  For depletion and  depreciation  purposes,  relative volumes of
     petroleum  and natural gas  production  and  reserves  are  converted  into
     equivalent  units based upon relative energy  content.  Depreciation of the
     gathering  facility is charged to earnings over an estimated useful life of
     10 years on a straight-line basis.

     In  applying  the full cost  method,  the Company  performs a ceiling  test
     whereby the  carrying  value of  petroleum  and natural gas  interests  and
     production  equipment,  net of  future  income  taxes  and the  accumulated
     provision for site restoration and abandonment  costs, is compared annually
     to an  estimate  of  future  net cash flow  from the  production  of proven
     reserves.  Net  cash  flow is  estimated  using  period  end  prices,  less
     estimated future general and administrative  expenses,  financing costs and
     income taxes. Should this comparison indicate an excess carrying value, the
     excess is charged against earnings.

     Substantially  all of the Company's  petroleum and natural gas exploration,
     development  and production  activities  are conducted  jointly with others
     and,  accordingly,  these  consolidated  financial  statements  reflect the
     Company's proportionate interest in such activities.

                                       F-7

                                      -67-

<PAGE>


                              HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2001, 2000 AND 1999
              (Expressed in U.S. Dollars, unless otherwise stated)


1.   ACCOUNTING POLICIES (CONTINUED)

     HEDGING ACTIVITIES

     The Company uses forward contracts from time to time in order to manage its
     exposure to  commodity  price  fluctuations.  The net  receipts or payments
     arising from the forward contracts are recognized in income during the same
     period  and  financial  statement  category  as  the  corresponding  hedged
     position.

     REVENUE RECOGNITION

     The  Company  recognizes  petroleum  and  natural  gas  revenues  from  its
     interests in producing  wells as petroleum  and natural gas is produced and
     sold from these wells.  The Company has no gas  balancing  arrangements  in
     place.  Petroleum and natural gas sold is not significantly  different from
     the Company's product entitlement.

     CASH EQUIVALENTS

     Cash includes cash and short-term  deposits  maturing within 90 days of the
     original date of acquisition.

     MARKETABLE SECURITIES

     Marketable securities are recorded at the lower of cost and market value.

     INVENTORY

     Inventories consist of material inventory.  The material inventory balances
     include  equipment  held for future use and is  accounted  for based on the
     lower of moving average cost method or market.

     CAPITAL ASSETS

     Capital  assets are  depreciated  based on estimated  useful life using the
     declining balance method at annual rates of between 20% and 30%.

     INVESTMENT

     The  investment in affiliated  corporation  is accounted for using the cost
     method.

     DEFERRED FINANCING CHARGES

     The costs of  obtaining  long-term  debt are  deferred  and  amortized on a
     straight-line  basis over the terms of these  loans.  The  amortization  of
     these charges is included in interest  expense on long-term  debt and other
     liabilities.





                                       F-8

                                      -68-

<PAGE>


                              HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2001, 2000 AND 1999
              (Expressed in U.S. Dollars, unless otherwise stated)


1.   ACCOUNTING POLICIES (CONTINUED)

     TRANSLATION OF FOREIGN CURRENCIES

     Monetary  items are  translated  at the rate of  exchange  in effect at the
     balance sheet date.  Non-monetary  items are translated at average rates in
     effect  during the period in which they were earned or incurred.  Gains and
     losses  resulting from the fluctuation of foreign  exchange rates have been
     included in the determination of income.

     INCOME TAXES

     Income tax  liabilities  and assets are  recognized  for the  estimated tax
     consequences  attributable to differences  between the amounts  reported in
     the consolidated financial statements and their respective tax bases, using
     enacted  income  tax  rates.  The effect of a change in income tax rates on
     future  income tax  liabilities  and assets is  recognized in income in the
     period that the change  occurs.  Future income tax assets are recognized to
     the extent that they are considered more likely than not to be realized.

     EARNINGS (LOSS) PER SHARE

     Earnings (loss) per common share amounts have been calculated and presented
     in accordance  with the new  recommendations  of the Canadian  Institute of
     Chartered Accountants.

     Basic earnings per share is computed by dividing income available to common
     shareholders  by the weighted  average number of common shares  outstanding
     during the period.  The  computation of diluted  earnings per share assumes
     the  conversion,  exercise or contingent  issuance of securities  only when
     such  conversion,  exercise  or  issuance  would have a dilutive  effect on
     earnings  per share.  The  dilutive  effect of  convertible  securities  is
     reflected  in  diluted  earnings  per  share  by  application  of  the  "if
     converted" method. The dilutive effect of outstanding  options and warrants
     and  their  equivalents  is  reflected  in  diluted  earnings  per share by
     application of the treasury stock method.

     The new standard has been applied on a retroactive  basis and had no impact
     on the amounts previously presented.

     SHARE OPTION PLAN

     The Company  grants share  options in  accordance  with the policies of the
     Canadian  Venture  Exchange  (the  "CDNX"),  as described in Note 9(a).  No
     compensation  expense  is  recognized  for this plan  when  shares or share
     options are issued pursuant to the plan.  Consideration  paid for shares on
     exercise of the share options is credited to share capital.








                                       F-9

                                      -69-

<PAGE>


                              HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2001, 2000 AND 1999
              (Expressed in U.S. Dollars, unless otherwise stated)


2.   BUSINESS COMBINATION

     On April 1, 1999,  pursuant to an agreement (the "Arrangement  Agreement"),
     the Company  completed a merger with  Stanford.  The  transaction  has been
     accounted  for  as  a  "continuity-of-interests".  Under  this  basis,  the
     combined company reflects the assets and liabilities at the values recorded
     by the Company and Stanford, with adjustments to put the accounting methods
     used by the combining  companies on a common basis and the  elimination  of
     any intercompany  transactions.  In addition,  these  adjustments have been
     made  retroactively  and the financial  statements of the combined  company
     have been restated.  Costs of $232,801 incurred on the business combination
     has been recorded as a capital transaction.


3.   AMOUNTS RECEIVABLE

                                                         2001           2000
                                                           $              $

     Trade accounts receivable                         1,022,862         733,045
     Insurance proceeds                                1,156,730               -
     Loan to officer (Note 6)                            125,000               -
     Due from Trimark Oil & Gas Ltd.                     115,452          44,761
     Other                                               100,259          87,597
                                                      ----------     -----------
                                                       2,520,303         865,403
                                                      ==========     ===========


4.   PETROLEUM AND NATURAL GAS INTERESTS

                                                          2001            2000
                                                           $                $
     Evaluated Properties
       Acquisitions and leasehold costs                2,540,077     13,530,648
       Exploration and development costs              15,539,937     14,081,737
       Gathering facility                                775,961              -
                                                      ----------     ----------
                                                      18,855,975     27,612,385
                                                      ----------     ----------
     Unevaluated Properties
       Acquisitions and leasehold costs                3,933,876      4,782,470
       Exploration costs                               8,280,216      9,760,633
                                                      ----------     ----------
                                                      12,214,092     14,543,103
                                                      ----------     ----------
                                                      31,070,067     42,155,488
     Less: accumulated depreciation,
         depletion and impairment                     (1,348,955)    (7,103,763)
                                                      ----------     ----------
                                                      29,721,112     35,051,725
                                                      ==========     ==========

     Property  acquisition  costs include costs incurred to purchase,  lease, or
     otherwise  acquire  a  property.  Exploration  costs  include  the costs of
     geological and geophysical  activity,  dry holes and drilling and equipping
     exploratory wells.  Development costs include costs incurred to gain access
     to prepare  development  well  locations for  drilling,  to drill and equip
     development wells.




                                      F-10

                                      -70-

<PAGE>


                              HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2001, 2000 AND 1999
              (Expressed in U.S. Dollars, unless otherwise stated)



4.   PETROLEUM AND NATURAL GAS INTERESTS (continued)

     No  write-down  was  required  during the years ended May 31, 2001 and 2000
     from  the  ceiling  tests  performed  effective  May  31,  2001  and  2000,
     respectively.  The ceiling test is a cost-recovery test and is not intended
     to result in an estimate of fair market value.

     On March 8, 2001, the Company  completed the sale of  substantially  all of
     its  non-California  petroleum and natural gas interests to Exco  Resources
     Inc.("Exco")  for net proceeds of  $13,507,158,  of which  $12,695,208  was
     received as of May 31,  2001,  and the  remaining  $811,950 is subject to a
     contractual  dispute  between the Company and Exco. The parties have agreed
     to put the disputed amount in escrow and proceed to arbitration. Management
     is of the  opinion  that  the  arbitration  ruling  will be in its  favour.
     Settlement  of this  dispute  will be  recorded  in income in the period of
     settlement.

     See also Notes 8 and 16(c).


5.   INVESTMENT

     At May 31, 2000, the Company held 1,960,000  common shares of Trimark Oil &
     Gas Ltd.  ("Trimark").  The  investment  in Trimark was acquired  under the
     following transactions:

          (i)  pursuant to an  agreement  dated  October 15,  1999,  the Company
               purchased  800,000 shares of Trimark for $1,004,889,  being below
               the quoted  trading  price at the time of the  agreement,  from a
               private  company  the  principal  of  which is a  relative  of an
               officer of the Company; and

          (ii) receipt  of  1,160,000  shares of  Trimark on the sale of certain
               petroleum and natural gas interests described in Note 10(b).

     During the year ended May 31,  2001,  the Company  assisted  Trimark in its
     financings,  whereby the Company  sold shares of Trimark  from its holdings
     and used the proceeds to purchase, in private placement offerings conducted
     by Trimark, replacement shares of Trimark. The Company received warrants to
     purchase an additional  1,890,000  shares of Trimark as part of the private
     placements.  In addition,  during the year ended May 31, 2001,  the Company
     acquired a further  120,000 shares of Trimark at a cost of $58,765.  At May
     31,  2001,  the Company  held  2,080,000  shares of  Trimark,  representing
     approximately 11.35% of the outstanding capital of Trimark.

     The Company has reviewed the carrying cost of its investment in Trimark and
     has made a decision to write-down  its  investment to $807,401,  reflecting
     the  quoted  value of the  Trimark  shares at May 31,  2001.  See also Note
     16(b).

     Certain  officers and directors of Trimark are also  directors and officers
     of the Company.






                                      F-11

                                      -71-

<PAGE>


                              HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2001, 2000 AND 1999
              (Expressed in U.S. Dollars, unless otherwise stated)


6.   OTHER ASSETS

                                                         2001          2000
                                                           $             $

     Deferred financing charges                          184,886         63,227
     Loan to officer                                     125,000        125,000
                                                      ----------     ----------
                                                         309,886        188,227
     Less current portion                               (125,000)             -
                                                      ----------     ----------
                                                         184,886        188,227
                                                      ==========     ==========

     During the year ended May 31, 2000, the Company  provided a relocation loan
     to the  Chairman of the Company.  The loan bears  interest at 5% per annum,
     compounded  monthly,  and matures on March 27, 2002.  During the year ended
     May 31, 2001, interest income of $6,215 (2000 - $1,114) was received.


7.   LONG-TERM DEBT
                                                          2001           2000
                                                           $              $


     Credit Facility (a)                                       -     14,903,857
     10% Debentures (b)                                2,516,269              -
     9% Hilton Debentures (c) (2001
        and 2000 - CDN$1,493,500)                        966,229        997,995
     Borrowing (d                                              -              -
                                                      ----------     ----------
                                                       3,482,498     15,901,852
     Current portion of long-term debt                         -     14,903,857
                                                      ----------     ----------
                                                       3,482,498        997,995
                                                      ==========     ==========

     (a)  The Company had maintained a credit  facility (the "Credit  Facility")
          with Bank One,  Texas ("Bank One") with  interest at the base rate, as
          established by Bank One, plus 1.5%, payable monthly. The maturity date
          was  November  1,  2000  and  the  security  was the  majority  of the
          Company's producing  petroleum and natural gas interests.  The Company
          was required to make minimum monthly principal repayments of $200,000.
          On March 8,  2001,  the  Company  retired  the  Credit  Facility  from
          proceeds received from the sale of these interests.

     (b)  The debentures (the "10% Debentures")  comprise of $2,163,000 Series A
          and CDN $1,500,000  Series B. The 10% Debentures  bear interest at 10%
          per annum, payable quarterly,  and mature on January 24, 2004. The 10%
          Debentures are convertible,  at the option of the holders, into common
          shares of the  Company,  at a price of CDN$1.35  per share  during the
          first and second  years and  CDN$1.56 per share during the third year.
          The  Company  paid   commissions   and  fees  totalling   $214,498  in
          connections  with the  financing.  The Company  also issued a total of
          268,750  warrants to agents and  finders.  Each  warrant  entitles the
          holder to purchase  one common  share of the Company at a price of CDN
          $1.35  per share for a period of three  years,  expiring  January  24,
          2004.






                                      F-12

                                      -72-

<PAGE>


                              HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2001, 2000 AND 1999
              (Expressed in U.S. Dollars, unless otherwise stated)


7.   LONG-TERM DEBT (continued)

          In accordance with generally accepted  accounting  principles relating
          to  the  presentation  of  convertible  debt   instruments,   the  10%
          Debentures  were  segregated,  on  their  date  of  issuance,  between
          long-term  debt and equity  components  of  $2,439,124  and  $694,310,
          respectively.  The debt  component  reflects the present  value of the
          principal  after factoring out the conversion  option value.  The debt
          component is being accreted over the life of the 10% Debentures to the
          principal amount payable by periodic charges to earnings.

          The debt component,  representing the value allocated to the liability
          at  inception,  is recorded as a long-term  liability.  The  remaining
          component,  representing  the value ascribed to the holders' option to
          convert the  principal  balance into common  shares,  is classified in
          shareholders' equity as "equity component of long-term debt". Over the
          term of the 10% Debentures, the debt component will be accreted to the
          face  value  of the 10%  Debentures  by the  recording  of  additional
          interest expense.

          At May 31, 2001, a total of $1,013,000 of the 10% Debentures were held
          by  companies  owned by  directors  of the  Company  and a trust,  the
          grantor of which is an officer of the Company.

     (c)  The debentures  (the "9% Hilton  Debentures")  bear interest at 9% per
          annum, payable quarterly,  and mature on April 30, 2003. As at May 31,
          2001,  the 9% Hilton  Debentures are  convertible,  at any time before
          maturity, into units or shares of the Company on the following basis:

               i)   on or before  April 30,  2002,  into shares at a  conversion
                    price of CDN$2.60 per share; and

               ii)  May 1, 2002 to April 30,  2003,  into shares at a conversion
                    price of CDN$2.85 per share.

          At May 31, 2001,  $841,043 of the 9% Hilton  Debentures were held by a
          company owned by a director of the Company and a trust, the grantor of
          which is an officer of the Company.

     (d)  During the year ended May 31, 2001, a private corporation owned by the
          Chairman of the Company arranged a line of credit of $600,000, from an
          arms-length  financial  institution,  to be available at the Company's
          request. The line of credit was secured by real estate holdings of the
          Chairman.  At the Company's request,  the private corporation borrowed
          $600,000  from the  financial  institution  and these  funds were then
          advanced to the Company.  The  repayment of the  borrowing  was on the
          same basis as that charged by the bank to the related party.  The loan
          bore  interest  at 10% per annum,  with  blended  monthly  payments of
          $23,351. On March 14, 2001, the Company repaid the borrowing.











                                      F-13

                                      -73-

<PAGE>


                              HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2001, 2000 AND 1999
              (Expressed in U.S. Dollars, unless otherwise stated)


8.   OTHER LIABILITIES

     During the year ended May 31, 2000,  the Company  entered into an agreement
     to acquire an  additional  4% capital  interest  in certain  petroleum  and
     natural gas interests in California.  In order to finance this acquisition,
     the Company sold a 2.25% working  interest in the San Joaquin Joint Venture
     to the Hilton Petroleum  Greater San Joaquin LLC ("Hilton LLC"), a Colorado
     limited  liability  company,  the investors of which are arms-length to the
     Company. The Company was the manager and operator of Hilton LLC. Hilton LLC
     members  were  required  to fund their  pro-rata  share of all the  capital
     requirements  of Hilton LLC.  In the event that a member  failed to pay its
     additional  cash call  contributions  within a specified time period,  that
     defaulting  member's  interest would revert to the Company.  If the default
     occurred within 24 months of the initial capital contribution,  the member,
     no sooner than 12 months if the default  occurred  before 12 months,  would
     receive common shares of the Company,  at the then prevailing  prices,  for
     the member's investment cost.  Accordingly,  conditions for the recognition
     of the sale to Hilton LLC were not met and the Company  recorded  the costs
     incurred on the 2.25% working  interest in the San Joaquin Joint Venture as
     petroleum and natural gas interests  and all  contributions  made by Hilton
     LLC members as other  liabilities.  During the year ended May 31, 2001, the
     Hilton LLC members did not fund their capital  requirements and the Company
     issued 1,558,730 common shares in settlement of the $1,966,740 outstanding.


9.   SHARE CAPITAL

     Authorized:  unlimited number of common shares without par value

<TABLE>
<CAPTION>

     ISSUED:
                                                       2001                          2000                          1999
                                            ---------------------------   ---------------------------   ---------------------------
                                               SHARES         AMOUNT         SHARES         AMOUNT         SHARES         AMOUNT
                                                                 $                             $                             $

<S>                                        <C>            <C>           <C>            <C>             <C>           <C>

     Balance, beginning of year               27,503,961     32,687,210     20,330,188     20,290,865      14,411,189    13,430,971
                                             -----------    -----------    -----------    -----------     -----------    ----------
     Issued during the year
     For cash - private placements             2,322,500      1,968,525      4,220,000      9,068,909       1,298,442     1,847,545
              - rights offering                2,000,000      3,035,413              -              -               -             -
              - exercise of warrants           1,346,380      1,698,270        502,615        682,191         261,184       115,271
              - exercise of options                    -              -         78,945         71,104       2,075,125     2,337,363
     For retirement of other liabilities       1,558,730      1,966,740              -              -               -             -
     For interest on long-term debt              170,588        153,206              -              -               -             -
     For exercise of special warrants                  -              -      1,798,200      2,459,670       1,427,608     1,906,132
     For conversion of debentures                      -              -        574,013        657,920       1,428,513     1,278,418
     Less:  Share issue costs                          -       (357,373)             -       (543,449)              -       (66,765)
                                             -----------    -----------    -----------    -----------     -----------   -----------
                                               7,398,198      8,464,781      7,173,773     12,396,345       6,490,872     7,417,964
                                             -----------    -----------    -----------    -----------     -----------   -----------
                                              34,902,159     41,151,991     27,503,961     32,687,210      20,902,061    20,848,935
     Shares cancelled                                  -              -              -              -        (571,873)     (558,070)
                                             -----------    -----------    -----------    -----------     -----------   -----------
     Balance, end of year                     34,902,159     41,151,991     27,503,961     32,687,210      20,330,188    20,290,865
                                             ===========    ===========    ===========    ===========     ===========   ===========
</TABLE>






                                      F-14

                                      -74-

<PAGE>


                              HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2001, 2000 AND 1999
              (Expressed in U.S. Dollars, unless otherwise stated)


9.   SHARE CAPITAL (continued)

     (a)  The Company  grants share options in  accordance  with the policies of
          the CDNX.  Under the general  guidelines of the CDNX,  the Company may
          reserve  up to  10%  of  its  issued  and  outstanding  shares  to its
          employees, directors or consultants to purchase shares of the Company.

          Stock   options  to  directors   and  employees  of  the  Company  and
          consultants to acquire  2,363,752  shares were granted and outstanding
          as at May 31, 2001.  These  options are  exercisable  on varying dates
          expiring from  calendar  2001 to calendar 2004 at prices  ranging from
          CDN$1.33 to CDN $2.70 per share.

          Details of options outstanding are as follows:
<TABLE>
<CAPTION>

                                                              2001                              2000
                                                --------------------------------   ------------------------------
                                                                   WEIGHTED                          WEIGHTED
                                                   NUMBER           AVERAGE           NUMBER          AVERAGE
                                                 OF OPTIONS     EXERCISE PRICE      OF OPTIONS    EXERCISE PRICE
                                                                       $                                 $
<S>                                             <C>               <C>             <C>                <C>

          Balance, beginning of year               1,760,416         2.11            1,734,361          1.99
          Granted                                  1,022,000         2.34              105,000          3.47
          Exercised                                        -           -               (78,945)         1.34
          Cancelled/expired                         (418,664)        2.39                    -            -
                                                  ----------                        ----------
          Balance, end of year                     2,363,752         2.19            1,760,416          2.11
                                                  ==========                        ==========
</TABLE>

     (b)  As at May 31,  2001,  the  Company  had  outstanding  warrants  issued
          pursuant to private placements,  rights offering, special warrants and
          debentures,  which may be exercised to purchase  8,371,917 shares. The
          warrants  expire at various  times until 2004 and may be  exercised at
          prices ranging from CDN$1.35 per share to CDN$5.75 per share.

          Details of warrants outstanding are as follows:
<TABLE>
<CAPTION>

                                                                                     2001                2000
                                                                                    NUMBER              NUMBER
                                                                                 OF WARRANTS         OF WARRANTS
<S>                                                                             <C>                 <C>

          Balance, beginning of year                                               6,379,215           2,263,921
          Issued pursuant to private placements                                    2,291,250           3,623,750
          Issued pursuant to exercises of special warrants                                 -             899,100
          Issued pursuant to conversion of debentures                                      -              95,059
          Issued pursuant to rights offering                                       1,100,000                   -
          Issued pursuant to financing advisory services                              35,000                   -
          Issued pursuant to convertible debenture finder's and agent's fees         268,750                   -
          Exercised                                                               (1,346,381)           (502,615)
          Expired                                                                   (355,917)                  -
                                                                                 -----------         -----------
          Balance, end of year                                                     8,371,917           6,379,215
                                                                                 ===========         ===========
</TABLE>

     (c)  See also Notes 7, 8 and 16(a).


                                      F-15

                                      -75-

<PAGE>


                              HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2001, 2000 AND 1999
              (Expressed in U.S. Dollars, unless otherwise stated)


10.  RELATED PARTY TRANSACTIONS

     (a)  During the year ended May 31,  2001  companies  controlled  by certain
          directors  and  officers  of the  Company  charged  $197,241  (2000  -
          $281,053;  1999 - $224,883) for accounting,  management,  professional
          and consulting fees.

     (b)  During the year ended May 31,  1999,  the  Company  and  Trimark  Inc.
          entered into a number of petroleum property agreements under which the
          Company, subject to regulatory approval, agreed to:

           (i) sell a portion of its interests in certain  petroleum and natural
               gas  properties,  comprising  a 4% capital  interest  (3% working
               interest)   in  the  San  Joaquin   Joint   Venture  and  a  0.7%
               reversionary  interest in certain petroleum  interests (the "East
               Lost Hills Joint Venture"), located in Kern County, California to
               Trimark Inc. for $1,450,000  cash. The 4% capital interest in the
               San Joaquin Joint Venture and the 0.7%  reversionary  interest in
               the East Lost Hills Joint Venture was originally purchased by the
               Company from an arms-length party for $1,400,000 cash; and

          (ii) reacquire the 0.7%  reversionary  interest in the East Lost Hills
               Joint Venture from Trimark Inc., at its ascribed carrying cost of
               $700,000,  and sell a 1% working  interest in the East Lost Hills
               Joint Venture to Trimark Inc. for the sum of $2,000,000.  The net
               consideration  of  $1,300,000  consisted  of  $600,000  cash  and
               $700,000  payable by the issuance of 1,160,000  common  shares of
               Trimark at a price of CDN$0.90 per share.

          At May 31, 1999,  the Company had received  $713,354 and the remaining
          balance of $2,036,646 was included in amounts  receivable.  During the
          year ended May 31, 2000, the Company received  regulatory approval and
          received the remaining  cash proceeds of $1,336,646  and the shares of
          Trimark.

     (c)  In June 1993,  the  Company  terminated  a former  president  who then
          initiated an action against the Company for wrongful dismissal and for
          sums  allegedly  owed for prior  wages.  In  addition,  a  corporation
          controlled by this former  president  commenced  legal  proceedings to
          enforce certain security instruments which had been previously granted
          by the Company's former  management to this company for a debt claimed
          to be owed.  During  the year ended May 31,  1999,  the  Company  paid
          $1,042,377  to settle all claims  which were made  against the Company
          and associated legal and interest costs.

     (d)  In past years the Company had received ongoing advances from companies
          controlled  by certain  directors of the Company.  These  amounts were
          recorded as other liabilities. During the year ended May 31, 1999, the
          Company  repaid the  amounts,  plus  accrued  interest  owing,  to the
          related  companies.  During the year ended May 31,  1999,  interest of
          $34,528, which was based on 8% per annum, was charged.

     (e)  Other related  party  transactions  are  disclosed  elsewhere in these
          consolidated financial statements.



                                      F-16

                                      -76-

<PAGE>


                              HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2001, 2000 AND 1999
              (Expressed in U.S. Dollars, unless otherwise stated)


11.  INCOME TAXES

     Future income tax assets and  liabilities of the Company as at May 31, 2001
     and 2000 are as follows:

<TABLE>
<CAPTION>

                                                                                       2001             2000
                                                                                        $                $
<S>                                                                            <C>              <C>

     Future income tax assets
          Losses carried forward                                                   12,232,000        8,426,000
          Other                                                                       210,000                -
     Future income tax liabilities
          Petroleum and natural gas interests                                      (6,700,000)      (2,300,000)
                                                                                  -----------      -----------
                                                                                    5,742,000        6,126,000
     Valuation allowance                                                           (5,742,000)      (6,126,000)
                                                                                  -----------      -----------
     Net future income tax asset                                                            -                -
                                                                                  ===========      ===========
</TABLE>


     Future income tax assets and  liabilities of the Company as at May 31, 2001
     and 2000 are as follows:

<TABLE>
<CAPTION>

                                                                                       2001             2000
                                                                                        $                $
<S>                                                                             <C>              <C>

     Income tax rate reconciliation
     Combined federal and provincial income tax rate                                       44%              44%
                                                                                  ===========      ===========

     Expected income tax recovery                                                     668,000          985,000
     Foreign income tax rate differences                                             (137,000)        (202,000)
     Non-deductible depreciation and depletion                                       (452,000)        (402,000)
     Deductible loss on sale of petroleum and natural gas interests                 1,786,000                -
     Non-deductible write-down of investment                                         (210,000)               -
     Deductible petroleum and natural gas interest expenditures                       885,000        2,620,000
     Non-taxable unrealized foreign exchange gains                                    374,000                -
     Unrecognized benefit of income tax losses                                     (2,914,000)      (3,001,000)
                                                                                  -----------      -----------
     Actual income tax recovery                                                             -                -
                                                                                  ===========      ===========

</TABLE>

     As at May 31,  2001,  the Company has  accumulated  non-capital  losses for
     Canadian income tax purposes of  approximately  CDN$5.6  million,  expiring
     from  2002  to  2008,   and  for  United  States  income  tax  purposes  of
     approximately $24 million,  expiring from 2008 to 2021, which are available
     for  application  against future taxable  income,  the related  benefits of
     which have not been recognized in these financial statements.









                                      F-17

                                      -77-

<PAGE>


                              HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2001, 2000 AND 1999
              (Expressed in U.S. Dollars, unless otherwise stated)


12.  SEGMENTED INFORMATION

     As at May 31,  2001,  the  Company  and its  subsidiaries  operated  in one
     industry  segment,  the exploration for, and the development and production
     of petroleum and natural gas. The Company's  current  petroleum and natural
     gas interests are located in the United States and its corporate assets are
     located in Canada.  Identifiable  assets,  revenues and net loss in each of
     these geographic areas are as follows:

<TABLE>
<CAPTION>

                                                                                       2001
                                                               ---------------------------------------------------
                                                                IDENTIFIABLE                                NET
                                                                   ASSETS             REVENUES         INCOME (LOSS)
                                                                     $                   $                   $
<S>                                                          <C>                  <C>                <C>


     United States                                              35,045,041            5,289,381            301,014
     Canada                                                      1,010,121               40,647         (1,819,872)
                                                               -----------          -----------       ------------
                                                                36,055,162            5,330,028         (1,518,858)
                                                               ===========          ===========       ============

</TABLE>


<TABLE>
<CAPTION>


                                                                                      2000
                                                               ---------------------------------------------------
                                                                IDENTIFIABLE
                                                                   ASSETS             REVENUES           NET LOSS
                                                                     $                   $                   $
<S>                                                          <C>                <C>                 <C>


     United States                                              38,762,395            4,829,209         (1,505,783)
     Canada                                                      3,320,312               23,477           (733,869)
                                                               -----------          -----------       ------------
                                                                42,082,707            4,852,686         (2,239,652)
                                                               ===========          ===========       ============

</TABLE>


<TABLE>
<CAPTION>

                                                                                      1999
                                                               ---------------------------------------------------
                                                               IDENTIFIABLE
                                                                  ASSETS             REVENUES           NET LOSS
                                                                     $                   $                   $
<S>                                                        <C>                 <C>                 <C>


     United States                                              30,416,645            3,766,066         (2,326,302)
     Canada                                                      3,219,933              103,396         (2,123,170)
                                                               -----------          -----------       ------------
                                                                33,636,578            3,869,462         (4,449,472)
                                                               ===========          ===========       ============
</TABLE>












                                      F-18

                                      -78-

<PAGE>


                              HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2001, 2000 AND 1999
              (Expressed in U.S. Dollars, unless otherwise stated)


13.  DIFFERENCES   BETWEEN  CANADIAN  AND  UNITED  STATES   GENERALLY   ACCEPTED
     ACCOUNTING PRINCIPLES

     (a)  The  consolidated  financial  statements  of  the  Company  have  been
          prepared  according to Canadian GAAP which differ in certain  material
          respects from US GAAP.  Material  differences  between Canadian and US
          GAAP  and  their  effect  on  the  Company's   consolidated  financial
          statements are summarized in the tables below.

<TABLE>
<CAPTION>

                                                                         2001           2000           1999
                                                                          $              $              $

<S>                                                               <C>             <C>            <C>

     Consolidated Statements of Operations
        and Comprehensive Income
     Loss for the year
        Canadian GAAP                                                 (1,518,858)    (2,239,652)    (4,449,472)
        Expenses incurred in business combination (i)                          -              -       (232,801)
        Stock option plan (vi)                                          (213,116)       (48,608)      (139,494)
        Other compensation expense (ix)                                 (151,495)      (460,394)      (620,614)
        Write-down of investment (iv)                                    956,253              -              -
        Accretion of liability component of
           long-term debt (x)                                             77,145              -              -
        Beneficial conversion feature on
             convertible debt securities (xi)                           (377,814)             -              -
                                                                    ------------    -----------    -----------
        US GAAP                                                       (1,227,885)    (2,748,654)    (5,442,381)
                                                                    ------------    -----------    -----------

     Other Comprehensive Income
          Unrealized holding gain (loss) on
               available-for-sale marketable securities (ii   )       (1,216,041)     1,335,077         67,943
          Less deferred income taxes                                           -              -        (31,253)
          Reclassification adjustment for gain on available
              for sale marketable securities included in net loss        (25,345)             -              -
                                                                    ------------    -----------    -----------
                                                                      (1,241,386)     1,335,077         36,690
                                                                    ------------    -----------    -----------
     Comprehensive income (loss) for the year                         (2,469,271)    (1,413,577)    (5,405,691)
                                                                    ============    ===========    ===========
          Earnings (loss) per share basic and
                fully diluted - US GAAP                                  (0.08)         (0.11)         (0.34)
                                                                    ============    ===========    ===========
</TABLE>













                                      F-19

                                      -79-

<PAGE>


                              HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2001, 2000 AND 1999
              (Expressed in U.S. Dollars, unless otherwise stated)







13.  DIFFERENCES   BETWEEN  CANADIAN  AND  UNITED  STATES  GENERALLY/   ACCEPTED
     ACCOUNTING PRINCIPLES (continued)

<TABLE>
<CAPTION>

                                                                                        2001           2000
                                                                                         $               $
<S>                                                                             <C>             <C>

     Consolidated Balance Sheets

     Total Assets
         Canadian GAAP                                                              36,055,162      42,082,707
         Available for sale securities (ii)                                                  -       1,348,788
         Capital contributions with respect to related party transactions (iii)      1,846,667       1,846,667
         Capital distributions with respect to related party transaction (iv)                -      (1,004,889)
                                                                                   -----------     -----------
         US GAAP                                                                    37,901,829      44,273,273
                                                                                   ===========     ===========
     Total Liabilities
         Canadian GAAP                                                               7,020,543      20,688,321
         Equity component of long-term debt (x)                                        694,310               -
         Accretion of liability component of long-term debt                            (77,145)              -
                                                                                   -----------     -----------
         US GAAP                                                                     7,637,708      20,688,321
                                                                                   ===========     ===========
     Shareholders' Equity
         Canadian GAAP                                                              29,034,619      21,394,386
         Equity component of long-term debt (x)                                       (694,310)              -
         Accretion of long-term component of long-term debt (x)                         77,145               -
         Cumulative capital contributions with
              respect to related party transactions (iii)                            1,846,667       1,846,667
         Capital distribution with respect to related party transaction (iv)                 -      (1,004,889)
         Available for sale securities (ii)                                                  -       1,348,788
                                                                                   -----------     -----------
         US GAAP                                                                    30,264,121      23,584,952
                                                                                   ===========     ===========

</TABLE>

          (i)  Expenses incurred in business combination

               US  GAAP  requires  expenses  incurred  relating  to  a  business
               combination similar to a  pooling-of-interests  transaction to be
               expensed in the period incurred, whereas under Canadian GAAP such
               costs are reflected as a capital transaction.

         (ii)  Marketable securities

               US GAAP requires  marketable  securities  which are classified as
               available for sale to be carried at fair value,  as determined by
               quoted published market prices,  with unrealized losses and gains
               on  available  for sale  securities  to be included as a separate
               component of  shareholders'  equity.  In  addition,  net realized
               gains and losses on security  transactions would be determined on
               the  specific  identification  cost  basis  and  included  in the
               determination of earnings for the year.




                                      F-20

                                      -80-

<PAGE>


                              HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2001, 2000 AND 1999
              (Expressed in U.S. Dollars, unless otherwise stated)







13.  DIFFERENCES   BETWEEN  CANADIAN  AND  UNITED  STATES   GENERALLY   ACCEPTED
     ACCOUNTING PRINCIPLES (continued)

        (iii)  Capital contributions with respect to related party transactions

               As described  in Note 10(b),  the Company has sold certain of its
               petroleum  interests to Trimark for a combination of monetary and
               non-monetary   consideration.   US  GAAP  requires  that  certain
               transfers  of  non-monetary  assets  to a  related  party  by its
               promoters  or  shareholders  should  generally be recorded at the
               transferor's   historical  cost,  whereas  under  Canadian  GAAP,
               transfers  of  non-monetary  assets may be recorded  based on the
               fair  value  of  the   consideration   received   under   certain
               circumstances.  Under  Canadian  GAAP,  these  transactions  were
               recorded  at  their  fair  values.  The  transactions  have  been
               adjusted to reflect the sale of the petroleum  interests based on
               the Company's historical cost basis.

         (iv)  Capital   distribution   with   respect  to  related   party
               transaction

               As described in Note 5, the Company  purchased  800,000 shares of
               Trimark  for  monetary  consideration.   US  GAAP  requires  that
               transfers of  non-monetary  assets from certain  related  parties
               should generally be recorded at the transferor's historical cost,
               whereas under Canadian GAAP, transfers of non-monetary assets may
               be recorded  based on the agreed  exchange  amount under  certain
               circumstances.   Under   Canadian  GAAP  this   transaction   was
               recognized at the agreed  exchange  amount.  The  transaction has
               been  adjusted  in 2000 and 1999 to reflect  the  purchase of the
               shares  based on the  transferor's  historical  cost basis.  This
               adjustment is no longer  necessary in 2001 as the  investment was
               written down to fair value at May 31, 2001.

          (v)  Ceiling test on petroleum interests

               US GAAP  requires  that the net book  value of  proved  petroleum
               interests  not exceed the sum of the present  value of  estimated
               future net revenues (determined using current prices of petroleum
               production less estimated  future  expenditures to be incurred in
               developing and producing the proved  reserves,  discounted at ten
               percent).  This ceiling test was performed effective May 31, 2001
               and it was  determined  that no  write-down  of proved  petroleum
               interests was necessary.

         (vi)  Stock options granted to consultants and non-employees

               The Company  grants stock options which reserve common shares for
               issuance to consultants and other  non-employees.  Under Canadian
               GAAP,  such  stock  options  are not  recognized  for  accounting
               purposes. Under US GAAP the Company has adopted the provisions of
               Statements  of  Financial   Accounting   Standards  ("SFAS")  123
               "Accounting  for Stock  Based  Compensation"  for  stock  options
               granted to consultants and non-employees.

               Accordingly,  the Company has recognized stock based compensation
               for these stock option grants using the fair value method.


                                      F-21

                                      -81-

<PAGE>


                              HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2001, 2000 AND 1999
              (Expressed in U.S. Dollars, unless otherwise stated)







13.  DIFFERENCES   BETWEEN  CANADIAN  AND  UNITED  STATES   GENERALLY   ACCEPTED
     ACCOUNTING PRINCIPLES (continued)

               The fair value of each option  granted to a  consultant  or other
               non-employee  is  estimated  on  the  date  of  grant  using  the
               Black-Scholes Option Pricing Model with the following assumptions
               used for grants  during the years  ended May 31,  2001,  2000 and
               1999:

<TABLE>
<CAPTION>

                                                                 2001             2000             1999
<S>                                                          <C>            <C>             <C>

               Risk-free interest rate                           4.50%             6.75%           6.25%
               Expected volatility                                107%              92%             120%
               Expected lives                                   3 years         2 - 3 years     2 - 3 years

</TABLE>


        (vii)  Stock option plan for employees and directors

               The Company has a stock option plan which reserves  common shares
               for issuance to employees and directors.  The Company has adopted
               the disclosure  only provisions of SFAS No. 123 for stock options
               granted to employees and directors.  Accordingly, no compensation
               cost  has  been   recognized  for  the  stock  option  plan.  Had
               compensation  costs  for the  Company's  stock  option  plan been
               determined  based on the fair  value at the grant date for awards
               during the years  ended May 31,  2001,  2000 and 1999  consistent
               with the  provisions  of SFAS No.  123,  the  Company's  earnings
               (loss) and earnings (loss) per share would have been increased to
               the proforma amounts indicated below:

<TABLE>
<CAPTION>

                                                                 2001             2000             1999
                                                                   $                $                $

<S>                                                        <C>              <C>              <C>

               Earnings (loss) - as reported under US GAAP    (1,227,885)      (2,748,654)      (5,442,381)
               Earnings (loss) - proforma                     (1,918,509)      (2,824,740)      (7,717,965)

               Earnings (loss) per share - as reported
                  under US GAAP                                  (0.04)           (0.11)           (0.34)
               Earnings (loss) per share - proforma              (0.06)           (0.12)           (0.48)

</TABLE>

               The fair market  value of each  option  granted to an employee or
               director  is  estimated  on the date of grant  using  the Black -
               Scholes Option Pricing Model with the following  assumptions used
               for grants during the years ended May 31, 2001, 2000 and 1999:

<TABLE>
<CAPTION>

                                                                 2001             2000             1999

<S>                                                         <C>            <C>              <C>

               Risk-free interest rate                          4.79%            6.75%            6.25%
               Expected volatility                               109%             92%              120%
               Expected lives                                  3 years        2 - 3 years      2 - 3 years

</TABLE>






                                      F-22

                                      -82-

<PAGE>


                              HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2001, 2000 AND 1999
              (Expressed in U.S. Dollars, unless otherwise stated)







13.  DIFFERENCES   BETWEEN  CANADIAN  AND  UNITED  STATES   GENERALLY   ACCEPTED
     ACCOUNTING PRINCIPLES (continued)

       (viii)  Private Placements of Common Stock and Special Warrants with
               Related Parties

               US GAAP requires  disclosure of private  placements  conducted by
               the  Company  where  directors  and  officers  of the Company are
               participants.  During  the year  ended May 31,  2001,  directors,
               officers and  companies  controlled  by the directors or officers
               acquired  2,250,000 shares or special warrants (2000 - 2,706,500;
               1999 - 3,883,334) of the Company,  pursuant to private placements
               conducted by the Company, for cash proceeds of $1,893,684 (2000 -
               $5,494,547; 1999 - $5,389,530).

         (ix)  Private Placements of Common Stock

               The  Company  conducts  the  majority  of its  equity  financings
               pursuant to private  placements.  Under the policies of the CDNX,
               on which the  Company's  common stock is listed,  the Company may
               provide a discount off the market price of the  Company's  common
               stock.  US GAAP does not permit a discount from the market price.
               US GAAP  requires  the  recognition  of the  market  value of the
               Company's  common  stock as a credit  to  share  capital,  with a
               charge to operations for the portion of the discount  relating to
               equity  financings  conducted  with officers and directors of the
               Company  and a  charge  to  shareholders'  equity,  as a  capital
               distribution,  for the discount relating to the remaining portion
               of the equity financings.

               Under US GAAP, loss and capital  distributions for the year ended
               May 31, 2001 would increase by $148,800 (2000 - $460,394;  1999 -
               $620,614)   and  $nil  (2000  -   $231,117;   1999  -   $98,112),
               respectively,  and  share  capital,  as at  May  31,  2001  would
               increase  by  $1,731,717  (2000 -  $1,582,917).  There  is no net
               change to shareholders' equity.

          (x)  Accretion of Liability Component of Long-term Debt

               Under  Canadian  GAAP,  compound  financial  instruments  such as
               convertible  debentures  are required to be accounted  for at the
               fair value of their components.  Such accounting is not permitted
               under US GAAP unless the  components are  detachable,  which they
               are not in this case.

         (xi)  Beneficial Conversion Feature on Convertible Debt Securities

               Under US GAAP,  additional  interest expense is recognized when a
               convertible  debt  security  is  issued  with  an "in  the  money
               conversion rate". This additional  interest expense is recognized
               in the year of issue when,  as in the  Company's  case,  the debt
               security is convertible  at the time of issue.  No such charge is
               required under Canadian GAAP.

     (b)  The  Company's  consolidated  statements  of cash flow  comply with US
          GAAP.


                                      F-23

                                      -83-

<PAGE>


                              HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2001, 2000 AND 1999
              (Expressed in U.S. Dollars, unless otherwise stated)



13.  DIFFERENCES   BETWEEN  CANADIAN  AND  UNITED  STATES   GENERALLY   ACCEPTED
     ACCOUNTING PRINCIPLES (continued)

     (c)  New Technical Pronouncements

          In  September  2000,  SFAS  No.  140  "Accounting  for  Transfers  and
          Servicing of Financial Assets and  Extinguishments  of Liabilities - A
          Replacement  of FASB  Statement No. 125" was issued.  Adoption of SFAS
          No. 140 is not expected to have an impact on the  Company's  financial
          statements.

          In June  2001,  SFAS  No.  141  "Business  Combinations"  was  issued.
          Adoption  of SFAS No.  141 is not  expected  to have an  impact on the
          Company's financial statements.

          Also in June 2001, SFAS No. 142 "Goodwill and Other Intangible Assets"
          was issued. Adoption of SFAS No. 142 is not expected to have an impact
          on the Company's financial statements.


14.  FINANCIAL INSTRUMENTS

     The fair  value of  financial  instruments  at May 31,  2001 and 2000,  was
     estimated based on relevant market  information and the nature and terms of
     financial  instruments.  Management is not aware of any factors which would
     significantly  affect the  estimated  fair market  amounts,  however,  such
     amounts  have not  been  comprehensively  revalued  for  purposes  of these
     financial statements.  Disclosure subsequent to the balance sheet dates and
     estimates  of fair  value at dates  subsequent  to May 31,  2001 may differ
     significantly from that presented.

     (a)  Commodity Price Risk Management

          As at May 31,  2001,  the  Company  has not  entered  into any forward
          contracts to hedge against general reductions in petroleum and natural
          gas prices.

     (b)  Credit Risk Management

          Amounts  receivable  include  accounts  receivable  for  petroleum and
          natural gas sales in the United States. These sales are generally made
          to large, credit-worthy purchasers. The Company views the credit risks
          on these items as low.

     (c)  Fair Value of Other Financial Instruments

          Fair  value  approximates  the  amounts  reflected  in  the  financial
          statements  for cash,  amounts  receivable,  investment  in affiliated
          corporations,  accounts payable and accrued liabilities and long- term
          debt.






                                      F-24

                                      -84-

<PAGE>


                              HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2001, 2000 AND 1999
              (Expressed in U.S. Dollars, unless otherwise stated)


15.  SUPPLEMENTARY CASH FLOW INFORMATION

     Non-cash  investing and financing  activities were conducted by the Company
     as follows:

<TABLE>
<CAPTION>


                                                                         2001           2000           1999
                                                                           $              $              $
<S>                                                                <C>             <C>            <C>

     Operating activities
          Decrease in amounts receivable                                       -        700,000              -
          Increase in prepaid expenses and deposits                     (153,206)             -              -
                                                                     -----------    -----------    -----------
                                                                        (153,206)       700,000              -
                                                                     ===========    ===========    ===========
     Investing activities
          Investment in affiliated corporation                                 -       (700,000)             -
          Acquisition of non-controlling interest in subsidiary                -         22,932              -
                                                                     -----------    -----------    -----------
                                                                               -       (677,068)             -
                                                                     ===========    ===========    ===========
     Financing activities
          Deferred debenture charges                                      16,503          7,757              -
          Common share issue costs                                       (16,503)        (7,757)             -
          Conversion of debentures                                             -       (657,920)    (1,278,418)
          Conversion of special warrants                                       -     (2,459,670)    (1,906,132)
          Issuance of common shares                                            -      3,117,590      3,184,550
          Petroleum and natural gas interest expenditures                      -        (22,932)             -
          Issuance of common shares for debenture interest               153,206              -              -
          Issuance of common shares on
             retirement of other liabilities                           1,966,740              -              -
          Retirement of other liabilities                             (1,966,740)             -              -
                                                                     -----------    -----------    -----------
                                                                         153,206        (22,932)             -
                                                                     ===========    ===========    ===========
</TABLE>

     Other supplementary cash flow information:

<TABLE>
<CAPTION>

                                                                         2001           2000           1999
                                                                           $              $              $
<S>                                                               <C>             <C>           <C>


     Interest paid in cash                                             1,326,811      1,919,052      2,005,513
                                                                     ===========    ===========    ===========
     Income taxes paid in cash                                                 -              -              -
                                                                     ===========    ===========    ===========
</TABLE>




                                      F-25

                                      -85-

<PAGE>


                              HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2001, 2000 AND 1999
              (Expressed in U.S. Dollars, unless otherwise stated)


16.  SUBSEQUENT EVENTS

     (a)  During  July  2001,  the  Company  completed  a private  placement  of
          1,673,000  units at CDN $1.70 per unit.  Each unit is comprised of one
          common share and one  non-transferable  share  purchase  warrant.  Two
          share purchase  warrants entitles the holder to purchase an additional
          share at CDN $1.88 per share for a period of three years. A fee of CDN
          $6,400 cash was paid and warrants were issued  entitling the agents to
          purchase up to 325,200  shares of the Company on the same terms as the
          share purchase warrants.

     (b)  Subsequent to May 31, 2001, the Company sold 440,000 shares of Trimark
          for net  proceeds  of  $98,116,  recognizing  a loss of  $73,484.  The
          Company  intends to utilize the proceeds  from the sale of the Trimark
          shares to  participate  in a  convertible  debenture  financing  to be
          completed by Trimark, the terms of which remain to be finalized.

     (c)  On August 31, 2001,  being the end of the  Company's  first quarter of
          fiscal 2002, a ceiling test impairment  charge of approximately  $11.9
          million was charged against  earnings.  Approximately  $9.0 million of
          the  impairment  charge was based  upon the fall in market  prices for
          natural gas between May 31, 2001 and August 31, 2001 and the remaining
          $2.9 million related to additions and transfers to the depletable full
          cost pool during the quarter  ended  August 31,  2001.  Under the full
          cost method, period end prices are required to be applied in assessing
          the  carrying  value  of  the  Company's  petroleum  and  natural  gas
          interests.  This assessment is conducted on a quarterly basis;  future
          ceiling test impairment charges may be necessary due to the volatility
          in the  market  price  of  natural  gas  and  the  uncertain  economic
          conditions  which are  expected to be present in North  America in the
          foreseeable future.


17.  SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)

     The  following  information,  pertaining  to  the  Company's  oil  and  gas
     producing  activities  for the years ended May 31,  2001,  2000 and 1999 is
     presented in  accordance  with SFAS No. 69,  "Disclosure  About Oil and Gas
     Producing Activities".

     COSTS INCURRED IN OIL AND GAS EXPLORATION AND DEVELOPMENT ACTIVITIES

     The  following  costs were  incurred by the Company in oil and gas property
     acquisition;  exploration and development activities during the years ended
     May 31:

<TABLE>
<CAPTION>

                                                                        2001             2000            1999
                                                                          $               $                $
<S>                                                               <C>             <C>              <C>

     Property acquisition costs
            Proved                                                            -         164,597        2,152,607
            Unproved                                                    180,721       3,633,390        2,690,534
     Exploration costs                                                6,676,601       7,136,679          834,599
     Development costs                                                  699,203         524,212          697,838
     Other                                                              775,961         197,262          166,402
                                                                    -----------     -----------      -----------
                                                                      8,332,486      11,656,140        6,541,980
                                                                    ===========     ===========      ===========

</TABLE>


                                      F-26

                                      -86-

<PAGE>


                              HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2001, 2000 AND 1999
              (Expressed in U.S. Dollars, unless otherwise stated)


17.  SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED) (continued)

     Property  acquisition  costs include costs  incurred to purchase,  lease or
     otherwise  acquire  a  property.  Exploration  costs  include  the costs of
     geological and geophysical  activity,  dry holes and drilling and equipping
     exploratory wells.  Development costs include costs incurred to gain access
     to and prepare  development  well locations for drilling,  and to drill and
     equip development wells.

     OIL AND GAS RESERVES

     The following  reserve  related  information  are based on reserve  reports
     prepared by Petrotech  Engineering  Ltd.  (May 31,  2001),  Lee Keeling and
     Associates  (May  31,  2000 and  1999),  independent  reservoir  engineers.
     Reserve estimates are inherently  imprecise and are continually  subject to
     revisions based on production  history,  results of additional  exploration
     and development, prices of oil and gas and other factors.

<TABLE>
<CAPTION>

                                                   2001                         2000                        1999
                                       --------------------------  --------------------------  ----------------------------
                                           OIL            GAS           OIL           GAS            OIL            GAS
                                         (BBLS)          (MCF)        (BBLS)         (MCF)         (BBLS)          (MCF)
<S>                                    <C>         <C>            <C>          <C>            <C>            <C>

     PROVED DEVELOPED AND
        UNDEVELOPED RESERVES

     Beginning of year                     746,443     19,002,112    1,267,531     21,988,428     1,065,267      20,369,695
     Revisions to previous estimates             -              -     (460,070)    (1,634,166)      193,500         910,085
     Purchase of minerals in place               -              -          648         57,965       110,895       2,140,136
     Extensions and discoveries            290,444      5,280,002            -              -             -               -
     Production                            (41,067)    (1,105,599)     (57,080)    (1,297,608)      (68,105)     (1,121,436)
     Sales of minerals in place           (710,603)   (18,021,783)      (4,856)      (112,507)      (34,026)       (310,052)
                                       -----------   ------------  -----------   ------------   -----------   -------------
     End of year                           285,217      5,154,732      746,443     19,002,112     1,267,531      21,988,428
                                       ===========   ============  ===========   ============   ===========   =============
     PROVED DEVELOPED RESERVES

     Beginning of year                     364,797     17,670,500      638,287     15,223,231       658,328      17,644,934
                                       ===========   ============  ===========   ============   ===========   =============
     End of year                           285,217      5,154,732      364,797     17,670,500       638,287      15,223,231
                                       ===========   ============  ===========   ============   ===========   =============

</TABLE>

     STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS

     The  standardized  measure of discounted  future net cash flows is based on
     estimated  quantities  of proven  reserves and the future  periods in which
     they are  expected to be  produced  and on  year-end  economic  conditions.
     Estimated future gross revenues are priced on the basis of year-end prices.
     Estimated future gross revenues are reduced by estimated future development
     and  production  costs,  as well as  estimated  future  income tax expense.
     Future income tax expenses have been computed  considering the tax basis of
     the oil and gas properties plus available carryforwards and credits.

     The standardized  measure of discounted future net cash flows should not be
     construed  to be an  estimate  of the fair  market  value of the  Company's
     proved  reserves.  Estimates  of fair value  would  also take into  account
     anticipated  changes  in future  prices  and costs,  the  reserve  recovery
     variances  from  estimate  proved  reserves  and  a  discount  factor  more
     representative  of the  time  value of  money,  and the  inherent  risks in
     producing oil and gas.  Significant  changes in estimate reserve volumes or
     product prices could have a material  effect on the Company's  consolidated
     financial statements.


                                      F-27

                                      -87-

<PAGE>


                              HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2001, 2000 AND 1999
              (Expressed in U.S. Dollars, unless otherwise stated)


17.  SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED) (continued)

<TABLE>
<CAPTION>

                                                                      2001             2000             1999
                                                                       $                 $               $

<S>                                                            <C>              <C>             <C>

     Future cash inflows                                           57,839,525       85,369,489      67,901,079
     Future production costs                                       (1,889,943)     (25,752,917)    (26,396,943)
     Future development costs                                        (606,250)      (1,666,250)     (3,770,276)
     Future income tax expenses                                    (4,908,565)      (6,375,052)     (3,140,603)
                                                                -------------     ------------    ------------
     Future net cash flows                                         50,434,767       51,575,270      34,593,257
     10% annual discount for estimated timing of cash flows       (24,239,302)     (26,260,476)    (13,400,963)
                                                                -------------     ------------    ------------
     Standardized measure of discounted future cash flows          26,195,465       25,314,794      21,192,294
                                                                =============     ============    ============

</TABLE>

     The  following  are the  principal  sources of changes in the  standardized
     measure of discounted future net cash flows:

<TABLE>
<CAPTION>

                                                                      2001             2000            1999
                                                                        $               $                $
<S>                                                            <C>              <C>             <C>

     Net change in sales price and production costs                         -       19,186,978       2,759,091
     Development costs incurred                                       130,654          585,002         338,599
     Changes in estimated future development costs                    833,220        1,320,444      (2,485,599)
     Sales and transfers of oil and gas produced,
          net of production costs                                  (2,819,340)      (2,446,586)     (1,131,178)
     Net change due to extensions and discoveries                  28,689,011                -               -
     Net change due to purchases and sales of
          minerals in place                                       (28,870,962)        (205,530)      1,758,901
     Net change due to revisions in quantities                              -      (13,929,923)      1,269,575
     Net change in income taxes                                       292,012         (418,744)        289,376
     Accretion of discount                                          2,688,177        2,234,053       1,784,321
     Net change due to crude oil and natural gas hedge               (141,208)      (2,006,317)              -
     Other                                                             79,107         (196,877)        203,609
                                                                -------------     ------------    ------------
     Net change                                                       880,671        4,122,500       4,786,695
     Beginning of year                                             25,314,794       21,192,294      16,405,599
                                                                -------------     ------------    ------------
     End of year                                                   26,195,465       25,314,794      21,192,294
                                                                =============     ============    ============

</TABLE>





                                      F-28

                                      -88-

<PAGE>