FORM 20-F/A
                                AMENDMENT NO. 1


[ ]  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 33
        ---------         ---------

                                       -1-

<PAGE>


This amendment is being filed for the purpose of updating the Auditor's Report
on the financial statements contained herein and contains only those items
relating to such statements.



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.



                                      -2-
<PAGE>

                                    PART III


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


See pages F-1 through F-28.



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>

                                      -3-

<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 (6)                                                         N/A

      8.1           List of Subsidiaries (6)                                                               N/A

</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.


(6)  Previously filed as an exhibit to the Company's Annual Report on Form 20-F,
     filed with the Commission on December 12, 2001. File number 000-30390.




                                      -4-

<PAGE>



                                   SIGNATURES


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


                                                HILTON PETROLEUM LTD.



Dated:      April 4, 2002                       /s/ Harvey Lim
        --------------------                    --------------------------------
                                                Harvey Lim, Secretary








                                      -5-


<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

                                       6

<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 and United States  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
                                       7
<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
                                       8
<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
                                       9
<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

                                       10

<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
                                       11
<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
                                       12
<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
                                       13
<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
                                       14
<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
                                       15
<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
                                       16
<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
                                       17
<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
                                       18
<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
                                       19
<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
                                       20
<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
                                       21
<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
                                       22
<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
                                       23
<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
                                       24
<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
                                       25
<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
                                       26
<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
                                       27
<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
                                       28
<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
                                       29
<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
                                       30
<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
                                       31
<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
                                       32
<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

                                       33