---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C.
20549

FORM 20-F

[     ]     REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) or 12(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 July 31, 2007

OR

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

For the transition period from _______________to
_______________

OR

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

Date of event requiring this shell company report
_______________

Commission file number: 0-27668

TRANS-ORIENT PETROLEUM
LTD.(Exact name of Registrant specified in its charter)

BRITISH COLUMBIA,
CANADA(Jurisdiction of incorporation or
organization)

999 Canada Place, World Trade Centre, Suite 404
Vancouver, British Columbia, Canada, V6C 3E2(Address of
principal executive offices)

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

|Title of each class | Name of each exchange on which registered
|------------------- | -----------------------------------------
|None                | Not applicable                           

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

Common Shares without Par Value(Title of Class)

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

Number of outstanding common shares of Trans-Orients capital
  stock as of July 31, 2007.36,545,225 Common Shares Without Par Value

---

Indicate by check mark if the Registrant is a well-known seasoned
  issuer as defined in Rule 405 of the Securities Act.

Yes [     ]     No [X]

If this report is an annual or transition report, indicate by
  check mark if the Registrant is not required to file reports pursuant to Section
  13 or 15(d) of the Securities Exchange Act of 1934.

Yes [     ]     No
[X]

Indicate by check mark whether Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934during the preceding 12 months (or for such shorter
period that 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 whether the Registrant is a large
accelerated filer, an accelerated filer or non-accelerated filer. See definition
of accelerated filer and large accelerated filer in Rule 12b 2 of the
Exchange Act.

[     ]  Large Accelerated Filer     
  [     ]  Accelerated Filer     
  [X]  Non Accelerated Filer

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

Item 17 [X]       Item 18
[     ]

If this is an annual report, indicate by check mark whether the
Registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act):

Yes [     ]     No
[X]

ii

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|T A B L E O F C O N T E N T S                  
|-----------------------------------------------
|of the Form 20-F of Trans-Orient Petroleum Ltd.
|                                               

|                                                           |                                                             |                                               | Page
|---------------------------------------------------------- | ----------------------------------------------------------- | --------------------------------------------- | ----
|                                                           |                                                             |                                               |     
|                                                           |                                                             |                                               |     
|FORWARD-LOOKING STATEMENTS                                 | 1                                                          
|                                                           |                                                             |                                               |     
|CURRENCY, MEASUREMENT AND GLOSSARY OF INDUSTRY
      TERMS | 2                                                          
|                                                           |                                                             |                                               |     
|PART I                                                     | 3                                                          
|                                                           |                                                             |                                               |     
|**ITEM 1.**                                                | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
      ADVISERS | 3                                            
|                                                           |                                                             |                                              
|ITEM 2.                                                    | OFFER STATISTICS AND EXPECTED TIMETABLE                     | 3                                            
|                                                           |                                                             |                                              
|ITEM 3.                                                    | KEY INFORMATION                                             | 3                                            
|                                                           |                                                             |                                               |     
|                                                           | A.                                                          | Selected Financial Data                       | 3   
|                                                           | B.                                                          | Capitalization and Indebtedness               | 4   
|                                                           | C.                                                          | Reasons for the Offer and Use of Proceeds     | 4   
|                                                           | D.                                                          | Risk Factors                                  | 4   
|                                                           |                                                             |                                               |     
|ITEM 4.                                                    | INFORMATION ON THE COMPANY                                  | 9                                            
|                                                           |                                                             |                                               |     
|                                                           | A.                                                          | History and Development of the Company        | 9   
|                                                           | B.                                                          | Business Overview                             | 10  
|                                                           | C.                                                          | Organizational Structure                      | 11  
|                                                           | D.                                                          | Property, Plant and Equipment                 | 11  
|                                                           |                                                             |                                               |     
|ITEM 4A.                                                   | UNRESOLVED STAFF COMMENTS                                   | 15                                           
|                                                           |                                                             |                                              
|ITEM 5.                                                    | OPERATING, FINANCIAL REVIEW AND PROSPECTS                   | 16                                           
|                                                           |                                                             |                                              
|ITEM 6.                                                    | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                  | 20                                           
|                                                           |                                                             |                                               |     
|                                                           | A.                                                          | Directors and Senior Management               | 20  
|                                                           | B.                                                          | Compensation                                  | 22  
|                                                           | C.                                                          | Board Practices                               | 23  
|                                                           | D.                                                          | Employees                                     | 24  
|                                                           | E.                                                          | Share Ownership by Directors and
    Officers | 24  
|                                                           |                                                             |                                               |     
|ITEM 7.                                                    | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS           | 24                                           
|                                                           |                                                             |                                               |     
|                                                           | A.                                                          | Major Shareholders                            | 24  
|                                                           | B.                                                          | Related Party Transactions                    | 25  
|                                                           | C.                                                          | Interests of Experts and Counsel              | 26  
|                                                           |                                                             |                                               |     
|ITEM 8.                                                    | FINANCIAL INFORMATION                                       | 26                                           
|                                                           |                                                             |                                              
|ITEM 9.                                                    | THE OFFER AND LISTING                                       | 27                                           
|                                                           |                                                             |                                              
|ITEM 10.                                                   | ADDITIONAL INFORMATION                                      | 28                                           
|                                                           | A.                                                          | Share Capital                                 | 28  
|                                                           | B.                                                          | Memorandum and Articles of Association        | 28  
|                                                           | C.                                                          | Material Contracts                            | 28  
|                                                           | D.                                                          | Exchange Controls                             | 29  
|                                                           | E.                                                          | Taxation                                      | 31  
|                                                           | F.                                                          | Dividends and Paying Agents                   | 36  
|                                                           | G.                                                          | Statement by Experts                          | 36  
|                                                           | H.                                                          | Documents on Display                          | 36  
|                                                           | I.                                                          | Subsidiary information                        | 36  

i

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|ITEM
      11.                      | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK                       | 37                                                                          
|----------------------------------- | -------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------
|                                    |                                                                                        |                                                                             
|ITEM
      12.                      | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                                 | 37                                                                          
|                                    |                                                                                        |                                                                             
|PART
      II                       |                                                                                        | 37                                                                          
|                                    |                                                                                        |                                                                             
|ITEM
      13.                      | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                                        | 37                                                                          
|                                    |                                                                                        |                                                                             
|ITEM
      14.                      | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
      AND USE OF **PROCEEDS** | **37**                                                                      
|                                    |                                                                                        |                                                                             
|ITEM
      15.                      | CONTROLS AND PROCEDURES                                                                | 37                                                                          
|                                    |                                                                                        |                                                                             
|ITEM
      16.                      | AUDIT COMMITTEE, CODE OF ETHICS, ACCOUNTANTS FEES                                      | 38                                                                          
|                                    |                                                                                        |                                                                             
|                                    | A.                                                                                     | Audit Committee Financial Expert                                            
|                                    | B.                                                                                     | Code of Ethics                                                              
|                                    | C.                                                                                     | Principal Accountant Fees and Services                                      
|                                    | D.                                                                                     | Exemptions from the Listing Standards for Audit Committees                  
|                                    | E.                                                                                     | Purchases of Equity Securities by the Issuer and Affiliated
      Purchasers
|                                    |                                                                                        |                                                                             
|PART
      III                      | 39                                                                                    
|                                    |                                                                                       
|ITEM
      17. FINANCIAL STATEMENTS | 39                                                                                    
|                                    |                                                                                       
|ITEM
      18. FINANCIAL STATEMENTS | 39                                                                                    
|                                    |                                                                                       
|ITEM
      19. EXHIBITS             | 55                                                                                    
|                                    |                                                                                       
|SIGNATURE                           | 56                                                                                    

ii

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FORWARD-LOOKING STATEMENTS

This Annual Report on Form 20-F contains forward-looking
statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended (the Exchange Act). These forward-looking statements
involve risks and uncertainties, including statements regarding our capital
needs, business plans and expectations. Such forward-looking statements involve
risks and uncertainties regarding the availability of private placement
financing, the further availability of suitable exploration permits, capital
costs, operating costs, government regulation and other factors. Forward-looking
statements are made, without limitation, in relation to our operating plans, our
liquidity and financial condition, availability of funds and operating costs.
Any statements contained herein that are not statements of historical facts may
be deemed to be forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as may, will, should,
expect, plan, intend, anticipate, believe, estimate, predict,
potential or continue, the negative of such terms or other comparable
terminology. Actual events or results may differ materially. In evaluating these
statements, you should consider various factors, including the risks outlined
below, and, from time to time, in other reports we file with the Securities and
Exchange Commission (the SEC). These factors may cause our actual results to
differ materially from any forward-looking statement. We disclaim any obligation
to publicly update these statements, or disclose any difference between our
actual results and those reflected in these statements. Given these
uncertainties, readers are cautioned not to place undue reliance on such
forward-looking statements.

1

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CURRENCY, MEASUREMENT AND GLOSSARY OF INDUSTRY TERMS

Currency and Measurement

All currency amounts in this Annual Report are stated in U.S.
dollars unless otherwise indicated.

Conversion from metric into imperial units of measurement is as
follows:

|Metric Units   | Imperial Units          
|-------------- | ------------------------
|               |                         
|hectare        | 2.471 acres             
|metre (m)      | 3.281 feet              
|kilometre (km) | 0.621 miles (3,281 feet)

Industry Expressions

The following are industry expressions that may be used in this
annual report:

Trans-Orient, we, us, ouror the Companyrefer to
Trans-Orient Petroleum Ltd., a company organized under the laws of the Province
of British Columbia, Canada, and unless the context clearly requires, includes
its wholly-owned subsidiaries.

Basin is a segment of the crust of the Earth which has
been downwarped and in which thick layers of sediments have accumulated over a
long period of time.

Exploration Well is a well drilled in a prospect without
knowledge of the underlying sedimentary rock or the contents of the underlying
rock.

Farm-In or Farm-Out refers to a common form of
agreement between petroleum companies where the holder of the petroleum interest
agrees to assign all or part of an interest in the ownership to another party
that is willing to fund agreed exploration activities which may be more or less
than the proportionate interest assigned to them.

Hydrocarbons is the general term for oil, gas,
condensate and other petroleum products.

Participating Interest or Working Interest is an
equity interest, compared with a royalty interest, in an oil and gas property
whereby the participating interest holder pays its proportionate percentage
share of development and operating costs and receives the equivalent share of
the proceeds of hydrocarbon sales after deduction of royalties or other imposts
due on gross income.

PEP is a Petroleum Exploration Permit as issued by the
New Zealand government, each such permit being identified by number.

Permit or Licence is an area that is granted for
a prescribed period of time for exploration, development or production under
specific contractual or legislative conditions.

Prospect is a potential hydrocarbon trap which has been
confirmed by geological and geophysical studies to the degree that drilling of
an exploration well is warranted.

Royalty is the entitlement to a stated or determinable
percentage of the proceeds received from the sale of hydrocarbons calculated as
prescribed in applicable legislation or in the agreement reserving the royalty
to the owner of the royalty.

Seismic refers to a geophysical technique using low
frequency sound waves to determine the subsurface structure of sedimentary
rocks.

2

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PART I

|ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
      ADVISERS
|------- | -----------------------------------------------------------

Not applicable.

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

Not applicable.

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

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

The selected historical financial information presented in the
table below for each of the fiscal years ended July 31, 2007, 2006, 2005, 2004
and 2003 is derived from the audited consolidated financial statements of the
Company. The audited consolidated financial statements of the Company for the
fiscal years ended July 31, 2007, 2006 and 2005 are included in this filing. The
audited consolidated financial statements of the Company for the fiscal years
ended July 31, 2004 and 2003 are included in previous filings. The selected
financial information presented below should be read in conjunction with the
Companys audited consolidated financial statements and the notes thereto, and
with the information appearing under the headings, Information on the Company
and Operating and Financial Review and Prospects.

Our audited consolidated financial statements have been
prepared under Canadian Generally Accepted Accounting Principles (Canadian
GAAP) in U.S. dollars. Additional information is presented to show the
differences which would result from the application of United States Generally
Accepted Accounting Principles (US GAAP) to the Companys financial
information. Refer to Note 11 of the audited consolidated financial statements
included herein for a discussion of the material differences between Canadian
GAAP and US GAAP and their effect on the Companys financial position and
results of operations.

We are an independent exploration stage company. On November 8,
2006, we acquired two onshore petroleum exploration permits from the Government
of New Zealand and are in the beginning stages of exploring the related
properties pursuant to work programs required by the Government of New Zealand.
None of our properties are known to contain any oil and gas resources or
reserves. We have not generated any revenues from our current oil and gas
operations or in our previous years of exploration in New Zealand and Papua New
Guinea. In addition to our direct exploration activities that we have conducted,
we have been indirectly involved in oil and gas exploration, development and
production activities through our corporate investments. Accordingly, the
financial information presented below may not be comparable from period to
period.

Canadian GAAP (in US$)

|                              |  | Year Ended July 31 |  
|----------------------------- |  | ------------------ | -
|                              |  | 2007               |  
|                              |  | **$**              |  
|Balance Sheet Data            |  |                    |  
|Cash and Cash Equivalents     |  | 8,499,720          |  
|Working Capital               |  | 8,485,610          |  
|Total Assets                  |  | 12,418,436         |  
|Total Liabilities             |  | 65,808             |  
|Total Stockholders Equity     |  | 12,352,628         |  
|                              |  |                    |  
|Operating Data                |  |                    |  
|Revenues                      |  | Nil                |  
|Expenses                      |  | (568,524           | )
|Other Items                   |  | (526,286           | )
|Income (Loss) from Operations |  | (1,094,810         | )

3

---

|                            |  | Year Ended July 31 |  
|--------------------------- |  | ------------------ | -
|                            |  | 2007               |  
|                            |  | **$**              |  
|Net Income (Loss)           |  | (1,094,810         | )
|Net Income (Loss) per Share |  |                    |  
|- Basic                     |  | (0.03              | )
|- Diluted                   |  | -                  |  

U.S. GAAP (in US$)

|                              |  | Year Ended July 31 |  
|----------------------------- |  | ------------------ | -
|                              |  | 2007               |  
|                              |  | **$**              |  
|Balance Sheet Data            |  |                    |  
|Cash and Cash Equivalents     |  | 8,499,720          |  
|Working Capital               |  | 8,485,610          |  
|Total Assets                  |  | 13,551,819         |  
|Total Liabilities             |  | 65,808             |  
|Total Stockholders Equity     |  | 13,579,318         |  
|                              |  |                    |  
|Operating Data                |  |                    |  
|Revenues                      |  | Nil                |  
|Expenses                      |  | (568,524           | )
|Other Items                   |  | (526,286           | )
|Income (Loss) from Operations |  | (1,094,810         | )
|Net Income (Loss)             |  | (1,094,810         | )
|Net Income (Loss) per Share   |  |                    |  
|- Basic                       |  | (0.01              | )
|-Diluted                      |  | -                  |  

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

Not applicable.

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

Not applicable.

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

The common shares of the Company must be considered a
speculative investment due to a number of factors primarily related to the
nature of its business (resource exploration) and its early stage of exploration
and history of losses. An investment in the Companys common shares should only
be made by persons who can afford to lose their entire investment and there can
be no assurance that the Companys common shares will increase in value. The
purchase of the common shares involves a number of significant risk factors.
Purchasers and holders of common shares should consider the following:

We have limited financial resources.

The Company had cash of $8,499,720 and working capital of
$8,485,610 as at July 31, 2007 primarily as a result of financings completed
during the 2007 fiscal year. The Company believes it has sufficient working
capital to pursue its plan of operations for the next twelve months. However,
the Company will likely require additional funding to continue to pursue its
plan of operations going forward. The Company has limited financial resources,
and it may not be able to raise sufficient funds to either sustain or expand its
business. The Company currently has no operating revenues and expects to
continue to rely principally on working capital on hand, the issuance of common
shares and the sale of its assets to finance its business. There is no assurance
that market conditions will permit the Company to raise funds on acceptable
terms or at all.

4

---

We have a history of losses.

The Company has a history of losses from operations. As at July
31, 2007, the Company had accumulated losses of $11,366,670. In addition, the
Company has a limited operating history. The Company is in the exploration stage
and there can be no assurance that the Company will enjoy commercial success in
its business activity.

We lack any petroleum resources or reserves.

The Company has acquired two petroleum exploration permits in
New Zealand and is searching for possible new projects. However, the Company is
in the exploration stage and it has no properties on which any petroleum or
other hydrocarbons are known to exist in commercial quantities or at all.
Exploration for hydrocarbons is a speculative venture necessarily involving
substantial risk, and there is no certainty that any exploration expenditures
that the Company may incur will result in discoveries of commercial quantities
of hydrocarbons.

There are geological and geographic risks in our
business.

Even if hydrocarbons are discovered, the costs of extracting
and delivering the hydrocarbons to market may render any deposit found
uneconomic. Geological conditions are variable and unpredictable. Even if a well
is drilled and production is commenced, the quantity of hydrocarbons produced
will inevitably decline over time, and production may be adversely affected or
may have to be terminated altogether if the Company encounters geological
conditions that cannot be foreseen.

The Company will also be subject to uncertainties related to
the proximity of any reserves that it may discover to pipelines and processing
facilities. It expects that its operational costs will increase proportionally
to the remoteness of, and any restrictions on access to, the properties on which
any such reserves may be found. Adverse climatic conditions at such properties
may also hinder the Companys ability to carry on exploration or production
activities continuously throughout any given year.

There are market and pricing risks pertaining to oil and
natural gas.

The marketability and price of any oil or natural gas that may
be discovered and extracted by the Company are subject to numerous factors
beyond the Companys control, including market fluctuations in the prices of oil
and natural gas. The Companys ability to operate at a profit will also be
affected by the grade of any oil that the Company discovers and produces, if
any, as refiners will typically demand and pay higher prices for light, quality
oil. In addition, government regulation relating to prices of hydrocarbons,
taxes, royalties, land tenure, allowable production, the export of oil and
natural gas, and many other aspects of the oil and natural gas business will
impact on the Companys future operations.

Your holdings may be diluted.

The Companys Notice of Articles authorizes the issuance of an
unlimited number of shares of common stock. The Company expects to continue to
rely on the issuance of common shares to raise funds to finance our business.
Such additional share issuances will be dilutive to current shareholders.

Our business is subject to extensive government regulation and
the exploration operations on our two petroleum exploration permits in New
Zealand will be subject to this regulation by the Government of New Zealand.
Such regulation will govern not only the Companys title to the petroleum
exploration permits, the mandated Work Programs for the prospects, environmental
matters and taxation, but, if petroleum reserves are discovered and successfully
developed (which cannot be assured), also the production, marketing and sale of
hydrocarbons, as well as other matters. The government of any foreign
jurisdiction in which the Company operates may also potentially impose
restrictions on the withdrawal of capital from that jurisdiction, or impose
other foreign currency exchange controls.

There is no assurance that the laws relating to the ownership
of petroleum interests and the operation of the Companys business in the
jurisdictions in which it currently operates, or in the jurisdictions in which
the Company may in the future operate, will not change or be applied in a manner
that may materially and adversely affect its business.

5

---

According to its public disclosure, Austral Pacific Energy Ltd.
(Austral), a Canadian company based in New Zealand, controls interests in more
than 13 exploration and production permits totalling approximately 2.2 million
gross acres in New Zealand. As indicated elsewhere in this report, the Company
holds 3,110,240 shares of Austral and accordingly, the Companys financial
position may be indirectly impacted by foreign laws and regulations that govern
Australs business and affairs.

We are subject to environmental risks.

We are subject to laws and regulations that control the
discharge of materials into the environment, require removal and cleanup in
certain circumstances, require the proper handling and disposal of waste
materials or otherwise relate to the protection of the environment. In operating
and owning petroleum interests, we may be liable for damages and the costs of
removing hydrocarbon spills for which we are held responsible. Laws relating to
the protection of the environment have in many jurisdictions become more
stringent in recent years and may, in certain circumstances, impose strict
liability, rendering our Company liable for environmental damage without regard
to negligence or fault on the part of our Company. Such laws and regulations may
expose us to liability for the conduct of, or conditions caused by others or for
acts of our Company that were in compliance with all applicable law at the time
such acts were performed. The application of these requirements or the adoption
of new requirements could have a material adverse effect on our business,
results of operations, financial condition and cash flows.

Indemnities relating to us may be unenforceable or
uncollectible.

We may enter into operating agreements with other participants
in a property. Such operating agreements typically provide for the
indemnification of the operator. We are currently planning to directly operate
our exploration programs on our recently-acquired oil and gas prospects.
However, we may not always do so, and we may be requested to reimburse another
participant that is the operator for losses or damages caused or incurred in the
course of operations.

There are consequences of failure to satisfy prescribed
permit or licence terms and conditions.

In all cases, the terms and conditions of the permit or licence
granting us, or the party from which we acquired, the right to explore for, and
develop, hydrocarbons, prescribe a work program and the date or dates before
which such work program must be done. We believe that we are in substantial
compliance with all such permits and licenses. However, varying circumstances,
including the financial resources available to us, equipment availability,
reliance on third party operators of permits and licenses, and other
circumstances beyond our control or influence may result in the failure to
satisfy the terms and conditions of a permit or license and result in the
complete loss of the interest in the permit or license without compensation.

Such terms and conditions may be renegotiated with applicable
regulatory authorities, but there is no assurance that if a term or condition of
a license or permit that is required to be satisfied has not been met, that such
term or condition will be successfully renegotiated with the applicable
authority.

There are consequences of failure to satisfy joint
venture obligations.

We may in the future participate in permits or licences with
industry partners with access to greater resources to meet their joint venture
capital commitments. If we are unable to meet our commitments, the other joint
venture participants may assume some or all of our deficiency and thereby assume
a pro-rata portion of our interest in any production from the joint venture
area.

Conversely, if a participant in a joint venture in which we are
interested is unable to meet its commitments, it may delay or veto exploration
or development plans which it cannot afford. This could, in turn, delay our
desired exploration and development program and lead to the assumption of all or
some of the share of the non-committing entitys interest by our Company and the
other participants (if any) in the joint venture. Although the joint venture
agreement would typically allow the contributing joint venture participants to
assume a pro-rata portion of the non-contributing participants interest in the
property, our Company may face financial hardship if it is unexpectedly required
to assume any portion of a non-contributing partys joint venture
obligations.

6

---

Furthermore, joint venture and other like agreements can give
rise to interpretive disputes with other parties who are financially interested
in the property.

We have no title insurance.

We do not maintain title insurance over our any of our
petroleum exploration permits. Accordingly, if a problem is discovered with
respect to the title of any of our prospects, we may be forced to forfeit our
interest without compensation.

We have no liability insurance.

The Company does not currently maintain insurance against
certain public liability, operational and environmental risks. However, even
with insurance there is no assurance that an event causing loss will be covered
by such insurance, that such insurance will continue to be available to our
Company, or that the benefits of such insurance will be adequate to cover our
liability.

Our results are subject to foreign currency exchange
risks.

We hold cash reserves in Canadian and U.S. dollars and to a
lesser extent in New Zealand dollars. We expect to incur the majority of our
exploration expenditures in New Zealand dollars. We do not currently hedge our
exposure to foreign currency exchange rate changes, although we may choose to
selectively do so in the future. A decrease in the value of the New Zealand
dollar against the value of the Canadian and U.S. dollar will be a benefit to
our Company. An increase in value of the New Zealand dollar relative to the
Canadian or U.S. dollar would have a detrimental effect on us as our operating
expenses would, in turn, increase in Canadian and U.S. dollars.

Our business is highly competitive.

The oil and gas industry is highly competitive. We encounter
strong competition from other independent operators and from major oil companies
in acquiring oil and natural gas properties suitable for exploration,
development, production, contracting for drilling equipment, securing trained
personnel and for capital to finance such activities. Many of these competitors
have financial resources and personnel resources available to them that are
substantially larger than our own. The availability of a ready market for any
oil and gas that may be discovered by the Company depends on numerous factors
beyond our control, including the proximity and capacity of natural gas
pipelines, oil storage capabilities and the effect of regional or national
regulations.

The public market for our shares is thinly
traded.

The Companys shares trade on the OTC Bulletin Board (the
OTCBB) and its shares are relatively thinly traded. There can be no assurance
that a stable market for the Companys common shares will ever develop or, if it
should develop, be sustained. It should be assumed that the market for the
Companys common shares will continue to be highly illiquid, sporadic and
volatile. The Company is required to remain current in its reporting obligations
under the Exchange Act, in order for its common stock to remain eligible for
quotation on the OTCBB. If the Company fails to meet its obligations as a
reporting company under the Exchange Act, the Companys common stock will
cease to be eligible for quotation on the OTCBB, and its shareholders may not be
able to sell their shares in the public market within the United States.

Our directors and officers may be subject to conflicts of
interest.

In previous fiscal years the Company has been associated with
other public junior resource companies through common directors, common officers
and common shareholdings. The Company has a common director and a common officer
with TAG Oil Ltd. (TAG) and a director who is a principal shareholder of TAG.
The Company may become associated with other public junior resource companies in
the future and may continue to hold equity investments in these other companies.
The Company may also make application for interests in petroleum properties with
companies with which it is associated, or may become associated. Persons who are
not willing to rely on the discretion and judgment of management and the board
of directors of the Company (the Board) and any companies with which it is
associated, or may become associated should not consider a purchase of our
securities.

7

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The value of our properties may not reflect realizable
value.

The amounts attributed to future properties in the Companys
financial statements represent acquisition and exploration expenditures only,
and should not be taken to in any way reflect realizable value.

We may be subject to the Investment Company
Act.

The Company may incur significant costs to avoid investment
company status and may suffer adverse consequences if deemed to be an investment
company under the United States Investment Company Act of 1940, as amended (the
Investment Company Act). Some of the Companys equity investments in other
businesses may constitute investment securities under the Investment Company
Act. A company may be deemed to be an investment company if it owns investment
securities with a value exceeding 40% of its total assets, subject to certain
exclusions. Investment companies are subject to registration under, and
compliance with, the Investment Company Act unless a particular exclusion or
safe harbour provision applies. If the Company were to be deemed an investment
company, it would become subject to the requirements of the Investment Company
Act. As a consequence, the Company would be prohibited from engaging in business
or issuing securities as it has in the past and might be subject to civil and
criminal penalties for non-compliance. In addition, certain of the Companys
contracts might be voidable, and a court-appointed receiver could take control
of the Company and liquidate the business. Unless an exclusion or safe harbour
was available to the Company, it would have to attempt to reduce its investment
securities as a percentage of its total assets. This reduction can be attempted
in a number of ways, including the disposition of investment securities and the
acquisition of non-investment security assets. If the Company were required to
sell investment securities, the Company may sell them sooner than it otherwise
would have based on economic factors solely. These sales would likely be at
depressed prices and the Company may never realize anticipated benefits from, or
may incur losses on, these investments. The Company may be unable to sell some
investments due to contractual or legal restrictions or the inability to locate
a suitable buyer. Moreover, the Company may incur tax liabilities when it sells
assets.

Our shares may be considered penny stock.

The SEC has adopted rules that regulate broker-dealer practices
in connection with transactions in penny stocks. Penny stocks generally are
equity securities with a price of less than $5.00 per share (other than
securities registered on certain national securities exchanges such as AMEX and
the Nasdaq Stock Market, provided that current price and volume information with
respect to transactions in such securities is provided by the exchange or
system).

The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document prepared by the SEC that provides
information about penny stocks and the nature and level of risks in the penny
stock market. The broker-dealer also must provide the customer with bid and
offer quotations for the penny stock, the compensation of the broker-dealer and
its salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customers account. In addition,
the penny stock rules require that prior to a transaction in a penny stock not
otherwise exempt from such rules, the broker-dealer must make a special written
determination that a penny stock is a suitable investment for the purchaser and
receive the purchasers written agreement to the transaction. These disclosure
requirements often have the effect of reducing the level of trading activity in
any secondary market for a stock that becomes subject to the penny stock rules.

The Companys common stock is currently subject to the penny
stock rules. Accordingly, investors may find it difficult to sell their shares,
if at all.

We are subject to governmental laws and local
conditions.

Claims of aboriginal peoples in New Zealand or other potential
areas of operation may adversely affect the rights or operations of our Company
and there is no assurance that governmental regulation will not vary, including
regulations relating to prices, royalties, allowable production, environmental
matters, import and export of hydrocarbons and protection of water resources and
agricultural lands. Our exploration interests in New Zealand are subject to
regulations that relate directly and indirectly to our operations, including
title to the petroleum interests, production, marketing and sale of
hydrocarbons, taxation, environmental matters, restriction on the withdrawal of
capital from a country and other factors. There is no assurance that the laws
relating to the ownership of petroleum

8

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interests and the operation of our business in New Zealand will
not change in a manner that may materially and adversely affect our
business.

Legal proceedings against our directors and officers may
be difficult.

The Company is incorporated under the laws of the British
Columbia, Canada, and four of the Companys directors and officers are residents
of Canada and one is a resident of New Zealand. Consequently, it may be
difficult for United States shareholders to effect service of process within the
United States upon the Company or upon its directors or officers, or to realize
in the United States upon judgements of United States courts predicated upon
civil liabilities under the Exchange Act. Furthermore, it may be difficult for
shareholders to enforce judgements of the U.S. courts based on civil liability
provisions of the U.S. federal securities laws in a foreign court against the
Company or any of the Companys non-U.S. resident officers or directors.

The ownership of our shares is concentrated amongst a
small number of shareholders.

The directors and principal shareholders of the Company
beneficially own a sufficient number of the outstanding common shares of the
Company to have substantial influence over matters which require a vote of the
Companys shareholders, such as the election of members of the Board as well as
extraordinary matters which require shareholder approval. Should the directors
and the principal shareholders vote their shares in a like manner on a matter
requiring a simple, or special majority vote of the Companys shareholders, it
is most likely that their position on the matter would control or significantly
affect the outcome of the vote. Additionally, because the directors and
principal shareholders possess substantial influence over the Company through
their shareholdings, the value attributable to the right to vote held by other
shareholders may be perceived to be reduced. This could result in a reduced
value for the shares owned by other shareholders who do not have the same level
of control over the Companys affairs.

The Company may be a passive foreign investment
company.

Shareholders who are U.S. taxpayers should be aware that the
Company may be a passive foreign investment company (PFIC) for the current
fiscal year, may also have been a PFIC in prior years and may also be a PFIC in
subsequent years. U.S. taxpayers should obtain independent advice as to the
consequences of the Company being a PFIC.

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

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

Corporate Actions

Trans-Orient Petroleum Ltd. is a British Columbia company based
in Vancouver, British Columbia, Canada. The Companys registered office is
located at 1500 Royal Centre, 1055 West Georgia Street, P.O. Box 11117,
Vancouver, British Columbia, V6E 4N7 and the principal business office is
located at 999 Canada Place, World Trade Centre, Suite 404, Vancouver, British
Columbia, V6C 3E2, telephone: (604) 682-6496.

The Company was incorporated on July 25, 1986 under the name
Palo Duro Exploration Ltd. by the registration of memorandum and articles under
the Company Act (British Columbia). The Company changed its name to
Stoney Creek Mines Ltd. on July 15, 1988. On June 30, 1992, the Company
consolidated its shares on a one new for three old basis and changed its name to
Cyn-Tech Ventures Ltd. On June 29, 1995, the Company consolidated its shares on
a one new for five old basis and changed its name to Consolidated Cyn-Tech
Ventures Ltd. On June 27, 1996 the Company subdivided its shares on a three new
for one old basis and changed its legal and corporate name to Trans-Orient
Petroleum Ltd.

On September 26, 1997, the Company was re-domiciled in the
Yukon Territory, Canada, by way of continuance under the Business
Corporations Act (Yukon). On May 4, 1998 the Company subdivided its shares
on a two new for one old basis and increased its authorized capital to
200,000,000 common shares without par value. On January 17, 2001 the Company
consolidated its common shares on a one new for twelve old basis, and increased
its authorized capital from 200,000,000 to an unlimited number of common shares
without par value. The Company received

9

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shareholder approval at the Annual and Special Meeting held on
January 18, 2002 to further consolidate all of its common shares on a one new
for three old basis. The Company implemented this consolidation on April 5,
2002. On March 30, 2006, the Company subdivided its common shares on a seven new
for one old basis.

All references to our outstanding common shares, issuances
of common shares, options and warrants and prices associated with the above
corporate actions and their effects on share capital have been shown on a
retroactive basis.

On January 16, 2006, the Company was re-domiciled in British
Columbia by way of continuance under the Business Corporations Act
(British Columbia) which replaced the Company Act (British Columbia) in
2004.

The Company became a public or reporting company in British
Columbia upon obtaining a receipt for the prospectus filed with the British
Columbia Securities Commission in connection with its initial public securities
offering in April, 1989. The Companys common shares commenced trading on the
Vancouver Stock Exchange (VSE), the predecessor to the TSX Venture Exchange,
at about that time. On June 10, 1997, the Companys common shares commenced
trading on the OTCBB under the symbol TEPUF. On July 31, 1997, the Company
voluntarily delisted its common shares from the TSX Venture Exchange (the
successor to the VSE). The Companys current trading symbol on the OTCBB is
TOPLF.

Developments

In November 2006, the Company was awarded 100% interests in two
onshore petroleum exploration permits in New Zealand, PEP 38348 and 38349 and
during the remainder of the 2007 fiscal year the Company substantially completed
the first years work program on both permits. The Company is currently preparing
to conduct its 2D seismic programs as required by the Government of New Zealand
as part of the second term of each permit. During the fiscal years ended July
31, 2006 and 2005, the Companys efforts were focussed on re-establishing our
direct oil and gas exploration activities, resulting in the award of two New
Zealand permits as noted above. In addition to our direct exploration activities
that we have conducted we have been indirectly involved in oil and gas
exploration, development and production activities through our corporate
investments. During the 2005 fiscal year, the Company wrote off an oil and gas
interest of $1 which at that time represented its only remaining oil and gas
interest. During the 2006 fiscal year, the Company sold a total of 7,373,569
common shares of AMG Oil Ltd. (AMG). These dispositions resulted in the
Companys effective loss of control of AMG, the accounts of which were, until
that time, consolidated with those of the Company.

During the 2007 fiscal year, the Company successfully completed
two private placement financings for total gross proceeds of $10,445,250. In
addition, 50,000 share purchase warrants were exercised for proceeds of $35,000.
The Company did not conduct any financing activities during the 2006 or 2005
fiscal years.

The Company incurred capital expenditures of $213,875 $4,135
and Nil in fiscal 2007, 2006 and 2005, respectively, and plans to make capital
expenditures of $1,500,000 in fiscal 2008 in relation to its exploration
properties.

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

Nature of Operations

We are an independent exploration stage company. On November 8,
2006, we acquired two onshore petroleum exploration permits from the Government
of New Zealand and are in the early stages of exploring the related properties
pursuant to work programs required by the Government of New Zealand. Neither of
our properties contains any proven oil or gas reserves.

As we have not earned any revenues from operations, we are not
directly affected by fluctuations in the markets for hydrocarbon products, the
seasonality of hydrocarbon products, or marketing channels for such products. We
also do not rely on raw materials, and do not have any significant proprietary
interests in intellectual property, as we operate in an extractive industry.

We compete with other companies for bidding for the acquisition
of petroleum interests from various authorities, and in exploring for oil and
gas in the Australasia region. We are also subject to government regulations
applicable

10

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to the petroleum exploration permits that we hold, and to the
exploration activities that we plan to conduct on the related properties.

As of January 14, 2008, we also held 3,110,240 common shares
(9.59%) of Austral with a market bid price of $0.98 per share. Austral is a
public company whose common shares are listed on AMEX, the TSX Venture Exchange
and the New Zealand Stock Exchange, with a market capitalization in the $38
million range.

In addition to our interest in Austral, we also currently own
826,431 common shares of AMG with a current market bid price of $0.32 per share
as of January 14, 2008. AMG is a reporting company under the Exchange Act whose
shares have been quoted on the OTCBB since January 15, 2003. Our present
interest in AMG accounts for 3.56% of the outstanding shares. We account for our
investment in AMG using the cost method. During the 2006 fiscal year we sold
7,373,569 common shares of AMG for aggregate proceeds of $133,695. These
dispositions resulted in the Companys effective loss of control of AMG. The AMG
market is highly illiquid, and we do not consider the currently quoted prices
realizable. Please refer to Item 17 for additional information.

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

As of January 29, 2008, the Company has three wholly-owned
subsidiaries:

|1. | DLJ Management Corp. (DLJ), organized pursuant to the
      laws of Canada;            
|-- | -----------------------------------------------------------------------------------------
|2. | Orient Petroleum (NZ) Limited, organized pursuant to the
      laws of New Zealand; and  
|3. | Orient Petroleum (PNG) Limited, organized pursuant to the
      laws of Papua New Guinea.

DLJ is a 100% owned subsidiary of the Company that provides
management, accounting, legal and reporting services to three junior public oil
and gas companies, including the Company, on a cost recovery basis. Orient
Petroleum (NZ) Limited and Orient Petroleum (PNG) Limited are 100% owned
subsidiaries of the Company. Orient Petroleum (NZ) Limited operates our
exploration activities on PEP 38348 and PEP 38349. At this time Orient Petroleum
(PNG) Limited does not have any material operations.

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

On November 8, 2006, the Government of New Zealand awarded us
interests in two onshore petroleum exploration permits located in the East Coast
Basin of New Zealand. The following is a brief description of these permits. For
definitions of technical terms in the following description of properties, see
the Glossary of Industry Terms found at the beginning of this report. Apart
from our interests in the following petroleum exploration properties and the
investments described above, we hold only minor office assets for the purpose of
operating our business.

The following table summarizes our two exploration permits:

|Property  | Location         | Working Interest | Gross Sq. Kms | Net Sq. Kms
|--------- | ---------------- | ---------------- | -------------- | ------------
|PEP 38348 | East Coast Basin | 100%             | 2,147          | 2,147       
|PEP 38349 | East Coast Basin | 100%             | 6,610          | 6,610       

As part of the PEP 38348 and 38349 permit conditions to keep
our permits in good standing during the 2007 fiscal year, we spent approximately
$204,000 under the mandated work programs (the Work Programs) consisting
primarily of geological studies. Subsequent to Year 1, in order to maintain the
permits in good standing after November 8, 2007 (Year 2), we have committed in
writing to the New Zealand Ministry of Economic Development (the MED) to
complete the Year 2 work program on both permits. The Year 2 work programs on
both permits consist of acquiring, processing and interpreting 20 kms and 30
kms of 2D seismic on PEP 38348 and 38349, respectively, and to undertake
additional geological, geochemical and geophysical studies including
interpretation of existing, reprocessed and new seismic data at a cost of
approximately $1,500,000. To maintain the permits in good standing after
November 8, 2008 (Year 3), we must commit in writing to the MED prior to
November 8, 2008, to complete the Year 3 work program on both permits consisting
of drilling one exploration well, relinquishing 25% of the permit area and
submitting a satisfactory work programme proposal to the MED for the remaining
two years of the permit. Each well is anticipated to cost approximately
$1,500,000 to drill, with additional costs associated with flow testing the
well(s) in the event of discovery.

11

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The permits are both situated onshore in New Zealand's East
Coast Basin, which covers the eastern onshore and offshore areas of the North
Island. The East Coast Basin is classified as an active fore-arc basin, situated
immediately west of the convergent plate boundary between the Australian and
Pacific plates. At an earlier stage in its evolution it was a passive margin
basin, prior to the initiation of convergence on the plate boundary, about 20
million years ago.

The Pacific plate is flexured downwards at the offshore
Hikurangi Trench which forms the eastern boundary of the East Coast Basin, and
is actively subducting beneath the Australian plate, deepening westwards beneath
the East Coast Basin. A consequence of this active tectonic environment has been
the deposition of enormous thicknesses of sedimentary rock, with sedimentary
thicknesses of up to 30,000 feet in parts of the Basin; together with east-west
compressional folding and faulting.

The entire sedimentary section can be examined at locations
where it is exposed in outcrop. Potential oil and gas source rocks are found in
the Late Cretaceous / Early Tertiary section, particularly in the organically
very rich Waipawa Black Shale and the much thicker but lesser richness Whangai
Formation, both of which are extensively developed across the Basin. Various
laboratory geochemical studies of these rocks have demonstrated that they are
mature for oil/gas generation and expulsion over much of the Basin's area,
including within PEP 38348 and 38349.

Numerous active oil and gas seeps are known within both permit
areas. The most prominent of these are the Waitangi Hill oil ponds in PEP 38348
and the Westcott oil seeps in PEP 38349. At Waitangi Hill a series of oil ponds
up to 20 feet in diameter, are continuously recharged with oil seeping up a
fault contact and running off along Petroleum Creek. The area has been the locus
of a number of historical shallow wells; a couple of which were claimed to
produce oil, but no commercial production has been established. At Westcott, oil
seeps continuously from Miocene sands in outcrop. These oils, and the various
gas seeps, are geochemically typed as being from the Waipawa and/or Whangai
source rocks.

Reservoir rocks are extensively observed in outcrop, in a
variety of Miocene sandstones and Pliocene coquina limestones. In addition to
this, the Whangai and Waipawa mudstones are themselves extensively jointed and
fractured, and have potential to be effective oil or gas reservoirs in their own
right, while more conventional reservoir potential is also exhibited in
greensands of Late Cretaceous to Early Tertiary age.

The plate boundary compressional tectonics have given rise to
the formation of numerous potential oil / gas trapping structures, which are
observed in outcrop and on 2D seismic (of which there is only limited amount in
both permits). However, the same compressional regime has resulted in a division
of the East Coast Basin into a series of sub-basins, with consequential
discontinuous and variable reservoir trends; and also has resulted in extensive
faulting and uplift which has led to the presence of the hydrocarbon seeps and
the potential for fault breaching of traps.

The above summary demonstrates that the Basin and the permits
have considerable discovery potential, but also considerable exploration risk.
At present they can be classified as lightly explored frontier areas, with
minimal modern drilling in either permit based on modern seismic control.

In PEP 38348, there is approximately 240 km of 2D seismic, most
of poor to moderate quality. The only well drilled on any degree of seismic
control was Waingaromia-2 in 2000. As with the majority of the historical wells,
this had hydrocarbon shows, but encountered no effective reservoir. An inventory
of some ten prospects and good leads is identified on the seismic and on surface
outcrop. The best defined of these at present are the Pauariki, Kowhai and
Wharekaka Prospects, all being defined on several seismic lines. A prominent gas
seep is situated at the northern end of Pauariki, which has potential to
reservoir significant amounts of gas or oil. Geochemical surveying of the better
ranked targets commenced in February 2007, as the first step in high-grading the
targets. Following this work, new seismic will be acquired by the Company over
the top ranked prospects, in order to select optimal locations for drilling.

In PEP 38349, there is approximately 483 km of 2D seismic, of
moderate to good quality. There have been four wells drilled on some degree of
modern seismic control since 1980; and three earlier wells in the 1970's based
on very limited seismic control. Again, most of these wells had significant
hydrocarbon shows, but as in PEP 38348, drilling problems associated with
swelling shales meant that some never reached their target, and none were flow
tested.

12

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An inventory of some twenty prospects and leads are presently
identified from 2D seismic and outcrop mapping. Boar Hill is a seismically
defined fractured Whangai shale target mapped on seismic, with a set of gas
seeps situated on its western side. Prospects Oporae, Conoor, Waewaepa and
Mangatoro are all Mio-Plio reservoir targets situated in the general vicinity of
the Westcott oil seeps, on the western flank of the Ellsthorpe Anticline, in the
core of which further hydrocarbon seeps are observed. Prospect Speedy was
drilled on a seismically defined target in 2000 by Speedy-1; yet despite
increasing levels of higher order hydrocarbons being observed with increasing
depth, it failed to reach its objective due to drilling problems. Prospect Gala
is a broad domal structure expressed in the Pliocen & Miocene section. Other
leads fall in one or other of these categories. All these targets are relatively
shallow, being less than 6,000 feet. Recent drilling practice, particularly in
the use of synthetic oil based muds, now offers the means to overcome the
swelling shale problems which have hindered earlier drilling.

The forward work program is to be carried out in parallel with
that in PEP 38348, namely completion of the second term 2D seismic acquisition
program detailed above, prior to November 8, 2008, to optimise drilling
locations, prior to making a commitment to the third term work program. Certain
contracts for acquisition of the obligatory seismic work have been signed, and
the seismic acquisition will occur during the second and third quarter of the
2008 fiscal year.



No Reserves

The Company did not have any hydrocarbon reserves or prospects
prior to fiscal 2007. During the 2007 fiscal year the Company acquired the two
permits detailed above. The properties that are subject to the permits have no
known hydrocarbon reserves.

Competition

The oil and gas industry is highly competitive. We encounter
strong competition from other independent operators and from major oil companies
in acquiring oil and natural gas properties suitable for exploration,
development, production, contracting for drilling equipment, securing trained
personnel and for capital to finance such activities. Many of these competitors
have financial resources and personnel resources available to them that are
substantially

13

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larger than our own. The availability of a ready market for any
oil and gas that may be discovered by the Company depends on numerous factors
beyond our control, including the proximity and capacity of natural gas
pipelines, oil storage capabilities and the effect of regional or national
regulations.

Petroleum Exploration Regime in New Zealand

Unless otherwise indicated and subject to the conditions of the
permit, a petroleum exploration permit granted in New Zealand provides for the
exclusive right to explore for petroleum in the land covered by the exploration
permit. Exploration permits have an initial term of five years, but are
renewable for a further term of up to five years over an area of land not
exceeding one-half of the original area (with a possible further short appraisal
extension where necessary).

An exploration permit holder may apply to the Minister of
Energy for amendments to an exploration permit, including changes to the
mandatory Work Program prescribed in relation to the permit to keep it in good
standing or the area covered by the exploration permit, if circumstances require
and the conditions of the exploration permit have been substantially complied
with. This remains, however, a matter for the Ministers discretion. Exploration
permit holders may exceed the requirement of the Work Program in relation to any
permit.

If an exploration permit holder does not satisfy the Minister
that it has complied with the obligations under the Work Program (or such
variation as may have been agreed with the Minister), the New Zealand government
has the power to revoke the exploration permit. A NZ$250,000 bond is now payable
with all applications for a new permit.

Unless an earlier date is specified in the permit, an
exploration permit holder has a right to be granted a petroleum mining permit
with a term of up to 40 years if the exploration permit holder satisfies the
Minister that, as a result of the activities authorised by the exploration
permit, a deposit of petroleum has been found in the land covered by the
exploration permit. An exploration permit or a mining permit operates as an
exclusive license to undertake exploration or mining activities, as the case may
be, on the land covered by it, but does not grant any ownership interest to the
permit holder in the land itself.

The annual royalties payable in relation to a permit depend on
when the relevant petroleum discovery in the permit was made, and whether an
exploration permit or a mining permit is held.

On deposits of petroleum known to exist before June 30, 2004 or
discovered after December 31, 2009, the New Zealand Government reserves:

| | (a) | where an exploration permit is held, a royalty equal to
      5% of the net sales revenue from all petroleum obtained from the
      exploration permit; and
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                             
| | (b) | where a mining permit is held, a royalty equal to the
      greater of:                                                                                     
| |     |                                                                                                                                                             
| |     | (i)                                                                                                                                                         
| |     |                                                                                                                                                             
| |     | (ii)                                                                                                                                                        

On deposits of petroleum discovered in the period June 30, 2004
to December 31, 2009, where an exploration permit is held, the New Zealand
Government reserves a royalty equal to:

| | (a) | 1% of the net sales revenue from the sale of all natural
      gas products obtained from the exploration permit; and
| | --- | ---------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                      
| | (b) | 5% of the net sales revenue from the sale of all oil
      products from the exploration permit.                     

On deposits of petroleum discovered during the period June 30,
2004 to December 31, 2009 that are produced under a mining permit, the New
Zealand Government reserves a royalty that is the greater of:

14

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| | (a) | 1% of the net sales revenue from the sale of all natural
      gas products obtained from the mining permit or 5% of the net sales
      revenue, from the sale of all oil products from the mining permit;
    and
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                    
| | (b) | a percentage of accounting profits, calculated on the
      following basis:                                                                                                                                       
| |     |                                                                                                                                                                                                                    
| |     | (i)                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                    
| |     | (ii)                                                                                                                                                                                                               

In calculating the accounting profits on any petroleum produced
from a discovery made during the period June 30, 2004 to December 31, 2009, a
mining permit holder may deduct, amongst other things, its prospecting and
exploration costs that it has incurred in any permit in New Zealand between June
30, 2004 and December 31, 2009. For production from all other mining permits,
only prospecting and exploration costs associated with that specific permit can
be deducted for the calculation of accounting profits for that permit.

Detailed methods for calculating net sales revenue and
accounting profits are prescribed for the purpose of calculating royalties.
Royalties are assessed annually.

On August 22, 2006 new fees were implemented with an effective
date of September 22, 2006 for all permits. For the financial year from July 1,
2006 to June 30, 2007, an exploration permit holder must pay the New Zealand
Government an annual fee of NZ$9.47 per square kilometre for the first 1500
square kilometres and NZ$7.22 for each additional square kilometre of the land
of any exploration permit. In respect of the same period, a mining permit holder
must pay the New Zealand Government an annual fee of NZ$303.12 per square
kilometre of the land area of any mining permit. From July 1, 2007, or on any
permit granted or extended on or after September 22, 2006, the new annual fees
require an exploration permit holder to pay the New Zealand Government NZ$10.50
per square kilometre for any exploration permit. A mining permit holder must pay
the New Zealand Government an annual fee of NZ$100 per square kilometre of the
land area of any mining permit and a prospecting permit holder must pay an
annual fee of NZ$4.00 per square kilometre of the land area of any prospecting
permit.

Environmental Regulation in New Zealand

In New Zealand, on land and in waters within twelve miles of
the coast, the Resource Management Act 1991(the Resource Act) controls
users of natural and physical resources, including petroleum explorers, with a
view to managing resource usage in ways that will not compromise future
utilization. The Resource Act places the emphasis on assessment of the effect
the proposed activity will, or might, have on the environment with a view to
promoting sustainable management. Under the Resource Act, most of the
responsibility for managing resources and their use is given to local
authorities. Regional and district councils must produce and continuously update
planning schemes for their jurisdictions which establish procedures and
standards for assessing and approving environmental standards in accordance with
the Resource Act.

Corporate Office

The Company maintains corporate office space at 999 Canada
Place, World Trade Centre, Suite 404, Vancouver, British Columbia, V6C 3E2 and
at 1050 Burrard Street, Suite 1407, Vancouver, British Columbia, V6Z 2S3. The
Company also owns a 400 sq. foot office condominium located at 1050 Burrard
Street, Suite 1406, Vancouver, B.C. The office condominium was originally
purchased for CAD$147,000 and is held for investment purposes and as office
space for the Companys Chief Executive Officer.

|ITEM 4A. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

Not applicable.

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

The following discussion and analysis of the Companys
historical financial and operating results for the fiscal years ended July 31,
2007, 2006 and 2005 should be read in conjunction with (i) the audited
consolidated financial statements of the Company for the years ended July 31,
2007, 2006, and 2005, together with the notes related thereto and (ii) the
section of this annual report entitled Information on the Company. The
financial statements have been prepared in accordance with Canadian GAAP, and a
reconciliation to US GAAP is provided in Note 11 to the financial statements.

All dollar values are expressed in United States dollars,
unless otherwise stated.

Overview

We are an independent exploration stage company. On November 8,
2006, we acquired two onshore petroleum exploration permits from the Government
of New Zealand. None of our properties are known to contain any oil and gas
reserves and we plan to conduct work programs on our properties as required by
the New Zealand Government. We have not generated any revenues from our current
oil and gas operations or in our previous years of exploration in New Zealand
and Papua New Guinea. In addition to our direct exploration activities that we
have conducted we have been indirectly involved in oil and gas exploration,
development and production activities through our corporate investments.
Accordingly, the financial information presented below may not be comparable
from period to period.

We have funded our operations primarily from the sale of our
common stock. As at July 31, 2007, we had cash of $8,499,720 and working capital
of $8,485,610. We plan to spend approximately $1,500,000 in fiscal 2008 to
pursue our plan of operations. We believe we have sufficient capital to fund our
operations for the next twelve months.

Beyond the next twelve months, we may be required to obtain
additional financing in order to continue our plan of operations as we
anticipate that we will not earn any revenues in the foreseeable future. We
believe that debt financing will not be an alternative for funding additional
phases of our exploration as we do not have tangible assets to secure any debt
financing. We anticipate that additional funding will be in the form of equity
financing from the sale of our common stock. However, there can be no assurance
that we will be able to raise sufficient funding from the sale of our common
stock to fund our exploration programs going forward.

Our plan for the 2008 fiscal year is to complete the remainder
of the first years work program that consisted of reviewing and reprocessing
existing seismic data on PEP 38348 and 38349, and conducting structural,
stratigraphic and reservoir sampling analysis on these prospects. We have
recently initiated 2D seismic programs covering 20 kms and 30 kms on PEP 38348
and PEP 38349, respectively, as contemplated under our work programs. The
Company also plans to continue its efforts to identify additional exploration
and acquisition opportunities in the Australasia region.

Results of Operations

|                                      |   | 2007    |  |   | 2006    |   |   | 2005    |  
|------------------------------------- | - | ------- |  | - | ------- | - | - | ------- | -
|Expenses                              |   |         |  |   |         |   |   |         |  
|General and administrative (Schedule) | $ | 557,980 |  | $ | 305,173 |   | $ | 168,957 |  
|Foreign exchange                      |   | 5,400   |  |   | (1,987  | ) |   | (67,560 | )
|Amortization                          |   | 5,144   |  |   | 5,564   |   |   | 4,360   |  

16

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|Loss before other items                                           |  | (568,524   | ) |  | (308,750 | ) |  | (105,757  | )
|----------------------------------------------------------------- |  | ---------- | - |  | -------- | - |  | --------- | -
|                                                                  |  |            |   |  |          |   |  |           |  
|Other Items:                                                      |  |            |   |  |          |   |  |           |  
|Interest income                                                   |  | 292,289    |   |  | 13,848   |   |  | 1,896     |  
|Gain on sale of investments (Note 3)                              |  | 1,580      |   |  | 774,664  |   |  | 1,214,319 |  
|Loss on sale of common stock held by subsidiary                   |  | -          |   |  | -        |   |  | (8,685    | )
|Recovery of loan receivable previously
      written-off (Note 6) |  | 102,842    |   |  | 32,324   |   |  | 29,004    |  
|Stock option compensation                                         |  | (63,973    | ) |  | -        |   |  | -         |  
|Write-down of investments                                         |  | (859,024   | ) |  | (136,262 | ) |  | -         |  
|Write-off of oil
      and gas interest (Note 3)                  |  | -          |   |  | -        |   |  | (1        | )
|                                                                  |  |            |   |  |          |   |  |           |  
|                                                                  |  |            |   |  |          |   |  |           |  
|(Loss) income from operations                                     |  | (1,094,810 | ) |  | 375,824  |   |  | 1,130,776 |  
|Non-controlling
      interests portion of AMGs loss            |  | -          |   |  | 5,782    |   |  | 11,470    |  
|                                                                  |  |            |   |  |          |   |  |           |  
|Net (loss)
      income for the year                              |  | (1,094,810 | ) |  | 381,606  |   |  | 1,142,246 |  

Year Ended July 31, 2007 Compared to Year Ended July 31,
2006

The Company has not earned any revenues from oil and gas
operations to date. The Companys net loss for the twelve-month period ended
July 31, 2007 was $1,094,810 or $0.03 per share compared to a net income for the
year ended July 31, 2006 of $381,606 or $0.02 per share.

The Companys net loss of $1,094,810 in fiscal 2007 resulted
primarily from a write-down of an investment of $859,024 (2006: $136,262) and
general and administrative (G&A) costs of $557,980 (2006: $305,173) that
were partially offset by the Companys interest income of $292,289 (2006:
$13,848. For the 2006 fiscal year the Company recorded net income of $381,606
primarily due to gains on the sale of investments amounting to $774,664.

For the year ended July 31, 2007, G&A expenses were
considerably higher for the year when compared with G&A costs for the year
ended July 31, 2006. The reason for the increase in G&A is attributable
specifically to the Companys efforts in acquiring its oil and gas exploration
permits and re-establishing its direct exploration operations. A comparative
summary of G&A costs for the last three fiscal years can be found in the
Consolidated Schedules of General and Administrative Expenses in the
accompanying audited consolidated financial statements included herein.

The Company expects that G&A costs for the 2008 fiscal year
will further increase as a result of its current operations and the continuing
search for other suitable exploration and acquisition opportunities in the
Australasia region.

Year Ended July 31, 2006 Compared to Year Ended July 31,
2005

The Companys net income for the twelve-month period ended July
31, 2006 was $381,606 or $0.02 per share compared to net income for the year
ended July 31, 2005 of $1,142,246 or $0.06 per share. The Companys net income
in fiscal 2006 and 2005 resulted primarily from gains on the sale of investments
of $774,664 (2005: $1,214,319) and G&A costs of $305,173 (2005:
$168,957).

For the year ended July 31, 2006, G&A were higher for the
year when compared with G&A costs for the year ended July 31, 2005. The
reason for the increase in G&A is attributable specifically to the Companys
efforts to acquire its oil and gas exploration permits. A comparative summary of
G&A costs for these periods can be found in the Consolidated Schedules of
General and Administrative Expenses in the accompanying audited consolidated
financial statements included herein.

17

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Liquidity and Capital Resources

We have funded our operations primarily from the sale of our
common stock. As at July 31, 2007, we had cash of $8,499,720 and working capital
of $8,485,610. We plan to spend approximately $1,500,000 in fiscal 2008 to
pursue our plan of operations. We believe we have sufficient capital to fund our
operations for the next twelve months.

Beyond the next twelve months, we may be required to obtain
additional financing in order to continue our plan of operations as we
anticipate that we will not earn any revenues in the foreseeable future. We
believe that debt financing will not be an alternative for funding additional
phases of our exploration as we do not have tangible assets to secure any debt
financing. We anticipate that additional funding will be in the form of equity
financing from the sale of our common stock. However, there can be no assurance
that we will be able to raise sufficient funding from the sale of our common
stock to fund our exploration programs going forward.

Operating Activities

Operating activities used cash of $133,765 in fiscal 2007,
compared to $266,648 in fiscal 2006 and $69,769 in fiscal 2005. We have applied
cash generated from our financing activities to fund cash used in operating
activities.

Financing Activities

Financing activities provided cash of $10,462,596 in fiscal
2007, from the issuance of our shares of common stock from two private placement
financings. The Company did not conduct any financing activities during the 2006
and 2005 fiscal years.

Investing Activities

Investing activities used cash of $2,281,080 in fiscal 2007,
compared to providing cash of $545,382 in fiscal 2006 and $196,394 in fiscal
2005.

Inflation

Inflation has not had a material impact on our operations.

Foreign Currency Fluctuations

The Company holds its cash reserves primarily in U.S. dollars
and is beginning to incur more obligations in other currencies, which are
primarily Canadian and New Zealand dollars. At the date of this report,
management does not perceive that the Company is currently subject to
significant exchange risks. However, an increase in value of the New Zealand
dollar relative to the Canadian or U.S. dollar may have a negative effect as our
expenses incurred would, in turn, increase in Canadian or U.S. dollars.

Foreign Regulations

The exploration for oil and gas in New Zealand is subject to
government regulation as described in Information on the Company  Petroleum
Exploration Regime in New Zealand.

Differences between Canadian and U.S. GAAP

These audited consolidated financial statements included herein
have been prepared in accordance with Canadian GAAP. Note 11 Differences
between Canadian and United States Generally Accepted Accounting Principles to
the financial statements discusses material differences between Canadian GAAP
and US GAAP as they affect such financial statements.

18

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Critical Accounting Policies

Accounting Principles and Use of Estimates

These financial statements are prepared in conformity with
Canadian GAAP, which require the Companys management to make informed judgments
and estimates that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the fiscal
year. Significant estimates include, but are not limited to, the determination
of the net recoverable value of assets and income taxes. The Companys
investments are also items that, due to expected market volume and price
fluctuation may yield net realizable values that are materially different from
their current carrying values at any point in time. Actual results could differ
from these estimates.

Material differences between Canadian and US GAAP, applicable
to the Companys financial statements, are described in note 11 of the Companys
audited consolidated financial statements.

Principles of Accounting for Investments

The Companys investments are accounted for using either the
equity method or cost method of accounting. The equity method is used when the
Company, through its level of investment, exercises significant influence over
the investee. The cost method of accounting is applied to investments in
Companies over which the Company does not exercise significant influence.

The Companys investments are recorded at cost and are
considered to be non-current as the Company intends to hold them for a period of
greater than one year. The aggregate carrying cost is adjusted to fair value,
where determinable, only if there is an other-than-temporary decline in value.
Refer to note 3.

Stock-based Compensation

All stock option based grants are measured and recognized in
the consolidated financial statements using a fair value based method. Fair
value is measured using the Black-Scholes option-pricing model and the
compensation cost is amortized over the vesting period. The Company measures
compensation expense if the options are changed or modified. Consideration
received upon the exercise of stock options together with the amount of non-cash
compensation expense recognized in contributed surplus is recorded as share
capital.

New Accounting Pronouncements

Pursuant to new Canadian accounting standards that will be
adopted in the Companys 2008 fiscal year, the Company will have to designate
each of its financial instruments held in certain categories, with the
implication to these financial statements that its investments held will be
carried at their current market values. This change is expected to bring the
Companys accounting treatment for investments into congruence with the US GAAP
treatment disclosed at Note 11(a) to the audited consolidated financial
statements.

Capital Expenditures

Our capital expenditures in fiscal 2008 are expected to be
approximately $1,500,000, in relation to our exploration properties.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
is material to investors.

Tabular Disclosure of Contractual Obligations

The following table sets forth our contractual obligations as
at July 31, 2007:

19

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|                                 |   | Payments due by period | 
|-------------------------------- | - | ---------------------- | 
|                                 |   |                        | 
|Contractual Obligations          |   | Total                  | 
|Long-Term Debt Obligations       |   | -                      | 
|Capital finance/lease            |   | -                      | 
|Operating lease                  |   | -                      | 
|Permit obligations               | $ | 1,500,000              | 
|Purchase obligations             |   | -                      | 
|Other long-term liabilities      |   | -                      | 
|reflected on the Registrants    |   |                        | 
|balance sheet under the GAAP of  |   |                        | 
|the primary financial statements |   |                        | 
|Total                            | $ | 1,500,000              | 

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

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

At January 29, 2008, the directors and officers of the Company
were:

|                                                           |                                                                 | Office Held
|---------------------------------------------------------- | --------------------------------------------------------------- | -----------
|Name and Municipality of Residence                         | Position Held                                                   | Since      
|Mr. Peter Loretto, (1)(2) Vancouver, British Columbia      | Chief Executive
      Officer and Director                      | 2003       
|                                                           |                                                                 |            
|Mr. Garth Johnson,
      (2)Surrey, British Columbia       | President                                                       | 2008       
|                                                           |                                                                 |            
|Dr. David Bennett, (1)(3) Wellington, New Zealand          | Executive
      Chairman, Director                              | 2006 (4)   
|                                                           |                                                                 |            
|Mr. Alex Guidi,
      (5)Vancouver, British Columbia       | Director                                                        | 2007 (6)   
|                                                           |                                                                 |            
|Mr. Barry MacNeil,
      Surrey, British Columbia          | Corporate
      Secretary, Chief Financial Officer and Director | 2004       
|                                                           |                                                                 |            
|Mr. Michael Hart,
      (1)Roberts Creek, British Columbia | Director                                                        | 1999       
|                                                           |                                                                 |            
|Mr. Drew Cadenhead,
      (7)Surrey, British Columbia      | Vice President of
      Business Development                    | 2008       

|(1) | Member of audit committee.                                                                                                                                                   
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Mr. Loretto resigned as President of the Company on
      January 10, 2008, and Mr. Johnson was subsequently appointed as President
      of the Company on January 10, 2008.
|(3) | Dr. Bennett was appointed as a director of the Company on
      August 23, 2006, and as Executive Chairman of the Company on June 8,
      2007.                             
|(4) | Dr. Bennett previously served as a director of the
      Company during the period from November 1996 to April 2001.                                                         
|(5) | Mr. Guidi was appointed as a director of the Company on
      October 17, 2007.                                                                                              
|(6) | Mr. Guidi previously served as a director of the Company
      during the period from February 1998 to March 2000.                                                           
|(7) | Mr. Cadenhead was appointed as Vice President of Business
      Development of the Company on January 10, 2008.                                                              

The following provides information about the business
experience of our directors and officers:

Mr. Peter Lorettoobtained an MBA from Gonzaga
University, Spokane, Washington, in 1984 and has been the Companys Chief
Executive Officer and a director since May 12, 2003. Mr. Loretto is also a
principal shareholder of the Company. For over 20 years, Mr. Loretto has
attained investment banking and public company experience by working as an
independent businessman and investor both in the U.S. and Canada. Mr. Loretto
has been involved with funding and developing numerous companies in the resource
and technology sector, including a number of successful oil and gas exploration
and development stage companies. Furthermore, Mr. Loretto is currently the

20

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Chief Operating Officer of International Resource Management
Corp. (IREMCO), a Vancouver, British Columbia based private holding company
with investments in oil and gas and technology companies, and the President of
PCL Holdings Ltd. (PCL), a private investment company that is based in
Vancouver, British Columbia.

Mr. Garth Johnsonwas appointed as the President of the
Company on January 10, 2008. He is a Certified General Accountant with
experience in finance, accounting and regulatory reporting for public companies
and has been instrumental in developing junior international companies from
start-up to listing on senior exchanges. Mr. Johnson is also a corporate
business executive that has been involved in oil and gas activities, primarily
in New Zealand and Papua New Guinea, over the past 12 years and is currently the
Chief Executive Officer, Chief Financial Officer, Secretary and a director of
TAG and the Chief Financial Officer of AMG.

Dr. David Bennettjoined the Board on August 23, 2006
and was subsequently appointed as Executive Chairman of the Company on June 8,
2007. Dr. Bennett received a B.A. in the Natural Sciences from Cambridge
University in 1968, an M.SC. in Exploration Geophysics from the University of
Leeds and a doctorate in Geophysics from the Australian National University with
post-doctoral work at the University of Texas in 1973. Dr. Bennett is a seasoned
business executive who has over thirty years of technical and operational
experience in the oil and gas industry and has played a major role in the
discovery and development of several oil and gas fields in the Australasian
region. In addition, Dr. Bennett was a co-founder and the Chief Executive
Officer of Austral, and is currently a director of TAG and Rift Oil PLC.

Mr. Alex Guidihas been a member of the Board since
October 17, 2007. Mr. Guidi has over 30 years of experience as a self-employed
investor and financier and has enjoyed success in having founded a number of oil
and gas companies focused on Western Canada and Australasia. In New Zealand, Mr.
Guidi was the founder of Austral, TAG and the Company which, for 12 years, have
made, and continue to make, a significant contribution to exploration and
development activity in New Zealand and Papua New Guineas Foreland region. In
North America, Mr. Guidi was a founder of Walking Stick Oil and Gas Ltd. as well
as the major shareholder in a company that participated in the development of
the Karr gas field in West Central Alberta. Mr. Guidis extensive career has
also involved successful entrepreneurial endeavours in technology and real
estate development. Mr. Guidi has served as a director and officer of TAG,
Austral and AMG, and is currently the Chairman and Chief Executive Officer of
IREMCO.

Mr. Barry MacNeilis an accountant with over 15 years of
experience in public practice and is an independent businessman and investor in
securities. Additionally, Mr. MacNeil has worked as a corporate accountant for a
group of companies involved in sales and services of mining equipment to the
international mining industry and a lumber company with export sales to Japan,
Europe and Australia. Mr. MacNeil has been the Companys Corporate Secretary,
Chief Financial Office and a director since October 26, 2004.

Mr. Michael Harthas been a director of the Company
since December 13, 1999. Mr. Hart is a long-time investor in natural resources
and has experience with public companies in the oil and gas industry. Mr. Hart
has previously worked in the financial markets sector with a number of
financial institutions where he acted as an account executive and financial
consultant. Since 1995, Mr. Hart has worked with an investment-banking group
responsible for taking projects from start-up to the public markets. Mr. Hart is
currently the President, Chief Executive Officer, Corporate Secretary, Treasurer
and a director of AMG, and is also the Corporate Secretary and a director of
Entourage Mining Ltd.

Mr. Drew Cadenheadwas appointed as the Vice President
of Business Development of the Company on January 10, 2008. Mr. Cadenhead
obtained his B.SC. in Geology from the University of Calgary and began his
career in the oil and gas exploration business in 1979. He has extensive
technical and operational experience in Western Canada and New Zealand with an
oil and gas resume that includes positions with some of the leading energy
companies in the world and he has gained an in-depth knowledge of both
international and domestic oil and gas exploration and development. Prior to
working with Trans-Orient, Mr. Cadenhead was the Chief Executive Officer and
President of TAG, Vice President of Exploration for BTU Resources Ltd. and a
Senior Geologist of Ulster Petroleums Ltd.

21

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The Company does not maintain liability insurance to cover its
directors and officers in the performance of their duties.

Term of Office

Our directors serve until the next annual general meeting of
the Company, unless earlier vacated in accordance with our Articles or the
provisions of the Business Corporations Act(British Columbia). All
officers serve at the discretion of the Board.

Family Relationships

There are no family relationships among our directors and
officers.

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

Executive Compensation

During the Companys financial year ended July 31, 2007, the
aggregate direct remuneration paid or payable to the Companys executive
officers by the Company and its subsidiaries was $60,000. During the 2007 fiscal
year, Mr. Loretto and Dr. Bennett were paid a total of $155,000 for their
services in their capacity as directors or consultants.

No officer of the Company, other than the Named Executive
Officers (as defined below), received, in their capacity as officers or
employees of the Company or its subsidiaries, individual compensation in excess
of $150,000 for services in all capacities during the most recently completed
financial year.

Named Executive Officer includes each Chief Executive
Officer, each Chief Financial Officer and each of the three most highly
compensated executive officers, other than each Chief Executive Officer and
Chief Financial Officer, who were serving as executive officers at the end of
the most recently completed fiscal year and whose total salary and bonus exceeds
$150,000.

The compensation paid to the Named Executive Officers during
the Companys three most recently completed financial years is as set out
below:

NAMED
      EXECUTIVEOFFICERSName and PrincipalPosition
    Year
    Annual
      Compensation
    Long Term CompensationAwards
    PayoutsSalary($)
    Bonus($)
    OtherAnnualCompen-sation($)
    SecuritiesUnderOptions/ SARsGranted(#)
    Shares orUnitsSubject toResaleRestrictions($)
    LTIPPayouts($)
    All OtherCompensation($)Peter Loretto(2)Chairman of the Board,
      President and Chief Executive Officer
    2007 2006 2005
    60,000 60,000 24,948
    ---
    ---
    ---
    ---
    ---
    ---Barry MacNeil, Secretary and Chief
      Financial Officer
    2007 2006 2005
    ---
    ---
    - 900(1)2,400(1)
    ---
    ---
    ---
    ---


|(1) | These funds represent fees for accounting services
      provided to the Company.                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Mr. Loretto resigned as President of the Company on
      January 10, 2008, and Mr. Johnson was subsequently appointed as President
      of the Company on January 10, 2008.

Long-Term Incentive Plan Awards

Long term incentive plan awards (LTIP) means a plan
providing compensation intended to motivate performance over a period greater
than one financial year. LTIPs do not include option or stock appreciation
rights plans or plans for compensation through shares that are subject to
restrictions on resale. The Company did not award any LTIPs to any Named
Executive Officers during the most recently completed financial year.

22

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Option and Stock Appreciation Rights (SARs)

The Company does not currently have a stock option plan. No
options to acquire Common Shares or SARs have been granted to Named Executive
Officers during the last completed financial year. The Company may, at the
discretion of the Board, grant incentive stock options to its officers,
directors, employees and consultants, for the purchase of shares in the Company
upon the terms and conditions as determined by the Board.

During the 2007 fiscal year the Company granted Dr. Bennett
200,000 options exercisable at a price $1.00 per share, vesting over two years.
There were no other options granted to or exercised by directors and senior
officers in the years ended July 31, 2007 or 2006 and there were no outstanding
stock options granted to or exercised by management of the Company.

Termination of Employment, Change in Responsibilities and
Employment Contracts

The terms and conditions of the written employment contract and
arrangement between the Company and the Chief Executive Officer provides for a
fee of US$5,000 per month to be paid to a private company wholly-owned by the
Chief Executive Officer of the Company to provide executive services for the
Company on a regular part-time basis and additionally as is necessary. This
contract provides for 12 months advance notice to terminate the services of the
Chief Executive Officer, other than for cause.

There are no other compensatory plan(s) or arrangement(s), with
respect to any Named Executive Officer resulting from the resignation,
retirement or any other termination of employment of the Named Executive
Officers employment or from a change of any Named Executive Officers
responsibilities following a change in control.

Compensation of Directors

During the 2007 fiscal year, the Company did not pay
compensation to directors for their services in their capacity as directors of
the Company.

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

All directors have a term of office expiring at our next annual
general meeting unless a director's office is earlier vacated in accordance with
our Articles or the provisions of the Business Corporations Act (British
Columbia). All officers serve at the discretion of the Board.

As of January 29, 2008 the following are the Companys officers
and directors:

|Name and
      Position                                     | Office Held Since    
|----------------------------------------------------------- | ---------------------
|Peter Loretto Chief Executive Officer
      and Director    | May 2003             
|                                                            |                      
|Garth Johnson President                                     | January 2008         
|                                                            |                      
|Barry MacNeil Secretary and Chief
      Financial Officer   | October 2004         
|                                                            |                      
|David Bennett Executive Chairman
      Director             | June 2007 August 2006
|                                                            |                      
|Alex Guidi Director                                         | October 2007         
|                                                            |                      
|Michael Hart Director                                       | December 1999        
|                                                            |                      
|Drew Cadenhead Vice President of
      Business Development | January 2008         

23

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We have entered into consulting agreements with Mr. Loretto,
Dr. Bennett and Mr. Cadenhead, as well as a compensation and indemnity agreement
with Mr. Guidi, which are described under Additional Information Material
Contracts.

Audit and Remuneration Committees

As at January 29, 2008 the members of the audit committee are
Peter Loretto, David Bennett and Michael Hart. Dr. Bennett has served as a
member of the audit committee since August 23, 2006. Both Mr. Loretto and Mr.
Hart have served as members of the audit committee since December 3, 2003.

The audit committee serves pursuant to an Audit Committee
Charter adopted by the Company on January 17, 2005. The committee is constituted
to monitor the veracity of the financial and regulatory reports produced by the
Company, and the controls that are in place to ensure the opportunities for
fraud or material error in the financial statements of the Company are
minimized. A copy of our Audit Committee Charter was filed as an exhibit to our
Form 20-F filed January 31, 2006.

The Board does not have a remuneration committee. Currently any
material commitments, inclusive of remuneration, are required to be pre-approved
by the Board as a whole.

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

The Company currently has no full-time employees other than its
executive officers. However, the Company has entered into consulting services
agreements to provide services to the Company as described herein.

|E. | Share Ownership by Directors and Officers
|-- | -----------------------------------------

The following table provides information relating to the
shareholders of our directors and officers as of January 29, 2008:

Name
    Number ofShares
    Number ofWarrants(1)
    Number ofOptions
    PercentageofOutstandingShares
    Exercise Price ofWarrants/Options
    Expiry Date of**Warrants/Options**Peter Loretto
    8,645,143
    100,000
    -
    23.66%
    $0.70
    July
      18, 2008David Bennett
    71,000
    71,000
    200,000
    0.19%
    $0.70/$1.00
    August 29, 2008/ November 1, 2011Garth Johnson
    60,000
    60,000
    -
    0.16%
    $0.70
    August 29, 2008Barry MacNeil
    14,972
    10,000
    -
    0.04%
    $0.70
    August 29, 2008Alex Guidi
    3,646,882
    1,700,000
    -
    9.98%
    $0.70 and $1.35
    August 29, 2008 and July 18, 2008Michael Hart
    -
    -
    -
    -
    -
    -Drew Cadenhead
    -
    -
    -
    -
    -
    -


(1)Subject to certain accelerated expiry
provisions as detailed above.

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

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

The following sets forth information relating to the beneficial
ownership of our shares held by persons who own 5% or more of our common stock
as of January 29, 2008:

24

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|Name and
      Address of Owner |  | Number of Shares |     |  | Percentage of Class | 
|------------------------------- |  | ---------------- | --- |  | ------------------- | 
|                                |  |                  |     |  |                     | 
|Alex Guidi Vancouver, B.C.      |  | 5,346,882        | (1) |  | 13.98%              | 
|                                |  |                  |     |  |                     | 
|Peter Loretto Vancouver, B.C.   |  | 8,745,143        | (2) |  | 23.86%              | 
|                                |  |                  |     |  |                     | 
|Lukas H. Lundin Vancouver, B.C. |  | 10,000,000       | (3) |  | 24.07%              | 

|(1) | Includes 1,700,000 share purchase warrants that can be
      exercised within 60 days.
|--- | --------------------------------------------------------------------------------------
|(2) | Includes 100,000 share purchase warrants that can be
      exercised within 60 days.  
|(3) | Includes 5,000,000 share purchase warrants that can be
      exercised within 60 days.

To the knowledge of the Company, there have been no significant
changes in percentage share ownership held by any major shareholders, during the
last three fiscal years with the exception of Mr. Lundins purchase of 5,000,000
units of the Company pursuant to a private placement that was completed in
September of 2006.

There are no different voting rights attributable to the major
shareholders. Every shareholder has equal voting rights.

Host Country Shareholders

The following provides information about shareholders of record
in the United States as at January 29, 2008 are as follows:

| | Estimated proportion of shares held in the
      U.S. | 5.14%    
| | ----------------------------------------------------- | ---------
| | Number of U.S. shareholders                           | 373      
| | Number of shares held by U.S. shareholders            | 1,879,359

To our knowledge, there are no arrangements the operation of
which would at a subsequent date result in a change of control of the
Company.

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

The following sets forth, since the beginning of our last
completed fiscal year, information relating to transactions entered into with us
by certain related parties:

|(a) | Pursuant to a consulting agreement dated September 1,
      2006, the Company paid Dr. Bennett monthly compensation of $5,000 until
      December 31, 2007, granted a gross overriding royalty of 0.5% on the
      Companys two New Zealand petroleum exploration permits, PEP 38348 and
      38349, and granted 200,000 options in the Company that vest over two years
      and are exercisable at $1.00 per share for five years from the date of
      grant. Beginning January 1, 2007, the monthly compensation increased to
      $10,000 per month. Effective December 1, 2007, the Company further amended
      the agreement dated September 1, 2006, to increase Dr. Bennetts monthly
      consulting compensation to $15,000 per month.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(b) | On October 17, 2006, the Company participated in a
      private placement financing in Austral, acquiring 1,395,000 shares of
      Austral at a purchase price of $1.30 per share. The Company also acquired
      180,300 shares of Austral at market prices averaging approximately $1.42
      per share.                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(c) | On August 30, 2006 the Company completed a private
      placement financing of 12,972,142 units of the Company as detailed above.
      Three directors of the Company at the time of the financing acquired a
      total of 91,000 of these units.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(d) | On January 17, 2007 the Company completed a private
      placement financing of 5,905,000 units of the Company as detailed above.
      One director of the Company acquired a total of 200,000 of these
    units.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

25

---

|(e) | On April 1, 2007, the Company extended for one year an
      agreement entered into during the 2005 fiscal, a private company
      wholly-owned by the Companys President, to provide executive services to
      the Company. The agreement includes monthly compensation of
  $5,000.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                          
|(f) | Pursuant to an agreement dated November 1, 2007 the
      Company entered into an agreement with Mr. Guidi, who was appointed to the
      Board on October 17, 2007, that includes monthly compensation of $5,000
      for his services as a director.                                 

As at December 14, 2007, Mr. Loretto and Mr. Guidi were
significant shareholders of Austral. Mr. Loretto personally held 524,950 common
shares (1.61%) of that company. In addition, Mr. Loretto beneficially owned,
through his controlling interest in the Company, 3,110,240 common shares (9.59%)
of Austral. The combined total of 3,635,190 shares represents an 11.2% ownership
interest of Austral on an undiluted basis, and is believed by the Company to be
sufficient to allow Mr. Loretto and the Company to have significant influence
over Austral. Mr. Guidi held 1,693,315 common shares (5.22%) of Austral on an
undiluted basis. In addition, Dr. Bennett personally held 96,168 common shares
(0.30%) of Austral and 750,000 options that have fully vested and are
exercisable at $1.20 per share, which will expire on February 2, 2008.

During the 2006 fiscal year, the Company sold 7,373,589 shares
of AMG for aggregate proceeds of $133,695 and as a result the Company no longer
controls AMG. As at December 14, 2007, the Company owns 826,431 (3.56%) common
shares of AMG. Mr. Hart, a director of the Company, is also the President, Chief
Executive Officer, Secretary, Treasurer and a director of AMG.

|C. | Interests of Experts and Counsel
|-- | --------------------------------

Not applicable.

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

Consolidated Statements and Other Financial
Information

Our audited consolidated financial statements as at and for the
years ended July 31, 2007, 2006 and 2005 are included under Item 17.

Legal Proceedings

We are not a party to material legal proceedings, and to our
knowledge, none are threatened or contemplated.

Dividends

The Company has not paid dividends to shareholders and no
dividends will be paid in the foreseeable future. All cash derived by the
Company is re-invested in the Companys operations.

Significant Changes

The following significant changes have occurred since July 31,
2007:

|(a) | The Company appointed Mr. Guidi as a director of the
      Company on October 17, 2007. Pursuant to an agreement dated November 1,
      2007, the Company paid Mr. Guidi of the Company monthly compensation of
      $5,000 for his services as a director.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                              
|(b) | On December 1, 2007, the Company further amended an
      agreement dated September 1, 2006, with Dr. Bennett to increase Dr.
      Bennetts monthly consulting compensation to $15,000 per month.                                                          
|    |                                                                                                                                                                                                                                                              
|(c) | On January 1, 2008, the Company entered into an agreement
      to pay Mr. Cadenhead consulting compensation of CDN$240,000 for a period
      of one year for his various consulting and advisory services on business
      development matters.           

26

---

|(d) | On January 10, 2008, Mr. Loretto resigned as President of
      the Company and Mr. Johnson was subsequently appointed as President of the
      Company on January 10, 2008.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

No other significant changes material to the business of the
Company have occurred since the date of the annual financial statements.

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

Market for our Common Stock

Our shares of common stock are quoted for trading on the OTCBB
under the symbol TOPLF. The following sets forth trading prices for our shares
of common stock on the OTCBB for the periods indicated. These reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
necessarily reflect actual transactions.

OTCBBFiscal Year
    
    High
    
    
    Low2003
    $
    1.52
    
    $
    0.352004
    
    0.90
    
    
    0.102005
    
    6.00
    
    
    0.442006
    
    3.00
    
    
    0.262007
    
    1.70
    
    
    0.36


OTCBBFiscal
      Quarter
    
    High
    
    
    Low2006First Quarter
    $
    2.00
    
    $
    1.35Second Quarter
    
    2.00
    
    
    1.05Third Quarter
    
    3.00
    
    
    0.26Fourth Quarter
    
    0.74
    
    
    0.272007First Quarter
    
    0.89
    
    
    0.36Second Quarter
    
    1.70
    
    
    0.55Third Quarter
    
    0.90
    
    
    0.51Fourth Quarter
    
    1.10
    
    
    0.53


OTCBBMonthly
    
    High
    
    
    LowJuly 2007
    $
    1.10
    
    $
    0.77August 2007
    
    0.80
    
    
    0.40September 2007
    
    0.70
    
    
    0.36October 2007
    
    0.70
    
    
    0.52November 2007
    
    0.65
    
    
    0.51December 2007
    
    0.54
    
    
    0.39


Plan of Distribution

Not applicable.

27

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

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

Not applicable.

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

On January 16, 2006 the Company was continued out of the
jurisdiction of the Yukon Territory and into British Columbia. It is now a
company subsisting under Business Corporations Act (British Columbia),
which replaced the Company Act (British Columbia) in 2004. The Companys
Notice of Articles has been filed with the British Columbia Registrar of
Companies under the Business Corporations Act (British Columbia), and
constitutes the primary charter document of the Company. The Company has also
adopted the new Articles in the form approved by the shareholders at the annual
and special meeting held on January 12, 2006, which replaced the Companys
former by-laws. See also Item 4 of this annual report under the heading History
and Development of the Company.

Details of the Companys Notice of Articles and Articles were
disclosed in the Companys annual report on Form 20-F for the fiscal year ended
July 31, 2005, as filed with the SEC. A copy of each of the Notice of Articles
and the Articles, as approved by shareholders on January 12, 2006, was attached
as an exhibit to the Companys annual report on 20-F for the fiscal year ended
July 31, 2005. There have been no changes to the Notice of Articles or Articles
since then.

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

On September 1, 2006, we entered into a Consulting Agreement
with David Bennett, a director of the Company. Pursuant to the terms of the
agreement, the Company engaged Dr. Bennett to provide consulting services in
connection with the implementation of its hydrocarbon prospects acquisition and
development strategy and to act as a director of the Company. In consideration
for the services, the Company agreed to pay Dr. Bennett a consulting fee of
$5,000 per month, such fee to be reviewed annually. In addition, the Company
agreed to issue Dr. Bennett options to acquire up to 200,000 shares of our
common stock at an exercise price of US$1.00 per share for a period of five
years, and the ability to earn an additional 200,000 options that may be earned
based on certain criteria related to the Companys performance. The Company also
granted Dr. Bennett a 0.5% gross royalty in respect of all petroleum obtained
under our current exploration permits. The term of the agreement is for a period
of one year commencing September 1, 2006 and included that the agreement would
automatically be extended for successive one year terms unless earlier
terminated. Notwithstanding the foregoing, the Company and Dr. Bennett may
terminate the agreement with or without Cause (as defined in the agreement) or
in the event of a Change in Control (as defined in the agreement) upon prior
written notice. In the event that the agreement is terminated by the Company
without Cause, by Dr. Bennett for good reason or by Dr. Bennett after a Change
of Control, the Company is required to pay Dr. Bennett a lump sum amount equal
to the balance of the fees payable to him for the remainder of the term.

We entered into an Addendum of the Consulting Agreement with
Dr. Bennett as of October 23, 2007, which amends the term of the agreement
previously entered into with him. Under the terms of the amended agreement, Dr.
Bennett is entitled to remuneration for his services of $10,000 per month
commencing January 1, 2007, such fee to be reviewed annually. Also, under the
amended agreement, the ability to earn an additional 200,000 options referred to
above was cancelled.

The Company entered into a Consulting Agreement with Dr.
Bennett dated December 1, 2007 which supersedes the prior consulting agreement,
as amended, entered into with him. Under the terms of this agreement, the
Company engaged Dr. Bennett to provide consulting services in connection with
the implementation of its hydrocarbon prospects acquisition and development
strategy. In consideration for his services, we agreed to pay him a consulting
fee of $15,000 per month commencing December 1, 2007, for a period of one year.
Also, the previously granted 0.5% royalty to Dr. Bennett pertaining to all
petroleum obtained in respect of the Companys current permits was maintained in
the agreement. The term of the agreement is for a period of one year commencing
December 1, 2007, however, the term of the agreement may be extended at the
Companys option upon written notice given 30 days prior to the anniversary
date of the agreement by the Company. The Company may terminate the agreement
for any

28

---

reason which constitutes Cause (as defined in the agreement)
and, in that case, shall be required to pay to him amounts due to him under the
agreement up to the date of termination. The Company may also terminate the
agreement at any time without Cause upon written notice of termination to Dr.
Bennett. Dr. Bennett may terminate the agreement for good reason upon one
months prior written notice or within 90 days of a Change of Control (as
defined in the agreement) upon one months prior written notice. In the event
that the agreement is terminated by the Company without cause, by Dr. Bennett
for good reason or by Dr. Bennett after a Change of Control the Company is
required to pay Dr. Bennett a lump sum amount equal to the balance due to him
under the agreement for the remainder of the term.

We entered into a Directors Compensation and Indemnity
Agreement dated November 1, 2007 with Mr. Guidi, a director of the Company,
pursuant to which we agreed to indemnify Mr. Guidi from and against any and all
claims and actions brought at any time against him by reason that he is or was a
director, officer or employee of the Company or a subsidiary and from and
against any and all liabilities, losses, damages, costs and expenses or other
fines and penalties which he sustains or incurs by reason that he is or was a
director, officer or employee of the Company or a subsidiary. In addition, we
agreed to advance expenses incurred by him in connection with a claim or action.
As compensation for his services as a director, the Company agreed to pay Mr.
Guidi $5,000 per month. The Board may terminate the agreement at any time for
cause or reason, or without cause or reason, upon one months prior written
notice, upon which Mr. Guidi will be entitled to payment for the performance of
all services he has provided up to the termination date.

The Company entered into a Consulting Agreement dated January
1, 2008 with Drew Cadenhead pursuant to which Mr. Cadenhead agreed to perform
various consulting and advisory services on business development matters for the
Company. The agreement is for a term of one year from January 1, 2008, however,
the agreement may be extended upon written notice 30 days prior to each
anniversary date of the agreement. In consideration for his services, the
Company has agreed to pay to Mr. Cadenhead $240,000 per year and Mr. Cadenhead
is entitled to participate in any stock option plan that the Company adopts. Mr.
Cadenhead may terminate the agreement at any time for cause or reason, or
without cause or reason, upon one months prior written notice, and shall be
entitled to such amounts due under the agreement up to the date of termination.
The Company may terminate the agreement for any reason which constitutes Cause
(as defined in that agreement) and shall be required to pay to Mr. Cadenhead
such amounts as are due to him under the agreement up to the date of
termination. The Company may terminate the engagement of Mr. Cadenhead at any
time without Cause by giving him one months prior written notice and he shall
be entitled to such amounts due under the agreement up to the anniversary date
thereof.

On April 1, 2005, we entered into a Consulting Agreement with
the Chief Executive Officer of the Company, Peter Loretto. Under the agreement,
Mr. Loretto agreed to provide executive services for the Company for a period of
one year that may be extended thereafter upon the mutual agreement of the
parties by written request given by either party providing such extension
request is accepted by the other party at least 7 days before the expiry of this
agreement. Mr. Loretto receives a fee of $5,000 per month from the Company paid
to a private company wholly-owned by Mr. Loretto, in consideration for Mr.
Lorettos services as Chief Executive Officer of the Company on a part-time
basis and additionally as is necessary. Mr. Loretto may terminate the agreement
at any time upon one months prior written notice, and shall be entitled to such
amounts due under the agreement up to the date of termination. This agreement
provides for the Company to provide 12 months advance notice to terminate the
services of the Chief Executive Officer, other than for Cause (as defined in
that agreement). The Company may terminate the agreement for any reason which
constitutes Cause and shall be required to pay to Mr. Loretto such amounts as
are due to him under the agreement up to the date of termination.

The foregoing summaries of the material agreements entered into
by the Company is not complete and is qualified in its entirety by reference to
the terms of each such agreements, copies of each of which are attached hereto
or have been previously filed with the SEC.

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

There is no law or governmental decree or regulation in Canada
that restricts the export or import of capital, or affects the remittance of
dividends, interest or other payments to a non-resident holder of common shares
of the Company, other than withholding tax requirements. See Taxation.

29

---

There is no limitation imposed by Canadian law or by the
charter or other constituent documents of the Company on the right of a
non-resident to hold or vote common shares of the Company, other than as
provided in the Investment Canada Act (Canada) (the Investment Act).

The following discussion summarizes the principal features of
the Investment Act for a non-resident who proposes to acquire common shares of
the Company. It is general only, it is not a substitute for independent advice
from an investors own advisor, and it does not anticipate statutory or
regulatory amendments.

The Investment Act is a federal statute of broad application
regulating the establishment and acquisition of Canadian businesses by
non-Canadians, including individuals, governments or agencies thereof,
corporations, partnerships, trusts or joint ventures (each an entity).
Investments by non-Canadians to acquire control over existing Canadian
businesses or to establish new ones are either reviewable or notifiable under
the Investment Act. If an investment by a non-Canadian to acquire control over
an existing Canadian business is reviewable under the Investment Act, the
Investment Act prohibits implementation of the investment unless after review
the Director of Investments, who is appointed by the Minster of Industry, is
satisfied that the investment is likely to be of net benefit to Canada.

A non-Canadian would acquire control of the Company for the
purposes of the Investment Act through acquisition of common shares if the
non-Canadian acquired a majority of the common shares of the Company. Further,
the acquisition of less than a majority but one third or more of the common
shares of the Company would be presumed to be an acquisition of control of the
Company unless it could be established that, on the acquisition, the Company was
not controlled in fact by the acquirer through the ownership of common
shares.

For a direct acquisition that would result in an acquisition of
control of the Company, subject to the exception for WTO-investors that are
controlled by persons who are resident in World Trade Organization (WTO)
member nations, a proposed investment would be reviewable where the value of the
acquired assets is CAD $5 million or more, or if an order for review was made by
the federal cabinet on the grounds that the investment related to Canadas
cultural heritage or national identity, regardless of the value of the assets of
the Company.

For a proposed indirect acquisition that would result in an
acquisition of control of the Company through the acquisition of a non-Canadian
parent entity, the investment would be reviewable where (a) the value of the
Canadian assets acquired in the transaction is CAD $50 million or more, or (b)
the value of the Canadian assets is greater than 50% of the value of all of the
assets acquired in the transaction and the value of the Canadian assets is CAD
$5 million or more.

In the case of a direct acquisition by or from a WTO
investor, the threshold is significantly higher, and is adjusted for inflation
each year. The 2007 threshold was CAD $281 million and for 2008 it is expected
to be CAD $295 million. Other than the exception noted below, an indirect
acquisition involving a WTO investor is not reviewable under the Investment
Act.

The higher WTO threshold for direct investments and the
exemption for indirect investments do not apply where the relevant Canadian
business is carrying on the following businesses that have been deemed to be
sensitive: (i) the production of uranium and the ownership of an interest in a
producing uranium property in Canada; (ii) the provision of any financial
service; (iii) the provision of any transportation service; or (iv) a
cultural business.

Certain transactions relating to common shares of the Company
would be exempt from the Investment Act, including:

|(a) | acquisition of common shares of the Company by a person
      in the ordinary course of that persons business as a trader or dealer in
      securities,                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                      
|(b) | acquisition of control of the Company in connection with
      the realization of security granted for a loan or other financial
      assistance and not for a purpose related to the provisions on the
      Investment Act, and                                                   
|    |                                                                                                                                                                                                                                                                                      
|(c) | acquisition of control of the Company by reason of an
      amalgamation, merger, consolidation or corporate reorganization following
      which the ultimate direct or indirect control in fact of the Company,
      through the ownership of common shares, remained
  unchanged.

30

---

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

Certain Canadian Federal Income Tax Information for United
States Residents

The following summarizes the principal Canadian federal income
tax considerations generally applicable to the holding and disposition of common
shares of the Company by a holder (a) who, for the purposes of the Income Tax
Act (Canada) (the Tax Act), is not resident in or deemed to be resident in
Canada, deals at arms length with the Company, holds the common shares as
capital property and does not use or hold the common shares in the course of
carrying on, or otherwise in connection with, a business in Canada, and (b) who,
for the purposes of the Canada-United States Income Tax Convention (the
Treaty), is a resident of the United States, has never been a resident of
Canada, has not held or used (and does not hold or use) common shares in
connection with a permanent establishment or fixed base in Canada, and who
otherwise qualifies for the full benefits of the Treaty. Holders who meet all
such criteria in clauses (a) and (b) are referred to herein as a U.S. Holder
or U.S. Holders, and this summary only addresses such U.S. Holders. The
summary does not deal with special situations, such as particular circumstances
of traders or dealers, limited liability companies, tax-exempt entities,
insurers, financial institutions (including those to which the mark-to-market
provisions of the Tax Act apply), or otherwise.

This summary is based on the current provisions of the Tax Act
and the regulations thereunder, all proposed amendments to the Tax Act and
regulations publicly announced by the Minister of Finance (Canada) to the date
hereof, the current provisions of the Treaty and the current administrative
practices of the Canada Revenue Agency. It has been assumed that all currently
proposed amendments will be enacted as proposed and that there will be no other
relevant change in any governing law, the Treaty or administrative policy,
although no assurance can be given in these respects. This summary does not take
into account provincial, U.S. or other foreign income tax considerations, which
may differ significantly from those discussed herein. The summary also assumes
that the Company will be treated as a resident of Canada for purposes of the Tax
Act and the Treaty. This summary does not take into account any proposed changes
to the Treaty announced in the Protocol agreed to between the Canadian and
United States governments on September 21, 2007. No opinion or tax ruling has
been sought or obtained in respect of any assumption made in this summary.

This summary is not exhaustive of all possible Canadian income
tax consequences. It is not intended as legal or tax advice to any particular
holder of common shares and should not be so construed. The tax consequences to
any particular holder of common shares will vary according to the status of that
holder as an individual, trust, corporation or member of a partnership, the
jurisdictions in which that holder is subject to taxation and, generally,
according to that holders particular circumstances.

Each holder should consult the holders own tax advisor with
respect to the income tax consequences applicable to the holders own particular
circumstances.

Dividends

Dividends paid or deemed to be paid or credited by the Company
to a U.S. Holder are subject to Canadian withholding tax. Under the Treaty, the
rate of withholding tax on dividends paid to a U.S. Holder is generally limited
to 15% of the gross dividend (or 5% in the case of corporate shareholders owning
at least 10% of the Companys voting shares).

Disposition

A U.S. Holder is subject to tax under the Tax Act in respect of
a capital gain realized on the sale or other disposition of a common share only
if the U.S. Holder holds the common share as taxable Canadian property for
purposes of the Tax Act and is not entitled to relief under the Treaty.

In general, provided the common shares are listed on a
prescribed exchange in Canada at the relevant time (maintaining the current TSX
listing would be sufficient for this purpose), common shares will not be
taxable Canadian property unless (i) at any time during the 60 month period
ending at the time of disposition, the U.S. Holder and/or persons and entities
not dealing at arms length with the U.S. Holder (alone or together) owned 25%
or more of the issued shares of any class or series of the capital stock of the
Company, or (ii) the U.S. Holders

31

---

common shares were acquired in certain types of tax-deferred
exchanges in consideration for property that was itself taxable Canadian
property.

Furthermore, even if common shares are so held as taxable
Canadian property, relief under the Treaty is generally available provided the
value of the common shares is not derived principally from real property
situated in Canada. Management of the Company believes that the value of the
Companys common shares is currently not derived principally from real property
in Canada. U.S. Holders claiming Treaty relief should do so by filing a Canadian
income tax return for the relevant taxation year, and should consult with their
own advisors in this regard.

United States Taxation Effects

The following is a general discussion of the material U.S.
Federal income tax laws for U.S. Holders (as defined below) that hold common
shares in the Company as a capital asset, as defined under U.S. Federal income
tax law, and is limited to discussion of U.S. Holders that own less than 10% of
the common shares. This discussion does not address all potentially relevant
U.S. Federal income tax matters and it does not address consequences peculiar to
persons subject to special provisions of U.S. Federal income tax law, such as
those described below as excluded from the definition of a U.S. Holder. In
addition, this discussion does not cover any state, local or foreign tax
consequences.

The following discussion is based upon the sections of the U.S.
Internal Revenue Code of 1986, as amended to the date hereof (the Code),
Treasury Regulations, published Internal Revenue Service (IRS) rulings,
published administrative positions of the IRS and court decisions that are
currently applicable, any or all of which could be materially and adversely
changed, possibly on a retroactive basis, at any time. In addition, this
discussion does not consider the potential effects, both adverse and beneficial,
of any future legislation which, if enacted, could be applied, possibly on a
retroactive basis, at any time.

THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND
IT IS NOT INTENDED TO BE, NOR SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE
TO ANY HOLDER OR PROSPECTIVE HOLDER OF COMMON SHARES OF THE COMPANY AND NO
OPINION OR REPRESENTATION WITH RESPECT TO THE U.S. FEDERAL INCOME TAX
CONSEQUENCES TO ANY SUCH HOLDER OR PROSPECTIVE HOLDER IS MADE. THE FOLLOWING
DISCUSSION WAS NOT WRITTEN AND IS NOT INTENDED TO BE USED, AND CANNOT BE USED,
BY ANY PERSON FOR THE AVOIDANCE OF ANY PENALTIES WITH RESPECT TO TAXES THAT MAY
BE IMPOSED ON SUCH PERSON. ACCORDINGLY, U.S. HOLDERS AND PROSPECTIVE U.S.
HOLDERS OF COMMON SHARES OF THE COMPANY SHOULD CONSULT THEIR OWN TAX ADVISORS
ABOUT THE U.S. FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF
PURCHASING, OWNING AND DISPOSING OF COMMON SHARES OF THE COMPANY.

U.S. Holders

As used herein, a U.S. Holder is a holder of common shares of
the Company who or which is: (a) a citizen or individual resident (or is treated
as a citizen or individual resident) of the United States for U.S. Federal
income tax purposes; (b) a corporation, or other entity treated as a corporation
for U.S. Federal income tax purposes, created or organized in the United States,
including only the States and District of Columbia, or under the law of the
United States or any State or Territory or any political subdivision thereof;
(c) an estate, the income of which is includable in its gross income for U.S.
Federal income tax purposes without regard to its source; or (d) a trust, if (i)
a court within the United States is able to exercise primary supervision over
the administration of the trust and (ii) one or more U.S. persons have the
authority to control all substantial decisions of the trust; or the trust was in
existence on August 20, 1996, and has a valid election in effect under
applicable Treasury Regulations to be treated as a U.S. person. If a
partnership, including any entity that is treated as a partnership for U.S.
Federal income tax purposes, holds common shares of the Company, the treatment
of a partner in the partnership will generally depend upon the status of the
partner and the activities of the partnership. For purposes of this discussion,
a U.S. Holder does not include persons subject to special provisions of U.S.
Federal income tax law, such as (by way of example only) tax-exempt
organizations, qualified retirement plans, financial institutions, insurance
companies, real estate investment trusts, regulated investment companies,
broker-dealers, holders who acquired their stock through the exercise of
employee stock options or otherwise as compensation, taxpayers who have elected
mark-to-market accounting,

32

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taxpayers who hold common shares as a position in a straddle,
or as part of a synthetic security or hedge, conversion transaction or
other integrated investment, and U.S. Holders whose functional currency is not
the U.S. dollar.

Distributions on Common Shares of the Company

Subject to the Passive Foreign Investment Company discussion
below, U.S. Holders receiving dividend distributions (including constructive
dividends) with respect to common shares of the Company are required to include
in gross income for U.S. Federal income tax purposes the gross amount of such
distributions, equal to the U.S. dollar value of such distributions on the date
of receipt (based on the exchange rate on such date), to the extent that the
Company has current or accumulated earnings and profits, without reduction for
any Canadian or other foreign income tax withheld from such distributions. Such
Canadian or other foreign tax withheld may be credited, subject to certain
limitations, against the U.S. Holders U.S. Federal income tax liability or,
alternatively, may be deducted in computing the U.S. Holders U.S. Federal
taxable income by those who itemize deductions. (See more detailed discussion at
Foreign Tax Credit below).

Dividends distributed by the Company (if any) to a
non-corporate U.S. Holder may be eligible for the 15% maximum U.S. Federal
income tax rate that applies to dividends received by individuals from certain
foreign corporations prior to January 1, 2011. To the extent that distributions
exceed current or accumulated earnings and profits of the Company, they will be
treated first as a tax-free return of capital to the extent of the U.S. Holders
adjusted basis in the common shares and thereafter as gain from the sale or
exchange of the common shares. Preferential tax rates for long-term capital
gains are applicable to a U.S. Holder that is an individual, estate or trust.
There are currently no preferential tax rates for long-term capital gains for a
U.S. Holder that is a corporation.

Dividends paid on the common shares of the Company generally
will not be eligible for the dividends received deduction provided to
corporations receiving dividends from certain U.S. corporations. A U.S. Holder
that is a corporation may, under certain circumstances, be entitled to a
dividends received deduction for the U.S. source portion of dividends received
from a qualified 10-percent owned foreign corporation (other than a passive
foreign investment company) if such U.S. Holder owns shares representing at
least 10% of the voting power and value of such corporation. The availability of
this deduction is subject to several complex limitations that are beyond the
scope of this discussion.

Information Reporting and Backup Withholding

Under current Treasury Regulations, dividends paid on the
Companys common shares, if any, generally will not be subject to information
reporting and generally will not be subject to U.S. backup withholding tax.
However, dividends and the proceeds from a sale of the Companys common shares
paid in the United States through a U.S. or U.S. related paying agent (including
a broker) will be subject to U.S. information reporting requirements and may
also be subject to the 28% U.S. backup withholding tax, unless the paying agent
is furnished with a duly completed and signed IRS Form W-9. Any amounts withheld
under the U.S. backup withholding tax rules will be allowed as a refund or a
credit against the U.S. Holders U.S. Federal income tax liability, provided the
required information is furnished to the IRS.

Foreign Tax Credit

A U.S. Holder who pays (or has withheld from distributions)
Canadian or other foreign income tax with respect to the ownership of common
shares of the Company may be entitled, at the option of the U.S. Holder, to
either a deduction or a tax credit for such foreign tax paid or withheld.
Generally, it will be more advantageous to claim a credit because a credit
reduces U.S. Federal income taxes on a dollar-for-dollar basis, while a
deduction merely reduces the taxpayers income subject to tax. This election is
made on a year-by-year basis and applies to all foreign taxes paid by (or
withheld from) the U.S. Holder during that year. There are significant and
complex limitations that apply to the credit, among which is the general
limitation that the credit cannot exceed the proportionate shares of the U.S.
Holders U.S. Federal income tax liability that the U.S. Holders foreign source
income bears to his, her or its worldwide taxable income. In the determination
of the application of this limitation, the various items of income and deduction
must be classified into foreign and U.S. sources. Complex rules govern this
classification process. This limitation is calculated separately with respect to
passive income and general category income, i.e., income that is other than
passive income. The availability of the foreign tax credit and the application
of the

33

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limitations on the credit are fact specific, and U.S. Holders
and prospective U.S. Holders of common shares of the Company should consult
their own tax advisors regarding their individual circumstances.

Disposition of Common Shares of the Company

Subject to the Passive Foreign Investment Company discussion
below, a U.S. Holder will recognize gain or loss upon the sale or other taxable
disposition of common shares of the Company equal to the difference, if any,
between the amount of cash plus the fair market value of any property received,
and the Holders adjusted tax basis in the common shares of the Company. This
gain or loss will be capital gain or loss if the common shares are a capital
asset in the hands of the U.S. Holder. Any capital gain or loss will be a
long-term gain if the U.S. Holders holding period for the Companys common
shares is more than one year. Gains and losses are netted and combined according
to special rules in arriving at the overall capital gain or loss for a
particular tax year. Deductions for net capital losses are subject to
significant limitations. A non-corporate U.S. Holder may deduct capital losses
not offset by capital gains against such Holders ordinary income up to a
maximum annual amount of $3,000 ($1,500 for married taxpayers filing
separately), and any unused portion of such net capital loss may be carried over
to be used indefinitely in later tax years until such net capital loss is
thereby exhausted. A corporate U.S. Holder (other than corporations subject to
Subchapter S of the Code), may deduct capital losses only to the extent of its
capital gains, and any unused net capital loss may be carried back three years
from the loss year and carried forward five years from the loss year to be
offset against capital gains until such net capital loss is thereby exhausted.

Passive Foreign Investment Company

A U.S. Holder who holds stock in a foreign corporation during
any year in which such corporation qualifies as a passive foreign investment
company (PFIC) is subject to special U.S. Federal income tax rules set forth
in Sections 1291 to 1298 of the Code.

Section 1297 of the Code defines a PFIC as a foreign (non-U.S.)
corporation, if for any taxable year, either (i) 75% or more of its gross income
is passive income, which includes but is not limited to interest, dividends
and certain rents and royalties or (ii) the average percentage, by value (or, if
the company is not publicly traded and either is a controlled foreign
corporation (CFC) or makes an election, adjusted tax basis) of its assets that
produce or are held for the production of passive income is 50% or more. For
purposes of applying the foregoing tests, the assets and gross income of any
corporation in which the PFIC is considered to own 25% or more of the shares (by
value) will be proportionately attributed to the PFIC. The Company believes that
it is presently a PFIC.

As a PFIC, each U.S. Holders income or gain with respect to a
disposition or deemed disposition of the Companys shares, or an excess
distribution (as defined below) payable on such shares, generally will be
subject to tax at the highest marginal rates applicable to ordinary income and
certain interest charges discussed below, unless the U.S. Holder has timely made
a Qualified Electing Fund election or a mark-to-market election for those
shares.

A U.S. Holder who elects in a timely manner to treat the
Company as a Qualified Electing Fund (QEF), as defined in the Code (an
Electing U.S. Holder), will be subject, under Section 1293 of the Code, to
current U.S. Federal income tax for any taxable year in which the Company
qualifies as a PFIC on the Election U.S. Holders pro rata share of the
Companys (i) net capital gain (the excess of net long-term capital gain over
net short-term capital loss), which will be taxed as long-term capital gain and
(ii) ordinary earnings (the excess of earnings and profits over net capital
gain), which will be taxed as ordinary income , in each case, for the U.S.
Holders taxable year in which the Company taxable year ends, regardless of
whether such amounts are actually distributed. A U.S. Holders tax basis in the
common shares will be increased by the amount that is included in income but not
distributed.

A QEF election allows the Electing U.S. Holder to (i) generally
treat any gain realized on the disposition of his common shares (or deemed to be
realized on the pledge of his common shares) as capital gain; (ii) treat his
share of the Companys net capital gain, if any, as long-term capital gain
instead of ordinary income, and (iii) either avoid interest charges resulting
from PFIC status altogether (see discussion of interest charge below), or make
an annual election, subject to certain limitations, to defer payment of current
taxes on the Electing U.S. Holders share of the Companys net capital gain and
ordinary earnings subject, however, to an interest charge. If the Electing U.S.
Holder is not a corporation, such an interest charge would be treated as
nondeductible personal interest.

34

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The procedure a U.S. Holder must comply with in making a timely
QEF election depends on whether the year of the election is the first year in
the U.S. Holders holding period in which the Company is a PFIC. If the U.S.
Holder makes a QEF election in such first year (i.e., the QEF is a Pedigreed
QEF), then the U.S. Holder may make the QEF election by filing the appropriate
documents with the U.S. Holders U.S. Federal income tax return for such first
year by the due date of such tax return. If the Company is a Pedigreed QEF with
respect to a U.S. Holder and it no longer qualifies as a PFIC in a subsequent
year, normal Code rules, and not the PFIC rules, apply. If, however, the Company
qualified as a PFIC in a prior year in the U.S. Holders holding period, then in
addition to filing a QEF election, the U.S. Holder may also elect to recognize
as an excess distribution (i) under the rules of Section 1291 of the Code
(discussed below), any gain that he would otherwise have recognized if the U.S.
Holder had sold his stock on the first day of the PFICs first taxable year as a
QEF (deemed sale election), or (ii) if the Company is a CFC, the Holders pro
rata share of the corporations post-1986 earnings and profits as of the first
day of the PFICs first taxable year as a QEF (deemed dividend election). If
the U.S. holder does not make such an election, the PFIC is an Unpedigreed
QEF.

If a U.S. Holder has not made a QEF Election at any time (a
nonqualified fund), or if the PFIC is an Unpedigreed QEF (either, a
Non-electing U.S. Holder), then special taxation rules under Section 1291 of
the Code apply to (i) gains realized on the disposition (or deemed to be
realized by reason of a pledge) of his common shares and (ii) certain excess
distributions, as specifically defined, by the Company. A Non-electing U.S.
Holder generally is required to pro rate all gains realized on the disposition
of his common shares and all excess distributions over the entire holding period
for the common shares. All gains or excess distributions allocated to prior
years of the U.S. Holder (other than years prior to the first taxable year of
the Company during such U.S. Holders holding period and beginning after January
1, 1987, for which it was a PFIC) would be taxed at the highest marginal tax
rate for each such prior year applicable to ordinary income. The Non-electing
U.S. Holder also would be liable for interest on the foregoing tax liability for
each such prior year calculated as if such liability had been due with respect
to each such prior year. A Non-electing U.S. Holder that is not a corporation
must treat this interest charge as personal interest, which, as discussed
above, is not deductible. The balance of the gain or the excess distribution is
treated as ordinary income in the year of the disposition or distribution, and
no interest charge is incurred with respect to such balance.

If the Company is a PFIC for any taxable year during which a
Non-electing U.S. Holder holds common shares, then the Company will continue to
be treated as a PFIC with respect to such common shares, even if it is no longer
by definition a PFIC. A Non-electing U.S. Holder may terminate this deemed PFIC
status by electing to recognize gain (which will be taxed under the rules
discussed above for Non-Electing U.S. Holders) as if such common shares had been
sold on the last day of the last taxable year for which it was a PFIC.

Proposed Treasury Regulations have been issued under Section
1291(f) of the Code, which would treat as taxable certain transfers of PFIC
stock by Non-electing U.S. Holders that are generally not otherwise taxed, such
as gifts, exchanges pursuant to corporate reorganizations, and transfers at
death.

Certain special, generally adverse, rules will apply with
respect to the common shares while the Company is a PFIC whether or not it is
treated as a QEF. For example under Section 1298(b)(6) of the Code, a U.S.
Holder who uses PFIC stock as security for a loan (including a margin loan)
will, except as may be provided in regulations, be treated as having made a
taxable disposition of such stock.

Mark-to-Market Election for PFIC Stock

A U.S. Holder of a PFIC may make a mark-to-market election with
respect to the stock of the PFIC if such stock is marketable as defined below.
This provision is designed to provide a current income inclusion for persons
that are Non-electing U.S. Holders. Under the election, any excess of the fair
market value of the PFIC stock at the close of the tax year over the U.S.
Holders adjusted basis in the stock is included in the U.S. Holders income.
The U.S. Holder may deduct any excess of the adjusted basis of the PFIC stock
over its fair market value at the close of the tax year. However, deductions are
limited to the net mark-to-market gains on the stock that the U.S. Holder
included in income in prior tax years, or so called unreversed inclusions.

For purposes of the election, PFIC stock is marketable if it is
regularly traded on (1) a national securities exchange that is registered with
the SEC, (2) the national market system established under Section 11A of the
Exchange Act, or (3) an exchange or market that the IRS determines has rules
sufficient to ensure that the market price represents legitimate and sound fair
market value.

35

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A U.S. Holders adjusted basis of PFIC stock is increased by
the income recognized under the mark-to-market election and decreased by the
deductions allowed under the election. If a U.S. Holder owns PFIC stock
indirectly through a foreign entity, the basis adjustments apply to the basis of
the PFIC stock in the hands of the foreign entity for the purpose of applying
the PFIC rules to the tax treatment of the U.S. Holder. Similar basis
adjustments are made to the basis of the property through which the U.S. persons
hold the PFIC stock.

Income recognized under the mark-to-market election, and gain
on the sale of PFIC stock with respect to which an election is made, is treated
as ordinary income. Deductions allowed under the election and loss on the sale
of PFIC with respect to which an election is made, to the extent that the amount
of loss does not exceed the net mark-to-market gains previously included, are
treated as ordinary losses. The source of any income or losses is determined as
if the amount were a gain or loss from the sale of stock in the PFIC.

If PFIC stock is owned by a CFC, the CFC is treated as a U.S.
person that may make the mark-to-market election. Amounts includable in the
CFCs income under the election are treated as foreign personal holding company
income, and deductions are allocable to foreign personal holding company income.
A CFC is a foreign corporation in which more than 50% of the voting power of all
classes of stock or the total value of the stock is owned, directly or
indirectly, by U.S. persons, each of whom own 10% or more of the total combined
voting power.

The rules of Section 1291 of the Code applicable to
nonqualified funds generally do not apply to a U.S. Holder for tax years for
which a mark-to-market election is in effect. If a mark-to-market election was
in effect for any prior tax year and the stock ceases to be eligible for a
mark-to-market election, the U.S. Holders holding period for the PFIC stock is
treated as beginning immediately after the last tax year of such election. If a
taxpayer makes a mark-to-market election for PFIC stock that is a nonqualified
fund after the beginning of a taxpayers holding period for such stock, a
coordination rule applies to ensure that the taxpayer does not avoid the
interest charge with respect to amounts attributable to periods before the
election.

The foregoing discussion is based on currently effective
provisions of the Code, existing and proposed Treasury Regulations thereunder,
and current administrative rulings and court decisions, all of which are subject
to change. Any such change could affect the validity of this discussion. In
addition, the implementation of certain aspects of the PFIC rules requires the
issuance of regulations which in many instances have not been promulgated and
which may have retroactive effect. There can be no assurance that any of these
proposals will be enacted or promulgated, and if so, the form they will take or
the effect that they may have on this discussion. Accordingly, and due to the
complexity of the PFIC rules, U.S. Holders of the Company are strongly urged to
consult their own tax advisors concerning the impact of these rules on their
investment in the Company.

|F. | Dividends and Paying Agents
|-- | ---------------------------

Not applicable.

|G. | Statement by Experts
|-- | --------------------

Not applicable.

|H. | Documents on Display
|-- | --------------------

Documents concerning the Company which are referred to in this
annual report may be inspected in the head office of the Company at 999 Canada
Place, World Trade Centre, Suite 404, Vancouver, British Columbia, V6C 3E2 or at
the registered office of the Company at Suite 1500-1055 West Georgia Street,
Vancouver B.C., Canada. Copies of the Companys continuous disclosure documents
may also be viewed at www.sedar.comand on the
SEC website at www.sec.gov.

|I. | Subsidiary information
|-- | ----------------------

As of January 29, 2008 the Company has three wholly-owned
subsidiaries:

36

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|1. | DLJ, organized pursuant to the laws of Canada;                                           
|-- | -----------------------------------------------------------------------------------------
|2. | Orient Petroleum (NZ) Limited, organized pursuant to the
      laws of New Zealand; and  
|3. | Orient Petroleum (PNG) Limited, organized pursuant to the
      laws of Papua New Guinea.

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

We are currently not subject to any material market risks.

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

Not applicable.

PART II

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

None.

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

Not applicable.

|ITEM 15. | CONTROLS AND PROCEDURES
|-------- | -----------------------

As required by Rule 13a-15 under the Exchange Act, the Company
carried out an evaluation of the effectiveness of the design and operation of
the Companys disclosure controls and procedures as of July 31, 2007, the latest
completed fiscal year. This evaluation was carried out under the supervision and
with the participation of the Companys Chief Executive Officer, Peter Loretto,
and the Companys Chief Financial Officer, Barry MacNeil. Based upon that
evaluation, the Companys Chief Executive Officer and Chief Financial Officer
concluded that the Companys disclosure controls and procedures are effective in
timely alerting management to material information relating to the Company
required to be included in the Companys periodic SEC filings.

Disclosure controls and procedures are controls and other
procedures that are designed to ensure that information required to be disclosed
in the Companys reports that are filed or submitted under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the SECs rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in the Companys reports filed under the Exchange Act
is accumulated and communicated to management, including the Companys Chief
Executive Officer and Chief Financial Officer, to allow timely decisions
regarding required disclosure.

During the Companys most recently completed fiscal year ended
July 31, 2007, there were no changes in the Companys internal control over
financial reporting that have materially affected, or are reasonably likely to
affect, its internal control over financial reporting.

The term internal control over financial reporting is defined
as a process designed by, or under the supervision of, the Companys principal
executive and principal financial officers, or persons performing similar
functions, and effected by the Board, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles and includes those policies and
procedures that:

|(1) | Pertain to the maintenance of records that in reasonable
      detail accurately and fairly reflect the transactions and dispositions of
      the assets of the Company;
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

37

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|(2) | Provide reasonable assurance that transactions are
      recorded as necessary to permit preparation of financial statements in
      accordance with generally accepted accounting principles, and that
      receipts and expenditures of the Company are being made only in accordance
      with authorizations of management and directors of the Company;
  and
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                      
|(3) | Provide reasonable assurance regarding prevention or
      timely detection of unauthorized acquisition, use or disposition of the
      Companys assets that could have a material effect on the financial
      statements.                                                                                                                                       

|ITEM 16. | AUDIT COMMITTEE, CODE OF ETHICS, ACCOUNTANTS
      FEES
|-------- | -------------------------------------------------------

|A. | Audit Committee Financial Expert
|-- | --------------------------------

The Company has an audit committee comprised of Peter Loretto,
David Bennett and Michael Hart. Our Board has determined that Mr. Loretto is an
audit committee financial expert and is not independent as defined in the
listing standards of the American Stock Exchange.

|B. | Code of Ethics
|-- | --------------

We have adopted a code of ethics that applies to the Chief
Executive Officer and the Chief Financial Officer, as well as to all other
employees. A copy of our code of ethics is may be requested, free of charge,
from the head office of the Company at 999 Canada Place, World Trade Centre,
Suite 404, Vancouver, British Columbia, V6C 3E2, Attention: Investor Relations.
In addition, the Code of Ethics has been filed as an exhibit to our Annual
Report on Form 20-K filed with the SEC on January 31, 2005.

|C. | Principal Accountant Fees and Services
|-- | --------------------------------------

Principal Accountant Service
    For the fiscal year ended July
      31, 2007 (CDN$)
    For the fiscal year ended July
      31, 2006 (CDN$)Audit Fees (1)
    $14,500
    $12,000Audit Related Fees
      (2)
    -
    -Tax Fees (3)
    $1,400
    $1,500All Other Fees (4)
    -
    -


|(1) | Audit Fees include fees necessary to perform the annual
      audit and quarterly reviews of the Companys consolidated financial
      statements and include both the fees of the Companys principal auditor,
      De Visser Gray LLP. Audit fees also include fees for review of tax
      provisions and for accounting consultations on matters reflected in the
      financial statements. Audit Fees also include audit or other attest
      services required by legislation or regulation, such as comfort letters,
      consents, reviews of securities filings and statutory audits.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Audit-Related Fees include services that are
      traditionally performed by the auditor. These audit-related services
      include employee benefit audits, due diligence assistance, accounting
      consultations on proposed transactions, internal control reviews and audit
      or attest services not required by legislation or regulation.                                                                                                                                                                                                                                            
|(3) | Tax Fees include fees for all tax services other than
      those included in Audit Fees and Audit-Related Fees. This category
      includes fees for tax compliance, tax planning and tax advice. Tax
      planning and tax advice includes assistance with tax audits and appeals,
      tax advice related to mergers and acquisitions, and requests for rulings
      or technical advice from tax authorities.                                                                                                                                                                           
|(4) | All Other Fees include all other non-audit
    services.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

The nature of the services provided by De Visser Gray LLP under
each of the categories indicated in the table is described below.

Pre-Approval Policies and Procedures

The Companys Audit Committee must approve all audit and
non-audit related fees. The Audit Committee has pre-approved specifically
identified non-audit related services, including tax compliance, review of tax
returns, documentation of processes and controls as submitted to the Audited
Committee from time to time. The Auditors

38

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also present the estimate for the annual audit related services
to the committee for approval prior to undertaking the annual audit of the
financial statements.

|D. | Exemptions from the Listing Standards for
      Audit Committees
|-- | ----------------------------------------------------------------

Not applicable.

|E. | Purchases of Equity Securities by the Issuer
      and Affiliated Purchasers
|-- | ----------------------------------------------------------------------------

Not applicable.

PART III

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

The audited annual consolidated financial statements of the
Company for the fiscal years ended July 31, 2007, 2006 and 2005 are included in
this annual report.

INDEX TO FINANCIAL STATEMENTS

PageAuditors
      Report
    40Consolidated
      Balance Sheets
    41Consolidated
      Statements of Operations and Deficit
    42Consolidated
      Schedules of General and Administrative Expenses
    43Consolidated
      Statements of Cash Flows
    44Notes
      to the Consolidated Financial Statements
    45


The financial statements and Report of the independent Auditors
are filed as part of the Companys Annual Report.

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

Not applicable.

39

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D E V I S S E R G R A
YCHARTERED ACCOUNTANTS

|401 - 905 West Pender Street
|----------------------------
|Vancouver, BC Canada        
|V6C 1L6                     
|                            
|Tel: (604) 687-5447         
|Fax: (604) 687-6737         

AUDITORS' REPORT

To the Shareholders of Trans-Orient Petroleum Ltd.

We have audited the consolidated balance sheets of Trans-Orient
Petroleum Ltd. as at July 31, 2007 and 2006 and the consolidated statements of
operations and deficit and cash flows for each of the years in the three year
period ended July 31, 2007. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted
auditing standards (GAAS) in Canada and the standards of the Public Company
Accounting Oversight Board (PCAOB) (United States). Those standards require
that we plan and perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present
fairly, in all material respects, the financial position of the Company as at
July 31, 2007 and 2006 and the results of its operations and its cash flows for
each of the years in the three year period ended July 31, 2007 in accordance
with generally accepted accounting principles in Canada.

De Visser Gray LLPCHARTERED ACCOUNTANTS

Vancouver, British Columbia, Canada November 7, 2007

|  
|--
|40

---

|                                    
|------------------------------------
|Consolidated Balance Sheets         
|(Expressed in United States Dollars)

|As at July 31,                                   |   | 2007        |   |   | 2006        |  
|------------------------------------------------ | - | ----------- | - | - | ----------- | -
|Assets                                           |   |             |   |   |             |  
|Current                                          |   |             |   |   |             |  
|Cash and cash equivalents                        | $ | 8,499,720   |   | $ | 451,969     |  
|Accounts receivable                              |   | 44,098      |   |   | 27,809      |  
|Prepaid expenses                                 |   | 7,600       |   |   | 4,971       |  
|                                                 |   | 8,551,418   |   |   | 484,749     |  
|Restricted cash (Note 8)                         |   | 59,828      |   |   | 42,174      |  
|Investments (Note 3)                             |   | 3,514,572   |   |   | 2,304,811   |  
|Property and equipment (Note 4)                  |   | 292,618     |   |   | 83,887      |  
|Total
      Assets                               | $ | 12,418,436  |   | $ | 2,915,621   |  
|Liabilities                                      |   |             |   |   |             |  
|Current                                          |   |             |   |   |             |  
|Accounts payable and accrued liabilities         | $ | 65,808      |   | $ | 12,406      |  
|Total
      Liabilities                          |   | 65,808      |   |   | 12,406      |  
|Shareholders Equity                             |   |             |   |   |             |  
|Share capital (Note 7)                           |   | 23,655,325  |   |   | 13,175,075  |  
|Contributed surplus (Note 7)                     |   | 63,973      |   |   | -           |  
|Deficit                                          |   | (11,366,670 | ) |   | (10,271,860 | )
|Total Shareholders Equity                       |   | 12,352,628  |   |   | 2,903,215   |  
|Total
      Liabilities and Shareholders Equity | $ | 12,418,436  |   | $ | 2,915,621   |  

Continuance of Operations (Note 1)

Approved on behalf of the Board of Directors:

|/s/ Peter
      Loretto |  | /s/
      Barry MacNeil
|----------------------- |  | -----------------------
|Director                |  | Director               

|See accompanying notes to the consolidated financial
      statements
|---------------------------------------------------------------------
|                                                                     
|                                                                     
|41                                                                   

---

|                                                 
|-------------------------------------------------
|Consolidated Statements of Operations and Deficit
|(Expressed in United States Dollars)             

|For the years ended July 31,                                |   | 2007        |   |   | 2006        |   |   | 2005        |  
|----------------------------------------------------------- | - | ----------- | - | - | ----------- | - | - | ----------- | -
|Expenses                                                    |   |             |   |   |             |   |   |             |  
|General and administrative (Schedule)                       | $ | 557,980     |   | $ | 305,173     |   | $ | 168,957     |  
|Foreign exchange                                            |   | 5,400       |   |   | (1,987      | ) |   | (67,560     | )
|Amortization                                                |   | 5,144       |   |   | 5,564       |   |   | 4,360       |  
|Loss before other items                                     |   | (568,524    | ) |   | (308,750    | ) |   | (105,757    | )
|Other Items:                                                |   |             |   |   |             |   |   |             |  
|Interest income                                             |   | 292,289     |   |   | 13,848      |   |   | 1,896       |  
|Gain on sale of investments (Note 3)                        |   | 1,580       |   |   | 774,664     |   |   | 1,214,319   |  
|Loss on sale of common stock held by
      subsidiary       |   | -           |   |   | -           |   |   | (8,685      | )
|Recovery of loan receivable previously written-off (Note 6) |   | 102,842     |   |   | 32,324      |   |   | 29,004      |  
|Stock option compensation                                   |   | (63,973     | ) |   | -           |   |   | -           |  
|Write-down of investments                                   |   | (859,024    | ) |   | (136,262    | ) |   | -           |  
|Write-off of oil and gas interest (Note 3)                  |   | -           |   |   | -           |   |   | (1          | )
|(Loss) income from operations                               |   | (1,094,810  | ) |   | 375,824     |   |   | 1,130,776   |  
|Non-controlling interests portion of AMGs loss            |   | -           |   |   | 5,782       |   |   | 11,470      |  
|Net (loss) income for the year                              |   | (1,094,810  | ) |   | 381,606     |   |   | 1,142,246   |  
|Deficit  Beginning of year                                 |   | (10,271,860 | ) |   | (10,653,466 | ) |   | (11,795,712 | )
|Deficit  End
      of year                                 | $ | (11,366,670 | ) | $ | (10,271,860 | ) | $ | (10,653,466 | )
|(Loss) income per share - basic                             |   | ($ 0.03     | ) | $ | 0.02        |   | $ | 0.06        |  
|- diluted                                                   |   | -           |   | $ | 0.02        |   | $ | 0.06        |  
|Weighted-average number of common shares
      outstanding  |   | 32,645,125  |   |   | 17,618,083  |   |   | 17,618,083  |  

|See accompanying notes to the consolidated financial
      statements
|---------------------------------------------------------------------
|                                                                     
|                                                                     
|42                                                                   

---

|                                                                   
|-------------------------------------------------------------------
|Consolidated Schedules of General and Administrative
      Expenses
|(Expressed in United States Dollars)                               

|For the years ended July 31,        |   | 2007    |  |   | 2006    |  |   | 2005    | 
|----------------------------------- | - | ------- |  | - | ------- |  | - | ------- | 
|                                    |   |         |  |   |         |  |   |         | 
|General and Administrative Expenses |   |         |  |   |         |  |   |         | 
|                                    |   |         |  |   |         |  |   |         | 
|Accounting and audit                | $ | 19,531  |  | $ | 18,773  |  | $ | 13,935  | 
|Consulting fees                     |   | 32,030  |  |   | 11,852  |  |   | -       | 
|Corporate relations and development |   | 131,663 |  |   | 25,210  |  |   | -       | 
|Directors fees                      |   | 60,204  |  |   | 58,054  |  |   | 20,509  | 
|Filing and transfer agency fees     |   | 24,948  |  |   | 24,976  |  |   | 20,630  | 
|Legal                               |   | 24,913  |  |   | 31,110  |  |   | 12,387  | 
|Office, rent and miscellaneous      |   | 76,951  |  |   | 50,824  |  |   | 41,401  | 
|Printing                            |   | 8,003   |  |   | 12,415  |  |   | 5,913   | 
|Sproule report                      |   | 58,807  |  |   | -       |  |   | -       | 
|Travel, promotion and accommodation |   | 71,752  |  |   | 31,147  |  |   | 22,115  | 
|Wages and benefits                  |   | 49,178  |  |   | 40,812  |  |   | 32,067  | 
|                                    |   |         |  |   |         |  |   |         | 
|                                    | $ | 557,980 |  | $ | 305,173 |  | $ | 168,957 | 

|See accompanying notes to the consolidated financial
      statements
|---------------------------------------------------------------------
|                                                                     
|                                                                     
|43                                                                   

---

|                                     
|-------------------------------------
|Consolidated Statements of Cash Flows
|(Expressed in United States Dollars) 

|For the years ended July 31,                                |   | 2007       |   |   | 2006      |   |   | 2005       |  
|----------------------------------------------------------- | - | ---------- | - | - | --------- | - | - | ---------- | -
|                                                            |   |            |   |   |           |   |   |            |  
|Net increase of cash related to the
      following:        |   |            |   |   |           |   |   |            |  
|                                                            |   |            |   |   |           |   |   |            |  
|Operating Activities                                        |   |            |   |   |           |   |   |            |  
|Net (loss) income for the year                              | $ | (1,094,810 | ) | $ | 381,606   |   | $ | 1,142,246  |  
|Items not affecting cash:                                   |   |            |   |   |           |   |   |            |  
|Amortization                                                |   | 5,144      |   |   | 5,564     |   |   | 4,360      |  
|Gain on sale of investment                                  |   | (1,580     | ) |   | (778,423  | ) |   | (1,218,319 | )
|Loss on sale of investment                                  |   | -          |   |   | 3,759     |   |   | 4,000      |  
|Loss on sale of common stock held by
      subsidiary       |   | -          |   |   | -         |   |   | 8,685      |  
|Non-controlling interest                                    |   | -          |   |   | (5,782    | ) |   | (11,470    | )
|Stock option compensation                                   |   | 63,973     |   |   | -         |   |   | -          |  
|Write-down of investment                                    |   | 859,024    |   |   | 136,261   |   |   | -          |  
|Write-off of oil and gas interest                           |   | -          |   |   | 1         |   |   | 1          |  
|Changes in non-cash working capital items:                  |   |            |   |   |           |   |   |            |  
|Accounts payable and accrued
      liabilities              |   | 53,402     |   |   | 12,331    |   |   | 518        |  
|Accounts receivable                                         |   | (16,289    | ) |   | (16,994   | ) |   | (2,488     | )
|Prepaid expenses                                            |   | (2,629     | ) |   | (4,971    | ) |   | 2,698      |  
|Net cash used for
      operating activities                |   | (133,765   | ) |   | (266,648  | ) |   | (69,769    | )
|                                                            |   |            |   |   |           |   |   |            |  
|Financing Activities                                        |   |            |   |   |           |   |   |            |  
|Restricted cash                                             |   | (17,654    | ) |   | (6,005    | ) |   | (5,030     | )
|Common stock
      issued for cash                          |   | 10,480,250 |   |   | -         |   |   | -          |  
|Net cash provided by (used for) financing activities        |   | 10,462,596 |   |   | (6,005    | ) |   | (5,030     | )
|                                                            |   |            |   |   |           |   |   |            |  
|Investing Activities                                        |   |            |   |   |           |   |   |            |  
|Proceeds from sales of investments                          |   | 3,980      |   |   | 1,349,517 |   |   | 2,222,479  |  
|Proceeds from sale of common stock held by
      subsidiary |   | -          |   |   | -         |   |   | 3,308      |  
|Purchases of investments                                    |   | (2,071,185 | ) |   | (800,000  | ) |   | (2,029,393 | )
|Purchases of property and equipment                         |   | (213,875   | ) |   | (4,135    | ) |   | -          |  
|Net cash provided
      by (used for) investing activities  |   | (2,281,080 | ) |   | 545,382   |   |   | 196,394    |  
|                                                            |   |            |   |   |           |   |   |            |  
|Cash of AMG Oil
      upon deconsolidation                  |   | -          |   |   | (11,377   | ) |   | -          |  
|                                                            |   |            |   |   |           |   |   |            |  
|Net increase in cash                                        |   | 8,047,751  |   |   | 261,352   |   |   | 121,595    |  
|Cash - Beginning of year                                    |   | 451,969    |   |   | 190,617   |   |   | 69,022     |  
|Cash - End of
      year                                    | $ | 8,499,720  |   | $ | 451,969   |   | $ | 190,617    |  

|See accompanying notes to the consolidated financial
      statements
|---------------------------------------------------------------------
|                                                                     
|                                                                     
|44                                                                   

---

|                                                
|------------------------------------------------
|Notes to the Consolidated Financial Statements  
|(Expressed in
      United States Dollars)      
|                                                
|For the Years
      Ended July 31, 2007 and 2006

NOTE 1 - NATURE AND CONTINUANCE OF OPERATIONS

Trans-Orient Petroleum Ltd. (the
Company) is incorporated under the Business Corporations Act (British
Columbia) and the Companys operating strategy is now focused on its 100%
interests in two lightly explored permits (PEP 38348 and PEP 38349) that consist
of 2,163,902 net acres of land located in New Zealands East Coast Basin.

The Companys consolidated financial
statements are presented on a going concern basis, which assumes that the
Company will continue to realize its assets and discharge its liabilities in the
normal course of operations. However, the Company does not generate sufficient
cash flow from operations to adequately fund its activities and has therefore
relied principally upon the issuance of securities for financing. Future capital
requirements will depend on many factors including the Company's ability to
execute its business plan. The Company intends to continue relying upon the
issuance of securities to finance its future activities but there can be no
assurance that such financing will be available on a timely basis under terms
acceptable to the Company. Although these consolidated financial statements do
not include any adjustments that may result from the inability to secure future
financing, such a situation would have a material adverse effect on the
Companys business, results of operations and financial condition.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

|a) | Accounting principles and use of
  estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | These financial statements are prepared in conformity
      with Canadian generally accepted accounting principles (GAAP), which
      require the Companys management to make informed judgments and estimates
      that affect the reported amounts of assets and liabilities and disclosures
      of contingent assets and liabilities at the date of the financial
      statements and the reported amounts of revenues and expenses during the
      fiscal year. Significant estimates include, but are not limited to, the
      determination of the net recoverable value of assets and income taxes. The
      Companys investments are also items that, due to expected market volume
      and price fluctuation may yield net realizable values that are materially
      different from their current carrying values at any point in time. Actual
      results could differ from these estimates.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Material differences between Canadian and United States
      generally accepted accounting principles, applicable to the Companys
      financial statements, are described in note 11.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|b) | Basis of consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | These consolidated financial statements include the
      accounts of the Company, and its wholly-owned subsidiaries, Orient
      Petroleum (NZ) Limited, Orient Petroleum (PNG) Limited and DLJ Management
      Corp. The Company consolidates its financial statements with those of its
      subsidiaries in which it has a controlling interest. Should restrictions
      be placed on any foreign subsidiary that prevents the Company from
      exercising effective control, the Companys investment in that subsidiary
      shall be accounted for using the cost basis. All significant inter-company
      balances and transactions have been eliminated.                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|c) | Principles of accounting for investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The Companys investments are accounted for using either
      the equity method or cost method of accounting. The equity method is used
      when the Company, through its level of investment, exercises significant
      influence over the investee. The cost method of accounting is applied to
      investments in Companies over which the Company does not exercise
      significant influence.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

45

---

|   | The Companys investments are recorded at cost and are
      considered to be non-current as the Company intends to hold them for a
      period of greater than one year. The aggregate carrying cost is adjusted
      to fair value, where determinable, only if there is an
      other-than-temporary decline in value. Refer to note 3.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|d) | Translation of foreign currencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Transactions of the Company and its subsidiaries
      originating in foreign currencies are translated into U.S. dollars at the
      rates prevailing on the dates of the transactions. Monetary assets and
      liabilities are translated at the year-end rates of exchange and
      non-monetary items are translated at historical exchange rates applicable
      to the underlying transactions. The resulting net gain or loss is included
      in the consolidated statements of operations and deficit.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|e) | Fair value of financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The Company's financial instruments consist of current
      assets and current liabilities. The fair values of the current assets and
      liabilities approximate the carrying amounts due to the short-term nature
      of these instruments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|f) | Cash and Cash Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Cash and cash equivalents include term investments with
      maturities of one year or less, together with accrued interest thereon,
      which are readily convertible to known amounts of cash.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|g) | Property and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The Company follows the full cost method of accounting
      for oil and gas properties whereby all costs relating to the acquisition,
      exploration, and development of oil and gas properties and equipment are
      capitalized and accumulated in cost centres by country. Such costs include
      lease acquisition costs, geological and geophysical expenditures, lease
      rentals, seismic and costs of drilling productive and non-productive
      wells, together with overhead expenses related to acquisition, exploration
      and development activities. The costs in cost centres from which there has
      been no commercial production are not subject to depletion until
      commercial production commences. Depletion is calculated using costs of
      acquisition, exploration and development using the unit-of production
      method. An assessment is performed at every reporting date to determine
      whether the aggregate net costs in each pre-development stage cost centre
      are recoverable. Costs which are unlikely to be recovered are written-off.
      Oil and gas properties for which there has been commercial production, are
      subject to a ceiling test in each reporting period to determine that the
      costs are recoverable and do not exceed the fair value of the properties.
      The costs are assessed to be recoverable if the sum of the undiscounted
      cash flows expected from the production of proved reserves and the lower
      of cost and market of unproved properties exceed the carrying values of
      the oil and gas properties. If the carrying value of the oil and gas
      properties is not assessed to be recoverable, an impairment loss is
      recognized to the extent that the carrying value exceeds an estimated fair
      value. The fair value estimate is normally based on the sum of the
      discounted cash flows expected from production of proved and probable
      reserves and the lower of cost and market of unproved properties. The cash
      flows are estimated using forecast product prices and costs are discounted
      using a risk-free interest rate.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Furniture, office and computer equipment is recorded at
      cost less accumulated amortization. Amortization is provided for over its
      estimated useful life on a declining-balance basis at rates between 20%
      and 30%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|h) | Basic and diluted net income (loss) per common
      share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Basic net income per common share is calculated by
      dividing the net income by the weighted average number of common shares
      outstanding, during the year. In years where a net loss is incurred,
      diluted net loss per common share is not calculated as its effect on net
      loss per share is anti-dilutive.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|i) | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The Company accounts for and measures future tax assets
      and liabilities for future tax consequences attributable to differences
      between the financial statement carrying amounts of existing assets and
      liabilities and their respective tax bases. Future tax assets and
      liabilities are measured using the enacted or substantively-enacted
    tax                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

46

---

|   | rates expected to apply to taxable income in the years in
      which those temporary differences are expected to be recovered or settled.
      The effect on future tax assets and liabilities of a change in tax rates
      is recognized in income in the period that includes the date of the
      enactment or substantive enactment of the change. When the future
      realization of income tax assets does not meet the test of being more
      likely than not to occur, a valuation allowance in the amount of potential
      future benefit is taken and no asset is recognized. Such an allowance
      would apply fully to all potential future tax assets of the
  Company.                                                                                                                                                                                                                                                                                                                        
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The Companys accounting policy for future income taxes
      currently has no effect on the financial statements of any of the fiscal
      years presented.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|j) | Share capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Common shares issued for non-monetary consideration are
      recorded at their fair market value based upon the lower of the trading
      price of the Companys shares on the OTC Bulletin Board on the date of the
      agreement to issue shares and the date of share issuance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|k) | Asset Retirement Obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Effective July 31, 2003, the Company has adopted
      retroactively the Canadian Institute of Chartered Accountants new
      standard on Asset Retirement Obligations. The Company recognizes the fair
      value of an Asset Retirement Obligation (ARO) in the period in which it
      is incurred when a reasonable estimate of the fair value can be made. The
      fair value is determined through a review of engineering studies, industry
      guidelines and managements estimate on a site-by-site basis. The fair
      value of the ARO is recorded as a liability, with a corresponding increase
      in the amount of the related asset. The capitalized amount is depleted on
      the unit-of-production method based on proven reserves. The liability
      amount of accretion is expensed in the period. Actual costs incurred upon
      the settlement of the ARO are charged against the liability. At July 31,
      2007 the Company does not have any asset retirement obligations.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|l) | Comparative figures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Certain of the prior years figures have been
      reclassified to conform with the current years financial statement
      presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|m) | Cash and Cash Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Cash and cash equivalents include term investments with
      maturities of one year or less, together with accrued interest thereon,
      which are readily convertible to known amounts of cash.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|n) | Stock-based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | All stock option based grants are measured and recognized
      in the consolidated financial statements using a fair value based method.
      Fair value is measured using the Black-Scholes option-pricing model and
      the compensation cost is amortized over the vesting period. The Company
      measures compensation expense if the options are changed or modified.
      Consideration received upon the exercise of stock options together with
      the amount of non-cash compensation expense recognized in contributed
      surplus is recorded as share capital.                                                                                                                                                                                                                                                                                                                                                                                                                                  

47

---

NOTE 3 - INVESTMENTS

At July 31, 2007, the Companys ownership interests in
investments are accounted for under the cost method of accounting as
follows:

|                            |  |             |  |   | July 31,  |  |   | July 31,  |  |  |               | 
|--------------------------- |  | ----------- |  | - | --------- |  | - | --------- |  |  | ------------- | 
|                            |  | Number of   |  |   | 2007      |  |   | 2007      |  |  |               | 
|                            |  | Common      |  |   | Carrying  |  |   | Fair      |  |  | Percentage of | 
|                            |  | Shares Held |  |   | Value     |  |   | Value     |  |  | Ownership/    | 
|                            |  |             |  |   |           |  |   |           |  |  |               | 
|AMG Oil Ltd.                |  | 826,431     |  | $ | 1         |  | $ | 429,744   |  |  | 3.56%         | 
|Austral Pacific Energy Ltd. |  | 3,110,240   |  |   | 3,514,571 |  |   | 4,167,722 |  |  | 10.18%        | 
|                            |  |             |  |   |           |  |   |           |  |  |               | 
|                            |  |             |  | $ | 3,514,572 |  | $ | 4,597,466 |  |  |               | 

At July 31, 2006, the Companys ownership interests in
investments are accounted for under the cost method of accounting as
follows:

|                            |  |             |  |   | July 31,  |  |   | July 31,  |  |  |               | 
|--------------------------- |  | ----------- |  | - | --------- |  | - | --------- |  |  | ------------- | 
|                            |  | Number of   |  |   | 2006      |  |   | 2006      |  |  |               | 
|                            |  | Common      |  |   | Carrying  |  |   | Fair      |  |  | Percentage of | 
|                            |  | Shares Held |  |   | Value     |  |   | Value     |  |  | Ownership/    | 
|AMG Oil Ltd.                |  | 826,431     |  | $ | 1         |  | $ | 388,423   |  |  | 3.66%         | 
|Austral Pacific Energy Ltd. |  | 1,534,940   |  |   | 2,302,410 |  |   | 2,302,410 |  |  | 6.75%         | 
|Gondwana Energy, Ltd.       |  | 3,999       |  |   | 2,400     |  |   | 2,400     |  |  | 0.02%         | 
|                            |  |             |  | $ | 2,304,811 |  | $ | 2,693,233 |  |  |               | 

Pending change in accounting policy for Financial
Instruments:

Pursuant to new Canadian accounting standards that will be
adopted in the Companys 2008 fiscal year, the Company will have to designate
each of its financial instruments held in certain categories, with the
implication to these financial statements that its investments held will be
carried at their current market values. This change is expected to bring the
Companys accounting treatment for investments into congruence with the U.S.
GAAP treatment disclosed at Note 11 (a).

During the 2007 fiscal year the Company:

|a) | Participated in a private placement financing with
      Austral Pacific Energy Ltd. (Austral Pacific), acquiring 1,395,000
      shares of Austral Pacific at a price of US$1.30 per share. The Company
      also acquired 180,300 shares of Austral Pacific in the market at prices
      averaging approximately $1.42. As a result of these acquisitions the
      Company owns 3,110,240 shares of Austral Pacific (a 10.18% interest) at
      July 31, 2007.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|b) | Wrote-down its investment in Austral Pacific by $859,024
      based on a decline in the market value of the shares of Austral Pacific
      during the third quarter of the 2007 fiscal year.                                                                                                                                                                                                                                                                        

During the 2006 fiscal year the Company:

|a) | Sold 7,373,569 common shares of AMG Oil Ltd. (AMG) for
      aggregate proceeds of $133,695. These dispositions resulted in the
      Companys effective loss of control of AMG, the accounts of which were,
      until that time, consolidated with those of the Company. At the date of
      loss of control, the Companys net investment in the accounts of AMG was
      comprised of a non-controlling interest in excess of net working capital
      in the amount of $3,147. Accordingly a net gain of $136,842 has been
      recognized currently and the Companys residual investment in common
      shares of AMG is carried at a cost of $1.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|b) | Sold 50,000 shares of Austral Pacific with a book value
      of $78,000 for proceeds of $74,241 resulting in a loss of
  $3,759.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

48

---

|c) | Participated in a private placement in Austral Pacific
      Energy Ltd. The Company purchased 200,000 units at US$2.50 per unit. Each
      unit consists of one share and one half of one share purchase warrant,
      with each warrant entitling the Company to purchase one common share at a
      price of US$3.50 per share for one year subject to an accelerated expiry
      if a trigger price of US$4.50 is reached in the first twelve months from
      the issue date. The warrants subsequently expired as they were not
      exercised.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|d) | Sold 1,000,000 shares of TAG Oil with a book value of
      $500,000 for proceeds of $1,141,581, for a gain over book value of
      $641,581. The Company acquired these shares by participating in a private
      placement, purchasing 500,000 units, at $0.40 per unit in the 2005 fiscal
      year with each unit consisting of one share and one share purchase
      warrant. The warrants were then exercised during the 2006 fiscal year at a
      price of US$0.60 per share.                                                                 

NOTE 4 - PROPERTY AND EQUIPMENT

Property and equipment are comprised as follows:

|                       |  |          |  |   |                     |  |   |            |  |   |                   |   |   | Net Book | 
|---------------------- |  | -------- |  | - | ------------------- |  | - | ---------- |  | - | ----------------- | - | - | -------- | 
|                       |  | Working  |  |   | Net Book            |  |   | Additions  |  |   | Depreciation/     |   |   | Value at | 
|                       |  | Interest |  |   | Value at            |  |   | During the |  |   | Write-offs        |   |   | July 31, | 
|                       |  | %        |  |   | July
      31, 2006 |  |   | Period     |  |   | During The Period |   |   | 2007     | 
|Oil and Gas Properties |  |          |  |   |                     |  |   |            |  |   |                   |   |   |          | 
|Unproved               |  |          |  |   |                     |  |   |            |  |   |                   |   |   |          | 
|New Zealand:           |  |          |  |   |                     |  |   |            |  |   |                   |   |   |          | 
|PEP 38348              |  | 100      |  | $ | -                   |  | $ | 67,792     |  | $ | -                 |   | $ | 67,792   | 
|PEP 38349              |  | 100      |  |   | -                   |  |   | 136,389    |  |   | -                 |   |   | 136,389  | 
|                       |  |          |  |   | -                   |  |   | 204,181    |  |   | -                 |   |   | 204,181  | 
|Other:                 |  |          |  |   |                     |  |   |            |  |   |                   |   |   |          | 
|Apartment and office   |  |          |  |   |                     |  |   |            |  |   |                   |   |   |          | 
|equipment              |  |          |  |   | 83,887              |  |   | 9,694      |  |   | (5,144            | ) |   | 88,437   | 
|                       |  |          |  | $ | 83,887              |  | $ | 213,875    |  | $ | (5,144            | ) | $ | 292,618  | 

On November 8, 2006, the Company was awarded 100% interests in
two onshore petroleum exploration permits, PEP 38348 and 38349, located in the
East Coast Basin of New Zealand totalling 2,163,902 acres.

NOTE 5 - RELATED PARTY TRANSACTIONS

The Company is of the view that the amounts incurred for
services provided by related parties approximates what the Company would incur
to non-arms length parties for the same services.

Consulting Agreement

On August 23, 2006, the Company appointed David Bennett, Ph.D.,
as a Director and subsequently appointed Dr. Bennett to the audit committee. On
September 1, 2006 the Company entered into a consulting agreement with Dr.
Bennett for one year with monthly compensation of $5,000 and granted a gross
overriding royalty of 0.5% on PEP 38348 and 38349. In addition, under the terms
set forth in the consulting agreement, Dr. Bennett was granted 200,000 options
that vest over two years and are exercisable at a price of $1.00 for a period of
five years from the date of the grant. Beginning January 1, 2007, Dr. Bennetts
compensation increased to $10,000 per month.

On April 1, 2007, the Company extended for one year the
Consulting Agreement entered into during the 2005 fiscal year with a private
company wholly-owned by the Companys President to provide executive services to
the Company. The agreement includes monthly compensation of $5,000.

49

---

NOTE 6  LOAN RECEIVABLE

Subsequent to a write-off, in the 2001 fiscal year, of a loan
of $517,115 made to Verida Internet Corp. (Verida), the Company negotiated a
loan repayment schedule with Verida allowing the Company to receive monthly
payments of approximately CAD$15,170. This repayment schedule was revised with
an effective date of April 1, 2003 whereby the Company was entitled to receive
CAD$3,000 per month including annual interest of 12%, over a period of five
years unless paid in full including principal and accrued interest, prior to
April 1, 2008.

During the 2007 fiscal year, the Company received CAD$115,800
(July 31, 2006 - $32,324) that included a final lump sum payment of CAD$109,800,
relating to the remaining principal and interest owed to the Company under the
loan agreement.

NOTE 7 - SHARE CAPITAL

|a) | Authorized and Issued Share Capital                                                                                  
|-- | ---------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                      
|   | The authorized share capital of the Company consists of
      an unlimited number of common shares without par
value.

| |                          |  | Number          |  |   |            |  |   | Contributed | 
| | ------------------------ |  | --------------- |  | - | ---------- |  | - | ----------- | 
| | Issued and fully paid:   |  | of
      Shares |  |   | Amount     |  |   | Surplus     | 
| |                          |  |                 |  |   |            |  |   |             | 
| | Balance at July 31, 2005 |  | 2,516,869       |  | $ | 13,175,075 |  | $ | -           | 
| | Share Split (1:7)        |  | 15,101,214      |  |   | -          |  |   | -           | 
| | Balance at July 31, 2006 |  | 17,618,083      |  | $ | 13,175,075 |  | $ | -           | 
| | Private Placement        |  | 12,972,142      |  |   | 4,540,250  |  |   | -           | 
| | Private Placement        |  | 5,905,000       |  |   | 5,905,000  |  |   | -           | 
| | Warrants exercised       |  | 50,000          |  |   | 35,000     |  |   | -           | 
| | Stock based compensation |  | -               |  |   | -          |  |   | 63,973      | 
| | Balance at July 31, 2007 |  | 36,545,225      |  | $ | 23,655,325 |  | $ | 63,973      | 

On January 17, 2007, the Company
completed a private placement financing for 5,905,000 units of the Company at a
purchase price of $1.00 per unit, for proceeds of $5,905,000. Each unit consists
of one common share and a half share purchase warrant, with each full warrant
entitling the holder to purchase an additional common share of the Company at a
price of $1.35 for a period of eighteen months. At the Companys option, and
after the applicable resale restricted period has expired, the warrants expiry
date can be accelerated on 30 days notice, should the Companys shares trade at
or higher than $1.75 for ten consecutive trading days.

On August 30, 2006, the Company
completed a private placement financing for 12,972,142 units of the Company at a
purchase price of $0.35 per unit, for proceeds of $4,540,250. Each unit consists
of one common share and one share purchase warrant. Each share purchase warrant
allows the holder to acquire an additional common share of the Company at a
price of $0.70 per share for two years from the closing date of the financing.
At the Companys option, and after the applicable resale restricted period has
expired, the warrants expiry date can be accelerated on 30 days notice, should
the Companys shares trade at or higher than $1.25 for ten consecutive trading
days.

At July 31, 2007, the following share purchase warrants are
outstanding:

Number
    
    Price
    
    
    Expiryof Shares
    
    per
      Share
    
    
    Date12,922,142
    
    US$0.70
    
    
    August 29, 20082,952,500
    
    US$1.35
    
    
    July 18, 200815,874,642


50

---

At July 31, 2007, the following stock options are
outstanding:

Number
    
    Price
    
    
    Expiryof
      Shares
    
    per
      Share
    
    
    Date200,000
    
    US$1.00
    
    
    September 1, 2011200,000
    
    US$0.70
    
    
    November 1, 2011400,000


During the year ended July 31, 2007, the Company calcualted
stock option compensation in connection with options granted by applying the
Black-Scholes option pricing model using the closing market prices on the grant
dates, a volatility ratio of 40% and the risk free interest rate of 7% to
calculate aggregate option compensation at the date of grant of $108,580. Option
compensation is recognized as options vest, with $63,973 so expensed in the 2007
fiscal year.

Refer to Note 5

NOTE 8  RESTRICTED CASH

The Company is required, in accordance with the Companys
credit card agreements, to provide security against the credit facility in the
form of cash and cash equivalents. As at July 31, 2007, this security amounted
to $59,828 (2006: $42,174).

NOTE 9 - COMMITMENTS AND CONTINGENCIES

The Company participates in oil and gas exploration operations
and is committed under agreements to complete certain exploration programs in
order to maintain its interests. The Companys management estimates that the
total commitments for fiscal 2008 relating to permits held at July 31, 2007 are
as follows:

|                     |  |                    |  |   | Work Commitment or | 
|-------------------- |  | ------------------ |  | - | ------------------ | 
|                     |  |                    |  |   | Obligation         | 
|Oil and Gas Property |  | Working Interest % |  |   | to July 31, 2008   | 
|PEP 38348            |  | 100                |  | $ | 480,000            | 
|PEP 38349            |  | 100                |  |   | 675,000            | 
|Total                |  |                    |  | $ | 1,155,000          | 

NOTE 10 - INCOME TAXES

A reconciliation of income taxes at statutory rates as
follows:

|                                                                             |   | 2007       |   |   | 2006     |  
|---------------------------------------------------------------------------- | - | ---------- | - | - | -------- | -
|                                                                             |   |            |   |   |          |  
|                                                                             |   |            |   |   |          |  
|Net income (loss) for the year                                               | $ | (1,094,810 | ) | $ | 381,606  |  
|                                                                             |   |            |   |   |          |  
|Expected income tax expense (recovery)                                       |   | (373,237   | ) |   | 129,691  |  
|Net adjustment for amortization, deductible and
      non-deductible amounts |   |            |   |   |          |  
|                                                                             |   | 322,053    |   |   | (456,089 | )
|Valuation allowance                                                          |   | 51,184     |   |   | 326,398  |  
|Total income taxes                                                           | $ | -          |   | $ | -        |  

51

---

The significant components of the Companys future income tax
assets are as follows:

|                                                                      |   | 2007       |   |   | 2006       |  
|--------------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|Future income tax assets:                                             |   |            |   |   |            |  
|Net resource property carrying amounts (in excess) of tax
      pools | $ | 1,065,235  |   | $ | 1,080,145  |  
|Property and equipment tax pool in excess
      of carrying value     |   | 43,252     |   |   | 48,990     |  
|Non-capital loss carryforwards                                        |   | 1,206,755  |   |   | 881,250    |  
|                                                                      |   | 2,315,242  |   |   | 2,010,385  |  
|Valuation allowance                                                   |   | (2,315,242 | ) |   | (2,010,385 | )
|Net future tax assets                                                 | $ | -          |   | $ | -          |  

The Company has non-capital losses of approximately CDN$3.5
million (2006 - CDN$2.4 million), which are available to reduce future taxable
income in Canada and which expire between 2007 and 2027. Subject to certain
restrictions the Company also has resource expenditures of approximately CDN$3.6
million (2005 - $3.6 million) available to reduce taxable income in future
years. Future tax benefits which may arise as a result of these losses and
resource deductions have not been recognized in these financial statements and
have been offset by a valuation allowance as noted above.

NOTE 11 - DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

These consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles (Canadian
GAAP) which conform in all material respects with United States generally
accepted accounting principles (U.S. GAAP) except for the following
differences:

CONSOLIDATED BALANCE SHEETS

| | a) | Investments                                                                                                                                                                                                                                                                                                                                                                      
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                  
| |    | Under Canadian GAAP, the Companys investments accounted
      for under the cost method of accounting are valued at the lower of cost or
      market value. Under U.S. GAAP, such investments are classified as
      available-for-sale securities and reported at market value, with
      unrealized gains and losses included as a component of comprehensive
      income.

| |                                           |   | July 31,  |  |   | July 31,   |  
| | ----------------------------------------- | - | --------- |  | - | ---------- | -
| |                                           |   | 2007      |  |   | 2006       |  
| | Investments under Canadian GAAP           | $ | 3,514,572 |  | $ | 2,304,811  |  
| | Adjustment required under U.S. GAAP       |   | 694,472   |  |   | (1,655,693 | )
| | Cumulative historical adjustments to date |   | 388,422   |  |   | 2,044,115  |  
| | Investments under U.S. GAAP               | $ | 4,597,466 |  | $ | 2,693,233  |  

Total assets under U.S. GAAP as at
July 31, 2007 and 2006 are $13,551,819 and $3,304,043, respectively.

| | b) | Stockholders Equity
| | -- | --------------------
| |    |                     
| |    | **i)**              

During the 2006 fiscal year, the
Company adopted, under Canadian GAAP, a policy to record the cost of stock
options granted to employees and consultants utilizing a fair value measurement
basis, a policy that is materially consistent with U.S. GAAP for stock-based
compensation as described in Statement of Accounting Standards 123 (SFAS 123).
However, in previous fiscal years, prior to the adoption of the fair value
measurement standard under Canadian GAAP, the Company was subject to the minimum
disclosure standards of SFAS 123 under U.S. GAAP, which required it to report,
on a pro-forma basis,

52

---

the effect of following a fair value
based method of measuring the value of stock options granted using the Black
Scholes, or similar, option pricing model.

In accordance with the mandatory
disclosure standard, the following are the pro-forma figures for common stock
had the Company used, from inception, a fair value-based method of accounting
for stock based compensation as described in SFAS 123:

| |                                                      |   | July 31,   |  |   | July 31,   | 
| | ---------------------------------------------------- | - | ---------- |  | - | ---------- | 
| |                                                      |   | 2007       |  |   | 2006       | 
| | Common stock under Canadian GAAP                     | $ | 23,655,325 |  | $ | 13,175,075 | 
| | Cumulative historical pro-forma adjustments to date  |   | 833,611    |  |   | 833,611    | 
| | Common stock under U.S. GAAP applying SFAS
      123 | $ | 24,488,936 |  | $ | 14,008,686 | 

There has been no difference to the
Companys net loss or loss per share as reported under Canadian GAAP when the
fair value based method of accounting defined in SFAS 123 had been applied, on a
pro-forma basis, to the 2007, 2006 or 2005 fiscal years.

| | ii) | Accumulated Deficit
| | --- | -------------------

The effects of Note 11(a) and (c) (i)
on accumulated deficit are as follows:

| |                                           |   | July 31,    |   |   | July 31,    |  
| | ----------------------------------------- | - | ----------- | - | - | ----------- | -
| |                                           |   | 2007        |   |   | 2006        |  
| |                                           |   |             |   |   |             |  
| | Deficit under Canadian GAAP               | $ | (11,366,670 | ) | $ | (10,271,860 | )
| | Cumulative historical adjustments to date |   | (833,611    | ) |   | (833,611    | )
| |                                           |   |             |   |   |             |  
| | Accumulated deficit under U.S. GAAP       | $ | (12,200,281 | ) | $ | (11,105,471 | )

| | iii) | Accumulated Other Comprehensive Income
| | ---- | --------------------------------------

The effects of Note 11(b) on
accumulated other comprehensive income are as follows:

| |                                           |   | July 31,  |  |   | July 31,   |  
| | ----------------------------------------- | - | --------- |  | - | ---------- | -
| |                                           |   | 2007      |  |   | 2006       |  
| | Accumulated other comprehensive           |   |           |  |   |            |  
| | income under Canadian GAAP                | $ | -         |  | $ | -          |  
| | Unrealized gain on investments            |   | 694,472   |  |   | (1,655,693 | )
| | Cumulative historical adjustments to date |   | 388,422   |  |   | 2,044,115  |  
| | Accumulated other comprehensive income    |   |           |  |   |            |  
| | under U.S. GAAP                           | $ | 1,082,894 |  | $ | 388,422    |  

As a result of these adjustments under
U.S. GAAP, total stockholders equity as at July 31, 2007 and 2006 are
$13,579,318 and $3,332,959, respectively.

| | c) | Net Income and Comprehensive Income (Loss)
      for the Year
| | -- | -------------------------------------------------------------

The following are the effects of Notes
11(a) and (b) on net income and comprehensive income (loss) for the 2007, 2006
and 2005 fiscal years:

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| |                                                                |   | 2007       |   |   | 2006       |   |   | 2005      | 
| | -------------------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | --------- | 
| | Net income (loss) for the year under
      Canadian            |   |            |   |   |            |   |   |           | 
| | GAAP                                                           | $ | (1,094,810 | ) | $ | 381,606    |   | $ | 1,142,246 | 
| | Other comprehensive income (loss):                             |   |            |   |   |            |   |   |           | 
| | Unrealized gain on investment                                  |   | 694,472    |   |   | (1,655,693 | ) |   | 1,140,541 | 
| | Comprehensive income (loss) for the year
      under U.S. GAAP | $ | (400,338   | ) | $ | (1,274,087 | ) | $ | 2,282,787 | 

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

Exhibit Reference
      Exhibition Description1.1
      Certificate of Continuance (4)1.2
      Notice
        of Articles (4)1.3
      Articles (4)4.3
      Consulting Agreement between the Company and PCL dated April
        1, 2005. (4)4.6
      Consulting Agreement between the Company
        and David Bennett dated September 1, 2006. (1)4.7
      Addendum of the Consulting
        Agreement between the Company and David Bennett dated October 23, 2007.
        (1)4.8
      Directors Compensation
        and Indemnity Agreement between the Company and Alex Guidi dated November
        1, 2007. (1)4.9
      Consulting Agreement between the Company
        and David Bennett dated December 1, 2007. (1)4.10
      Consulting Agreement between the Company
        and Drew Cadenhead dated January 1, 2008. (1)8.0
      List
        of Wholly-Owned Subsidiaries of Company (1)11.1
      Code
        of Ethics (3)15.1
      Audit
        Committee Charter (4)15.2
      Auditors report for the fiscal years 2003 and 2002 (2)15.3
      Change
        of auditor papers (3)31.1
      Section 302(a) Certification of CEO
        (1)31.2
      Section 302(a) Certification of CFO
        (1)32.1
      Section 906 Certifications
        of CEO and CFO (1)


|(1) | Filed herewith.                                                                                       
|--- | ------------------------------------------------------------------------------------------------------
|(2) | Herein incorporated by reference as previously included
      in our Form 20-F filed January 30, 2004.
|(3) | Herein incorporated by reference as previously included
      in our Form 20-F filed January 31, 2005.
|(4) | Herein incorporated by reference as previously included
      in our Form 20-F filed January 31, 2006.
|(5) | Herein incorporated by reference as previously included
      in our Form 20-F filed January 26, 2007.

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SIGNATURE

Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the Company certifies that it meets all of the
requirements for filing on Form 20-F at July 31, 2007 and has duly caused this
annual report to be signed on its behalf by the undersigned, thereunto duly
authorized.

January 29, 2008

TRANS-ORIENT PETROLEUM LTD.

|By: | /s/ Barry MacNeil                                | 
|--- | ------------------------------------------------ | 
|    | Barry MacNeil, Secretary, CFO and
      Director | 

56

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