---

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, 2008

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 404Vancouver, 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 on July 31, 2008.

36,595,225 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 basis of accounting the registrant
has used to prepare the financial statements included in this filing:

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

If Other has been checked in response to the previous
question, indicate by check mark which financial statement item the
registrant has elected to follow.

Item 17
[X]              
 Item 18 [   ]

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]

---

3

|TABLE OF CONTENTS                              
|-----------------------------------------------
|of the Form 20-F of Trans-Orient Petroleum Ltd.
|                                               

|                | **FORWARD-LOOKING STATEMENTS**                                                           | **4** 
|--------------- | ---------------------------------------------------------------------------------------- | ------
|                |                                                                                          |       
|                | **CURRENCY,
      MEASUREMENT AND GLOSSARY OF INDUSTRY TERMS**                           | 4     
|                |                                                                                          |       
|ITEM
      1.   | IDENTITY
      OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                              | 5     
|                |                                                                                          |       
|ITEM
      2.   | OFFER
      STATISTICS AND EXPECTED TIMETABLE                                            | **5** 
|                |                                                                                          |       
|ITEM
      3.   | KEY
      INFORMATION                                                                    | **5** 
|                |                                                                                          |       
|ITEM
      4.   | INFORMATION
      ON THE COMPANY                                                         | **14**
|                |                                                                                          |       
|ITEM
      4A.  | UNRESOLVED
      STAFF COMMENTS                                                          | 22    
|                |                                                                                          |       
|ITEM
      5    | OPERATING,
      FINANCIAL REVIEW AND PROSPECTS                                          | **22**
|                |                                                                                          |       
|ITEM
      6.   | DIRECTORS,
      SENIOR MANAGEMENT AND EMPLOYEES                                         | 27    
|                |                                                                                          |       
|ITEM
      7.   | MAJOR
      SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                                  | 33    
|                |                                                                                          |       
|ITEM
      8.   | FINANCIAL
      INFORMATION                                                              | 35    
|                |                                                                                          |       
|ITEM
      9.   | THE
      OFFER AND LISTING                                                              | **35**
|                |                                                                                          |       
|ITEM
      10.  | ADDITIONAL
      INFORMATION                                                             | 37    
|                |                                                                                          |       
|ITEM
      11.  | QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                         | 47    
|                |                                                                                          |       
|ITEM
      12.  | DESCRIPTION
      OF SECURITIES OTHER THAN EQUITY SECURITIES                             | **48**
|                |                                                                                          |       
|ITEM
      13.  | DEFAUTLS,
      DIVIDEND ARREARAGES AND DELINQUINCIES                                    | **48**
|                |                                                                                          |       
|ITEM
      14.  | MATERIAL
      MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
      PROCEEDS | 48    
|                |                                                                                          |       
|ITEM
      15.  | CONTROLS
      AND PROCEDURES                                                            | 48    
|                |                                                                                          |       
|ITEM
      15T. | CONTROLS
      AND PROCEDURES                                                            | **48**
|                |                                                                                          |       
|ITEM
      16.  | [RESERVED]                                                                               | **49**
|                |                                                                                          |       
|ITEM
      16A. | AUDIT
      COMMITTEE FINANCIAL EXPERT                                                   | 49    
|                |                                                                                          |       
|ITEM
      16B. | CODE
      OF ETHICS                                                                     | 49    
|                |                                                                                          |       
|ITEM
      16C. | PRINCIPAL
      ACCOUNTANT FEES AND SERVICES                                             | 49    
|                |                                                                                          |       
|ITEM
      16D. | EXEMPTION
      FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                          | **50**
|                |                                                                                          |       
|ITEM
      16E. | PURCHASES
      OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
    PURCHASERS         | **50**
|                |                                                                                          |       
|ITEM
      17.  | FINANCIAL
      STATEMENTS                                                               | 50    
|                |                                                                                          |       
|ITEM
      18.  | FINANCIAL
      STATEMENTS                                                               | 69    
|                |                                                                                          |       
|ITEM
      19.  | EXHIBITS                                                                                 | **69**

---

4

FORWARD-LOOKING STATEMENTS

Certain statements in this Annual Report on Form 20-F (Annual
Report) constitute forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended (the Securities Act), and
Section 21E of the Securities Exchange Act of 1934, as amended (the
Exchange Act). These forward-looking statements are not guarantees of our
future operational or financial performance and are subject to risks and
uncertainties. When used in this Annual Report, the words may, will,
should, expect, plan, intend, anticipate, believe, estimate,
predict, potential or continue and similar expressions are intended to
identify forward-looking statements. Readers are cautioned not to place undue
reliance on these statements, which speak only as of the date of this Annual
Report. These statements are subject to risks and uncertainties that could cause
results to differ materially from those contemplated in such forward-looking
statements. We disclaim any obligation to publicly update these statements, or
disclose any difference between our actual results and those reflected in these
statements.

In evaluating these statements, you should consider various
factors, including the risks and uncertainties outlined below under the
subheading Risk Factors in Item 3, and, from time to time, in other reports we
file with the Securities and Exchange Commission (the SEC).

Actual operational and financial results may differ materially
from our expectations contained in the forward-looking statements as a result of
various factors, many of which are beyond the control of the Company. These
factors include, but are not limited to, risks associated with operations,
permit tenure, loss of market, regulatory matters, commodity price risk,
environmental risks, industry competition, investments, uncertainties as to the
availability and cost of financing, risks in conducting foreign operations,
potential delays or changes in plans with respect to exploration or capital
expenditures.

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
toTrans-Orient PetroleumLtd., 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-Inor 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

---

5

that is willing to fund agreed exploration activities which may
be more or less than the proportionate interest assigned to them.

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

Joint Venturerefers to a standard form of participation
in petroleum exploration, through unincorporated joint arrangements between a
number of industry participants, with one party or a management committee
comprised of some or all of the parties operating the permit (i.e. managing the
operations) on behalf of all the participants.

MEDrefers to theMinistry of Economic
Development in New Zealand.

OTCBBis the Over-the-Counter Bulletin Board, which is a
regulated electronic trading service offered by the Nasdaq Stock Market, and is
an electronic trading service on which the Companys common shares are traded.

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.

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, 2008, 2007, 2006, 2005
and 2004 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, 2008, 2007 and 2006 are included in this filing. The
audited consolidated financial statements of the Company for the fiscal years
ended July 31, 2005 and 2004 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.

---

6

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 14 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. During the
2007 fiscal year, 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 targeting both conventional and unconventional formations. Our business
plan is focussed on conventional and unconventional oil and gas prospects
located in the East Coast Basin of New Zealand. While the Companys short and
long term goals to aggressively explore both the conventional and unconventional
opportunities in New Zealand remain unchanged at this stage, the Companys
capital program is flexible and can be modified at any time to address
prevailing economic conditions. The Company will remain focused on achieving the
stated objectives, but will also be prudent and proactive to maintain a strong
balance sheet and carefully manage the capital requirements. 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.

Under Canadian GAAP (in US$)

Year
        Ended July 312008
      
      2007
      
      2006
      
      2005
      
      2004$
      
      $
      
      $
      
      $
      
      $Balance Sheet DataCash and Cash Equivalents
      6,171,793
      
      8,499,720
      
      451,969
      
      190,053
      
      69,887Working Capital
      6,147,816
      
      8,485,610
      
      472,343
      
      231,066
      
      105,169Total Assets
      9,001,098
      
      12,418,436
      
      2,915,621
      
      2,541,989
      
      1,398,702Total Liabilities
      107,723
      
      65,808
      
      12,406
      
      6,535
      
      6,017Total Stockholders Equity
      8,893,375
      
      12,352,628
      
      2,903,215
      
      2,521,609
      
      1,367,370Operating DataRevenues
      Nil
      
      Nil
      
      Nil
      
      Nil
      
      NilExpenses
      (1,251,435)
      
      (1,094,810)
      
      375,824
      
      1,130,776
      
      426,563Other ItemsIncome (Loss) fromOperations
      (1,251,435)
      
      (1,094,810)
      
      375,824
      
      1,130,776
      
      426,563Net Income (Loss)
      (1,251,435)
      
      (1,094,810)
      
      381,606
      
      1,142,246
      
      458,829Net Income (Loss) perShare- Basic
      (0.03)
      
      (0.03)
      
      0.02
      
      0.06
      
      0.03- Diluted
      -
      
      -
      
      0.02
      
      0.06
      
      0.02


---

7

Under US GAAP (in US$)

Year
        Ended July 312008
      
      2007
      
      2006
      
      2005
      
      2004$
      
      $
      
      $
      
      $
      
      $Balance Sheet DataCash and Cash Equivalents
      6,171,793
      
      8,499,720
      
      451,969
      
      190,053
      
      69,887Working Capital
      6,147,816
      
      8,485,610
      
      472,343
      
      231,066
      
      105,169Total Assets
      9,001,098
      
      13,551,819
      
      3,304,043
      
      4,586,104
      
      2,101,413Total Liabilities
      107,723
      
      65,808
      
      12,406
      
      6,535
      
      6,017Total Stockholders Equity
      8,059,764
      
      13,579,318
      
      3,332,959
      
      4,565,725
      
      2,282,937Operating DataRevenues
      Nil
      
      Nil
      
      Nil
      
      Nil
      
      NilExpenses
      (1,251,435)
      
      (1,094,810)
      
      375,824
      
      1,130,776
      
      426,563Other ItemsIncome (Loss) fromOperations
      (1,251,435)
      
      (1,094,810)
      
      375,824
      
      1,130,776
      
      426,563Net Income (Loss)
      (1,251,435)
      
      (1,094,810)
      
      381,606
      
      1,142,246
      
      458,829Net Income (Loss) perShare- Basic
      (0.03)
      
      (0.03)
      
      0.02
      
      0.06
      
      0.03-Diluted
      -
      
      -
      
      0.02
      
      0.06
      
      0.02


Exchange Rates

On July 31, 2008 the buying rate for Canadian dollars was
US$1.00 for CDN$1.0240. At the close of business on October 24, 2008 the buying
rate for Canadian dollars was US$1.00 for CDN$1.27. Rates of exchange are
obtained from the Bank of Canada and believed by the Company to approximate
closely the rates certified for customs purposes by the Federal Reserve Bank in
New York.

The following table sets out the buying rate for Canadian
dollars for the six months preceding July 31, 2008:

February
    March 2008
    April 2008
    May 2008
    June 2008
    July 20082008Month End
    0.9844
    1.0265
    1.0072
    0.9930
    1.0197
    1.0240Average
    0.9999
    1.0016
    1.0131
    1.0002
    1.0157
    1.0131High (2)
    1.0171
    1.0265
    1.0234
    1.0193
    1.0292
    1.0240Low (2)
    0.9765
    0.9844
    1.0014
    0.9841
    0.9930
    1.0014


The following table sets out the buying rate for Canadian
dollars for the last five fiscal years:

2008
    2007
    2006
    2005
    2004Year End (1)
    1.0240
    1.0668
    1.1316
    1.2241
    1.3295Average
    1.0072
    1.1260
    1.1551
    1.1789
    1.3382High (2)
    1.0778
    1.1855
    1.2185
    1.2185
    1.4072Low (2)
    0.9215
    1.0378
    1.0983
    1.1467
    1.2712


|Notes: |                                                                                                 
|------ | ------------------------------------------------------------------------------------------------
|(1)    | Year end is July 31.                                                                            
|(2)    | The high and low buying rate figures are selected from
      daily high and low closing figures.

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8

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:

Geological and Geographic Risks

Even if hydrocarbons are discovered, the costs of extracting
and delivering the hydrocarbons to market may render uneconomic any discovered
deposit. Geological conditions are variable and unpredictable. Even if a well is
drilled and production is commenced, the quantity of hydrocarbons produced
inevitably will 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 also is 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
also may hinder the Companys ability to carry on exploration or production
activities continuously throughout any given year.

Marketability and Price of 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 also will be
affected by the quality 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 regulations 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 the Companys future operations.

Limited Financial Resources

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 had cash of $6,171,793 and working capital of $6,147,816 as at July 31,
2008, 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 likely will require
additional funding to continue to pursue its plan of operations going forward.
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.

---

9

History of Losses

The Company has a history of losses from operations. As at July
31, 2008, the Company had accumulated losses of $12,618,105. 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.

Lack of Petroleum Resources or Reserves

The Company has 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 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.

Dilution

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 may be dilutive to current shareholders.

Government Regulation

Our business is subject to extensive government regulation and
the exploration operations on our two petroleum exploration permits in New
Zealand. Such regulation governs 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 also may 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 operate in the future, will not change or be applied in a manner
that may materially and adversely affect its business.

According to its public disclosure, Austral Pacific Energy Ltd.
(Austral), a Canadian company based in New Zealand, controls interests in 8
exploration and production permits in New Zealand. As indicated elsewhere in
this Annual Report, the Company holds 3,060,240 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.

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 the Company liable for environmental damage without regard
to its negligence or fault. Such laws and regulations may expose the Company to
liability for the conduct of, or conditions caused by others or for acts of the
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

---

10

material adverse effect on our business, results of operations,
financial condition, cash flows and shareholder value.

Carbon Emissions Regime

The New Zealand government is a signatory to the Kyoto protocol
and in order to meet the requirements of this protocol, it is in the process of
implementing Climate Change initiatives. A proposed bill is now before the New
Zealand Parliament and undergoing the consultation process to introduce a cap
and trade emissions trading scheme. Trans-Orient, along with other members of
the oil and gas exploration and production community, is eligible for
involvement in the government consultation process. More detail on the likely
risks to the Companys business are set out in Item 4.D  Property, Plants and
Equipment under the heading Carbon Emissions Regime in New Zealand.

Indemnities 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.

Title to Properties and Consequences of Failure to Satisfy
Prescribed Permit or Licence Terms and Conditions

In all cases, the terms and conditions of the permits or
licences 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.

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 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.

Possible Lack of or Inadequacy of Insurance

The Company maintains insurance against certain public
liability, operational and environmental risks on behalf of the Company, but
there is no assurance that an event causing loss will be covered by such
insurance, that such insurance will continue to be available to the Company, or
that the benefits of such insurance will be adequate to cover our liability.

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11

Effect of Different Currencies

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
petroleum property expenditures in New Zealand dollars. The Company does not
currently hedge its exposure to foreign currency exchange rate changes, although
we may choose to selectively hedge exposure to foreign currency exchange rate
risk in the future. The Company manages some of this risk by shifting a portion
of its cash on hand from one currency to another in a timely manner. A decrease
in the value of the New Zealand currency against the value of the Canadian and
U.S. will be a benefit to the 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 expenses incurred would, in turn, increase in Canadian and U.S.
dollars.

Penny Stock Regulation and Difficulties in Selling
Shares

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.

No Title Insurance

The possibility exists that title to one or more properties may
  be lost due to an omission in the claim of title. We do not maintain title insurance
  over 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.

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 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.

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Public Market is Thinly Traded

The Companys shares trade on 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. Investors should assume 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 shares 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.

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

Value of Properties

The amounts attributed to our properties in our financial
statements represent acquisition and exploration expenditures only and should
not be taken to in any way reflect realizable value.

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.

Legal Proceedings Against Foreign Directors

The Company is incorporated under the laws of British Columbia,
Canada and all four of the Companys directors and officers are residents of
Canada. Consequently, it may be difficult for U.S. shareholders to

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13

effect service of process within the U.S. upon the Company or
upon its directors or officers, or to realize in the U.S. upon judgements of
U.S. 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.

Key Employees

The success of the Company largely depends upon the performance
of its key employees and on the advice and project management skills of various
consulting geologists, geophysicists and engineers retained by the Company from
time to time. Although there are other personnel available in the sector who
could replace Company personnel there is likely to be some difficulty in finding
immediate replacements of suitable calibre.

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. Currently, the Company has a common director and a
common officer with TAG Oil Ltd. (TAG), one director who is a major
shareholder of TAG, one director and officer of the Company who is also an
officer of AMG Oil Ltd. (AMG) and one director of the Company who is also a
director and officer of AMG. 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. It is possible that conflicts of interest
may arise between their duties as director and/or officer of the other
companies, and as director or officer of the Company. The Company may also make
application for interests in petroleum properties with companies with which it
is associated or may become associated. The percentage participation of the
Company and any other company in a property is determined by the board of
directors of each such company independently, using the best business judgment
of the board of directors of the Company (the Board). Persons who are not
willing to rely on the discretion and judgment of management and the Board and
any companies with which it is associated or may become associated should not
consider a purchase of our securities. Furthermore, under the Companys Articles
and the relevant legislation, any such conflict of interest is required to be
disclosed and any contract in which a director or officer has a material
interest must be referred to the Board for approval, and the interested director
will not vote on any resolution giving such approval. The Company requires
confidentiality obligations from all officers, employees and consultants.

Concentration of Common Share Ownership

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.

Passive Foreign Investment Company Considerations

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.

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14

ITEM 4.       
INFORMATION ON THE COMPANY

A.              
History and Development of the Company

Corporate Actions

Trans-Orient Petroleum Ltd. is a company based in Vancouver,
British Columbia, Canada. The Companys registered office is located at 1100-888
Dunsmuir Street, Vancouver, British Columbia, V6C 3K4 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 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) (the B.C. Act) 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
(TSX-V), 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-V (the successor to
the VSE). The Companys current trading symbol on the OTCBB is TOPLF.

Principal Operations, Capital Expenditures &
Divestitures

During the last three fiscal years and up to October 24, 2008,
the Company has completed various expenditures (including acquisitions) and
divestitures in relation to its oil and gas interests in the normal course of
operations.

The Company incurred capital expenditures of $1,236,676,
$204,181 and $4,135 in fiscal 2008, 2007 and 2006, respectively, and plans to
make capital expenditures of $100,000 in fiscal 2009 in relation to its
exploration properties.

During the fiscal year ended July 31, 2008:

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15

The Companys acquisition of more than 50 km of 2-D seismic
during fiscal 2008 completed the Companys second year work program on PEP 38348
and PEP 38349 in combination with completing certain additional geological and
geophysical studies at a cost of $1,236,676.

Subsequent to the fiscal year ended July 31, 2008:

Currently, the seismic is being interpreted to determine
optimal drilling locations. The next term of the work program requires the
Company to drill a well on each of PEP 38348 and PEP 38349 for a total cost of
approximately $3,400,000 prior to November 8, 2009 or relinquish the
permits.

During the fiscal year ended July 31, 2007:

The Company continued to focus its efforts on re-establishing
its direct oil and gas exploration activities.

In November 2006, the Company was awarded 100% interests in two
onshore petroleum exploration permits in New Zealand, PEP 38348 and 38349. As
part of the PEP 38348 and 38349 permit conditions the Company committed to
carry-out the first years work program, consisting of geological and
geophysical studies at a cost of approximately $250,000, and during the
remainder of the 2007 fiscal year the Company substantially completed the first
years work program on both permits.

During the fiscal year ended July 31, 2006:

During the fiscal years ended July 31, 2006 the Companys
efforts were focused on re-establishing its 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
conducted, we were indirectly involved in oil and gas exploration, development
and production activities through our corporate investments. During the 2006
fiscal year, the Company sold a total of 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 accounts of which were, until that time,
consolidated with those of the Company. The Company also sold a total of
1,000,000 common shares of its investment in TAG for aggregate proceeds of
$1,141,581 and sold a total of 50,000 shares of Austral for aggregate proceeds
of $74,241.

Financing:

During the 2008 fiscal year, the Companys financing activities
consisted of 50,000 share purchase warrants being exercised for proceeds of
$35,000.

During the year ended July 31, 2007, we successfully completed
two private placement financings for total gross proceeds of $10,445,250. A
private placement offering of 12,972,142 units of the Company were issued at a
purchase price of $0.35 per unit. Each unit consisted of one common share and
one share purchase warrant. Each warrant entitles 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 August 30, 2006. These warrants expired as they
were not exercised. A private placement offering of 5,905,000 units of the
Company were issued at a purchase price of $1.00 per unit. Each unit consisted
of one common share and one-half of one share purchase warrant. Each full
warrant entitled the holder to acquire an additional common share of the Company
at a price of $1.35 per share for eighteen months from the closing date of
January 17, 2007. These warrants expired as they were not exercised.

Also as part of our indirect involvement in oil and gas
exploration, development and production activities through our corporate
investments, the Company participated in a private placement financing to
acquire 1,395,000 shares of Austral at a price of $1.30 per share. The Company
also acquired an additional 180,300 shares of Austral in the market at prices
averaging $1.42. As a result of these investments, the Company owns 3,060,240
common shares (5.23%) of Austral as of the date of this Annual Report.

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16

The Company did not conduct any financing activities during the
2006 fiscal year.

Public Takeovers

The Company is not aware of any public takeover by third
parties in respect of its shares, or by the Company of any other companys
shares, either planned or having occurred during the last and current financial
year.

B.              
Business Overview

Nature of Operations

We are an independent oil and gas acquisition, exploration and
development company, incorporated in British Columbia, Canada, with all our
interests in hydrocarbon exploration prospects currently being in New Zealand.
The Companys operating strategy is focused on its international oil and gas
exploration operations through its 100% interests in PEP 38348 and PEP 38349
that consist of 2,163,902 net acres of lightly explored land located in New
Zealands East Coast Basin. 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.

The Company actively competes for prospect acquisitions,
exploration permits and licenses, and skilled industry personnel in the
Australasian region with a substantial number of other oil and gas companies,
many of which have significantly greater financial resources than the Company.
The Companys competitors include major integrated oil and natural gas companies
and numerous other independent oil and natural gas companies and individual
producers and operators. The Company strives to be competitive by utilizing
current technologies to enhance exploitation, development and operational
activities. The Company intends to apply advanced drilling and multi-fracturing
technology on its conventional and unconventional oil and gas prospects.

The Company is subject to government regulation of the oil and
gas properties it holds and of the operations it conducts on those properties,
such those relating to hazardous substances, environmental effects, health and
safety, land access, permit conditions, and regulations that relate to all
companies operating in the relevant jurisdictions such as corporate governance,
taxation, and employment laws. The effects of those regulations are detailed in
Item 3.D  Risk Factors, and in Item 4.D  Property, Plant and Equipment.
Such regulations do not in general have a material effect on the Companys
business and do not affect the Companys business in a manner different from the
effects on other companies competing in the same industry.

As of the date of this Annual Report, we also held common
shares of Austral and AMG as described above in Item 4.A  History and
Development of the Company under the heading Principal Operations, Capital
Expenditures & Divestitures. Austral is a public company whose common
shares are listed on the TSX-V and the New Zealand Stock Exchange, with a market
bid price of $0.03 per share and a market capitalization of approximately $2
million. In addition to our interest in Austral, we also currently own common
shares of AMG with a current market bid price of $0.06 per share. 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. The AMG market is highly illiquid and we do not consider the currently
quoted prices realizable.

C.              
Organizational Structure

As of the date of this Annual Report, the Company has four
wholly-owned subsidiaries:

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17

|1. | DLJ Management Corp. (DLJ), organized pursuant to the
      laws of Canada;            
|-- | -----------------------------------------------------------------------------------------
|2. | Eastern Petroleum (NZ) Limited, organized pursuant to the
      laws of New Zealand;     
|3. | Orient Petroleum (NZ) Limited, organized pursuant to the
      laws of New Zealand; and  
|4. | 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. Eastern
Petroleum (NZ) Limited, Orient Petroleum (NZ) Limited and Orient Petroleum (PNG)
Limited are also 100% owned subsidiaries of the Company. Eastern Petroleum (NZ)
Limited operates our exploration activities on PEP 38348 and Orient Petroleum
(NZ) Limited operates our exploration activities on PEP 38349. At this time,
Orient Petroleum (PNG) Limited does not have any operations.

The Company also holds 100% of the voting rights of each of its
subsidiaries.

D.              
Property, Plant and Equipment

Material Tangible Fixed Assets

Our major operations and principal activities are in the oil
and gas exploration business. The Company has operated in New Zealand in the
past three years, and owns interests in government issued petroleum permits or
licences. These licences and permits authorize the Company to prospect and
explore for hydrocarbons. On November 8, 2006, the Government of New Zealand
awarded the Company interests in two onshore petroleum exploration permits
located in the East Coast Basin of New Zealand. More detailed descriptions of
the Companys principal petroleum properties can be found below, under the
heading Principal Petroleum Properties.

Apart from our interests in the petroleum exploration
properties and the investments described above, we own a condominium, which has
a market value of approximately CDN$300,000, and hold only minor office assets
for the purpose of operating our business.

Major Encumbrances Thereon

The Company did not have any major encumbrances, liens or
mortgages on its assets as of July 31, 2008.

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 work
programme 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 programme 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 programme (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

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18

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.

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, 2005 or
discovered after December 31, 2009 the New Zealand Government reserves a royalty
of:

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

| | (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:

| | (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 royalties calculation.
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 through June 30, 2007, an exploration permit holder must pay the New
Zealand Government an annual fee of $9.47 per square kilometre for the first
1500 square kilometres and $7.22 for each additional square kilometre of the
land of any exploration permit. In

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19

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.

Carbon Emissions Regime in New Zealand

The New Zealand government is a signatory to the Kyoto protocol
and, in order to meet the requirements of this protocol, it is implementing
climate change initiatives. Recently, the government released a Framework for a
New Zealand Emissions Trading Scheme and the New Zealand Energy Strategy. The
government has signalled in these documents the intention to implement an
emissions trading scheme and measures to encourage the use of renewable sources
of power for electricity, to only allow new thermal generation in circumstances
where security of supply requires, to reduce transport emissions, and to promote
efficiency in the use of energy.

A proposed bill is now before the New Zealand Parliament and
under going the consultation process to introduce a cap and trade emissions
trading scheme. Liquid fossil fuels are proposed to come under the scheme in
January 2009 and natural gas in January 2010. The unit of trade is proposed to
be linked to international Kyoto units. The bill also proposes a 10 year
moratorium on the building of new thermal power generation unless required for
security of supply. To fit within the exception, an exemption will be required
from the Minister of Energy who will make this decision based on advice from the
New Zealand Electricity Commission.

Principal Petroleum Properties

For definitions of technical terms in the following description
of properties, see the Glossary of Industry Terms at the beginning of this
Annual Report.

The following is a summary of the principal interests held by
the Company. The Companys two properties are located in the onshore portion of
the East Coast Basin in New Zealand and are exploration permits consisting of
approximately 2.2 million acres in the aggregate.

The following figure shows the locations of the Companys
permits held at July 31, 2008:

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20



The following table summarizes the Companys permits held at
July 31, 2008:

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


New Zealand, East Coast Basin (PEP 38348 and PEP 38349)

During the 2007 fiscal year, the Government of New Zealand
awarded the Company a 100% interest in two onshore petroleum exploration
permits, PEP 38348 and 38349, through a bidding process based on a work program
submitted by the Company. A nominal fee was paid by the Company to the
Government of New Zealand to submit the bid for the permits. A NZ$250,000 bond
is payable with all applications for a new permit. The New Zealand government
has not exercised its option to collect the NZ$250,000 bonds from the Company in
relation to each exploration permit.

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 10,000 feet in parts of the Basin; together with east-west
compressional folding and faulting.

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21

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
rich Waipawa Black Shale and the much thicker but less rich 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 focus 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.

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, Waitangi Hill
and Arakihi Anticline Prospects. 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. New seismic has
fully been acquired and processed by the Company over a number of the top ranked
prospects, and has been utilized 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 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.

An inventory of seventy-four prospects and leads are presently
identified from 2D seismic and outcrop mapping. The best defined of these at
present are the Boar Hill prospect, a seismically defined fractured Whangai
shale target mapped on seismic, with a set of gas seeps situated on its western
side, the Kawakawa prospect and the Waewaepa prospects. 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.

As of the date of this Annual Report, PEP 38348 and 38349 are
in good standing with respect to its work commitments with the MED. The first
year geochemical commitments were met by the $204,000 geological and geochemical
testing program completed in advance of the November 8, 2007 deadline. The
second year geophysical commitments have also been completed in advance of the
November 8, 2008 deadline with the acquisition of approximately 50km of 2D
seismic located over both permits at a cost of approximately $1,400,000. The
next term of the work program requires a well on each of PEP

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22

38348 and PEP 38349 to be drilled by November 2009 at a total
cost of approximately $3,400,000. Locations have been identified from the work
programs conducted over the first two years. The Company plans to commit in
writing to the MED prior to November 8, 2008 to complete the third year work
program on both permits consisting of drilling one exploration well,
relinquishing 25% of the permit area and submitting a satisfactory work program
proposal to the MED for the remaining two years of the permit. The Company also
plans to continue its efforts to identify additional exploration and acquisition
opportunities in the Australasia region.

No Reserves

As of July 31, 2008, the properties that are subject to the
permits have no known hydrocarbon reserves. Sproule International Limited
(Sproule) prepared an independent report for the Company on September 30, 2007
and it was updated on March 31, 2008 and then amended on May 31, 2008
(collectively the Reports). The Reports consist of an independent technical
assessment of the undiscovered hydrocarbon resources associated with PEP 38348
and 38349, and were completed in accordance with the standards of National
Instrument 51-101 -Standards of Disclosure for Oil and Gas Activities.

Copies of the Reports prepared by Sproule may be viewed at
www.sedar.com.

Competition

Please refer to Item 3.D  Risk Factor under the heading
Competition.

ITEM 4A.     UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 5.        OPERATING
AND FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis of the Companys
historical financial and operating results for the years ended July 31, 2008,
2007, and 2006 should be read in conjunction with (i) the audited consolidated
financial statements of the Company for the years ended July 31, 2008, 2007, and
2006, together with the notes related thereto and (ii) Item 4 - 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 14 to the
audited consolidated financial statements.

All dollar values are expressed in U.S. dollars, unless
otherwise stated.

A.              
Operating Results

Summary

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, 2008, we had cash of $6,171,793 and working capital
of $6,147,816. We plan to spend approximately $100,000 in fiscal 2009 to pursue
our plan of operations. We believe we have sufficient capital to fund our
operations for the next twelve months from working capital on hand. Beyond the
2009 fiscal year, 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

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23

sale of our common shares. However, there can be no assurance
that we will be able to raise sufficient funding from the sale of our common
shares to fund our exploration programs going forward. If such funding does not
become available as appropriate, the Company will seek deferral of projects
until such time as funding is available, or we may farm-out our interests. If
none of these options are possible, the Company would then be required to
relinquish certain properties.

The Companys plan for the 2009 fiscal year is to complete the
interpretation of our recently collected seismic and prepare to meet our work
program commitment of drilling 2 wells by November 8, 2009 at a cost of
approximately $3,400,000. The Company also plans to continue its efforts to
identify additional exploration and acquisition opportunities in the
Australasian region.

Results of Operations  2008 Compared to 2007 and 2006

The Company has not earned any revenues from operations to
date. The Company plans to continue to maintain its permits in good standing
with the MED and to lodge additional term applications accordingly.

Total losses incurred since incorporation to the period ending
July 31, 2008 were $12,618,105. The level of future operations may be limited by
the availability of capital resources, the sources of which are not
predictable.

The Company had a net use of cash of $1,214,365 from operating
activities for the year ending July 31, 2008 compared to a net use of cash of
$133,765 for the comparable year ending July 31, 2007 (2006: $266,648), which is
an increase resulting primarily from general and administrative (G&A)
expenses relating to corporate relations and development, directors fees and
wages.

The Company incurred a net loss for the 2008 fiscal year of
$1,251,435 ($0.03 per share) compared to a loss of $1,094,810 ($0.03 per share)
for the same period last year, a difference resulting primarily from $1,340,283
in G&A expenses such as directors fees, wages and travel specifically
relating to the Companys operations, compared to $557,980 for the year ended
July 31, 2007 (2006: $305,173). The Company also recorded interest income of
$303,857 in the 2008 fiscal year compared to $292,289 for the year ended July
31, 2007 (2006: $13,848). For the 2006 fiscal year, the Company recorded net
income of $381,606 ($0.02 per share) primarily due to gains on the sale of
investments amounting to $774,664.

In addition, certain of the cost increases for the 2008 fiscal
year relate to corporate relations and development, filing, regulatory and
transfer agency fees. These costs are integral to enhancing the Companys
ability in future years to attract new equity financing and industry partners,
which will increase the Companys ability to explore its 2.2 million acres of
permit area in coming years. The Company also incurred higher than normal
filing, regulatory and transfer agency fees due to increased operational
activity requiring disclosure and realting to the Companys efforts to list the
Company on a recognized exchange.

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.

Inflation

Inflation has not had a material impact on our operations.

Foreign Currency Fluctuations

Our cash reserves are held primarily in Canadian and U.S.
dollars. We incur the majority of our petroleum property expenditures in New
Zealand dollars. An increase in value of the New Zealand dollar relative to the
Canadian or U.S. dollar has a detrimental effect to us as our expenses incurred
would, in turn, increase in Canadian and U.S. dollars. We do not currently hedge
our exposure to currency rate

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24

changes, although we may choose to selectively hedge exposure
to foreign currency exchange rate risk. We have no policies relating to the
foregoing.

The Company recorded a foreign exchange loss for the year
amounting to $89,591 in fiscal year 2008 compared to a foreign exchange loss of
$5,400 in fiscal year 2007 and a foreign exchange gain of $1,987 in fiscal
2006.

Government Regimes

We are subject to foreign governmental 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
in which we are operating and other factors. There is no assurance that the laws
relating to the ownership of petroleum interests and the operation of our
business in the jurisdictions in which we currently operate will not change in a
manner that may materially and adversely affect our business. There is no
assurance that the laws of any jurisdiction in which we carry on business may
not change in a manner that materially and adversely affects our business.

Critical Accounting Policies

Differences between Canadian and US GAAP

These audited consolidated financial statements included herein
have been prepared in accordance with Canadian GAAP. Note 14 Differences
between Canadian and United States Generally Accepted Accounting Principles to
the audited consolidated financial statements discusses material differences
between Canadian and US GAAP as they affect such audited consolidated financial
statements.

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.

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

On August 1, 2007 the Company adopted the new Canadian
Institiute of Chartered Accountants (CICA) standards for Comprehensive Income
(CICA 1530), Financial Instruments (CICA 3855) and Hedges (CICA 3865). The new
standards bring Canadian rules into line with current rules in the United
States. The standards have introduced the concept of Comprehensive Income to
Canadian GAAP and will require that an enterprise: a) classify items of
comprehensive income by their nature in the financial statements and b) display
the accumulated balance of comprehensive income seperately from retained

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25

earnings and additional paid-in capital in the equity section
  of the statement of financial position. Derivative contracts will be carried
  on the balance sheet at their mark-to-market value, with any change in value
  flowing to either net income or comprehensive income. Gains and losses on instruments
  that are identified as hedges will flow initially to comprehensive income and
  be brought into net income at the time the underlying hedged item is settled.
  Any instruments that do not qualify for hedge accounting treatment will be marked-to-market
  with the tax-effected adjustment flowing through the income statement. The Company
  did not identify any derivatives requiring disclosure but did identify comprehensive
  income (loss) items requiring disclosure as a result of adopting the new standards.

There have been no other material changes in accounting
policies applied during the year ended July 31, 2008. For future changes in
accounting policies refer to note 3 of Item 17.

B.              
Liquidity and Capital Resources

Liquidity

As at July 31, 2008, the Company had $6,171,793 in cash and
cash equivalents and $6,147,816 in working capital. This compares to $8,499,720
(2006: $451,969) in cash and cash equivalents and $8,485,610 (2006: $472,343) in
working capital for the year ended July 31, 2007. At July 31, 2008, the
Companys current assets were $6,255,539, including cash on hand of $6,171,793,
accounts receivable of $51,821 and prepaid expenses of $31,925.

The Company has maintained its liquidity and has funded its
operations primarily from the sale of its common shares. The Company relies on
its ability to raise additional capital through the issuance of common shares,
which may have a dilutive effect on the Companys shareholders, to fund work
commitments. If the Company chooses to raise additional funding, the Company
cannot give assurance that it will be able to secure outside sources of capital
in an amount that is sufficient for it to undertake its work commitments.

We believe that we have sufficient capital to fund our
operations for the next twelve months and maintain our interests in all of our
current New Zealand based permits through the end of the 2009 fiscal year.
However, owing to the inherent risks of oil and gas acquisition, exploration and
development, it is uncertain whether we will continue to secure outside sources
of capital in an amount that is sufficient for us to continue with our expected
operations beyond the end of the 2009 fiscal year. Due to the exploratory nature
of our business, traditional forms of debt financing may not be available to us
and we may look at opportunities to farm-out, reschedule or defer some of our
capital expenditures. The Company may also consider selling certain assets.

Financial Instruments, Treasury Activities

The Companys primary objective for managing its capital
structure is to maintain financial capacity for the purpose of sustaining the
future development of the business and maintaining investor, creditor and market
confidence. The Company considers its capital structure to include shareholders
equity and working capital. Management is continually monitoring changes in
economic conditions and the risk characteristics of the underlying petroleum and
natural gas industry. In the event that adjustments to the capital structure are
necessary, the Company may consider issuing additional equity, raising debt or
revising its capital investment programs. The Companys share capital is not
subject to any external restrictions. The Company has not paid or declared any
dividends since the date of incorporation, nor are any currently contemplated.
There have been no changes to the Companys approach to capital management
during the period.

The nature of the Companys operations exposes the Company to
credit risk, liquidity risk and market risk. In addition, changes in commodity
prices, foreign exchange rates and interest rates may have a material effect on
cash flows, net income and comprehensive income. The foregoing provides
information about the Companys exposure to each of the above risks as well as
the Companys objectives, policies and processes for measuring and managing
these risks. The Companys risk

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26

management policies are established to identify and analyze the
risks faced by the Company, to set appropriate risk limits and to monitor market
conditions and the Companys activities. The Board has overall responsibility
for the establishment and oversight of the Companys risk management framework
and policies.

Our capital resources historically have been comprised
primarily of funds provided by private investors who are either existing
contacts of management or who come to our attention through brokers, financial
institutions and other intermediaries. As a result of our two brokered private
placements during the 2007 fiscal year, our capital resources expanded to a
broader group. These capital resources are not anticipated to change during the
2009 fiscal year. Our access to capital is always dependent upon general
financial market conditions.

Cash and cash equivalents are held primarily in U.S. dollars.
The Company has an ongoing requirement for New Zealand dollars to meet certain
operational and administrative expenses. This requirement is met by utilizing
the spot foreign exchange market to sell U.S. dollars and purchase New Zealand
dollars. The Company currently has no instruments in place for foreign exchange
hedging purposes.

The Companys financing activities for the year ended July 31,
2008 provided cash of $35,000 from the exercise of 50,000 share purchase
warrants. During the 2007 fiscal year, financing activities provided cash of
$10,462,596 from the issuance of common shares. For further detail on the
Companys financing activities see Item 4.A  History and Development of the
Company under the heading Principal Operations, Capital Expenditures &
Divestitures. The Company did not conduct any financing activities during the
2006 fiscal year.

Investing activities used cash of $1,130,338 in fiscal 2008,
primarily due to the acquisition of more than 50 km of 2D seismic. For the
similar period last year, the Company used $2,281,080 of cash, compared to
providing cash of $545,382 during the 2006 fiscal year.

Therefore, the net impact of all cash activities during the
twelve months ended July 31, 2008 resulted in a net decrease in cash of
$2,327,927, compared to a net increase in cash of $8,047,751 for the year ended
July 31, 2007 (2006: $261,352).

Material Commitments for Capital Expenditures

As at the date of this Annual Report, we plan to spend
approximately $100,000 in fiscal 2009 to meet our material commitments
associated to our plan of operations, which includes exploration and development
activities. Certain exploration commitments may exceed the exploration work
required under the permit terms to maintain the permits in good standing and are
subject to change as work is completed, results are received and whether the
required services are available to the Company.

The commitment amounts for capital expenditure relate primarily
to PEP 38348 and PEP 38349. In addition, we anticipate spending $3,400,000 on
drilling two wells and paying for associated development costs. The two wells
are anticipated to be drilled by November 2009 (fiscal 2010).

The Company expects to fund its material commitments for fiscal
2009 from working capital and may consider farming-out its interests to suitable
partners.

C.              
Research and Development, Patents and Licences

Not applicable.

D.              
Trend Information

Exchange rate fluctuation is an important trend to the Company
as we hold our cash in U.S., Canadian, and New Zealand dollars and we incur our
exploration expenditures in New Zealand dollars. Refer to Item 3.D  Risk
Factors under the heading Effect of Different Currencies.

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27

E.              
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.

F.              
Tabular Disclosure of Contractual Obligations

As at July 31, 2008 the Company had various commitments and
obligations that were largely in respect to permit work programme obligations.

The following table sets forth our contractual obligations as
at July 31, 2008:

Payments due by periodLess than 1
      
      
      More than 5Contractual Obligations
      Total
      year
      1-3 years
      3-5 years
      yearsLong-Term Debt Obligations
      -
      -
      -
      -
      -Capital (Finance) LeaseObligations
      -
      -
      -
      -
      -Operating Lease Obligations
      -
      -
      -
      -
      -Purchase obligations
      -
      -
      -
      -
      -Other Long-TermObligations (1)
      $3,500,000
      $100,000
      $3,400,000
      -
      -Other Long-Term LiabilitiesReflected on the CompanysBalance Sheet under theGAAP of the primaryfinancial statements
      -
      -
      -
      -
      -Total (2)
      $3,500,000
      $100,000
      $3,400,000
      $ -
      $ -


| | (1) | The Other Long Term Obligations that the Company has are
      in respect to the Companys share of expected exploration and development
      permit obligations and/or commitments at July 31, 2008. The Company may
      choose to alter the program, reject development costs, relinquish certain
      permits or farm-out its interest in permits where practical.                                                                                                               
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (2) | The Companys total commitments include those that are
      required to be incurred to maintain its permits in good standing during
      the current permit term, prior to the Company committing to the next stage
      of the permit term where additional expenditures would be required. In
      addition, costs are also included that relate to commitments the Company
      has made that are in addition to what is required to maintain the permit
      in good standing.

G.              
Safe Harbor

The safe harbor provided in s. 27A of the Securities Act and s.
21E of the Exchange Act shall apply to forward-looking information provided
pursuant to Item 5.E and F where applicable.

ITEM 6.        DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES

A.              
Directors and Senior Management

As at October 24, 2008 the directors and senior management of
the Company are as follows:

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28

|Name(1)                 | Residence                   | Position                                             
|----------------------- | --------------------------- | -----------------------------------------------------
|                        |                             |                                                      
|Garth Johnson (2)(3)    | Surrey, B.C., Canada        | President, Chief Executive
      Officer and Director
|                        |                             |                                                      
|Peter Loretto (2)(4)(5) | Vancouver, B.C., Canada     | Director                                             
|                        |                             |                                                      
|Alex Guidi (4)(5)(6)    | Vancouver, B.C., Canada     | Director                                             
|                        |                             |                                                      
|Michael Hart (4)        | Roberts Creek, B.C., Canada | Director                                             
|                        |                             |                                                      
|Doug Lynes (7)          | Delta , B.C., Canada        | Chief Financial Officer and
      Corporate Secretary
|                        |                             |                                                      
|Drew Cadenhead (8)      | Surrey, B.C., Canada        | Chief Operating Officer                              

|(1) | Neither age nor date of birth of directors or senior
      managers is required to be reported in the Companys home country (Canada)
      nor otherwise publicly disclosed.                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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. Mr. Loretto also resigned as Chief
      Executive Officer of the Company on March 13, 2008, and Mr. Johnson was
      subsequently appointed as Chief Executive Officer of the Company on March
      13, 2008.
|(3) | Mr. Johnson was appointed as a director of the Company on
      March 13, 2008.                                                                                                                                                                                                                                                                                                              
|(4) | Member of audit committee.                                                                                                                                                                                                                                                                                                                                                                   
|(5) | Member of compensation committee.                                                                                                                                                                                                                                                                                                                                                            
|(6) | Mr. Guidi was appointed as a director of the Company on
      October 17, 2007.                                                                                                                                                                                                                                                                                                              
|(7) | On March 13, 2008 Mr. MacNeil resigned as Chief Financial
      Officer, Corporate Secretary and a director of the Company and was
      immediately replaced by Mr. Lynes as Chief Financial Officer and Corporate
      Secretary of the Company.                                                                                                                                          
|(8) | Mr. Cadenhead was appointed as Chief Operating Officer of
      the Company on January 10, 2008.                                                                                                                                                                                                                                                                                             

Mr. Garth Johnson,Chief Executive
Officer, President and Director. Mr. Johnson is a Certified General
Accountant with over ten years of experience in executive management,
acquisitions, finance, accounting and regulatory reporting for public companies
and has been instrumental in developing junior companies from start-up to
listing on various 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. Currently, Mr. Johnson is also the
Chief Executive Officer, Chief Financial Officer, Secretary and a director of
TAG and the Chief Financial Officer of AMG.

Mr. Peter Loretto, Director. Mr. Loretto obtained
an MBA from Gonzaga University, Spokane, Washington, in 1984 and has been a
director of the Company since May 12, 2003. Mr. Loretto is also a principal
shareholder of the Company. For over 20 years, Mr. Loretto has gained experience
in investment banking and public companies by working as an independent
businessman and investor in both 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. Mr. Loretto served as President of the Company from
May 2003 to January 2008, as Chief Executive Officer of the Company from May
2003 to March 2008 and has also served as a director of TAG.

Mr. Alex Guidi, Director.Mr. Guidi has been a
director of the Company 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. 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.

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29

Mr. Michael Hart, Director.Mr. Hart has 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. He has been a self-employed businessman since 1995 working
as a bookkeeper with an investment-banking group responsible for taking projects
from start-up to the public markets. Mr. Hart passed the Canadian Securities
Course in 1995 and went on to receive a certification in financial management
for small businesses in 2004 from Capilano College in British Columbia. 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. Doug Lynes, Chief Financial Officer and Corporate
Secretary.Mr. Lynes has been the Companys Chief Financial Officer and
Corporate Secretary since March 13, 2008. He obtained a B.Comm. from the
University of British Columbia in 1985 and has been a member of the Institute of
Charted Accountants in British Columbia since 1988. Mr. Lynes has worked as a
Chartered Accountant in public practice for over 20 years. Mr. Lynes has served
as a director of the Company from December 2005 to October 2006, and as a
director of AMG.

Mr. Drew Cadenhead, Chief Operating Officer.Mr.
Cadenhead was appointed as the Chief Operating Officer 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, President and a director of TAG, a director of Austral, Vice President
of Exploration for BTU Resources Ltd. and a Senior Geologist of Ulster Petroleum
Ltd.

No director or any member of senior management has any family
relationships with any other director or manager. There is no arrangement with
any major shareholder, customer, supplier or other party pursuant to which any
person was selected as a director or member of senior management.

B.              
Compensation

The following table sets forth the aggregate compensation paid
by the Company for services rendered during the last full fiscal year indicated,
reported as at July 31, 2008:

---

30

SUMMARY COMPENSATION TABLE

Compensation
      Common
        Shares Under OptionNamed and Principal 
        Position
      Year 
        Ended
      Salary 
        ($)
      Other Annual 
        Compensation 
        ($)
      Number of 
        Options
      Exercise Price
      Expiry DateGarth Johnson, 
        President, Chief 
        Executive Officer and 
        Director (1)
      2008
      -
      -
      500,000 (5)
      $0.50
      March 14, 2013David Bennett, 
        Executive Chairman, 
        Director and 
        Technical Consultant 
        (2)
      2008
      $140,000
      -
      200,000 and 
        250,000 (3)
      $1.00 and 
        $0.50
      September 1, 
        2011 and 
        March 14, 2013Peter Loretto, 
        Director (1)
      2008
      $58,417
      -
      -
      -
      -Alex Guidi, 
        Director
      2008
      $43,417
      -
      -
      -
      -Michael Hart, 
        Director
      2008
      -
      -
      -
      -
      -Barry MacNeil 
        Chief Financial 
        Officer, Corporate 
        Secretary and 
        Director (6)
      2008
      -
      -
      -
      -
      -Doug Lynes, 
        Chief Financial 
        Officer and Corporate 
        Secretary (6)
      2008
      $4,580
      -
      -
      -
      -Drew Cadenhead, 
        Chief Operating 
        Officer
      2008
      $70,000 (4)
      -
      500,000 (5)
      $0.50
      March 14, 2013


|(1) | 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. Mr. Loretto also resigned as Chief
      Executive Officer of the Company on March 13, 2008, and Mr. Johnson was
      subsequently appointed as Chief Executive Officer of the Company on March
      13, 2008.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Dr. Bennett resigned as a director and as Executive
      Chairman of the Company on June 23, 2008, but continued to act as a
      technical consultant of the Company until his agreement was terminated on
      August 13, 2008.                                                                                                                                                         
|(3) | These 250,000 options will expire 90 days from the date
      that David Bennett was terminated as a technical consultant on August 25,
      2008.                                                                                                                                                                                                                                          
|(4) | Commencing January 1, 2008, Mr. Cadenhead receives
      consulting compensation of $10,000 per month for a period of one year for
      his various consulting and advisory services on business development
      matters. For further detail see Item 7.B - Related Party Transactions
      and Item 10.C - Material Contracts.                                                      

---

31

|(5) | On March 14, 2008, Mr. Johnson and Mr. Cadenhead were
      each granted options to purchase up to 500,000 common shares of the
      Company that are exercisable for five years from the date of grant at a
      price of $0.50 per share and are subject to certain vesting
    provisions.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6) | On March 13, 2008 Mr. MacNeil resigned as Chief Financial
      Officer, Corporate Secretary and a director of the Company and was
      immediately replaced by Mr. Lynes as Chief Financial Officer and Corporate
      Secretary of the Company.                                            
|    | No pension, retirement or similar benefits are paid or
      payable to members of the Board or senior management, and no amounts are
      set aside or accrued in connection with pension, retirement or similar
      benefits.                                                             

The Companys directors and officers liability insurance was
established on April 7, 2008 for a period of one year, which will cover
directors and officers in the performance of their duties.

C.              
Board Practices

Term of Office

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 B.C. Act. All officers serve at the
discretion of the Board.

As of October 24, 2008:

|Name           | Position                                              | Office Held Since
|-------------- | ----------------------------------------------------- | -----------------
|               |                                                       |                  
|Garth Johnson  | President                                             | January 2008     
|               |                                                       |                  
|               | Chief Executive Officer and
      Director            | March 2008       
|               |                                                       |                  
|Peter Loretto  | Director                                              | May 2003         
|               |                                                       |                  
|Alex Guidi     | Director                                              | October 2007     
|               |                                                       |                  
|Michael Hart   | Director                                              | December 1999    
|               |                                                       |                  
|Doug Lynes     | Chief Financial Officer and
      Corporate Secretary | March 2008       
|               |                                                       |                  
|Drew Cadenhead | Chief Operating Officer                               | January 2008     

Directors Service Contracts

None of the directors have contracts that provide for any
benefits upon termination of his/her service as a director.

Pursuant to an agreement dated July 10, 2008, the Company
entered into an agreement with Mr. Loretto that includes annual compensation of
$41,000 for his services as a non-executive director, audit committee chairman
and as a member of the compensation committee of the Company and in
consideration that no stock options have been granted to Mr. Loretto.

Pursuant to an agreement dated July 10, 2008, the Company
entered into an agreement with Mr. Guidi that includes annual compensation of
$41,000 for his services as a non-executive director, audit committee member and
as chairman of the compensation committee of the Company and in consideration
that no stock options have been granted to Mr. Guidi.

Pursuant to an agreement dated January 1, 2008, Mr. Cadenhead
receives consulting compensation from the Company of CDN$20,000 per month for a
period of one year for his various consulting and advisory

---

32

services on business development matters. Mr. Cadenhead may
provide consulting and advisory services to other companies engaged in a
business located in the East Coast Basin of New Zealand that is the same as,
similar to or competitive with the Companys business with the prior written
consent of the Board. The Company and TAG have entered into an agreement whereby
Mr. Cadenhead allocates up to 50% of his time to TAG, under which TAG
compensates Mr. Cadenhead for 50% of his contracted monthly compensation with
the Company in the amount of CDN$10,000 per month.

Audit and Compensation Committees

As at October 24, 2008 the members of the audit committee are
Peter Loretto, Alex Guidi and Michael Hart. Mr. Guidi has served as a member of
the audit committee since July 10, 2008. Both Mr. Loretto and Mr. Hart have
served as members of the audit committee since December 3, 2003 and Mr. Loretto
is also the chairman.

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
annual report on Form 20-F filed January 31, 2006.

As at October 24, 2008 the members of the compensation
committee are Mr. Guidi and Mr. Loretto. Both Mr. Guidi and Mr. Loretto have
served as members of the compensation committee since July 10, 2008 and Mr.
Guidi is also the chairman.

The compensation committee serves pursuant to a Compensation
Committee Charter adopted by the Company on July 10, 2008. The committee is
constituted to ensure that executives, staff and Board members are provided
incentives and compensated in a way that advances both the short and long-term
interests of shareholders while also ensuring that the Company is able to
attract and retain executive management talent. A copy of our Compensation
Committee Charter is filed as an exhibit to this Annual Report.

D.              
Employees

As at July 31, 2008 the Company has no full-time employees. In
addition, the Company receives technical, business and administrative services
from a number of consultants.

E.              
Share Ownership

The following table provides information relating to the
shareholdings of our directors and senior managers as of October 24, 2008:

Name
    Number of
    Number of
    Percentage
    Exercise
    Expiry DateShares
    Options(1)
    of
    Price of
    of OptionsOutstanding
    OptionsSharesGarth Johnson
    60,000
    500,000
    0.16 %
    $0.50
    March 14, 2013Peter Loretto
    8,645,143
    -
    23.62%
    -
    -Alex Guidi
    3,646,882
    -
    9.96%
    -
    -Michael Hart
    -
    -
    -
    -
    -Doug Lynes
    10,000
    -
    0.03%
    -
    -Drew Cadenhead
    -
    500,000
    -
    $0.50
    March 14, 2013


|(1) | Options are exercisable into common shares of the
      Company.
|--- | ----------------------------------------------------------------

---

33

No shares held by directors or members of senior management
have different voting rights.

On March 14, 2008, Mr. Johnson and Mr. Cadenhead were each
granted an option to purchase up to 500,000 common shares that are exercisable
for five years from the date of grant at a price of $0.50 per share and are
subject to certain vesting provisions.

There have been no options exercised by any director, officer
or employee as of the date of this Annual Report.

On March 14, 2008, our Board approved a share option plan (the
Plan) that complies with the policies of the TSX-V, which is subject to
shareholders approval at the next annual general meeting of the Company. Under
the Plan the maximum number of common shares reserved for issuance is equal to
10% of the Companys issued and outstanding common shares at any time, less any
common shares already reserved for issuance under outstanding options previously
granted, provided that the total number of common shares that may be issued
pursuant to code stock options (means an option to purchase common shares with
the intention that such option qualify as an incentive stock option as that
term is defined in section 422 of the U.S. Internal Revenue Code of 1986, as
amended) may not exceed 3,500,000. These options are non-assignable and
non-transferable, and have a term of up to 5 years, terminating within 90 days
after the optionee ceases to be associated with the Company and vesting over a
period of at least 18 months. The exercise prices will be established at the
time the options are granted, which is subject to a minimum exercise price of
not less than the Discounted Market Price as defined in the policies of the
TSX-V. A copy of the Plan is filed as an exhibit to this Annual Report.

The Company does not have any formal arrangements for involving
the employees in the capital of the Company. The number of options that are
granted to each employee of the Company is determined by the Board and conducted
pursuant to the Plan.

ITEM 7.        MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.              
Major Shareholders

Beneficial Holders of 5% or More of Voting Securities

The following sets forth information relating to the beneficial
ownership of our common shares held by persons who own 5% or more of our common
shares as of October 24, 2008.

|Name and
      Address of Owner                  |  | Number of Shares | Percentage of Class
|------------------------------------------------ |  | ---------------- | -------------------
|                                                 |  |                  |                    
|Peter Loretto                                    |  | 8,645,143        | 23.62%             
|                                                 |  |                  |                    
|Lukas H. Lundin                                  |  | 5,000,000        | 13.66%             
|                                                 |  |                  |                    
|Alex Guidi                                       |  | 3,646,143        | 9.96%              
|                                                 |  |                  |                    
|Goodman & Company, Investment Counsel
      Ltd. |  | 2,500,000        | 6.83%              

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 and Mr. Guidis purchase of 1,550,000 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 Record Holders

---

34

The following provides information about shareholders of record
in the U.S. as at October 24, 2008 as follows:

Estimated proportion of shares held in the
      U.S.
    5.14%Number of U.S. shareholders
    367Number of shares held by U.S. shareholders
    1,879,451Total number of shareholders
    418Total number of shares held
    36,595,225


Controlling Shareholdings

To the knowledge of management, the Company is not directly or
  indirectly owned or controlled by another corporation(s), by any foreign government
  or by any other natural or legal person, severally or jointly. None of the major
  shareholders listed in Item 7.A  Major Shareholders under
  the heading Beneficial Holders of 5% or More of Voting Securities
  directly or indirectly owns or controls the Company.

Arrangements Affecting Shareholdings

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) | On December 1, 2007, the Company amended a consulting
      agreement dated September 1, 2006, to increase Dr. Bennetts monthly
      consulting compensation to $15,000 per month, which reflected Dr.
      Bennetts increased contribution to the Company as a technical consultant
      directing the Companys operations.                                                                                                                                                                                   
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(b) | On June 24, 2008 the Company and Dr. Bennett reached an
      agreement where the Company re- purchased the 0.5% gross overriding
      royalty from Dr. Bennett in exchange for 200,000 share purchase warrants
      that are exercisable at a price of $0.80 for a period of two
  years.                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(c) | On January 1, 2008, the Company entered into an agreement
      with Mr. Cadenhead to provide consultancy services to the Company for a
      term of one year with monthly compensation of $20,000. The Company and
      TAG, a related company through common directors and officers, also entered
      into an agreement in January 2008 that allows for TAG to utilize Mr.
      Cadenhead as a technical consultant on an ongoing basis by paying one half
      of the monthly compensation.                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(d) | Pursuant to an agreement dated April 1, 2008, the Company
      paid Mr. Loretto through his wholly owned private company, PCL, annual
      compensation of $60,000, which subsequently decreased to $41,000 per year
      beginning July 10, 2008 for his services as a non-executive director,
      audit committee chairman and as a member of the compensation committee of
      the Company and in consideration that no stock options have been granted
      to Mr. Loretto.                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(e) | Pursuant to an agreement dated October 1, 2007, the
      Company paid Mr. Guidi through his wholly owned private company, Pacific
      Reach Management Ltd. (PRM), annual compensation of $60,000, which
      subsequently decreased to $41,000 per year beginning July 10, 2008 for his
      services as a non-executive director, audit committee member and as
      chairman of the compensation committee of the Company and in consideration
      that no stock options have been granted to Mr.
Guidi.

---

35

|(f) | During the fiscal year ending March 31, 2008 the Company
      paid a total of $259,576 (2007 fiscal year - $90,157) in wages, bonuses
      and cost of living allowance to its executive officers.                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(g) | During the 2008 fiscal year, the Company incurred
      $470,983 in certain G&A expenses (2007: $237,235) through its wholly
      owned subsidiary, DLJ. The Company recovered $268,538 (2007: $155,322) of
      these costs from related companies, TAG and AMG. During the 2008 fiscal
      year, these costs included office rent of $27,000 (2007: Nil) that was
      paid by DLJ to a private company owned by a Director of the Company. The
      Company recovered $15,000 of these costs, from TAG and AMG. TAG and AMG
      are related to the Company through common directors and
  officers.

C.              
Interests of Experts and Counsel

Not applicable.

ITEM 8.        FINANCIAL
INFORMATION

A.              
Consolidated Statements and Other Financial Information

Financial Statements

Our audited consolidated financial statements as at and for the
years ended July 31, 2008, 2007 and 2006 are included under Item 17.

Legal Proceedings

There are no material legal proceedings to which we are subject
or which are anticipated or threatened.

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.

B.              
Significant Changes

The following significant change has occurred since July 31,
2008:

| | a) | On August 29, 2008 a total of 12,872,142 share purchase
      warrants that were granted as part of a private placement financing
      expired.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------

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

A.              
Offer and Listing Details

Not applicable.

Price History of the Common Shares

All values noted below are in U.S. dollars per share. Our
common shares are quoted for trading on the OTCBB under the symbol TOPLF. The
following sets forth trading prices for our common shares 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. All
quotations for OTCBB are from the website located at www.finance.yahoo.com.

---

36

Summary trading by year, for the five most recently completed
fiscal periods ending July 31, 2008:

OTCBBFiscal Year
      
      High
      
      Low2004
      
      $0.90
      
      $0.102005
      
      6.00
      
      0.442006
      
      3.00
      
      0.262007
      
      1.70
      
      0.362008
      
      1.00
      
      0.34


Summary trading by quarter for the two most recently competed
fiscal years ending July 31, 2008:

OTCBBFiscal Quarter
      
      High
      
      Low2007First Quarter
      
      $0.89
      
      $0.36Second Quarter
      
      1.70
      
      0.55Third Quarter
      
      0.90
      
      0.51Fourth Quarter
      
      1.10
      
      0.532008First Quarter
      
      $0.08
      
      $0.36Second Quarter
      
      0.65
      
      0.39Third Quarter
      
      0.63
      
      0.34Fourth Quarter
      
      1.00
      
      0.45


Summary trading by month for the six most recently completed
months ending September 31, 2008:

OTCBBMonthly
      
      High
      
      LowSeptember 2008
      
      $0.60
      
      $0.35August 2008
      
      0.70
      
      0.50July 2008
      
      0.75
      
      0.51June 2008
      
      0.84
      
      0.68May 2008
      
      1.00
      
      0.45April 2008
      
      0.63
      
      0.34


B.              
Plan of Distribution

Not applicable.

C.              
Markets

The authorized capital of the Company consists of an unlimited
number of common shares without par value, of which 36,595,225 were issued as of
October 24, 2008.

The Companys shares traded on the VSE in Vancouver, British
Columbia, Canada from April 1989 to July 1997 when they were voluntarily
delisted. On June 10, 1997, the Companys common shares commenced trading on the
OTCBB under the symbol TEPUF. The Companys current trading symbol on the
OTCBB is TOPLF.

D.              
Selling Shareholders

Not applicable.

E.              
Dilution

---

37

Not applicable.

F.              
Expenses of the Issue

Not applicable.

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 the B.C. Act, 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 B.C. Act, 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.A under the heading History and Development of the
Company.

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.

Corporate Registry Entry Number, Objects

The Company is registered as a corporation under the B.C. Act,
entry number 745883. The Company is entitled to carry on all lawful business
which can be carried on by a natural person, except that it is restricted by law
and under its Articles from carrying on the business of a railway, steamship,
air transporter, canal, telegraph, telephone or irrigation company.

Directors Powers

The directors, by majority resolution vote, have power to cause
the Company to enter into and conduct its business and to perform all manner of
agreements and other transactions.

The Articles provide that when a director holds a disclosable
interest (as that term is defined in the B.C. Act) in a matter which is being
considered by the directors, he or she must disclose the nature and extent of
his interest in such contract or transaction or of any other possible conflict,
in accordance with the provisions of the B.C. Act. The B.C. Act definition of a
disclosable interest can be summarized as a material interest in a contract or
transaction that is material to the company. A director who holds a disclosable
interest may not vote on the transaction (unless all of the directors have a
disclosable interest in that transaction) but will be counted in the quorum
present at the meeting at which such vote is taken. A directors remuneration is
not a matter which falls within the definition of a disclosable interest.

The quorum for the transaction of the business of the directors
may be set by the directors and, if not so set, is deemed to be a majority of
the directors or, if the number of directors is set at one, is deemed to be set
at one director, and that director may constitute a meeting.

The directors may, on behalf of the Company:

- borrow money in such manner and amount, on such security, from such
  sources and upon such terms, and conditions as they consider appropriate;

---

38

- issue bonds, debentures, and other debt obligations either outright or as a
  security for any liability or obligation of the Company or any other person
  and at such discounts or premiums and on such other terms as they consider
  appropriate;
- guarantee the repayment of money by any other person or the performance of
  any obligation or any other person; and
- mortgage, charge, whether by way of specific or floating charge, grant a
  security interest in, or give other security on, the whole or any part of the
  present and future assets and undertaking of the Company.

There are no age limit requirements applicable to the Company
under its Articles relating to the retirement or non-retirement of its
directors.

A director of the Company is required under the B.C. Act to be
at least 18 years old, not a bankrupt or mentally incapacitated, nor have been
convicted of fraud. A director is not required to hold a share in the capital of
the Company as qualification for his or her office. There are no requirements
that a director be resident in any particular jurisdiction.

Rights, Preferences and Restrictions Attaching to Common
Shares

The authorized capital of the Company consists of an unlimited
number of common shares without par (or nominal) value and without special
rights or restrictions attached. As at October 24, 2008 there were 36,595,225
common shares issued and outstanding.

Common shares each have the right to one vote in connection
with matters upon which shareholders may vote. This includes the annual election
of directors and approval of other matters requiring a shareholder vote such as
a merger, sale of substantially all of the Companys assets and undertaking, and
transfer from the jurisdiction of British Columbia. Directors do not stand for
re-election at staggered intervals. Directors are elected by simple plurality of
votes (the candidates with the largest number of votes for win until the
maximum number of Board positions are filled). Cumulative voting does not apply
(that is a shareholder does not get a number of votes equal to the number of
candidates in a way that allows the shareholder to skew his or her voting by
voting more votes for only a single candidate).

Common shares are entitled to dividends only if and when
declared by the Board. The Company has not declared or paid any dividends on its
common shares, and has no expectation that dividends will be declared in the
foreseeable future as the Company re-invests its cash to further its exploration
and development activities.

All of the common shares rank equally in respect to any
entitlement to a surplus (after creditors) upon liquidation or wind-up.

There are no such provisions in the Companys Articles in
relation to establishing a redemption or sinking fund for any class of
shares.

The B.C. Act does not permit the issuance of partially paid
shares hence all presently outstanding share capital is not subject to any call
or assessment, all having been issued as fully paid and non-assessable.

There are no such provisions in the Companys Articlesdiscriminating against any existing or prospective holder as a result of
such shareholder owning a substantial number of shares.

Changing the Rights of Shareholders

Under the B.C. Act, a company may, by the type of shareholders
resolution specified by the articles, or, if the articles do not specify the
type of resolution, by an ordinary resolution (that is, 50% plus one of the
votes cast):

---

39

- create special rights or restrictions for, and attach those special rights
  or restrictions to, the shares of any class or series of shares, whether or
  not any or all of those shares have been issued; or
- vary or delete any special rights or restrictions attached to the shares of
  any class or series of shares, whether or not any or all of those shares have
  been issued, and alter its Notice of Articles accordingly.

The Companys Articles provide that if the B.C. Act does not
specify the type of resolution and the Articles do not specify another type of
resolution, the Company may by ordinary resolution alter the Articles.

The Company may by a resolution of the directors authorize an
alteration of its Notice of Articles in order to change its name or adopt or
change any translation of that name. Other more substantive capital alterations
require an ordinary resolution.

The Articles provide that the attachment, variation and
deletion of special rights and restrictions to any class of shares must be
authorized by an ordinary resolution. If the amendment prejudices or interferes
with the rights or special rights attached to any class of issued shares, the
B.C. Act requires the consent of the holders of that class of shares be obtained
by a separate special resolution.

Meetings of Shareholders

The Company must hold its annual shareholders meeting once
  in every calendar year (and in a period not exceeding more than 15 months from
  the last annual shareholders meeting) at such time and place to be determined
  by the directors of the Company. The Company must publish an advance notice
  in the manner required by the B.C. Act of any general meeting at which directors
  are to be elected. The directors may fix in advance a record date, which is
  no fewer than 21 days prior to the date of the meeting and not more than 60
  days before. All the holders of common shares as at that record date are entitled
  to receive notice of and to attend and vote at a general meeting.

The Articles provide that the quorum for the transaction of
business at any meeting of shareholders is two persons who are, or who represent
by proxy, shareholders who, in the aggregate, hold at least ten percent of the
issued shares entitled to be voted at the meeting. If a quorum is not present,
the meeting is set over for one week and then whatever number of shares that is
represented at the set-over meeting shall be deemed to constitute a quorum.

In addition to the requirements of the B.C. Act, there is
extensive regulation of the requirements for the form and content of proxy
materials and the corporate disclosures made therein, which are mandated by
Canadian securities legislation applicable to the Company.

No Limitations on the Right to Own Securities

The Companys Articles do not contain any restrictions on the
rights of any person, including any nonresident or foreign shareholder to hold
or exercise voting rights on the Companys securities. There are no restrictions
applicable to such ownership in Canadian law as discussed in Item 10.D 
Exchange Controls.

Restrictions on Change in Control, Merger, Acquisition or
Corporate Restructuring

There are no provisions in the Companys Articles that would
have the effect of delaying, deferring or preventing a change in control of the
Company or that would operate only with respect to a merger, acquisition or
corporate restructuring involving the Company. The B.C. Act does not contain any
provisions that would have the effect of delaying, deferring or preventing a
change of control of the Company. Stock exchange policies applicable to the
Company however do impose shareholder approval requirements for certain types of
control change transactions.

Ownership Threshold Requiring Public Disclosure

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40

There are no provisions in the Companys Articles or in the
B.C. Act governing the threshold above which shareholder ownership must be
disclosed. The Company is a reporting company under the Securities Act (B.C.)
and the Securities Act (Alberta), and is governed by the securities legislation
in the U.S. as a foreign private issuer.

Canadian provincial securities legislation requires that a
shareholder disclose ownership of 10% or more of the shares (and any further
increases of 2% or more) of the Company by issuing a news release and filing a
report (both containing prescribed disclosure) with the Securities Commissions
in those provinces. They also require the Company to disclose, in its
information circular sent out for an annual meeting or special meeting, the
names of holders known to the Company to beneficially own more than 10% of the
Companys issued and outstanding shares.

Most state corporation statutes do not contain provisions
governing the threshold above which shareholder ownership must be disclosed.
U.S. federal securities laws require a company that is subject to the reporting
requirements of the Exchange Act to disclose, in its annual reports filed with
the SEC those shareholders who own more than 5% of the corporations issued and
outstanding shares. Shareholders are required to file a disclosure statement on
Schedule 13D or 13G if they own more than 5% of the corporations issued and
outstanding shares.

Significant Differences between U.S. Law and the Law
Applicable to Company

The law applicable to the Company and its own governance
practices differ from those followed by U.S. domestic companies in the following
material respects:

- The Company is a foreign private issuer as defined in Rule 3b-4 under the
  Exchange Act, and the equity securities of the Company are accordingly exempt
  from the proxy rules set forth in Sections 14(a), 14(b), 14(c) and 14(f) of
  the Exchange Act. The Company solicits proxies in accordance with applicable
  rules and regulations in Canada.

Changes to the Companys Capital

The Companys Articles do not contain any provisions governing
changes in capital more stringent than those required by the B.C. Act.

C.              
Material Contracts

The Company has entered into, or remains subject to, the
following material contracts in the two years prior to October 24, 2008 that can
reasonably be regarded as not being in the ordinary course of the Companys
business (which ordinary course includes the routine purchase and
farm-in/farm-out of oil and gas properties, and settlement of claims):

Contract
    Date
    Parties
    DescriptionShare Option Plan
    March 14, 2008
    Trans-Orient, Directors, Officers, Employees
      and Consultants
    Reserves 10% of Trans-Orients
      issued and outstanding shares at any time for grants of options to
      eligible participants in accordance with the policies of the TSX-V, less
      any common shares already reserved for issuance under outstanding options
      previously granted, provided that the total number of common shares that
      may be issued pursuant to code stock options (as defined in Item 6.E 
      Share Ownership) may not exceed 3,500,000.


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41

Contract
    Date
    Parties
    DescriptionOption Agreement
    March 14, 2008
    Trans-Orient and Garth Johnson
    Issued pursuant to Trans-Orients Plan to acquire 500,000
      shares up to March 14, 2013 at an exercise price of $0.50 per share, which
      will vest and may be exercised as follows:
      1/3 of the total
          number of options granted will vest six months after the date of grant;
        a further 1/3 of the total number of options granted will vest
          one year after the date of grant; and
        the remaining 1/3 of the
          total number of options granted will vest eighteen months after the date
          of grant.Option Agreement
    March 14, 2008
    Trans-Orient and Drew Cadenhead
    Issued pursuant to Trans-Orients Plan to acquire 500,000
      shares up to March 14, 2013 at an exercise price of $0.50 per share, which
      will vest and may be exercised as follows:
      1/3 of the total
          number of options granted will vest six months after the date of grant;
        a further 1/3 of the total number of options granted will vest
          one year after the date of grant; and
        the remaining 1/3 of the
          total number of options granted will vest eighteen months after the date
          of grant.Consulting Agreement
    January 1, 2008
    Trans-Orient and Drew Cadenhead
    Provides for consulting compensation of CDN$240,000 to
      Drew Cadenhead for a period of one year for his various consulting and
      advisory services on business development matters. Mr. Cadenhead may
      terminate the agreement by giving not less than one months written notice
      of termination. Trans-Orient may on written notice immediately terminate
      this agreement at any time for cause (as defined in the agreement) and Mr.
      Cadenhead will not be entitled to receive any payment on account of such
      termination, other than such amounts due in respect of the period ending
      on the date of termination. Trans- Orient may terminate the agreement
      without cause by giving not less than one months written notice of
      termination and Mr. Cadenhead will not be entitled to receive any payment
      on account of such termination, other than such amounts due in respect of
      the period ending on the date of termination.Consulting Arrangement
    July 17, 2008
    Trans-Orient and TAG
    Provides for a consulting arrangement between
      Trans-Orient and TAG whereby Drew Cadenhead allocates up to 50% of his
      time to TAG, under which TAG compensates Mr. Cadenhead for 50% of his
      contracted monthly compensation with Trans- Orient in the amount of
      $10,000 per month on an on-going basis, effective January 1, 2008.Asset Purchase Agreement
    June 24, 2008
    Trans-Orient and David Bennett
    Provides for Trans-Orients purchase of Dr. Bennetts
      gross overriding royalty of 0.5% on Trans-Orients PEP 38348 and PEP 38349
      in exchange for 200,000 share purchase warrants that entitles the holder
      to acquire an additional common share in the capital of Trans-Orient at a
      price of $0.80 per common share for two years from the closing date of
      June 23, 2008.Directors Compensation and Indemnity Agreement
    July 10, 2008
    Trans-Orient and Alex Guidi
    Provides for indemnity and annual compensation of $41,000
      to Alex Guidi for his services as a non-executive director, audit
      committee member and compensation committee chairman of Trans-Orient.


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42

Contract
    Date
    Parties
    DescriptionDirectors Compensation and Indemnity Agreement
    July 10, 2008
    Trans-Orient and Peter Loretto
    Provides for indemnity and annual
      compensation of $41,000 to Peter Loretto for his services as a
      non-executive director, audit committee chairman and compensation
      committee member of Trans-Orient.Indemnity Agreement
    March 13, 2008
    Trans-Orient and Garth Johnson
    Provides for indemnity to Garth
      Johnson for his services as an officer and a director of Trans-Orient.Indemnity Agreement
    March 13, 2008
    Trans-Orient and Michael Hart
    Provides for indemnity to Michael
      Hart for his services as a director of Trans-Orient.Indemnity Agreement
    March 13, 2008
    Trans-Orient and Doug Lynes
    Provides for indemnity to Doug
      Lynes for his services as an officer of Trans-Orient.Indemnity Agreement
    March 13, 2008
    Trans-Orient and Drew Cadenhead
    Provides for indemnity to Drew
      Cadenhead for his services as an officer of Trans-Orient.


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 below.

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, an investment would be reviewable where the value of the
acquired assets exceeds CAD $5 million, 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.

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43

For an indirect acquisitions 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 is less than or equal to 50% of the value of all of the assets
acquired in the transaction and the value of the Canadian assets is $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 $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 is CAD $281 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.

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

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44

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 U.S. 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 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.

U.S. 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

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45

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, 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).

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46

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 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

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47

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.

PFIC Considerations

Management believes that the Company will not be treated as a
PFIC, for U.S. federal income tax purposes for the current taxable year, nor for
the foreseeable future. However, an actual determination of PFIC status is
factual in nature and generally cannot be made until the close of the applicable
taxable year. We will be a PFIC if either:

- 75% or more of our gross income in a taxable year is passive income, which
  includes dividends, interest, royalties, rents, annuities, and some types of
  gains; or
- the average percentage of the value of our assets that produce or are held
  for the production of passive income is at least 50%.

If the Company were classified as a PFIC, U.S. shareholders
would be subject to certain adverse U.S. tax consequences, including the
application of special rules to certain extraordinary distributions, possible
characterization of gain with respect to the shares as ordinary and the possible
imposition of an interest charge on taxes that U.S. holders would be deemed to
have deferred.

U.S. shareholders are urged to consult their own tax advisors
concerning the potential application of the PFIC rules to their ownership and
disposition of the Companys shares.

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
document may be inspected in our Vancouver office at Suite 1407, 1050 Burrard
Street, Vancouver, British Columbia, V6Z 2S3 or at the address of the Companys
registered office at Suite 1100, 888 Dunsmuir Street, Vancouver, British
Columbia, V6C 3K4. Copies of the Companys financial statements and other
continuous disclosure documents required under the British Columbia Securities
Act may be viewed at www.sedar.com and
documents referred to in this document are filed with the SEC and can be viewed
at: www.sec.gov.

I.Subsidiary Information

See Item 4.C - Organizational Structure.

ITEM 11.      QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are currently not subject to any material market risks.

---

48

ITEM 12.      DESCRIPTION OF
SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

PART II

ITEM 13.      DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES

There has been no material default in any indebtedness, as the
Company has no debt.

We have never paid nor declared a dividend, so there are no
arrearages.

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

Not applicable.

ITEM 15.      CONTROLS AND
PROCEDURES

Not applicable.

ITEM 15T.   CONTROLS AND PROCEDURES

The Company is aware of the importance of maintaining controls
and procedures and is continuously improving its controls and procedures.

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that
are designed to ensure that information required to be disclosed on reports that
the Company files under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Exchange Act Rules and
forms.

Our Chief Executive Officer and Chief Financial Officer, after
evaluating the effectiveness of our disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of July 31, 2008,
concluded that, as of such date, our disclosure controls and procedures were
effective in ensuring that information required to be disclosed by the Company
was recorded, processed, summarized and reported within the time periods
specified in the Exchange Act Rules and forms.

Managements Annual Report on Internal Control Over
Financial Reporting

The Companys management is responsible for establishing and
maintaining adequate internal control over financial reporting as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Companys internal
control over financial reporting is a process designed by, or under the
supervision of, the Companys Chief Executive Officer and Chief Financial
Officer, and effected by the Companys Board, management and other personnel, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of the financial statements for external purposes in
accordance with generally accepted accounting principles and includes those
policies and procedures that (i) pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect our transactions and
dispositions of assets; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that our receipts
and expenditures are being made only in accordance with the authorization of our
management and directors; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material effect on the financial statements.

---

49

Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our
management, including the Companys Chief Executive Officer and Chief Financial
Officer, we conducted an evaluation of the effectiveness of the Companys
internal control over financial reporting as of July 31, 2008. In making this
evaluation, management used the framework set forth in Internal Control 
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this evaluation, management concluded that as of
July 31, 2008, the Companys internal control over financial reporting was
effective.

Attestation Report of Registered Public Accounting Firm

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

Changes in Internal Controls Over Financial Reporting

During the year ended July 31, 2008, there were no changes in
our internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) of the Securities Exchange Act of 1934) that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.

ITEM 16.      [RESERVED]

ITEM 16A.   AUDIT COMMITTEE FINANCIAL EXPERT

The Company has an audit committee comprised of Peter Loretto,
Alex Guidi and Michael Hart. Our Board has determined that Mr. Loretto, who is
the chairman, is an audit committee financial expert and is not independent
as defined in the listing standards of AMEX.

ITEM 16B.   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 may be requested, free of charge, from
the Vancouver office of the Company at Suite 1407, 1050 Burrard Street,
Vancouver, British Columbia, Canada, V6Z 2S3, Attention: Investor Relations. In
addition, the code of ethics has been filed as an exhibit to our annual report
on Form 20-F on January 31, 2005.

ITEM 16C.   PRINCIPAL ACCOUNTANT FEES AND SERVICES

Principal Accountant Service
    For the fiscal year ended July
      31, 2008 (CDN$)
    For the fiscal year ended July
      31, 2007 (CDN$)Audit Fees
      (1)
    $18,938
    $18,836Audit Related
      Fees (2)
    -
    -Tax Fees
      (3)
    $1,500
    $1,400All Other Fees
      (4)
    -


---

50



|(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,
      DeVisser 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

It is within the mandate of the Companys audit committee to
approve all audit and non-audit related fees paid to the independent auditors.
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 audit committee from time to time.
The auditors 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.

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

Not applicable.

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

Not applicable.

PART III

ITEM 17.      FINANCIAL STATEMENTS

Financial Statements begin on page 52.

INDEX TO FINANCIAL STATEMENTS

PageAuditors
      Report
    52Consolidated
      Balance Sheets
    53Consolidated
      Statements of Operations and Deficit
    54Consolidated
      Statements of Comprehensive Loss
    55Consolidated
      Statements of Cash Flows
    56Notes
      to the Consolidated Financial Statements
    57


---

51

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

---

52

D E  V I S S E R   G R A
Y   L L PCHARTERED 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, 2008 and 2007 and the consolidated statements of
operations and deficit, comprehensive loss and cash flows for each of the years
in the three year period ended July 31, 2008. These consolidated 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, 2008 and 2007 and the results of its operations and its cash flows for
each of the years in the three year period ended July 31, 2008 in accordance
with generally accepted accounting principles in Canada.



De Visser Gray LLPCHARTERED ACCOUNTANTS

Vancouver, British Columbia, Canada October 15, 2008

---

53

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

|As at July 31,                                       |   | 2008        |   |   | 2007        |  
|---------------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                                     |   |             |   |   |             |  
|Assets                                               |   |             |   |   |             |  
|                                                     |   |             |   |   |             |  
|Current                                              |   |             |   |   |             |  
|                                                     |   |             |   |   |             |  
|Cash and cash equivalents                            | $ | 6,171,793   |   | $ | 8,499,720   |  
|Accounts receivable                                  |   | 51,821      |   |   | 44,098      |  
|Prepaid expenses                                     |   | 31,925      |   |   | 7,600       |  
|                                                     |   |             |   |   |             |  
|                                                     |   | 6,255,539   |   |   | 8,551,418   |  
|                                                     |   |             |   |   |             |  
|Restricted cash (Note 9)                             |   | 78,052      |   |   | 59,828      |  
|Investments (Note 4)                                 |   | 1,143,590   |   |   | 3,514,572   |  
|Property and equipment (Note 5)                      |   | 1,523,917   |   |   | 292,618     |  
|                                                     |   |             |   |   |             |  
|Total Assets                                         | $ | 9,001,098   |   | $ | 12,418,436  |  
|                                                     |   |             |   |   |             |  
|Liabilities                                          |   |             |   |   |             |  
|                                                     |   |             |   |   |             |  
|Current                                              |   |             |   |   |             |  
|                                                     |   |             |   |   |             |  
|Accounts payable and accrued liabilities             | $ | 107,723     |   | $ | 65,808      |  
|                                                     |   |             |   |   |             |  
|Total Liabilities                                    |   | 107,723     |   |   | 65,808      |  
|                                                     |   |             |   |   |             |  
|Shareholders Equity                                 |   |             |   |   |             |  
|                                                     |   |             |   |   |             |  
|Share capital (Note 8)                               |   | 23,690,325  |   |   | 23,655,325  |  
|Contributed surplus (Note 8)                         |   | 192,137     |   |   | 63,973      |  
|Accumulated deficit                                  |   | (12,618,105 | ) |   | (11,366,670 | )
|                                                     |   | 11,264,357  |   |   | 12,352,628  |  
|Accumulated other comprehensive loss (Notes 2 and 4) |   | (2,370,982  | ) |   | -           |  
|                                                     |   |             |   |   |             |  
|Total Shareholders Equity                           |   | 8,893,375   |   |   | 12,352,628  |  
|                                                     |   |             |   |   |             |  
|Total Liabilities and Shareholders Equity           | $ | 9,001,098   |   | $ | 12,418,436  |  
|Nature and continuance of operations (Note 1)        |   |             |   |   |             |  
|Commitments and contingencies (Note 10)              |   |             |   |   |             |  
|Subsequent events (Note 12)                          |   |             |   |   |             |  

Approved on behalf of the Board of Directors:

| Garth Johnson |  | Peter Loretto
|---------------- |  | ---------------
|Director         |  | Director       

See accompanying notes to the consolidated financial statements

---

54

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

|For the years
      ended July 31,                       |   | 2008        |   |   | 2007        |   |   | 2006        |  
|-------------------------------------------------------- | - | ----------- | - | - | ----------- | - | - | ----------- | -
|                                                         |   |             |   |   |             |   |   |             |  
|Expenses                                                 |   |             |   |   |             |   |   |             |  
|                                                         |   |             |   |   |             |   |   |             |  
|General and administrative (Schedule)                    | $ | 1,340,283   |   | $ | 557,980     |   | $ | 305,173     |  
|Amortization                                             |   | 5,377       |   |   | 5,144       |   |   | 5,564       |  
|Directors & officers insurance                           |   | 22,786      |   |   | -           |   |   | -           |  
|Foreign exchange                                         |   | 89,591      |   |   | 5,400       |   |   | (1,987      | )
|Gain on sale of investment                               |   | -           |   |   | (1,580      | ) |   | (774,664    | )
|Interest income                                          |   | (303,857    | ) |   | (292,289    | ) |   | (13,848     | )
|Recovery of loan receivable previously
      written-off |   | -           |   |   | (102,842    | ) |   | (32,324     | )
|Stock option compensation                                |   | 87,303      |   |   | 63,973      |   |   | -           |  
|Write-off of oil and gas properties                      |   | 9,952       |   |   | -           |   |   | -           |  
|Write-down of
      investments                          |   | -           |   |   | 859,024     |   |   | 136,262     |  
|                                                         |   |             |   |   |             |   |   |             |  
|(Loss) income from operations                            |   | (1,251,435  | ) |   | (1,094,810  | ) |   | 375,824     |  
|Non-controlling interests portion of AMGs loss         |   | -           |   |   | -           |   |   | 5,782       |  
|                                                         |   |             |   |   |             |   |   |             |  
|Net (loss) income for the year                           |   | (1,251,435  | ) |   | (1,094,810  | ) |   | 381,606     |  
|                                                         |   |             |   |   |             |   |   |             |  
|Deficit  Beginning of year                              |   | (11,366,670 | ) |   | (10,271,860 | ) |   | (10,653,466 | )
|                                                         |   |             |   |   |             |   |   |             |  
|Deficit - End of year                                    | $ | (12,618,105 | ) | $ | (11,366,670 | ) | $ | (10,271,860 | )
|                                                         |   |             |   |   |             |   |   |             |  
|(Loss) income per share - basic                          | $ | ( 0.03      | ) | $ | ( 0.03      | ) | $ | 0.02        |  
|- diluted                                                | $ | -           |   | $ | -           |   | $ | 0.02        |  
|                                                         |   |             |   |   |             |   |   |             |  
|Weighted-average number of common shares outstanding     |   | 36,553,855  |   |   | 32,645,125  |   |   | 17,618,083  |  

See accompanying notes to the consolidated financial statements

---

55

|                                             
|---------------------------------------------
|Consolidated Statements of Comprehensive Loss
|(Expressed in
      United States Dollars)   

|For the years
      ended July 31,             |   | 2008       |   |   | 2007       |   |   | 2006    | 
|---------------------------------------------- | - | ---------- | - | - | ---------- | - | - | ------- | 
|Net (loss) income for the year                 | $ | (1,251,435 | ) | $ | (1,094,810 | ) | $ | 381,606 | 
|Other comprehensive loss during the year       |   |            |   |   |            |   |   |         | 
|Fair value adjustment                          |   |            |   |   |            |   |   |         | 
|Investments (Notes 2 and 4)                    |   | (2,370,982 | ) |   | -          |   |   | -       | 
|                                               |   |            |   |   |            |   |   |         | 
|Comprehensive
      (loss) income for the year | $ | (3,622,417 | ) | $ | (1,094,810 | ) | $ | 381,606 | 

See accompanying notes to the consolidated financial statements

---

56

|                                          
|------------------------------------------
|                                          
|(Expressed in
      United States Dollars)

|For the years
      ended July 31,          |   | 2008      |  |   | 2007    |  |   | 2006    | 
|------------------------------------------- | - | --------- |  | - | ------- |  | - | ------- | 
|                                            |   |           |  |   |         |  |   |         | 
|General and Administrative Expenses         |   |           |  |   |         |  |   |         | 
|                                            |   |           |  |   |         |  |   |         | 
|Accounting and audit                        | $ | 20,011    |  | $ | 19,531  |  | $ | 18,773  | 
|Consulting fees                             |   | 17,731    |  |   | 32,030  |  |   | 11,852  | 
|Corporate relations and development         |   | 398,099   |  |   | 131,663 |  |   | 25,210  | 
|Directors fees                              |   | 264,709   |  |   | 60,204  |  |   | 58,054  | 
|Filing, regulatory and transfer agency fees |   | 103,755   |  |   | 24,948  |  |   | 24,976  | 
|Legal                                       |   | 26,159    |  |   | 24,913  |  |   | 31,110  | 
|Office, rent and miscellaneous              |   | 124,085   |  |   | 76,951  |  |   | 50,824  | 
|Printing                                    |   | 24,730    |  |   | 8,003   |  |   | 12,415  | 
|Reports                                     |   | 18,318    |  |   | 58,807  |  |   | -       | 
|Travel, promotion and accommodation         |   | 156,377   |  |   | 71,752  |  |   | 31,147  | 
|Wages and benefits                          |   | 186,309   |  |   | 49,178  |  |   | 40,812  | 
|                                            |   |           |  |   |         |  |   |         | 
|                                            | $ | 1,340,283 |  | $ | 557,980 |  | $ | 305,173 | 

See accompanying notes to the consolidated financial statements

---

57

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

|For the years ended July 31,                                    |   | 2008       |   |   | 2007       |   |   | 2006      |  
|--------------------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | --------- | -
|                                                                |   |            |   |   |            |   |   |           |  
|Net (decrease) increase of cash related
      to the following: |   |            |   |   |            |   |   |           |  
|                                                                |   |            |   |   |            |   |   |           |  
|Operating Activities                                            |   |            |   |   |            |   |   |           |  
|Net (loss) income for the year                                  | $ | (1,251,435 | ) | $ | (1,094,810 | ) | $ | 381,606   |  
|Items not affecting cash:                                       |   |            |   |   |            |   |   |           |  
|Amortization                                                    |   | 5,377      |   |   | 5,144      |   |   | 5,564     |  
|Gain on sale of investment                                      |   | -          |   |   | (1,580     | ) |   |           |  
|Loss on sale of investment                                      |   | -          |   |   | -          |   |   | 3,759     |  
|Non-controlling interest                                        |   | -          |   |   | -          |   |   |           |  
|Stock option compensation                                       |   | 87,303     |   |   | 63,973     |   |   | -         |  
|Write-down of investment                                        |   | -          |   |   | 859,024    |   |   | 136,261   |  
|Write-off of oil and gas interest                               |   | -          |   |   | -          |   |   | 1         |  
|Write-off of general exploration                                |   | 9,952      |   |   | -          |   |   | -         |  
|Changes in non-cash working capital items:                      |   |            |   |   |            |   |   |           |  
|Accounts payable and accrued
      liabilities                  |   | (33,514    | ) |   | 53,402     |   |   | 12,331    |  
|Accounts receivable                                             |   | (7,723     | ) |   | (16,289    | ) |   | (16,994   | )
|Prepaid expenses                                                |   | (24,325    | ) |   | (2,629     | ) |   | (4,971    | )
|Net cash used for
      operating activities                    |   | (1,214,365 | ) |   | (133,765   | ) |   | (266,648  | )
|                                                                |   |            |   |   |            |   |   |           |  
|Financing Activities                                            |   |            |   |   |            |   |   |           |  
|Restricted cash                                                 |   | (18,224    | ) |   | (17,654    | ) |   | (6,005    | )
|Common stock
      issued for cash                              |   | 35,000     |   |   | 10,480,250 |   |   | -         |  
|Net cash provided by (used for) financing activities            |   | 16,776     |   |   | 10,462,596 |   |   | (6,005    | )
|                                                                |   |            |   |   |            |   |   |           |  
|Investing Activities                                            |   |            |   |   |            |   |   |           |  
|Proceeds from sales of investments                              |   | -          |   |   | 3,980      |   |   | 1,349,517 |  
|Purchases of investments                                        |   | -          |   |   | (2,071,185 | ) |   | (800,000  | )
|Purchases of
      property and equipment                       |   | (1,130,338 | ) |   | (213,875   | ) |   | (4,135    | )
|Net cash (used for) provided by investing activities            |   | (1,130,338 | ) |   | (2,281,080 | ) |   | 545,382   |  
|                                                                |   |            |   |   |            |   |   |           |  
|Cash of AMG Oil upon deconsolidation                            |   | -          |   |   | -          |   |   | (11,377   | )
|                                                                |   |            |   |   |            |   |   |           |  
|Net (decrease) increase in cash                                 |   | (2,327,927 | ) |   | 8,047,751  |   |   | 261,352   |  
|Cash and
      equivalents - Beginning of year                  |   | 8,499,720  |   |   | 451,969    |   |   | 190,617   |  
|                                                                |   |            |   |   |            |   |   |           |  
|Cash and
      equivalents - End of year                        | $ | 6,171,793  |   | $ | 8,499,720  |   | $ | 451,969   |  
|Supplemental cash flow information                              |   |            |   |   |            |   |   |           |  
|Interest paid                                                   |   | -          |   |   | -          |   |   | -         |  
|Interest received                                               | $ | 315,197    |   | $ | 287,457    |   | $ | 10,837    |  
|Cash and equivalents
      comprised of:                        |   |            |   |   |            |   |   |           |  
|Chartered bank discount notes                                   | $ | 5,775,955  |   | $ | 8,311,429  |   | $ | -         |  
|Cash held in treasury
      accounts                            |   | 395,838    |   |   | 188,291    |   |   | 451,969   |  
|                                                                | $ | 6,171,793  |   | $ | 8,499,920  |   | $ | 51,969    |  

See accompanying notes to the consolidated financial statements

---

58

|                                                
|------------------------------------------------
|                                                
|(Expressed in
      United States Dollars)      
|                                                
|For the Years
      Ended July 31, 2008 and 2007

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 accordance
      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. Specific items particularly subject to management estimates
      are the carrying amounts of deferred property costs, potential accruals
      for future site reclamation costs and the determination of inputs required
      in the calculation of stock based compensation. Actual results could
      differ from these estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | On August 1, 2007 the Company adopted the new Canadian
      Institiute of Chartered Accountants (CICA) standards for Comprehensive
      Income (CICA 1530), Financial Instruments (CICA 3855) and Hedges (CICA
      3865). The new standards bring Canadian rules into line with current rules
      in the United States. The standards have introduced the concept of
      Comprehensive Income to Canadian GAAP and will require that an
      enterprise: a) classify items of comprehensive income by their nature in
      the financial statements and b) display the accumulated balance of
      comprehensive income seperately from retained earnings and additional
      paid-in capital in the equity section of the statement of financial
      position. Derivative contracts will be carried on the balance sheet at
      their mark-to-market value, with any change in value flowing to either net
      income or comprehensive income. Gains and losses on instruments that are
      identified as hedges will flow initially to comprehensive income and be
      brought into net income at the time the underlying hedged item is settled.
      Any instruments that do not qualify for hedge accounting treatment will be
      marked-to-market with the tax-effected adjustment flowing through the
      income statement. The Company did not identify any derivatives requiring
      disclosure but did identify comprehensive income items requiring
      disclosure as a result of adopting the new
standards.

---

59

|b) | Basis of Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | These consolidated financial statements include the
      accounts of the Company and its wholly-owned subsidiaries: Orient
      Petroleum (NZ) Limited, Eastern 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 intercompany balances and transactions
      with subsidiaries have been eliminated on consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|c) | Translation of Foreign Currencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | The Company's foreign operations, conducted through its
      subsidiaries, are of an integrated nature and, accordingly, the temporal
      method of foreign currency translation is used for conversion of
      foreign-denominated amounts into United States dollars. Monetary assets
      and liabilities are translated into United States dollars at the rates
      prevailing on the balance sheet date. Other assets and liabilities are
      translated into United States dollars at the rates prevailing on the
      transaction dates. Revenues and expenses arising from foreign currency
      transactions are translated into United States dollars at the average rate
      for the year. Exchange gains and losses are recorded as income or expense
      in the year in which they occur.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|d) | Fair Value of Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | The Company's financial instruments consist of cash and
      cash equivalents, amounts receivable and accounts payable and accrued
      liabilities. The fair values of the current assets and liabilities
      approximate the carrying amounts due to the short-term nature of these
      instruments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|e) | Cash and Cash Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Cash and cash equivalents include term investments
      recorded at cost with maturities of three months or less, together with
      accrued interest thereon, which are readily convertible to known amounts
      of cash.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|f) | 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, 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, development, estimated future development as
      well as dismantlement and abandonment costs, net of salvage values 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 and costs which are
      unlikely to be recovered are written-off. The Companys current oil and
      gas interests are at a stage of exploration where an assessment of
      feasibility cannot yet be made.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | 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 at a discount rate of 10% and the lower of cost and
      market of unproved properties. The cash flows are estimated using forecast
      product prices and costs with the forecast product pricing being a
      constant                                                                                                                                                                                                                                                

---

60

|   | price utilizing the actual oil price posted at July 31,
      2008 and discounted using a risk-free interest rate of 10%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | To the extent that the Company advances work on its
      unproven exploration permits, the costs incurred thereon continue to be
      deferred as assets. These amounts represent actual amounts incurred and
      are not intended to reflect the current or future fair values of these
      exploration permits. There can be no assurance at this time that these
      amounts are recoverable from either production revenue or the disposition
      of all or some of these interests, in which case they would be
      reclassified from assets to expenses of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Sales of oil and gas properties, whether or not being
      amortized currently, shall be accounted for as adjustments of capitalized
      costs, with no gain or loss recognized unless such adjustments would
      significantly alter the relationship between capitalized costs and proved
      reserves of oil and gas attributable to a cost centre. Abandonments of oil
      and gas properties shall be accounted for as adjustments of capital cost
      with the costs of abandoned properties being charged to the cost center
      and amortized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | 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%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|g) | 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 enacted or substantively enacted tax rates
      expected to apply to taxable income in the years in which those temporary
      differences are expected to be recovered or settled. The effect on future
      tax assets and liabilities of a change in tax rates is recognized in
      income in the period that includes the date of enactment or substantive
      enactment of the change. When the future realization of income tax assets
      does not meet the test of being more likely to occur 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 income tax assets of the Company.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|h) | Stock-based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The Company has a stock based compensation program for
      officers, directors, employees and consultants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | All stock option based grants are measured and recognized
      in the consolidated financial statements using a fair value based method.
      Fair value is created 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|i) | Loss per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Loss per share is calculated using the weighted-average
      number of common shares outstanding during the year. Diluted loss per
      share is not presented, as it is anti-dilutive.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|j) | Asset retirement obligation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | 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 and probable reserves. The
      liability amount of accretion is expensed in the period. Actual costs
      incurred upon the                                                                                                                                                                                      

---

61

settlement of the ARO are charged
against the liability. At July 31, 2008 the Company does not have any asset
retirement obligations.

NOTE 3  FUTURE CHANGES IN ACCOUNTING POLICIES

|a) | Capital Disclosures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Effective August 1, 2008 the Company will be required to
      adopt CICA Handbook Section 1535 that requires disclosure of an entitys
      objectives, policies and processes for managing capital, quantitative data
      about what the entity regards as capital and whether the entity has
      complied with any capital requirements and, if it has not complied, the
      consequences of such non-compliance. This standard is effective for the
      Company for interim and annual periods relating to fiscal years beginning
      on or after January 1, 2008. The Company is currently evaluating the
      effects of adopting this standard.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|b) | Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Effective August 1, 2008 the Company will be required to
      adopt CICA Handbook Section 3862, Financial Instruments - Disclosures and
      Section 3863 -Financial Instruments-Presentation which have replaced CICA
      Handbook Section 3861, Financial Instruments - Disclosure and
      Presentation. Sections 3862 and 3863 increase the disclosures currently
      required, which will enable users to evaluate the significance of
      financial instruments for an entitys financial position and performance,
      including disclosures about fair value. In addition, disclosure is
      required of qualitative and quantitative information about exposure to
      risks arising from financial instruments, including specified minimum
      disclosures about credit risk, liquidity risk and market risk. The
      quantitative disclosures must provide information about the extent to
      which the entity is exposed to risk, based on information provided
      internally to the entitys key management personnel. This standard is
      effective for the Company for interim and annual periods beginning on or
      after January 1, 2008. The Company is currently evaluating the effects of
      adopting this standard.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|c) | International Financial reporting Standards
      (IFRS)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | In February 2008 the Canadian Accounting Standards Board
      announced 2011 as the changeover date for publicly-listed companies to use
      IFRS, replacing Canadas own generally accepted accounting principles. The
      specific implementation is set for interim and annual financial statements
      relating to fiscal years beginning on or after January 1, 2011. The
      transition date of January 1, 2011 will require restatement for
      comparative purposes of amounts reported by the Company for the year ended
      December 31, 2010. While the Company has begun assessing the adoption of
      IFRS for 2011, the financial reporting impact of the transition to IFRS
      cannot be reasonably estimated at this time.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

NOTE 4 - INVESTMENTS

At July 31, 2008, 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
    
    
    
    
    
    2008
    
    
    PercentageCommon
    
    
    Carrying
    
    
    Comprehensive
    
    
    Market
    
    
    ofShares
    
    
    Value
    
    
    Income/(Loss)
    
    
    Value
    
    
    OwnershipAMG Oil Ltd.
    
    826,431
    
    $
    1
    
    $
    272,722
    
    $
    272,723
    
    
    3.56%Austral Pacific Energy
    
    3,110,240
    
    
    3,514,571
    
    
    (2,643,704
    )
    
    870,867
    
    
    5.23%$
    3,514,572
    
    $
    (2,370,982
    )
    $
    1,143,590


As at July 31, 2008 and in accordance
with CICA 3855, the Companys investments are recorded at market value.

On August 1, 2007 the Company adopted
Canadian Institiute of Chartered Accountants (CICA) standard for Comprehensive
Income (CICA 1530). This standard introduced Comprehensive Income to Canadian
GAAP requiring that an enterprise: a) classify items of comprehensive income by
their nature in the financial statements and b) display the accumulated balance
of comprehensive income seperately from retained earnings and additional paid-in
capital in the equity section of the

---

62

statement of financial position.

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 |  |   | 2006      |  |   | 2007      |  |  | Percentage | 
| |                        |  | Common    |  |   | Carrying  |  |   | Market    |  |  | of         | 
| |                        |  | Shares    |  |   | Value     |  |   | Value     |  |  | Ownership  | 
| |                        |  |           |  |   |           |  |   |           |  |  |            | 
| | AMG Oil Ltd.           |  | 826,431   |  | $ | 1         |  | $ | 429,744   |  |  | 3.56%      | 
| | Austral Pacific Energy |  | 3,110,240 |  |   | 3,514,571 |  |   | 4,167,722 |  |  | 10.18%     | 
| |                        |  |           |  | $ | 3,514,572 |  | $ | 4,597,466 |  |  |            | 

The Companys investments to the end of
July 31, 2007 were accounted for using 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 adjusted to fair value, where determinable, only if there is an,
other-than-temporary decline in value as the Company intends to hold them for a
period of greater than one year.

During the 2008 fiscal year the Company did not conduct any
investing activities.

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.                                                                                                                                                                                                                                                                        

NOTE 5 - PROPERTY AND EQUIPMENT

|             |  | Working     |  |   | Net Book    |  |   | Additions   |  |   | Amortization |   |   | Net Book    |  |   | Additions   |  |   | Amortization |   |   | Net Book      | 
|------------ |  | ----------- |  | - | ----------- |  | - | ----------- |  | - | ------------ | - | - | ----------- |  | - | ----------- |  | - | ------------ | - | - | ------------- | 
|             |  | Interest    |  |   | Value       |  |   | During the  |  |   | & Write-offs |   |   | Value       |  |   | During the  |  |   | & Write-offs |   |   | Value at      | 
|             |  | at July 31, |  |   | At July 31, |  |   | 2007 Fiscal |  |   |              |   |   | At July 31, |  |   | 2008 Fiscal |  |   |              |   |   | July 31, 2008 | 
|             |  | 2007/2008   |  |   | 2006        |  |   | Year        |  |   |              |   |   | 2007        |  |   | Year        |  |   |              |   |   |               | 
|Oil and Gas  |  |             |  |   |             |  |   |             |  |   |              |   |   |             |  |   |             |  |   |              |   |   |               | 
|Properties   |  |             |  |   |             |  |   |             |  |   |              |   |   |             |  |   |             |  |   |              |   |   |               | 
|Unproved:    |  |             |  |   |             |  |   |             |  |   |              |   |   |             |  |   |             |  |   |              |   |   |               | 
|New Zealand: |  |             |  |   |             |  |   |             |  |   |              |   |   |             |  |   |             |  |   |              |   |   |               | 
|PEP 38348    |  | 100%        |  | $ | -           |  | $ | 67,792      |  | $ | -            |   | $ | 67,792      |  | $ | 593,710     |  | $ | -            |   | $ | 661,502       | 
|PEP 38349    |  | 100%        |  |   | -           |  |   | 136,389     |  |   | -            |   |   | 136,389     |  |   | 642,966     |  |   | -            |   |   | 779,355       | 
|             |  |             |  |   | -           |  |   | 204,181     |  |   | -            |   |   | 204,181     |  |   | 1,236,676   |  |   | -            |   |   | 1,440,857     | 
|Apartment &  |  |             |  |   |             |  |   |             |  |   |              |   |   |             |  |   |             |  |   |              |   |   |               | 
|Office       |  |             |  |   |             |  |   |             |  |   |              |   |   |             |  |   |             |  |   |              |   |   |               | 
|equipment    |  |             |  |   | 83,887      |  |   | 9,694       |  |   | (5,144       | ) |   | 88,437      |  |   | -           |  |   | (5,377       | ) |   | 83,060        | 
|             |  |             |  |   | 83,887      |  |   | 9,694       |  |   | (5,144       | ) |   | 88,437      |  |   | -           |  |   | (5,377       | ) |   | 83,060        | 
|             |  |             |  |   |             |  |   |             |  |   |              |   |   |             |  |   |             |  |   |              |   |   |               | 
|Total        |  |             |  | $ | 83,887      |  | $ | 213,875     |  | $ | (5,144       | ) | $ | 292,618     |  | $ | 1,236,676   |  | $ | (5,377       | ) | $ | 1,523,917     | 

The Companys oil and gas properties are located in New Zealand
and its interests in these properties

---

63

are maintained pursuant to the terms of exploration and mining
permits granted by the national government. The Company is satisfied that
evidence supporting the current validity of these permits is adequate and
acceptable by prevailing industry standards in respect to the current stage of
exploration on these properties.

Since being awarded the 100% interests in PEP 38348 and PEP
38349 on November 8, 2006, the Company has incurred $1,236,676 in exploration
costs on the permits primarily related to acquiring approximatley 50 kilometers
of 2-D seismic.

On June 24, 2008, the Company purchased a 0.5% gross overriding
royalty previously issued pursuant to a consulting agreement on PEP 38348 and
PEP 38349.

Refer to Note 8

NOTE 6 - 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.

During the 2008 fiscal year, the Company incurred $470,983 in
certain general and administrative expenses (2007: $237,235) through its wholly
owned subsidiary, DLJ Management Corp (DLJ). The Company recovered $268,538
(2007: $155,322) of these costs from related companies TAG Oil Ltd. (TAG) and
AMG Oil Ltd. (AMG), with the net cost to the Company being recorded on the
Companys Consolidated Statements of Operations and Deficit. During the 2008
fiscal year, these costs included office rent of $27,000 (2007: Nil) that was
paid by DLJ to a private company owned by a Director of the Company. The Company
recovered $15,000 of these costs, from TAG and AMG.

TAG and AMG are related to the Company through common directors
and officers.

Consulting Agreements

On January 1, 2008, the Company entered into an agreement with
the Companys Chief Operating Officer to provide consultancy services to the
Company for a term of one year with monthly compensation of $20,000. The Company
and TAG Oil Ltd. (TAG), a related company through common directors and
officers, also entered into an agreement in January 2008 that allows for TAG to
utilize the Companys Chief Operating Officer as a technical consultant on an
ongoing basis by paying one half of the monthly compensation.

On December 1, 2007 the Company amended a Directors agreement
dated January 1, 2007 to increase the monthly compensation to $15,000 per month
which reflected the Directors increased contribution to the Company as its
technical consultant directing operations. On June 23, 2008, the consultant
resigned as a director and remained as a technical consultant until his
agreement was terminated on August 13, 2008.

Pursuant to an agreement dated April 1, 2008, the Company paid
a director compensation of $60,000. On July 10, 2008 this agreement was amended
to reduce compensation to $41,000 per year.

Pursuant to an agreement dated October 1, 2007, the Company
paid a director compensation of $60,000. On July 10, 2008 compensation was
amended to reduce compensation to $41,000 per year.

NOTE 7  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.

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64

NOTE 8 - 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, 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      | 
| | Warrants exercised       |  | 50,000          |  |   | 35,000     |  |   | -           | 
| | Royalty acquisition      |  | -               |  |   | -          |  |   | 40,861      | 
| | Stock based compensation |  | -               |  |   | -          |  |   | 87,303      | 
| | Balance at July 31, 2008 |  | 36,595,225      |  | $ | 23,690,325 |  | $ | 192,137     | 

| | b) | Share Purchase Warrants                                                    
| | -- | ---------------------------------------------------------------------------
| |    |                                                                            
| |    | The following is a continuity of outstanding share
      purchase warrants:

Number of Share
    
    
    Weighted AveragePurchase Warrants
    
    
    Exercise PriceBalance at July 31, 2006
    
    -
    
    $
    -Issued during the year
    
    15,874,642
    
    
    0.82Balance at July 31, 2007
    
    15,874,642
    
    
    0.82Exercised
    
    (50,000
    )
    
    0.70Expired during the year
    
    (2,952,500
    )
    
    1.35Issued during the year
    
    200,000
    
    
    0.80Balance at July 31, 2008
    
    13,072,142
    
    $
    0.70


| |    | On May 24, 2008, the Company purchased and cancelled a
      0.5% gross overriding royalty previously granted to a consultant on PEP
      38348 and PEP 38349 in exchange for 200,000 share purchase warrants,
      exercisable at a price of $0.80 per share. The Company used the
      Black-Scholes option pricing model to calculate the cost of the royalty
      using the closing market prices on the grant date, a volatility ratio of
      40% and the risk free interest rate of 3.89% to calculate aggregate
      royalty acquisition costs of $40,861.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | c) | Incentive Stock Options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | The following is a continuity of outstanding incentive
      stock options:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

Number of
    
    
    Weighted AverageOptions
    
    
    Exercise PriceBalance at July 31, 2006
    
    -
    
    $
    -Granted during the year
    
    400,000
    
    
    0.85Balance at July 31, 2007
    
    400,000
    
    
    0.85Expired during the year
    
    (200,000
    )
    
    0.70Granted during the year
    
    1,860,000
    
    
    0.57Balance at July 31, 2008
    
    2,060,000
    
    $
    0.58


---

65

The following summarizes information about stock options that
are outstanding at July 31, 2008:

Number
    Price
      Weighted Average
    Expiry
    Optionsof Shares
    per
      Share
      Remaining Contractual Life
    Date
    Exercisable200,000
    $ 1.00
      3.08
    September 1, 2011
    200,0001,475,000
    0.50
      4.61
    March 14, 2013
    -75,000
    0.50
      4.68
    April 8, 2013
    -60,000
    0.64
      4.90
    June 26, 2013
    -200,000
    0.80
      4.90
    June 26, 2013
    -50,000
    $
      0.54
      4.97
    July
      21, 2013
    -2,060,000
    
      4.51
    
    200,000


During the year ended July 31, 2008,
the Company applied 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 benefits at the date that the
1,860,000 options granted currently of $294,873 (approximately $0.16 per option)
which will be amortized over the vesting period of the options. Stock option
compensation recognized for the year ended July 31, 2008 was $87,303.

Refer to Note 12

NOTE 9  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, 2008, this security amounted
  to $78,052 (2007: $59,828).

NOTE 10 - 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 2009 are $100,000. However, prior to November 8,
2009 the Company is required to either drill a well on each of PEP 38348 and PEP
38349 for a total cost of approximately $3,400,000 or relinquish the
permits.

NOTE 11 - INCOME TAXES

A reconciliation of income taxes at statutory rates as follows:

|                                                                     |   | 2008       |   |   | 2007       |  
|-------------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|                                                                     |   |            |   |   |            |  
|Net income (loss) for the year                                       | $ | (1,251,435 | ) | $ | (1,094,810 | )
|Expected income tax expense (recovery)                               | $ | (403,194   | ) | $ | (373,237   | )
|Net adjustment for amortization, deductible and
      non-deductible |   |            |   |   |            |  
|amounts                                                              |   | 36,769     |   |   | 322,053    |  
|Change in valuation allowance                                        |   | 366,424    |   |   | 51,184     |  
|Total income taxes                                                   | $ | -          |   | $ | -          |  

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

|                                                                    |   | 2008       |   |   | 2007       |  
|------------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|Future income tax assets:                                           |   |            |   |   |            |  
|Net resource tax pools in excess of property carrying
      amounts | $ | 597,973    |   | $ | 1,065,235  |  
|Property and equipment tax pool in excess
      of carrying value   |   | 51,472     |   |   | 43,252     |  
|Non-capital loss carryforwards                                      |   | 1,322,261  |   |   | 1,206,755  |  
|                                                                    |   | 1,971,706  |   |   | 2,315,242  |  
|Valuation allowance                                                 |   | (1,971,706 | ) |   | (2,315,242 | )
|Net future tax assets                                               | $ | -          |   | $ | -          |  

---

66

The Company has non-capital losses of approximately CDN$4.6
million (2007 - CDN$3.5 million), which are available to reduce future taxable
income in Canada and which expire between 2008 and 2028. Subject to certain
restrictions the Company also has resource expenditures of approximately CDN$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.

The Company has tax losses available, as at July 31, 2008 of
$2,032,339 in New Zealand.

The realization of the benefit of these tax losses is dependent
on the Company generating sufficient taxable income and satisfying shareholder
continuity requirements of New Zealand tax law.

NOTE 12  SUBSEQUENT EVENTS

On August 1, 2008, the Company granted options to purchase up
to 112,500 shares of the Company to two technical consultants, exercisable for
five years at a price of US$0.70 per share subject to certain vesting
provisions.

NOTE 13  SEGMENTED INFORMATION

The Company operates in one industry: petroleum exploration. It
operates in two geographical regions, therefore information on country segments
is provided as follows:

|2008                              |   | Canada     |   |   | New
      Zealand |   |   | Total Company |  
|--------------------------------- | - | ---------- | - | - | ----------------- | - | - | ------------- | -
|Expenses:                         |   |            |   |   |                   |   |   |               |  
|General and administrative        | $ | 1,244,096  |   | $ | 96,187            |   | $ | 1,340,283     |  
|Stock option compensation         |   | 87,303     |   |   | -                 |   |   | 87,303        |  
|Insurance                         |   | 22,786     |   |   | -                 |   |   | 22,786        |  
|Foreign exchange                  |   | 83,695     |   |   | 5,896             |   |   | 89,591        |  
|Depreciation                      |   | 5,377      |   |   | -                 |   |   | 5,377         |  
|                                  |   | (1,443,257 | ) |   | (102,083          | ) |   | (1,545,340    | )
|                                  |   |            |   |   |                   |   |   |               |  
|Other Items                       |   |            |   |   |                   |   |   |               |  
|Interest Income                   |   | 297,822    |   |   | 6,035             |   |   | 303,857       |  
|Write-off of oil
      and gas    |   | -          |   |   | (9,952            | ) |   | (9,952        | )
|                                  |   | 297,822    |   |   | (3,917            | ) |   | 293,905       |  
|                                  |   |            |   |   |                   |   |   |               |  
|Net loss for the year             | $ | (1,145,435 | ) | $ | (106,000          | ) | $ | (1,251,435    | )
|                                  |   |            |   |   |                   |   |   |               |  
|Total assets                      | $ | 7,431,423  |   | $ | 1,569,675         |   | $ | 9,001,098     |  
|Capital expenditures for the year | $ | 2,280      |   | $ | 1,234,396         |   | $ | 1,236,676     |  

NOTE 14 - 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 (US GAAP).

CONSOLIDATED BALANCE SHEETS

| | a) | Investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | On August 1, 2007 the Company adopted the new Canadian
      Institiute of Chartered Accountants (CICA) standards for Comprehensive
      Income (CICA 1530). The new standard brings Canadian rules into line with
      current rules in the United States as CICA 1530 introduced the concept of
      Comprehensive Income to Canadian GAAP and requires that an enterprise a)
      classify items of comprehensive income by their nature in the financial
      statements and b)

---

67

display the accumulated balance of
comprehensive income seperately from retained earnings and additional paid-in
capital in the equity section of the statement of financial position.

Until July 31, 2007, 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 which created a
difference under U.S. GAAP as under U.S. GAAP, investments have been 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,  | 
| | ----------------------------------------------- | - | --------- |  | - | --------- | 
| |                                                 |   | 2008      |  |   | 2007      | 
| | Investments under Canadian
      GAAP           | $ | 1,143,590 |  | $ | 3,514,572 | 
| | Adjustment required under U.S. GAAP             |   | -         |  |   | 694,472   | 
| | Cumulative historical
      adjustments to date |   | -         |  |   | 388,422   | 
| | Investments under U.S. GAAP                     | $ | 1,143,590 |  | $ | 4,597,466 | 

| |    | Total assets under U.S. GAAP as at July 31, 2008 and 2007
      are $9,001,098 and $13,551,819, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | b) | Stockholders Equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | i)        Common
      Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | 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, 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,   | 
| | ---------------------------------------------------- | - | ---------- |  | - | ---------- | 
| |                                                      |   | 2008       |  |   | 2007       | 
| | Common stock under Canadian GAAP                     | $ | 23,690,325 |  | $ | 23,655,325 | 
| | Cumulative historical pro-forma adjustments to date  |   | 833,611    |  |   | 833,611    | 
| | Common stock under U.S. GAAP applying SFAS
      123 | $ | 24,523,936 |  | $ | 24,488,936 | 

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 2008, 2007 or 2006 fiscal years.

ii)     
 Accumulated Deficit

The effects of Note 14(a) and (b) (i)
on accumulated deficit are as follows:

| |                                           |   | July 31,    |   |   | July 31,    |  
| | ----------------------------------------- | - | ----------- | - | - | ----------- | -
| |                                           |   | 2008        |   |   | 2007        |  
| |                                           |   |             |   |   |             |  
| | Deficit under Canadian GAAP               | $ | (12,618,105 | ) | $ | (11,366,670 | )
| | Cumulative historical adjustments to date |   | (833,611    | ) |   | (833,611    | )
| | Accumulated deficit under U.S. GAAP       | $ | (13,451,716 | ) | $ | (12,200,281 | )

iii)     
Accumulated Other Comprehensive Income

---

68

The effects of Note 14(b) on
accumulated other comprehensive income are as follows:

| |                                           |   | July 31,   |   |   | July 31,  | 
| | ----------------------------------------- | - | ---------- | - | - | --------- | 
| |                                           |   | 2008       |   |   | 2007      | 
| | Accumulated other comprehensive           |   |            |   |   |           | 
| | income (loss) under Canadian GAAP         | $ | (2,370,982 | ) | $ | -         | 
| | Adjustment required under U.S. GAAP       |   | (1,082,894 | ) |   | 694,472   | 
| | Cumulative historical adjustments to date |   | 1,082,894  |   |   | 388,422   | 
| | Accumulated other comprehensive income    |   |            |   |   |           | 
| | under U.S. GAAP                           | $ | (2,370,982 | ) | $ | 1,082,894 | 

As a result of these adjustments under
U.S. GAAP, total stockholders equity as at July 31, 2008 and 2007 are
$8,059,764 and $13,579,318, respectively.

| | c) | Net Income and Comprehensive Income (Loss) for the
      Year                                                                                           
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                         
| |    | The following are the effects of Notes 14(a) and (b) on
      net income and comprehensive income (loss) for the 2008, 2007 and 2006
      fiscal years:

| |                                                                |   | 2008       |   |   | 2007       |   |   | 2006       |  
| | -------------------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | -
| | Net (loss) income for the year under Canadian                  |   |            |   |   |            |   |   |            |  
| | GAAP                                                           | $ | (1,251,435 | ) | $ | (1,094,810 | ) | $ | 381,606    |  
| | Other comprehensive income (loss):                             |   |            |   |   |            |   |   |            |  
| | Unrealized (loss) gain on investment                           |   | (2,370,982 | ) |   | 694,472    |   |   | (1,655,693 | )
| | Adjustment required under U.S. GAAP                            |   | (1,082,894 | ) |   | -          |   |   | -          |  
| | Comprehensive income (loss) for the year
      under U.S. GAAP | $ | (4,705,311 | ) | $ | (400,338   | ) | $ | (1,274,087 | )

---

69

ITEM 18.      FINANCIAL STATEMENTS

Not applicable.

ITEM 19.      EXHIBITS

Exhibit Reference
      Exhibition Description1.1
      Certificate of Continuance (2)1.2
      Notice of Articles (2)1.3
      Articles (2)4.1
      Form of Subscription Agreement for the 12,972,141 unit
          private placement dated August 2006 (3)4.2
      Form of Subscription Agreement
          for the 5,905,000 unit private placement dated November 2006 (3)4.3
      Form of 2008 Share Option Plan
          (5)4.4
      Option Agreement between the Company
          and Garth Johnson dated March 14, 2008 (5)4.5
      Option Agreement between the Company
          and Drew Cadenhead dated March 14, 2008 (5)4.6
      Consulting Agreement between the
          Company and Drew Cadenhead dated January 1, 2008 (5)4.7
      Consulting Arrangement between
          the Company and TAG dated July 17, 2008 (5)4.8
      Directors
          Compensation and Indemnity Agreement between the Company and Alex Guidi
          dated July 10, 2008 (5)4.9
      Directors
          Compensation and Indemnity Agreement between the Company and Peter Loretto
          dated July 10, 2008 (5)4.10
      Indemnity Agreement between the
          Company and Garth Johnson dated March 13, 2008 (5)4.11
      Indemnity Agreement between the
          Company and Michael Hart dated March 13, 2008 (5)4.12
      Indemnity Agreement between the
          Company and Doug Lynes dated March 13, 2008 (5)4.13
      Indemnity Agreement between the
          Company and Drew Cadenhead dated March 13, 2008 (5)4.14
      Consulting Agreement between the Company and David Bennett
          dated December 1, 2007 (4)4.15
      Asset Purchase Agreement between
          the Company and David Bennett dated June 24, 2008 (5)8.0
      List of Wholly-Owned Subsidiaries
          of the Company (5)11.1
      Code of Ethics (1)12.1
      Certification
          of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
          Act of 2002 (5)


---

70

Exhibit Reference
      Exhibition Description12.2
      Certification of Chief
        Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
        2002 (5)13.1
      Certification of Chief
        Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
        2002 (5)13.2
      Certification of Chief
        Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
        2002 (5)15.1
      Audit Committee Charter (2)15.2
      Compensation Committee
        Charter (5)


|(1) | Herein incorporated by reference as previously included
      in our Form 20-F dated March 31, 2005 filed on January 31, 2005.
|--- | ------------------------------------------------------------------------------------------------------------------------------
|(2) | Herein incorporated by reference as previously included
      in our Form 20-F dated March 31, 2006 filed on January 31, 2006.
|(3) | Herein incorporated by reference as previously included
      in our Form 20-F dated March 31, 2007 filed on January 26, 2007.
|(4) | Herein incorporated by reference as previously included
      in our Form 20-F dated March 31, 2007 filed on January 31, 2008.
|(5) | Filed herewith.                                                                                                               

SIGNATURES

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

|                       | **TRANS-ORIENT PETROLEUM LTD.**
|---------------------- | -------------------------------
|                       |                                
|                       |                                
|Date: October 27, 2008 | By:                            
|                       |                                
|                       | Name:                          
|                       |                                
|                       | Title:                         

---