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UNDERWRITING AGREEMENT

May 19, 2004

Dynamic Oil & Gas, Inc.
  230-10991 Shellbridge Way 
  Richmond, British Columbia V6X 3C6

|Attention: | Mr. Wayne J. Babcock                 
|---------- | -------------------------------------
|           | President and Chief Executive Officer

Dear Sirs:

|RE: | Issue and Sale of Flow-Through Shares
        and, subject to the exercise of the Underwriter’s Option,
        Common Shares
|--- | -----------------------------------------------------------------------------------------------------------------------------

Octagon Capital Corporation and Raymond James Ltd. (the “Underwriters”)
  understand that Dynamic Oil & Gas, Inc. (the “Corporation”)
  proposes to sell and issue 2,000,000 Common Shares to be issued to subscribers
  on a flow-through basis (“Flow-Through Shares”) and, subject
  to exercise by the Underwriters of the Underwriters’ Option, up to an
  additional 400,000 Common Shares on a non “flow-through” basis (such
  Common Shares in respect of which the Underwriters’ Option is exercised
  referred to as the “Option Shares” and the Flow-Through Shares
  and the Option Shares being collectively referred to as the “Offered
  Shares”).

Subject to the terms and conditions hereof, the Underwriters
  agree to purchase, as principal, and the Corporation agrees to issue and sell
  to the Underwriters, on the Closing Date (as defined in paragraph 1) at a price
  of $5.60 per Flow-Through Share, 2,000,000 Flow-Through Shares for an aggregate
  consideration of $11,200,000. In addition, subject to the terms and conditions
  hereof, the Corporation grants to the Underwriters an option as set out in paragraph
  30 (the “Underwriters’ Option”), exercisable in full
  or in part, to purchase up to 400,000 Common Shares at a price of $4.55
  per Common Share for additional aggregate gross proceeds of up to $1,820,000.
  It is understood that prior to the Closing Time (as defined in paragraph 1)
  the Underwriters will endeavor to arrange for substitute purchasers to purchase
  the Offered Shares in the place and stead of the Underwriters at the Closing
  Time and that such substitute purchasers for Flow-Through Shares shall be entitled
  to the flow-through benefits of the Flow-Through Shares (as described in paragraph
  7) as the initial and beneficial purchasers thereof. The Underwriters shall
  be entitled in connection with the offering and sale of the Offered Shares to
  retain as sub-agents other registered securities dealers and may receive (for
  delivery to the Corporation at the Closing Time) subscriptions for Offered Shares
  from Subscribers from other registered dealers. The fees payable to such sub-agents
  shall be for the account of the Underwriters.

In consideration for its services hereunder, including the
  ancillary service of acting as financial advisors to the Corporation in respect
  of the issue of the Offered Shares and advising on the terms and conditions
  of the subject private placement, the Underwriters shall be entitled to the
  fee provided for in paragraph 10, which fee shall be payable from the general
  corporate funds of the Corporation or proceeds from the sale of Option Shares,
  if any, at the time specified in paragraph 10. For greater certainty, the services
  provided by the Underwriters in connection herewith will not be subject to Goods
  and Services Tax provided for in the Excise Tax Act (Canada) and taxable
  supplies will be incidental to the exempt financial services provided.

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The following are the terms and conditions of this agreement:

|1.                 | Definitions:
|------------------ | ------------
|                   |             
|In this agreement:

| | (a) | “Applicable Securities Laws”
        includes, collectively, all applicable securities laws, rules, regulations,
        notices, policies and similar instruments;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) | “Business Day” means
        a day which is not Saturday, Sunday or a legal holiday in the City of
        Vancouver;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | (c) | “Canadian Exploration Expense(s)”
        or “CEE” means Canadian exploration expense as described
        in paragraphs (a) and (d) of the definition of “Canadian exploration
        expense” in subsection 66.1(6) of the Tax Act or that would be included
        in paragraph (h) of that definition if the reference therein to paragraphs
        (a) to (d) and (f) to (g.1) was a reference to paragraphs (a) and (d),
        excluding amounts which are prescribed to constitute “Canadian exploration
        and development overhead expense” under the Tax Act, the amount
        of any assistance described in paragraph 66(12.6)(a) of the Tax Act, and
        any geophysical cost described in paragraph 66(12.6)(b.l) of the Tax Act;
|
| | (d) | “Closing Date” means
        May 19, 2004 or such other date or dates as the Underwriters and the Corporation
        may agree;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | (e) | “Closing Time” means
        7:30 a.m. (Vancouver time), or such other time, on the Closing Date, as
        the Underwriters and the Corporation may agree in writing;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | (f) | “Commitment Amount”
        means the amount equal to $5.60 multiplied by the aggregate number
        of Flow-Through Shares subscribed and paid for pursuant to the Subscription
        Agreements for Flow-Through Shares;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | (g) | “Common Shares” means
        the common shares in the capital of the Corporation;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | (h) | “Corporation” means
        Dynamic Oil & Gas, Inc., a body corporate incorporated under the laws
        of the Province of British Columbia;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | (i) | “Corporation's counsel”
        means Irwin, White & Jennings, or such other legal counsel as the
        Corporation, with the consent of the Underwriters, may appoint;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | (j) | “Documents” means,
        collectively:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |     | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |     | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |     | (iii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |     | (iv)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |     | (v)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| | (k) | “Due Diligence Session”
        has the meaning ascribed thereto in subparagraph 7(a);                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

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| | (l)  | “Exchanges” means the
        Toronto Stock Exchange and NASDAQ;                                                                                                                                                                                                                                                                                                                                      
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (m)  | “Expenditure Period”
        means the period commencing on the date of acceptance of the Subscription
        Agreements and ending on the earlier of:                                                                                                                                                                                                                                               
|
| |      | (i)                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |      | (ii)                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | (n)  | “Financial Statements”
        means, collectively, the audited financial statements of the Corporation
        as at and for the year ended December 31, 2003 and the unaudited interim
        financial statements of the Corporation as at and for the period ended
        March 31, 2004;                                                                                                       
|
| | (o)  | “Sproule” means Sproule
        Associates Limited, independent petroleum engineering consultants of Calgary,
        Alberta;                                                                                                                                                                                                                                                                        
|
| | (p)  | “Sproule Report” means
        the report of Sproule dated April 6, 2004 and effective January 1, 2004
        relating to all of the oil and natural gas properties of the Corporation
        as at such date;                                                                                                                                                                                      
|
| | (q)  | “MI 45-102” means Multilateral
        Instrument 45-102 (Resale of Securities);                                                                                                                                                                                                                                                                                                                      
|
| | (r)  | “Offered Shares” means
        Flow-Through Shares and Option Shares;                                                                                                                                                                                                                                                                                                                                 
|
| | (s)  | “principal business corporation”
        means a principal-business corporation as defined in subsection 66(15)
        of the Tax Act;                                                                                                                                                                                                                                                               
|
| | (t)  | “Public Record” means
        all information filed with the Securities Commissions, including without
        limitation, the Documents and any other information filed with any Securities
        Commission in compliance, or intended compliance, with any Applicable
        Securities Laws of the Selling Jurisdictions;                                                                      
|
| | (u)  | “Qualifying Expenditures”
        means expenses that are CEE at the date they are incurred;                                                                                                                                                                                                                                                                                                          
|
| | (v)  | “Securities Commissions”
        means the securities commissions or similar regulatory authorities in
        the Selling Jurisdictions;                                                                                                                                                                                                                                                             
|
| | (w)  | “Selling Jurisdictions”
        means the provinces of Alberta, British Columbia, and Ontario;                                                                                                                                                                                                                                                                                                        
|
| | (x)  | “Subscriber” means
        any person who executes a Subscription Agreement which is accepted by
        the Corporation;                                                                                                                                                                                                                                                                             
|
| | (y)  | “Subscription Agreements”
        means the agreements to be entered into between the Subscribers of Offered
        Shares and the Corporation;                                                                                                                                                                                                                                                      
|
| | (z)  | “subsidiary” means
        a subsidiary of the Corporation within the meaning of the Business Corporations
        Act (British Columbia);                                                                                                                                                                                                                                                            
|
| | (aa) | “Swaps” means any transaction
        which is a rate swap transaction, basis swap, forward rate transaction,
        commodity swap, commodity option, equity or equity index swap, equity
        or equity index option, bond option, interest rate option, foreign exchange
        transaction, cap transaction, floor transaction, collar transaction, currency
        swap transaction, cross-

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4

| |      | currency rate swap transaction, currency option,
        forward sale, exchange traded futures contract or any other similar transaction
        (including any option with respect to any of these transactions or any
        combination of these transactions);
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (bb) | “Tax Act” means the Income Tax
        Act (Canada), R.S.C. 1985, c.l (5th Supp.), together with any and all
        regulations promulgated thereunder, as amended from time to time;                                                                             
|
| | (cc) | “Underwriters” means Octagon
        Capital Corporation and Raymond James Ltd.; and                                                                                                                                                                               
|
| | (dd) | “Underwriters' counsel” means
        Burstall Winger LLP, or such other legal counsel as the Underwriters,
        with the consent of the Corporation, may appoint.                                                                                              

“misrepresentation”, “material
  change” and “material fact” shall have the meanings
  ascribed thereto under the Applicable Securities Laws of the Selling Jurisdictions;
  “distribution” means “distribution” or
  “distribution to the public”, as the case may be, as defined
  under the Applicable Securities Laws of the Selling Jurisdictions; and “distribute”
  has a corresponding meaning.

|2. | The Corporation agrees that the Offered
        Shares will be duly and validly created and, upon receipt of full payment
        therefor, issued as fully paid and non-assessable.                                                                                                                                                                                                                                                                                                                                       
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|3. | The subscription funds for the Offered
        Shares will be released to the Corporation at the Closing Time and the
        Corporation agrees such funds will be dealt with in accordance with the
        terms of the Subscription Agreements.                                                                                                                                                                                                                                                                        
|  
|4. | Each of the Underwriters severally and
        not jointly covenants and agrees with the Corporation that it will:                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|5. | The Underwriters agree to obtain from
        each Subscriber an executed Subscription Agreement and deliver such Subscription
        Agreements to the Corporation. In addition, the Underwriters agree to
        obtain from each Subscriber such forms, questionnaires and undertakings
        as may be required by the Exchanges and such other forms as may be required
        by the Securities Commissions or the Exchanges and provided by the Corporation
        to the Underwriters for delivery hereunder.
|  
|6. | The Corporation represents and warrants
        to the Underwriters, and acknowledges that the Underwriters are relying
        upon such representations and warranties, that:                                                                                                                                                                                                                                                                                                                                            
|  
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

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5

| | (c) | the Corporation has no subsidiaries;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (d) | the Corporation has full corporate power
        and authority to issue the Offered Shares and to incur and renounce to
        the Subscribers for Flow-Through Shares Qualifying Expenditures in an
        amount equal to the Commitment Amount; and at the Closing Date, the Offered
        Shares will be duly and validly authorized, allotted and reserved for
        issuance and will, upon receipt of full payment therefor, be validly issued
        as fully paid and non assessable shares;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | (e) | the Corporation is not in default or breach
        of, and the execution and delivery of, and the performance of and compliance
        with the terms of, this agreement or the Subscription Agreements and the
        performance of any of the transactions contemplated hereby and thereby
        by the Corporation do not and will not result in any breach of, or constitute
        a default under, and do not and will not create a state of facts which,
        after notice or lapse of time or both, will result in a breach of or constitute
        a default under any applicable laws or any term or provision of the notice
        of articles or articles or resolutions of the directors or shareholders
        of the Corporation, or any mortgage, note, indenture, contract, agreement
        (written or oral), instrument, lease or other document to which the Corporation
        is a party or by which it is bound, or any judgment, decree, order, statute,
        rule or regulation applicable to the Corporation, which default or breach
        might reasonably be expected to materially adversely affect the business,
        operations, capital or condition (financial or otherwise) of the Corporation
        or its respective properties or assets;
|
| | (f) | the Corporation has full corporate power
        and authority to enter into this agreement and the Subscription Agreements
        and to perform its obligations set out herein and therein, and this agreement
        has been, and each of the Subscription Agreements will, on the Closing
        Date, be duly authorized, executed and delivered by the Corporation, and
        this agreement is, and the Subscription Agreements will, on the Closing
        Date, be legal, valid and binding obligations of the Corporation enforceable
        against the Corporation in accordance with their respective terms, subject
        to the general qualifications that:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |     | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |     | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |     | (iii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |     | (iv)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |     | and such other qualifications as may be
        set out in the opinion of Corporation’s counsel referred to in subparagraph
        8(a);                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | (g) | there has not been any material change
        in the assets, liabilities or obligations (absolute, contingent or otherwise)
        of the Corporation from the position set forth in the Financial Statements
        other than as disclosed in the Documents and there has not been any adverse
        material change in the business, operations, capital or condition (financial
        or otherwise) or results of the operations of the Corporation since December
        31, 2003 which has not                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

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6

| |     | been disclosed in the Public Record; and since that
        date there have been no material facts, transactions, events or occurrences
        which could materially adversely affect the capital, assets, liabilities
        (absolute, accrued, contingent or otherwise), business, operations or
        condition (financial or otherwise) or results of the operations of the
        Corporation which have not been disclosed in the Public Record;                                                                                                                                                                                                                                                   
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (h) | the Financial Statements fairly present, in accordance
        with generally accepted accounting principles in Canada, consistently
        applied, the financial position and condition of the Corporation at the
        dates thereof and the results of the operations of the Corporation for
        the periods then ended and reflect all assets, liabilities and obligations
        (absolute, accrued, contingent or otherwise) of the Corporation as at
        the dates thereof;                                                                                                                                                                                                                 
|
| | (i) | there are no actions, suits, proceedings or inquiries,
        including, to the best of the Corporation's knowledge, information and
        belief, after due inquiry, pending or threatened against or affecting
        the Corporation at law or in equity or before or by any federal, provincial,
        municipal or other governmental department, commission, board, bureau,
        agency or instrumentality which in any way materially adversely affects,
        or may in any way materially adversely affect, the assets, business, operations
        or condition (financial or otherwise) of the Corporation or which affects
        or may affect the distribution of the Offered Shares;
|
| | (j) | the Corporation is not a party to or bound by any
        agreement of guarantee of the obligations or liabilities (contingent or
        otherwise) of indebtedness of any other person;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | (k) | the Corporation does not have any loans or other
        indebtedness which have been made to or from any of its shareholders,
        officers, directors or employees or any other person not dealing at arm's
        length with the Corporation that are currently outstanding other than
        as disclosed in the Documents;                                                                                                                                                                                                                                                                                                                                                                           
|
| | (l) | the information and statements set forth in the
        Public Record, as they relate to the Corporation, were true, correct,
        and complete and did not contain any misrepresentation, as of the respective
        dates of such information or statements, and no material change has occurred
        in relation to the Corporation which is not disclosed in the Public Record,
        and the Corporation has not filed any confidential material change reports
        which continue to be confidential;                                                                                                                                                                                       
|
| | (m) | the authorized capital of the Corporation consists
        of 60,000,000 Common Shares of which, as of the date hereof, 22,207,311
        Common Shares are outstanding, which Common Shares were validly issued
        and are outstanding as fully paid and non-assessable shares;                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | (n) | other than pursuant to the provisions of this agreement,
        and other than options to purchase 1,659,634 Common Shares held by directors,
        officers, employees and consultants of the Corporation as at the date
        hereof, no person, firm, corporation or other entity holds any securities
        convertible or exchangeable into securities of the Corporation or has
        any agreement, warrant, option, right or privilege (whether pre-emptive
        or contractual) being or capable of becoming an agreement for the purchase,
        subscription or issuance of any unissued shares, securities (including
        convertible securities) or warrants of the Corporation; 
|
| | (o) | the Corporation has duly and on a timely basis filed
        all tax returns required to be filed by it, has paid all taxes due and
        payable by it and has paid all assessments and re-                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

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| |     | assessments and all other taxes, governmental charges,
        penalties, interest and other fines due and payable by it and which are
        claimed by any governmental authority to be due and owing and adequate
        provision has been made for taxes payable for any completed fiscal period
        for which tax returns are not yet required and there are no agreements,
        waivers, or other arrangements providing for an extension of time with
        respect to the filing of any tax return or payment of any tax, governmental
        charge or deficiency by the Corporation and to the best of the Corporation's
        knowledge, information and belief, after due inquiry, there are no actions,
        suits, proceedings, investigations or claims threatened or pending against
        the Corporation in respect of taxes, governmental charges or assessments
        or any matters under discussion with any governmental authority relating
        to taxes, governmental charges or assessments asserted by any such authority;                                                                                                                                                                                                                                                           
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (p) | the issued and outstanding Common Shares are listed
        and posted for trading on the Exchanges, the Corporation is in compliance
        with the by-laws, rules and regulations of the Exchanges in all material
        respects and all necessary action has been taken by the Corporation for
        the approval of issue of the Offered Shares on the Exchanges and the listing
        of the Offered Shares on the Exchanges, subject to usual post closing
        filings in accordance with the requirements of such Exchanges;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | (q) | the minute books of the Corporation is true and
        correct and contain the minutes of all meetings and all the resolutions
        of directors and shareholders thereof as at the date hereof;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | (r) | the Corporation is a “reporting issuer”
        or has equivalent status in each of the provinces of British Columbia
        and Ontario within the meaning of the Applicable Securities Laws in such
        provinces and is not in default in any material respect of any requirements
        of Applicable Securities Laws thereof;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | (s) | CIBC Mellon Trust Company at its principal offices
        in the cities of Vancouver and Toronto is the duly appointed registrar
        and transfer agent of the Corporation with respect to its Common Shares;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | (t) | except to the extent that any violation or other
        matter referred to in this subparagraph does not have a material adverse
        effect on the Corporation, the Corporation has conducted and is conducting
        its business in compliance in all material respects with all applicable
        laws, rules and regulations and, in particular, all applicable licensing
        and environmental legislation, regulations or by-laws or other lawful
        requirements of any governmental or regulatory bodies applicable to the
        Corporation of each jurisdiction in which it carries on business and holds
        all licenses, registrations and qualifications in all jurisdictions in
        which it carries on business which are necessary or desirable to carry
        on the business of the Corporation as now conducted and as presently proposed
        to be conducted, and all such licenses, registrations or qualifications
        are valid and existing and in good standing and none of such licenses,
        registrations or qualifications contains any burdensome term, provision,
        condition or limitation which has or is likely to have any material adverse
        effect on the business of the Corporation as now conducted or as proposed
        to be conducted;
|
| | (u) | except to the extent that any violation or other
        matter referred to in this subparagraph does not have a material adverse
        effect on the Corporation, any and all operations of the Corporation,
        and to the best of the Corporation's knowledge, any and all operations
        by third parties on or in respect of the assets and properties of the
        Corporation, have been conducted in accordance with good oilfield practices;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

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8

| | (v) | except to the extent that any violation
        or other matter referred to in this subparagraph does not have a material
        adverse effect on the Corporation:                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |     | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |     | (iii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |     | (iv)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |     | (v)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |     | (vi)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | (w) | in respect of the assets and properties
        of the Corporation that are operated by the Corporation, the Corporation
        holds all valid licenses, permits and similar rights and privileges that
        are required or necessary under applicable law to operate the assets and
        properties of the Corporation and its subsidiaries as presently operated;                                                                                                                                                                                                                       
|
| | (x) | other than this Agreement and as set forth
        in Schedule “A”hereto, there are no material contracts
        or agreements which contain, create or may create any material obligation
        to the Corporation or from which they derive or could derive any material
        benefit or which are required by the Corporation to carry on its business
        as now conducted by it or as is now proposed to be carried on by it. For
        the purposes of this representation and warranty, contracts shall be deemed
        to give rise to a material obligation that provide for

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9

| |      | expenditures by the Corporation for an aggregate
        of more than $100,000 during any 12 months period;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (y)  | except as set forth in Schedule “B”hereto, the Corporation is not a party to any contracts of employment
        which may not be terminated on one month’s notice or less or which
        provide for payments occurring on a change of control of the Corporation;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | (z)  | Schedule “C”hereto sets forth
        all of the Swaps that the Corporation currently has outstanding, together
        with the details thereof;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | (aa) | to its knowledge, neither the Corporation nor any
        of its shareholders is a party to any unanimous shareholders agreement,
        pooling agreement, voting trust or other similar type of arrangements
        in respect of outstanding securities of the Corporation;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | (bb) | the Public Record does not contain any untrue statement
        of a material fact nor does it omit to state a material fact that is required
        to be stated, or omit to state a material fact that is necessary to be
        stated, in order for the statement not to be misleading and they comply
        with Applicable Securities Laws;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | (cc) | none of the Securities Commissions, the Exchanges
        nor any other securities commission, stock exchange, or similar regulatory
        authority has issued any order preventing or suspending trading of any
        securities of the Corporation; the Corporation is not in default of any
        requirement of Applicable Securities Laws of the Selling Jurisdictions
        that would have a material adverse effect on this offering or the Corporation
        and, assuming the truth of the representations and warranties of the Subscribers
        in the Subscription Agreements, the Corporation is entitled to avail itself
        of the applicable prospectus exemptions available under the Applicable
        Securities Laws of the Selling Jurisdictions in respect of the trades
        in the Offered Shares to Subscribers as contemplated by this agreement;
|
| | (dd) | to the knowledge of the Corporation, no insider
        of the Corporation has a present intention to sell any securities of the
        Corporation held by it;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | (ee) | the Corporation made available to Sproule, prior
        to the issuance of the Sproule Report, for the purpose of preparing such
        report, all information requested by Sproule, which information did not
        contain any material misrepresentation at the time such information was
        so provided. The Corporation has no knowledge of a material adverse change
        in any information provided to Sproule since that date. The Corporation
        believes that the Sproule Report reasonably presented the quantity and
        pre-tax present worth values of estimated oil and gas reserves attributable
        to the properties evaluated therein as at the date stated therein based
        upon information available at the time the Sproule Report was prepared
        and the assumptions as to commodity prices and costs contained therein.            
|
| |      | Sproule has not re-evaluated any of the reserves
        of the Corporation since the Sproule Report;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | (ff) | the Corporation is not aware of any defects, failures
        or impairments in the title of the Corporation or any subsidiaries to
        its or their oil and gas properties, whether or not an action, suit, proceeding
        or inquiry is pending or threatened and whether or not discovered by any
        third party, which in aggregate could have a material adverse effect on:
        (A) the quantity and pre-tax present worth values of the oil and gas reserves
        of the Corporation and its subsidiaries shown in the Sproule Report; (B)
        the current production of the Corporation or its subsidiaries; or (C)
        the current cash flow of the Corporation;                                                                                                                                                                                              

---

10

|   | (gg)                                                             | the Corporation is a principal business corporation;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | ---------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | (hh)                                                             | upon issuance pursuant to the provisions of the
        Subscription Agreements, the Flow- Through Shares will be “flow-through
        shares” as defined in subsection 66(15) of the Tax Act and such
        Flow-Through Shares will not constitute “prescribed shares”
        for the purpose of Regulation 6202.1 of the Regulations to the Tax Act;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   | (ii)                                                             | no consents, approvals, authorizations or orders
        are required under the laws of any jurisdiction or of any court or governmental
        agency or body of any stock exchange applicable to the Corporation (except
        those contemplated herein and those that have been obtained) to ensure
        that the Common Shares, when issued will constitute “Common Shares”
        within the meaning of subsection 66(15) of the Tax Act.                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   | (jj)                                                             | except as disclosed in the Public Record, the Corporation
        has not entered into any transaction which is or may reasonably be expected
        to be material to the Corporation and which is not in the ordinary course
        of business;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   | (kk)                                                             | the Corporation has not incurred any obligation
        or liability, contingent or otherwise, for brokerage fees, finder's fees,
        agents' commission or other forms of compensation with respect to the
        transactions contemplated herein for which the Corporation will have any
        liability or obligation except as provided herein;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   | (ll)                                                             | the representations and warranties of the Corporation
        in the Subscription Agreements are true and correct and the Corporation
        shall comply with all of the covenants and agreements made by it in the
        Subscription Agreements;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   | (mm)                                                             | the Corporation has not entered into any further
        agreements to incur or renounce Qualifying Expenditures or made any covenants
        to any parties that would restrict the Corporation from entering into
        the Subscription Agreements and agreeing to incur and renounce Qualifying
        Expenditures in accordance with the Subscription Agreements for Flow-Through
        Shares;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   | (nn)                                                             | the responses given by the Corporation in the Due
        Diligence Session shall be true and correct in all material respects as
        at the time such responses are given and such responses taken as a whole
        shall not omit any material fact or information necessary to make any
        responses not misleading in light of the circumstances in which such responses
        were given; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   | (oo)                                                             | the Corporation has not completed any private placements
        that would disentitle the Corporation to rely on any exemptions contemplated
        by the Subscription Agreements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|7. | The Corporation further covenants and
        agrees as follows:
|  
|   | (a)                                                              | that prior to the Closing Date, the Corporation
        shall allow the Underwriters to conduct all due diligence which the Underwriters
        may reasonably require; in this regard, without limiting the scope of
        the due diligence inquiries the Underwriters may conduct, the Corporation
        shall make available its directors, senior management, independent engineers
        and auditors to answer any questions which the Underwriters may have and
        to participate in one or more due diligence sessions to be held prior
        to the Closing Time (the “Due Diligence Session”);
        the Underwriters shall distribute a list of written questions to be answered
        in advance of such Due Diligence Session and the Corporation shall provide
        written responses to such questions and shall use its best efforts to
        have its auditors and

---

11

| |     | independent engineers provide written responses
        to such questions in advance of the Due Diligence Session;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) | to comply with all requirements of the Exchanges
        in connection with the issuance and listing of the Offered Shares on the
        Exchanges including filing of all necessary documentation in accordance
        with the requirements of the Exchanges in connection with the listing
        of the Offered Shares on the Exchange;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | (c) | it will enter into a Subscription Agreement with
        each Subscriber for Flow-Through Shares pursuant to which it will, among
        other things, agree to incur and, effective on or before December 31,
        2004, renounce as CEE, in accordance with the Tax Act to each of the Subscribers
        for Flow-Through Shares Qualifying Expenditures incurred or to be incurred
        during the Expenditure Period in an amount equal in the aggregate to the
        Commitment Amount;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | (d) | during the period commencing with the date hereof
        and ending on the conclusion of the distribution of the Offered Shares,
        it will promptly provide to the Underwriters, for review by the Underwriters
        and the Underwriters’ counsel, prior to filing or issuance of the
        same, any proposed public disclosure document, including without limitation,
        any financial statements of the Corporation, report to shareholders, information
        circular or any press release or material change report, subject to the
        Corporation's obligations under Applicable Securities Laws to make timely
        disclosure of material information, and the Underwriters agree to keep
        such information confidential until it is disseminated into the marketplace,
        and any press release issued by the Corporation concerning the offering
        of Offered Shares unless it is issued after the Closing Time shall be
        marked, at the top of the press release, as follows: “NOT FOR DISTRIBUTION
        TO U.S. NEWSWIRE
|
| |     | SERVICES OR FOR DISSEMINATION IN THE UNITED STATES”;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | (e) | during the period commencing with the date hereof
        and ending on the conclusion of the distribution of the Offered Shares,
        the Corporation will promptly inform the Underwriters of the full particulars
        of any material change (actual, anticipated or threatened) in the business,
        operations, capital or condition (financial or otherwise) of the Corporation
        or its properties or assets, provided that if the Corporation is uncertain
        as to whether a material change of the nature referred to in this subparagraph
        has occurred, the Corporation shall promptly inform the Underwriters of
        the full particulars of the occurrence giving rise to the uncertainty
        and shall consult with the Underwriters as to whether the occurrence is
        of such a nature;                                                                                                                                                                                                                                            
|
| | (f) | during the period commencing with the date hereof
        and ending on the conclusion of the distribution of the Offered Shares,
        the Corporation will promptly inform the Underwriters of (i) the receipt
        by the Corporation of any communication from any Securities Commission
        or similar regulatory authority, the Exchanges or any other competent
        authority relating to the Corporation (or any of its directors or officers),
        the Common Shares or the distribution of the Offered Shares contemplated
        hereunder; and (ii) the issuance by any Securities Commission or other
        securities commissions or similar regulatory authority or by any other
        competent authority of any order to cease or suspend trading of any securities
        of the Corporation or of the institution or threat of institution of any
        proceedings for that purpose;                                                                                                                                                             
|
| | (g) | the Corporation will promptly, and in any event
        within any applicable time limitation, comply to the reasonable satisfaction
        of the Underwriters and the Underwriters' counsel with Applicable Securities
        Laws of the Selling Jurisdictions with respect to any material                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

---

12

| |     | change, change, occurrence or event of the nature
        referred to in subparagraphs 7(e) and 7(f) above;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (h) | the Corporation will use the proceeds from the issuance
        and sale of the Flow-Through Shares, directly or indirectly, to finance
        exploration activities on the Corporation's Canadian oil and gas properties;                                                                                                                                                                                                                                                                                                                                                                            
|
| | (i) | the Corporation shall deliver to the Underwriters
        as many copies of the Documents as the Underwriters may reasonably request
        and such delivery shall constitute the Underwriters' authority to use
        the Documents (and any amendments thereto) in connection with the offering
        of the Offered Shares for sale;                                                                                                                                                                                                                                                           
|
| | (j) | as soon as reasonably possible, and in any event
        by the Closing Date, the Corporation shall take all such steps as may
        reasonably be necessary to enable the Offered Shares to be offered for
        sale and sold on a private placement basis to Subscribers in the Selling
        Jurisdictions through the Underwriters or any other investment dealers
        or brokers registered in any of the Selling Jurisdictions by way of the
        exemptions under Applicable Securities Laws of each of the Selling Jurisdictions
        set forth in the Subscription Agreements;
|
| | (k) | the Corporation shall use its best efforts to maintain
        its status as a reporting issuer not in default of any Applicable Securities
        Laws in each of the provinces of British Columbia and Ontario until at
        least December 31, 2005, provided that the foregoing shall not restrict
        the ability of the Corporation to complete a merger, sale, acquisition,
        arrangement or other similar transaction, one of the results of which
        is that the Corporation ceases to be a reporting issuer in any or all
        of such provinces;                       
|
| | (l) | subsequent to the Closing Date, the Corporation
        shall incur, during the Expenditure Period, Qualifying Expenditures in
        such amount as enables the Corporation to renounce to the Flow-Through
        Share Subscribers effective on or before December 31, 2004, in accordance
        with the Tax Act and the Subscription Agreements, Qualifying Expenditures
        in an amount equal to the Commitment Amount;                                                                                                                                                                  
|
| | (m) | subsequent to the Closing Date, the Corporation
        will renounce as CEE, in accordance with the Tax Act and the Subscription
        Agreements, to the Subscribers effective on or before December 31, 2004,
        Qualifying Expenditures incurred during the Expenditure Period in an amount
        equal to the Commitment Amount;                                                                                                                                                                                                                                                          
|
| | (n) | all Qualifying Expenditures renounced to the Subscribers
        pursuant to the Subscription Agreements will be Qualifying Expenditures
        incurred by the Corporation that, but for the renunciation to such Subscribers,
        the Corporation would be entitled to deduct in computing its taxable income
        for the purposes of Part I of the Tax Act, assuming that it had earned
        taxable income in the applicable fiscal period;                                                                                                                                             
|
| | (o) | the Corporation will refrain from entering into
        transactions or taking deductions which would otherwise reduce its cumulative
        CEE to an extent that would preclude a renunciation of Qualifying Expenditures
        under the Subscription Agreements in an amount equal to the Commitment
        Amount as contemplated by subparagraphs 7(m) and 7(n) hereof;                                                                                                                                                                                                                       
|
| | (p) | the Corporation will maintain its status as a “principal
        business corporation” throughout the Expenditure Period;                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

---

13

|   | (q)                                                                                                                                                                                                                                                                                                                                                                                                       | the Corporation will, subsequent to the
        Closing Date, timely file with the Minister of National Revenue the form
        prescribed under subsection 66(12.68) of the Tax Act together with a copy
        of the Flow-Through Share Subscription Agreements and any other documents
        required to be filed pursuant to the Tax Act and will comply with all
        other requirements of the Tax Act to enable it to incur and renounce Qualifying
        Expenditures to each of the Flow-Through Share Subscribers in the manner
        and to the extent set forth in the Flow-Through Share Subscription Agreements,
        including the timely filing of all forms required under the Tax Act;
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | (r)                                                                                                                                                                                                                                                                                                                                                                                                       | the Corporation will not be subject to
        the provisions of subsection 66(12.67) of the Tax Act in a manner which
        impairs its ability to renounce Qualifying Expenditures to the Flow-Through
        Share Subscribers in an amount equal to the Commitment Amount;                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   | (s)                                                                                                                                                                                                                                                                                                                                                                                                       | the Corporation will duly, faithfully
        and punctually perform all the obligations to be performed by it and comply
        with its covenants and agreements hereunder and under the Subscription
        Agreements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|8. | The obligations of the Underwriters hereunder
        shall be conditional upon the Underwriters receiving, and the Underwriters
        shall have the right on the Closing Date on behalf of Subscribers for
        Offered Shares to withdraw all Subscription Agreements delivered and not
        previously withdrawn by Subscribers unless the Underwriters receive, on
        the Closing Date:
|  
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                                       | a legal opinion of the Corporation's counsel
        addressed to the Underwriters, the Underwriters’ counsel and the
        Subscribers, in form and substance reasonably satisfactory to the Underwriters,
        with respect to such matters as the Underwriters may reasonably request
        relating to the offering of the Offered Shares, including, without limitation,
        that:                                                                                                                                                                                                                                                                                                                     
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                           | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                           | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                           | (iii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

---

14

| |  |                                        | bound on the Closing Date, or (iv) any
        judgment, decree or order applicable to the Corporation of which counsel
        is aware, which default or breach might reasonably be expected to materially
        adversely affect the business, operations, capital or condition (financial
        or otherwise) of the Corporation (taken as a whole) or its properties
        or assets;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | -------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | (iv)                                   | the Offered Shares have been validly
        issued as fully paid and non-assessable shares;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | (v)                                    | the offering, sale, issuance and delivery
        of the Offered Shares by the Corporation to purchasers in the Selling
        Jurisdictions are exempt from the prospectus requirements of Applicable
        Securities Laws in the Selling Jurisdictions and no prospectus or other
        documents must be filed, proceeding taken or approval, consent or authorization
        obtained by the Corporation under Applicable Securities Laws in the Selling
        Jurisdictions to permit the distribution of the Offered Shares to purchasers
        in the Selling Jurisdictions, provided that the Corporation files, within
        the time periods stipulated by the Applicable Securities Laws in the Selling
        Jurisdictions, the reports stipulated by the Applicable Securities Laws
        in the Selling Jurisdictions, in each case prepared and executed in accordance
        with Applicable Securities Laws in the Selling Jurisdictions, together
        with the requisite filing fees, assuming distribution by registrants who
        comply with the relevant provisions of such Applicable Securities Laws;
| |  |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | (vi)                                   | the issuance of the Offered Shares has
        been approved by the Toronto Stock Exchange and such shares have been
        accepted for listing on the Toronto Stock Exchange subject to applicable
        requirements of the Toronto Stock Exchange;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | (vii)                                  | the Flow-Through Shares are flow-through
        shares as defined in subsection 66(15) of the Tax Act and will not constitute
        “prescribed shares” for purposes of Regulation 6202.1 of the
        Regulations of such Act;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | and additionally,
        relating to:
| |  |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | (viii)                                 | the authorized and issued capital of
        the Corporation;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | (ix)                                   | the first trade in the Offered Shares;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

and as to all other legal matters as the Underwriters or Underwriters’
  counsel may reasonably request, including, compliance with Applicable Securities
  Laws in the Selling Jurisdictions in any way connected with the creation, issuance,
  sale and delivery of the Offered Shares, and the first trade of the Offered
  Shares.

It is understood that counsel may rely on the opinions of
  local counsel acceptable to them as to matters governed by the laws of jurisdictions
  other than British Columbia or Canada and on certificates of officers of the
  Corporation, public authorities and the auditors of the Corporation and the
  registrar and transfer agent of the Corporation's Common Shares as to relevant
  matters of fact. It is further understood that the Underwriters' counsel may
  rely on the opinion of the Corporation's counsel as to matters which specifically
  relate to the Corporation and the Offered Shares, including the creation and
  issuance of the Offered Shares;

| | (b) | a certificate of the Corporation dated the Closing
        Date, addressed to the Underwriters and signed on the Corporation's behalf
        by its Chief Executive Officer and Chief Financial
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

15

|   |                                                                                                                                                                                                                                                                                                                                                                                             | Officer or other senior officers of the
        Corporation satisfactory to the Underwriters, certifying on behalf of
        the Corporation and not in their personal capacities that:                                                                                                                                                                                                 
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                             | (i)                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                             | (ii)                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                             | (iii)                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                             | (iv)                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   | (c)                                                                                                                                                                                                                                                                                                                                                                                         | the Underwriters shall be
        satisfied that Subscribers that acquire Offered Shares under the offering
        contemplated hereby will be able to take advantage of, and the Offered
        Shares may be resold in accordance with, subsection 2.5(2) of MI 45-102
        such that the Offered Shares will be subject only to a four month hold
        period under MI 45-102;
|  
|   | (d)                                                                                                                                                                                                                                                                                                                                                                                         | definitive certificates representing,
        in the aggregate, all of the Offered Shares issued on the Closing Date
        registered in such name or names as the Underwriters shall notify the
        Corporation in writing not less than twenty-four (24) hours prior to the
        Closing Time;                                                                                
|  
|   | (e)                                                                                                                                                                                                                                                                                                                                                                                         | executed copies of the Subscription
        Agreements accepted by the Corporation, each in form and substance reasonably
        satisfactory to the Underwriters and the Underwriters' counsel; and                                                                                                                                                                                    
|  
|   | (f)                                                                                                                                                                                                                                                                                                                                                                                         | an executed undertaking
        from each of the officers and directors of the Corporation as contemplated
        in Section 38 hereof.                                                                                                                                                                                                                                                 
|  
|9. | The sale of the Offered Shares
        shall be completed at the Closing Time at the offices of Corporation's
        counsel in Vancouver, British Columbia or at such other place as the Corporation
        and the Underwriters may agree. Subject to the conditions set forth in
        paragraph 8, the Underwriters, on the Closing Date, shall deliver to the
        Corporation:
|  
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                         | all completed Subscription
        Agreements;                                                                                                                                                                                                                                                                                                                                           
|  
|   | (b)                                                                                                                                                                                                                                                                                                                                                                                         | all completed forms, questionnaires
        and undertakings as required by the Exchanges and any other documentation
        required by the Exchanges or the Securities Commissions and provided by
        the Corporation to the Underwriters for such purpose; and                                                                                                                  

---

16

|    | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | a certified cheque(s) or bank draft(s) payable to
        the Corporation at par in Vancouver in an amount equal to the aggregate
        amount of all of those subscriptions delivered to the Corporation by the
        Underwriters and accepted by the Corporation (or effect payment in such
        other manner as the Corporation and the Underwriters may agree);
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | against delivery by the Corporation
        of the certificates referred to in subparagraph 8(d) and a certified cheque
        or bank draft payable to Octagon Capital Corporation in an amount equal
        to the Underwriters’ Fee and expenses payable by the Corporation
        to the Underwriters pursuant to paragraphs 10 and 11, to be delivered
        at the Closing Time. The Corporation may not reject any properly completed
        Subscription Agreement unless the number of Offered Shares subscribed
        for pursuant to the Subscription Agreements and tendered by the Underwriters
        exceeds the maximum number of Offered Shares to be sold under this agreement
        or unless the distribution cannot be completed in accordance with Applicable
        Securities Laws.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|10. | In consideration for services of the Underwriters
        hereunder, the Corporation agrees to pay at the Closing Time to the Underwriters
        a fee (the “Underwriters’ Fee”) equal to 6% of
        the gross proceeds of the offering, being the amount of $0.336 for
        each Flow-Through Share and $0.273 for each Option Share subscribed
        for (including any Offered Shares purchased by the Underwriters as principal)
        for which the Underwriters tender a Subscription Agreement to the Corporation
        and which subscription is accepted by the Corporation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|11. | Whether or not the transactions contemplated
        herein shall be completed, all costs and expenses of or incidental to
        the creation, issuance and distribution of the Offered Shares shall be
        borne by the Corporation, including, without limitation, the fees and
        expenses of the Corporation's counsel, the fees and expenses of agent
        counsel retained by the Corporation's counsel, the fees and expenses of
        the Corporation's auditors, the fees of the Exchanges and the out-of-pocket
        expenses of the Underwriters and the fees of the Underwriters’ counsel,
        to a maximum of $50,000 (before legal disbursements estimated at $2,500
        and applicable taxes). The aggregate amount of $52,500 plus G.S.T.
        in the amount of $3,675 shall be paid to Octagon Capital Corporation
        upon closing as an initial estimate of the out-of-pocket expenses of the
        Underwriter and the fees and disbursements of the Underwriters’
        counsel, such amount to be disbursed by Octagon Capital Corporation upon
        receipt of invoice with the shortfall, if any, to be paid by the Corporation
        and the excess funds, if any, to be returned to the Corporation. The Underwriters
        may, at their election retain the amount of $56,175 from the proceeds
        for the Option Shares to be disbursed as contemplated herein. Octagon
        will provide the Corporation with a written reconciliation of the expenses
        incurred.
|   
|12. | All representations, warranties, covenants,
        terms and conditions of this agreement shall be construed as conditions,
        and any material breach or failure to comply with any such representation,
        warranty, covenant, term or condition shall entitle the Underwriters to
        terminate its obligation to distribute the Offered Shares by written notice
        to that effect given to the Corporation prior to the Closing Date. The
        Underwriters may waive in whole or in part any breach of, default under
        or non compliance with any representation, warranty, term or condition
        hereof on the part of the Corporation, or extend the time for compliance
        therewith, without prejudice to any of its rights in respect of any other
        representation, warranty, term or condition hereof or any other breach
        of, default under or non compliance with any other representation, warranty,
        term or condition hereof, provided that any such waiver or extension shall
        be binding on the Underwriters only if the same is in writing.                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|13. | Each Underwriter may terminate its obligations
        hereunder, by written notice to the Corporation, in the event that after
        the date hereof and at or prior to the Closing Time:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

---

17

| | (a) | any order to cease or suspend trading in any securities
        of the Corporation, or prohibiting or restricting the distribution of
        the Common Shares is made, or proceedings are announced or commenced for
        the making of any such order, by any securities commission or similar
        regulatory authority, the Exchanges or by any other competent authority,
        which has not been rescinded, revoked or withdrawn;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) | there should occur or commence, or be announced
        or threatened, any inquiry, action, suit, investigation or other proceeding
        (whether formal or informal) or any order is issued by any governmental
        authority (including any securities commission or similar regulatory authority
        and the Exchange) or any law or regulation is promulgated, changed or
        announced or the interpretation or administration thereof is effected
        or announced which relates to or, in the opinion of the Underwriter acting
        reasonably, affects, directly or indirectly, the Corporation or any of
        its directors or senior officers which, in the opinion of the Underwriter,
        acting reasonably, is expected to prevent or materially restrict the trading
        in or the distribution of the Offered Shares or would be expected to have
        a material adverse effect on the market price or value of, or the marketability
        of, the Common Shares;
|
| | (c) | there should develop, occur or come into effect
        or existence any event, action, state, condition or financial occurrence
        of national or international consequence, acts of hostility or escalation
        thereof, or any other calamity or crisis or any change or development
        involving a prospective change in national or international political,
        financial or economic conditions, or any governmental action, law, regulation,
        inquiry or other occurrence of any nature whatsoever or change in the
        financial markets which in the opinion of the Underwriter, acting reasonably,
        materially adversely affects or involves, or will materially adversely
        affect or involve, the financial markets or the business, operations or
        affairs of the Corporation or the marketability of the Common Shares;                                                                                                                                  
|
| | (d) | there should occur any material change, change of
        a material fact, occurrence or event of the nature referred to in subsection
        7(e) with respect to the Corporation which, in the opinion of the Underwriter,
        acting reasonably, could be expected to have a material adverse effect
        on the business, operations or affairs of the Corporation, or on the market
        price or value of the Common Shares or the marketability of the Offered
        Shares;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | (e) | the state of the financial markets in any of the
        Selling Jurisdictions is such that in the opinion of the Underwriters,
        acting reasonably, the Common Shares cannot be marketed profitably;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | (f) | the Underwriter, acting reasonably, determines that
        the Corporation shall be in breach of, default under or non-compliance
        with any material covenant, representation, warranty, term or condition
        contained in this Agreement or the Subscription Agreements or in any certificate
        or document delivered pursuant to or contemplated by this Agreement or
        the Subscription Agreements; or                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | (g) | the Underwriter shall become aware, as a result
        of its due diligence review or otherwise, that there exists any fact or
        circumstance not disclosed in the Public Record which would, in the Underwriter’s
        sole opinion, acting reasonably, constitute a material adverse change
        in respect of the Corporation or have a significant adverse effect on
        the market price or value of, or the investment quality or marketability
        of, the Common Shares; or                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

---

18

| | (h) | the Underwriter shall determine that the responses
        provided by the Corporation at the Due Diligence Session contained information
        which would have, in the sole opinion of the Underwriter, acting reasonably,
        a material adverse effect on the market price or value of the Common Shares
        or the Corporation;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|    | in any of which cases, the Underwriter shall be
        entitled, at its option, to terminate and cancel its obligations to the
        Corporation under this agreement and the obligations of any purchaser
        under any Subscription Agreement by written notice to that effect given
        to the Corporation prior to the Closing. In the event of any such termination
        pursuant to the provisions of this Section 13 by any one of the Underwriters,
        the other Underwriters shall be deemed contemporaneously to have terminated
        their obligations under this agreement unless any such other Underwriter
        shall, within 24 hours after notice of termination is given, notify the
        Corporation to the effect that it is assuming the obligations of the Underwriter(s)
        terminating their obligations. In the event of any such termination, the
        Corporation's liabilities to the Underwriter(s) who has so terminated
        shall be at an end except for any liability of the Corporation provided
        for in this agreement which by its terms survives termination.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|14. | The Underwriters may exercise any or all of the
        rights provided for in paragraphs 8, 12 or 13 notwithstanding any material
        change, change, event or state of facts and notwithstanding any act or
        thing taken or done by the Underwriters or any inaction by the Underwriters,
        whether before or after the occurrence of any material change, change,
        event or state of facts including, without limitation, any act of the
        Underwriters taken in good faith and related to the offering of the Offered
        Shares for sale and any act taken in good faith by the Underwriters shall
        only be considered to have waived or caused them to be estopped from exercising
        or relying upon any of their rights under or pursuant to paragraphs 8,
        12 or 13 if such waiver or estoppel is in writing and specifically waives
        or estops such exercise or reliance.                                                                                                                                                                                                 
|   
|15. | Any termination pursuant to the terms of this agreement
        shall be effected by notice in writing delivered to the Corporation prior
        to the Closing Time, provided that no termination shall discharge or otherwise
        affect any obligation of the Corporation under paragraphs 11 and 17 through
        26 inclusive. The rights of the Underwriters, or any of them, to terminate
        their obligations hereunder are in addition to, and without prejudice
        to, any other remedies they may have.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|16. | It is understood that all representations, warranties,
        terms and conditions herein or contained in certificates or documents
        submitted pursuant to or in connection with the transactions contemplated
        herein shall survive the payment for the Offered Shares and the termination
        of this agreement and shall continue in full force and effect for the
        benefit of the Underwriters and the Corporation regardless of any investigation
        by or on behalf of the Underwriters or the Corporation with respect thereto.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|17. | The Corporation (the “Indemnitor”)
        shall indemnify and save harmless the Underwriters and their respective
        affiliates, shareholders, directors, officers, partners, employees and
        agents (collectively the “Indemnified Parties”) from
        and against all actual or threatened claims, actions, suits, investigations
        and proceedings (collectively “Proceedings”) and all
        demands, losses (other than loss of profits), expenses, costs, fees, damages,
        obligations, payments and liabilities (collectively “Liabilities”)
        (including without limitation all statutory duties and obligations, all
        amounts paid to settle any action or to satisfy any judgment or award
        and all legal fees and disbursements actually incurred) which now or any
        time hereafter are suffered or incurred, whether under the provisions
        of any statute or otherwise, by reason of any event, act or omission in
        any way connected, directly or indirectly, with:                                                                                          

---

19

| | (a) | any information or statement contained in the Subscription
        Agreements or the Public Record (other than any information or statement
        relating solely to the Underwriters and furnished to the Corporation by
        the Underwriters expressly for inclusion in the Subscription Agreements
        or the Public Record), which is or is alleged to be untrue or any omission
        or alleged omission to provide any information or state any fact the omission
        of which makes or is alleged to make any such information or statement
        untrue or misleading in light of the circumstances in which it was made;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (b) | any misrepresentation or alleged misrepresentation
        contained in any of the responses provided to the Underwriters by the
        Corporation or its directors, officers or employees in the Due Diligence
        Session;                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (c) | any misrepresentation or alleged misrepresentation
        (except a misrepresentation which is based upon information relating solely
        to the Underwriters and furnished to the Corporation by the Underwriters
        expressly for inclusion in the Subscription Agreements or the Public Record)
        contained in the Subscription Agreements or the Public Record;                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (d) | any prohibition or restriction of trading in the
        securities of the Corporation or any prohibition or restriction affecting
        the distribution of the Offered Shares imposed by any competent authority
        if such prohibition or restriction is based on any misrepresentation or
        alleged misrepresentation of a kind referred to in subparagraph 17(b);                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (e) | any order made or any inquiry, investigation (whether
        formal or informal) or other proceeding commenced or threatened by any
        one or more competent authorities (not based upon the activities or the
        alleged activities of the Underwriters or its banking or selling group
        members, if any) relating to or materially affecting the trading or distribution
        of the Offered Shares; or                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (f) | any breach of, default under or non compliance by
        the Corporation with any representation, warranty, term or condition of
        this agreement, the Subscription Agreements or any requirement of Applicable
        Securities Laws;                                                                                                                                                                                                                                                                                                                                                                                                     

|    | provided that in the event and to the extent that
        a court of competent jurisdiction in a final judgment from which no appeal
        can be made or a regulatory authority in a final ruling from which no
        appeal can be made shall determine that such Proceedings or Liabilities
        resulted from the gross negligence, fraud, or wilful misconduct of the
        Indemnified Party claiming indemnity or such Indemnified Party shall be
        in breach of, default under or non-compliance with any material representation,
        warranty, term, condition or covenant of this agreement, this indemnity
        shall not apply.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|18. | The Corporation hereby waives its right to recover
        contribution from the Underwriters with respect to any liability of the
        Corporation by reason of or arising out of any misrepresentation in the
        Public Record provided, however, that such waiver shall not apply in respect
        of liability caused or incurred by reason of or arising out of any misrepresentation
        which is based upon information relating solely to the Underwriters contained
        in such document and furnished to the Corporation by the Underwriters
        expressly for inclusion in such document.                                        
|   
|19. | If any Proceeding is brought, instituted or threatened
        against any Indemnified Party which may result in a claim for indemnification
        under this agreement, such Indemnified Party shall promptly after receiving
        notice thereof notify the Corporation of the nature of such claim, in
        writing, and the Corporation shall be entitled (but not required) to assume
        conduct of the defence thereof and retain counsel on behalf of the Indemnified
        Party who is reasonably satisfactory to the                                                                                                                     

---

20

|    | Indemnified Party, to represent the Indemnified
        Party in such Proceeding and the Corporation shall pay the fees and disbursements
        of such counsel and all other expenses of the Indemnified Party relating
        to such Proceeding as incurred. Failure to so notify the Corporation shall
        not relieve the Corporation from liability except and only to the extent
        that the failure materially prejudices the Corporation. If the Corporation
        assumes conduct of the defence for an Indemnified Party, the Indemnified
        Party shall, subject to a situation involving a conflict of interest as
        described in paragraph 20 wherein counsel to the Indemnified Party advises
        such action would be prejudicial to the interests of the Indemnified Party,
        fully cooperate in the defence including without limitation the provision
        of documents, appropriate officers and employees to give witness statements,
        attend examinations for discovery, make affidavits, meet with counsel,
        testify and divulge all information reasonably required to defend or prosecute
        the Proceedings.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|20. | In any such Proceeding the Indemnified
        Party shall have the right to employ separate counsel and to participate
        in the defence thereof if:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|    | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|    | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|    | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|21. | No admission of liability and no settlement
        of any Proceeding shall be made without the consent of the Indemnified
        Parties affected, such consent not to be unreasonably withheld. No admission
        of liability shall be made by an Indemnified Party without the consent
        of the Indemnitor, such consent not to be unreasonably withheld, and the
        Indemnitor shall not be liable for any settlement of any Proceeding made
        without their consent, such consent not to be unreasonably withheld.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|22. | In order to provide for just and equitable
        contribution in circumstances in which the indemnification provided for
        in this agreement is due in accordance with its terms but is (in whole
        or in part), for any reason, held by a court to be unavailable from the
        Corporation on the grounds of policy or otherwise, each of the Corporation
        and the party or parties seeking indemnification shall contribute to the
        aggregate Liabilities (or Proceedings in respect thereof) to which they
        may be subject or which they may suffer or incur:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|    | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

---

21

| |  | subparagraph (a) above but also to reflect the relative
        fault of the party or parties seeking indemnity, on the one hand, and
        the parties from whom indemnity is sought, on the other hand, in connection
        with the statement, omission, misrepresentation or alleged misrepresentation,
        order, inquiry, investigation or other matter or thing which resulted
        in such Liabilities, as well as any other relevant equitable considerations.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|    | The relative benefits received by the Corporation,
        on the one hand, and the Underwriters, on the other hand, shall be deemed
        to be in the same proportion that the total proceeds of the offering received
        by the Corporation (net of fees but before deducting expenses) bear to
        the fees received by the Underwriters. The relative fault of the Corporation,
        on the one hand, and of the Underwriters, on the other hand, shall be
        determined by reference, among other things, to whether the misrepresentation
        or alleged misrepresentation, order, inquiry, investigation or other matter
        referred to in paragraph 17 hereof relates to information supplied or
        which ought to have been supplied by the Corporation or the Underwriters,
        or steps or actions taken or done or which ought to have been taken or
        done on behalf of the Corporation or the Underwriters and the parties'
        relevant intent, knowledge, access to information and opportunity to correct
        or prevent such misrepresentation or alleged misrepresentation, order,
        inquiry, investigation or other matter referred to in paragraph 17 hereof.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | The amount paid or payable by the Corporation as
        a result of any Proceedings or Liabilities shall, without limitation,
        include any legal or other expenses reasonably incurred by the Indemnified
        Person in connection with investigating or defending such liabilities,
        claims, demands, losses, costs, damages and expenses (or claims, actions,
        suits or proceedings in respect thereof), whether or not resulting in
        any action, suit, proceeding or claim.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    | The Corporation agrees that it would not be just
        and equitable if contributions pursuant to this agreement were determined
        by pro rata allocation or by any other method of allocation which does
        not take into account the equitable considerations referred to in the
        immediately preceding paragraphs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    | Any liability of the Underwriters under this paragraph
        22 shall be limited to the amount of the cash fees received by the Underwriters
        pursuant to paragraph 10 hereof.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|23. | The rights to indemnify and right of contribution
        provided in the foregoing paragraphs shall be in addition to and not in
        derogation of any other right to contribution which the Indemnified Parties
        may have by statute or otherwise at law or in equity. The Indemnitor waives
        all rights of contribution that it may have against an Indemnified Party
        relating to any Liability in respect of which the Indemnitor has agreed
        to indemnify such Indemnified Party hereunder.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|24. | It is the intention of the Corporation to constitute
        the Underwriters as trustee for the Indemnified Parties for the purposes
        of paragraphs 17 to 23 inclusive and the Underwriters shall be entitled,
        as trustee, to enforce such covenants on behalf of any other Indemnified
        Persons.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|25. | If any Proceeding is brought in connection with
        the transactions contemplated by this agreement and the Underwriters (or
        any of them) is required to testify in connection therewith or are required
        to respond to procedures designed to discover information relating thereto,
        the Corporation shall pay to the Underwriters reasonable fees at the normal
        per diem rate for their directors, officers, partners, employees and agents
        involved in preparation for and attendance at such Proceeding or in so
        responding provided that such Proceeding is not caused by or is the result
        of the negligence, fraud or wilful misconduct of an Indemnified Party.
        Any other reasonable costs and out-of-pocket expenses incurred by it in
        connection therewith will be paid                                                                                                                                                                                                                                                                                                                                                                                 

---

22

|    | by the Corporation as they are incurred against presentation
        of invoices for such costs and expenses.                                                                                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                     
|26. | The obligations under the indemnity and right of
        contribution provided herein shall apply whether or not the transactions
        contemplated by this agreement are completed and shall survive the completion
        of the transactions contemplated under this agreement and the termination
        of this agreement.
|    |                                                                                                                                                                                                                                                                                                                                     
|27. | Any notice or other communication to be given hereunder
        shall, in the case of notice to be given to the Corporation, be addressed
        to:                                                                                                                                                                               

| |                                                                                | Dynamic Oil & Gas, Inc. 
      230-10991 Shellbridge Way                                                                                  
| | ------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                | Richmond, British Columbia V6X 3C6                                                                                                        
|
| |                                                                                | Attention:               Mr.
      Wayne J. Babcock, President and Chief Executive Officer 
      Facsimile No.:         (604) 214-0551   
|
| | with a copy to:                                                               
|
| |                                                                                | Irwin, White & Jennings 
      2620-1055 West Georgia Street 
      Vancouver, British Columbia V6E 3R5                                   
|
| |                                                                                | Attention:               David
      Jennings, Partner 
      Facsimile No.:        (604) 689-2806                                        
|
| | and in the case of notice to be given to the Underwriters,
      addressed to:
|
| |                                                                                | Octagon Capital Corporation 
      Suite 400, 181 University Avenue 
      Toronto, Ontario M5H 3M7                                       
|
| |                                                                                | Attention:               John
      Palumbo, President & CEO 
      Facsimile No.:         (416) 368-1982                                 
|
| |                                                                                | and:                                                                                                                                      
|
| |                                                                                | Raymond James Ltd.                                                                                                                        
| |                                                                                | Suite 2500, 707-8th Avenue SW 
      Calgary, Alberta T2P 1H5                                                                             
|
| |                                                                                | Attention:               Edward
      J. Bereznicki, Senior Vice-President, Investment Banking
      Facsimile No.:         (403) 509-0535
|
| | with a copy to:                                                               
|
| |                                                                                | Burstall Winger LLP 
      Barristers and Solicitors 
      3100, 324 - 8thAvenue S.W. 
      Calgary, Alberta T2P 2Z2                    
|
| |                                                                                | Attention:               Harley
      L. Winger 
      Facsimile No.:        (403) 266-6016                                               

---

23

| | or to such other address
        as the party may designate by notice given to the others. Each communication
        shall be personally delivered to the addressee or sent by facsimile transmission
        to the addressee, and:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                      
| | (a)                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                      
| | (b)                                                                                                                                                                                                                                  

|28. | The Corporation agrees that, from the date hereof
        and ending on the date that is 120 days following the Closing Date, it
        will not offer, or announce the offering of, or make or announce any agreement
        to issue, sell, or exchange Common Shares or securities convertible or
        exchangeable into Common Shares at a price of less than $4.55 per
        share without the prior consent of Octagon Capital Corporation, not to
        be unreasonably withheld, provided that notwithstanding the foregoing,
        the Corporation may issue Common Shares on exercise of existing instruments
        outstanding on the date hereof and as represented herein and grant options
        to directors, officers, or employees of the Corporation and issue Common
        Shares on exercise thereof subject to board approved option incentive
        programs, without such consent.                                                                 
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|29. | The Corporation: (i) acknowledges and agrees that
        each of the Underwriters has certain statutory obligations as registrant
        under the Applicable Securities Laws and has fiduciary relationships with
        its clients; and (ii) consents to each of the Underwriters acting hereunder
        while continuing to act for its clients. To the extent that any of the
        Underwriter's statutory obligations as registrant under Applicable Securities
        Laws or fiduciary relationships with its clients conflicts with its obligations
        hereunder, the Underwriter shall be entitled to fulfil its statutory obligations
        as a registrant under Applicable Securities Laws and its duties to its
        clients. Nothing in this agreement shall be interpreted to prevent each
        Underwriter from fulfilling its statutory obligations as a registrant
        under Applicable Securities Laws or to act as a fiduciary of its clients.
|   
|30. | The Underwriters shall, upon written notice to the
        Corporation not less than two (2) business days prior to the Closing Time,
        have the option to purchase up to 400,000 Common Shares at a price of
        $4.55 per share for additional gross proceeds of up to $1,820,000
        (the “Underwriters' Option”). The Underwriters' Option
        granted to the Underwriters pursuant to this paragraph 30 may be exercised
        by the Underwriters in whole or in part, and, in the event that the Underwriters'
        Option is exercised by the Underwriters and agreed to by the Corporation,
        references in this agreement to Offered Shares shall be and be deemed
        to include a reference to the Common Shares in respect of which the Underwriters'
        Option is exercised.                                                                                                                                                             
|   
|31. | The Corporation shall be entitled to and shall act
        on any notice, waiver, extension or communication given by or on behalf
        of the Underwriters by Octagon Capital Corporation, which shall represent
        the Underwriters and which will have the authority to bind the Underwriters
        in respect of all matters hereunder, except in respect of any settlement
        under Sections 17 or 22, or any matter referred to in Section 13.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

---

24

|32. | The obligations of the Underwriters hereunder
        are several and not joint nor joint and several in that:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|33. | The Corporation acknowledges and agrees
        that it is the intention of the parties hereto and the Corporation hereby
        constitutes the Underwriters as trustee for each of the Subscribers in
        respect of each of the covenants, agreements and representations and warranties
        of the Corporation contained herein and the Underwriters shall be entitled,
        as trustee, in addition to any rights of the Subscribers, to enforce such
        covenants, agreements and representations and warranties on behalf of
        the Subscribers.                                                                                                                      
|   
|34. | If one or more of the provisions contained
        herein shall, for any reason, be held to be invalid, illegal or unenforceable
        in any respect, such invalidity, illegality or unenforceability shall
        not affect any other provision of this agreement, but this agreement shall
        be construed as if such invalid, illegal or unenforceable provision or
        provisions had never been contained herein.                                                                                                                                                                                                                                                               
|   
|35. | This agreement shall be governed by and
        construed in accordance with the laws of the Province of British Columbia
        and the laws of Canada applicable therein.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|36. | Time shall be of the essence of this agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|37. | This agreement may be executed in one
        or more counterparts each of which so executed shall constitute an original
        and all of which together shall constitute one and the same agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|38. | The Corporation agrees that officers and
        directors of the Corporation shall not sell Common Shares from the time
        of execution of this agreement up to and inclusive of the period which
        is four (4) months following Closing without the written consent of Octagon
        Capital Corporation, which consent shall not be unreasonably withheld
        (including without limitation, Common Shares issued upon the exercise
        of options with terms expiring within four (4) months of closing) and
        agrees to use its best efforts to have each of the officers and directors
        execute an Undertaking in the form attached hereto as Schedule “D”.

---

25

|39. | It is understood that the terms and conditions of
        this agreement supersede any previous verbal or written agreement between
        the Underwriters and the Corporation in respect of the offer for sale
        by the Corporation of Offered Shares, including the letter agreement dated
        April 29, 2004.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If the foregoing is in accordance with your understanding
  and is agreed to by you, please confirm your acceptance by signing the enclosed
  copies of this letter at the place indicated and returning same to Octagon Capital
  Corporation.

| | OCTAGON CAPITAL CORPORATION
| | ---------------------------
| |                            
| | Per:                       
| |                            
| |                            
| |                            
| | RAYMOND JAMES LTD.         
| |                            
| | Per:                       
| |                            
| |                            

ACCEPTED AND AGREED to as of the 19th day of May, 2004.

DYNAMIC OIL & GAS, INC.



|Per: | /s/ Wayne J. Babcock                                          | 
|---- | ------------------------------------------------------------- | 
|     | Wayne J. Babcock, President and Chief Executive
      Officer | 

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SCHEDULE “A”

LIST OF MATERIAL CONTRACTS

|1. | Gross Overriding Royalty Repurchase Agreement dated
        July 6, 2003 between the Corporation and Wayne Babcock.                                                  
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. | Gross Overriding Royalty Repurchase Agreement dated
        July 6, 2003 between the Corporation and Donald Umbach.                                                  
|  
|3. | Gross Overriding Royalty Repurchase Agreement dated
        July 6, 2003 between the Corporation and James Britton.                                                  
|  
|4. | Purchase and Sale Agreement dated June 26, 2001
        among the Corporation, Fletcher Challenge Oil & Gas Inc., Trioco Resources
        Inc. and Energy North Inc.
|  
|5. | Contribution, Mutual Interest and Exclusion Agreement
        dated June 29, 2001 among the Corporation, Trioco Resources Inc. and Energy
        North Inc.         

---

SCHEDULE “B”

LIST OF EMPLOYMENT AGREEMENTS

|1. | Agreement dated July 11, 2000 with Wayne Babcock.  
|-- | ---------------------------------------------------
|  
|2. | Agreement dated July 11, 2000 with Donald Umbach.  
|  
|3. | Agreement dated July 11, 2000 with James Britton.  
|  
|4. | Agreement dated July 11, 2000 with Michael Bardell.
|  
|5. | Agreement dated March 5, 2001 with David Grohs.    
|  
|6. | Agreement dated March 12, 2001 with Jonathan White.

---

SCHEDULE “C”

SWAPS

Nil.

---

SCHEDULE “D”

UNDERTAKING

|TO: | OCTAGON CAPITAL CORPORATION
        AND RAYMOND JAMES LTD. (the “Underwriters)                                                                                               
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                              
|RE: | Offering of 2,000,000 “Flow-Through”
        Common Shares of Dynamic Oil & Gas, Inc. (the “Corporation”)
        Closing on or About May 19, 2004, (the “Private Placement”)

The
  undersigned, being a director and/or officer of the Corporation, as indicated
  below, hereby undertakes to the Underwriters not to sell any common shares or
  instruments convertible into common shares in the capital of the Corporation
  during the period up to and including 120 days from the date of closing (“Closing”)
  of the Private Placement, without the written consent of Octagon Capital Corporation,
  not to be unreasonably withheld.

The
  undersigned acknowledges that this Undertaking is provided in connection with
  an Underwriting Agreement between the Corporation and the Underwriters (the
  “Underwriting Agreement”) and that the delivery of this Undertaking
  at Closing is a material term of the Underwriting Agreement.

DATED the _____ day of May, 2004.



|Signature                                | 
|---------------------------------------- | 
|                                         | 
|                                         | 
|                                         | 
|Print Name                               | 
|                                         | 
|                                         | 
|                                         | 
|Position(s) with Dynamic Oil & Gas, Inc. | 

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