SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

FORM 20-F

(Mark One)

[ ]

REGISTRATION STATEMENT PURSUANT TO SECTION 12b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934.



[X]

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the fiscal year ended December 31, 2002.

[ ]

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

For the transition period from _________ to ________________.



Commission File Number: _________0-18008________________.



BELAIR ENERGY CORPORATION

(Exact name of Registrant as specified in its charter)



Alberta, Canada

(Jurisdiction of Incorporation or Organization)



Suite 400 First Alberta Place

777 Eighth Avenue S.W.

Calgary, Alberta   T2P 3R5

(Address of principal executive offices)



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

NONE







Securities registered pursuant to Section 12(g) of the Act:

Common Shares, no par value





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

NONE



Indicate the number of outstanding shares of each of the issuers

classes of capital or Common Stock as of the close of the period covered by the annual report.

32,044,978



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

for the past 90 days.

Yes X       No.





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

Item 17 X     Item 18

I

---

TABLE OF CONTENTS



|GLOSSARY OF TERMS                          | III                                                                             
|------------------------------------------ | --------------------------------------------------------------------------------
|DEFINITIONS                                | IV                                                                              
|ITEM 1                                     | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                           
|ITEM 2                                     | OFFER STATISTICS AND EXPECTED TIMETABLE                                         
|ITEM 3                                     | KEY INFORMATION                                                                 
|ITEM 4                                     | INFORMATION ON THE COMPANY                                                      
|ITEM 5                                     | OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                    
|ITEM 6                                     | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                      
|ITEM 7                                     | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                               
|ITEM 8                                     | FINANCIAL INFORMATION                                                           
|ITEM 9                                     | THE OFFER AND LISTING                                                           
|ITEM 10                                    | ADDITIONAL INFORMATION                                                          
|ITEM 11                                    | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                      
|ITEM 12                                    | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                          
|ITEM 13                                    | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                                 
|ITEM 14                                    | MATERIAL
    MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
|ITEM 15                                    | DISCLOSURE                                                                      
|ITEM 16                                    | INFORMATION WITH RESPECT TO:                                                    
|A:                                         | AUDIT AND RESERVES COMMITTEE                                                    
|B:                                         | CODE OF ETHICS AND CORPORATE GOVERNANCE PRACTICES                               
|C:                                         | ACCOUNTANTS FEES AND SERVICES                                                   
|ITEM 17                                    | FINANCIAL STATEMENTS                                                            
|ITEM 18                                    | FINANCIAL STATEMENTS                                                            
|ITEM 19                                    | EXHIBITS                                                                        
|SIGNATURES                                 | 52                                                                              
|CERTIFICATION                              | 53                                                                              
|CERTIFICATION                              | 54                                                                              
|INDEX TO CONSOLIDATED FINANCIAL STATEMENTS | FI                                                                              



II

---

GLOSSARY OF TERMS



|Natural Gas                 |        |                                                                                                 
|--------------------------- | ------ | ------------------------------------------------------------------------------------------------
|                            | Mcf    | 1,000 cubic feet                                                                                
|                            | MMcf   | 1,000,000 cubic feet                                                                            
|                            | Mcf/d  | 1,000 cubic feet per day                                                                        
|                            | MMcf/d | 1,000,000 cubic feet per day                                                                    
|                            | Bcf    | 1,000,000,000 cubic feet                                                                        
|                            | Mmbtu  | 1,000,000,000 British Thermal Units                                                             
|                            | GJ     | Gigajoules                                                                                      
|                            |        |                                                                                                 
|Oil and Natural Gas Liquids |        |                                                                                                 
|                            | bbls   | Barrels                                                                                         
|                            | Mbbls  | 1,000 barrels                                                                                   
|                            | blpd   | Barrels of liquid per day                                                                       
|                            | boe    | Barrels of oil equivalent using a conversion ratio of 6 Mcf to 1 bbl of oil.                    
|                            | Mboe   | 1,000 boe                                                                                       
|                            | Mmboe  | 1,000,000 boe                                                                                   
|                            | bpd    | Barrels per day                                                                                 
|                            | boepd  | Barrels of oil equivalent per day                                                               
|                            | bopd   | Barrels of oil per day                                                                          
|                            | NGLs   | Natural gas liquids                                                                             
|                            | stb    | Stock tank barrels of oil (oil volume at 60 degrees F and 14.65 pounds per square inch absolute)
|                            | Mstb   | 1,000 stock tank barrels                                                                        

III

---

DEFINITIONS



ABCAmeans the Business Corporations Act (Alberta), as amended;

AJM Report means the report prepared by Ashton Jenkins Mann, completed December 31, 2002, representing gross and net Proved Developed, Proved Undeveloped and Probable Reserves of oil, natural gas and NGLs of BelAir;

APMC means the Alberta Petroleum Marketing Commission;

ARTC means the Alberta Royalty Tax Credit;

ASC means the Alberta Securities Commission;

Ashton Jenkins Mann means Ashton Jenkins Mann, reservoir engineers;

BelAirmeans BelAir Energy Corporation;

BAC means BelAir Acquisition Corp., a wholly owned subsidiary of BelAir which amalgamated with the Company on January 1, 2002 as described under History and Development of the Company;

BelAir Shares or Common Sharesmeans the common shares in the capital of BelAir as constituted on the date hereof;

Cirque means Cirque Energy (UK) Limited.

Company means BelAir Energy Corporation;

CrownJoule means CrownJoule Exploration Ltd., a corporation acquired by the Company as described under the heading History and Development of the Company;

Gold Buttemeans Gold Butte Energy Inc., previously a junior capital pool corporation as described under the heading History and Development of the Company;

Granger means Granger Energy Corp., a corporation acquired by the Company as described under the heading History and Development of the Company;

Holdcomeans Holdco Resources Limited, a corporation amalgamated with Gold Butte, as described under the heading History and Development of the Company;

Impala means Impala Energy Inc., a wholly owned subsidiary of BelAir which amalgamated with the Company on January 1, 1999 as described under History and Development of the Company;

Mermaid means Mermaid Resources (UK) Limited.

Tikalmeans Tikal Resources Corp., a corporation acquired by the Company as described under the heading History and Development of the Company;

TSX or TSEmeans The Toronto Stock Exchange.

Windstar means Windstar Energy Limited, a corporation acquired by the Company as described under the heading History and Development of the Company;

$ means Canadian dollars, unless otherwise noted.



IV

---

PART 1



ITEM 1:

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not Applicable



ITEM 2:

OFFER STATISTICS AND EXPECTED TIMETABLE

Not Applicable



ITEM 3:

KEY
INFORMATION

A:

Selected Financial Data

The following table summarizes certain financial data for BelAir Energy Corporation (the Company) for the years ended December 31, 2002, 2001, 2000 and 1999 and is qualified in its entirety by the more detailed financial statements included in this Form 20-F report. (See ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS, and ITEM 17.  CONSOLIDATED FINANCIAL STATEMENTS.).

Statement of Operations (1)(2)(3)(4)



|                                         |              
|---------------------------------------- | -------------
|December 31                              | 2002         
|Net Revenues                             | $23,080,144  
|Net Income (Loss)                        | ($25,099,929)
|Net Income (Loss) per Share:  
    basic | ($0.89)      
|diluted                                  | ($0.89)      
|Weighted Average Shares Outstanding      | 28,133,519   



Balance Sheet (2)(3)(4)



|                             | Year ended December 31
|---------------------------- | ----------------------
|                             | 2002                  
|Long-term debt               | -                     
|Total Assets                 | $74,364,364           
|Working Capital (Deficiency) | ($21,335,624)         
|Stockholders Equity          | $34,500,898           



Notes:

1.

No dividends have been declared or paid since inception.

2.

All references are in Canadian dollars unless otherwise specifically stated.  As of December 31, 2002, the prevailing (noon rate) exchange rate as published by the Bank of Canada was $1.5796 U.S. per one dollar Canadian.

3.

Prepared in accordance with accounting principles generally accepted in Canada (Canadian GAAP)

4.

For U.S. GAAP discussion see Note 9 to the Financial Statements.



1

---

|Exchange Rate (U.S. Dollar: Canadian Dollars per Unit)
|------------------------------------------------------
|                                                      
|June 2003*                                            
|May 2003                                              
|April 2003                                            
|March 2003                                            
|February 2003                                         
|January 2003                                          
|December 2002                                         
|December 2001                                         
|December 2000                                         
|December 1999                                         



*June 1-23, 2003.



D:

Risk Factors:

Risk Related to Canadian Operations



Forward-Looking Statements: Certain statements contained herein constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward looking statements include, without limitation, statements regarding the Companys need for working capital, future revenues and results from operations.  Most of these factors are outside the control of the Company.  Investors are cautioned not to put undue reliance on forward looking statements and accordingly, such statements are qualified in their entirety by reference to and are accompanied by the factors discussed throughout this Form 20-F, including those set forth below.  Except as otherwise required by the rules of the Securities and Exchange Commission, the Company disclaims any intent or obligation to update publicly these forward looking statements, whether as a result of new information, future events or otherwise.



2

---

Currency Exchange Rates.  Apart from the operations in Canada, the operations of the Company are located in the U.S. and the United Kingdom (U.K.)   The Company is subject to risks associated with fluctuations in currency exchange rates in those two countries to a minor extent.  Both the U.S. and the U.K. have stable currencies and exchange liquidity through established money markets.  In 2001, the Company drilled a well targeting oil in North Dakota that was abandoned and all further operations have been suspended.  Operations in the U.K. are currently shut-in and the U.K. subsidiary has been offered for sale with no further operations planned.  Currency exposure to operations in the U.K. is limited and not material.  Nevertheless, such fluctuations may adversely affect the Companys operations even though its production may remain stable or even increase.  The Company may at times take measures to protect against fluctuations in rates, such as forward sales and other hedging techniques. There is no assurance that such measures will be adequate.



Uninsured Losses.  The Company is subject to the risks inherent in the oil and gas industry, including blowouts, explosions and fires.  Management believes that the Company has taken all reasonably appropriate measures to guard against injury and property damage from these operations.  In addition, the Company has taken reasonable efforts to insure against risks inherent in operating hazards on wells owned and operated by the Company.  The Company believes that it carries adequate insurance against the operational risks to which it may be exposed.  There is no assurance that the amount of insurance coverage undertaken by the Company will protect against all risks or that the proceeds of such insurance will be adequate in each case.



Competitive Conditions.The oil and gas industry in Canada is highly competitive in all of the segments in which BelAir conducts its business. The Company competes with many other ventures, both within and outside the oil and natural gas industry, for risk capital for drilling and development of its properties. Competition also exists between the oil and natural gas industry and other industries in supplying the energy, fuel requirements and other supplies and services of individuals and industry.



Government Policy and Regulation.The oil and natural gas industry in Canada is subject to extensive controls and regulations imposed by various levels of government.  The principal requirements of the relevant federal and provincial legislation, regulations and agreements are outlined below.  The effects of these controls and regulations on BelAirs operations will not be significantly different from the effects on the operations of other oil and natural gas companies of similar size.



3

---

Pricing and Marketing Crude Oil.  The price of oil and natural gas is influenced by many factors outside the control of the Company, including domestic and worldwide production and consumption, economic conditions, political situations and decisions of other entities.  Outside of Canada, the Company has limited exposure to pricing and marketing risk for the same reasons as discussed above in the section on Currency and Exchange Rates risk.  Generally, in Canada, producers of crude oil negotiate sales contracts directly with purchasers.  The pricing of crude oil is not regulated.  Exports of crude oil from Canada generally require the approval of the National Energy Board (NEB).  The NEB may issue an order authorizing the export of heavy crude oil for a period not exceeding two years or the export of crude oil other than heavy crude oil for a period not exceeding one year.   The export of heavy crude oil for a period exceeding two years or of crude oil other than crude oil, other than heavy crude oil, for a period exceeding one year requires the issuance by the NEB of a license and the approval of the Governor in Council (the federal cabinet).  The term of an oil export license may not exceed 25 years.  Due to the nature of the oil trade, virtually all exports are made under the authority of short-term orders. The U.S. represents a significant market for Canadian crude oil and any significant change in access to such market will have an effect on the price of crude oil in Canada.



Pricing and Marketing-Natural Gas.  The price of natural gas sold is not regulated and, therefore, is determined by negotiation between buyers and sellers.  Exports of natural gas from Canada require the approval of the NEB.  The NEB may issue an order authorizing the export of natural gas for a period not exceeding two years, or for a period exceeding two years but not exceeding twenty years in quantities of not more 30,000 cubic metresper day (approximately 1 Mmcf/d). All exports of natural gas for other periods or in other volumes require the issuance by the NEB of a license and the approval of the Governor in Council.  Exporters are free to negotiate prices with purchasers but natural gas export sales contracts, or any amendment, agreement or change pertaining thereto, requires NEB approval.

The governments of Alberta, British Columbia and Saskatchewan also regulate the removal of natural gas from these provinces, based on such factors as reserve availability, transportation arrangements and market conditions.  In each province, the relevant regulatory agency must approve any proposed export.  The U.S. represents a significant market for Canadian natural gas and any significant change in access to such market will have an effect on the price of natural gas in Canada.



Royalties and Incentives.  The applicable royalty regime is a significant factor in the profitability of oil and natural gas production.  Any change to the royalty regimes will have a significant effect in the profitability of oil and natural gas production in Canada.  The effect of a change in the royalty regime other jurisdictions such as the U.S. and the U.K. would not material to the Company given the limited operations conducted there.

In Canada, the structure and amount of royalty reserved on the production of oil or natural gas from provincially or federally owned (Crown) lands vary between the different governments and according to the type of production, quality of production, productivity, geographical location and field discovery date of each well.  Crown royalties are determined by lease terms, negotiated agreements and government regulations, and may be amended from time to time.  Royalties payable on production from lands other than Crown lands are determined by negotiations between the mineral owner and the lessee.

Average royalty rates applicable to BelAir production volume in western Canada in 2002 were approximately 18% for crude oil and 26% for natural gas before allowances.



4

---

Environmental Regulation.  All phases of the oil and natural gas business are subject to environmental regulation pursuant to a variety of Canadian, U.S., U.K. and other federal, provincial, state and municipal laws and regulations, as well as international conventions (collectively, Environmental Legislation).  Environmental Legislation regulates, among other things, the release, emission, handling, storage, use, transportation and disposal of various substances and wastes associated with the oil and natural gas industry.  In addition, Environmental Legislation requires that refineries, pipelines, service stations, wells, facility sites and waste storage and disposal facilities be operated, maintained, decommissioned and reclaimed in accordance with prescribed provincial, territorial or federal standards.  A breach of such Environmental Legislation may result in suspension or revocation of necessary license and authorizations, liability for clean-up costs, damages and the imposition of fines and penalties.

Where they are probable and can be reasonably estimated, future removal and site restoration costs (as those terms are used under the Canadian Institute of Chartered Accountants accounting recommendations), net of expected recoveries, are provided for in BelAirs financial statements using methods of depletion or depreciation, applicable to the asset and based on the estimated remaining life of the asset.  Costs are estimated in current dollars based on current requirements of environmental legislation, costs, technology and industry standards.  The annual charge is included in the provision for depletion, depreciation and amortization and the related accumulated provision is included in deferred credits.  Removal and site restoration expenditures are charged to the accumulated provision as incurred.  Based on these parameters, as of December 31, 2002, approximately $1.7 million of estimated future removal and site restoration costs primarily related to upstream properties has been provided for in the financial statements of BelAir.  Not all future removal and site restoration costs are foreseeable and not all such costs, even if foreseeable, can be reasonably estimated based on the parameters noted above and, as such, are not included in the future removal and site restoration cost provisions.  Although BelAir currently does not expect that its future removal and site restoration costs will have a material adverse effect on its financial condition or results of operations, there can be no assurance that such costs could not have such an effect.

Environmental Legislation also imposes, among other things, restrictions and obligations in connection with the generation, handling, storage, transportation, treatment and disposal of hazardous materials and waste and in connection with spills, releases, and emissions of various substances into the air, soil, subsoil, water and groundwater.  In addition, certain types of operations, including exploration and development projects and significant changes to certain existing projects, may require the submission and approval of environmental impact assessments, which could impose additional costs or delays or prevent accomplishment of a project.   Compliance with Environmental Legislation can require significant expenditures, and failure to comply with Environmental Legislation may result in the imposition of fines and penalties.  BelAir is committed to protecting and conserving the natural environment and complying with applicable Environmental Legislation.  BelAir believes that it is currently in substantial compliance with all existing material Environmental Legislation.  BelAir does not believe that the costs of complying with Environmental Legislation will have a material adverse effect on its financial condition or results of operations.  However, there can be no assurance that the costs of complying with Environmental Legislation will not have such an effect.



5

---

BelAir anticipates that changes in Environmental Legislation may require, among other things, reductions in emissions to the air from BelAirs operations and result in increased capital expenditures, however, BelAir does not believe that these expenditures will have a material adverse effect on its financial condition or results of operations.  Although BelAir does not believe it likely that future changes in Environmental Legislation will have a material adverse effect on its financial condition or results of operations, such changes could result in stricter standards and enforcement, larger fines and liability and increased capital expenditures and operating costs, which could have a material adverse on BelAirs financial condition or results of operations.  BelAir strives to minimize the impact of its operations on the environment, ensure continued compliance with Environmental Legislation, and prevent future material adverse environmental costs through the continued implementation of its environmental management system, which includes periodic environmental audits of its facilities and proactive management of anticipated environmental liabilities, and through its ongoing efforts to reduce emission of regulated substances, such as sulphur dioxide, reduce its generation of waste and increase its energy efficiency.



The North American Free Trade Agreement.  On January 1, 1994, the North American Free Trade Agreement (NAFTA) among the Governments of Canada, the U.S. and Mexico became effective.  In the context of energy resources, Canada may only impose restrictions on the export of energy goods to the U.S. or Mexico where such restrictions do not: (i) reduce the proportion of energy resources exported relative to domestic use in Canada; (ii) impose an export price higher than the domestic price; or (iii) disrupt normal channels of supply.  All three countries are prohibited from imposing minimum export or import price requirements.

NAFTA prohibits discriminatory border restrictions and export taxes.  The agreement also requires each party to seek to ensure that, in the application of any energy regulatory measures, regulatory bodies avoid disruption of contractual arrangements and provide for orderly and equitable implementation appropriate to such measures.

Risks related to International Operations



Land Tenure.In each of the countries other than Canada in which BelAir is active, the petroleum exploration and production rights held by BelAir are issued by the central government in that country, either directly of through its national oil company.  These agreements generally provide for work commitments and financial payments to be made by BelAir and for the establishment of taxation and other fiscal terms.  After attributing BelAir a percentage of production to recover its exploration, development and operating costs, the agreements generally provide for sharing of the balance of production between BelAir and the respective government or national oil company.





6

---

BelAirs international operations and properties may also be affected by a variety of factors including political and economic developments, expropriation, exchange controls, currency fluctuations, royalty and tax increases, retroactive tax claims, import and export regulations and other foreign laws or policies affecting foreign trade or investment.  The foreign jurisdictions in which the Company has been active in the past, specifically, the U.S. and the U.K., can be characterized as stable politically and economically with respect to the risk factors noted above.  As such, the Company views the exposure to these risks as limited.  As discussed above, the Companys operations in the U.S and the U.K. are suspended or inactive and, therefore, the exposure is minor, limited and not material.

The Company is exposed to similar risks as its domestic operations including competition, regulation, pricing, environmental liability with the added risks of expropriation and nationalization.  The Company primarily mitigates these risks in its international operations by choosing jurisdictions that operate under similar political and economic regimes as we are familiar with in Canada.  At a minimum, we choose politically and economically stable countries that maintain secure bi-lateral relations with Canada, in which to make investments in time and capital to grow the Company.

ITEM 4:

INFORMATION ON THE COMPANY

A:

History and Development of the Company

BelAir Energy Corporation (BelAir or the Company) is successor to Tikal Resources Corp. which was a Registrant in the United States under the rules of the Securities and Exchange Commission.

BelAir resulted from an amalgamation between Gold Butte and Holdco that occurred on October 31, 1997 (the Amalgamation).  The Amalgamation constituted the major transaction (the Major Transaction) of Gold Butte, previously a junior capital pool corporation.  On December 18, 1997, BelAir acquired ninety three percent (93%) of the issued and outstanding common shares of Windstar.  Pursuant to the compulsory acquisition provisions of the Business Corporations Act of Alberta (ABCA), BelAir acquired the remaining Windstar common shares on February 23, 1998 and amalgamated Windstar with BelAir on June 30, 1998.  On November 1, 1998, a wholly-owned subsidiary of BelAir amalgamated, by way of an arrangement under the ABCA, with Granger and changed the name of the amalgamated corporation to Impala.  Impala subsequently amalgamated, on January 1, 1999 with BelAir.  On May 12, 2000, BelAir acquired ninety four percent (94%) of the issued and outstanding common shares of CrownJoule.  Pursuant to the compulsory acquisition provisions of the ABCA, BelAir acquired the remaining CrownJoule common shares on July 5, 2000, making CrownJoule a wholly owned subsidiary of BelAir.  Effective January 1, 2001, BelAir and CrownJoule amalgamated and continued under the name of BelAir. On December 13, 2001, BAC, a wholly owned subsidiary of BelAir, amalgamated with Tikal by way of an arrangement under the ABCA.  BAC subsequently amalgamated with BelAir on January 1, 2002.





7

---

BelAir is a natural resource company engaged in the acquisition of, the exploration for and the development and production of petroleum and natural gas in western Canada.  BelAir was originally a junior capital pool corporation created under the policies of the Alberta Stock Exchange and the ASC.  The acquisition of all the shares of Holdco, a private company, in October of 1997 by Gold Butte for the issuance of 543,750 shares of Gold Butte constituted the major transaction of Gold Butte.  Gold Butte subsequently changed its name to BelAir Energy Corporation on October 31, 1997 with a total of 937,500 common shares outstanding.

On November 28, 1997, the Company acquired certain oil and natural gas properties from Canrise Resources Ltd. for total consideration of $1,565,000.  In December 1997, BelAir issued 997,121 common shares in exchange for 93% of the issued and outstanding shares of Windstar. In February 1998, BelAir issued a further 71,457 shares under the compulsory acquisition provisions of the ABCA to acquire the remaining 7% of the issued and outstanding shares of Windstar.  BelAir and Windstar were amalgamated on June 30, 1998.  Effective January 1, 1998, the Company purchased oil and natural gas properties located in east central Alberta from Coparex Canada Ltd. for total consideration of $625,000.

BelAir acquired Granger Energy Corp. (Granger) by way of a Plan of Arrangement under the ABCA on November 1, 1998 and changed the name of the amalgamated corporation to Impala.  Through this transaction, the Company issued 2,366,092 BelAir common shares to the previous Granger shareholders and 375,000 BelAir common shares to Richland Petroleum Corporation in consideration for producing and non-producing assets purchased by Granger subsequent to the closing of the BelAir Plan of Arrangement.  Impala subsequently was amalgamated with the Company on January 1, 1999 and the amalgamated corporation continued under the BelAir name.  On September 27, 1999, the Company consolidated its common shares on a 1 for 8 basis.  BelAir purchased an interest in oil and natural gas producing assets in the Crossfield area of Alberta from Rise Resources Ltd. effective January 1, 2000 for $1,000,000.  Effective March 1, 2000, BelAir sold its interest in the Handsworth area of Saskatchewan to Talisman Energy Corporation for $550,000.  Effective May 1, 2000, the Company sold its interest in the Queensdale and Queensdale East areas of Saskatchewan for $640,000.  BelAir purchased an interest in oil and natural gas producing assets in the Penhold area of Alberta from Canadian 88 Energy Ltd. effective May 1, 2000 for $2,000,000.

In May 2000, BelAir issued 5,152,801 common shares in exchange for 94% of the issued and outstanding shares of CrownJoule.  In July 2000, BelAir issued a further 522,879 shares under the compulsory acquisition provisions of the ABCA to acquire the remaining 6% of the issued and outstanding shares of CrownJoule.  Effective January 1, 2001, BelAir and CrownJoule amalgamated and continued under the ABCA.





8

---

Effective July 1, 2000, BelAir sold its interests in southeast Saskatchewan properties to Progress Energy Corporation for $2,300,000.  BelAir purchased an interest in natural gas assets in the Vega and Joarcam areas of Alberta from Cedar Energy Inc. on March 15, 2001 for $2,100,000 and 300,000 BelAir shares.

On December 13, 2001, BelAir acquired all of the issued and outstanding shares of Tikal.  At the closing of the transaction, Tikal amalgamated with BAC by way of a Plan of Arrangement under the ABCA.  Through this transaction the Company issued 10,335,532 BelAir common shares to Tikal shareholders.  BAC was subsequently amalgamated with the Company on January 1, 2002 and the amalgamated corporation continued under the BelAir name.

Effective June 30, 2002, BelAir sold its interests in 43 minor, non-core properties in Alberta, Saskatchewan and British Columbia representing 650 boepd for approximately $10.7 million.

On June 20, 2003, BelAir and Purcell Energy Ltd. (Purcell) jointly announced that they had entered into an arrangement agreement to which the business and operations of the two companies will be combined into Purcell subject to certain conditions including the approval of the shareholders of BelAir.  BelAir shareholders will receive 0.354 of a Purcell share for a portion of each BelAir common share and $0.10 cash for the remaining portion of a BelAir share.

BelAir currently has four wholly-owned subsidiary companies: BelAir Royalty Fund Ltd., BelAir Exploration Inc., Mermaid Resources (UK) Limited and Cirque Energy (UK) Limited.  All subsidiary company financials are consolidated into BelAir in the BelAir Financial Statements.

B.

Business Overview

The Company operates as an explorer, developer and producer of oil and natural gas in the Provinces of Alberta, British Columbia and Saskatchewan, Canada as well as the United Kingdom (U.K.). The Companys focus is natural gas with natural gas production and reserves representing 78% of the Companys total production and 76% of the Companys proved reserves respectively.  The remaining 22% of production and 24% of proved reserves are from crude oil and natural gas liquids (NGLs).   Natural gas production accounts for 72% of the Companys total revenue, with crude oil at 22% and NGLs at 6% supplying the balance.

The Company acts as the operator of the majority of the properties in which it held an interest at December 31, 2002.  However, the Company utilizes the services of contract operators for all drilling and maintenance.

As at December 31, 2002, the Company held interest in 115,882 gross acres of developed oil and natural gas property and 299,800 gross acres of undeveloped land in Canada.  The Company also held a 50% interest in 11,120 gross acres of developed and a 48% interest in 106,888 gross acres of undeveloped land in the U.K. under exploration licenses granted by the government.  These exploration licenses in the U.K. generally extend for a five-year term and are renewable thereafter for one-year intervals at the discretion of the government licensor and the Company.  Such licenses require minor work commitments relating to the exploration and development of oil and natural gas reserves during the term of the license.





9

---

As at December 31, 2002, the Company had interests in 410 wells (gross), equal to 191.8 net wells, including depleted wells for which no developed oil and natural gas reserves were assigned.  Average daily production levels of the Company for the year ended December 31, 2002, were approximately 11,987mcf of natural gas down from 12,198 mcf at the end of 2001, 426 bbls of oil (282 bbls in 2001) and 135 bbls of NGLs (177 bbls in 2002).

The Company continues to pursue appropriate development opportunities.  It seeks to initiate bids for properties that will yield a strategic land position, an existing production infrastructure or the potential for exploration for multiple zones.  The Company regularly solicits the participation of independent industry participants in an effort to reduce its risk in any particular project.

Production from the Companys properties is sold to various purchasers in the geographic area of the properties.  Natural gas is distributed through gathering systems owned or operated by the Company and certain independent third parties, and sold to larger gathering systems.  Oil is collected from tanks located near the wells and hauled by truck or pipeline to independent purchasers.

The principal markets for oil and natural gas consumption are industrial and consumer use for heat, manufacturing, power, transportation and residential use.  During 2002, there were 6 aggregators that accounted for 80% or more of the Companys revenues from natural gas and crude oil sales.  The Companys production is not subject to long term supply contracts with any government or government authorities.

Crude oil is sold at spot prices with the price dependent upon the sulphur rating and gravity and fluctuates with the world price of oil.  Oil is sold to third party purchasers pursuant to contracts which were negotiated by the Company. Eighty three percent of the Companys natural gas production is sold at rates which fluctuate with the spot price of natural gas while approximately 17% is sold to natural gas aggregators under long term contracts.  It is anticipated that such arrangements will continue in the future.

The availability of a ready market for the Companys oil and natural gas will depend upon numerous factors beyond its control, including the extent of domestic and international production and the importation of oil and natural gas relative status of the domestic and international economy, the proximity of the Companys properties to gas gathering systems, the capacity of such systems, the marketing of other competitive fuels, fluctuation in seasonal demands and government regulations of production, refining, transportation and pricing of oil, natural gas and other fuels.





10

---

Gross oil and natural gas production (before royalties), average sales prices and cost per equivalent unit for the Companys products for the years ended December 31, 2002, 2001, 2000 and 1999, were as follows:



|Period            | Gross Production(1) | Average Sales Price    | Cost per Equivalent(2)
|----------------- | ------------------- | ---------------------- | ----------------------
|Year End          | Oil (bbl)           | Natural gas
    (MMcf) | Oil (/bbl)            
|December 31, 2002 | 155,631             | 4,375                  | $32.97                
|December 31, 2001 | 167,535             | 4,452                  | $33.07                
|December 31, 2000 | 181,902             | 2,813                  | $39.38                
|December 31, 1999 | 217,905             | 1,326                  | $25.26                
|                  |                     |                        |                       

Notes:

1.

Gross production includes production owned by the Company and produced to its interests, less production due to third parties.

2.

Cost per equivalent unit is equal to actual field expenses for production of oil and natural gas, stated in cost per barrel of oil actually produced or barrel equivalent for natural gas or natural gas liquids.

The Companys reliance on estimates of proved oil and natural gas reserves are subject to risks inherent in any estimate of proved reserves and projections of future rates of production and development.  Such estimates are based on certain assumptions about the future production levels, prices and costs that may not prove correct over time.

Exploration and Development

Management and consultants retained by the Company continually review properties owned by the Company and other prospects to determine the desirability of exploration and development of reserves.  The Company owns no drilling equipment and does no drilling on its own.  All drilling is done through third party contractors.  During the twelve months ended December 31, 2002, 2001, 2000 and 1999, the Company expended the following amounts for exploration and development activities and acquisition of leasehold interests:



|Period            | Investment 
|----------------- | -----------
|Year Ended        |            
|December 31, 2002 | $2,211,227 
|December 31, 2001 | $25,059,747
|December 31, 2000 | $16,179,894
|December 31, 1999 | $4,489,675 



11

---

During the year ended December 31, 2002, the Company continued pursuit of its strategy of developing existing properties in Canada and exploring other areas for the potential of adding significantly to its existing reserves.  During 2002, the Company drilled 18 gross new wells (6.0 net) on leases in Canada.  Of the 18 wells drilled in Canada, 13 were successful natural gas/oil wells.

Competition

The Company competes with numerous other firms and individuals in its activities.  The Companys competitors include major oil and natural gas companies and other independent owners and operators many of which have financial resources, staffs and facilities substantially greater than those of the Company.  Competition in the oil and natural gas industry is intense.  The Company also faces competition in obtaining risk capital for drilling its prospects and may be at a competitive disadvantage compared with more established companies.

D.

Property, Plant and Equipment

Principal Oil and Natural Gas Properties

The following is a description of BelAirs principal oil and natural gas properties.  The term working interest when used to describe BelAirs share of production means the total of BelAirs working interest share of production before deduction of royalties.  Reserve amounts are stated as at December 31, 2002, before deduction of royalties, based on escalated cost and price assumptions as evaluated in the AJM Report.  These capital expenditures are subject to the decision of BelAirs management, based on the assessment of the industry conditions and risks involved in such expenditures, on whether or not to proceed.  For defined terms with respect to reserves, please see the notes attached to the Summary of Reserves Table.

Crossfield, Alberta

BelAir owns various interests ranging from 10% to 50% in three (3) producing oil wells and four (4) producing natural gas wells and four (4) shut-in wells located 20 miles north of Calgary, Alberta in the Crossfield area.  In addition to these individual wells, BelAir also owns an interest in two Units.  BelAir owns a 0.0982% interest in the Calgary Crossfield Unit No. 1 and a 0.2066% interest in the Calgary Elkton Unit No. 1.  BelAirs working interest production from the seven (7) wells is 35 bpd and 220 Mcf/d.  Reserves comprised of Proved Developed Reserves of 264 MMcf of natural gas, 27 Mstb of oil and 13 Mstb of NGLs and Proved Undeveloped Reserves of 594 MMcf of natural gas and 31 Mstb of NGLs have been assigned to BelAir based on the AJM Report.



12

---

Doris, Alberta

BelAir owns various working interests ranging from 15% to100% in eighteen (18) producing gas wells and forty-one (41) shut-in natural gas wells located 100 miles northwest of Edmonton, Alberta in the Doris area.  BelAirs working interest production from the eighteen (18) producing wells is 2,300 Mcf/d and 8 bpd of NGLs. Reserves comprised of Proved Developed Reserves of 4,666 MMcf of natural gas and 16 Mstb of NGLs, and Proved Undeveloped Reserves of 3,955 MMcf of natural gas and 13 Mstb of NGLs have been assigned to BelAir based on the AJM Report.

Kakwa, Alberta

BelAir owns a 50% working interest position in two (2) producing wells located 70 miles northwest of Edmonton, Alberta in the Kakwa field.  BelAirs working interest production is 20 bpd of oil.  Reserves comprised of Proved Developed Reserves of 11 Mstb of oil and  Proved Undeveloped Reserves of 38 Mstb of oil have been assigned to BelAir based on the AJM Report.

Clarke Lake, British Columbia

BelAir owns a working interest of 10% in 5 wells in the Milo area, 7.5% in two wells in the Milo West area and 28% interest in two wells in the Muskwa area, collectively known as the Clarke Lake area of northeastern British Columbia.  Clarke Lake is approximately 15 miles southwest of Fort Nelson, British Columbia.  BelAirs working interest production is 2,700 Mcf/d.  Reserves comprised of 1,695 MMcf of Proved Developed Reserves and  3,111 MMcf of Proved Undeveloped Reserves have been assigned to BelAir based on the AJM Report.

Penhold, Alberta

BelAir owns interests including gross overriding royalties and various working interests ranging from 1% to 100% in 50 wellbores of which twenty-two (22) are producing, in Penhold, 75 miles north of Calgary, Alberta.  BelAirs working interest production from the wells is 1,000 Mcf/d and 50 bpd of oil and NGLs.  Reserves comprised of Proved Developed Reserves of 2,267 MMcf of natural gas, 13 Mstb of oil and 82 Mstb of NGLs and Proved Undeveloped Reserves of 201 MMcf of natural gas and 7 Mstb of NGLs of NGLs have been assigned to BelAir based on the AJM Report.

Sylvan Lake, Alberta

BelAir owns interests ranging from gross overriding royalties to working interests of 85% in 24 wells in the Sylvan Lake area approximately 85 miles north of Calgary.  Eleven of the wells are producing and BelAirs working interest production from the wells is 740 Mcf/d and 55 bpd of crude oil and NGLs.  Reserves comprised of Proved Developed Reserves of 980 MMcf of natural gas, 83 Mstb of oil and 36 Mstb of have been assigned to BelAir based on the AJM Report.



13

---

Turin, Alberta

BelAir has working interests ranging from 25 to 100% in 32 wellbores of which 26 are producing natural gas and/or crude oil in the Turin area, approximately 90 miles southeast of Calgary, Alberta.  BelAirs working interest production from the wells is 1,100 Mcf/d and 130 bpd of crude oil and NGLs. Reserves comprised of Proved Developed Reserves of 1,542 MMcf of natural gas, 196 Mstb of oil and 14 Mstb of NGLs, Proved Undeveloped Reserves of 329 MMcf of natural gas, 56 Mstb of crude oil and 4 Mstb of NGLs, have been assigned to BelAir based on the AJM Report.

Properties

The following tabulates major developed properties in which the Company had an interest at December 31, 2002, grouped by geographic region:

Summary of Major Developed Properties at December 31, 2002



|            | Proved Reserves
|----------- | ---------------
|Property    | Wells          
|            | Gross          
|Crossfield  | 12             
|Doris       | 87             
|Erskine     | 1              
|Milo        | 10             
|Minnehik    | 2              
|Muskwa      | 2              
|Penhold     | 58             
|Sylvan Lake | 29             
|Turin       | 41             
|Vega        | 11             

Notes:

1.

Companys working interest

2.

Companys working interest after royalties and burdens.



Drilling Activity

BelAir drilled or participated in the drilling of the following wells for the periods indicated.



|                  | 2002  | 2001 | 2000 
|----------------- | ----- | ---- | -----
|                  | Gross | Net  | Gross
|Natural gas       | 10.0  | 1.7  | 29.0 
|Crude Oil         | 3.0   | 2.0  | 0    
|Dry and Abandoned | 5.0   | 2.3  | 8.0  
|Total             | 18.0  | 6.0  | 37.0 



14

---

Undeveloped Land Holdings

The following table summarized the interests of BelAir as at December 31, 2002 in lands on which there are no producing wells and to which no reserves have been assigned.

Gross AcresNet AcresAlberta225,000103,500British Columbia32,5005,500Saskatchewan41,8007,600TOTAL299,300116,600


Titles

Although the Company does not regularly investigate titles to oil and natural gas leases when acquiring unproven acreage, it does so before drilling or development is undertaken.  The methods of title examination adopted by the Company are reasonable calculated, in the opinion of the management of the Company, to ensure that production from its properties, if obtained, will be readily saleable for the account of the Company.  Certain of the Companys producing properties have been subject to independent title examinations and such titles have been accepted by the Company.  Insofar as it is known by the Company, there is no material litigation pending or threatened pertaining to its proved acreage.  With respect to the rights-of-way, easements and site leases required for the components of the Companys gathering systems, title to the underlying land may be subject to certain defects and encumbrances, none of which are, in the opinion of management of the Company, material in relation to the Companys property and operations.

Reserves

Included below is selected information from the reports of independent petroleum engineering firms regarding oil and natural gas reserves of the Company as of December 31, 2002, 2001, 2000 and 1999.  Reserves estimates were prepared by Ashton Jenkins Mann for the years ended December 31, 2002, 2001 and 2000.



15

---

|                           | Remaining Reserves
|-------------------------- | ------------------
|                           | Crude Oil and NGLs
|                           | Gross (Mstb)      
|December 31, 2002          |                   
|Proved Developed Producing |                   
|Canada                     | 639               
|U.K.                       | -                 
|Sub-total                  | 639               
|                           |                   
|Proved Undeveloped         |                   
|Canada                     | 254               
|U.K.                       | -                 
|Sub-total                  | 254               
|                           |                   
|Total Proved               | 893               
|                           |                   
|                           |                   
|December 31, 2001         
|Proved Developed Producing |                   
|Canada                     | 1,409             
|U.K.                       | 12                
|Sub-total                  | 1,421             
|                           |                   
|Proved Undeveloped         |                   
|Canada                     | 223               
|U.K.                       | -                 
|Sub-total                  | 223               
|                           |                   
|Total Proved               | 1,644             
|                           |                   





16

---

| | Remaining Reserves
| | ------------------
| | Crude Oil and NGLs
| | Gross (Mstb)      

|December 31, 2000          |     |       
|-------------------------- | --- | ------
|                           |     |       
|Proved Developed Producing |     |       
|Canada                     | 773 | 21,100
|U.K.                       | -   | -     
|Sub-total                  | 773 | 21,100
|                           |     |       
|Proved Undeveloped         |     |       
|Canada                     | 149 | 11,409
|U.K.                       | -   | -     
|Sub-total                  | 149 | 11,409
|                           |     |       
|Total Proved               | 922 | 32,509



The Company emphasizes that reserves are estimates. Accordingly, the estimates may change as future information becomes available.





17

---



Offices

The Companys principal place of business is located at 400, 777-8th Avenue, SW, Calgary, Alberta, Canada T2P 3R5, telephone (403) 265 1411.  The Company rents its executive and administrative offices, consisting of approximately 12,000 square feet.  This space is leased for a remaining period of 5 years and 3 months.  The address of the registered office of the Company is Suite 2600, 255 5th Avenue, SW, Calgary, Alberta, T2P 3G6.

Legal Proceedings

On June 12, 2002, the Company filed a statement of claim in the Court of Queens bench in the Province of Alberta in the amount of $26,500 plus interest and costs of action and punitive damages of $50,000.  This claim arises because an industry partner conducted activities on a joint location without BelAirs consent.  Revenues have been withheld from BelAir to satisfy the industry partners claims with respect to recovering costs incurred by the industry partner on activities not approved by BelAir.

On May 1, 2002, the Company filed a statement of claim in the Court of Queens Bench in the Province of Alberta against an industry partner in the amount of $186,254 plus interest plus costs of action. This claim arises because of the industry partners failure to pay joint interest bills owed to BelAir.

Normal Course Issuer Bid

BelAirs Board of Directors believes that, at certain times, the underlying value of BelAirs common shares is not reflected in the current market price.

On October 9, 2001, BelAir received approval of The Toronto Stock Exchange to implement a normal course issuer bid (issuer bid) to purchase in the open market up to 10% of the public float of the issued and outstanding common shares, to a maximum of 1,346,367 shares. The issuer bid commenced on October 10, 2001 and expired on October 10, 2002. From the commencement of this issuer bid in October 2001 to its expiry in October 2002, BelAir purchased 100,800 common shares at an average cost of $1.43per share.

All shares purchased by BelAir under the issuer bid are returned to treasury and cancelled.





18

---



ITEM 5:

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

A:

OPERATING RESULTS

Year ended December 31, 2002



Oil and Gas Revenue

Revenue from petroleum and natural gas sales in 2002 was affected by a 28% decrease in the blended average price of oil, NGLs and natural gas in 2002 compared to 2001. Blended commodity prices averaged $24.71 per boe in 2002, compared to $34.29 per boe in 2001.  The decrease in natural gas prices in 2002 was particularly severe in the first half of 2002 when natural gas prices dropped to below $2.00 in June.  During 2002, BelAirs average natural gas price was $3.80 per mcf and oil prices averaged $32.97 per barrel compared to $5.77 per mcf and $33.07 per barrel in 2001.

Revenues in 2002 were derived 72% from natural gas sales, 22% from crude oil sales and 6% per cent from NGLs sales.



Royalties

Crown royalties are calculated on a sliding scale based on well productivity and price. Higher commodity prices result in higher royalty rates.  Royalties associated with product revenues amounted to $5.5 million or $5.88 per boe in 2002 compared to $7.4 million or $8.11 per boe in 2001.  Royalties as a percentage of revenue in 2002 remained the same as 2001 at 24%.

Operating Expenses

Operating expenses decreased 14% to $6.97 per boe in 2002 compared to $8.15 per boe in 2001.  In 2002, BelAir succeeded in reducing per unit operating costs by disposing of high cost properties in June 2002.  In 2003, BelAir will continue to dispose of non-core properties that have low netbacks as a result of higher royalties and operating costs. This is part of a program by BelAir to reduce operating costs on a property by property basis, targeting non-operated properties in which BelAir cannot influence the direct reduction of costs.  BelAir was also successful in reducing operating costs in its operated properties and will continue to pursue initiatives to lower operating costs on a boe basis during 2003.

Other Income

Other Income is primarily earned from royalty income, and processing and transporting third party products using BelAir facilities.  BelAir controls more production infrastructure than it did a year ago and this is reflected in the increase in Other Income.

Other Income for the year amounted to $489,075 in 2002 compared to $359,287, an increase of 36% over 2001.





19

---

General and Administrative Expense

General and Administrative (G & A) costs on a unit of production basis were $2.93 per boe in 2002 compared to $2.38 per boe in 2001.  BelAir capitalizes all expenses related to its exploration activities.  Capitalized G & A expense in 2002 amounted to $573,000 or 17% of total G & A costs.  BelAir expects to capitalize 15% of its G & A costs in 2003.

Interest and Long Term Debt

The amount of interest expense in 2002 by increased by 79% from 2001 principally as a result of higher average debt outstanding over the year.  BelAir took steps to reduce its bank debt by selling $10.7 million of non-core oil and natural gas properties in June 2002 and by raising $5.5 million in equity in September 2002.  Net debt at the beginning of 2002 was $31.0 million and was reduced to 21.3 million by year end.  While the average debt outstanding was greater in 2002 than 2001, interest rates also increased  from the beginning of 2002 to the end of the year.

In 2002, bank prime rates increased 75 basis points from 3.75% to 4.5%.  During this period, BelAir reduced the cost of carrying its debt by issuing bankers acceptances in terms of a year prior to subsequent rate hikes.

BelAir has a $25.0 million demand credit facility with the National Bank of Canada consisting of a revolving demand loan of $20 million and bridge demand loan of $5 million, subject to an interim review on or before June 2003.  The bridge facility may be repaid from the proceeds of the corporate sale, non-core asset sales, subordinated debenture financing or any new equity raised.

Cash Costs

One of the continuing challenges for BelAir is to reduce cash costs that consist of operating, G&A and interest costs.  In 2002, the sum of those costs was $11.44 per boe.  The individual components were: operating costs of $6.97 per boe, G&A costs of $2.93 per boe and interest costs of $1.54 per boe.  This compares to $11.41 per boe in 2001.

Natural gas processing charges are the main component of BelAirs operating costs. BelAir does not own facilities in most of the areas where BelAir produces natural gas.  To process its natural gas, BelAir relies on accessing third party owned plant facilities that charge rates that increase unit operating costs.  As an alternative to reduce processing costs, BelAir could construct its own facilities, although that is not always possible under Albertas plant anti-proliferation policy.  Another alternative would be to purchase processing capacity in existing plants. It is BelAirs assessment, however, that it would obtain a better return on capital by exploring for and developing reserves than by investing the capital in processing facilities.  BelAirs expertise is exploring and producing  not processing.  BelAir will continue its focus on the reduction of operating costs during 2003.





20

---

The major portion of BelAirs G&A costs is employee expense.  In 2002, BelAir increased its staff complement with a senior geologist to implement the 2002 capital program with a focus on exploration. BelAir does not expect to increase its staff complement in 2003

Interest costs in 2002 were lower than BelAir had targeted because average debt outstanding was reduced to a lower level than budgeted and, while interest rates increased during 2002, BelAir had protected a significant portion of its debt with lower interest rate instruments.

Depletion, Depreciation and Site Restoration

Depletion and depreciation costs were $47.8 million in 2002 or $51.16 per boe compared $6.8 million for 2001 or $7.45 per boe.  BelAir is required to conduct a ceiling test calculation on a quarterly and an annual basis.  The ceiling test is an accounting test that compares the cash flows for the life of BelAirs proved reserves, calculated using constant prices, to the book value of those reserves. The net recoverable amount calculated under the ceiling test exceeded the net book value of petroleum and natural gas properties at December 31, 2002 but at June 30, 2002, the net book value of petroleum and natural gas prices exceeded the net recoverable amount calculated at that time.  A write down of $38.4 million was recorded as additional depletion with an offsetting future tax reduction of $15.4 million. This write-down is reflected in the depletion rate of $51.16 per boe in 2002 per boe compared to $7.45 per boe in 2001.

Future site restoration (non cash) costs were $362,063 in 2002 compared to $398,799 in 2001.  Site restoration costs decreased with the sale of 43 minor properties in 2002.

Income Taxes

BelAir had no current income taxes payable in 2002 nor does it expect to be taxable on an income basis in 2003.

BelAir pays a Large Corporations capital tax federally and in British Columbia and Saskatchewan where BelAir has operations.  The federal assessment is the main component of BelAirs Large Corporations tax and is based on BelAirs capital (long term liabilities and shareholders equity) at a rate of 0.2%.  In 2002, the amount of capital tax increased by 19% in 2002 compared to 2001 when BelAirs capital increased with the takeover of Tikal.  BelAir estimates the amount of Large Corporations tax to be $169,577 in 2002 compared to $143,000 in 2001.  In June 2002, BelAir disposed of almost all of its Saskatchewan properties.



21

---



Net Income

Net loss for the year ended December 31, 2002 was $25.1 million or $0.89 per weighted average share compared to net income of $3.3 million or $0.21 per weighted average share outstanding in 2001.  The major portion of the loss in 2002 resulted from the ceiling test writedown.

Ceiling Test

BelAir is required to conduct a ceiling test calculation on a quarterly and an annual basis. The ceiling test is an accounting test that compares the cash flows for the life of BelAirs proven reserves, calculated using constant commodity prices, to the book value of those reserves.  The constant commodity prices used in determining future revenues are period end prices.  The test takes into consideration hedges, royalties, operating costs, interest, G & A expense and taxes.

The loss in 2002 was primarily the result of a ceiling test write down of $23.0 million, net of a future tax reduction of $15.4 million, taken in the second quarter.  Low natural gas prices at the end of second quarter, not an impairment of reserves, resulted in the ceiling test write down.

If the value of the future net revenues from proven reserves is determined to be less than the book value of the reserves, a write down of the book value of the reserves must be taken.  The adjustment resulted from natural gas prices falling to low levels in late June 2002.

The amount of the ceiling test write down for the quarter ended June 30, 2002, was determined using constant commodity prices based on the average corporate prices of $3.01 per mcf for natural gas and $32.82 per barrel of oil and NGLs at June 30, 2002.

The ceiling test is a cost recovery test and is not intended to result in an estimate of fair market value, nor does it affect net asset value. BelAir estimates that its net asset value, based on land values, established reserves discounted at 10% and 15%, net of debt, is $1.94 and $1.55 per share respectively.



Investment Information



|                                    | 2002    | 2001 | 2000
|----------------------------------- | ------- | ---- | ----
|Net Income (in millions of dollars) | ($25.1) | $3.3 | $4.7
|Return on Capital (1)               | (34%)   | 7%   | 22% 
|Return on Net Investment (2)        | (28%)   | 5%   | 19% 
|Return on Shareholders Equity (3)   | (56%)   | 8%   | 25% 



1.

Net income plus after-tax financing charges on debt divided by average of opening and closing capital employed.  Capital employed is a total of equity and long term debt.

2.

Net income plus after-tax financing charges on long term debt divided by average net investment.  Net investment is total assets less current liabilities.

3.

Net income is divided by average shareholders equity.



22

---



Capital Expenditures

BelAirs capital expenditures, before dispositions, were $12.9 million and $2.2 million after dispositions.  This compares to $70.2 million, net of dispositions, spent in 2001 which includes the capital expenditures of $25.8 million plus the acquisition of Tikal Resources Corp. for approximately $44.4 million.  In 2002, BelAir drilled 18 gross (6 net) wells compared to a total of 37 gross (16.1 net) wells drilled in the previous year.

Sale of Non-Core Assets

In June 2002, BelAir sold 43 non-core minor properties in Alberta and Saskatchewan for proceeds of $10.7 million.  Proceeds from the sale of these assets reduced bank debt.  BelAir has offered for sale its wholly owned subsidiary, Cirque Energy (UK) Limited, which was acquired in the Tikal acquisition in 2001.  Cirques  principal assets include oil production and facilities at Fiskerton and Reepham and 58,217 net acres of undeveloped lands in the United Kingdom.

Normal Course Issuer Bid

In 2002, BelAir purchased and returned to treasury for cancellation a total of 100,800 shares at an average cost of $1.43 per share under its normal course issuer bid that commenced on October 10, 2001 and expired on October 9, 2002.  The normal course issuer bid was not renewed after its expiry.

Subsequent Event

On March 31, 2003, BelAir announced that it had resolved to commence a process to explore strategic alternatives to maximize shareholder value.  BelAir retained a financial advisor to assist in the process.  These alternatives may include the sale of BelAir, a merger, conversion, reorganization or such other alternatives that may be considered to be the best interest of the shareholder.

Year ended December 31, 2001

Oil and Gas Revenue

Revenue from petroleum and natural gas sales in 2001 was affected by a 5% decrease in the blended average price of oil, NGLs and natural gas in 2001 compared to 2000. Blended commodity prices averaged $34.29 per boe in 2001, compared to $36.27 per boe in 2000.  The decrease in oil and natural gas prices in 2001 was particularly severe in the fourth quarter.  Average prices per boe in the fourth quarter of 2001 were 60% lower than in the fourth quarter of 2000.  During the fourth quarter of 2001, BelAirs average natural gas price was $3.28 per mcf and oil prices averaged $23.10 per barrel for a blended commodity price of $20.08 per boe, compared to $8.63 per mcf and $41.81 per barrel for a blended commodity price of $50.09 per boe in the fourth quarter of 2000.

Revenues in 2001 were derived 82% from natural gas sales, 11% from crude oil sales and 7% per cent from NGLs sales.





23

---

Royalties

Crown royalties are calculated on a sliding scale based on price and production rates. Higher commodity prices and high production rates result in higher royalty rates.  Royalties associated with product revenues amounted to $7.4 million or $8.11 per boe in 2001 compared to $4.7 million or $7.23 per boe in 2000.  Royalties as a percentage of revenue in 2001 increased to 24% from 20% in 2000.

Operating Expenses

Operating expenses increased 27% to $8.15 per boe in 2001 compared to $6.43 per boe in 2000.  In 2001, BelAir experienced higher per unit operating costs associated with the processing of natural gas as BelAir increased the proportion of natural gas in its total production.  In 2002, BelAir has targeted the disposition of non-core properties that have low netbacks as a result of high royalties and operating costs. This is part of a program by BelAir to reduce operating costs on a property by property basis.  BelAir continues to pursue initiatives to lower operating costs on a boe basis not only by spreading out fixed costs over greater production but also by reducing unit costs of processing natural gas.

Other Income

Other income for the year amounted to $359,287 in 2001 compared to $264,497, an increase of 36% over 2000.  Other income is primarily earned by processing and transporting third party products using BelAir facilities, and from overriding royalties.

General and Administrative Expense

General and Administrative (G & A) costs on a unit of production basis stayed essentially the same at $2.38 per boe in 2001 compared to $2.32 per boe in 2000.  BelAir capitalizes certain G & A costs, including salaries that are directly related to its exploration effort.  Capitalized G & A expense in 2001 amounted to $261,367 or 12% of total G & A costs.  In 2000, BelAir capitalized $147,365 or 10% of its G & A costs.  BelAir expects to capitalize 15% of its G & A costs in 2002.

Interest and Long Term Debt

BelAir reduced the amount of interest expense in 2001 by 20% from 2000.  While the average debt outstanding was greater in 2001 than 2000, interest rates declined substantially from the beginning of 2001 to the end of the year.

In 2001, bank prime rates decreased 350 basis points from 7.5% to 4.0%.  During this period, BelAir reduced the cost of carrying its debt by issuing short-term bankers acceptances and taking advantage of each reduction in interest rates.

BelAir has credit facilities with the National Bank of Canada consisting of a revolving line of credit of $32 million of which $30.5 million was drawn at year-end.





24

---

Cash Costs

The continuing challenge for BelAir is to reduce cash costs that consist of operating, G&A and interest costs.  In 2001, the sum of those costs was $11.41 per boe.  The individual components were: operating costs of $8.15 per boe, G&A costs of $2.38 per boe and interest costs of $0.88 per boe.  This compares to $10.30 per boe in 2000.

Natural gas processing charges are the main components of BelAirs operating costs. BelAir does not own facilities in most of the areas where BelAir produces natural gas.  To process its natural gas, BelAir relies on accessing third party owned plant facilities that charge rates that increase unit operating costs.  As an alternative to reduce processing costs, BelAir could construct its own facilities, although that is not always possible under Albertas plant anti-proliferation policy.  Another alternative would be to purchase processing capacity in existing plants. It is BelAirs assessment, however, that it would obtain a better return on capital by exploring for and developing reserves than by investing the capital in processing facilities.  BelAirs expertise is exploring and producing  not processing.  BelAir will focus on the reduction of operating costs during 2002.

The major portion of BelAirs G&A costs is employee expense.  In 2001, BelAir increased its staff complement to implement the 2001 capital program with a focus on exploration. This capital program was more than triple the capital program of the previous year. At the same time, BelAir does not expect to increase its staff complement. With the takeover of Tikal Resources Corp., BelAir did not increase the number of its employees.

Interest costs were lower than BelAir had targeted because interest rates fell during 2001.

Depletion, Depreciation and Site Restoration

Depletion and depreciation costs were $6.8 million in 2001 or $7.45 per boe compared $4.0 million for 2000 or $6.14 per boe.  The increase in the rate is attributable to the higher finding, development and acquisition costs in 2001. Future site restoration (non cash) costs were $398,799 in 2001 compared to $169,271 in 2000.  Site restoration costs increased with the increase in volume of production in 2001 and the inclusion of Tikals costs with BelAirs costs at year-end.

Income Taxes

BelAir had no current income taxes payable in 2001 nor does it expect to be taxable on an income basis in 2002.  In 2000, BelAir changed the method of accounting for its income taxes from the deferral method to the liability method without restating prior periods. Under this method, the difference between tax assets and liabilities and their financial reporting basis is computed and measured using current tax rates.  Consequently, BelAir now reports its future income tax liability.  Prior to the adoption of this method, BelAir followed the deferral method of tax allocation accounting under which the provision for corporate income taxes was based on the reported earnings taking into consideration the tax effects of timing differences between financial statement income or taxable income.







25

---

Net Income

Net income for the year ended December 31, 2001 were $3.3 million or $0.21 per weighted average share compared to $4.7 million or $0.44 per weighted average share outstanding in 2000.

Ceiling Test

BelAir is required to conduct a ceiling test calculation on a quarterly and an annual basis. The ceiling test is a cost recovery test and is not intended to result in an estimate of fair market value.  This test compares the value of BelAirs proven reserves using constant commodity prices to the book value of the reserves.  The constant commodity prices used in determining future revenues are period end prices.  In periods of rapid price fluctuation, however, average prices over a specified period may be used in the calculation.  The test takes into consideration royalties, operating costs, interest, G & A expense and taxes.

If the value of the future net revenues from proven reserves determined is less than the book value of the reserves, a writedown of the book value of the reserves must be taken.  If the value of future net revenues of BelAirs reserves exceeds the book value of BelAirs reserves, no write-down of the book value of the reserves is required.

The ceiling test calculation at the end of 2001 determined that the value of future net revenues of BelAirs proven reserves using constant commodity prices based on the average prices of $5.77 per mcf and $33.07 per barrel for the year exceeded the book value of BelAirs reserves. Therefore, no write-down of BelAirs reserves as at December 31, 2001 was required.

Investment Information



|                                    | 2001 | 2000 | 1999
|----------------------------------- | ---- | ---- | ----
|Net Income (in millions of dollars) | $3.3 | $4.7 | $1.0
|Return on Capital (1)               | 7%   | 22%  | 9%  
|Return on Net Investment (2)        | 5%   | 19%  | 9%  
|Return on Shareholders Equity (3)   | 8%   | 25%  | 10% 



Notes:

1.

Net income plus after-tax financing charges on debt divided by average of opening and closing capital employed.  Capital employed is a total of equity and long-term debt.

2.

Net income plus after-tax financing charges on long term debt divided by average net investment.  Net investment is total assets less current liabilities.

3.

Net income is divided by average shareholders equity.





26

---

B:

Liquidity and Capital Resources

BelAir has a $25.0 million demand credit facility with the National Bank of Canada consisting of a revolving demand loan of $20 million and bridge demand loan of $5 million, subject to an interim review on or before June 2003.

Prior to 2002, BelAirs bank debt had been classified as a long-term liability on the basis that the bank provided BelAir with an annual letter indicating that it did not intend to call the loan in the ensuing year, thereby making the maturity of the loan longer than one year.  Accounting guidelines implemented in 2002 required that if a loan is on demand then the loan is callable within one year and the loan must be treated as a current liability.

In November 2002, BelAir issued 5.5 million shares at $1.00 per share in a flow through share financing to raise $5.5 million before share issuance costs.  Proceeds of the financing were used to fund oil and gas exploration activities in the remainder of 2002 and in 2003.

In 2002, BelAir renounced $ 2.75 million in Canadian exploration expense to flow through shareholders.

Year ended December 31, 2001

Prior to 2002, BelAirs bank debt had been classified as a long-term liability on the basis that the bank provided BelAir with an annual letter indicating that it did not intend to call the loan in the ensuing year, thereby making the maturity of the loan longer than one year.  Accounting guidelines to be implemented in 2002 require that if a loan is on demand then the loan is callable within one year and the loan must be treated as a current liability.  While the nature of BelAirs debt has not changed as it is presently structured, the new accounting guidelines will require that the bank debt will be re-classified on the balance sheet from a long-term liability to a current liability with the attendant negative effect on working capital.

In November 2001, BelAir issued 1.67 million shares at $3.00 per share in a flow through share financing to raise $5.0 million before share issuance costs.  Proceeds of the financing were used to fund oil and gas exploration activities in the remainder of 2001 and in 2002.

In 2001, BelAir renounced $ 5.0 million in Canadian exploration expense to flow through shareholders.

Another source of capital for the Company in 2001 was borrowing under a line of credit, together with cash provided by operations.  After adding back depreciation, depletion and amortization with other items not requiring cash, the Companys operations produced $13.6 million of cash flow during the year.  This compares to $12.3 million of cash flow generated during the year ended December 31, 2000.  Funds generated during 2001 were utilized by the Company to explore and develop additional oil and natural gas properties, on which the Company expended $25.1 million during the year ended December 31, 2001.



27

---

Historically, the Company has relied on cash flow from operations, borrowing, non-core property sales and equity financing to fund acquisition and development of its properties.  This trend is expected to continue for the foreseeable future.  At the date of filing this Report, management believes that the Company has sufficient resources for its capital requirements for the balance of the 2002 fiscal year.

Contractual Commitments



1.

The Company has firm processing arrangements with Westcoast Energy Inc. for natural gas in North East British Columbia for 10,000 mcf/d at a processing fee averaging $0.52/mcf, expiring in October 2004 and 5,000 mcf/d at a processing fee averaging $0.38/mcf, expiring in October 2007.



2.

The Company has entered into the following contracts to hedge the price of its natural gas and crude oil production as follows:

At December 31, 2002, the Corporation has fixed the price applicable to future production as follows:

> 



28

---

3.

The Corporation has entered into employment contracts with the executive officers.  Each of these contracts sets out the executives salary and provides for an indefinite term of employment which is subject to termination in certain circumstances.  The employment contracts may be terminated either for cause or by the Corporation giving the executive either a notice of termination or a lump sum payment equivalent to the executives salary during the stipulated notice period.  In the event of a change of control and the subsequent termination of an executive officers employment without cause or as a result of a change in the executive officers responsibilities following the change of control, the executive officer shall be paid, in lieu of notice, a termination retirement allowance equivalent to the executives salary over the stipulated period.  The employment contracts were amended in March, 2003 to provide for modified single trigger walk away rights which provide the officer in lieu of severance with a 30 day right following the one year anniversary of a change of control, to elect to deem his employment to have been terminated.  In addition, severance payments shall include a cash equivalent of 50% of the value of the officers' benefits during any severance period.  The periods stipulated in the executives contracts are as follows:



Victor M. Luhowy...........................

24 months

($320,000)

Andrew I. Burnett............................

18 months

($202,500)

Kenneth D. MacRitchie ..........

18 months

($210,000)

Kurt D. Miles..

18 months

($187,500)

Kenneth T.A. Skea...........................

18 months

($187,500)

Wayne R. Wilson.............................

18 months

($187,500)

Critical Accounting Policies and Estimates

The Company can select either full cost accounting or successful efforts to account for its capital assets.  The Company has chosen the full cost accounting method and has not determined the impact of using successful efforts. In applying the full cost method of accounting, certain judgments and estimates are required.  Significant estimates include the provisions for depletion, depreciation and site restoration as well as the calculation of the ceiling test.  With respect to reserves, the estimates are inherently imprecise and accordingly the estimates will change as future information becomes available.

Legal Proceedings

There exist certain legal actions against the Company arising in the ordinary course of its business as an oil and natural gas exploration and production company, none of which is expected to have a material adverse effect on the consolidated financial position of the Company.



ITEM 6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A:

Directors and Senior Management

The following sets forth the names of the members of the Companys Board of Directors, its executive officers and significant employees of the Company as of the date of the filing of this Report, and sets forth the position with the Company held by each:



29

---



|Name                                                          | Position                                                      | Since
|------------------------------------------------------------- | ------------------------------------------------------------- | -----
|                                                              |                                                               |      
|C. David Banks(2)(3)                                          | Director                                                      | 1997 
|Victor M. Luhowy(2)(3)                                        | President, Chief Executive Officer and Director               | 1997 
|Archie A. MacKinnon(1)                                        | Director                                                      | 2001 
|Kenneth D. MacRitchie                                         | Vice President, Finance, Chief Financial Officer and Director | 1997 
|Robert L. Phillips(2)                                         | Director                                                      | 2001 
|Owen C. Pinnell(1)                                            | Chairman, Director                                            | 1997 
|Harry B. Wheeler(1)                                           | Director                                                      | 2001 
|Mark D. Widney(3)                                             | Director                                                      | 1997 
|                                                             
|(1) Members of the Audit and Reserves Committee              
|(2) Members of the Compensation and Governance Committee     
|(3) Members of the Environmental, Health and Safety Committee
|                                                              |                                                               |      
|Andrew I. Burnett                                             | Vice President, Exploration                                   | 1999 
|Ross O. Drysdale                                              | Secretary                                                     | 1997 
|Kurt D. Miles                                                 | Vice President, Land                                          | 2000 
|Kenneth T. A. Skea                                            | Vice President, Production                                    | 1999 
|Wayne R. Wilson                                               | Vice President, Corporate Development                         | 1997 



The following provides a brief description of the business experience of each individual listed on the foregoing table:

C. David Banks-Director



C. David Banks has over forty years of experience in the oil and natural gas industry.  He is President of Resource Professionals Inc., a technical and professional staffing service in the oil and gas industry and the President and Principal of RP Consulting Inc., an engineering and geological consulting service.  Mr. Banks has held executive positions in Westar Petroleum Limited, United Canso Oil & Gas Ltd. and Golden Eagle Oil & Gas Ltd.  Mr. Banks is a Professional Engineer in the Province of Alberta.  He is a graduate of the University of Manitoba with a Bachelor of Science in Mechanical Engineering. Mr. Banks is the chairman of the Compensation and Governance Committee and a member of the Environmental, Health and Safety Committee.

Victor M. Luhowy-Director



Victor M Luhowy has over thirty years of experience in the oil and natural gas industry in western Canada.  Mr. Luhowy has been President and Chief Executive Officer of BelAir since its inception in 1997.  Prior to 1997, he was Senior Vice President and Chief Operating Officer of ELAN Energy Inc. Prior to this, Mr. Luhowy held executive positions with intermediate oil and natural gas producers based in western Canada.  Mr. Luhowy is a director of BlackRock Ventures Inc. and is a member of the Board of Governors of the Canadian Association of Petroleum Producers (CAPP).  He is a Professional Engineer of Alberta.  Mr. Luhowy has a Bachelor of Science in Mechanical Engineering from the University of Alberta and an MBA from the University of Calgary. Mr. Luhowy is a member of the Compensation and Governance Committee and the Environmental, Health and Safety Committee.



30

---

Archie A. MacKinnon  Director



Archie A. MacKinnon has over thirty years of experience in investment banking and venture capital activities.  Mr. MacKinnon is Managing Director of SutterHill Capital Corporation, a private investment banking concern. He is also President of AIS Resources Limited, a publicly traded company on the CDNX.  Prior to this, Mr. MacKinnon was the President and Chief Executive Officer of Alta-Can Telecom, and the President of the Association of Canadian Venture Capital Companies (ACVCC).  Mr. MacKinnon is a Professional Engineer in the Province of Ontario.  He is a graduate in Electrical Engineering from the University of British Columbia and holds an MBA from the Schulich School of Business. Mr. MacKinnon is a member of the Audit and Reserves Committee.

Kenneth D. MacRitchie-Director



Kenneth D. MacRitchie has twenty-three years of experience in the oil and natural gas industry primarily in oil and gas financing.  Mr. MacRitchie has been Vice President, Finance and Chief Financial Officer of BelAir since its inception in 1997.  Prior to 1997, he was an executive officer for two years with Equis Energy Corporation, a junior oil and natural gas company listed on the TSE.  Prior to this, Mr. MacRitchie had fourteen years of experience with three banks that specialized in oil and gas financing in western Canada.  Mr. MacRitchie holds a Bachelor of Arts, Honours degree from York University and an MBA from Dalhousie University.

Robert L. Phillips-Director



Robert L. Phillips, Q.C. has over twenty-seven years experience in law, securities regulation, banking, corporate finance, mergers, acquisitions and divestitures. Mr. Phillips is the President and Chief Executive Officer of the BCR Group of Companies, a commercial Crown corporation of British Columbia. Prior to this, Mr. Phillips was Executive Vice President, Business Development and Strategy with MacMillan Bloedel Limited.  Mr. Phillips is a member of the Investments Operations Committee of the Treasury Department of the Province of Alberta and the Business Advisory Council of the University of Alberta School of Business.  Mr. Phillips holds degrees from the University of Alberta in chemical engineering and law.  Mr. Phillips is a member of the Compensation and Governance Committee.



31

---

Owen C. Pinnell-Director



Owen C. Pinnell, Managing Partner of I 3 Capital Partners Inc., has more than fifteen years experience as president, CEO and director of various public and private companies in Canada and the USA.  He was the founder and CEO of Newalta Corporation from 1982-1992 and the founder and Managing Director of Anadime Corporation from19922001.   Mr. Pinnell is a mechanical engineer by profession, receiving his engineering education at the Auckland Technical Institute in New Zealand.  Mr. Pinnell is a registered Professional Engineer in Alberta and British Columbia. Mr. Pinnell is the chairman of the Board of Directors and a member of the Audit and Reserves Committee.

Harry B. Wheeler-Director



Harry B. Wheeler has over 40 years of experience in the oil and gas industry in Canada and internationally.  Mr. Wheeler founded Cabre Exploration Ltd. in 1980 and was the Chairman of Cabre until December 2000.    He is a Director of Enerplus Royalty Trust, the Alberta Motor Association and Arcis Corp. Mr. Wheeler is a member of the Association of Professional Engineers, Geologists and Geophysicists of Alberta (APEGGA). He is a graduate of the University of British Columbia with a Bachelor of Science in Geology. Mr. Wheeler is a chairman of the Audit and Reserves Committee.

Mark D. Widney-Director



Mark D. Widney is President and Chief Executive Officer of C-Tech Energy Services Inc., an oilfield services company listed on the CDNX, and has been an officer of Widney Industries since 1986.  Mr. Widney been active in the oil and gas industry for twenty-five years and is a director and former Chairman of the Service Rig Division of the Canadian Association of Oilfield Drilling Contractors. Mr. Widney is the chairman of the Environmental, Health and Safety Committee.

Andrew I. Burnett - Vice President, Exploration



Andrew Burnett joined BelAir in October 1999.  He has over twenty-six (26) years of experience and has established a track record of exploration success in the Western Canadian Sedimentary Basin in small companies.  Prior to joining BelAir he was with Gardiner Oil and Gas Limited and Gardiner Exploration Limited (the Gardiner Companies) for six years.  Prior to the Gardiner Companies, Mr. Burnett was Exploration Manager with Pacific Enterprises Oil Company (Canada) for two years prior to their sale to EnerPlus Group of Companies.  Before that, Mr. Burnett spent ten years in various management positions with Texaco Canada Inc. and predecessor companies.  Mr. Burnett received both his B.Sc. and his M.Sc. in Geology from the University of Saskatchewan.  He is a member of the Association of Professional Engineers, Geologists and Geophysicists of Alberta (APEGGA) and the Canadian Society of Petroleum Geologists.







32

---

Ross O. Drysdale - Corporate Secretary



Ross Drysdale is a lawyer and partner in the law firm of Baker & MacKenzie in Calgary, Alberta.  He has over thirty years of experience in the legal profession and specializes in corporate, securities and business law.  Mr. Drysdale was admitted to the New Brunswick bar in 1973 and the Alberta bar in 1978.  Prior to moving to private practice in 1985, he spent over eight years working as legal counsel for two major oil and gas companies in Calgary.  He is a director of a number of private and public companies.  Mr. Drysdale is a graduate of Mount Allison University (B.A.) and the University of New Brunswick (LL.B.).

Kurt D. Miles  Vice President, Land

Kurt Miles has twenty-seven years of experience in the oil and natural gas industry.  As a landman, he began his career with Mobil Oil in 1980.  Before joining BelAir, Mr. Miles was Vice President, Land and Contracts with Pursuit Resources Corp., a TSE listed company.  Before Pursuit, Mr. Miles was employed by Encor Energy Corporation from 1987 to 1993 as Division Landman and progressed to the position of manager of a multi-disciplinary resource development team. From 1984 to 1987, Mr. Miles was land manager for Trillium Exploration Corporation, a frontier exploration joint venture company operating in the McKenzie Delta, Beaufort Sea, Northwest Territories, Scotia Shelf and Hibernia and Terra Nova areas.  Prior to this, Mr. Miles was a negotiating landman with Mobil Oil in its Western Canadian and Frontier jurisdictions. Mr. Miles holds a B.Sc. from the University of Calgary and is a member of the Canadian Association of Petroleum Landmen.

Kenneth T. Skea - Vice President, Production



Kenneth Skea, P. Eng. has over twenty-seven years of engineering and operating experience in the oil and gas industry in western Canada.  Prior to joining BelAir, Mr. Skea spent five (5) years as Vice President, Engineering at Saxon Petroleum Inc.  Mr. Skea spent ten (10) years with private and public junior oil and gas companies with increasing responsibility, rising from Engineering Manager at Mont Resources Limited to Vice President, Development, with Glencrest Energy Ltd.  Prior to this, Mr. Skea worked with Coles Nikiforuk Pennell as an Evaluations Engineer consultant for two years after completing five (5) years with Esso Resources Canada Limited.  At Esso Resources, Mr. Skea was Area Manager - Calgary for (2) two years and (2) two years at Essos Judy Creek Project.  He is a Professional Engineer in Alberta and is a member of the Association of Professional Engineers, Geologists and Geophysicists of Alberta (APEGGA).  Mr. Skea graduated in Mechanical Engineering in 1976 from the College of Engineering, University of Saskatchewan.

Wayne R. Wilson - Vice President, Corporate Development



Wayne Wilson has over thirty-two years of finance, administration and accounting experience in the oil and gas industry.  Mr. Wilson has held positions that required a progression in increased responsibility.  Mr. Wilson was employed by Unocal Oil Company of Canada (a public oil and gas company) from 1971 to 1984 where he earned his designation as a Certified General Accountant (CGA), rose to the position of Manager, Corporate Accounts and gained international experience working in the companys International Division in Jakarta, Indonesia.  Mr. Wilson then worked at CN Exploration Inc. (a private oil and gas company) for ten (10) years, advancing to the position of General Manager, Finance and Administration and was responsible for the management of accounting, administration and information systems of the organization.  Mr. Wilson is responsible for the management of the companys financial and investor relationships, management information systems and audit.  Mr. Wilson has a CGA designation and an MBA degree.





33

---

The Directors are elected to hold office until the next annual meeting of stockholders and until their respective successors have been elected and qualified.  Officers are appointed annually by the Board of Directors and hold offices at the will of the Board of Directors. The Annual Meeting of Shareholders was most recently held on June 20, 2003.

B:

Compensation

Compensation of Officers



The following table summarizes compensation paid to the chief executive officer of the Company for the year ended December 31, 2002, 2001 and 2000 respectively.  The table also sets out compensation paid to all other officers whose compensation exceeded $100,000 during those periods:

Summary Compensation Table



|Name and Principal Position                                               | Period   | Salary ($) | Bonus ($) | Other Annual Compensation ($) | Common Shares under option | All other Compensation ($)
|------------------------------------------------------------------------- | -------- | ---------- | --------- | ----------------------------- | -------------------------- | --------------------------
|Victor M. Luhowy
President and Chief Executive Officer                    | 2002     | $160,000   | -         | $10,022                       | 30,000                     | -                         
|2001                                                                      | $110,000 | -          | $8,705    | 175,000                       | -                         
|2000                                                                      | $109,999 | -          | $7,727    | 90,000                        | -                         
|                                                                          |          |            |           |                               |                            |                           
|Kenneth D. MacRitchie
Vice President, Finance and Chief Financial Officer | 2002     | $140,000   | -         | $10,081                       | 30,000                     | -                         
|2001                                                                      | $100,000 | -          | $8,180    | 65,000                        | -                         
|2000                                                                      | $100,000 | -          | $7,286    | 61,250                        | -                         
|                                                                          |          |            |           |                               |                            |                           
|Andrew I. Burnett
Vice President, Exploration                             | 2002     | $135,000   | -         | $10,872                       | 30,000                     | -                         
|2001                                                                      | $100,000 | -          | $8,949    | 90,000                        | -                         
|2000                                                                      | $100,000 |            | $6,538    | 65,000                        | -                         
|                                                                          |          |            |           |                               |                            |                           
|Kurt D. Miles
Vice President, Land                                        | 2002     | $125,000   | -         | $7,340                        | 30,000                     | -                         
|2001                                                                      | $90,000  | -          | $5,417    | 80,000                        | -                         
|2000                                                                      | $23,192  | -          | $592      | 110,000                       | -                         
|                                                                          |          |            |           |                               |                            |                           
|Kenneth T. A. Skea
Vice President, Production                             | 2002     | $125,000   | -         | $8,627                        | 30,000                     | -                         
|2001                                                                      | $85,000  | -          | $6,454    | 70,000                        | -                         
|2000                                                                      | $85,000  | -          | $5,685    | 88,750                        | -                         
|                                                                          |          |            |           |                               |                            |                           
|Wayne R. Wilson
Vice President, Corporate Development                     | 2002     | $125,000   | -         | $10,104                       | 30,000                     | -                         
|2001                                                                      | $90,000  | -          | $8,477    | 70,000                        | -                         
|2000                                                                      | $90,000  | -          | $7,666    | 67,500                        | -                         



34

---

Compensation of Directors

Each independent Director (non-management) in attendance at meetings of the Board of Directors receives expenses and payment for each meeting of the full Board and each meeting of its committees. The Company commenced the payment of Directors fees for attending Board and committee meetings in fiscal 2001.  Non-management Directors were compensated $500 per Board of Directors meeting and $250 per committee meeting. The following is a listing of those payments made during the fiscal year 2002.



|Name                | Amount Paid
|------------------- | -----------
|                    |            
|C. David Banks      | $2,500     
|Archie A. MacKinnon | $2,750     
|Owen C. Pinnell     | $2,750     
|Robert L. Phillips  | $2,000     
|Harry B. Wheeler    | $2,750     
|Mark D. Widney      | $2,500     



Option Plan

The Company has a stock option plan (the Plan) for its directors, officers, employees and consultants.  Under the Plan, the Company has reserved for issuance a total of 3,000,000 Common Shares as of the date of the filing of this Report.  The criteria used to determine eligibility for granting of options, the number of Common Shares covered by each option, the vesting period and the term of each option is at the discretion of the Board of Directors.  The exercise price of options is determined by the Board of Directors based on the market price of the Common Shares on the date of the grant.  The exercise price may not be less than the discounted exercise price prescribed by the policies of The Toronto Stock Exchange. The term of an option may not be for more than ten years from the date on which it is granted.  All options are non-transferable.  All options granted to directors and officers vest immediately.  Options granted to employees and consultants other than directors and officers vest as to one third after each of the first, second and third years of employment.  The maximum number of Common Shares reserved for issuance to any one individual on the exercise options held by that one individual may not exceed five per cent (5%) of the issued and outstanding Common Shares.  The Company has seven officers who hold 1,603,000 options as a group.  The Company has eight directors, six of which are not executive officers and who hold 396,500 options as a group.  The employees other than the officers and consultants of the Company hold 582,050 options as a group. During the year ended December 31, 2002, the Company granted 604,500 options under this Plan.  As of the date that this Report was filed, there were 2,633,050 options outstanding to directors, officers, employees and consultants.



35

---

The following table represents current options outstanding and changes in stock options for the last three years.



|                                 | Number of Options | Exercise Price Range
|-------------------------------- | ----------------- | --------------------
|Year ended December 31, 2002     |                   |                     
|Granted                          | 604,500           | $0.95-$2.00         
|Cancelled/expired                | 31,250            | $$1.46-$4.64        
|Exercised                        | 10,000            | $$1.46-$1.80        
|Outstanding at December 31, 2002 | 2,633,050         | $0.95-$3.95         
|                                 |                   |                     
|Year ended December 31, 2001     |                   |                     
|Granted                          | 1,001,000         | $1.75-$3.95         
|Canceled/expired                 | 16,000            | $3.00               
|Exercised                        | 67,450            | $1.44-$2.00         
|Outstanding at December 31, 2001 | 2,069,800         | $1.44-$4.64         
|                                 |                   |                     
|Year ended December 31, 2000     |                   |                     
|Granted                          | 686,500           | $1.80-$2.15         
|Canceled/expired                 | 28,875            | $1.46-$3.20         
|Exercised                        | 15,625            | $1.80-$2.00         
|Outstanding at December 31, 2000 | 1,152,250         | $1.44-$4.64         
|                                 |                   |                     
|Year ended December 31, 1999     |                   |                     
|Granted                          | 107,500           | $1.44-$2.00         
|Canceled/expired                 | 12,500-           | $1.60               
|Exercised                        | -                 |                     
|Outstanding at December 31, 1999 | 510,250           | $1.44-$4.64         
|                                 |                   |                     



36

---



The following table represents options outstanding at December 31, 2002 to directors, officers, employees and consultants of the Company.



|Grant Date       | Expiry Date      | Number of Options | Exercise Price
|---------------- | ---------------- | ----------------- | --------------
|18 March 1997    | 18 March 2007    | 39,375            | $1.60         
|26 August 1997   | 26 August 2007   | 54,375            | $2.88         
|12 February 1998 | 12 February 2008 | 46,250            | $3.20         
|11 May 1998      | 12 Feb 2008      | 2,500             | $3.20         
|19 November 1998 | 19 November 2008 | 230,300           | $2.00         
|5 March 1999     | 5 March 2009     | 21,250            | $1.44         
|18 October 1999  | 18 October 2009  | 65,000            | $1.60         
|11 January 2000  | 11 January 2010  | 63,000            | $1.46         
|17 August 2000   | 17 August 2010   | 393,500           | $1.80         
|13 November 2000 | 13 November 2010 | 130,000           | $2.00         
|21 November 2000 | 21 November 2010 | 15,000            | $2.15         
|12 January 2001  | 12 January 2011  | 55,000            | $2.35         
|28 February 2001 | 28 February 2011 | 255,000           | $3.10         
|15 May 2001      | 15 May 2011      | 15,000            | $3.95         
|16 August 2001   | 16 August 2011   | 145,000           | $3.00         
|15 November 2001 | 15 November 2011 | 5,000             | $2.10         
|14 December 2001 | 14 December 2011 | 498,000           | $1.75         
|16 May 2002      | 16 May 2012      | 10,000            | $1.93         
|16 August 2002   | 16 August 2012   | 5,000             | $1.18         
|15 November 2002 | 15 November 2012 | 524,500           | $1.00         
|15 November 2002 | 15 November 2012 | 60,000            | $0.95         
|                 |                  | 2,633,050         | $1.89         



37

---

As a result of the takeover of Tikal on December 31, 2001, BelAir received approval from the TSX to convert the options held by Tikal employees, officers and directors into a new BelAir/Tikal option plan.  Under the plan, upon exercise of options, holders of Tikal options are entitled to receive 0.4 of a BelAir Common Share. The option term was determined under the change of control section of the Tikal plan and ranges from 90 days to one year.  On November 19, 2002, all remaining Tikal options expired.  During 2002, of the 845,844 Tikal options outstanding, 48,779 options were exercised at a weighted average price of $2.00 and 797,065 options expired which had a weighted average price of $3.12.

C:

Board Practices

The Directors are elected to hold office until the next annual meeting of shareholders and until their respective successors have been elected and qualified.  Officers are appointed annually by the Board of Directors and hold offices at the will of the Directors.  The Annual meeting of Shareholders will be held on June 20, 2003.

The Board discharges its responsibilities both directly and indirectly through its committees.  The committees are as follows:



1.

The Audit and Reserves Committee is comprised of three independent unrelated directors.  The current members are Harry B. Wheeler, chairman, Archie A. MacKinnon and Owen C. Pinnell.  The committee is responsible for reviewing the Companys financial reporting procedures, internal controls, the performance of the Companys auditors and reviewing the reserves evaluations prepared by the Companys independent reserves evaluation engineering consultants.  The committee is also responsible for reviewing quarterly and annual financial statements prior to their approval by the full Board.

2.

The Compensation and Governance Committee is comprised of two independent directors, C. David Banks, chairman, and Robert L Phillips and one director from management, Victor M. Luhowy.  The committee is responsible for setting compensation paid to executive officers and establishing and reviewing incentive plans.

3.

The Environmental, Health and Safety Committee is comprised of two independent and unrelated directors, Mark D. Widney, chairman, and C. David Banks and one director from management, Victor M. Luhowy.  The committee is responsible for reporting to the Board on all matters relating to environmental, health and safety issues.



D:

Employees

The Company has 19 full time employees including its President and Vice Presidents of Finance, Land, Production, Exploration and Corporate Development, 2 geologists, 1 production engineer and 2 technical support staff, 1 field supervisor, 1 landman, 3 accounting staff, 1 investor relations, 1 executive assistant and one other administrative support person.  There are no unionized employees and the Company believes that it enjoys excellent relations with its employees.



38

---

E:

Share Ownership

The following table describes the ownership of the Companys Common Shares, the only class of voting securities outstanding, by the officers and directors listed above.  The table includes all options owned by the named individuals. The percentage of equity owned by any particular person assumes that the options owned by that individual are exercised, but not by any other individual.



|Directors and Officers Share Equity
|-------------------------------------
|Name                                 
|Directors                            
|C. David Banks                       
|Victor M. Luhowy                     
|Archie A. MacKinnon                  
|Kenneth D. MacRitchie                
|Robert L. Phillips                   
|Owen C. Pinnell                      
|Harry B. Wheeler                     
|Mark D. Widney                       
|                                     
|Officers                             
|Andrew I. Burnett                    
|Ross O. Drysdale                     
|Kurt D. Miles                        
|Kenneth T. A. Skea                   
|Wayne R. Wilson                      



ITEM 7.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A:

Major Shareholders

As of December 31, 2002, the Company had an aggregate of 32,044,978 Common Shares issued and outstanding.  There are no material interests, direct or indirect, directors, officers, any shareholder who beneficially owns directly or indirectly, more than 5% of the outstanding Common Shares, or any known associates or affiliates of such persons, in any transaction within the last three years or in any proposed transaction which is materially affected or would materially affect the Company. The Company is not directly or indirectly owned or controlled by another corporation or by any foreign government.





39

---

As of December 31, 2002, the directors and officers of the Company, as a group, directly owned 1,711,966 Common Shares of the Company, or approximately 5.3% of the Companys issued and outstanding Common Shares.

On March 31, 2003, the Company announced that it had resolved to commence a process to explore strategic alternatives designed to maximize shareholder value. The alternatives may include the sale of the Company, a merger, conversion, reorganization or such other alternatives that may be considered to be in the best interests of the Companys shareholders.

On June 20, 2003, BelAir and Purcell Energy Ltd. (Purcell) jointly announced that they had entered into an arrangement agreement to which the business and operations of the two companies will be combined into Purcell subject to certain conditions including the approval of the shareholders of BelAir.  BelAir shareholders will receive 0.354 of a Purcell share for a portion of each BelAir common share and $0.10 cash for the remaining portion of a BelAir share.  The arrangement will result in a change of control of the Company.

B:

Related Party Transactions

Other than as set out below, the directors and senior officers of the Company and associates and affiliates thereof (as defined in the Securities Act (Alberta), have no direct or indirect material interest in any transaction or proposed transaction that has materially affected or will materially affect the Company.  Ross O. Drysdale, the Corporate Secretary of the Company, is a partner of Baker & Mackenzie, a law firm that provides legal services to the Company. There is no plan or arrangement in respect of compensation received or that may be received by the Companys executive officers in the most recently completed year with a view to compensating those officers in the event of termination of their employment or a change of responsibilities following a change of control.

The Company has entered into employment contracts with its executive officers. Each of these contracts sets out the executives salary and provides for an indefinite term of employment which is subject to termination in certain circumstances.  The employment contracts may be terminated for cause or by the Company giving the executive either notice of termination or a lump sum payment equivalent to the executives salary during the stipulated notice period.  In the event of a change in control and the subsequent termination of an executive officers employment without cause or as a result of a change in an executive officers responsibilities following a change in control, the executive officer shall be paid, in lieu of notice, a termination allowance equivalent to the executives salary over the stipulated period.  The periods stipulated in the executives contracts are as follows:





40

---



|Victor M. Luhowy      | 24 months | $320,000
|--------------------- | --------- | --------
|Kenneth D. MacRitchie | 18 months | $210,000
|Andrew I. Burnett     | 18 months | $205,500
|Kurt D. Miles         | 18 months | $187,500
|Kenneth T. A. Skea    | 18 months | $187,500
|Wayne R. Wilson       | 18 months | $187,500



Management is of the opinion that the terms and conditions of these arrangements were no less favourable than could have been obtained from an unaffiliated third party.



ITEM 8.

FINANCIAL INFORMATION

See ITEM 17.



ITEM 9.

THE OFFER AND LISTING

A. 4

Stock Prices-Yearly

Common Shares of the Company are traded on The Toronto Stock Exchange (TSX), trading symbol BEC.  The Common Shares of the Company commenced trading on The Toronto Stock Exchange effective August 10, 2000. Prior to this, the Company traded on the Canadian Venture Exchange

The following table sets forth the high and low prices for the Companys Common Shares during the last three fiscal years:



|Fiscal Year End   | High  | Low  
|----------------- | ----- | -----
|December 31, 2002 | $2.30 | $0.72
|December 31, 2001 | $4.96 | $1.65
|December 31, 2000 | $2.55 | $1.13
|December 31, 1999 | $2.24 | $1.15



Stock Prices-Quarterly

The following table sets forth the high and the low sales prices, in Canadian dollars, for the Companys Common Shares in Canada for each quarter of the two most recent fiscal periods.



|Period         | Year Ended December 31, 2002 | Year Ended December 31, 2001
|-------------- | ---------------------------- | ----------------------------
|               | High                         | Low                         
|               |                              |                             
|First Quarter  | $2.30                        | $1.61                       
|Second Quarter | $2.20                        | $1.35                       
|Third Quarter  | $1.49                        | $0.90                       
|Fourth Quarter | $1.25                        | $0.72                       





41

---

No dividends have been declared or paid to date, and it is not anticipated that dividends will be paid in the foreseeable future.  Management intends to follow a policy of investing profits of the Company, if any, in additional growth of the Company.  As of December 31, 2002, the Company had approximately 1,569 record holders of its Common Shares and 5,346 beneficial holders.  Of these, 113 record holders, holding an aggregate of 1,911,550 Common Shares, had addresses in the United States.  Of the beneficial holders, 401, holding an aggregate of 2,386,541 Common Shares, had addresses in the United States.

Stock Prices-Monthly for Year 2003 to Date

The following table describes the high and low prices of the Common Shares for each month during the current year:



|         | High  | Low   | Close
|-------- | ----- | ----- | -----
|January  | $1.39 | $0.98 | $1.14
|February | $1.52 | $1.05 | $1.20
|March    | $1.31 | $1.01 | $1.01
|April    | $1.18 | $0.93 | $0.95
|May      | $1.15 | $0.95 | $1.02
|June (1) | $1.10 | $0.90 | $0.94



Note:

1.

June 2003 up to June 23, 2003



ITEM 10.

ADDITIONAL INFORMATION

A:

Share Capital



Not applicable

B:

Memorandum and Articles of Association



Incorporated by reference to the Registration Statement on Form 20-F with the United States Securities Exchange Commission, File No. 0-18008.



42

---

C:

Material Contracts

> See ITEM 19 Exhibits below.





D:

Exchange Controls

Canada has no system of exchange controls.  There are no restrictions on the repatriation of capital or earnings of a Canadian business to non-resident investors.  Except for certain provisions with respect to taxation, no laws of Canada affect the remittance of dividends, profits, interest, royalties or other payments to non-Canadian holders of the Companys securities (See TAXATION below).

There are no limitations under Canadian law on the right of foreigners to hold or vote securities of the Company except those contained in the Investment Canada Act (the ICA) which requires review and approval by the Director of Investment Review under the Ministry of Industry Canada (the Director) under the ICA, of acquisitions of control of the Companys securities by non-Canadians if such acquisitions meet certain threshold requirements.  The ICA defines non-Canadian to include an entity (defined as a corporation, partnership, trust or joint venture) that is not Canadian controlled.

The ICA establishes certain presumptions regarding acquisitions of control.  An acquisition of a majority of the voting interest of a Canadian business would be deemed to be an acquisition of control under the ICA.  In addition, an acquisition of less than a majority, but one-third or more of the voting interest of a Canadian business would be presumed to be an acquisition of control unless it can be established that the Canadian business would not be, in fact, controlled by the acquiring entity through the ownership of voting interests.  An acquisition of less than one-third of the voting interests of a Canadian business is deemed to be an acquisition of control.

The ICA applies to acquisitions of control of Canadian businesses whose assets, in the case of direct acquisition, are valued in excess of $5 million, or in the case of an indirect acquisition through a foreign corporation, at $50 million or more.  Accordingly, in the event of a direct acquisition of control of the Company, the transaction would require the review and approval of Investment Canada.  Because the assets of the Company at December 31, 2001 exceed the $50 million, the indirect provisions of the ICA may apply.  The thresholds referred to above are higher in the case of investments by entities from countries which are members of the World Trade Organization.  The $5 million threshold referred to above would be increased to $160 million (subject to adjustment for inflation) in the case of an investor from a World Trade Organization member, such as the United States.



E:

Taxation

Under the IncomeTax Act (Canada), dividends paid or credited by the Company on its Common Shares to any non-Canadian shareholder are subject to withholding tax.  The amount of tax varies depending on the country of residence of the shareholder.  Pursuant to the 1980 Canada-U.S. Income Tax Convention, the rate of withholding tax on dividends paid or credited to United States residents is 10% for shareholders which are corporations and which own at least 10% of the voting stock of a Canadian corporation, and 15% in all other cases.  Since the Company has not paid dividends in the past and it is not anticipated that they will be paid in the future, it is not anticipated that this tax will affect shareholders of the Company in the foreseeable future.



43

---

F:

Dividends and Paying Agents

Not applicable.



G:

Statement by Experts

Not applicable.



H:

Documents on Display

Copies of the Companys Articles of Incorporation have been filed with and may be inspected at the office of Alberta Consumer and Corporate Affairs.



ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

All companies in the Canadian oil and natural gas industry are faced with a number of business risks, some of which are beyond the control of the Company.  These are generally categorized as financial, regulatory and operational risks.  BelAir faces additional exposure due to its operations in the United Kingdom.  Financial risks are highlighted by fluctuations in commodity prices, interest rates and exchange rates between the U.S. dollar, the British pound and the Canadian dollar.  While there are various financial instruments with which to set these variables for fixed periods of time, the Company had no such contracts in place at December 31, 2001.

The Company endeavours to minimize the risks associated with these variables. BelAir is exposed to market risk to the extent the demand for oil and natural gas produced by BelAir exists within Canada and the United States. Oil prices are affected by worldwide supply and demand fundamentals while natural gas prices are affected by North American supply and demand fundamentals.  BelAir mitigates these risks by connecting its natural gas production to mature pipeline infrastructure that operates with minimal interruptions.  BelAirs oil production is high quality light sweet crude and not subject to adverse quality differentials. BelAirs exploration activity targets natural gas near existing infrastructure.

Commodity price fluctuations can be ameliorated by a program of commodity price hedging.  BelAir can protect itself from the negative effects of the volatility of commodity prices by the use of market instruments that can ensure future prices.  BelAir will continue to look for opportunities to implement market instruments to protect against downside risk in commodity prices. BelAir will use market instruments to ensure that future cash flow is sustained at levels that will allow BelAir to achieve its financial objectives.





44

---

The Company has implemented a policy to hedge at most one-half of its production through physical and financial instruments to reduce the volatility of commodity prices.

Regulatory risks are minimized through operations in countries with stable government regulation and English law traditions.  BelAir maintains environmental and safety standards through consultation with the various regulatory authorities.  To manage environmental risks, BelAir complies with all environmental regulations under the various jurisdictions that administer environmental policy in the areas that BelAir carries out field operations.  Environmental reviews are completed as part of the Companys due diligence when property acquisitions are contemplated.  BelAir maintains a program to review all of its producing properties on a three year rotating basis to assess the environmental impact of our operations. BelAir has implemented a safety and environmental policy that is designed, at a minimum, to comply with current governmental regulations for the oil and gas industry.  Employees and field contractors follow the Companys environmental and safety manual and the policies set out by occupational health and safety regulations.

BelAir is committed to minimizing the effects of our activities on the environment and protecting our employees and contractors.  BelAir continually monitors government standards to ensure compliance with any changes to these policies and regulations.  BelAir has a formal Emergency Response Plan (ERP) detailing procedures that employees and contractors must follow in the event of an operational emergency.  Emergency response plans are also in place throughout the Companys U.K. operations.  The Company maintains our own contract people in the U.K. that are supervised by corporate officers resident in that country.

An Environmental, Health and Safety Committee consisting of officers and directors of the company, reports to the Board of Directors on a regular basis.

Finally, BelAir carries adequate insurance to cover identifiable risks and potential liabilities related to field and office activity as well as coverage for personnel and directors executing their corporate duties.  BelAir maintains comprehensive insurance to cover risks of well blow-out and pollution.

Operational risks are the most directly controllable by an oil and natural gas company, as they pertain to finding and development costs, production performance and marketing, hazards associated with drilling and producing high pressure hydrocarbon deposits deep in the ground.  Operational risk is managed by becoming the operator of jointly owned properties where possible as a means maintaining control over the timing of capital expenditures, operational decisions and costs.  BelAir intends to continue to increase its interests and be the operator in identified key properties while divesting itself of low interest properties where operatorship would not be available and the properties do not fit into BelAirs focus areas.  In 2001, BelAir operated its top 6 producing properties representing 80% of its production.  BelAir endeavours to mitigate these risks through the hiring of highly qualified and motivated professionals.  In addition, we utilize contract service and equipment providers of the highest standards and with whom we are familiar and confident of their abilities and equipment.  Appropriate insurance coverage minimizes the risks to the Company against destruction of assets, well blow-outs, pollution and other such business interruptions.  BelAir also maintain a geographically diverse inventory of prospects, focus on established technology and drill within basins where in-house expertise exists.





45

---

The following are selected sensitivity analysis of items that affect Cash Flow and Net Income:



|Cash Flow Sensitivities   
|--------------------------
|Oil Price ($1.00 U.S./bbl)
|Gas Price ($0.10/mcf)     
|U.S. exchange ($0.01 U.S.)
|Interest rate (1.0%)      



|Net Income Sensitivities  
|--------------------------
|Oil Price ($1.00 U.S./bbl 
|Gas Price ($0.10/mcf)     
|U.S. exchange ($0.01 U.S.)
|Interest rate (1.0%)      



ITEM 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.



ITEM 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Not applicable.



ITEM 14.

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Not applicable.



ITEM 15:

DISCLOSURE

The Board of Directors has overall responsibility for reviewing the Companys disclosure to ensure the Company provides full and plain disclosure to shareholders and other stakeholders.  The Board discharges its responsibilities through its committees, specifically, with respect to financial disclosure, the Audit and Reserves Committee is responsible for reviewing the Companys financial reporting procedures and internal controls to ensure full and accurate disclosure of the Companys financial position.





46

---

ITEM 16:

INFORMATION WITH RESPECT TO:

A:

AUDIT AND RESERVES COMMITTEE

The Audit and Reserves Committee is responsible for reviewing the Companys financial reporting procedures, internal controls, the performance of the Companys auditors and reviewing the reserve evaluations prepared by the Companys independent reserves evaluation engineering consultants.  The committee is also responsible for reviewing all disclosure with respect to financial matters prior to filing or release and quarterly and annual financial statements prior to their approval by the full Board.

B:

CODE OF ETHICS AND CORPORATE GOVERNANCE PRACTICES

The Company has not adopted a formal code of ethics, however, it does maintain written standards that are reasonably designed to deter wrong-doing and to promote:

1.

Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

2.

Full, fair, accurate, timely, and understandable disclosure in reports and documents that a registrant files with, or submits to, the Commission and in other public communications made by the registrant;

3.

Compliance with applicable governmental laws, rules and regulations;

4.

The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and

5.

Accountability for adherence to the code.

In addition the Company practices corporate governance in accordance with rules and regulations in Canada.

Corporate Governance relates to the activities of the Board of Directors who are elected by and accountable to the Shareholders, and takes into account the role of management who are appointed by the Board of Directors and who are charged with the on-going management of the Company.  The Board of Directors of the Company encourages sound corporate governance practices designed to promote the well being and on-going development of the Company, having always as its ultimate objective the best long-term interests of the Company and the enhancement of value for all Shareholders.  The Board also believes that sound corporate governance benefits the Companys employees and the communities in which the Company operates.  The Board is of the view that the Companys corporate governance policies and practices, outlined below, are appropriate and substantially consistent with the guidelines for improved corporate governance in Canada adopted by the Toronto Stock Exchange (the TSE Guidelines).  The following is a discussion of the Companys philosophies and procedures in the area of corporate governance.





47

---

Mandate of the Board

The Board of Directors has a general mandate to oversee the management of the business and affairs of the Company.  The directors discharge the following five specific responsibilities as part of their overall stewardship responsibility:



1.

Adoption of a strategic planning process;



2.

The identification of the principal risks of the Companys business and employ appropriate systems to manage the risks;



3.

Succession planning, including appointing and monitoring senior management;



4.

Oversee the Companys public communications policies and their implementations, including disclosure of material information, investor relations and communications; and



5.

Monitor and assess the scope, implementation and integrity of the Companys internal information, audit and control systems.

Composition of the Board and Representation of Shareholder Interests

The Companys Board is comprised of eight Directors, six of whom are independent directors and two directors drawn from senior management.  The Board believes that this combination leads to a constructive exchange of views in board deliberations resulting in objective well-balanced and informed discussion and decision-making.  Owen C. Pinnell, C. David Banks, Archie A. MacKinnon, Robert L. Phillips, Harry B. Wheeler and Mark D. Widney can be defined as unrelated directors or directors who are independent of management and are free from any interests and any business or other relationships which could, or could reasonably be perceived to, materially interfere with the directors ability to act with a view to the best interest of the Company, other than interests and relationships arising from shareholdings, and do not have interests in relationships with the Company.

Meetings of the Board

The Board of Directors of the Company meets at least once in each quarter, with additional meetings held when appropriate. The Board also meets annually to review and approve the Companys business plan. In 2001, there were six regular meetings of the Board. In addition, a special meeting of the Board was held on one occasion to discuss matters relating to an acquisition. Four regular meetings are scheduled for 2003. Meeting frequency and agenda items may change, depending on the opportunities or risks faced by the Company.





48

---

Committees

The Board discharges its responsibilities both directly and through its committees.  The committees are as follows:



1.

The Audit and Reserves Committee is comprised of three independent unrelated directors.  The current members are, Harry B. Wheeler, Chairman, Archie A. MacKinnon, Owen C. Pinnell.  This committee is responsible for reviewing the Corporations financial reporting procedures, internal controls, the performance of the Corporations auditors and reviewing the reserve evaluations prepared by the corporations independent reserves evaluation engineering consultants.  The committee is also responsible for reviewing quarterly and annual financial statements prior to their approval by the full Board.



2.

The Compensation and Governance Committee is comprised of two independent and unrelated directors, C. David Banks, Chairman and Robert L. Phillips and one director from management, Victor M. Luhowy.  This committee is responsible for setting compensation paid to executive officers, establishing and reviewing incentive plans and advising the Directors on all corporate governance matters.



3.

The Environmental, Health and Safety Committee is comprised of two independent directors, Mark D. Widney, Chairman and C. David Banks and one director from management, Victor M. Luhowy.  The committee is responsible for reporting to the Board on all matters relating to environmental, health and safety issues.



C:

ACCOUNTANTS FEES AND SERVICES

In 2002, KPMG LLP, the Companys external auditors, received total fees of $237,758 for the year ended December 31, 2002.  KPMG LLP provides audit and review services for respectively annual and interim financial statements of the Company as well as tax advice and the preparation of annual tax returns.



ITEM 17.

FINANCIAL
STATEMENTS

See financial statements at the end of this report.



ITEM 18.

FINANCIAL STATEMENTS

Not applicable.

49

---

ITEM 19.

EXHIBITS

Except as otherwise noted, the following documents were included as exhibits to the Companys Registration Statement on Form 20-F filed for fiscal year ended December 31, 2001, and are incorporated herein by this reference.  See Exhibits at the end of this report for additional exhibits.

Exhibit No.



1.

Certificate of Incorporation of the Company dated September 12, 1996, as filed with the Registrar of Corporations, Government of Alberta.*

2.

Certificate of Amalgamation dated January 1, 2002, as filed with the Registrar of Corporations, Government of Alberta.*

3.

Articles of Incorporation dated September 12, 1996, as filed with the Registrar of Corporations, Government of Alberta.*

4.

Articles of Incorporation dated January 1, 2002, as filed with the Registrar of Corporations, Government of Alberta.*

5.

By-law No.1 of the Company as adopted October 30,1996.*

6.

Employment Agreement dated December 1, 1997 between BelAir Energy Corporation and Wayne R. Wilson, Vice President, Corporate Development.*

7.

Amendment to Employment Agreement of December 1, 1997, dated February 1, 2000, between BelAir Energy and Wayne R. Wilson.*

8.

Employment Agreement dated December 8, 1999 between BelAir Energy Corporation and Ken Skea, Vice President, Production.*

9.

Employment Agreement dated November 17, 2000, between BelAir Energy Corporation and Kurt Miles, Vice President, Land.*

10.

Employment Agreement dated December 1, 1997 between BelAir Energy Corporation and Victor M. Luhowy, President and Chief Executive Officer.*

11.

Employment Agreement dated November 26, 1999 between BelAir Energy Corporation and A. I. Burnett, Vice President, Exploration.*

12.

Employment Agreement dated December 1, 1997 between BelAir Energy Corporation and Kenneth D. MacRitchie, Vice President, Finance and Chief Financial Officer.*

13.

Shareholder Rights Plan Agreement dated as of March 1, 2001, between Belair Energy Corporation and Olympia Trust Company, as Rights Agent.*

14.

Employee Stock Savings Plan Trust Agreement dated March 1, 2000, between Belair Energy Corporation and Olympia Trust Company.*

15.

Depository Agreement dated December 9, 1997, between Belair Energy Corporation and Montreal Trust Company of Canada.*

16.

Corporate Charter of BelAir Exploration Inc. dated March 22, 2001 as filed with the office of the Secretary of State of the State of Nevada, USA.*

17.

Articles of Incorporation ok of BelAir Exploration Inc. dated March 21, 2001 as filed with the office of the Secretary of State of the State of Nevada, USA.*

18.

Certificate of Authority of BelAir Exploration Inc. dated May 8, 2001 as filed with the office of the Secretary of State of the State of North Dakota, USA.*

19.

Certificate of Authority, Foreign Corporation, of BelAir Exploration Inc. dated March 22, 2001 as filed with the office of the Secretary of State of the State of North Dakota, USA.*

20.

By-laws of BelAir Exploration Inc. adopted March 21, 2001.*

21.

Certificate of Incorporation-908834 Alberta Ltd. dated December 12, 2002.*

22.

Certificate of Amendment-908834 Alberta Ltd. dated March 30, 2001, changing the name of the company to BelAir Royalty Fund Ltd., as filed with the Registrar of Corporations, Province of Alberta.*

23.

Certificate of Amendment and Registration of Restated Articles dated October 29, 2001,as filed with the Registrar of Corporations, Province of Alberta.*

24.

Articles of Amendment dated October 23, 2001, as filed with the Registrar of Corporations, Province of Alberta.*

25.

By-law No. 1 and By-law No. 2 of BelAir Royalty Fund Ltd. as adopted and made effective February 1, 2001.*



50

---



*Incorporated by reference to the Form 20-F of the Company filed for fiscal year ended December 31, 2001.



26.

Agreement between Tikal Resources Corp.
(BelAir Energy Corporation) and Westcoast Energy Inc. dated October 22, 2001.

27.

Master Agreement between BelAir Energy Corporation and Plains Marketing Canada, L.P. dated April 2, 2002, confirmation 01.

28.

Master Agreement between BelAir Energy Corporation and Plains Marketing Canada, L.P. dated April 2, 2002, confirmation 02.

29.

Master Agreement between Nexen Marketing and BelAir Energy Corporation dated November 1, 1997, confirmation of sale on April 4, 2003 of 2,500 GJ/d at
$5.17/GJ.

30.

Contract for Differences between Credit Lyonnais Rouse Derivatives and BelAir Energy Corporation dated April 17, 2002.

31.

Contract for Differences between Credit Lyonnais Rouse Derivatives and BelAir Energy Corporation dated May 17, 2002.

32.

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

33.

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

51

---

SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant certifies that it meets all of the requirements for filing on Form 20-F and has duly caused the Annual Report of Amendment thereto to be signed on its behalf by the undersigned, thereto duly authorized.



BELAIR ENERGY CORPORATION





Dated:  June 27, 2003



Per:  (Signed)Victor M. Luhowy"

Victor M. Luhowy,

President and Chief Executive Officer



Per:  (Signed)Kenneth D. MacRitchie"

Kenneth D. MacRitchie,

Vice President, Finance and Chief Financial Officer





51

---

CERTIFICATION



I, Victor M. Luhowy, President and Chief Executive Officer of BelAir Energy Corporation, certify that:





1.

I have reviewed this annual report on Form 20-F of BelAir Energy Corporation;



2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;



3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;



4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

(b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

(c)

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;



5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

(a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and



6.

The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.





Date: June 27, 2003



(Signed)Victor M. Luhowy

Victor M. Luhowy

President and Chief Executive Officer



53

---

CERTIFICATION



I, Kenneth D. MacRitchie, Vice President, Finance and Chief Financial Officer, certify that:



1.

I have reviewed this annual report on Form 20-F of BelAir Energy Corporation;



2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;



3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;



4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

(b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

(c)

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;



5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

(a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and



6.

The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.





Date: June 27, 2003



(Signed)Kenneth D. MacRitchie

Kenneth D. MacRitchie

Vice President and Chief Financial Officer



54

---



BELAIR ENERGY CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS





Auditors Report.



Consolidated Balance Sheets at December 31, 2002 and 2001.



Consolidated Statements of Earnings and Retained Earnings for the years ended December 31, 2002, 2001 and 2000.



Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000.



Notes to Consolidated Financial Statements.







F1



---

Consolidated Financial Statements of



BELAIR ENERGY CORPORATION



Years ended December 31, 2002, 2001 and 2000





---



AUDITORS' REPORT TO THE DIRECTORS



We have audited the consolidated balance sheets of BelAir Energy Corporation as at December 31, 2002 and 2001 and the consolidated statements of operations and retained earnings (deficit) and cash flows for the three years ended December 31, 2002, 2001 and 2000.  These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits.

With respect to the consolidated financial statements for the years ended December 31, 2002, 2001 and 2000, we conducted our audits in accordance with Canadian generally accepted auditing standards and auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Corporation as at December 31, 2002 and 2001 and the results of its operations and its cash flows for the three years ended December 31, 2002, 2001 and 2000 in accordance with Canadian generally accepted accounting principles.

Canadian generally accepted accounting principles vary in certain significant respects from accounting principles generally accepted in the United States.  Application of accounting principles generally accepted in the United States would have affected results of operations for each of the years in the three year period ended December 31, 2002 and shareholders equity as at December 31, 2002 and 2001, to the extent summarized in note 9 to the consolidated financial statements.

Signed by KPMG LLP

Chartered Accountants



Calgary, Canada

March 13, 2003
(except for note 10, which is as of
March 31, 2003)

---

BELAIR
ENERGY CORPORATION

Consolidated Balance Sheets

|December 31, 2002 and 2001
|--------------------------



|                                         |   |            | 2002         |           | 2001       
|---------------------------------------- | - | ---------- | ------------ | --------- | -----------
|Assets                                   |   |            |              |           |            
|                                         |   |            |              |           |            
|Current assets:                          |   |            |              |           |            
|Accounts receivable                      |   | $          | 10,020,806   | $         | 8,326,124  
|Prepaid expenses                         |   |            | 346,789      |           | 536,679    
|                                         |   |            | 10,367,595   |           | 8,862,803  
|                                         |   |            |              |           |            
|Capital assets (note 3)                  |   |            | 63,996,769   |           | 109,571,915
|                                         |   |            |              |           |            
|                                         |   | $          | 74,364,364   | $         | 118,434,718
|                                         |   |            |              |           |            
|Liabilities and Shareholders' Equity     |   |            |              |          
|Current liabilities:                     |   |            |              |           |            
|Accounts payable and accrued liabilities | $ | 12,309,382 | $            | 9,388,418
|Bank loan (note 4)                       |   |            | 19,393,837   |           |           
|                                         |   |            | 31,703,219   |           | 9,388,418  
|                                         |   |            |              |           |            
|Bank loan                                |   |            |             |           | 30,461,255 
|                                         |   |            |              |           |            
|Provision for future site restoration    |   |            | 1,716, 883   |           | 1,661,619  
|                                         |   |            |              |           |            
|Future income taxes (note 6)             |   |            | 6,443,364    |           | 21,322,041 
|                                         |   |            |              |           |            
|Shareholders' equity:                    |   |            |              |           |            
|Share capital (note 5)                   |   |            | 54,792,031   |           | 50,839,279 
|Retained earnings (deficit)              |   |            | (20,291,133) |           | 4,762,106  
|                                         |   |            | 34,500,898   |           | 55,601,385 
|                                         |   |            |              |           |            
|Commitments (note 7)                     |   |            |              |           |            
|Subsequent event (note 10)               |   |            |              |           |            
|                                         |   |            |              |           |            
|                                         |   | $          | 74,364,364   | $         | 118,434,718





> See accompanying notes to consolidated financial statements.
> On behalf of the Board:

Signed by Victor M. Luhowy

Director



Signed by Owen C. Pinnell

Director



---

BELAIR
ENERGY CORPORATION

Consolidated
Statements of Operations and Retained Earnings (Deficit)

|Years ended December 31, 2002,
    2001 and 2000
|------------------------------------------------





|                                               |   | 2002         |  |   | 2001        |  |   | 2000       
|---------------------------------------------- | - | ------------ |  | - | ----------- |  | - | -----------
|Revenue:                                       |   |              |  |   |             |  |   |            
|Petroleum and natural gas sales                | $ | 23,080,144   |  | $ | 31,187,927  |  | $ | 23,609,541 
|Royalties                                      |   | (5,490,581)  |  |   | (7,379,277) |  |   | (4,704,502)
|Other                                          |   | 489,075      |  |   | 359,287     |  |   | 264,497    
|                                               |   | 18,078,638   |  |   | 24,167,937  |  |   | 19,169,536 
|                                               |   |              |  |   |             |  |   |            
|Expenses:                                      |   |              |  |   |             |  |   |            
|Operating                                      |   | 6,509,539    |  |   | 7,410,340   |  |   | 4,184,457  
|General and administration                     |   | 2,734,028    |  |   | 2,167,361   |  |   | 1,509,036  
|Interest on long-term debt                     |   | 1,441,829    |  |   | 803,759     |  |   | 1,008,272  
|Provision for site restoration                 |   | 362,063      |  |   | 398,799     |  |   | 169,271    
|Depletion, depreciation and amortization       |   |              |  |   |             |  |   |            
|(note 3)                                       |   | 47,786,373   |  |   | 6,779,277   |  |   | 3,994,641  
|                                               |   | 58,833,832   |  |   | 17,559,536  |  |   | 10,865,677 
|                                               |   |              |  |   |             |  |   |            
|Net income (loss) before income taxes          |   | (40,755,194) |  |   | 6,608,401   |  |   | 8,303,859  
|                                               |   |              |  |   |             |  |   |            
|Income taxes (note 6):                         |   |              |  |   |             |  |   |            
|Current                                        |   | 169,577      |  |   | 143,000     |  |   | 181,670    
|Future (reduction)                             |   | (15,824,842) |  |   | 3,196,624   |  |   | 3,386,132  
|                                               |   | (15,655,265) |  |   | 3,339,624   |  |   | 3,567,802  
|                                               |   |              |  |   |             |  |   |            
|Net income (loss)                              |   | (25,099,929) |  |   | 3,268,777   |  |   | 4,736,057  
|                                               |   |              |  |   |             |  |   |            
|Retained earnings (deficit), beginning of year |   | 4,762,106    |  |   | 1,934,665   |  |   | (2,185,587)
|                                               |   |              |  |   |             |  |   |            
|Adjustment for share redemption                |   | 46,690       |  |   | (441,336)   |  |   | 147,234    
|Adjustment for change in accounting for        |   |              |  |   |             |  |   |            
|income taxes                                   |   |             |  |   | -           |  |   | (763,039)  
|Retained earnings (deficit), end of year       | $ | (20,291,133) |  | $ | 4,762,106   |  | $ | 1,934,665  
|                                               |   |              |  |   |             |  |   |            
|Per share amounts (note 5(f)):                 |   |              |  |   |             |  |   |            
|Basic                                          | $ | (0.89)       |  | $ | 0.21        |  | $ | 0.17       
|Diluted                                        | $ | (0.89)       |  | $ | 0.21        |  | $ | 0.17       



> See accompanying notes to consolidated financial statements.



---

BELAIR
ENERGY CORPORATION

Consolidated
Statements of Cash Flows

|Years ended December 31, 2002,
    2001 and 2000
|------------------------------------------------



|                                          |              | 2002         |              |              | 2001         |              |             | 2000       
|----------------------------------------- | ------------ | ------------ | ------------ | ------------ | ------------ | ------------ | ----------- | -----------
|                                          |              |              |              |              |              |              |             |            
|Cash provided by (used in):               |              |              |              |              |              |              |             |            
|                                          |              |              |              |              |              |              |             |            
|Operations:                               |              |              |              |              |              |              |             |            
|Net income                                | $            | (25,099,929) |              | $            | 3,268,777    |              | $           | 4,736,057  
|Items not involving cash:                 |              |              |              |              |              |              |             |            
|Depletion, depreciation and               |              |              |              |              |              |              |             |            
|amortization                              | 47,786,373   |              |              | 6,779,277    |              |              | 3,994,641  
|Provision for site restoration            |              | 362,063      |              |              | 398,799      |              |             | 169,271    
|Future income taxes                       | (15,824,842) |              |              | 3,196,624    |              |              | 3,386,132  
|Funds from operations                     |              | 7,223,665    |              | 13,643,477   |              | 12,286,101  
|Site restoration expenditures             |              | (306,799)    |              |              | (107,056)    |              |             | (52,468)   
|Change in non-cash operating working      |              |              |              |              |              |              |             |            
|capital                                   |              | 1,416,172    |              |              | (963,277)    |              |             | (369,778)  
|                                          |              | 8,333,038    |              | 12,573,144   |              | 11,863,855  
|                                          |              |              |              |              |              |              |             |            
|Financing:                                |              |              |              |              |              |              |             |            
|Issue of share capital                    |              | 5,470,173    |              |              | 4,490,540    |              |             | 4,105,906  
|Share issue costs                         |              | (524,566)    |              |              | (265,853)    |              |             | (527,398)  
|Bank loan                                 | (11,067,418) |              |              | 8,261,916    |              |              | (2,416,185)
|Note receivable                           |              |             |              |              | -            |              |             | 18,905     
|                                          |              | (6,121,811)  |              | 12,486,603   |              |              | 1,181,228  
|                                          |              |              |              |              |              |              |             |            
|Investments:                              |              |              |              |              |              |              |             |            
|Business acquisition (note 2)             |              |             |              |              | -            |              |             | (1,432,008)
|Exploration and development               | (12,908,207) |              | (25,059,747) |              | (16,179,894)
|Proceeds on sale of petroleum and natural |              |              |              |              |              |              |             |            
|gas properties                            | 10,696,980   |              |              | -            |              |              | 4,566,819  
|                                          |              | (2,211,227)  |              | (25,059,747) |              | (13,045,083)
|                                          |              |              |              |              |              |              |             |            
|Change in cash                            |              |             |              |              | -            |              |             | -          
|Cash, beginning of year                   |              |             |              |              | -            |              |             | -          
|Cash, end of year                         | $            |             |              | $            | -            |              | $           | -          







> See accompanying notes to consolidated financial statements.



---

BELAIR
ENERGY CORPORATION

Notes
to Consolidated Financial Statements

|Years ended December 31, 2002,
    2001 and 2000
|------------------------------------------------

1.

Significant accounting policies:

(a)

Basis of presentation:

The consolidated financial statements are stated in Canadian dollars and have been prepared in accordance with Canadian generally accepted accounting principles, which in the case of these consolidated financial statements, differ in certain respects from those in the United States.  These differences are described in note 9.

The consolidated financial statements include the accounts of the Corporation and its wholly owned subsidiaries, BelAir Exploration Inc., BelAir Royalty Fund Ltd., Mermaid Resources (UK) Limited, Cirque Energy (UK) Limited, and a partnership, BelAir Royalty Partnership.

(b)

Capital assets:

The Corporation follows the full cost method of accounting for oil and gas operations, whereby all costs of exploring for and developing oil and gas properties and related reserves are capitalized.  Capitalized costs include land acquisition costs, cost of drilling both productive and non-productive wells, and geological and geophysical expenses and related overhead.

Capitalized costs, excluding costs relating to unproven properties, are depleted using the unit-of-production method based on estimated proven reserves of oil and gas before royalties as determined by independent petroleum engineers.  For purposes of the depletion calculation, natural gas reserves and production are converted to equivalent volumes of crude oil based on relative energy content of six thousand cubic feet of gas to one barrel of oil.

The Corporation applies a "ceiling test" to capitalized costs to ensure that the net costs capitalized do not exceed the estimated future net revenues from the production of its proven reserves, plus the cost of undeveloped lands, less impairment.  Future net revenues are calculated at year-end prices and include an allowance for estimated future general and administrative expenses, interest expense, income taxes, and capital expenditures.

Gains or losses on the disposition of oil and gas properties are not ordinarily recognized except under circumstances, which result in a change in the depletion rate of 20% or more.

Depreciation of field trucks, furniture and office equipment is provided using the straight-line method based upon estimated useful lives at rates of 10% to 35%.

(c)

Interest in joint ventures:

Substantially all of the Corporation's oil and gas exploration and development activities are conducted jointly with others and, accordingly, the financial statements reflect only the Corporation's proportionate interest in such activities.

(d)

Future site restoration and abandonment costs:

Site restoration and abandonment costs are provided for over the life of the estimated proven reserves on a unit-of-production basis.  Costs are estimated each year by management in consultation with the Corporation's engineers based on current regulations, costs, technology and industry standards.  The period charge is expensed and actual site restoration and abandonment expenditures are charged to the accumulated provision account as incurred.

---

1.

Significant accounting policies(continued):

(e)

Measurement uncertainty:

The amounts recorded for depletion, depreciation and amortization of petroleum and natural gas properties and equipment and the provision for future site restoration and abandonment costs are based on estimates.  The ceiling test is based on estimates of proved reserves, production rates, oil and gas prices, future costs and other relevant assumptions.  By their nature, these estimates are subject to measurement uncertainty and the effect on the financial statements of changes in such estimates in future periods could be significant.

(f)

Per share amounts:

Basic per share amounts are calculated using the weighted average number of shares outstanding during the year.  Weighted average number of shares is determined by relating the portion of time within the reporting period that common shares have been outstanding to the total time in that period.  Diluted per share amounts are calculated based on the treasury-stock method, which assumes that any proceeds obtained on exercise of options and warrants would be used to purchase common shares at the average market price during the period.  The weighted average number of shares outstanding is then adjusted by the net change.

(g)

Flow-through shares:

The resource expenditure deductions for income tax purposes related to exploratory and development activities funded by flow-through share arrangements are renounced to investors in accordance with tax legislation.  Future tax liabilities and share capital are adjusted by the estimated cost of the renounced tax deductions when the shares are issued.

(h)

Stock-based compensation plans:

The Corporation has equity incentive plans, which are described in note 5.  All outstanding stock options of the Corporation have been granted to employees of the Corporation and no compensation cost has been recorded for these awards.

Effective January 1, 2002, the Corporation has prospectively adopted the new accounting policies with respect to accounting for stock options.  The Corporations stock-based compensation plans for employees do not involve the direct award of stock, or call for the settlement in cash or other assets.  No compensation costs are recognized in the financial statements.  Any consideration received on exercise of the stock options is credited to share capital.

---

1.

Significant accounting policies (continued):

(i)

Income taxes:

The Corporation uses the liability method of accounting for future income taxes.  The future tax liability is calculated assuming the financial assets and liabilities will be settled at their carrying amount.  This amount is compared to the tax assets and the substantively enacted tax rate is multiplied by the difference.

(j)

Foreign currency:

Monetary assets and liabilities, denominated in foreign currencies, are translated into Canadian dollars at rates of exchange in effect at the balance sheet date.  Other assets and revenue and expense items are translated at rates prevailing when they were acquired or incurred.  Foreign exchange gains and losses are included in income.

(k)

Financial instruments:

The Corporation has a price risk management program whereby the commodity price associated with a portion of its future production is fixed.  The Corporation sells forward a portion of its future production through a combination of fixed price sale contracts with customers and commodity swap agreements with financial counterparties.  The forward and futures contracts are subject to market risk from fluctuating commodity prices and exchange rates; however, gains or losses on the contracts are offset by changes in the value of the Corporations production and recognized in income in the same period and category as the hedged item.



2.

Business acquisition:

On December 14, 2001, the Corporation acquired all of the issued and outstanding Common Shares of Tikal Energy Corp.  The acquisition was accounted for using the purchase method with the results of operations being included from the date of acquisition.



> 



---

> 

The net recoverable amount calculated under the full cost accounting guideline exceeded the net book value of petroleum and natural gas properties at December 31, 2002.  At June 30, 2002, the net book value of petroleum and natural gas properties exceeded the net recoverable amount calculated under the full cost accounting guidelines.  The $38.4 million write-down has been recorded as additional depletion with an offsetting future tax reduction of $15.4 million.  The Corporation used June 30, 2002 prices of $3.01 per mcf for natural gas and $32.82 per barrel for crude oil.  The ceiling test is a cost recovery test and is not intended to result in an estimate of fair value.

The costs of unproven lands at December 31, 2002 of $6,811,000 (2001 - $11,800,000) have been excluded from the depletion calculation.

As at December 31, 2002, the estimated future site restoration costs to be accrued over the life of the remaining proved reserves are $4,074,000 (2001 - $4,800,000).

During 2002, the Corporation capitalized $573,000 (2001 - $260,000) in overhead-related costs directly related to petroleum and natural gas properties.



---

The Corporation has available the following credit facilities with a chartered bank:

> 



The Corporation has a borrowing base determined financing commitment of $25 million with a chartered bank comprised of a revolving demand production loan in the amount of $20 million and a bridge demand loan in the amount of $5 million.  Based on the demand nature of this facility, the Corporations debt has been classified as a current obligation.  The revolving demand production facility bears interest at the bank prime rate plus 1.50%.  The bridge demand facility bears an interest rate of bank prime plus 2%.  The bridge demand facility will be repaid from the proceeds of the corporate sale, non-core asset sales, subordinated debenture financing or any new equity raised.  In the event of a reduction in the borrowing base, the amount outstanding in excess of the revised borrowing base will be cancelled and the Corporation will have 90 days to repay the outstanding principal in an amount at least equal to the excess and failure to remedy the situation to the banks satisfaction during this period will entitle the bank to demand repayments.

At December 31, 2002, in the normal course of business, BelAir has issued letters of credit to industry partners or trade suppliers in the amount of $266,500 (2001 - $7,500).  These letters of credit reduce the amount of available line that can be drawn under our revolving demand production loan.

The loans are secured by a general assignment of book debts and a $50,000,000 first floating charge debenture on all assets and a general securities agreement.  The Corporation is required to meet certain financial and engineering reporting requirements.  The loans are subject to a review on or before June 30, 2003.



---

5.

Capital stock:

(a)

Authorized:

Unlimited number of voting Common Shares

Unlimited number of non-voting First Preferred Shares, issuable in series

(b)

Common Shares issued:











(c)

Flow-through shares and warrants:

In September 2002 the Corporation issued 2,750,000 units for proceeds of $2,750,000.  Each unit consisted of one common share and one half warrant.  The warrants are exercisable at a price of $1.15 per warrant and expire on September 20, 2003.

In September 2002 the Corporation also issued 2,750,000 flow-through shares for proceeds before issue costs of $2,750,000.  The future tax adjustment relating to the flow-through shares of $1,171,500 has been recorded to future tax liability.  The Corporation has a commitment to expend $2,750,000 of income tax attributes associated with oil and gas exploratory and development activities by December 31, 2003.



---

5.

Capital stock (continued):

(c)

Flow-through shares and warrants (continued):

In November 2001 the Corporation issued 1,666,667 shares for proceeds, before issue costs, of $5,000,000.  The future tax adjustment of the flow-through shares of $2,130,000 has been recorded to future tax liability.

In December 2000 the Corporation issued 734,000 units for proceeds of $4,404,000.  Each unit consisted of two flow-through shares and one warrant.  32,000 warrants were exercised for $97,200 and the remaining warrants have expired. 16,000 units consisting of 2 flow-through shares and 1 option were also issued for proceeds of $96,000.  These options expired on December 22, 2001.  The future tax adjustment relating to the flow-through shares of $1,980,000 has been recorded to future tax liability.

(d)

BelAir stock option plan:

The Corporation has a fixed stock option plan in which the Corporation may grant options to its employees for up to 3,000,000 shares of common stock. During the year ended December 31, 2002 the Corporation granted 604,500 options to employees and directors.  Under this plan, the exercise price of each option equals the market price of the Corporations stock on the date of grant and an options maximum term is ten years.  Options are granted periodically throughout the year.  The Corporations directors and officers options vest immediately and employees vest one-third a year for three years.

Changes in the number of options, with their weighted average exercise price, are summarized below:





---

5.

Capital stock (continued):

(d)

BelAir stock option plan (continued):

The following table summarizes information about the fixed stock options outstanding at December 31, 2002:

> (e)

BelAir/Tikal stock option plan:

As a result of the acquisition of Tikal Energy Corp., BelAir received approval from the Toronto Stock Exchange to exchange options held by Tikal employees, officers, directors and contractors for a new BelAir/Tikal option plan.  Under this plan, upon exercise of an option, holders of Tikal options are entitled to receive 0.4 of a BelAir share.  During the year, of the 845,844 options outstanding, 48,779 options were exercised at a weighted average price of $2.00 and 797,065 options expired which had a weighted average exercise price of $3.12.

(f)

Per share amounts:

Per share amounts have been calculated on the weighted average number of shares outstanding.  The weighted average shares outstanding for the year ended December 31, 2002 was 28,133,519 (2001  15,379,332; 2000  10,848,205).

In computing diluted earnings per share, 53,494 shares were added to the weighted average number of common shares outstanding during the year ended December 31, 2002 (2001  445,895; 2000  120,231) for the dilutive effect of employee stock options and warrants.

---

5.

Capital stock (continued):

(g)

Pro-forma disclosure:

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2002: zero dividend yield; expected volatility of 67%; risk-free rate of 5.3%; and expected life of 10 years.  The weighted average fair value of stock options granted during the year was $0.79 per option.

Had the Corporation accounted for employee stock options granted since January 1, 2002 using the fair value based method, the Corporations pro forma net loss and loss per share would have resulted in $25,393,510 net loss and a basic and diluted loss per share of $0.90 per share.  These pro forma earnings reflect compensation cost amortized over the options vesting period.



6.

Income taxes:

(a)

Income tax provision:

The provision for income taxes in the financial statements differs from the result, which would have been obtained by applying the combined federal and provincial tax rate to the Corporations earnings before income taxes.  This difference results from the following items:



> 

Cash taxes paid during the year were $191,000 (2001 - $43,000; 2000 - $nil).

---

6.

Income taxes (continued):

(b)

Future tax liability:

The components of the Corporations future income tax liability are as follows:

> 

The Corporation has available losses of $7,900,000, which expire from time to time up to 2009.

As at December 31, 2002, the Corporation has a commitment to expend $2,750,000 of income tax attributes associated with oil and gas exploratory and development activities by December 31, 2003.



7.

Commitments:

The Corporation has firm processing arrangements for natural gas in North East British Columbia for 10,000 mcf/day at a processing fee averaging $0.52/mcf, expiring in October 2004 and 5,000 mcf/day at a processing fee averaging $0.38/mcf, expiring in October 2007.

The minimum rentals payable under long-term office leases and office equipment, exclusive of certain operating costs, for which the Corporation is responsible, are as follows:



2003
   
   $
   351,2372004
   
   
   352,7182005
   
   
   250,6922006
   
   
   250,6922007
   
   
   66,891$
   1,272,230




---

8.

Financial instruments:

(a)

Commodity price risk management:

At December 31, 2002, the Corporation had fixed the price applicable to future production as follows:





The estimated fair value of these contracts based on amounts the Corporation would pay if the contracts were terminated at December 31, 2002 is $826,000.

(b)

Foreign currency exchange risk:

The Corporation is exposed to foreign currency fluctuations as crude oil and natural gas prices received are referenced to U.S. dollar denominated prices.

(c)

Credit risk:

A substantial portion of the Corporations accounts receivable are with customers and joint venture partners in the oil and gas industry and are subject to normal industry credit risks.  Purchasers of the Corporations natural gas, crude oil and natural gas liquids are subject to an internal credit review to minimize the risk of non-payment.

(d)

Fair value of financial instruments:

The carrying amounts of financial instruments included on the balance sheet, other than long-term debt, approximate their fair value due to their short-term maturity.  The long-term debt have carrying values that approximate fair value due to the cost of borrowing floating at December 31, 2002 and 2001.



---

9.

Differences between Canadian and United States Generally Accepted Accounting Principles:

The Corporation's consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada ("Canadian GAAP").  These principles, as they pertain to the Corporation's consolidated financial statements, are not materially different from United States' generally accepted accounting principles ("U.S. GAAP") except as follows:

(a)

The Corporation performs a cost recovery ceiling test, which limits net capitalized costs to the undiscounted estimated future net revenue from proven oil and gas reserves plus the cost of unproven properties less impairment, using period-end prices or average prices in that year, if appropriate.  In addition, the value is further limited by including financing costs, administration expenses, future abandonment and site restoration costs and income taxes.  Under U.S. GAAP, companies using the full cost method of accounting for oil and gas producing activities perform a ceiling test using discounted estimated future net revenue from proven oil and gas reserves using a discount factor of 10%.  Prices used in the U.S. GAAP ceiling tests performed for this reconciliation were those in effect at the applicable year-end.  Financing and administration costs are excluded from the calculation under U.S. GAAP.

At June 30, 2002, the application of the full cost ceiling test under Canadian and U.S. GAAP resulted in a write down.  The write down for Canadian GAAP was $38.4 million with associated tax of $15.4 million.  The write down for U.S. GAAP was $22.5 million with associated tax of $9.5 million.

At December 31, 2002, the application of the full cost ceiling test under U.S. GAAP resulted in
no
 write-down of capitalized costs
(2001 - $27.5 million; 2000 - $nil) and no

 associated reduction in future taxes
for 2002

 (2001 - $11 million; 2000 - $nil).

(b)

Effective January 1, 2000, the Corporation adopted the liability method of accounting for income taxes for Canadian GAAP purposes.  The new standard was adopted retroactively without restating prior years.  This standard is substantially similar to the accounting standard for income taxes under U.S. GAAP; therefore, there is no material GAAP difference since the date of adoption.

(c)

The Corporation applies the intrinsic value-based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, in accounting for its stock options issued to employees, directors and officers and consultants of the Corporation for purposes of reconciliation to U.S. GAAP.  As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price if these options were issued to consultants.  SFAS No. 123, Accounting for Stock-based Compensation, established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans.  As allowed by SFAS No. 123, the Corporation has elected to continue to apply the intrinsic value-based method of accounting described above.

---

9.

Differences between Canadian and United States Generally Accepted Accounting Principles (continued):

During the years ended December 31, 2001 and 2000, the Corporation granted options to consultants, which, for purposes of reconciling to U.S. GAAP, would have been included as compensation expense.  Prior to adoption of the new standard for Canadian GAAP, 14,500 options were granted to consultants with exercise prices at market price of the Corporations stock on the date of grant.  The fair value is being amortized over the vesting period.

The Corporation has calculated the fair value of stock options granted to consultants using the Black Scholes option-pricing model with the following weighted-average assumptions:



2001
   2000Risk free interest rate
   5.3%
   5.3%Volatility
   64%
   88%Expected option life (in years)
   10
   5-10Dividend yield
   -
   




(d)

U.S. GAAP requires that share capital on flow-through shares be stated at the quoted value of the shares at the date of issuance.  In addition, the tax effected temporary differences resulting from tax deduction renouncements, less any proceeds received in excess of the quoted value of the shares must be recognized in the determination of the tax expense for the year.  The tax expense and share capital have been adjusted by
$
1,116,500
(2001 - $680,000; 2000 - $855,000).

(e)

U.S. GAAP requires that demand loans be classified as a current liability unless the Corporation intends to refinance on a long-term basis and the intent is supported by the ability to refinance.  The Corporation has re-
classified the amounts as current liabilities at December 31, 2001 for U.S. GAAP purposes.

(f)

Effective January 1, 2001, the Company adopted the provisions of FAS 133, which requires that all derivatives be recognized as assets and liabilities on the balance sheet and measured at fair value.  Gains or losses on derivatives that have not been designated as hedges, or were not effective as hedges, are included in income as they arise.

For derivatives designated as fair value hedges, changes in the fair value are recognized in income together with changes in the fair value of the hedged item.  For derivatives designated as cash flow hedges, changes in the fair value of the derivatives are recognized in other comprehensive income until the hedged items are recognized in income.  Any change in the fair value of the derivatives that are not effective in hedging the changes in future cash flows are included in income as they arise.

---

9.

Differences between Canadian and United States Generally Accepted Accounting Principles (continued):

On initial adoption of FAS 133, the Corporation did not have any derivative financial instruments in place.  At December 31, 2002, $826,000 has been recorded as an asset with respect to the fair value of derivatives that do not qualify for hedge accounting under FAS 133 with a corresponding increase to net income of $478,000, net of tax.

(g)

SFAS 130 requires the reporting of comprehensive income in addition to net earnings.  Comprehensive income includes net income plus other comprehensive income; specifically, all changes in equity of a company during a period arising from non-owner sources.

Balance Sheets

The application of U.S. GAAP would have the following effect on the Balance Sheets as reported:





---

9.

Differences between Canadian and United States Generally Accepted Accounting Principles (continued):

Statements of Income

The application of U.S. GAAP would have the following effect on net earnings as reported:







9.

Differences between Canadian and United States Generally Accepted Accounting Principles (continued):

Additional U.S. GAAP Disclosures

Accounting for the Impairment or Disposal of Long-Lived Assets

In 2001, FASB issued SFAS 144.  This standard supercedes SFAS 121 Accounting for the Impairment of Long-Lived Assets to be Disposed of and Accounting Principles Board Opinion 30 Reporting Results of Operations  Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.  The standard requires that impairment be recognized on long-lived assets when the expected undiscounted cash flows are less than the carrying amount.  The standard also addresses long-lived assets to be disposed of and discontinued operations.  Adoption of this standard is not expected to have a material impact on the Corporations financial statements.

---

Accounting for Guarantees

In November 2002, the FASB issued Financial Interpretation 45 Accounting for Guarantees (FIN 45) that will require the recognition of a liability for the fair value of certain guarantees that require payments contingent on specified types of future events. The measurement standards of FIN 45 are applicable to guarantees entered into after January 1, 2003.

For guarantees that existed as at December 31, 2002, FIN 45 requires additional disclosures, which have been included in these financial statements to the extent applicable to the Corporation.

Accounting for Variable Interest Entities

In January 2003, the FASB issued Financial Interpretation 46 Accounting for Variable Interest Entities (FIN 46) that will require the consolidation of certain entities that are controlled through financial interests that indicate control (referred to as variable interests). Variable interests are the rights or obligations that convey economic gains or losses from changes in the values of the entitys assets or liabilities. The holder of the majority of an entitys variable interests will be required to consolidate the variable interest entity. The Corporation does not believe FIN 46 will result in the consolidation of any additional entities that existed at December 31, 2002.

Future Removal and Site Restoration

In June 2001, the FASB issued Statement No. 143 Accounting for Asset Retirement Obligations (FAS 143), which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the related asset retirement costs. The standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and use of the asset. FAS 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The fair value is added to the carrying amount of the associated asset. The liability is accreted at the end of each period through charges to operating expenses.

---

10.

Subsequent event:

The Corporation has entered into a process to explore strategic alternatives designed to maximize shareholder value.  These alternatives may include the sale of the Corporation, a merger, conversion, reorganization or such other alternatives that may be considered to be in the best interest of the shareholder.

---

BELAIR ENERGY CORPORATION



EXHIBITS



The following documents are included as Exhibits 26 through 33 to the Companys Registration Statement on Form 20F.



---



---



---



---



---



---



---



---



---



---



---



---



---



---



---



---

---

EXHIBIT 27



---



---



---



---



---



---



---



---



---



---



---



---

---

EXHIBIT 28



---



---



---

---

EXHIBIT 29



---

---

EXHIBIT 30



---



---



---



---



---

---

EXHIBIT 31



---



---



---



---



---



---



---



---



---

---

EXHIBIT 32









---

EXHIBIT 33









---

---