**Exhibit 99.1**

****

**ANNUAL INFORMATION FORM**

**(Exceptas otherwise noted theinformation herein is givenas at December 31, 2006)**

**Dated:March 30, 2007**

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**TABLE OF CONTENTS**
| ABBREVIATIONS                                                 |   | 1  |
|---------------------------------------------------------------|--------|----|
| CONVERSIONS                                                   |   | 1  |
| CERTAIN DEFINITIONS                                           |   | 1  |
| GLOSSARY OF TECHNICAL TERMS                                   |   | 1  |
| CURRENCY OF INFORMATION                                       |   | 5  |
| FORWARD LOOKING STATEMENTS                                    |   | 5  |
| THE CORPORATION                                               |   | 7  |
| GENERAL DEVELOPMENT OF THE BUSINESS                           |   | 7  |
| DESCRIPTION OF THE BUSINESS AND PRINCIPAL PROPERTIES          |   | 10 |
| STATEMENT OF RESERVES DATA AND OTHER OIL AND GAS  INFORMATION |   | 15 |
| INDUSTRY CONDITIONS                                           |   | 27 |
| RISK FACTORS                                                  |   | 33 |
| DIVIDENDS                                                     |   | 39 |
| DESCRIPTION OF CAPITAL STRUCTURE                              |   | 39 |
| MARKET FOR SECURITIES                                         |   | 40 |
| DIRECTORS AND OFFICERS                                        |   | 40 |
| LEGAL PROCEEDINGS                                             |   | 43 |
| INTERESTS OF MANAGEMENT AND OTHERS IN MATERIAL  TRANSACTIONS  |   | 43 |
| TRANSFER AGENT AND REGISTRAR                                  |   | 43 |
| INTERESTS OF EXPERTS                                          |   | 43 |
| AUDIT COMMITTEE                                               |   | 44 |
| ADDITIONAL INFORMATION                                        |   | 45 |

 

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**ABBREVIATIONS**

**Oil andNatural Gas Liquids**

 
| Bbl    |   | Barrel                   |
|--------|--------|--------------------------|
| Bbls   |   | Barrels                  |
| Mbbls  |   | thousand barrels         |
| MMbbls |   | million barrels          |
| Mstb   |   | 1,000 stock tank barrels |
| bbls/d |   | barrels per day          |
| bopd   |   | barrels of oil per day   |
| NGLs   |   | natural gas liquids      |
| STB    |   | standard tank barrels    |

 

**Natural Gas**
| Mcf    |   | thousand cubic feet           |
|--------|--------|-------------------------------|
| MMcf   |   | million cubic feet            |
| Mcf/d  |   | thousand cubic feet per day   |
| MMcf/d |   | million cubic feet per day    |
| MMbtu  |   | million British Thermal Units |
| Bcf    |   | billion cubic feet            |
| Tcf    |   | trillion cubic feet           |
| GJ     |   | gigajoule                     |

 

**Other**

 
| AECO       |   | EnCana Corp.’s natural gas storage facility located  at Suffield, Alberta.                                                                                                                                           |
|------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| API        |   | American Petroleum Institute                                                                                                                                                                                              |
| °API  |   | an indication of the specific gravity of crude oil  measured on the API gravity scale. Liquid petroleum with a specified gravity  of 28° API or higher is generally referred to as light crude oil.                  |
| ARTC       |   | Alberta royalty tax credit                                                                                                                                                                                                |
| BOE or boe |   | barrel of oil equivalent of natural gas and crude  oil on the basis of 1 BOE for 6 Mcf of natural gas (this conversion factor is  an industry accepted norm and is not based on either energy content or  current prices) |
| m3         |   | cubic meters                                                                                                                                                                                                              |
| MBOE       |   | 1,000 barrels of oil equivalent                                                                                                                                                                                           |
| Mstboe     |   | 1,000 stock tank barrels of oil equivalent                                                                                                                                                                                |
| $M         |   | thousands of dollars                                                                                                                                                                                                      |
| $MM        |   | millions of dollars                                                                                                                                                                                                       |
| WTI        |   | West Texas Intermediate, the reference price paid in  U.S. dollars at Cushing, Oklahoma for crude oil of standard grade                                                                                                   |
| psi        |   | pounds per square inch                                                                                                                                                                                                    |

 

The following table setsforth certain conversions between Standard Imperial Units and the InternationalSystem of Units (or metric units).

**CONVERSIONS**
| To Convert From | ** ** | **To**        | ** ** | **Multiply By** | ** ** |
|---------------------------|------------|---------------|------------|----------------------|------------|
|                      |       |          |       |                 |       |
| Mcf                       |       | cubic  meters |       | 0.28174              |       |
| cubic meters              |       | cubic  feet   |       | 35.494               |       |
| bbls                      |       | cubic  meters |       | 0.159                |       |
| cubic meters              |       | bbls  oil     |       | 6.293                |       |
| feet                      |       | Meters        |       | 0.305                |       |
| meters                    |       | Feet          |       | 3.281                |       |
| miles                     |       | kilometres    |       | 1.609                |       |
| kilometres                |       | Miles         |       | 0.621                |       |
| acres                     |       | Hectares      |       | 0.405                |       |
| hectares                  |       | Acres         |       | 2.471                |       |
| gigajoules                |       | Mmbtu         |       | 0.950                |       |

 

In this document, a boeconversion ratio of 6 Mcf = 1 bbl has been used. Boe’s may be misleading,particularly if used in isolation.  A boeconversion ratio of 6 Mcf to 1 bbl is based on an energy equivalency conversionmethod primarily applicable at the burner tip and does not represent a valueequivalency at the wellhead.

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**CERTAIN DEFINITIONS**

In this AnnualInformation Form, the following words and phrases have the following meanings,unless the context otherwise requires:

“**ASC**” means the Alberta SecuritiesCommission.

“**Canada Southern**” means Canada SouthernPetroleum Ltd.

“**Canadian Superior**” or the “**Corporation**” means Canadian Superior EnergyInc.

“**CBM**” means coal bed methane.

“**CNSOPB**” means the Canada-Nova ScotiaOffshore Petroleum Board.

“**Common Shares**” means the common shares inthe capital of the Corporation.

“**El Paso**” means El Paso Corporation.

“**GLJ**” means GLJ Petroleum Consultants Ltd.

“**GLJ Report**” means the report datedMarch 1, 2007 prepared by GLJ evaluating the Corporation’s proved andproved plus probable reserves effective December 31, 2006.

“**GlobalSantaFe**” means GlobalSantaFeCorporation.

“**MEEI**” means the Trinidad and TobagoMinistry of Energy and Energy Industries.

“**NI 51-101**” means National Instrument 51-101– *Standards of Disclosure for Oil and GasActivities*.

“**OSC**” means the Ontario SecuritiesCommission.

“**Petrotrin**” means Trinidad and Tobago’sNational Oil Company.

“**Preferred Shares**” means the first preferredshares in the capital of the Corporation.

“**PSC**” means production sharing contract.

“**Rights Plan**” means the Corporation’sshareholder rights plan.

“**Rights Plan Agreement**” means theshareholder’s rights plan agreement in respective of the Rights Plan datedeffective as of January 22, 2001 between the Corporation and ComputershareTrust Company of Canada, as amended from time to time.

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**GLOSSARY OF TECHNICAL TERMS**

As used in this AnnualInformation Form, the following technical terms and acronyms have therespective meanings specified below.

(a)                                  “**constant prices and costs**” means prices andcosts used in an estimate that are:

(i)                                     theCorporation’s prices and costs as at the effective date of the estimation, heldconstant throughout the estimated lives of the properties to which the estimateapplies;

(ii)                                  if,and only to the extent that, there are fixed or presently determinable futureprices or costs to which the Corporation is legally bound by a contractual orother obligation to supply a physical product, including those for an extensionperiod of a contract that is likely to be extended, those prices or costsrather than the prices and costs referred to in paragraph (i).

For the purpose ofparagraph (i), the Corporation’s prices will be the posted price for oil andthe spot price for gas, after historical adjustments for transportation,gravity and other factors.

(b)                                 “**crude oil**” or “**oil**” means a mixture that consists mainly of pentanes andheavier hydrocarbons, which may contain sulphur and other non-hydrocarboncompounds, that is recoverable at a well from an underground reservoir and thatis liquid at the conditions under which its volume is measured or estimated. Itdoes not include solution gas or natural gas liquids.

(c)                                  “**development costs**” means costs incurred toobtain access to reserves and to provide facilities for extracting, treating,gathering and storing the oil and gas from the reserves. More specifically,development costs, including applicable operating costs of support equipmentand facilities and other costs of development activities, are costs incurredto:

(i)                                     gainaccess to and prepare well locations for drilling, including surveying welllocations for the purpose of determining specific development drilling sites,clearing ground, draining, road building, and relocating public roads, gaslines and power lines, to the extent necessary in developing the reserves;

(ii)                                  drilland equip development wells, development type stratigraphic test wells andservice wells, including the costs of platforms and of well equipment such ascasing, tubing, pumping equipment and the wellhead assembly;

(iii)                               acquire,construct and install production facilities such as flow lines, separators,treaters, heaters, manifolds, measuring devices and production storage tanks,natural gas cycling and processing plants, and central utility and wastedisposal systems; and

(iv)                              provideimproved recovery systems.

(d)                                 “**development well**” means a well drilledinside the established limits of an oil or gas reservoir, or in close proximityto the edge of the reservoir, to the depth of a stratigraphic horizon known tobe productive.

(e)                                  “**exploration costs**” means costs incurred inidentifying areas that may warrant examination and in examining specific areasthat are considered to have prospects that may contain oil and gas reserves,including costs of drilling exploratory wells and exploratory typestratigraphic test wells. Exploration costs may be incurred both beforeacquiring the related property (sometimes referred to in part as “**prospecting costs**”) and after acquiring theproperty. Exploration costs, which include applicable operating costs ofsupport equipment and facilities and other costs of exploration activities,are:

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(i)                                     costsof topographical, geochemical, geological and geophysical studies, rights ofaccess to properties to conduct those studies, and salaries and other expensesof geologists, geophysical crews and others conducting those studies(collectively sometimes referred to as “**geologicaland geophysical costs**”);

(ii)                                  costsof carrying and retaining unproved properties, such as delay rentals, taxes(other than income and capital taxes) on properties, legal costs for titledefence, and the maintenance of land and lease records;

(iii)                               dryhole contributions and bottom hole contributions;

(iv)                              costsof drilling and equipping exploratory wells; and

(v)                                 costsof drilling exploratory type stratigraphic test wells.

(f)                                    “**exploratory well**” means a well that is nota development well, a service well or a stratigraphic test well.

(g)                                 “**field**” means an area consisting of a singlereservoir or multiple reservoirs all grouped on or related to the sameindividual geological structural feature and/or stratigraphic condition. Theremay be two or more reservoirs in a field that are separated vertically byintervening impervious strata or laterally by local geologic barriers, or both.Reservoirs that are associated by being in overlapping or adjacent fields maybe treated as a single or common operational field. The geological terms “structuralfeature” and “stratigraphic condition” are intended to denote localizedgeological features, in contrast to broader terms such as “basin”, “trend”, “province”,“play” or “area of interest”.

(h)                                 “**future prices and costs**” means futureprices and costs that are:

(i)                                     (generallyaccepted as being a reasonable outlook of the future;

(ii)                                  if,and only to the extent that, there are fixed or presently determinable futureprices or costs to which the Corporation is legally bound by a contractual orother obligation to supply a physical product, including those for an extensionperiod of a contract that is likely to be extended, those prices or costsrather than the prices and costs referred to in paragraph (i).

(i)                                     “**future net revenue**” means the estimated netamount to be received with respect to the development and production ofreserves (including synthetic oil, coal bed methane and other non-conventionalreserves) estimated using constant prices and costs or forecast prices andcosts.

(j)                                     “**gross**” means:

(i)                                     inrelation to the Corporation’s interest in production or reserves, its “companygross reserves”, which are its working interest (operating or non-operating)share before deduction of royalties and without including any royalty interestsof the Corporation;

(ii)                                  inrelation to wells, the total number of wells in which the Corporation has aninterest; and

(iii)                               inrelation to properties, the total area of properties in which the Corporationhas an interest.

(k)                                  “**natural gas**” means the lighter hydrocarbonsand associated non-hydrocarbon substances occurring naturally in anunderground reservoir, which under atmospheric conditions are

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essentially gases but which may contain natural gasliquids. Natural gas can exist in a reservoir either dissolved in crude oil(solution gas) or in a gaseous phase (associated gas or non-associatedgas). Non-hydrocarbon substances may include hydrogen sulphide, carbondioxide and nitrogen.

(l)                                     “**natural gas liquids**” means thosehydrocarbon components that can be recovered from natural gas as liquidsincluding, but not limited to, ethane, propane, butanes, pentanes plus,condensate and small quantities of non-hydrocarbons.

(m)                               “**net**” means:

(i)                                     inrelation to the Corporation’s interest in production or reserves its workinginterest (operating or non-operating) share after deduction of royaltyobligations, plus its royalty interests in production or reserves;

(ii)                                  inrelation to the Corporation’s interest in wells, the number of wells obtainedby aggregating the Corporation’s working interest in each of its gross wells;and

(iii)                               inrelation to the Corporation’s interest in a property, the total area in whichthe Corporation has an interest multiplied by the working interest owned by theCorporation.

(n)                                 “**non-associated gas**” means anaccumulation of natural gas in a reservoir where there is no crude oil.

(o)                                 “**operating costs**” or “**production costs**” means costs incurred tooperate and maintain wells and related equipment and facilities, includingapplicable operating costs of support equipment and facilities and other costsof operating and maintaining those wells and related equipment and facilities.

(p)                                 “**production**” means recovering, gathering,treating, field or plant processing (for example, processing gas to extractnatural gas liquids) and field storage of oil and gas.

(q)                                 “**property**” includes;

(i)                                     feeownership or a lease, concession, agreement, permit, license or other interestrepresenting the right to extract oil or gas subject to such terms as may beimposed by the conveyance of that interest;

(ii)                                  royaltyinterests, production payments payable in oil or gas, and other non-operatinginterests in properties operated by others; and

(iii)                               anagreement with a foreign government or authority under which the Corporationparticipates in the operation of properties or otherwise serves as “producer”of the underlying reserves (in contrast to being an independent purchaser, broker,dealer or importer).

but does not includesupply agreements, or contracts that represent a right to purchase, rather thanextract, oil or gas.

(r)                                    “**proved property**” means a property or partof a property to which reserves have been specifically attributed.

(s)                                  “**reservoir**” means a porous and permeableunderground formation containing a natural accumulation of producible oil orgas that is confined by impermeable rock or water barriers and is individualand separate from other reservoirs.

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(t)                                    “**service well**” means a well drilled orcompleted for the purpose of supporting production in an existing field. Wellsin this class are drilled for the following specific purposes: gas injection(natural gas, propane, butane or flue gas), water injection, steam injection,air injection, salt-water disposal, water supply for injection,observation, or injection for combustion.

(u)                                 “**unproved property**” means a property or partof a property to which no reserves have been specifically attributed.

(v)                                 “**well abandonment costs**” means costs ofabandoning a well (net of salvage value) and of disconnecting the well from thesurface gathering system. They do not include costs of abandoning the gatheringsystem or reclaiming the wellsite.

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**CURRENCY OF INFORMATION**

The information in thisannual information form is stated as at December 31, 2006, unlessotherwise indicated. For an explanation of the capitalized terms andexpressions and certain defined terms, please refer to the “Glossary ofTechnical Terms” in this annual information form. Except as otherwiseindicated, all dollar amounts in this annual information form are expressed inCanadian dollars and references to $ are to Canadian dollars.

**FORWARD LOOKING STATEMENTS**

Canadian Superior EnergyInc. cautions that all statements in this document, other than statements ofhistorical fact, including statements regarding estimates of reserves,estimates of future production as well as other statements about anticipatedfuture events or results are forward looking statements. Forward lookingstatements often, but not always, are identified by the use of words such as “seek”,“anticipate”, “believe”, “continue”, “plan”, “estimate”, “expect”, “target”,and “intend” and statements that an event or result “may”, “will”, “should”, “could”or “might” occur or be achieved and other similar expressions. Forward-lookingstatements in this document include, but are not limited to, statements about:

The future commercialsuccess of the Corporation’s oil and natural gas exploration, development andproduction activities;

The stability of world-wideoil and natural gas prices;

The Corporation’s abilityto make necessary capital expenditures for the acquisition, exploration,development and production of oil and natural gas reserves in the future;

Competition with andamong other oil and gas companies for the acquisition, exploration, productionand development of oil and natural gas properties;

The Corporation’s oil andnatural gas reserves;

The Corporation’s abilityto obtain the required licenses and permits from governmental authorities forits exploration, development and production activities; and

The Corporation’s abilityto successfully defend against pending or future litigation.

This annual informationform contains forward-looking information on future production, projectstart-ups and future capital spending. Actual results or estimatedresults could differ materially due to changes in project schedules, operatingperformance, demand for oil and gas, commercial negotiations or other technicaland economic factors or revisions.

Statements contained inthis annual information form relating to future results, events andexpectations are forward-looking statements within the meaning of Section27A of the Securities Act of 1933 and Section 21 E of the Securities ExchangeAct of 1934. These forward-looking statements involve known and unknownrisks, uncertainties, scheduling, re-scheduling and other factors which maycause the Corporation’s actual results, performance, schedules or achievements,or the actual results, performance, schedules or achievements of the industryin which the Corporation operates, to be materially different from any futureresults, performance or achievements expressed or implied by such statements.

This annual information form,the documents incorporated by reference into this annual information form, andother reports and filings made with the securities regulatory authoritiesinclude forward-looking statements. All forward looking statements arebased on the Corporation’s beliefs and assumptions based on informationavailable at the time the assumption was made. Forward-looking statementsrelate to, among other things, anticipated financial performance, businessprospects, strategies, regulatory developments, new services, market forces,commitments and technological developments. Much of this information alsoappears in management’s discussion and analysis. By its nature, such forward-lookinginformation is subject to various risks and uncertainties, including thosematerial

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risks discussed in thisannual information form under “Risk Factors”, which could cause the Corporation’sactual results and experience to differ materially from the anticipated resultsor other expectations expressed. Readers are cautioned not to place unduereliance on this forward-looking information, which is given as of thedate it is expressed in this annual information form or otherwise, and theCorporation undertakes no obligation to update publicly or revise any forward-lookinginformation, whether as a result of new information, future events or otherwiseexcept as required by securities law.

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**THE CORPORATION**

Canadian Superior wasincorporated as 297272 Alberta Ltd. by Articles of Incorporation under the *Business Corporations Act*(Alberta) on March 21, 1983.Canadian Superior amended its articles: (i) on April 27, 1993, tochange its name to “KapaIua Gold Mines Ltd.” and to remove the private companyrestrictions in its articles; (ii) on November 16, 1993, to changeits name to “Prize-Energy Inc.” and to consolidate its issued andoutstanding Common Shares on a 1-for-5 basis; and (iii) onJanuary 19, 1999, to permit the appointment of additional directorsbetween annual meetings and to restate its articles in a consolidated form. OnAugust 24, 2000, a further amendment changed the name of theCorporation to “Canadian Superior Energy Inc.” and consolidated its issued andoutstanding Common Shares on a l-for-2 basis.

Canadian Superior is areporting issuer, or the equivalent, in the provinces of British Columbia,Alberta, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick, Nova Scotia,Prince Edward Island, and Newfoundland. The Common Shares are listed and postedfor trading on the Toronto Stock Exchange and the American Stock Exchange underthe symbol “SNG”.

The Corporation’s headoffice is located at 2700, 605 – 5th Avenue S.W., Calgary, Alberta, T2P 3H5and its registered office is located at 3300, 421 - 7th Avenue S.W.,Calgary, Alberta, T2P 4K9. In addition, the Corporation has an east coastoffice located at 704, 1959 Upper Water Street, Halifax, Nova Scotia, B3J 3N2.

The Corporation has nosubsidiaries which individually represent more than 10%, nor in the aggregaterepresent more than 20%, of the total consolidated assets and total consolidatedrevenues of the Corporation, as at December 31, 2006.

The Corporation has atotal of 43 full-time staff, including 5 staff members in its Halifax,Nova Scotia office,****7 staffmembers in its Drumheller, Alberta field office and 10****staff members in its Trinidad and Tobagofield office.

**GENERAL DEVELOPMENT OF THEBUSINESS**

Canadian Superior is acrude oil and natural gas exploration and production company with its primaryemphasis on the exploration for, and production of, crude oil and natural gasin western Canada, offshore Nova Scotia, and offshore Trinidad and Tobago.

The most significantevents in the development of the business of Canadian Superior during the pastthree completed fiscal years are described below.

OnJanuary, 23, 2007, the Corporation announced that its offshore NovaScotia exploration acreage holdings have increased to 2.59 million net acreswith the addition of the EL2412 and EL2413 deepwater blocks previously held bya U.S. company.

On December 29, 2006 theCorporation completed a private placement of 2,500,000 Common Shares at a priceof $2.37 per share for gross proceeds of $5,924,990

On December 13, 2006 theCorporation issued 6,000,000 Common Shares on a “flow-through” basis at aprice of $2.57 per Common Share for aggregate proceeds of $15,420,000.

On August 16, 2006, NeilDore was appointed Vice President Western Canada Operations and Roger Harmanwas appointed as Chief Financial Officer of the Corporation.

In June 2006, CanadianSuperior offered to acquire all of the issued and outstanding shares of CanadaSouthern Petroleum Ltd. from existing shareholders.  Canadian Superior offered 2.75 Common Sharesplus $2.50 cash for each issued and outstanding share of Canada Southern.  On July 17, 2006, Canadian Superiorrevised its offer to two Common Shares, $2.50 cash and a 25% net profitinterest in Canada Southern’s approximately 927 bcf of natural gas attributedto it’s interest in the Canadian Arctic Islands. The minimum condition attachedto the revised offer was not met. 171,495 Canada Southern shares were tendered to the original offer, forwhich Canadian Superior issued

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471,612 Common Shares andpaid $430,046.39 to take-up. The costs incurred in relation to the offer,including the fair value of the Common Shares issued upon take-up,exceeded the fair value of the Canada Southern shares acquired.  The difference has been recorded as a Loss onInvestment in the Corporation’s financial statements. Canadian Superiorsubsequently received US$2,246,584 as a result of the sale of the CanadaSouthern shares acquired.

On April 10, 2006,Michael (Mike) E. Coolen was appointed President and Chief Operating Officer ofthe Corporation.

On February 9, 2006, theCorporation completed a private placement of 1,000,000 units at a price of$2.40 per unit for gross proceeds of $2.4 million. Each unit consisted of oneCommon Share and one-half of one Common Share purchase warrant.  Each purchase warrant entitled the holderthereof to acquire an additional Common Share at any time until December 31, 2006at a price of $2.40 per Common Share.

OnFebruary 1, 2006, the Corporation completed a private placement of US$15 million of preferred share purchase units.

OnJanuary 4, 2006, the Corporation announced that at year end 2005 ithad closed, by way of private placement, total “flow-through” sharefinancings of 2,976,400 Common Shares at a price of $3.00 per share.

OnNovember 10, 2005, the Corporation announced that they had beenadvised by CNSOPB that the consolidation of its deepwater Mayflower explorationlicence (EL 2406) and its shallow water Mariner exploration licence (EL 2409)had been approved by the Government of Canada and the Province of Nova Scotia.The consolidation will come into effect upon the drilling of the next Marinerexploration well (if spudded in 2007) and will allow the work commitments andrelated work commitment deposits for these two exploration licences (EL 2406and EL 2409) to be combined, allowing the existing work deposit for theMayflower exploration licence (approximately $10 million) to be applieddirectly against the costs of drilling Canadian Superior’s next Mariner well.In effect, this provides Canadian Superior with $10 million of additionalcapital to be applied to drilling the next Mariner well.

OnNovember 2, 2005, the Corporation announced the appointment ofMichael (Mike) E. Coolen, Halifax, Nova Scotia and Kaare (Kory) Idland, RedDeer, Alberta to the board of directors of the Corporation.

OnSeptember 6, 2005, the Corporation and its insurers reached anagreement to settle all securities class action litigation and other actionspending in Canada against the Corporation and certain of its officers anddirectors resulting from the drilling in 2004 of the Mariner 1-85exploration well drilled offshore Nova Scotia. The $2.15 million settlement,which was covered by the Corporation’s insurance, was reached with no admissionof liability by any party. See “Legal Proceedings”.

OnJuly 21, 2005, the Corporation announced that it had entered into aproduction sharing contract with the Government of Trinidad and Tobago foroffshore exploration and production on offshore Block 5(c), locatedapproximately 90 km off the east coast of Trinidad in the Columbus Basin. Theproduction sharing contract provides Canadian Superior the right to explore onBlock 5(c), which covers 80,041 gross acres.

OnJuly 12, 2005, the Corporation closed a private placement of 5.5million special warrants at a price of $2.00 per special warrant for grossproceeds of $11.0 million.

OnJune 8, 2005, the Corporation announced that it and its insurersreached an agreement to settle all securities class action litigation and otheractions pending in the United States against the Corporation and certain of itsofficers and directors resulting from the drilling of the Canadian Superior ElPaso Mariner 1-85 exploration well drilled with El Paso Corporation inoffshore Nova Scotia. The US$3.2 million settlement, covered by the Corporation’sinsurance, was reached with no admission of liability by any party. See “LegalProceedings”.

OnFebruary 16, 2005, Canadian Superior announced that the Toronto StockExchange had completed its review of the Corporation and had determined that ithad met the Toronto Stock Exchange’s continued listing requirements.

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On February 1, 2005,the Corporation announced that its first Windfall area exploration well hadbeen successfully drilled. The well drilled at 14-33-60-14W5M (W.I. 40%) was AOF’d at 1,300 Mcf/d and had an estimated stabilized rate of750 Mcf/d at the time.

On December 30, 2004,Canadian Superior closed a private placement consisting of 1,377,000 CommonShares issued on a “flow-through” basis at a price of $2.50 per share,for gross proceeds of $3,442,500.

OnDecember 6, 2004, the Corporation announced that the Toronto StockExchange was reviewing whether Canadian Superior continued to meet requirementsfor listing on the Toronto Stock Exchange.

OnNovember 30, 2004, Canadian Superior announced that it andGlobalSantaFe had entered into an agreement for GlobalSantaFe to drill CanadianSuperior’s next Mariner project exploration well, offshore Nova Scotia, Canadaand Canadian Superior’s first Intrepid exploration well offshore Trinidad andTobago, subject to regulatory and governmental approvals. GlobalSantaFe’s harshenvironment jackup drilling rig, the Galaxy II, which had been working nearCanadian Superior’s Mariner Block in the Sable Island area, offshore NovaScotia, Canada was selected and awarded the contract to drill the next Marinerwell. In addition, GlobalSantaFe’s semi-submersible drilling rig, theArctic I, which had been working in Venezuelan waters south of CanadianSuperior’s Trinidad Intrepid Block 5(c), was selected and awarded the contractto drill Canadian Superior’s first offshore well on its Intrepid Block 5(c) offthe east coast of Trinidad.

OnNovember 12, 2004, Mr. Alex Squires joined the Board of Directors ofCanadian Superior and on November 5, 2004, Mr. Ross A. Jones joined CanadianSuperior as Chief Financial Officer.

OnNovember 1, 2004, the Corporation announced that in addition to thefive wells that were drilled in the second quarter of 2004, nine wells weredrilled in the third quarter, with eight out of the nine wells beingsuccessful. Six were successful gas wells and two were successful oil wells.One of the producing gas wells was dually completed for conventional gas andfor coal bed methane. Of the nine wells, eight are 100% working interest wellsthat are operated by Canadian Superior.

OnOctober 12, 2004, Canadian Superior announced that it had determinedto proceed with its Mariner Project offshore Nova Scotia, near Sable Island.

OnOctober 6, 2004, Mr. Gregory Noval, President and Chief ExecutiveOfficer of Canadian Superior, reassumed the role of Chief Operating Officer.Mr. Harvey R. Klingensmith, who previously served as Chief Operating Officer,resigned effective October 6, 2004.

OnSeptember 21, 2004, the Corporation announced that an independentpetrophysical evaluation of the Canadian Superior El Paso Mariner 1-85exploration well was completed to analyze the well for hydrocarbon potential.In the independent assessment, 24.6 m (80.7 feet) of net pay had been assignedto the Canadian Superior El Paso Mariner 1-85 well from the well loganalysis.

OnSeptember 15, 2004, the Corporation announced that it had acquired ElPaso’s offshore Nova Scotia exploration and production assets. The acquisitionwas undertaken by negotiation between Canadian Superior and El Paso and wasfacilitated by El Paso’s decision to exit the exploration and production inWestern Canada and Offshore Nova Scotia. The acquisition included El Paso’sinterests in the Marquis Blocks (EL 2401 & 2402), and in the Mariner Block(EL 2409) offshore Nova Scotia and in the Mariner 1-85 well. All of ElPaso’s seismic data, shared geophysical, geotechnical and environmental data,Marquis L-35/L-35A well data, Mariner 1-85 well data andrelated inventory and extensive tax pools were also acquired.

OnAugust 30, 2004, the Corporation announced that its offshore wellsitesurvey work, initiated earlier in August 2004, was successfully completed attwo new proposed Mariner Project drilling locations. The field work wascompleted on August 29, 2004 on the offshore Mariner Block (EL 2409)located in shallow water approximately 275 kilometres (170 miles) southeast ofHalifax, Nova Scotia, Canada.

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OnAugust 24, 2004, the Corporation announced that it received thenecessary geophysical and geological work authorization approval from theCNSOPB to commence additional wellsite survey activities on its Mariner block(EL 2409) located offshore, approximately 275 kilometres (170 miles) southeastof Halifax, Nova Scotia, Canada.

OnJune 9, 2004, the Corporation announced that it retained the lawfirms of Morrison & Foerster LLP of New York, NY and Borden Ladner GervaisLLP of Calgary, Alberta to represent the Corporation with respect to a numberof class action proceedings against the Corporation.

OnMay 27, 2004, the Corporation’s President & Chief ExecutiveOfficer, Mr. Gregory Noval, commenced an action against the National Post, itsowners and certain of its reporters for $75 million for damages relating toalleged misleading reporting on Canadian Superior’s Mariner well and certainclass action lawsuits.

OnMay 11, 2004, the Corporation announced that it had been informed bythe Trinidad and Tobago Ministry of Energy and Energy Industries that its bidfor Block 5(c) in the 2003/2004 Competitive Bid Round was successful. Block5(c) is an 80,041 acre Continental Shelf block with water depths in excess of150 meters (500 feet).

OnMarch 30, 2004, the Corporation announced that it had extended theexpiry date of its Common Share purchase warrants, issued in December 2003 andJanuary 2004, from March 31, 2004 to December 31, 2004. Theextension did not apply to any Common Share purchase warrants held by officers,directors and securityholders holding in excess of 10% of the issued andoutstanding securities of the Corporation or any of their respective associatesor affiliates.

OnMarch 17, 2004, the Corporation announced that it had been made awareof announcements by a number of United States law firms indicating that theyplanned to commence a class action lawsuit against the Corporation and a numberof its senior officers with respect to events surrounding the Canadian SuperiorEl Paso Mariner 1-85 exploration well, offshore Nova Scotia. See “LegalProceedings”.

OnMarch 11, 2004, the Corporation announced that although the Mariner 1-85exploration well had encountered gas pay in multiple zones as targeted, theCorporation had reluctantly agreed with El Paso, the operator of the test well,not to proceed with any further testing or completion operations on the well atthe time.

In December 2003 andJanuary 2004, Canadian Superior closed private placements of 7,400,180 specialwarrants at a price of $3.00 per special warrant and 142,857 “flow-through”special warrants at a price of $3.50 per “flow-through” special warrantfor total gross proceeds of $22,700,540.

**DESCRIPTION OF THE BUSINESS AND PRINCIPALPROPERTIES**

Canadian Superior isengaged in the exploration for, and the development and production of, crudeoil and natural gas primarily in western Canada and offshore Nova Scotia,Canada and Trinidad and Tobago. The Corporation also reviews potentialacquisitions and new international exploration blocks to supplement itsexploration and development activities.

**Oil and Gas Properties**

A summary description ofthe Corporation’s major producing and exploration properties is set out below.References to gross volumes refer to total production. References to netvolumes refer to the Corporation’s working interest share before the deductionof royalties payable to others.

***Trinidad andTobago***

On July 20, 2005,Canadian Superior signed a PSC for the 80,020 acre “Intrepid” Block 5(c),offshore Trinidad and Tobago, with the Government of the Republic of Trinidadand Tobago.  The PSC provides CanadianSuperior the right to explore on “Intrepid” Block 5(c).  This block has been named “Intrepid”, the code name of a famous Canadian spy duringWorld War II, and some historians have argued he was one of the most importantfactors in the Allies winning the war. The famous Canadian spy’s name was (Sir)William Stephenson. The name “Intrepid” in

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Webster’sDictionary is also defined as “outstandingly courageous” or “fearless” and thishas been our strategy in acquiring and working towards early development ofthis Block.

The “Intrepid” Block 5(c)is located approximately 96 kilometers (60 miles) off the east coast of theisland of Trinidad with water depths in the range of 150m to 450m (500 to 1,500feet).  It is anticipated that all wellsin Block 5(c) will be drilled from a semi-submersible drilling rig, withthe first three wells being drilled in water depths of about 260 — 320 m (850 —1,050 feet). During 2005 and 2006, the Corporation actively pursued various rigoptions for the “Intrepid” drilling and has entered into a firm multi-welldrilling contract for the Kan Tan IV Semi-Submersible Drilling Rig to drill thefirst three exploration wells.

Thethree “Intrepid” wells will evaluate three large separate potential hydrocarbonbearing structures that have been delineated by extensive 3D seismic over theentire “Intrepid” Block 5(c) that Canadian Superior has evaluated andinterpreted, with the first well to commence drilling shortly after theKan Tan IV has completed a scheduled refurbishment currently being completed inBrownsville, Texas.  The first well onthe “Intrepid” Block 5(c) is expected to be on the “Victory” Prospect, namedafter Admiral Lord Nelson’s Flagship the H.M.S. Victory; followed by drillingon the “Bounty” and “Endeavour” prospects. Each of these prospects has been named after a famous British sailingship, the “H.M.S. Victory”, the “H.M.S. Bounty” and the “H.M.S. Endeavour”.

Trinidad and Tobago has awell-educated labour force, good transportation and communication links, astrong legal system, a well entrenched stable democratic system of government,a soundly-regulated financial system and a very successful and growing oil andgas industry that accounts for approximately 50% of total government revenue.As many as 18 of British Petroleum’s (BP’s) top 25 producing wells world-wideare located in Trinidad, including BP’s Cannonball Development Wells. Also,offsetting Canadian Superior’s “Intrepid” Block 5(c) to the west is British Gas’s(BG) Dolphin and Dolphin Deep Developments, both fields on trend with our ‘Intrepid’Block 5(c) in the ‘dip’ direction (SW-NE). The same holds true in the ‘strike’direction (NW-SE), with BP’s Manakin and Statoil’s Cocuina fields on trend tothe southeast of our ‘Intrepid’ Block 5(c) and EOG Resources, Inc.’s 2006discovery to the northwest, again directly on trend in the ‘strike’ direction.

Once the retrofit of theKan Tan IV drilling rig is completed and the rig is tested, it will be towed tothe port of Chaguaramas in Trinidad to load up supplies and finalize drillingpreparations, and then the rig will be moved directly to the first drillinglocation, ‘Victory-1’. Each of these Block 5(c) offshore exploration wells, “Victory”,“Bounty” and “Endeavour” will be High Pressure (“HP”) wells and each will bedrilled to a depth in the order of 5,000+ m (16,400+ feet) and each iscurrently expected to take between 80 - 100 days to drill and evaluate. Thisthree well drilling program will take approximately 240 to 300 days tocomplete, with the results of the first well expected to be known after about80 - 100 days into the drilling program.

To assist CanadianSuperior in going forward with its drilling in Trinidad, the Corporation hasentered into a participation agreement with a non-competitive industryfinancial partner.  The partner willparticipate on a promoted basis paying 1/3 of Canadian Superior’s Block 5(c)exploration program costs to obtain 25% of Canadian Superior’s revenue share ofthese prospects.

Throughout 2006, CanadianSuperior has been very active interpreting the extensive 3D seismic datacoverage over Block 5(c) and the adjacent fields. This has included detailedreprocessing of the 3D seismic data over Block 5(c) and several majoroffsetting natural gas fields. To assist in both the geological activities andongoing well engineering, Canadian Superior has obtained from MEEI extensiveoffsetting well technical data in the area and in combination with our detailedseismic interpretation we have been able to identify several drillinglocations, three of which will be drilled as outlined above. Canadian Superiorhas also finished the geohazard surveys for two of the drilling sites.  In addition to the various geological andgeophysical analysis, evaluations and interpretation, in 2006, many other wellconstruction preparatory activities were undertaken in the areas of engineering,procurement, health, safety and environmental management, community relations,regulatory approvals and corporate oversight of the Kan Tan IV’s refurbishmentproject.  This has included thepurchasing of pipe, wellheads and long lead items to facilitate the drilling ofthe first two wells, in addition to making an advance payment of US$20 millionto the rig owners to be applied against drilling day rate charges.

In addition, CanadianSuperior has recruited additional key personnel to add to its Trinidad andTobago well construction team, which is lead by Mr. Roger De Freitas, aTrinidadian national and Canadian Superior’s Country

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Manager (Trinidad andTobago).  Mr. De Freitas is a former VicePresident with Santa Fe Drilling Co., now GlobalSantaFe and has been involvedin the oil and gas offshore drilling business for over 30 years, holdingseveral other senior management positions throughout the world, including workin Trinidad early in his oilfield career. These new personnel have included an engineering manager, a drillingsuperintendent, four offshore drilling supervisors, an HSE manager, shore basepersonnel and various supply chain and administrative staff.  Furthermore, the Trinidad and Tobago wellconstruction team continues to be ably supported by our experienced drillingteam personnel in Halifax, Nova Scotia and in our Calgary, Alberta head office.

Canadian Superior hasalso participated in the most recent offshore bid round, tendering with theGovernment of Trinidad and Tobago a PSC bid proposal for Block 2(ab). Block 2(ab) is located on the East Coastcontinental shelf, offshore Trinidad, and extends from the Manzanilla andMatura coast to water depths of about 160 m. It comprises an area of 216,372acres.  A thorough evaluation of data,including the Block 2(ab) data package acquired from the MEEI, has resulted inthe identification of several major structural features on the block. Theseseismically mapped structures represent potential prospects of Cretaceousand/or Early Oligocene (Angostura sand) age reservoirs.  As of the date hereof, the Corporation andother bidders in the bid round await the results of the bidding.

The Corporation has alsocontinued to prepare for the first phase of operations on itsMayaro/Guayaguayare (M/G) “Tradewinds” project, a joint venture with Petrotrin.  This joint venture encompasses securing twonear-shore Blocks (58,080 gross acres) off the east coast of Trinidad wheremanagement hopes to establish significant oil reserves in the heart of a knownproducing hydrocarbons-bearing structural trend. For the M/G Block Land, the Corporation is working on the design of aseismic program to evaluate the near-shore block and is planning this programto be shot in late 2007 / early 2008 where we intend to drill 2 offshore wells.

As a result of finalizingthe “Intrepid” Block 5(c) acquisition and our ongoing Mayaro/Guayaguayare (M/G)“Tradewinds” Joint Venture with Petrotrin, Canadian Superior plans to drill atleast five new offshore wells over the next 36 months off the east coast ofTrinidad.

***Offshore NovaScotia, Canada***

Canadian Superior is oneof the few operators involved in all three main play types in the offshore NovaScotia basin where the Corporation has evolved as the company holding thelargest exploration acreage position with 100% interests in seven explorationlicences totalling 2.59 million net acres, which includes the addition of theEL2412 and EL2413 shelf blocks. These two blocks have been named the “Osprey”and “Falcon” Blocks and complement Canadian Superior’s “Mayflower” (EL2406), “Marauder”(EL2415), “Marconi” (EL2416), “Mariner” (EL2409) and “Marquis” (EL2402)exploration blocks. Four of these licences, “Marquis”, “Mariner”, Marauder” and“Marconi”, are in the Sable Island area which is an area of natural gas supplythat is very important and strategic for the North Eastern United States gassupply.

Canadian Superior’s “Mariner”shallow water block (EL2409) covers 100,656 acres and is located approximatelynine kilometres northeast of Sable Island, offshore Nova Scotia and directly offsetsfive significant discoveries near Sable Island, including the ExxonMobilVenture natural gas production field and other nearby Sable Offshore EnergyProject existing production infrastructure. Three large Cretaceous structures have been identified for drilling onthe “Mariner” block based on an evaluation of seismic data.  The first exploration well, Canadian SuperiorEl Paso “Mariner” I-85, was drilled on this block in November 2003 to March2004 and encountered gas pay in multiple zones. Two new prospective locations have been identified and further drillingis planned by Canadian Superior on the “Mariner” Block for late 2007 / early2008. Front end geological and geophysicalanalysis are complete and environmental approvals are in place.

CanadianSuperior’s “Mayflower” deepwater project exploration licence (EL2406) coversapproximately 711,662 acres and mapping to date indicates the presence ofseveral sizeable deepwater prospects. These large prospects are structural andare typically formed by mobile salt tectonics. We are planning to proceed indue course with a high resolution seismic program over the “Mayflower” block tofurther define targeted structures to enable future drilling.

The Corporation’s “Marquis”block (EL2402) comprises 51,339 acres approximately 20 kilometres (12.5 miles)northwest of Sable Island and is directly on trend with the EnCana Deep PanukeAbenaki Reef discoveries and proposed development project, which isapproximately 25 kilometres (15.6 miles) southwest. The “Marquis”

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Prospect is in shallowwater depths (less than 100 metres) and is in close proximity to existingpipeline infrastructure. Canadian Superior’s “Marquis” L-35/L-35A test well wasdrilled from July 2002 – September 2002 and was abandoned after having encounteredporosity and Abenaki reef reservoir.

CanadianSuperior has identified several other large Cretaceous and Jurassic prospectson its 100% “Marauder” and 100% “Marconi” exploration lands which cover anadditional 370,890 acres offshore Nova Scotia, offsetting the Sable Islandarea. The “Marauder” lands directly offsets three significant discoverylicences and have several seismically defined prospects, two of which lie ontrend with significant discoveries near existing production infrastructure. The“Marconi” licence has a seismically defined tilted fault / anticlinal prospectsimilar to other Sable area fields.

The “Osprey” and “Falcon”blocks (EL2412 & EL2413) mentioned above are adjacent to each other on thedeeper part of the Scotian Shelf, offshore Nova Scotia, and comprise 1,355,927acres.  These lands were acquired at theend of 2006 and demonstrate Cretaceous and Jurassic play types.

***Western Canada***

The Corporation continuedits successful Western Canada exploration and development program in 2006 whereit focused its drilling activity in its core Drumheller area and also completeda major 3D seismic acquisition program in the Boundary Lake area.  Currently, the Corporation derives all of itsproduction and cash flow from Western Canada, with approximately 90% of theCorporation’s production coming from the Drumheller area, where the Corporationremains focused on continued growth through the “drill-bit”. In addition, theCorporation has placed a more emphasized focus on the Boundary Lake area and surroundingproperties such as Giroux Lake.

During 2006, theCorporation drilled or participated in 58 gross (28.6 net) wells which included25 gross (20.7 net) operated wells and 33 gross (7.9 net) non-operated wellswith an overall success rate of 95%. In addition, the land picture for CanadianSuperior continues to remain steady as the Corporation drills and makesstrategic land sale acquisitions. At December 31, 2006, the Corporation held267,639 gross acres (182,923 net acres) of predominately Canadian Superioroperated lands with a high working interest of approximately 70%.

In 2007, the Corporationplans on drilling 18 to 22 conventional deep wells and 8 to 12 conventional andCBM shallow wells, as well as participating in 15 to 30 non-operated CBM wellsin Drumheller. Drumheller is a low cost area with year-round access and we havean extensive portfolio of multiple-zone locations identified by 2D and 3Dseismic for drilling on our existing acreage.

Drumheller Area

In the Drumheller area ofcentral Alberta, Canada, located approximately 100 kilometres northeast of thecity of Calgary, the Corporation has major acreage and production holdings inboth conventional Cretaceous plays and in the Horseshoe Canyon and MannvilleCoal Bed Methane (“CBM”) plays; an area which has shallow low cost prospectsand year round accessibility. The corporation holds 174,003 gross acres(112,902 net acres) of land in this area, with 39% of this still to bedeveloped. This core area accounts for approximately 90% of Canadian Superior’sproduction. In 2006, 55 gross (26.9 net) wells were drilled in the Drumhellerarea consisting of 24 gross (18.8 net) conventional wells and 31 gross (8.1net) Horseshoe Canyon CBM wells. The Corporation acquired or purchased 56square km of 3-D seismic, which is critical in continuing the success thatCanadian Superior has achieved in 2006. Ongoing drilling success in this area,which runs over 95% for the Corporation, is attributed to the marriage of asound geological understanding and the implementation of 3D seismic technology.

Conventional Plays

The Drumheller areaoffers a multitude of opportunities that include both oil and gas plays arecontained in six distinct stratigraphic zones. The shallow targets include theSecond White Specks, Medicine Hat, Belly River Group, and Edmonton Groups andrange in depth from 300-1100 meters (980 - 3600 feet).  Deeper targets in the Drumheller area includethe Mannville group and the Banff formation. The Mannville group typicallyencounters

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several stackedreservoirs such as the Colony, Glauconitic, Ostracod, Ellerslie, andDetrital.  The Banff formation is acarbonate play which ranges in depth from 1100 - 1400 meters (3600 - 4600 feet)and tend to be oil prone.

Coal Bed Methane

Coal bed methane hasrecently been recognized as one of the emerging plays available to the oil andgas industry in Canada, which continues to add proven and proven plus probablereserves to the Corporation. The Drumheller area is near the heart of recentCBM development in Western Canada and Canadian Superior is fortunate to haveone of the largest concentrated high working interest land positions withsignificant land holdings in both the Horseshoe Canyon and the Mannvillestratigraphic zones.

In 2006, CanadianSuperior continued with the development of its Horseshoe Canyon CBM land baseby participating in 29 gross (7.1 net) non-operated wells, as well as drilling2 gross (1 net) operated CBM wells.  Aswith all new plays, the development strategy continues to evolve with the moreinformation gained in order to save capital and increase the amount of reservesavailable per well bore. One of these changes has been the commingling of theHorseshoe Canyon CBM with the Edmonton Sands. Initial data is suggesting thatcompleting both the Horseshoe Canyon and the Edmonton Sands together will bothincrease the flow rate and reserves per well. The successful results to dateachieved by Canadian Superior and its partners on a small portion of CanadianSuperior’s non-operated lands will be utilized by the Corporation to provide afoundation for development and operating drilling on its other CBM prospectswithin the Corporation’s core Drumheller producing area.

The Corporation’s totalacreage for CBM is 185 gross (108 net) sectionsof which 14 gross (13.4 net) sectionshave both Horseshoe Canyon and Mannville CBM potential. Canadian Superior holds157 gross (81 net) sections ofHorseshoe Canyon rights. The Horseshoe Canyon Coal depths range from 200 - 400meters (650 - 1300 feet) and are typically found in 8 - 10 coal seams with eachseam averaging from 0.75 - 1.5 meters (2.5 - 5 feet). These coals contain drygas and produce little or no water.

An untapped resource thatexists in the Drumheller area is the Mannville coals. These coals are between1000 - 1300 meters (3300 - 4300 feet) in depth with each seam being thicker (upto 4 meters) but less frequent (1 - 5 seams) than the Horseshoe Canyon.  Currently the Corporation has 42 gross (41net) sections of land in theMannville CBM fairway. Drilling for these coals would include horizontaldrilling techniques. Plans for development of Mannville CBM by CanadianSuperior will be measured until the reserve and production parameters arebetter defined.

Windfall/PineCreek/Giroux Lake

Canadian Superior drilledone well in 2006 and drilled and cased a second well in the Windfall area in2007.  This successful well is being tiedin and will prove up two or three possible additional locations for later in2007. The Corporation also shot a 2D seismic program in the Giroux Lake areaand plans to farm out and participate in drilling one location. The Corporationcontinues to look at this higher reward-medium risk area with a view towardsfurther expansion, using its current land base as a nucleus.

Boundary Lake/Cecil/Teepee

The Boundary Lake /Teepee area is a high reward-medium risk area that continues to gain momentumfor exploration activity for Canadian Superior and was a major focus area forCanadian Superior in 2006 and into 2007 with its multi-zone potential and yearround access. The Corporation purchased 5,440 net acres of additional lands andalso shot 109 square km of 3D seismic data in 2006. The Corporation drilled onewell in the East Boundary area in the early part of the third quarter of 2006.  It was a significant gas discovery, with a70% working interest, and tested at a rate of 3.8 mmscf/d sweet natural gas, 15bbl/mmcf condensate at a tubing pressure of 800 psi for a combined rate of 690boe/d and is currently producing at just below 1mmcfpd.  Another well has also been drilled andcompleted as an oil well. The Corporation also has several follow-up locations,as well as new geological targets for the up coming year.  Currently the Corporation is surveying fivelocations for 2nd and 3rd quarter 2007 drills and two of the wells willbe for deeper targets.  The drillingdepth for the area ranges from 1000 to 2300m. The Corporation has also beenactive in accumulating more land in the general vicinity and continues to buildits land base in this emerging area.

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The Foothills of Alberta,west of the 5th Meridian

Canadian Superior is alsofocusing its exploration in Western Canada towards the foothills of Alberta,Canada. This area represents an area of high risk-high reward exploration andproduction with year round access.  Landstrategies for this area include crown sales, leasing of freehold acreage andpotential farm-ins or joint ventures.

**STATEMENT OF RESERVES DATA ANDOTHER OIL AND GAS INFORMATION**

**General**

The reserve disclosurepresented below conforms with the requirements of NI 51-101. Additionalinformation not required by NI 51-101 has been presented to providecontinuity and additional information which management of the Corporationbelieves is important to the readers of this information. Boe may bemisleading, particularly if used in isolation. A boe conversion ratio of 6Mcf:l bbl is based on an energy equivalency conversion method primarilyapplicable at the burner tip and does not represent a value equivalency at thewellhead.

All of the Corporation’sreserves are in Canada, more specifically in the provinces of British Columbia,Alberta and Saskatchewan.

***Selected ReservesInformation***

The following tables setforth certain information relating to the oil and natural gas reserves of theCorporation’s properties and the present value of the estimated future net cashflow associated with such reserves as at December 31, 2006. Theinformation set forth below is derived from the GLJ Report prepared by GLJevaluating the Corporation’s proved and proved plus probable reserves. Theeffective date of the GLJ Report is December 31, 2006. The GLJ Reporthas been prepared in accordance with the standards contained in the COGEHandbook and the reserves definitions contained in NI 51-101 and the COGEHandbook. All evaluations and reviews of future net cash flow are stated priorto any provision for interest costs or general and administrative costs andafter the deduction of estimated future capital expenditures for wells to whichreserves have been assigned. It should not be assumed that the estimated futurenet cash flow shown below is representative of the fair market value of theCorporation’s properties. There is no assurance that such price and costassumptions will be attained and variances could be material. The recovery andreserve estimates of crude oil, NGLs and natural gas reserves provided hereinare estimates only and there is no guarantee that the estimated reserves willbe recovered. Actual crude oil, NGLs and natural gas reserves may be greater orless than the estimates provided herein.

The Corporation has aReserves Committee consisting of Messrs Greg Noval, Karre Idland and Thomas J.Harp, which reviews the qualifications and appointment of the independentqualified reserves evaluators. The Reserves Committee also reviews theprocedures for providing information to the evaluators. All booked reserves arebased upon annual evaluation and review by the independent qualified reservesevaluators.

In accordance with therequirements of NI 51-101, the Report on Reserves Data by IndependentQualified Reserves Evaluator in Form 51-101F2 and the Report ofManagement and Directors on Oil and Gas Disclosure in Form 51-101F3 areattached as Appendices “A” and “B” hereto, respectively.

**Reserves Data - Constant Prices and Costs**

The following table setsforth a summary of reserves and values of the Corporation using constantpricing and costs.

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***Summary of Oil andGas Reserves: Effective December 31, 2006***
|                                   | ** ** | **Gross Reserves**                    | ** ** | **Net Reserves**     | ** ** |
|-----------------------------------|------------|--------------------------------------------|------------|---------------------------|------------|
| ** **                        | ** ** | **Light and  Medium  Crude Oil** | ** ** | **Natural  Gas  Liquids** | ** ** | **Natural  Gas** | ** ** | **Light and  Medium  Crude Oil** | ** ** | **Liquids** | ** ** | **Natural  Gas** | ** ** |
| ** **                        | ** ** | **Mbbls**                                  | ** ** | **Mbbls**                 | ** ** | **Mmcf** | ** ** | **Mbbls** | ** ** | **Mbbls** | ** ** | **Mmcf** | ** ** |
| **Proved**                        |       |                                       |       |                      |       |   |   |   |   |   |   |   |   |
| Developed  Producing              |       | 819                                        |       | 192                       |       | 19,660 |   | 755 |   | 130 |   | 16,212 |   |
| Developed  Non-Producing          |       | 17                                         |       | 13                        |       | 1,461 |   | 16 |   | 9 |   | 1,162 |   |
| Undeveloped                       |       | —                                     |       | 3                         |       | 3,403 |   | — |   | 2 |   | 3,038 |   |
| **Total Proved**                  |       | 836                                        |       | 208                       |       | 24,525 |   | 772 |   | 141 |   | 20,412 |   |
| **Total Probable**                |       | 654                                        |       | 110                       |       | 12,987 |   | 585 |   | 75 |   | 10,702 |   |
| **Total Proved plus Probable(1)** |       | 1,489                                      |       | 318                       |       | 37,512 |   | 1,356 |   | 216 |   | 31,114 |   |

 

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Notes:

(1)                                  Some totals may differ slightly due torounding.

***Net Present Valueof Future Net Revenue of Oil and Gas Reserves***
|                                | ** ** | **Before Future Income Tax Expenses and  Discounted at** | ** ** | **After Future Income Tax Expenses and  Discounted at** | ** ** |
|--------------------------------|------------|----------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------|------------|
| ** **                     | ** ** | **0%**                                                                                 | ** ** | **10%**                                                                               | ** ** | **0%** | ** ** | **10%** | ** ** |
| ** **                     | ** ** | **(M$)**                                                                               | ** ** | **(M$)**                                                                              | ** ** | **(M$)** | ** ** | **(M$)** | ** ** |
| **Proved**                     |       |                                                                                   |       |                                                                                  |       |   |   |   |   |
| Developed  Producing           |       | 102,190                                                                                |       | 76,900                                                                                |       | 102,190 |   | 76,900 |   |
| Developed  Non-Producing       |       | 2,527                                                                                  |       | 1,888                                                                                 |       | 2,527 |   | 1,888 |   |
| Undeveloped                    |       | 5,714                                                                                  |       | 2,129                                                                                 |       | 5,714 |   | 2,129 |   |
| **Total Proved**               |       | 110,430                                                                                |       | 80,917                                                                                |       | 110,430 |   | 80,917 |   |
| **Total Probable**             |       | 58,264                                                                                 |       | 28,558                                                                                |       | 55,316 |   | 26,990 |   |
| **Total Proved plus Probable** |       | 168,694                                                                                |       | 109,475                                                                               |       | 165,746 |   | 107,907 |   |

 

***Additional InformationConcerning Future Net Revenue - (Undiscounted)***
|                            | ** ** | **Revenue** | ** ** | **Royalties(1)** | ** ** | **Operating  Costs** | ** ** | **Development  Costs** | ** ** | **Abandonment  and  Reclamation  Costs** | ** ** | **Future Net  Revenue  Before  Income  Taxes** | ** ** | **Future  Income  Tax  Expenses** | ** ** | **Future  Net  Revenue  After  Income  Taxes** | ** ** |
|----------------------------|------------|-------------|------------|------------------|------------|----------------------|------------|------------------------|------------|------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------|------------|------------------------------------------------|------------|
| ** **                 | ** ** | **(M$)**    | ** ** | **(M$)**         | ** ** | **(M$)**             | ** ** | **(M$)**               | ** ** | **(M$)**                                 | ** ** | **(M$)**                                            | ** ** | **(M$)**                          | ** ** | **(M$)**                                       | ** ** |
|                       |       |        |       |             |       |                 |       |                   |       |                                     |       |                                                |       |                              |       |                                           |       |
| Total Proved Reserves      |       | 213,817     |       | 28,262           |       | 59,857               |       | 9,974                  |       | 5,294                                    |       | 110,430                                             |       |                              |       | 110,430                                        |       |
| Total Proved Plus Probable |       | 339,128     |       | 46,090           |       | 95,545               |       | 19,744                 |       | 6,055                                    |       | 168,694                                             |       | 2,948                             |       | 165,746                                        |       |

 

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***Future net Revenueby Production Group***
|                                                 | ** ** | **Future Net Revenue Before  Income Taxes and  Discounted at 10%(3)** | ** ** |
|-------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|------------|
| ** **                                      | ** ** | **(M$)**                                                                                                 | ** ** |
| **Proved**                                      |       |                                                                                                     |       |
| Light and Medium Crude Oil(1)                   |       | 27,293                                                                                                   |       |
| Natural Gas(2)                                  |       | 49,010                                                                                                   |       |
| Non Conventional Oil & Gas Activities (CBM) |       | 4,614                                                                                                    |       |
| Total                                           |       | 80,917                                                                                                   |       |
| **Proved  plus Probable**                       |       |                                                                                                     |       |
| Light and Medium Crude Oil(1)                   |       | 37,371                                                                                                   |       |
| Natural Gas(2)                                  |       | 64,592                                                                                                   |       |
| Non Conventional Oil & Gas Activities (CBM) |       | 7,511                                                                                                    |       |
| Total                                           |       | 109,475                                                                                                  |       |

 

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Notes:

(1)                                  Including solution gas and other by-products.

(2)                                  Including by-products but excludingsolution gas.

(3)                                  Other company revenue and cost notrelated to a specific production group have been allocated proportionately toproduction groups.

**Reserves Data – Forecast Prices and Costs**

The followingtable sets forth a summary of reserves and values using forecast pricing andcosts:

***Summary of Oil andGas Reserves: Effective December 31, 2006***
|                                | ** ** | **Gross Reserves**                    | ** ** | **Net Reserves**     | ** ** |
|--------------------------------|------------|--------------------------------------------|------------|---------------------------|------------|
| ** **                     | ** ** | **Light and  Medium Crude  Oil** | ** ** | **Natural  Gas  Liquids** | ** ** | **Natural  Gas** | ** ** | **Light and  Medium Crude  Oil** | ** ** | **Natural Gas  Liquids** | ** ** | **Natural  Gas** | ** ** |
| ** **                     | ** ** | **Mbbls**                                  | ** ** | **Mbbls**                 | ** ** | **Mmcf** | ** ** | **Mbbls** | ** ** | **Mbbls** | ** ** | **Mmcf** | ** ** |
|                           |       |                                       |       |                      |       |   |   |   |   |   |   |   |   |
| **Proved**                     |       |                                       |       |                      |       |   |   |   |   |   |   |   |   |
| Developed Producing            |       | 818                                        |       | 19,918                    |       | 195 |   | 755 |   | 16,439 |   | 132 |   |
| Developed Non-Producing   |       | 17                                         |       | 1,542                     |       | 14 |   | 16 |   | 1,232 |   | 9 |   |
| Undeveloped                    |       | —                                     |       | 3,415                     |       | 3 |   | — |   | 3,046 |   | 2 |   |
| **Total  Proved**              |       | 835                                        |       | 24,875                    |       | 212 |   | 771 |   | 20,717 |   | 143 |   |
| **Total  Probable**            |       | 646                                        |       | 13,087                    |       | 111 |   | 578 |   | 10,794 |   | 76 |   |
| **Total Proved plus Probable** |       | 1,482                                      |       | 37,962                    |       | 323 |   | 1,349 |   | 31,511 |   | 220 |   |

 

17

----

***Net Present Valueof Future Net Revenue of Oil and Gas Reserves***
|                                | ** ** | **Before Future Income Tax Expenses and Discounted at** | ** ** |
|--------------------------------|------------|--------------------------------------------------------------------------------------------|------------|
| ** **                     | ** ** | **0%**                                                                                     | ** ** | **5%** | ** ** | **10%** | ** ** | **15%** | ** ** | **20%** | ** ** |
| ** **                     | ** ** | **(M$)**                                                                                   | ** ** | **(M$)** | ** ** | **(M$)** | ** ** | **(M$)** | ** ** | **(M$)** | ** ** |
| **Proved**                     |       |                                                                                       |       |   |   |   |   |   |   |   |   |
| Developed Producing            |       | 126,182                                                                                    |       | 106,089 |   | 92,392 |   | 82,366 |   | 74,661 |   |
| Developed Non-Producing        |       | 4,109                                                                                      |       | 3,490 |   | 3,016 |   | 2,645 |   | 2,350 |   |
| Undeveloped                    |       | 10,959                                                                                     |       | 7,758 |   | 5,484 |   | 3,817 |   | 2,564 |   |
| **Total  Proved**              |       | 141,249                                                                                    |       | 117,337 |   | 100,892 |   | 88,829 |   | 79,575 |   |
| **Total  Probable**            |       | 78,698                                                                                     |       | 52,781 |   | 37,903 |   | 28,511 |   | 22,175 |   |
| **Total Proved plus Probable** |       | 219,947                                                                                    |       | 170,118 |   | 138,796 |   | 117,340 |   | 101,751 |   |

 
|                                | ** ** | **After Future Income Tax Expenses and Discounted at** | ** ** |
|--------------------------------|------------|-------------------------------------------------------------------------------------------|------------|
| ** **                     | ** ** | **0%**                                                                                    | ** ** | **5%** | ** ** | **10%** | ** ** | **15%** | ** ** | **20%** | ** ** |
| ** **                     | ** ** | **(M$)**                                                                                  | ** ** | **(M$)** | ** ** | **(M$)** | ** ** | **(M$)** | ** ** | **(M$)** | ** ** |
| **Proved**                     |       |                                                                                      |       |   |   |   |   |   |   |   |   |
| Developed Producing            |       | 126,182                                                                                   |       | 106,089 |   | 92,392 |   | 82,366 |   | 74,661 |   |
| Developed Non-Producing        |       | 4,109                                                                                     |       | 3,490 |   | 3,016 |   | 2,645 |   | 2,350 |   |
| Undeveloped                    |       | 10,959                                                                                    |       | 7,758 |   | 5,484 |   | 3,817 |   | 2,564 |   |
| **Total  Proved**              |       | 141,249                                                                                   |       | 117,337 |   | 100,892 |   | 88,829 |   | 79,575 |   |
| **Total  Probable**            |       | 62,485                                                                                    |       | 40,923 |   | 28,889 |   | 21,444 |   | 16,495 |   |
| **Total Proved plus Probable** |       | 203,734                                                                                   |       | 158,260 |   | 129,781 |   | 110,273 |   | 96,070 |   |

 

***AdditionalInformation Concerning Future Net Revenue - (Undiscounted)***
|                                | ** ** | **Revenue** | ** ** | **Royalties(1)** | ** ** | **Operating  Costs** | ** ** | **Development  Costs** | ** ** | **Abandonment  and  Reclamation  Costs** | ** ** | **Future Net  Revenue  Before  Income  Taxes** | ** ** | **Future  Income  Tax  Expenses** | ** ** | **Future Net  Revenue  After  Income  Taxes** | ** ** |
|--------------------------------|------------|-------------|------------|------------------|------------|----------------------|------------|------------------------|------------|------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------|------------|----------------------------------------------------|------------|
| ** **                     | ** ** | **(M$)**    | ** ** | **(M$)**         | ** ** | **(M$)**             | ** ** | **(M$)**               | ** ** | **(M$)**                                 | ** ** | **(M$)**                                            | ** ** | **(M$)**                          | ** ** | **(M$)**                                           | ** ** |
|                           |       |        |       |             |       |                 |       |                   |       |                                     |       |                                                |       |                              |       |                                               |       |
| **Total  Proved Reserves**     |       | 262,525     |       | 35,815           |       | 69,163               |       | 10,035                 |       | 6,263                                    |       | 141,249                                             |       | ·                            |       | 141,249                                            |       |
| **Total Proved plus Probable** |       | 424,835     |       | 59,445           |       | 117,829              |       | 19,901                 |       | 7,715                                    |       | 219,947                                             |       | 16,213                            |       | 203,734                                            |       |

 

***Future net Revenueby Production Group***
|                                                 | ** ** | **Future Net Revenue Before  Income Taxes and  Discounted at 10%(3)** | ** ** |
|-------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|------------|
| ** **                                      | ** ** | **(M$)**                                                                                                 | ** ** |
| **Proved**                                      |       |                                                                                                     |       |
| Light and Medium Crude Oil(1)                   |       | 26,881                                                                                                   |       |
| Natural Gas(2)                                  |       | 65,011                                                                                                   |       |
| Non Conventional Oil & Gas Activities (CBM) |       | 9,000                                                                                                    |       |
| Total                                           |       | 100,892                                                                                                  |       |
| **Proved  plus Probable**                       |       |                                                                                                     |       |
| Light and Medium Crude Oil(1)                   |       | 36,906                                                                                                   |       |
| Natural Gas(2)                                  |       | 86,639                                                                                                   |       |
| Non Conventional Oil & Gas Activities (CBM) |       | 15,251                                                                                                   |       |
| Total                                           |       | 138,796                                                                                                  |       |

 

----

Notes:

(1)                                  Including solution gas and otherby-products.

(2)                                  Including by-products but excludingsolution gas.

18

----

(3)                                  Other company revenue and cost notrelated to a specific production group have been allocated proportionately toproduction groups.

**Pricing Assumptions - Constant Prices and Costs**

GLJ employed thefollowing pricing, exchange rate and inflation rate assumptions as of December31, 2006 in estimating the Corporation’s reserves data using constant pricesand costs

**December 31, 2006 – ConstantPrices**

Crude Oil and Natural GasPrices

 
| ** **               | ** ** | ** **    | ** ** | ** **         | ** ** | ** **                                 | ** ** | ** **                                                           | ** ** | ** **                                                                               | ** ** | ** **                                                              | ** ** | ** **                                           | ** ** | ** **                                                                       | ** ** | **Alberta Natural Gas Liquids** | ** ** |
|--------------------------|------------|---------------|------------|--------------------|------------|--------------------------------------------|------------|----------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **               | ** ** | **Inflation** | ** ** | **Exchange  Rate** | ** ** | **WTI  @Cushing  Oklahoma  Then  Current** | ** ** | **Brent  Blend  Crude Oil  FOB  North Sea  Then  Current** | ** ** | **Light  Sweet  Crude Oil  (40 API,  0.3%S) at  Edmonton  Then  Current** | ** ** | **Bow  River  Crude  Stream  Quality at  Hardisty  Then  Current** | ** ** | **LLB  Crude Oil  at  Hardisty  Then  Current** | ** ** | **Medium  Crude Oil  (29 API,  2.0%S) at  Cromer  Then  Current** | ** ** | **Spec  Ethane**                               | ** ** | **Edmonton  Propane** | ** ** | **Edmonton  Butane** | ** ** | **Edmonton  Pentanes  Plus** | ** ** |
| **Year**                 | ** ** | **%**         | ** ** | **$US/$Cdn**       | ** ** | **$US/bbl**                                | ** ** | **$US/bbl**                                                          | ** ** | **$Cdn/bbl**                                                                             | ** ** | **$Cdn/bbl**                                                            | ** ** | **$Cdn/bbl**                                         | ** ** | **$Cdn/bbl**                                                                     | ** ** | **$Cdn/bbl**                                   | ** ** | **$Cdn/bbl** | ** ** | **$Cdn/bbl** | ** ** | **$Cdn/bbl** | ** ** |
|                     |       |          |       |               |       |                                       |       |                                                                 |       |                                                                                     |       |                                                                    |       |                                                 |       |                                                                             |       |                                           |       |   |   |   |   |   |   |
| 1999 average             |       | 1.7           |       | 0.673              |       | 19.29                                      |       | 17.81                                                                |       | 27.69                                                                                    |       | 23.84                                                                   |       | 22.14                                                |       | 25.42                                                                            |       | n/a                                            |       | 15.89 |   | 18.7 |   | 27.71 |   |
| 2000 average             |       | 2.7           |       | 0.673              |       | 30.22                                      |       | 28.35                                                                |       | 44.56                                                                                    |       | 35.25                                                                   |       | 32.61                                                |       | 39.91                                                                            |       | n/a                                            |       | 32.18 |   | 35.6 |   | 46.31 |   |
| 2001  average            |       | 2.6           |       | 0.646              |       | 25.97                                      |       | 24.37                                                                |       | 39.4                                                                                     |       | 27.7                                                                    |       | 23.48                                                |       | 31.56                                                                            |       | n/a                                            |       | 31.85 |   | 31.17 |   | 42.48 |   |
| 2002  average            |       | 2.2           |       | 0.637              |       | 26.08                                      |       | 24.99                                                                |       | 40.33                                                                                    |       | 31.83                                                                   |       | 30.6                                                 |       | 35.48                                                                            |       | n/a                                            |       | 21.39 |   | 27.08 |   | 40.73 |   |
| 2003  average            |       | 2.8           |       | 0.721              |       | 31.07                                      |       | 28.93                                                                |       | 43.66                                                                                    |       | 32.11                                                                   |       | 31.18                                                |       | 37.55                                                                            |       | n/a                                            |       | 32.14 |   | 34.36 |   | 44.23 |   |
| 2004  average            |       | 1.8           |       | 0.768              |       | 41.38                                      |       | 38.2                                                                 |       | 52.96                                                                                    |       | 36.86                                                                   |       | 35.64                                                |       | 45.75                                                                            |       | n/a                                            |       | 34.7 |   | 39.97 |   | 54.07 |   |
| 2005  average            |       | 2.2           |       | 0.825              |       | 56.58                                      |       | 55.12                                                                |       | 69.11                                                                                    |       | 44.97                                                                   |       | 43.15                                                |       | 56.62                                                                            |       | n/a                                            |       | 43.04 |   | 51.8 |   | 69.47 |   |
| 2006  average            |       | 2.1           |       | 0.882              |       | 66.08                                      |       | 66.08                                                                |       | 73.16                                                                                    |       | 51.85                                                                   |       | 50.41                                                |       | 62.24                                                                            |       | n/a                                            |       | 43.97 |   | 66.64 |   | 75.69 |   |
| **December 31,  2006**   | ** ** | **0.0**       | ** ** | **0.8581**         | **(1)**    | **60.85**                                  | **(2)**    | **58.50**                                                            | **(3)**    | **67.58**                                                                                | **(4)**    | **48.86**                                                               | **(5)**    | **47.62**                                            | **(6)**    | **59.47**                                                                        | **(7)**    | **20.43**                                      | ** ** | **43.25** | ** ** | **54.06** | ** ** | **71.55** | **(8)** |
| **Constant  Thereafter** | ** ** |

 

**Natural Gas and Sulphur PriceForecast**

**EffectiveJanuary 1, 2007**

** **
| **Year**                | ** ** | **NYMEX  Henry Hub  Then Current** | ** ** | **Midwest at  Chicago  Then  Current** | ** ** | **AECO-C  Spot Then  Current** | ** ** | **SpotPlant  Gate** | ** ** | **ARP  Plant  Gate** | ** ** | **Aggregator  Plant Gate** | ** ** | **Alliance  Plant Gate** | ** ** | **SaskEnergy  Plant Gate** | ** ** | **Sask Spot  Plant Gate** | ** ** | **Sumas Spot** | ** ** | **Westcoast  Stn. 2** | ** ** | **BC Spot  Plant  Gate** | ** ** | **Sulphur  Vancouver** | ** ** | **FOB  Alberta  Sulphur at  Plant Gate** | ** ** |
|-------------------------|------------|----------------------------------------------|------------|---------------------------------------------|------------|-------------------------------------|------------|---------------------|------------|----------------------|------------|---------------------------------|------------|-------------------------------|------------|---------------------------------|------------|-------------------------------------|------------|---------------------|------------|----------------------------|------------|-------------------------------|------------|------------------------|------------|----------------------------------------------------|------------|
| **(average)**           | ** ** | **$US/mmbtu**                                | ** ** | **$US/mmbtu**                               | ** ** | **$Cdn/mmbtu**                      | ** ** | **$Cdn/mmbtu**      | ** ** | **$mmbtu**           | ** ** | **$mmbtu**                      | ** ** | **$mmbtu**                    | ** ** | **$mmbtu**                      | ** ** | **$mmbtu**                          | ** ** | **$US/mmbtu**       | ** ** | **$mmbtu**                 | ** ** | **$mmbtu**                    | ** ** | **$US/LT**             | ** ** | **$Cdn/LT**                                        | ** ** |
| 1999                    |       | 2.27                                         |       | 2.33                                        |       | 2.92                                |       | 2.75                |       | 2.48                 |       | n/a                             |       | n/a                           |       | 2.83                            |       | 2.97                                |       | 2.15                |       | 2.90                       |       | 2.78                          |       | 33.74                  |       | 6.93                                               |       |
| 2000                    |       | 3.91                                         |       | 3.96                                        |       | 5.08                                |       | 4.92                |       | 4.50                 |       | 4.60                            |       | n/a                           |       | 4.79                            |       | 5.13                                |       | 4.17                |       | 5.00                       |       | 4.88                          |       | 38.14                  |       | 13.59                                              |       |
| 2001                    |       | 4.38                                         |       | 4.45                                        |       | 6.21                                |       | 6.07                |       | 5.41                 |       | 5.30                            |       | 5.61                          |       | 5.71                            |       | 6.13                                |       | 4.56                |       | 6.35                       |       | 6.29                          |       | 18.29                  |       | -14.66                                             |       |
| 2002                    |       | 3.25                                         |       | 3.25                                        |       | 4.04                                |       | 3.88                |       | 3.88                 |       | 3.83                            |       | 3.82                          |       | 4.04                            |       | 4.08                                |       | 2.68                |       | 4.00                       |       | 3.93                          |       | 29.38                  |       | 3.04                                               |       |
| 2003                    |       | 5.11                                         |       | 5.46                                        |       | 6.66                                |       | 6.49                |       | 6.13                 |       | 5.89                            |       | 6.69                          |       | 6.40                            |       | 6.68                                |       | 4.66                |       | 6.40                       |       | 6.32                          |       | 59.81                  |       | 39.83                                              |       |
| 2004                    |       | 6.09                                         |       | 6.13                                        |       | 6.88                                |       | 6.70                |       | 6.31                 |       | 6.16                            |       | 6.44                          |       | 6.48                            |       | 6.78                                |       | 5.26                |       | 6.55                       |       | 6.45                          |       | 62.99                  |       | 38.61                                              |       |
| 2005                    |       | 8.55                                         |       | 8.24                                        |       | 8.58                                |       | 8.42                |       | 8.30                 |       | 8.32                            |       | 8.45                          |       | 8.36                            |       | 8.30                                |       | 7.13                |       | 8.20                       |       | 8.10                          |       | 63.50                  |       | 33.77                                              |       |
| 2006                    |       | 7.26                                         |       | 6.93                                        |       | 7.02                                |       | 6.96                |       | 6.45                 |       | 6.40                            |       | 6.45                          |       | 6.69                            |       | 6.95                                |       | 6.27                |       | 6.80                       |       | 6.45                          |       | 55.69                  |       | 19.82                                              |       |
| **December 31, 2006**   | ** ** | **5.52**                                     | **(9)**    | **5.55**                                    | **(10)**   | **6.07**                            | **(11)**   | **5.87**            | ** ** | **5.82**             | ** ** | **5.77**                        | ** ** | **5.00**                      | ** ** | **5.97**                        | ** ** | **597**                             | ** ** | **5.93**            | **(10)**   | **6.22**                   | **(12)**   | **6.05**                      | ** ** | **55.00**              | **(13)**   | **19.50**                                          | **(13)**   |
| **Constant Thereafter** |       |

 

Unless otherwise stated, the gas price reference pointis the receipt point on the applicable provincial gas transmission system knownas the plant gate.

The plant gate price represents the price before rawgas gathering and processing charges are deducted.

Spot refers to weightedaverage one-month price.

Note:  Theseprices are actual posted prices at the referenced date; other reference pricesare derived based on historical price differentials.

(1)           Noon Rate form the Bank of Canada

(2)           U.S. Energy InformationAdministration (Cushing, OK WTI Spot Price FOB)

(3)           Settlement price for prompt monthdelivery form NYMEX

(4)                                  AverageDecember 31, 2006 posted price reported by Imperial, Shell, Flint Hill,Petro-Canada, BP and Suncor

(5)           Average December 31, 2006 postedprice reported by Imperial, Flint Hill, EnCana and BP

(6)           Average December 31, 2006 postedprice reported by Petro-Canada, Flint Hill, Encana and BP

(7)           Average December 31, 2006 postedprice reported by Shell, Flint Hill, Encana, BP and Suncor

(8)           Average December 31, 2006 postedprice reported by Shell, Flint Hill, Encana and BP

(9)           Same day settlement from Platts

(10)         Same day settlement price from Platts

(11)         Same day settlement price from NGX

(12)         Next day settlement price from NGX

(13)         Utilizedcurrent GLJ forecast price

**Pricing Assumptions - Forecast Prices and Costs**

GLJ employed thefollowing pricing, exchange rate and inflation rate assumptions as of December31, 2006 in estimating the Corporation’s reserves data using forecast pricesand costs.

**Crude Oil and Natural Gas Liquids**

**Price Forecast**

Effective January 1, 2007

 
| **Year**       | ** ** | **Inflation  %** | ** ** | **Bank of  Canada  Average  Noon  Exchange  Rate  $US/$Cdn** | ** ** | **WTI Near  Month  Futures  Contract  Crude Oil  at  Cushing  Oklahoma  Constant  2007  $US/bbl** | ** ** | **WTI Near  Month  Futures  Contract  Crude Oil at  Cushing  Oklahoma  Then  Current  $US/bbl** | ** ** | **Brent  Blend  Crude Oil  FOB  North Sea  Constant  2007  $US/bbl** | ** ** | **Brent  Blend  Crude  Oil FOB  North Sea  Then  Current  $US/bbl** | ** ** | **Light  Sweet  Crude Oil  (40 API,  0.3%S) at  Edmonton  Constant  2007  $Cdn/bbl** | ** ** | **Light  Sweet  Crude Oil  (40 API,  0.3%S) at  Edmonton  Then  Current  $Cdn/bbl** | ** ** | **Bow  River  Crude  Stream  Quality  at  Hardisty  Constant  2007  $Cdn/bbl** | ** ** | **Bow  River  Crude  Stream  Quality  at  Hardisty  Then  Current  $Cdn/bbl** | ** ** | **Heavy  Crude  Oil  Proxy (12  API) at  Hardisty  Constant  2007  $Cdn/bbl** | ** ** | **Heavy  Crude Oil  Proxy (12  API) at  Hardisty  Then  Current  $Cdn/bbl** | ** ** | **Medium  Crude Oil  (29 API,  2.0%S) at  Cromer  Constant  2007  $Cdn/bbl** | ** ** | **Medium  Crude  Oil (29  API,  2.0%S)  at  Cromer  Then  Current  $Cdn/bbl** | ** ** | **Spec  Ethane  $Cdn/bbl** | ** ** | **Edmonton  Propane  $Cdn/bbl** | ** ** | **Edmonton  Butane  $Cdn/bbl** | ** ** | **Edmonton  Pentanes  Plus  $Cdn/bbl** | ** ** |
|----------------|------------|------------------|------------|-------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------|------------|----------------------------|------------|---------------------------------|------------|--------------------------------|------------|----------------------------------------|------------|
| 1996           |       | 1.6              |       | 0.733                                                             |       | 27.41                                                                                                       |       | 21.99                                                                                                          |       | 25.46                                                                          |       | 20.43                                                                         |       | 36.63                                                                                               |       | 29.39                                                                                              |       | 31.32                                                                          |       | 25.13                                                                         |       | 25.00                                                                                   |       | 20.06                                                                                      |       | 32.53                                                                                       |       | 26.10                                                                              |       | n/a                        |       | 22.31                           |       | 17.15                          |       | 30.06                                  |       |
| 1997           |       | 1.6              |       | 0.722                                                             |       | 25.28                                                                                                       |       | 20.61                                                                                                          |       | 23.53                                                                          |       | 19.18                                                                         |       | 34.17                                                                                               |       | 27.85                                                                                              |       | 25.97                                                                          |       | 21.17                                                                         |       | 17.68                                                                                   |       | 14.41                                                                                      |       | 29.10                                                                                       |       | 23.72                                                                              |       | n/a                        |       | 18.62                           |       | 18.73                          |       | 30.91                                  |       |
| 1998           |       | 0.9              |       | 0.675                                                             |       | 17.41                                                                                                       |       | 14.42                                                                                                          |       | 15.49                                                                          |       | 12.83                                                                         |       | 24.58                                                                                               |       | 20.36                                                                                              |       | 17.68                                                                          |       | 14.64                                                                         |       | 11.41                                                                                   |       | 9.45                                                                                       |       | 20.47                                                                                       |       | 16.95                                                                              |       | n/a                        |       | 11.15                           |       | 12.44                          |       | 21.83                                  |       |
| 1999           |       | 1.7              |       | 0.673                                                             |       | 23.08                                                                                                       |       | 19.29                                                                                                          |       | 21.31                                                                          |       | 17.81                                                                         |       | 33.14                                                                                               |       | 27.69                                                                                              |       | 28.53                                                                          |       | 23.84                                                                         |       | 23.54                                                                                   |       | 19.67                                                                                      |       | 30.42                                                                                       |       | 25.42                                                                              |       | n/a                        |       | 15.89                           |       | 18.70                          |       | 27.71                                  |       |
| 2000           |       | 2.7              |       | 0.673                                                             |       | 35.56                                                                                                       |       | 30.22                                                                                                          |       | 33.36                                                                          |       | 28.35                                                                         |       | 52.43                                                                                               |       | 44.56                                                                                              |       | 41.48                                                                          |       | 35.25                                                                         |       | 32.17                                                                                   |       | 27.34                                                                                      |       | 46.96                                                                                       |       | 39.91                                                                              |       | n/a                        |       | 32.18                           |       | 35.60                          |       | 46.31                                  |       |
| 2001           |       | 2.6              |       | 0.646                                                             |       | 29.76                                                                                                       |       | 25.97                                                                                                          |       | 27.92                                                                          |       | 24.37                                                                         |       | 45.14                                                                                               |       | 39.40                                                                                              |       | 31.74                                                                          |       | 27.70                                                                         |       | 19.41                                                                                   |       | 16.94                                                                                      |       | 36.16                                                                                       |       | 31.56                                                                              |       | n/a                        |       | 31.85                           |       | 31.17                          |       | 42.48                                  |       |
| 2002           |       | 2.2              |       | 0.637                                                             |       | 29.12                                                                                                       |       | 26.08                                                                                                          |       | 27.91                                                                          |       | 24.99                                                                         |       | 45.04                                                                                               |       | 40.33                                                                                              |       | 35.55                                                                          |       | 31.83                                                                         |       | 29.67                                                                                   |       | 26.57                                                                                      |       | 39.62                                                                                       |       | 35.48                                                                              |       | n/a                        |       | 21.39                           |       | 27.08                          |       | 40.73                                  |       |
| 2003           |       | 2.8              |       | 0.721                                                             |       | 33.95                                                                                                       |       | 31.07                                                                                                          |       | 31.61                                                                          |       | 28.93                                                                         |       | 47.70                                                                                               |       | 43.66                                                                                              |       | 35.09                                                                          |       | 32.11                                                                         |       | 28.69                                                                                   |       | 26.26                                                                                      |       | 41.03                                                                                       |       | 37.55                                                                              |       | n/a                        |       | 32.14                           |       | 34.36                          |       | 44.23                                  |       |
| 2004           |       | 1.8              |       | 0.768                                                             |       | 43.99                                                                                                       |       | 41.38                                                                                                          |       | 40.60                                                                          |       | 38.20                                                                         |       | 56.30                                                                                               |       | 52.96                                                                                              |       | 39.18                                                                          |       | 36.86                                                                         |       | 30.95                                                                                   |       | 29.11                                                                                      |       | 48.63                                                                                       |       | 45.75                                                                              |       | n/a                        |       | 34.70                           |       | 39.97                          |       | 54.07                                  |       |
| 2005           |       | 2.2              |       | 0.825                                                             |       | 59.07                                                                                                       |       | 56.58                                                                                                          |       | 57.54                                                                          |       | 55.12                                                                         |       | 72.14                                                                                               |       | 69.11                                                                                              |       | 46.94                                                                          |       | 44.97                                                                         |       | 35.56                                                                                   |       | 34.07                                                                                      |       | 59.11                                                                                       |       | 56.62                                                                              |       | n/a                        |       | 43.04                           |       | 51.80                          |       | 69.47                                  |       |
| 2006 (e)       |       | 2.1              |       | 0.882                                                             |       | 67.61                                                                                                       |       | 66.22                                                                                                          |       | 67.47                                                                          |       | 66.08                                                                         |       | 74.70                                                                                               |       | 73.16                                                                                              |       | 52.94                                                                          |       | 51.85                                                                         |       | 42.75                                                                                   |       | 41.87                                                                                      |       | 63.55                                                                                       |       | 62.24                                                                              |       | n/a                        |       | 43.97                           |       | 66.64                          |       | 75.69                                  |       |
| 2007 Q1        |       | 2.0              |       | 0.870                                                             |       | 62.00                                                                                                       |       | 62.00                                                                                                          |       | 60.50                                                                          |       | 60.50                                                                         |       | 70.25                                                                                               |       | 70.25                                                                                              |       | 47.75                                                                          |       | 47.75                                                                         |       | 37.75                                                                                   |       | 37.75                                                                                      |       | 61.25                                                                                       |       | 61.25                                                                              |       | 23.75                      |       | 45.00                           |       | 56.25                          |       | 71.75                                  |       |
| 2007 Q2        |       | 2.0              |       | 0.870                                                             |       | 62.00                                                                                                       |       | 62.00                                                                                                          |       | 60.50                                                                          |       | 60.50                                                                         |       | 70.25                                                                                               |       | 70.25                                                                                              |       | 49.25                                                                          |       | 49.25                                                                         |       | 30.50                                                                                   |       | 39.50                                                                                      |       | 61.25                                                                                       |       | 61.25                                                                              |       | 23.50                      |       | 45.00                           |       | 56.25                          |       | 71.75                                  |       |
| 2007 Q3        |       | 2.0              |       | 0.870                                                             |       | 62.00                                                                                                       |       | 62.00                                                                                                          |       | 60.50                                                                          |       | 60.50                                                                         |       | 70.25                                                                                               |       | 70.25                                                                                              |       | 51.25                                                                          |       | 51.25                                                                         |       | 42.25                                                                                   |       | 42.25                                                                                      |       | 61.25                                                                                       |       | 61.25                                                                              |       | 23.50                      |       | 45.00                           |       | 56.25                          |       | 71.75                                  |       |
| 2007 Q4        |       | 2.0              |       | 0.870                                                             |       | 62.00                                                                                                       |       | 62.00                                                                                                          |       | 60.50                                                                          |       | 60.50                                                                         |       | 70.25                                                                                               |       | 70.25                                                                                              |       | 47.75                                                                          |       | 47.75                                                                         |       | 37.75                                                                                   |       | 37.75                                                                                      |       | 61.25                                                                                       |       | 61.25                                                                              |       | 26.50                      |       | 45.00                           |       | 56.25                          |       | 71.75                                  |       |
| 2007 Full Year |       | 2.0              |       | 0.870                                                             |       | 62.00                                                                                                       |       | 62.00                                                                                                          |       | 60.50                                                                          |       | 60.50                                                                         |       | 70.25                                                                                               |       | 70.25                                                                                              |       | 49.00                                                                          |       | 49.00                                                                         |       | 39.25                                                                                   |       | 39.25                                                                                      |       | 61.25                                                                                       |       | 61.25                                                                              |       | 24.25                      |       | 45.00                           |       | 56.25                          |       | 71.75                                  |       |
| 2008           |       | 2.0              |       | 0.870                                                             |       | 58.75                                                                                                       |       | 60.00                                                                                                          |       | 57.25                                                                          |       | 58.50                                                                         |       | 66.75                                                                                               |       | 68.00                                                                                              |       | 48.00                                                                          |       | 49.00                                                                         |       | 39.25                                                                                   |       | 40.00                                                                                      |       | 58.00                                                                                       |       | 59.25                                                                              |       | 25.25                      |       | 43.50                           |       | 50.25                          |       | 69.25                                  |       |
| 2009           |       | 2.0              |       | 0.870                                                             |       | 55.75                                                                                                       |       | 58.00                                                                                                          |       | 54.25                                                                          |       | 56.50                                                                         |       | 63.25                                                                                               |       | 65.75                                                                                              |       | 46.75                                                                          |       | 48.75                                                                         |       | 38.25                                                                                   |       | 39.75                                                                                      |       | 55.00                                                                                       |       | 57.25                                                                              |       | 26.25                      |       | 42.00                           |       | 48.75                          |       | 67.00                                  |       |
| 2010           |       | 2.0              |       | 0.870                                                             |       | 53.75                                                                                                       |       | 57.00                                                                                                          |       | 52.25                                                                          |       | 55.50                                                                         |       | 60.75                                                                                               |       | 64.50                                                                                              |       | 45.50                                                                          |       | 48.25                                                                         |       | 37.50                                                                                   |       | 39.75                                                                                      |       | 52.75                                                                                       |       | 56.00                                                                              |       | 26.50                      |       | 41.25                           |       | 47.75                          |       | 65.75                                  |       |
| 2011           |       | 2.0              |       | 0.870                                                             |       | 52.75                                                                                                       |       | 57.00                                                                                                          |       | 51.25                                                                          |       | 55.50                                                                         |       | 59.50                                                                                               |       | 64.50                                                                                              |       | 45.25                                                                          |       | 49.00                                                                         |       | 37.25                                                                                   |       | 40.25                                                                                      |       | 51.75                                                                                       |       | 56.00                                                                              |       | 26.50                      |       | 41.25                           |       | 47.75                          |       | 65.75                                  |       |
| 2012           |       | 2.0              |       | 0.870                                                             |       | 52.00                                                                                                       |       | 57.50                                                                                                          |       | 50.75                                                                          |       | 56.00                                                                         |       | 58.75                                                                                               |       | 65.00                                                                                              |       | 44.75                                                                          |       | 49.50                                                                         |       | 37.50                                                                                   |       | 41.50                                                                                      |       | 51.25                                                                                       |       | 56.50                                                                              |       | 27.75                      |       | 41.50                           |       | 48.00                          |       | 66.25                                  |       |
| 2013           |       | 2.0              |       | 0.870                                                             |       | 52.00                                                                                                       |       | 58.50                                                                                                          |       | 50.50                                                                          |       | 57.00                                                                         |       | 58.75                                                                                               |       | 66.25                                                                                              |       | 44.50                                                                          |       | 50.25                                                                         |       | 37.75                                                                                   |       | 42.50                                                                                      |       | 51.25                                                                                       |       | 57.75                                                                              |       | 28.25                      |       | 42.50                           |       | 49.00                          |       | 67.50                                  |       |
| 2014           |       | 2.0              |       | 0.870                                                             |       | 52.00                                                                                                       |       | 59.75                                                                                                          |       | 50.75                                                                          |       | 58.25                                                                         |       | 59.00                                                                                               |       | 67.75                                                                                              |       | 44.75                                                                          |       | 51.50                                                                         |       | 37.75                                                                                   |       | 43.50                                                                                      |       | 51.25                                                                                       |       | 59.00                                                                              |       | 29.00                      |       | 43.25                           |       | 50.25                          |       | 69.00                                  |       |
| 2015           |       | 2.0              |       | 0.870                                                             |       | 52.00                                                                                                       |       | 61.00                                                                                                          |       | 50.75                                                                          |       | 59.50                                                                         |       | 59.00                                                                                               |       | 69.00                                                                                              |       | 44.75                                                                          |       | 52.50                                                                         |       | 37.75                                                                                   |       | 44.25                                                                                      |       | 51.25                                                                                       |       | 60.00                                                                              |       | 29.50                      |       | 44.25                           |       | 51.00                          |       | 70.50                                  |       |
| 2016           |       | 2.0              |       | 0.870                                                             |       | 52.00                                                                                                       |       | 62.25                                                                                                          |       | 50.75                                                                          |       | 60.75                                                                         |       | 59.00                                                                                               |       | 70.50                                                                                              |       | 44.75                                                                          |       | 53.50                                                                         |       | 37.75                                                                                   |       | 45.25                                                                                      |       | 51.25                                                                                       |       | 61.25                                                                              |       | 30.00                      |       | 45.00                           |       | 52.25                          |       | 72.00                                  |       |
| 2017           |       | 2.0              |       | 0.870                                                             |       | 52.00                                                                                                       |       | 63.50                                                                                                          |       | 50.75                                                                          |       | 62.00                                                                         |       | 58.75                                                                                               |       | 71.75                                                                                              |       | 44.75                                                                          |       | 54.50                                                                         |       | 37.75                                                                                   |       | 46.00                                                                                      |       | 51.25                                                                                       |       | 62.50                                                                              |       | 30.75                      |       | 46.00                           |       | 53.00                          |       | 73.25                                  |       |
| 2018+          |       | 2.0              |       | 0.870                                                             |       | 52.00                                                                                                       |       | +2.0/y                                                                                                         | r          | 50.75                                                                          |       | +2.0/y                                                                        | r          | 58.75                                                                                               |       | +2.0/y                                                                                             | r          | 44.75                                                                          |       | +2.0/y                                                                        | r          | 37.75                                                                                   |       | +2.0/y                                                                                     | r          | 51.25                                                                                       |       | +2.0/y                                                                             | r          |                       |       | Escalate at 2.0%per year        |       |                           |       |

 

Historical futurescontract price is an average of the daily settlement price of the near monthcontract over the calendar month.

**GLJPetroleum Consultants**

**NaturalGas and Sulphur Price Forecaset**

Effective January1, 2007
| ** **      | ** ** | **NYMEX  Future  Contract—  Last 3 Day  Price  Constant  2007** | ** ** | **NYMEX  Future  Contract—  Last 3 Day  Price Then  Current** | ** ** | **Midwest  Price @  Chicago  Then  Current** | ** ** | **AECO/NIT  Spot then  Current** | ** ** | **Spot  Constant  2007 $  Spot Then  Current** | ** ** | **ARP**    | ** ** | **Aggregator** | ** ** | **Alliance** | ** ** | **Sask  Energy** | ** ** | **Spot**     | ** ** | **Sumas  Spot** | ** ** | **Westcoast  Station 2** | ** ** | **Spot  Plant  Gate** | ** ** | **Sulphur  FOB  Vancouver** | ** ** | **Alberta  Sulphur  at Plant  Gate** | ** ** | ** **  | ** ** |
|-----------------|------------|--------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|---------------------------------------|------------|----------------------------------------------------------|------------|------------|------------|----------------|------------|--------------|------------|------------------|------------|--------------|------------|-----------------|------------|-------------------------------|------------|-----------------------|------------|-----------------------------|------------|-------------------------------------------|------------|-------------|------------|
| **Year**        | ** ** | **$US/mmbtu**                                                                  | ** ** | **$US/mmbtu**                                                                     | ** ** | **$US/mmbtu**                                     | ** ** | **$Cdn/mmbtu**                        | ** ** | **$mmbtu**                                               | ** ** | **$mmbtu** | ** ** | **$mmbtu**     | ** ** | **$mmbtu**   | ** ** | **$mmbtu**       | ** ** | **$mmbtu**   | ** ** | **$mmbtu**      | ** ** | **$mmbtu**                    | ** ** | **$mmbtu**            | ** ** | **$mmbtu**                  | ** ** | **$US/LT**                                | ** ** | **$Cdn/LT** | ** ** |
| 1996            |       | 3.18                                                                           |       | 2.55                                                                              |       | 2.73                                              |       | 1.39                                  |       | 1.57                                                     |       | 1.26       |       | 1.63           |       | n/a          |       | n/a              |       | 1.52         |       | 1.28            |       | 1.32                          |       | 1.60                  |       | 1.47                        |       | 36.28                                     |       | 14.44       |       |
| 1997            |       | 3.23                                                                           |       | 2.63                                                                              |       | 2.75                                              |       | 1.84                                  |       | 2.07                                                     |       | 1.69       |       | 1.96           |       | n/a          |       | n/a              |       | 1.84         |       | 1.75            |       | 1.70                          |       | 2.10                  |       | 1.98                        |       | 34.75                                     |       | 11.50       |       |
| 1998            |       | 2.58                                                                           |       | 2.14                                                                              |       | 2.21                                              |       | 2.03                                  |       | 2.27                                                     |       | 1.88       |       | 1.94           |       | n/a          |       | n/a              |       | 2.05         |       | 2.13            |       | 1.60                          |       | 2.15                  |       | 2.00                        |       | 24.59                                     |       | -6.51       |       |
| 1999            |       | 2.72                                                                           |       | 2.27                                                                              |       | 2.33                                              |       | 2.92                                  |       | 3.29                                                     |       | 2.75       |       | 2.48           |       | n/a          |       | n/a              |       | 2.83         |       | 2.97            |       | 2.15                          |       | 2.90                  |       | 2.78                        |       | 33.74                                     |       | 6.93        |       |
| 2000            |       | 4.60                                                                           |       | 3.91                                                                              |       | 3.96                                              |       | 5.08                                  |       | 5.79                                                     |       | 4.92       |       | 4.50           |       | 4.60         |       | n/a              |       | 4.79         |       | 5.13            |       | 4.17                          |       | 5.00                  |       | 4.88                        |       | 38.14                                     |       | 13.59       |       |
| 2001            |       | 5.02                                                                           |       | 4.38                                                                              |       | 4.45                                              |       | 6.21                                  |       | 6.95                                                     |       | 6.07       |       | 5.41           |       | 5.30         |       | 5.61             |       | 5.71         |       | 6.13            |       | 4.56                          |       | 6.35                  |       | 6.29                        |       | 18.29                                     |       | -14.66      |       |
| 2002            |       | 3.63                                                                           |       | 3.25                                                                              |       | 3.25                                              |       | 4.04                                  |       | 4.33                                                     |       | 3.88       |       | 3.88           |       | 3.83         |       | 3.82             |       | 4.04         |       | 4.08            |       | 2.68                          |       | 4.00                  |       | 3.93                        |       | 29.38                                     |       | 3.04        |       |
| 2003            |       | 5.58                                                                           |       | 5.11                                                                              |       | 5.46                                              |       | 6.66                                  |       | 7.09                                                     |       | 6.49       |       | 6.13           |       | 5.89         |       | 6.69             |       | 6.40         |       | 6.68            |       | 4.66                          |       | 6.40                  |       | 6.32                        |       | 59.81                                     |       | 39.83       |       |
| 2004            |       | 6.47                                                                           |       | 6.09                                                                              |       | 6.13                                              |       | 6.88                                  |       | 7.13                                                     |       | 6.70       |       | 6.31           |       | 6.16         |       | 6.44             |       | 6.48         |       | 6.78            |       | 5.26                          |       | 6.55                  |       | 6.45                        |       | 62.99                                     |       | 38.61       |       |
| 2005            |       | 8.93                                                                           |       | 8.55                                                                              |       | 8.24                                              |       | 8.58                                  |       | 8.79                                                     |       | 8.42       |       | 8.30           |       | 8.32         |       | 8.45             |       | 8.36         |       | 8.30            |       | 7.13                          |       | 8.20                  |       | 8.10                        |       | 63.50                                     |       | 33.77       |       |
| 2006            |       | 7.41                                                                           |       | 7.26                                                                              |       | 6.93                                              |       | 7.02                                  |       | 7.11                                                     |       | 6.96       |       | 6.45           |       | 6.40         |       | 6.45             |       | 6.69         |       | 6.95            |       | 6.27                          |       | 6.80                  |       | 6.45                        |       | 55.69                                     |       | 19.82       |       |
| 2007 Q1         |       | 7.00                                                                           |       | 7.00                                                                              |       | 6.90                                              |       | 7.00                                  |       | 6.80                                                     |       | 6.80       |       | 6.80           |       | 6.80         |       | 6.40             |       | 6.95         |       | 6.90            |       | 6.60                          |       | 7.00                  |       | 6.85                        |       | 55.00                                     |       | 19.50       |       |
| 2007 Q2         |       | 7.00                                                                           |       | 7.00                                                                              |       | 6.90                                              |       | 6.95                                  |       | 6.75                                                     |       | 6.75       |       | 6.70           |       | 6.65         |       | 6.45             |       | 6.85         |       | 6.85            |       | 6.25                          |       | 6.95                  |       | 6.80                        |       | 55.00                                     |       | 19.50       |       |
| 2007 Q3         |       | 7.00                                                                           |       | 7.00                                                                              |       | 6.90                                              |       | 6.95                                  |       | 6.75                                                     |       | 6.75       |       | 6.70           |       | 6.65         |       | 6.45             |       | 6.85         |       | 6.85            |       | 6.25                          |       | 6.95                  |       | 6.80                        |       | 55.00                                     |       | 19.50       |       |
| 2007 Q4         |       | 8.00                                                                           |       | 8.00                                                                              |       | 7.75                                              |       | 7.85                                  |       | 7.60                                                     |       | 7.60       |       | 7.60           |       | 7.50         |       | 7.35             |       | 7.75         |       | 7.75            |       | 7.35                          |       | 7.85                  |       | 7.65                        |       | 55.00                                     |       | 19.50       |       |
| 2007 Full  Year |       | 7.25                                                                           |       | 7.25                                                                              |       | 7.10                                              |       | 7.20                                  |       | 7.00                                                     |       | 7.00       |       | 6.95           |       | 6.90         |       | 6.65             |       | 7.10         |       | 7.10            |       | 6.60                          |       | 7.20                  |       | 7.05                        |       | 55.00                                     |       | 19.50       |       |
| 2008            |       | 7.35                                                                           |       | 7.50                                                                              |       | 7.45                                              |       | 7.45                                  |       | 7.10                                                     |       | 7.25       |       | 7.25           |       | 7.25         |       | 7.05             |       | 7.40         |       | 7.40            |       | 6.85                          |       | 7.45                  |       | 7.30                        |       | 45.00                                     |       | 8.00        |       |
| 2009            |       | 7.20                                                                           |       | 7.50                                                                              |       | 7.50                                              |       | 7.75                                  |       | 7.25                                                     |       | 7.55       |       | 7.55           |       | 7.55         |       | 7.10             |       | 7.70         |       | 7.70            |       | 7.05                          |       | 7.75                  |       | 7.60                        |       | 40.00                                     |       | 2.50        |       |
| 2010            |       | 7.05                                                                           |       | 7.50                                                                              |       | 7.60                                              |       | 7.80                                  |       | 7.15                                                     |       | 7.60       |       | 7.60           |       | 7.60         |       | 7.20             |       | 7.75         |       | 7.75            |       | 7.05                          |       | 7.80                  |       | 7.65                        |       | 40.00                                     |       | 2.50        |       |
| 2011            |       | 6.95                                                                           |       | 7.50                                                                              |       | 7.65                                              |       | 7.85                                  |       | 7.05                                                     |       | 7.65       |       | 7.65           |       | 7.65         |       | 7.25             |       | 7.80         |       | 7.80            |       | 7.05                          |       | 7.85                  |       | 7.70                        |       | 41.00                                     |       | 3.50        |       |
| 2012            |       | 7.00                                                                           |       | 7.75                                                                              |       | 7.90                                              |       | 8.15                                  |       | 7.20                                                     |       | 7.95       |       | 7.95           |       | 7.95         |       | 7.50             |       | 8.10         |       | 8.10            |       | 7.30                          |       | 8.15                  |       | 8.00                        |       | 41.50                                     |       | 4.50        |       |
| 2013            |       | 7.00                                                                           |       | 7.90                                                                              |       | 8.05                                              |       | 8.30                                  |       | 7.20                                                     |       | 8.10       |       | 8.10           |       | 8.10         |       | 7.70             |       | 8.25         |       | 8.25            |       | 7.45                          |       | 8.30                  |       | 8.15                        |       | 42.50                                     |       | 5.50        |       |
| 2014            |       | 7.00                                                                           |       | 8.05                                                                              |       | 8.20                                              |       | 8.50                                  |       | 7.20                                                     |       | 8.30       |       | 8.30           |       | 8.30         |       | 7.85             |       | 8.45         |       | 8.45            |       | 7.60                          |       | 8.50                  |       | 8.35                        |       | 43.50                                     |       | 6.50        |       |
| 2015            |       | 7.00                                                                           |       | 8.20                                                                              |       | 8.35                                              |       | 8.70                                  |       | 7.25                                                     |       | 8.50       |       | 8.50           |       | 8.50         |       | 8.05             |       | 8.65         |       | 8.65            |       | 7.75                          |       | 8.70                  |       | 8.55                        |       | 44.00                                     |       | 7.50        |       |
| 2016            |       | 7.00                                                                           |       | 8.40                                                                              |       | 8.55                                              |       | 8.90                                  |       | 7.25                                                     |       | 8.65       |       | 8.65           |       | 8.65         |       | 8.20             |       | 8.80         |       | 8.80            |       | 7.95                          |       | 8.90                  |       | 8.70                        |       | 45.00                                     |       | 8.50        |       |
| 2017            |       | 7.00                                                                           |       | 8.55                                                                              |       | 8.70                                              |       | 9.10                                  |       | 7.25                                                     |       | 8.85       |       | 8.85           |       | 8.85         |       | 8.40             |       | 9.00         |       | 9.00            |       | 8.10                          |       | 9.10                  |       | 8.90                        |       | 46.00                                     |       | 9.50        |       |
| 2018            |       | 7.00                                                                           |       | +2.0/yr                                                                           |       | +2.0/yr                                           |       | +2.0/yr                               |       | 7.25                                                     |       | +2.0/yr    |       |           |       |         |       |             |       | Escalate  at |       | 2.0% per        |       | year                          |       |                  |       |                        |       | +2.0/yr                                   |       |        |       |

----

Notes:

(1)                                  Unlessotherwise stated, the gas price reference point is the receipt point on theapplicable provincial gas transmission system known as the plant gate.

(2)                                  Theplant gate price represents the price before raw gas gathering and processingcharges are deducted.

(3)                                  AECO– C Sport refers to the one month price averaged for the year.

(4)                                  Historicalfutures contract price is an average of the daily settlement prices over thelast 3 days of the near month contract.

The weighted average realized sales prices by theCorporation for the year ended December 31, 2006 was $6.95/Mcf for natural gas,$61.95/Bbl for crude oil and NGL’s.

**Reconciliations of Changes in Reserves and Future NetRevenue**

***ReservesReconciliation***

The following table setsforth a reconciliation of the Corporation’s total net proved, probable andtotal net proved plus probable reserves as at December 31, 2006 against suchreserves as at December 31, 2005 based on forecast price and cost assumptions.
|                             | ** ** | **Light and Medium Crude Oil** | ** ** | **Unconventional Gas (CBM)** | ** ** | **Conventional Natural Gas** | ** ** |
|-----------------------------|------------|----------------------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| ** **                  | ** ** | **Net Proved  Reserves**                      | ** ** | **Net  Probable  Reserves**            | ** ** | **Net Proved  Plus  Probable**    | ** ** | **Net Proved  Reserves** | ** ** | **Net  Probable  Reserves** | ** ** | **Net Proved  Plus  Probable** | ** ** | **Net Proved  Reserves** | ** ** | **Net  Probable  Reserves** | ** ** | **Net Proved  Plus  Probable** | ** ** |
| ** **                  | ** ** | **Mbbls**                                          | ** ** | **Mbbls**                              | ** ** | **Mbbls**                              | ** ** | **Mbbls** | ** ** | **Mbbls** | ** ** | **Mbbls** | ** ** | **Mmcf** | ** ** | **Mmcf** | ** ** | **Mmcf** | ** ** |
| **Opening  Balance(1)**     |       |                                               |       |                                   |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **December  31, 2005**      |       | 705                                                |       | 599                                    |       | 1,304                                  |       | 2,967 |   | 2,677 |   | 5,644 |   | 15,877 |   | 6,225 |   | 22,102 |   |
| ** **                  |       |                                               |       |                                   |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Extensions/Infill  Drilling |       | 13                                                 |       | —                                 |       | 13                                     |       | 1,699 |   | 1,021 |   | 2,720 |   | 4,043 |   | 1,402 |   | 5,445 |   |
| Improved Recovery           |       | 32                                                 |       | 16                                     |       | 49                                     |       | 94 |   | (31 | ) | 63 |   | — |   | (49 | ) | (49 | ) |
| Technical  Revisions        |       | 179                                                |       | (46                                    | )          | 133                                    |       | (411 | ) | (215 | ) | (626 | ) | 386 |   | (172 | ) | 213 |   |
|                        |       |                                               |       |                                   |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Discoveries                 |       | —                                             |       | —                                 |       | —                                 |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Acquisitions                |       | —                                             |       | —                                 |       | —                                 |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Dispositions                |       | —                                             |       | —                                 |       | —                                 |       | — |   | — |   | — |   | (58 | ) | (82 | ) | (140 | ) |
| Economic Factors            |       | 11                                                 |       | 9                                      |       | 20                                     |       | 6 |   | 5 |   | 11 |   | 32 |   | 12 |   | 44 |   |
| Production                  |       | (169                                               | )          | —                                 |       | (169                                   | )          | (241 | ) | — |   | (241 | ) | (3,675 | ) | — |   | (3,675 | ) |
| **Closing  Balance**        |       |                                               |       |                                   |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **December 31, 2006**       |       | 771                                                |       | 578                                    |       | 1,349                                  |       | 4,114 |   | 3,457 |   | 7,571 |   | 16,604 |   | 7,336 |   | 23,940 |   |

 

19

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|                             | ** ** | **Natural Gas Liquids** | ** ** | **Barrels of Oil Equivalent** | ** ** |
|-----------------------------|------------|-----------------------------------|------------|----------------------------------------------|------------|
| ** **                  | ** ** | **Net Proved  Reserves**     | ** ** | **Net Probable  Reserves**              | ** ** | **Net Proved Plus  Probable** | ** ** | **Net Proved  Reserves** | ** ** | **Net Probable  Reserves** | ** ** | **Net Proved Plus  Probable** | ** ** |
| ** **                  | ** ** | **Mbbls**                         | ** ** | **Mbbls**                                    | ** ** | **Mbbls** | ** ** | **MBOE** | ** ** | **MBOE** | ** ** | **MBOE** | ** ** |
| **Opening  Balance**        |       |                              |       |                                         |       |   |   |   |   |   |   |   |   |
| **December  31, 2005**      |       | 113                               |       | 56                                           |       | 169 |   | 3,959 |   | 2,139 |   | 6,097 |   |
| Extensions/Infill  Drilling |       | 32                                |       | 8                                            |       | 40 |   | 1,002 |   | 412 |   | 1,413 |   |
| Improved  Recovery          |       | —                            |       | 3                                            |       | 3 |   | 48 |   | 6 |   | 54 |   |
| Technical  Revisions        |       | 30                                |       | 10                                           |       | 40 |   | 206 |   | (101 | ) | 104 |   |
| Discoveries                 |       | —                            |       | —                                       |       | — |   | — |   | — |   | — |   |
| Acquisitions                |       | —                            |       | —                                       |       | — |   | — |   | — |   | — |   |
| Dispositions                |       | —                            |       | —                                       |       | — |   | (10 | ) | (14 | ) | (23 | ) |
| Economic Factors            |       |                              |       |                                         |       |   |   | 17 |   | 12 |   | 29 |   |
| Production                  |       | (33                               | )          | —                                       |       | (33 | ) | (154 | ) | — |   | (854 | ) |
| **Closing  Balance**        |       |                              |       |                                         |       |   |   |   |   |   |   |   |   |
| **December 31, 2006**       |       | 143                               |       | 77                                           |       | 220 |   | 4,367 |   | 2,454 |   | 6,821 |   |

 

**Future Net Revenue Reconciliation**

The following table setsforth a reconciliation of the estimate of the net present value of future netrevenue attributable to the Corporation’s proved reserves as evaluated in theGLJ Report as at December 31, 2006 against the estimate of such amount as atDecember 31, 2005, calculated after tax using a discount rate of 10% andconstant price and cost assumptions.
| Period and Factor                                                 | ** ** | **2006 ($M)** | ** ** |
|-----------------------------------------------------------------------------|------------|--------------------|------------|
|                                                                        |       |               |       |
| Estimated Future  Net Revenue at Beginning of Year After Tax                |       | 111,682            |       |
|                                                                        |       |               |       |
| Oil and Gas Sales During the Period Net of Royalties  and Production Costs  |       | (31,384            | )          |
| Changes due to Prices                                                       |       | (51,311            | )          |
| Actual Development Costs During the Period                                  |       | 25,225             |       |
| Changes in Future Development Costs                                         |       | (27,462            | )          |
| Changes Resulting from Extensions, Infill Drilling  and Improved Recovery   |       | 19,523             |       |
| Changes Resulting from Discoveries                                          |       |               |       |
| Changes Resulting from Acquisitions of Reserves                             |       |               |       |
| Changes Resulting from Dispositions of Reserves                             |       | (186               | )          |
| Accretion of Discount                                                       |       | 12,836             |       |
| Other Significant Factors                                                   |       | 3,286              |       |
| Net Changes in Income Taxes                                                 |       | 16,678             |       |
| Changes Resulting from Technical Reserves Revisions  Plus Effects of Timing |       | 2,030              |       |
|                                                                        |       |               |       |
| Estimated Future Net  Revenue at End of Year After Tax                      |       | 80,917             |       |

 

**Undeveloped Reserves**

Proved and probableundeveloped reserves have been estimated in accordance with procedures andstandards contained in the COGE Handbook.

**Significant Factors or Uncertainties AffectingReserves Data**

The process of estimatingreserves is complex. It requires significant judgments and decisions based onavailable geological, geophysical, engineering, and economic data. Theseestimates may change substantially as additional data from ongoing developmentactivities and production performance becomes available and as economicconditions impacting oil and gas prices and costs change. The reserve estimatescontained herein are based on current production forecasts, prices and economicconditions. The Corporation’s reserves are evaluated by GLJ, an independentengineering firm.

20

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Although every reasonableeffort is made to ensure that reserve estimates are accurate, reserveestimation is an inferential science. As a result, the subjective decisions,new geological or production information and a changing environment may impactthese estimates. Revisions to reserve estimates can arise from changes inyear-end oil and gas prices, and reservoir performance. Such revisions can beeither positive or negative.

**Future Development Costs**

The table below sets outthe development costs deducted in the estimation of future net revenueattributable to proved reserves (using both constant prices and costs andforecast prices and costs) and proved plus probable reserves (using forecastprices and costs only).
|                                   | ** ** | **Constant Prices  and Costs** | ** ** | **Forecast Prices and Costs** | ** ** |
|-----------------------------------|------------|------------------------------------------|------------|----------------------------------------------|------------|
| ** **                        | ** ** | **Total Proved Reserves**      | ** ** | **Total Proved Reserves**          | ** ** | **Total Proved Plus  Probable Reserves** | ** ** |
| ** **                        | ** ** | **(M$)**                                 | ** ** | **(M$)**                                     | ** ** | **(M$)** | ** ** |
| 2007                              |       | 8,650                                    |       | 8,650                                        |       | 14,702 |   |
| 2008                              |       | 65                                       |       | 67                                           |       | 3,527 |   |
| 2009                              |       | 1,200                                    |       | 1,248                                        |       | 1,405 |   |
| Remaining Years                   |       | 59                                       |       | 70                                           |       | 267 |   |
| **Total  Undiscounted**           |       | 9,974                                    |       | 10,035                                       |       | 19,901 |   |
| **Total Discounted 10% per year** |       | 9,275                                    |       | 9,319                                        |       | 18,319 |   |

The Corporation expects to fund its future developmentfrom internally generated cash flow from operations, debt (where deemedappropriate) and new equity issues (if available on favourable terms). Inaddition, the Corporation may consider farm-out arrangements for certainprojects. The Corporation does not expect that the cost of funding could makethe development of a property uneconomic for the Corporation, nor is itexpected that the cost of such funding will impact the Corporation’s reservesor future net revenue.

**Oil and Gas Wells**

The following table setsforth the number and status of wells in which the Corporation has a workinginterest as at December 31, 2006.
|              | ** ** | **Oil Wells** | ** ** | **Natural Gas Wells** | ** ** |
|--------------|------------|--------------------|------------|---------------------------------|------------|
| ** **   | ** ** | **Producing**      | ** ** | **Non-Producing(1)**            | ** ** | **Producing** | ** ** | **Non-Producing(1)** | ** ** |
| ** **   | ** ** | **Gross**          | ** ** | **Net**                         | ** ** | **Gross** | ** ** | **Net** | ** ** | **Gross** | ** ** | **Net** | ** ** | **Gross** | ** ** | **Net** | ** ** |
| Alberta      |       | 70                 |       | 49.8                            |       | 29 |   | 20.5 |   | 243 |   | 115 |   | 103 |   | 62.3 |   |
| Saskatchewan |       | —             |       | —                          |       | 1 |   | 1 |   | — |   | — |   | — |   | — |   |
| Total        |       | 70                 |       | 49.8                            |       | 30 |   | 21.5 |   | 243 |   | 115 |   | 103 |   | 62.3 |   |

 

----

Notes:

(1)                                  Non-producing includes wells shut-in foreconomic reasons, wells not capable of production and wells used for disposalof water.

21

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**Properties With No Attributed Reserves**

The followingtable sets out the Corporation’s undeveloped land holdings as at December 31,2006.
|                               | ** ** | **Undeveloped Acres** | ** ** |
|-------------------------------|------------|----------------------------|------------|
| ** **                    | ** ** | **Gross**                  | ** ** | **Net** | ** ** |
| British Columbia              |       | 8,478                      |       | 6,328 |   |
| Alberta                       |       | 122,589                    |       | 100,344 |   |
| Saskatchewan                  |       | 40                         |       | 40 |   |
| Offshore Nova  Scotia         |       | 1,234,546                  |       | 1,234,546 |   |
| Offshore  Trinidad and Tobago |       | 80,020                     |       | 80,020 |   |
| Total                         |       | 1,445,673                  |       | 1,421,278 |   |

 

**Expirations and Work Commitments**

The following table setsforth the expirations and work commitment for the undeveloped lands of theCorporation, as at December 31, 2006:
| Work Commitments offshore Nova Scotia  (Marquis, Mariner, Mayflower, Marauder, Marconi) | ** ** | ** ** | ** **    |
|---------------------------------------------------------------------------------------------------------------------------------|------------|------------|---------------|
|                                                                                                                            |       |       |          |
| Gross Acres                                                                                                                     |       | 1,234,546  |          |
| Net Acres                                                                                                                       |       | 1,234,546  |          |
| Work Expenditure  Commitment                                                                                                    |       | $          | 55,069,046.08 |   |
| Deposits Tendered                                                                                                               |       | $          | 14,017,261.52 |   |

 

Note: In Trinidad andTobago, for Block 5(c), there is a confidential work commitment guarantee thatis part of the confidential PSC between the Government of the Republic ofTrinidad and Tobago and Canadian Superior. It is anticipated that this work commitment will be more than fully metduring the upcoming drilling program.

**Undeveloped Land Due to Expire**

The following tablerepresents the undeveloped land of the Corporation due to expire in 2006:
|                       | ** ** | **Gross Undeveloped Acres** | ** ** | **Net Undeveloped Acres** | ** ** |
|-----------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
|                  |       |                                  |       |                                |       |
| Alberta               |       | 29,265                                |       | 27,313                              |       |
| British Columbia      |       | 36,354                                |       | 32,252                              |       |
| Offshore Nova  Scotia |       | 711,662                               |       | 711,662                             |       |
| Total                 |       | 777,281                               |       | 777,227                             |       |

 

**Forward Contracts and Future Commitments**

The Corporation periodically enters into commoditysales agreements and certain derivative financial instruments to reduce itsexposure to commodity price volatility. These financial instruments are enteredinto solely for hedging purposes and are not used for trading or otherspeculative purposes.  AtDecember 31, 2006, the Corporation had no contracts in place.

22

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**AdditionalInformation Concerning Abandonment and Reclamation Costs**

The following tablerepresents the Corporation’s projected abandonment costs for future drilling,in thousands of dollars, using constant pricing:
|                | ** ** | **Entity Description** | ** ** |
|----------------|------------|-----------------------------|------------|
| ** **     | ** ** | **Proved Producing**   | ** ** | **Total Proved** | ** ** | **Total Proved Plus  Probable** | ** ** |
|           |       |                        |       |   |   |   |   |
| 2007           |       | 307                         |       | 307 |   | 203 |   |
| 2008           |       | 313                         |       | 351 |   | 138 |   |
| 2009           |       | 298                         |       | 386 |   | 464 |   |
| 2010           |       | 209                         |       | 184 |   | 223 |   |
| 2011           |       | 234                         |       | 274 |   | 185 |   |
| 2012           |       | 369                         |       | 383 |   | 244 |   |
| 2013           |       | 459                         |       | 499 |   | 172 |   |
| 2014           |       | 126                         |       | 234 |   | 285 |   |
| 2015           |       | 504                         |       | 613 |   | 502 |   |
| 2016           |       | 150                         |       | 222 |   | 307 |   |
| 2017           |       | 316                         |       | 366 |   | 376 |   |
| Subtotal       |       | 3,284                       |       | 3,818 |   | 3,099 |   |
| Remainder      |       | 1,021                       |       | 1,476 |   | 2,956 |   |
| Total          |       | 4,306                       |       | 5,294 |   | 6,055 |   |
| 10% Discounted |       | 2,282                       |       | 2,687 |   | 2,425 |   |

 

The following tablerepresents the Corporation’s projected abandonment costs for future drilling,in thousands of dollars, using forecast prices:
|                | ** ** | **Entity Description** | ** ** |
|----------------|------------|-----------------------------|------------|
| ** **     | ** ** | **Proved Producing**   | ** ** | **Total Proved** | ** ** | **Total Proved Plus  Probable** | ** ** |
|           |       |                        |       |   |   |   |   |
| 2007           |       | 192                         |       | 192 |   | 142 |   |
| 2008           |       | 378                         |       | 417 |   | 242 |   |
| 2009           |       | 326                         |       | 378 |   | 248 |   |
| 2010           |       | 233                         |       | 247 |   | 367 |   |
| 2011           |       | 171                         |       | 195 |   | 226 |   |
| 2012           |       | 372                         |       | 401 |   | 177 |   |
| 2013           |       | 572                         |       | 624 |   | 196 |   |
| 2014           |       | 150                         |       | 274 |   | 337 |   |
| 2015           |       | 566                         |       | 630 |   | 529 |   |
| 2016           |       | 296                         |       | 397 |   | 492 |   |
| 2017           |       | 333                         |       | 445 |   | 404 |   |
| Subtotal       |       | 3,689                       |       | 4,197 |   | 3,360 |   |
| Remainder      |       | 1,467                       |       | 2,066 |   | 4,354 |   |
| Total          |       | 5,056                       |       | 6,263 |   | 7,715 |   |
| 10% Discounted |       | 2,482                       |       | 2,951 |   | 2,753 |   |

 

23

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The Corporation estimates the costs to abandon andreclaim all its shut in and producing wells, facilities, gas plants andpipelines. The Corporation’s model for estimating the amount and timing offuture abandonment and reclamation expenditures was done on an operating arealevel. Estimated expenditures for each operating area are based on the AlbertaEnergy and Utilities Board methodology, which details the cost of abandonmentand reclamation in each specific geographic region. Each region was assigned anaverage cost per well to abandon and reclaim the wells in that area. Facilityreclamation costs are scheduled to be incurred in the year following the end ofthe reserve life of its associated reserves. The Corporation will be liable forits share of ongoing environmental obligations and for the ultimate reclamationof the properties held by it upon abandonment. Ongoing environmentalobligations are expected to be funded out of cash flow. As atDecember 31, 2006, the Corporation expected to incur reclamation andabandonment costs in respect of 446 gross (248.6 net) wells located on itsproperties and assets.

**Tax Horizon**

The Corporation does notexpect to be cash taxable in 2007 or 2008 and with continued explorationactivity, we could push our tax horizon further.

**Drilling Activity**

The followingtable summarizes the Corporation’s drilling results for the year ended December31, 2006.
|                      | ** ** | **2006**  | ** ** |
|----------------------|------------|-----------|------------|
| ** **           | ** ** | **Gross** | ** ** | **Net** | ** ** |
| Oil                  |       | 6.0       |       | 4.3 |   |
| Natural Gas          |       | 22.0      |       | 16.0 |   |
| Coal bed methane     |       | 32.0      |       | 8.9 |   |
| Dry &  Abandoned |       | 2.0       |       | 1.5 |   |
| Total                |       | 62.0      |       | 30.7 |   |

 

**Production Estimates**

The following tables setout the volume of the Corporation’s production estimated using both constantand forecast prices and costs for the year ended December 31, 2007, which isreflected in the estimate of future net revenue disclosed in the tablescontained under “Disclosure of Reserves Data”.
| ** **                            | ** ** | **2007 Estimated Daily Production** | ** ** |
|---------------------------------------|------------|----------------------------------------------------|------------|
| ** **                            | ** ** | **Light and  Medium Oil**                | ** ** | **Natural Gas** | ** ** | **Natural Gas Liquids** | ** ** | **Oil Equivalent** | ** ** |
| **Entity Description**           | ** ** | **W.I.**                                           | ** ** | **Net** | ** ** | **W.I.** | ** ** | **Net** | ** ** | **W.I.** | ** ** | **Net** | ** ** | **W.I.** | ** ** | **Net** | ** ** |
| ** **                            | ** ** | **bbl/d**                                          | ** ** | **bbl/d** | ** ** | **bbl/d** | ** ** | **bbl/d** | ** ** | **bbl/d** | ** ** | **bbl/d** | ** ** | **bbl/d** | ** ** | **bbl/d** | ** ** |
|                                  |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Proved Producing**                  | ** ** | ** **                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Aerial-Michichi                       |       | 63                                                 |       | 50 |   | 3,358 |   | 2,697 |   | 42 |   | 28 |   | 698 |   | 528 |   |
| Other Properties                      |       | 425                                                |       | 385 |   | 9,355 |   | 7,336 |   | 81 |   | 55 |   | 2,065 |   | 1,663 |   |
| **Total: Proved Producing**           | ** ** | **488**                                            | ** ** | **435** | ** ** | **12,913** | ** ** | **10,033** | ** ** | **123** | ** ** | **83** | ** ** | **2,763** | ** ** | **2,190** | ** ** |
| ** **                            |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Proved Developed Nonproducing**     | ** ** | ** **                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Aerial-Michichi                       |       | 0                                                  |       | 0 |   | 303 |   | 228 |   | 4 |   | 2 |   | 54 |   | 41 |   |
| Other Properties                      |       | 16                                                 |       | 15 |   | 330 |   | 270 |   | 1 |   | 1 |   | 72 |   | 61 |   |
| **Total: Developed Nonproducing**     | ** ** | **16**                                             | ** ** | **15** | ** ** | **633** | ** ** | **498** | ** ** | **4** | ** ** | **3** | ** ** | **126** | ** ** | **101** | ** ** |
| ** **                            |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Proved Undeveloped**                | ** ** | ** **                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Aerial-Michichi                       |       | 0                                                  |       | 0 |   | 0 |   | 0 |   | 0 |   | 0 |   | 0 |   | 0 |   |
| Other Properties                      |       | 0                                                  |       | 0 |   | 523 |   | 446 |   | 0 |   | 0 |   | 87 |   | 74 |   |
| **Total: Proved Undeveloped**         | ** ** | **0**                                              | ** ** | **0** | ** ** | **523** | ** ** | **446** | ** ** | **0** | ** ** | **0** | ** ** | **87** | ** ** | **74** | ** ** |
| ** **                            |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Total Proved**                      | ** ** | ** **                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Aerial-Michichi                       |       | 63                                                 |       | 50 |   | 3,860 |   | 2,925 |   | 46 |   | 30 |   | 752 |   | 568 |   |
| Other Properties                      |       | 441                                                |       | 400 |   | 10,209 |   | 8,052 |   | 82 |   | 56 |   | 2,224 |   | 1,798 |   |
| **Total: Total Proved**               | ** ** | **504**                                            | ** ** | **450** | ** ** | **14,069** | ** ** | **10,977** | ** ** | **127** | ** ** | **86** | ** ** | **2,976** | ** ** | **2,366** | ** ** |
| ** **                            |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Total Probable**                    | ** ** | ** **                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Aerial-Michichi                       |       | 4                                                  |       | 3 |   | 192 |   | 138 |   | 2 |   | 2 |   | 39 |   | 28 |   |
| Other Properties                      |       | 15                                                 |       | 12 |   | 1,044 |   | 785 |   | 7 |   | 5 |   | 196 |   | 148 |   |
| **Total: Total Probable**             | ** ** | **19**                                             | ** ** | **15** | ** ** | **1,236** | ** ** | **924** | ** ** | **9** | ** ** | **6** | ** ** | **234** | ** ** | **176** | ** ** |
| ** **                            |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Total Proved Plus Probable**        | ** ** | ** **                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Aerial-Michichi                       |       | 67                                                 |       | 54 |   | 4,053 |   | 3,063 |   | 48 |   | 32 |   | 791 |   | 596 |   |
| Other Properties                      |       | 456                                                |       | 412 |   | 11,252 |   | 8,837 |   | 89 |   | 61 |   | 2,420 |   | 1,946 |   |
| **Total: Total Proved Plus Probable** | ** ** | **523**                                            | ** ** | **465** | ** ** | **15,305** | ** ** | **11,900** | ** ** | **137** | ** ** | **93** | ** ** | **3,211** | ** ** | **2,541** | ** ** |

 

24

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**Production History, Prices Received and CapitalExpenditures**

The followingtables summarize certain information in respect of production, product pricesreceived, royalties paid, operating expenses and resulting netback for theperiods indicated below:

|                                                          | ** ** | **Quarter Ended 2006** | ** ** |
|----------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                               | ** ** | **2006**                         | ** ** |
| ** **                                               | ** ** | **Dec. 31**                 | ** ** | **Sept. 30** | ** ** | **June 30** | ** ** | **Mar. 31** | ** ** |
| Average Daily  Production(1)                             |       |                             |       |   |   |   |   |   |   |
| Light / Medium  Crude Oil & Ngl’s (Bbls/d)      |       | 769.9                            |       | 644.6 |   | 569.8 |   | 625.2 |   |
| Gas (Mcf/d)                                              |       | 14,416.6                         |       | 12,983.3 |   | 12,673.7 |   | 13,579.7 |   |
| Combined (BOE/d)                                         |       | 3,172.6                          |       | 2,808.5 |   | 2,682.1 |   | 2,888.5 |   |
|                                                     |       |                             |       |   |   |   |   |   |   |
| Average Price Received                                   |       |                             |       |   |   |   |   |   |   |
| Light/Med Crude  Oil & Ngl’s /Bbl After Hedging |       | $                                | 53.62      |   | $ | 68.68 |   | $ | 68.78 |   | $ | 59.04 |   |
|                                                     |       |                             |       |   |   |   |   |   |   |
| Gas ($/Mcf)                                              |       | $                                | 7.18       |   | $ | 5.95 |   | $ | 6.31 |   | $ | 8.26 |   |
| Combined ($/BOE)  after hedging                          |       | $                                | 45.66      |   | $ | 43.29 |   | $ | 44.41 |   | $ | 51.63 |   |
|                                                     |       |                             |       |   |   |   |   |   |   |
| Royalties Paid  ($/BOE)                                  |       | $                                | 8.04       |   | $ | 5.98 |   | $ | 5.86 |   | $ | 11.25 |   |
|                                                     |       |                             |       |   |   |   |   |   |   |
| Operating  Expenses ($/BOE)                              |       | $                                | 11.31      |   | $ | 8.41 |   | $ | 7.43 |   | $ | 6.74 |   |
|                                                     |       |                             |       |   |   |   |   |   |   |
| Netback Received  ($/BOE)(2)                             |       | $                                | 26.28      |   | $ | 28.90 |   | $ | 31.12 |   | $ | 33.64 |   |

 

----

Notes:

(1)                                  Before deduction of royalties.

(2)                                  Netbacks are calculated by subtractingroyalties and operating costs from revenues.

For year ended December31, 2006, net average daily production from Corporation’s Aerial-Michichi propertieswas 55 bblsld light and 5, 360 mmc fld natural gas, or 957 boe ld.

**INDUSTRY CONDITIONS**

The oil and natural gasindustry is subject to extensive controls and regulations governing itsoperations (including land tenure, exploration, development, production,refining, transportation, and marketing) imposed by legislation enacted byvarious levels of government and with respect to pricing and taxation of oiland natural gas by agreements among the governments of Canada, Alberta, BritishColumbia, Saskatchewan, Nova Scotia and Trinidad and Tobago, all of whichshould be carefully considered by investors in the oil and gas industry.  It is not expected that any of these controlsor regulations will affect the Corporation’s operations in a manner materiallydifferent than they would affect other oil and gas companies of similarsize.  All current legislation is amatter of public record and the Corporation is unable to predict whatadditional legislation or amendments may be enacted.  Outlined below are some of the principalaspects of legislation, regulations and agreements governing the oil and gasindustry.

**Pricingand Marketing - Oil and Natural Gas**

The producers of oil areentitled to negotiate sales contracts directly with oil purchasers, with theresult that the market determines the price of oil.  Oil prices are primarily based on worldwidesupply and demand.  The specific pricedepends in part on oil quality, prices of competing fuels, distance to market,the value of refined products, the supply/demand balance, and other contractualterms.  Oil exporters are also entitledto enter into export contracts with terms not exceeding one year in the case oflight crude oil and two years in the case of heavy crude oil, provided that anorder approving such export has been obtained from the National Energy Board ofCanada (the “**NEB**”).  Any oil export to be made pursuant to acontract of longer duration (to a maximum of 25 years) requires an exporter toobtain an export licence from the NEB and the issuance of such licence requiresthe approval of the Governor in Council.

The price of natural gasis determined by negotiation between buyers and sellers.  Natural gas exported from Canada is subjectto regulation by the NEB and the Government of Canada.  Exporters are free to negotiate prices andother terms with purchasers, provided that the export contracts must continueto meet certain other criteria prescribed by the NEB and the Government ofCanada.  Natural gas exports for a termof less than two years or for a term of two 

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to 20 years (inquantities of not more than 30,000 m3/day), must be made pursuant to an NEBorder.  Any natural gas export to be madepursuant to a contract of longer duration (to a maximum of 25 years) or alarger quantity requires an exporter to obtain an export licence from the NEBand the issuance of such licence requires the approval of the Governor inCouncil.

The governments ofAlberta, British Columbia, Saskatchewan and Nova Scotia also regulate thevolume of natural gas that may be removed from those provinces for consumptionelsewhere based on such factors as reserve availability, transportationarrangements, and market considerations.

**PipelineCapacity**

Although pipelineexpansions are ongoing, the lack of firm pipeline capacity continues to affectthe oil and natural gas industry and limit the ability to produce and to marketnatural gas production.  In addition, thepro-rationing of capacity on the inter-provincial pipeline systems alsocontinues to affect the ability to export oil and natural gas.

**TheNorth American Free Trade Agreement**

The North American FreeTrade Agreement (“**NAFTA**”) amongthe governments of Canada, United States of America, and Mexico becameeffective on January 1, 1994.  NAFTAcarries forward most of the material energy terms that are contained in theCanada United States Free Trade Agreement. In the context of energy resources, Canada continues to remain free todetermine whether exports of energy resources to the United States or Mexicowill be allowed, provided that any export restrictions do not: (i) reduce theproportion of energy resources exported relative to domestic use (based uponthe proportion prevailing in the most recent 36 month period); (ii) impose anexport price higher than the domestic price subject to an exception withrespect to certain voluntary measures which only restrict the volume ofexports; and (iii) disrupt normal channels of supply.  All three countries are prohibited fromimposing minimum or maximum export or import price requirements, provided, inthe case of export price requirements, prohibition in any circumstances inwhich any other form of quantitative restriction is prohibited, and in the caseof import-price requirements, such requirements do not apply with respect toenforcement of countervailing and anti-dumping orders and undertakings.

NAFTA contemplates thereduction of Mexican restrictive trade practices in the energy sector by 2010and prohibits discriminatory border restrictions and export taxes.  NAFTA also contemplates clearer disciplineson regulators to ensure fair implementation of any regulatory changes and tominimize disruption of contractual arrangements and avoid undue interferencewith pricing, marketing and distribution arrangements, which is important for Canadiannatural gas exports.

**ProvincialRoyalties and Incentives**

***General***

In addition to federalregulation, each province has legislation and regulations which govern landtenure, royalties, production rates, environmental protection, and othermatters.  The royalty regime is asignificant factor in the profitability of crude oil, natural gas liquids,sulphur, and natural gas production. Royalties payable on production from lands other than Crown lands aredetermined by negotiations between the mineral owner and the lessee, althoughproduction from such lands is subject to certain provincial taxes androyalties.  Crown royalties aredetermined by governmental regulation and are generally calculated as apercentage of the value of the gross production.  The rate of royalties payable generallydepends in part on prescribed reference prices, well productivity, geographicallocation, field discovery date, method of recovery, and the type or quality ofthe petroleum product produced.  Otherroyalties and royalty-like interests are, from time to time, carved out of theworking interest owner’s interest through non-public transactions.  These are often referred to as overridingroyalties, gross overriding royalties, net profits interests, or net carriedinterests.

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Occasionally thegovernments of the western Canadian provinces create incentive programs forexploration and development.  Suchprograms often provide for royalty rate reductions, royalty holidays, and taxcredits, and are generally introduced when commodity prices are low.  The programs are designed to encourageexploration and development activity by improving earnings and cash flow withinthe industry.  Royalty holidays and reductionswould reduce the amount of Crown royalties paid by oil and gas producers to theprovincial governments and would increase the net income and funds fromoperations of such producers.  However,the trend in recent years has been for provincial governments to eliminate,amend or allow such incentive programs to expire without renewal, andconsequently few such incentive programs are currently operative.

The Canadian federalcorporate income tax rate levied on taxable income is 22.1% effective January1, 2007 for active business income including resource income.  With the elimination of the corporate surtaxeffective January 1, 2008 and other rate reductions introduced in the 2006Federal Budget, the federal corporate income tax rate will decrease to 19% inthree steps: 20.5% on January 1, 2008, 20% on January 1, 2009 and 19% on January1, 2010.

***Alberta***

In Alberta, companies aregranted the right to explore, produce and develop petroleum and natural gasresources in exchange for royalties, bonus bid payments and rents.  Currently, the amount of royalties that arepayable is influenced by the oil production, density of the oil, and thevintage of the oil.  Originally, thevintage classified oil in “new oil” and “old oil” depending on when the oilpools were discovered.  If discoveredprior to March 31, 1974 it is considered “old oil”, if discovered after March31, 1974 and before September 1, 1992, it is considered “new oil”.  The Alberta government introduced in 1992 aThird Tier Royalty with a base rate of 10% and a rate cap of 25% for oil poolsdiscovered after September 1, 1992.  Thenew oil royalty reserved to the Crown has a base rate of 10% and a rate cap of30%.  The old oil royalty reserved to theCrown has a base rate of 10% and a rate cap of 35%.

The royalty reserved tothe Crown in respect of natural gas production, subject to various incentives,is between 15% and 30%, in the case of new natural gas, and between 15% and35%, in the case of old natural gas, depending upon a prescribed or corporateaverage reference price.  Natural gas producedfrom qualifying intervals in eligible gas wells spudded or deepened to a depthbelow 2,500 metres is also subject to a royalty exemption, the amount of whichdepends on the depth of the well.

Oil sands projects aresubject to a specific regulation made effective July 1, 1997, and expiring June30, 2007, which, among other things, determines the Crown’s share of crude andprocessed oil sands products.

Regulations made pursuantto the *Mines and Minerals Act*(Alberta) provided various incentives for exploring and developing oil reservesin Alberta.  However, the AlbertaGovernment announced in August of 2006 that four royalty programs were to beamended, a new program was to be introduced and the Alberta Royalty Tax CreditProgram (“**ARTC**”) was to beeliminated, effective January 1, 2007. The programs affected by this announcement are: (i) Deep Gas RoyaltyHoliday; (ii) Low Productivity Well Royalty Reduction; (iii) Reactivated WellRoyalty Exemption; and (iv) Horizontal Re-Entry Royalty Reduction.  The program being introduced is the InnovativeEnergy Technologies Program (the “**IETP**”)which is intended to promote the producers’ investment in research, technologyand innovation for the purposes of improving environmental performance whilecreating commercial value.  The IETPprovides royalty reductions which are presumed to reduce financial risk.  Alberta Energy will be the one to decidewhich projects qualify and the level of support that will be provided.  The deadline for the IETP’s third round ofapplications is May 31, 2007.

On February 16, 2007, theAlberta Government announced that a review of the province’s royalty and taxregime (including income tax and freehold mineral rights tax) pertaining tooil, gas and oil sands will be conducted by a panel of experts, with theassistance of individual Albertans and key stakeholders.  The purpose of this process is to ensure thatAlbertans are receiving a fair share from energy development through royalties,taxes and fees.  The issues to bereviewed during this examination process are: (i) undertaking a comparison of Alberta’s royalty system to other oiland gas producing jurisdictions, taking into account investment economics andindustry returns and risks in Alberta; (ii) whether Alberta’s royalty system issufficiently sensitive to market conditions; (iii) whether the current revenueminus cost system for oil sands royalties is optimal; (iv) which programs builtinto the existing royalty system should be retained or strengthened, and whichshould be adapted or eliminated; (v) how the tax treatment of the oil and gassector compares to other sectors and jurisdictions; (vi) the economic andfiscal impacts 

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of any possible changesto the royalty and corporate tax structures; and (vii) how existing resourcedevelopment should be treated if changes are to be made to the fiscalregime.  The review panel is to produce afinal report that will be presented to the Minister of Finance by August, 31,2007.

***British***Columbia

Producers of oil andnatural gas in the Province of British Columbia are required to pay annualrental payments with respect to the Crown leases and royalties and freeholdproduction taxes in respect of oil and gas produced from Crown and freeholdlands.  The amount payable as a royaltyin respect of oil depends on the type of oil, the value of the oil, thequantity of oil produced in a month, and the vintage of the oil.  Generally, the vintage of oil is based on thedetermination of whether the oil is produced from a pool discovered beforeOctober 31, 1975 (old oil), between October 31, 1975, and June 1, 1998 (newoil), or after June 1, 1998 (third-tier oil). The royalty rates are calculated in three stages, which take intoaccount the vintage of the oil, if the oil produced has already been sold and anyroyalty exempt value applicable (exempt wells). Oil produced from newly discovered pools may be exempt from the paymentof a royalty for the first 36 months of production or 11,450m3 produced, whichever comes first; and theroyalties for third-tier oil are the lowest reflecting the higher costs ofexploration and extraction that the producers would incur.  The royalty payable on natural gas isdetermined by a sliding scale based on a reference price, which is the greaterof the price obtained by the producer, and a prescribed minimum price.  However, when the reference price is below theselect price (a parameter used in the royalty rate formula), the royalty rateis fixed.  As an incentive for theproduction and marketing of natural gas, which may have been flared, naturalgas produced in association with oil has a lower royalty then the royaltypayable on non-conservation gas.

On May 30, 2003, theMinistry of Energy and Mines for the Province of British Columbia announced anOil and Gas Development Strategy for the Heartlands (“**Strategy**”). The Strategy is a comprehensive program to address road infrastructure,targeted royalties and regulatory reduction, and British Columbia servicesector opportunities.  In addition, theStrategy will result in economic and employment opportunities for communitiesin British Columbia’s heartlands.

Some of the financialincentives in the Strategy include:

Royalty credits of up to$30 million annually towards the construction, upgrading, and maintenance ofroad infrastructure in support of resource exploration and development.  Funding will be contingent upon an equalcontribution from industry.

Changes to provincialroyalties: new royalty rates for low productivity natural gas to enhancemarginally economic resources plays, royalty credits for deep gas explorationto locate new sources of natural gas, and royalty credits for summer drillingto expand the drilling season.

On February 27, 2007 theGovernment of British Columbia unveiled the Energy Plan outlining the Province’sstrategy towards the environment and which includes targeting for zero netgreenhouse gas emissions, promoting new investments in innovation, and becomingthe world’s leader in sustainable environmental management. With regards to theoil and gas industry the objective is to achieve clean energy throughconservation and energy efficient practices, whilst competitiveness isadvocated in order to attract investment for the development of the oil and gassector. Among the changes to be implemented are: (i) a new of Net ProfitRoyalty Program; (ii) the creation of a Petroleum Registry; (iii) theestablishing of an infrastructure royalty program (combining roads andpipelines); (iv) the elimination of routine flaring at producing wells; (v) thecreation of policies and measures for the reduction of emissions; (vi) thedevelopment of unconventional resources such as tight gas and coalbed gas; and(vii) new the Oil and Gas Technology Transfer Incentive Program that encouragesthe research, development and use of innovative technologies to increase recoveriesfrom existing reserves and promotes responsible development of new oil and gasreserves.

***Saskatchewan***

In Saskatchewan, theamount payable as a royalty in respect of oil depends on the vintage of theoil, the type of oil, the quantity of oil produced in a month, and the value ofthe oil.  For Crown royalty and freeholdproduction tax 

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purposes, crude oil isconsidered “heavy oil”, “southwest designated oil”, or “non-heavy oil otherthan southwest designated oil”.  Theconventional royalty and production tax classifications (“fourth tier oil”introduced October 1, 2002, “third tier oil”, “new oil”, or “old oil”) of oilproduction are applicable to each of the three crude oil types.  The Crown royalty and freehold production taxstructure for crude oil is price sensitive and varies between the base royaltyrates of 5% for all “fourth tier oil” to 20% for “old oil”.  Marginal royalty rates are 30% for all “fourthtier oil” to 45% for “old oil”.

The amount payable as aroyalty in respect of natural gas is determined by a sliding scale based on areference price (which is the greater of the amount obtained by the producerand a prescribed minimum price), the quantity produced in a given month, thetype of natural gas, and the vintage of the natural gas.  As an incentive for the production andmarketing of natural gas which may have been flared, the royalty rate onnatural gas produced in association with oil is less than on non-associatednatural gas.  The royalty and productiontax classifications of gas production are “fourth tier gas” introduced October1, 2002, “third tier gas”, “new gas”, and “old gas”.  The Crown royalty and freehold production taxfor gas is price sensitive and varies between the base royalty rate of 5% for “fourthtier gas” and 20% for “old gas”.  Themarginal royalty rates are between 30% for “fourth tier gas” and 45% for “oldgas”.

On October 1, 2002, thefollowing changes were made to the royalty and tax regime in Saskatchewan:

A new Crown royalty andfreehold production tax regime applicable to associated natural gas (gasproduced from oil wells) that is gathered for use or sale.  The royalty/tax will be payable on associatednatural gas produced from an oil well that exceeds approximately 65 thousandcubic metres in a month.

A modified system ofincentive volumes and maximum royalty/tax rates applicable to the initialproduction from oil wells and gas wells with a finished drilling date on orafter October 1, 2002, was introduced. The incentive volumes are applicable to various well types and aresubject to a maximum royalty rate of 2.5% and a freehold production tax rate ofzero per cent.

The elimination of the reentry and short section horizontal oil well royalty/tax categories.  All horizontal oil wells with a finisheddrilling date on or after October 1, 2002, will receive the “fourth tier”royalty/ tax rates and new incentive volumes.

In 1975, the Governmentof Saskatchewan introduced a Royalty Tax Rebate (“**RTR**”) as a response to the federal government disallowingcrown royalties and similar taxes as a deductible business expense for incometax purposes.  As of January 1, 2007, theremaining balance of any unused RTR will be limited in its carry forward tofive years since the federal government had the initiative to reintroduce thefull deduction of provincial resource royalties from federal and provincialtaxable income.

**LandTenure**

Crude oil and natural gaslocated in the western provinces is owned predominantly by the respectiveprovincial governments.  Provincialgovernments grant rights to explore for and produce oil and natural gaspursuant to leases, licences, and permits for varying terms from two years, andon conditions set forth in provincial legislation including requirements toperform specific work or make payments. Oil and natural gas located in such provinces can also be privatelyowned and rights to explore for and produce such oil and natural gas aregranted by lease on such terms and conditions as may be negotiated.

**EnvironmentalRegulation**

The oil and natural gasindustry is currently subject to environmental regulations pursuant to avariety of provincial and federal legislation. Such legislation provides for restrictions and prohibitions on therelease or emission of 

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various substancesproduced in association with certain oil and gas industry operations.  In addition, such legislation requires thatwell and facility sites be abandoned and reclaimed to the satisfaction ofprovincial authorities.  Compliance withsuch legislation can require significant expenditures and a breach of suchrequirements may result in suspension or revocation of necessary licenses andauthorizations, civil liability for pollution damage, and the imposition ofmaterial fines and penalties.

Environmental legislationin the Province of Alberta has been consolidated into the *Environmental Protection and Enhancement Act*(Alberta)(the “**EPEA**”), which came intoforce on September 1, 1993, and the *Oil andGas Conservation Act*(Alberta) (the “**OGCA**”).  The EPEA andOGCA impose stricter environmental standards, require more stringentcompliance, reporting and monitoring obligations, and significantly increasedpenalties.  In 2006, the AlbertaGovernment enacted regulations pursuant to the EPEA to specifically targetsulphur oxide and nitrous oxide emissions from industrial operations includingthe oil and gas industry.  No additionalexpenses are foreseen that are associated with complying with the newregulations.  The Corporation will becommitted to meeting its responsibilities to protect the environment whereverit operates and anticipates making increased expenditures of both a capital andan expense nature as a result of the increasingly stringent laws relating tothe protection of the environment, and will be taking such steps as required toensure compliance with the EPEA and similar legislation in other jurisdictionsin which it operates.  We believe that weare in material compliance with applicable environmental laws and regulations.  We also believe that it is reasonably likelythat the trend towards stricter standards in environmental legislation andregulation will continue.

British Columbia’s *Environmental Assessment Act*becameeffective June 30, 1995.  Thislegislation rolls the previous processes for the review of major energy projectsinto a single environmental assessment process with public participation in theenvironmental review process.

In December, 2002, theGovernment of Canada ratified the Kyoto Protocol (“**Protocol**”).  TheProtocol calls for Canada to reduce its greenhouse gas emissions to 6% below1990 “business-as-usual” levels between 2008 and 2012.  Given revised estimates of Canada’s normalemissions levels, this target translates into an approximately 40% grossreduction in Canada’s current emissions. It remains uncertain whether the Kyoto target of 6% below 1990 emissionlevels will be enforced in Canada.  TheFederal Government has introduced legislation aimed at reducing greenhouse gasemissions using a “intensity based” approach, the specifics of which have yetto be determined.  Bill C-288, which isintended to ensure that Canada meets its global climate change obligationsunder the Kyoto Protocol, was passed by the House of Commons on February 14,2007.  As details of the implementationof this legislation have not yet been announced, the effect of our operationscannot be determined at this time.

**Trends**

There are a number oftrends that have been developing in the oil and gas industry during the pastseveral years that appear to be shaping the near future of the business.

The first trend is thevolatility of commodity prices.  Naturalgas is a commodity influenced by factors within North America.  A tight supply-demand balance for natural gascauses significant elasticity in pricing, whereas higher than average storagelevels tend to depress natural gas pricing. Drilling activity, weather, fuel switching and demand for electricalgeneration are all factors that affect the supply-demand balance.  Changes to any of these or other factorscreate price volatility.

Crude oil is influencedby the world economy, Organization of the Petroleum Exporting Countries’ability to adjust supply to world demand and weather.  Crude oil prices have been kept high bypolitical events causing disruptions in the supply of oil and concern overpotential supply disruptions triggered by unrest in the Middle East and morerecently have been impacted by weather and increased storage levels.  Political events trigger large fluctuationsin price levels.

The impact on the oil andgas industry from commodity price volatility is significant.  During periods of high prices, producersgenerate sufficient cash flows to conduct active exploration programs withoutexternal capital.  Increased 

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commodity pricesfrequently translate into very busy periods for service suppliers triggeringpremium costs for their services. Purchasing land and properties similarly increase in price during theseperiods.  During low commodity priceperiods, acquisition costs drop, as do internally generated funds to spend onexploration and development activities. With decreased demand, the prices charged by the various servicesuppliers also decline.

A second trend within theCanadian oil and gas industry is the fairly consistent “renewal” of private andsmall junior oil and gas companies starting up business.  These companies often have experiencedmanagement teams from previous industry organizations that have disappeared asa part of the ongoing industry consolidation. Many are able to raise capital and recruit well qualifiedpersonnel.  The Corporation will have tocompete with these companies and others to attract qualified personnel.

A third trend currentlyaffecting the oil and gas industry is the impact on capital markets caused byinvestor uncertainty in the North American economy.  The capital market volatility in Canada hasalso been affected by uncertainties surrounding the economic impact that theProtocol, and other environmental initiatives, will have on the sector and, inmore recent times, by the October 31, 2006 proposals of the Federal governmentof Canada (the “October 31, 2006 Proposals”) relating to income trusts andother “specified investment flow-through” entities (“SIFTs”).  Pursuant to the existing provisions of the *Income Tax Act* (Canada), to the extentthat a SIFT has any income for a taxation year after certain inclusions anddeductions, the SIFT will be permitted to deduct all amounts of income whichare paid or become payable by it to unitholders in the year.  Under the October 31, 2006 Proposals, SIFTswill be liable for tax at a rate consistent with the taxes currently imposed oncorporations commencing in January 2011, provided that the SIFT experiencesonly “normal growth” and no “undue expansion” before then, in which case thetax could be imposed prior to the January 2011 deadline.  Although the October 31, 2006 Proposals willnot affect the method in which the Corporation will be taxed, they may have animpact on the ability of a SIFT to purchase producing assets from junior oiland gas companies (as well as the price that a SIFT is willing to pay for suchan acquisition) thereby affecting exploration and production companies’ abilityto be sold to a SIFT which has been a key “exit strategy” in recent years forsmall to mid-sized oil and gas companies. This may be a benefit for the Corporation as it will compete with SIFTsfor the acquisition of oil and gas properties from junior producers.  However, it may also limit the Corporation’sability to sell producing properties or pursue an exit strategy.

Generally during the pastyear, the economic recovery combined with increased commodity prices has causedan increase in new equity financings in the oil and gas industry, although thelevel of same was negatively impacted by the October 31, 2006 Proposals.  The Corporation will compete with numerousnew companies and their new management teams and development plans in itsaccess to capital.  The competitivenature of the oil and gas industry will cause opportunities for equityfinancings to be selective.  TheCorporation may have to rely on internally generated funds to conduct theirexploration and developmental programs.

**RISK FACTORS**

A number of factors,including but not limited to, those discussed in this section could cause theCorporation’s results to differ materially from its expectations.

**Exploration, Development and Production Risks**

An investment in theCorporation’s securities would be speculative due to the nature of theCorporation’s involvement in the exploration, development and production of oiland natural gas and its present stage of development.

Oil and natural gasexploration involves a high degree of risk and there is no assurance thatexpenditures made on future exploration by the Corporation will result in newdiscoveries of oil or natural gas in commercial quantities. It is difficult toproject the costs of implementing an exploratory drilling program due to theinherent uncertainties of drilling in unknown formations, the costs associatedwith encountering various drilling conditions, such as over pressured zones andtools lost in the hole, and changes in drilling plans and locations as a resultof prior exploratory wells or additional seismic data and interpretationsthereof.

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Management will evaluateexploration and development prospects on an ongoing basis in a mannerconsistent with industry standards. The long-term commercial success of theCorporation depends on its ability to find, acquire, develop and commerciallyproduce oil and natural gas reserves. No assurance can be given that theCorporation will be able to locate satisfactory properties for acquisition orparticipation. Moreover, if such acquisitions or participations are identified,the Corporation may determine that current markets, terms of acquisition andparticipation or pricing conditions make such acquisitions or participationsuneconomic.

Future oil and gasexploration may involve unprofitable efforts, not only from dry wells, but fromwells that are productive but do not produce sufficient net revenues to returna profit after drilling, operating and other costs. Completion of a well doesnot assure a profit on the investment or recovery of drilling, completion andoperating costs. In addition, drilling hazards or environmental damage couldgreatly increase the cost of operations, and various field operating conditionsmay adversely affect the production from successful wells. These conditionsinclude delays in obtaining governmental approvals or consents, shut-ins ofconnected wells resulting from extreme weather conditions, insufficient storageor transportation capacity or other geological and mechanical conditions. Whileclose well supervision and effective maintenance operations can contribute tomaximizing production rates over time, production delays and declines fromnormal field operating conditions cannot be eliminated and can be expected toadversely affect revenue and cash flow levels to varying degrees.

In addition, oil and gasoperations are subject to the risks of exploration, development and productionof oil and natural gas properties, including encountering unexpected formationsor pressures, premature declines of reservoirs, blow-outs, cratering, sour gasreleases, fires and spills. Losses resulting from the occurrence of any ofthese risks could have a materially adverse effect on future results ofoperations, liquidity and financial condition.

**Substantial Capital Requirements and Liquidity**

The Corporationanticipates that it will make substantial capital expenditures for theacquisition, exploration, development and production of oil and natural gasreserves in the future. If the Corporation’s revenues or reserves decline, theCorporation may have limited ability to expend the capital necessary toundertake or complete future drilling programs. There can be no assurance thatdebt or equity financing, or cash generated by operations will be available orsufficient to meet these requirements or for other corporate purposes or, ifdebt or equity financing is available, that it will be on terms acceptable tothe Corporation. Moreover, future activities may require the Corporation toalter its capitalization significantly. The inability of the Corporation toaccess sufficient capital for its operations could have a material adverseeffect on the Corporation’s financial condition, results of operations orprospects.

**Additional Funding Requirements**

The Corporation’s cashflow from its reserves may not be sufficient to fund its ongoing activities atall times. From time to time, the Corporation may require additional financingin order to carry out its oil and natural gas acquisition, exploration anddevelopment activities. Failure to obtain such financing on a timely basiscould cause the Corporation to forfeit its interest in certain properties, misscertain acquisition opportunities and reduce or terminate its operations. Ifthe Corporation’s revenues from its reserves decrease as a result of lower oiland natural gas prices or otherwise, it will affect the Corporation’s abilityto expend the necessary capital to replace its reserves or to maintain itsproduction. If the Corporation’s cash flow from operations is not sufficient tosatisfy its capital expenditure requirements, there can be no assurance thatadditional debt or equity financing will be available to meet theserequirements or available on favourable terms.

**Issuance of Debt**

From time to time theCorporation may enter into transactions to acquire assets or the shares ofother corporations. These transactions may be financed partially or wholly withdebt, which may increase the Corporation’s debt levels above industrystandards. Neither the Corporation’s articles nor its by-laws limit the amountof indebtedness that the Corporation may incur. The level of the Corporation’sindebtedness from time to time could impair the Corporation’s ability to obtainadditional financing in the future on a timely basis to take advantage ofbusiness opportunities that may arise.

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**Prices, Markets and Marketing of Crude Oil and NaturalGas**

Oil and natural gas arecommodities whose prices are determined based on world demand, supply and otherfactors, all of which are beyond the control of the Corporation. World pricesfor oil and natural gas have fluctuated widely in recent years. Any materialdecline in prices could result in a reduction of net production revenue.Certain wells or other projects may become uneconomic as a result of a declinein world oil prices and natural gas prices, leading to a reduction in thevolume of the Corporation’s oil and gas reserves. The Corporation might alsoelect not to produce from certain wells at lower prices. All of these factorscould result in a material decrease in the Corporation’s future net productionrevenue, causing a reduction in its oil and gas acquisition and developmentactivities. In addition, bank borrowings available to the Corporation are inpart determined by the borrowing base of the Corporation. A sustained materialdecline in prices from historical average prices could limit the Corporation’sborrowing base, therefore reducing the bank credit available to theCorporation, and could require that a portion of any then existing bank debt ofthe Corporation be repaid.

In addition toestablishing markets for its oil and natural gas, the Corporation must alsosuccessfully market its oil and natural gas to prospective buyers. Themarketability and price of oil and natural gas which may be acquired ordiscovered by the Corporation will be affected by numerous factors beyond itscontrol. The Corporation will be affected by the differential between the pricepaid by refiners for light quality oil and the grades of oil produced by theCorporation. The ability of the Corporation to market its natural gas maydepend upon its ability to acquire space on pipelines which deliver natural gasto commercial markets. The Corporation will also likely be affected bydeliverability uncertainties related to the proximity of its reserves topipelines and processing facilities and related to operational problems withsuch pipelines and facilities and extensive government regulation relating toprice, taxes, royalties, land tenure, allowable production, the export of oiland natural gas and other aspects of the oil and natural gas business.

**Insurance**

The Corporation’sinvolvement in the exploration for and development of oil and natural gasproperties may result in the Corporation becoming subject to liability forpollution, blow-outs, property damage, personal injury or other hazards.Although the Corporation has obtained insurance in accordance with industrystandards to address such risks, such insurance has limitations on liabilitythat may not be sufficient to cover the full extent of such liabilities. Inaddition, such risks may not, in all circumstances be insurable or, in certaincircumstances, the Corporation may elect not to obtain insurance to deal withspecific risks due to the high premiums associated with such insurance or otherreasons. The payment of such uninsured liabilities would reduce the fundsavailable to the Corporation. The occurrence of a significant event that theCorporation is not fully insured against, or the insolvency of the insurer ofsuch event, could have a material adverse effect on the Corporation’s financialposition, results of operations or prospects.

**Legal Proceedings**

Litigation may be timeconsuming, expensive, and distracting from the conduct of our business, and theoutcome of litigation may be difficult to predict. The Corporation is unable todetermine the ultimate aggregate amount of monetary liability or financialimpact in these legal matters, which unless otherwise specified, seek damagesof indeterminate amounts. The Corporation cannot determine whether thesematters will, individually or collectively, have a material adverse effect onour business, results or operations and financial condition. To the extentexpenses incurred in connection with litigation or any potential regulatoryproceeding or action (which may include substantial fees of attorneys and otherprofessional advisors and potential obligations to indemnify officers anddirectors who may be parties to such actions) are not covered by availableinsurance, such expenses could adversely affect our cash position. TheCorporation, and any of our named directors or officers, intend to vigorouslydefend these actions suits, claims, proceedings and investigations. TheCorporation may in the future be subject to other litigation arising in thenormal course of our business.

**Environmental Risks**

All phases of the oil andnatural gas business present environmental risks and hazards and are subject toenvironmental regulation pursuant to a variety of international conventions andnational, provincial and municipal 

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laws and regulations.Environmental legislation provides for, among other things, restrictions andprohibitions on spills, releases or emissions of various substances produced inassociation with oil and gas operations. The legislation also requires thatwells and facility sites be operated, maintained, abandoned and reclaimed tothe satisfaction of applicable regulatory authorities. Compliance with suchlegislation can require significant expenditures and a breach may result in theimposition of fines and penalties, some of which may be material. TheCorporation believes that it is in substantial compliance with existinglegislation. Environmental legislation is evolving in a manner expected toresult in stricter standards and enforcement, larger fines and liability andpotentially increased capital expenditures and operating costs. The dischargeof oil, natural gas or other pollutants into the air, soil or water may giverise to liabilities to governments and third parties and may require theCorporation to incur costs to remedy such discharge. No assurance can be giventhat environmental laws will not result in a curtailment of production or amaterial increase in the costs of production, development or explorationactivities or otherwise adversely affect the Corporation’s financial condition,results of operations or prospects.

In 2002, the Governmentof Canada ratified the Kyoto Protocol, which calls for Canada to reduce itsgreenhouse gas emissions to specified levels. There has been much public debate with respect to Canada’s ability tomeet these targets and the Government’s strategy or alternative strategies withrespect to climate change and the control of greenhouse gases.  Implementation of strategies for reducinggreenhouse gases whether to meet the limits required by the Protocol or asotherwise determined, could have a material impact on the nature of oil andnatural gas operations, including those of the Corporation.  Given the evolving nature of the debaterelated to climate change and the control of greenhouse gases and resultingrequirements, it is not possible to predict either the nature of thoserequirements or the impact on the Corporation and its operations and financialcondition.

**Canadian Tax Considerations**

As the Corporation isengaged in the oil and natural gas business its operations are subject tocertain unique provisions of the *Income TaxAct* (Canada) and applicable provincial income tax legislationrelating to characterization of costs incurred in their businesses whicheffects whether such costs are deductible and, if deductible, the rate at whichthey may be deducted for the purposes of calculating taxable income.  The Corporation has reviewed its historicalincome tax returns with respect to the characterization of the costs incurredin the oil and natural gas business as well as other matters generallyapplicable to all corporations including the ability to offset future incomeagainst prior year losses.  TheCorporation has filed or will file all required income tax returns and believesthat it is full compliance with the provisions of the *Income Tax Act* (Canada) and applicableprovincial income tax legislation, but such returns are subject toreassessment.  In the event of asuccessful reassessment of the Corporation it may be subject to a higher thanexpected past or future income tax liability as well as potentially interestand penalties and such amount could be material.

**Exchange Rate Risks**

The Canadian to U.S.dollar exchange rate has strengthened and may fluctuate over time.  As product prices are generally U.S. dollarbased, the Corporation’s exposure to currency exchange rate risks are primarilylimited to Canadian capital expenditures, Canadian operating costs and themajority of the Corporation’s general and administrative expenses which arepaid for in Canadian dollars.

**Competition**

The Corporation activelycompetes for reserve acquisitions, exploration leases, licences and concessionsand skilled industry personnel with a substantial number of other oil and gascompanies, many of which have significantly greater financial resources thanthe Corporation. The Corporation’s competitors include major integrated oil andnatural gas companies and numerous other independent oil and natural gascompanies and individual producers and operators.

The oil and gas industryis highly competitive. The Corporation’s competitors for the acquisition,exploration, production and development of oil and natural gas properties, andfor capital to finance such activities, include companies that have greaterfinancial and personnel resources available to them than the Corporation.

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Certain of theCorporation’s customers and potential customers are themselves exploring foroil and gas, and the results of such exploration efforts could affect theCorporation’s ability to sell or supply oil or gas to these customers in thefuture. The Corporation’s ability to successfully bid on and acquire additionalproperty rights, to discover reserves, to participate in drilling opportunitiesand to identify and enter into commercial arrangements with customers will bedependent upon developing and maintaining close working relationships with itsfuture industry partners and joint operators and its ability to select andevaluate suitable properties and to consummate transactions in a highlycompetitive environment.

**Reserve Replacement**

The Corporation’s futureoil and natural gas reserves, production, and cash flows to be derivedtherefrom are highly dependent on the Corporation successfully acquiring ordiscovering new reserves. Without the continual addition of new reserves, anyexisting reserves the Corporation may have at any particular time and theproduction therefrom will decline overtime as such existing reserves areexploited. A future increase in the Corporation’s reserves will depend not onlyon the Corporation’s ability to develop any properties it may have from time totime, but also on its ability to select and acquire suitable producingproperties or prospects. There can be no assurance that the Corporation’sfuture exploration and development efforts will result in the discovery anddevelopment of additional commercial accumulations of oil and natural gas.

**Reliance on Operators and Key Employees**

To the extent theCorporation is not the operator of its oil and natural gas properties, theCorporation will be dependent on such operators for the timing of activitiesrelated to such properties and will largely be unable to direct or control theactivities of the operators. In addition, the success of the Corporation willbe largely dependent upon the performance of its management and key employees.The Corporation has no key-man insurance policies, and therefore there is arisk that the death or departure of any member of management or any keyemployee could have a material adverse effect on the Corporation.

**Permits and Licenses**

The operations of theCorporation may require licenses and permits from various governmentalauthorities. There can be no assurance that the Corporation will be able toobtain all necessary licenses and permits that may be required to carry outexploration and development at its projects.

**Royalties, Incentives and Production Taxes**

In addition to federalregulations, each province has legislation and regulations which govern landtenure, royalties, production rates, environmental protection and othermatters. The royalty regime is a significant factor in the profitability of oiland natural gas production. Royalties payable on production from lands otherthan Crown lands are determined by negotiations between the mineral owner andthe lessee. Crown royalties are determined by government regulation and aregenerally calculated as a percentage of the value of the gross production, andthe rate of royalties payable generally depends in part on prescribed referenceprices, well productivity, geographical location, field discovery date and thetype or quality of the petroleum product produced.

From time to time, theGovernments of Canada, Alberta, British Columbia and Saskatchewan haveestablished incentive programs which have included royalty rate reductions,royalty holidays and tax credits for the purpose of encouraging oil and naturalgas exploration or enhanced planning projects.

**Land Tenure**

Crude oil and natural gaslocated in the western provinces is owned predominantly by the respectiveprovincial governments. Provincial governments grant rights to explore for andproduce oil and natural gas pursuant to leases, licences and permits forvarying terms and on conditions set forth in provincial legislation includingrequirements to perform specific work or make payments. Oil and natural gaslocated in such provinces can also be privately owned 

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and rights to explore forand produce such oil and natural gas are granted by lease on such terms andconditions as may be negotiated.

**Title to Properties**

The Corporation has notobtained a legal opinion as to the title to its freehold properties other thanthe El Paso Properties and cannot guarantee or certify that a defect in thechain of title may not arise to defeat the Corporation’s interest in certain ofsuch properties. Remediation of title problems could result in additional costsand litigation. If title defects are unable to be remedied, the Corporation maylose some of its interest in the disputed properties resulting in reducedproduction.

Although title reviewswere conducted prior to the purchase of the El Paso Properties and may beconducted prior to the purchase of other oil and natural gas producingproperties or the commencement of drilling wells, such reviews may not discoverunforeseen title defects that could adversely affect the Corporation’s title toor proportionate interest in the property or entitlement to revenue from theproperty.

**Multi-jurisdictional Legal Risks**

The Corporation isincorporated under the laws of the Province of Alberta, Canada, and all but oneof the Corporation’s directors and all of its officers are residents ofCanada.  Consequently, it may bedifficult for United States investors to effect service of process within theUnited States upon the Corporation or upon those directors or officers who are notresidents of the United States, or to realize in the United States uponjudgements of United States courts predicated upon civil liabilities under theSecurities Exchange Act of 1934, as amended (United States).  Furthermore, it may be difficult for investorsto enforce judgements of the U.S. courts based on civil liability provisions ofthe U.S. federal securities laws in a Canadian court against the Corporation orany of the Corporation’s non-U.S. resident executive officers or directors.There is substantial doubt whether an original lawsuit could be broughtsuccessfully in Canada against any of such persons or the Corporationpredicated solely upon such civil liabilities.

**Reserve Information**

The reserve and recoveryinformation contained in the GLJ Report are only estimates and the actualproduction and ultimate reserves from the Corporation’s properties may begreater or less than the estimates prepared in such report. The GLJ Report hasbeen prepared using certain commodity price assumptions which are described inthe notes to the reserve tables. If lower prices for crude oil, natural gasliquids and natural gas are realized by the Corporation and substituted for theprice assumptions utilized in the report, the present value of estimated futurenet cash flows for the Corporation’s reserves would be reduced and thereduction could be significant, particularly based on the constant price caseassumptions. Exploration for oil and natural gas involves many risks, whicheven a combination of experience and careful evaluation may not be able toovercome. There is no assurance that further commercial quantities of oil andnatural gas will be discovered by the Corporation.

**Dilutive Effect of Financings and Acquisitions**

Canadian Superior maymake future acquisitions or enter into financing or other transactionsinvolving the issuance of securities of Canadian Superior which may bedilutive.

**Corporate Matters**

To date, the Corporationhas not declared any dividends payable on its outstanding common shares. The Boardof Directors of the Corporation will consider the Corporation’s dividend policyfrom time to time to assess whether the declaration of dividends payable on itsoutstanding common shares is appropriate. Certain of the directors and officersof the Corporation are also directors and officers of other oil and gascompanies involved in natural resource exploration and development, andconflicts of interest may arise between their duties as officers and directorsof the Corporation and as officers and directors of such other companies. Suchconflicts must be disclosed in accordance with, and are subject to such otherprocedures and remedies as apply under the Business Corporations Act (Alberta).

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**DIVIDENDS**

To date, the Corporationhas not declared any dividends payable on its outstanding Common Shares. TheBoard of Directors of the Corporation will consider the Corporation’s dividendpolicy from time to time to assess whether the declaration of dividends payableon its outstanding common shares is appropriate.

**DESCRIPTION OF CAPITAL STRUCTURE**

The Corporation’sauthorized share capital consists of an unlimited number of Common Shares andan unlimited number of Preferred Shares.

**Common Shares**

The holders of CommonShares are entitled to notice of and to vote at all meetings of shareholders(except meetings at which only holders of a specified class or series of sharesare entitled to vote) and are entitled to one vote per share. The holders ofCommon Shares are entitled to receive such dividends as the Board of Directorsmay declare and, upon liquidation, to receive such assets of Canadian Superioras are distributable to holders of Common Shares.

**Preferred Shares**

The Preferred Shares maybe issued in one or more series with each series to consist of such number ofshares as may, before the issue of the series, be fixed by the directors of theCorporation. The directors are authorized, before the issue of the series, todetermine the designation, rights, restrictions, conditions and limitationsattaching to the Preferred Shares of each series. The Preferred Shares of eachseries rank equally with respect to the payment of dividends and thedistribution of assets in the event of liquidation, dissolution or winding-upand in priority to the Common Shares and any other shares of the Corporationranking junior to the Preferred Shares. In addition, if any amount of a fixedcumulative dividend or an amount payable on return of capital in respect ofshares of a series of Preferred Shares is not paid in full, the shares of theseries are entitled to participate rateably with the shares of any other seriesof the same class in respect of such amounts.

**Shareholder Rights Plan**

The Corporation hasadopted a shareholder rights plan in accordance with the Rights PlanAgreement.  Pursuant to the terms of theRights Plan Agreement, the Rights Plan shall have a term of 10 years, expiringJanuary 22, 2011, provided that the Rights Plan is re-approved by theShareholders of the Corporation at every third annual meeting of Shareholders.  The Rights Plan was last re-approved at theannual and special meeting of Shareholders held on June 11, 2004.

The primary objective ofthe Rights Plan is to (i) provide Shareholders adequate time to properly assessthe merits of a take-over bid for the common shares of the Corporation withoutundue pressure, (b) allow competing bids to emerge and (iii) give the board ofdirectors of the Corporation time to consider alternatives to enableShareholders to maximize the value of their common shares.  The Rights Plan is designed to encourage apotential acquirer to proceed either by way of a take-over bid specificallypermitted by the Rights Plan (a “**PermittedBid**”) or with the approval of the board of directors.

Under the Rights Plan,one right (a “**Right**”) is attachedto each Common Share in the capital of the Corporation. The Rights willseparate from the Common Shares and become exercisable eight trading days (the “**Separation Time**”) after a person acquires,or commences a take-over bid to acquire, 20% or more of the voting shares orother securities convertible into voting shares of the Corporation, unless theSeparation Time is deferred. The acquisition by any person (an “**Acquiring Person**”) of 20% or more of theCommon Shares, other than in a permitted manner, is called a “**Flip-in Event**”. Any Rights held by anAcquiring Person will become void upon the occurrence of a Flip-In Event.

After the SeparationTime, each Right will permit the holder (other than an Acquiring Person) topurchase from the Corporation, on payment of $15, Common Shares with a marketvalue of $30. The result will be a dilution of the 

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holdings of the AcquiringPerson. The Corporation anticipates that no Acquiring Person will be willing torisk such dilution and so will instead either make a take-over bid that ispermitted by the Rights Plan, negotiate with the Board of Directors for awaiver of the Rights Plan, or apply to regulatory authorities for an orderrendering the Rights Plan ineffective.

A person will not becomean Acquiring Person, and will not trigger the separation and ability toexercise the Rights, by becoming the beneficial owner of 20% or more of theCommon Shares pursuant to a Permitted Bid or in other circumstances providedfor under the Rights Plan. Investment advisors (for fully managed accounts),trust companies (acting in their capacities as trustees and administrators) andstatutory bodies acquiring 20% of the Common Shares are exempted fromtriggering a Flip-In Event, provided that they are not making, and are not partof a group making, a take-over bid.

The issue of the Rightsis not initially dilutive. However, upon a Flip-In Event occurring and theRights separating from the Common Shares, reported earnings per share on afully diluted or non-diluted basis may be affected. Holders of Rights who donot (or, in the case of an Acquiring Person, cannot) exercise their Rights uponthe occurrence of a Flip-In Event will suffer substantial dilution.

This summary is qualifiedin its entirety by reference to the Rights Plan Agreement. Shareholders mayobtain a copy of the Rights Plan Agreement on written request to the CorporateSecretary of the Corporation.

**MARKET FOR SECURITIES**

**Trading Price and Volume**

The Common Shares ofCanadian Superior are listed and posted for trading on the Toronto StockExchange and the American Stock Exchange under the symbol “SNG”. The followingtable sets forth the reported high, low and close sale prices and volume oftrading of the Common Shares as reported by the Toronto Stock Exchange for theperiods indicated.
| ** **     | ** ** | **High ($)** | ** ** | **Low ($)** | ** ** | **Close (4)** | ** ** | **Volume** | ** ** |
|----------------|------------|-------------------|------------|------------------|------------|--------------------|------------|------------|------------|
|           |       |              |       |             |       |               |       |       |       |
| January 2006   |       | 3.05              |       | 2.35             |       | 3.00               |       | 1,732,200  |       |
| February 2006  |       | 3.11              |       | 2.45             |       | 2.76               |       | 2,058,900  |       |
| March 2006     |       | 2.78              |       | 2.47             |       | 2.72               |       | 1,825,000  |       |
| April 2006     |       | 2.88              |       | 2.48             |       | 2.54               |       | 2,446,700  |       |
| May 2006       |       | 2.65              |       | 2.29             |       | 2.45               |       | 1,009,800  |       |
| June 2006      |       | 2.54              |       | 2.11             |       | 2.23               |       | 1,142,600  |       |
| July 2006      |       | 2.54              |       | 2.20             |       | 2.50               |       | 668,500    |       |
| August 2006    |       | 2.53              |       | 2.28             |       | 2.39               |       | 987,400    |       |
| September 2006 |       | 2.39              |       | 2.01             |       | 2.18               |       | 1,283,100  |       |
| October 2006   |       | 2.43              |       | 2.12             |       | 2.20               |       | 573,900    |       |
| November 2006  |       | 2.45              |       | 2.13             |       | 2.44               |       | 4,190,800  |       |
| December 2006  |       | 2.50              |       | 2.21             |       | 2.35               |       | 1,217,600  |       |
| January 2007   |       | 2.44              |       | 2.11             |       | 2.33               |       | 1,310,300  |       |
| February 2007  |       | 2.88              |       | 2.29             |       | 2.83               |       | 2,039,800  |       |

 

**DIRECTORS AND OFFICERS**

**Names, Occupations and Security Holders**

The following sets forththe names and municipalities of residence of the directors and officers of theCorporation, their offices or positions with the Corporation, their principaloccupations during the past five years and the period or periods during whicheach director has served as a director. The term of the directors’ officeexpires at the next 

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annual general meeting ofthe Corporation. Officers of the Corporation are appointed by the directorsuntil they resign or until their successors are appointed.
| **Name and  Municipality of  Residence**            | ** ** | **Office or Position**                                          | ** ** | **Director Since** | ** ** | **Present and Principal Occupation During  the Last Five Years**                                                                                                                                                                                                            |
|-----------------------------------------------------|------------|-----------------------------------------------------------------|------------|--------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                |       |                                                            |       |               |       |                                                                                                                                                                                                                                                                        |
| Leigh Bilton  Calgary, Alberta                      |       | Executive Vice President and Vice President Western  Operations |       | Not Applicable     |       | Manager of all Canadian Superior Western Canadian  operations from 2001 to present.                                                                                                                                                                                         |
|                                                |       |                                                            |       |               |       |                                                                                                                                                                                                                                                                        |
| Charles Dallas (1),(4)  Innisfail, Alberta          |       | Director                                                        |       | 2000               |       | Rancher and independent businessman.                                                                                                                                                                                                                                        |
|                                                |       |                                                            |       |               |       |                                                                                                                                                                                                                                                                        |
| Thomas J. Harp(2),(5)  Calgary, Alberta             |       | Director                                                        |       | 2000               |       | President of Harp Resources Ltd., a private  resources company.                                                                                                                                                                                                             |
|                                                |       |                                                            |       |               |       |                                                                                                                                                                                                                                                                        |
| Gregory S. Noval(3),(4),(5)  Turner Valley, Alberta |       | Chairman of the Board and Chief Executive Officer               |       | 1996               |       | Chairman and Chief Executive Officer of Canadian  Superior.                                                                                                                                                                                                                 |
|                                                |       |                                                            |       |               |       |                                                                                                                                                                                                                                                                        |
| Michael E. Coolen(4)  Halifax, Nova Scotia          |       | President, Chief Operating Officer and a Director               |       | 2006               |       | President and Chief Operating Officer of the  Corporation from April 10, 2006 to present. Vice President, East Coast  Operations of the Corporation from March 12, 2004 to April 10, 2006.  Prior thereto, was a Director of East Coast Operations of the Corporation. |
|                                                |       |                                                            |       |               |       |                                                                                                                                                                                                                                                                        |
| Alexander Squires(1),(3)  Toronto, Ontario          |       | Director                                                        |       | 2004               |       | Managing Partner and Director of Brant Securities  Ltd., an independent full service securities firm.                                                                                                                                                                       |
|                                                |       |                                                            |       |               |       |                                                                                                                                                                                                                                                                        |
| Roger Harman  Calgary, Alberta                      |       | Chief Financial Officer                                         |       | Not Applicable     |       | Chief Financial Officer of Canadian Superior from  August 16, 2006 to present. Prior thereto, Mr. Harman was Manager  Revenues and Marketing for the Corporation                                                                                                       |
|                                                |       |                                                            |       |               |       |                                                                                                                                                                                                                                                                        |
| Kaare Idland(2),(5)  Red Deer, Alberta              |       | Director                                                        |       | 2005               |       | Independent businessman. Formerly President and  Chief Executive Officer of Kidd Construction Ltd., an independent oil and gas  construction service companies.                                                                                                             |
|                                                |       |                                                            |       |               |       |                                                                                                                                                                                                                                                                        |
| Richard Watkins(1),(2),(3)  Houston, Texas          |       | Director                                                        |       | 2006               |       | Energy consultant.                                                                                                                                                                                                                                                          |

 

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Notes:

(1)                                  Member of the Corporation’s AuditCommittee.

(2)                                  Member of the Corporation’s CompensationCommittee.

(3)                                  Member of the Corporation’s DisclosureCommittee

(4)                                  Member of the Corporation’s SpecialProjects Committee.

(5)                                  Member of the Corporation’s ReservesCommittee.

As at December 31,2006, the number of Common Shares beneficially owned, directly or indirectly,or controlled by the directors and executive officers of the Corporation, as agroup, was 6,695,639 Common Shares, being 5.1% of the outstanding Common Sharesof the Corporation.

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**Cease Trade Orders, Bankruptcies, Penalties orSanctions**

Other than as describedbelow, to the knowledge of management of the Corporation, there has been nodirector or officer, or any shareholder holding a sufficient number ofsecurities of the Corporation to affect materially the control of theCorporation, that is, as at the date hereof, or, within the 10 years before thedate of this annual information form:

(a)                                  hasbeen a director or officer of any issuer that, while that person was acting inthat capacity;

(i)                                     wasthe subject of a cease trade or similar order, or an order that denied theissuer access to any exemption under securities legislation, for a period ofmore than 30 consecutive days;

(ii)                                  wassubject to an event that resulted, after the director or officer ceased to be adirector or officer, in the issuer being subject of a cease trade order orsimilar order or an order that denied the issuer access to any exemption undersecurities legislation, for a period of more than 30 consecutive days;

(iii)                               or,within a year of that person ceasing to act in that capacity, became bankrupt,made a proposal under any legislation relating to bankruptcy or insolvency orwas subject to or instituted any proceedings, arrangement or compromise withcreditors or had a receiver, receiver manager or trustee appointed to hold itsassets.

(b)                                 hasbecome bankrupt, made a proposal under any legislation relating to bankruptcyor insolvency, or become subject to or instituted any proceedings, arrangementor compromise with creditors or had a receiver, receiver manager or trusteeappointed to hold the assets of the director, officer or shareholder.

Further, other than asdescribed below, to the knowledge of management of the Corporation, no directoror officer of the Corporation, or any shareholder holding a sufficient numberof securities of the Corporation to affect materially the control of theCorporation, has been subject to:

(c)                                  anypenalties or sanctions imposed by a court relating to securities legislation orby a securities regulatory authority or has entered into a settlement agreementwith the securities regulatory authority; or

(d)                                 anyother penalties or sanctions imposed by a court or regulatory body that wouldlikely be considered important to a reasonable investor in making an investmentdecision.

OnOctober 15, 1997, the ASC and OSC issued orders relating to asettlement agreement entered into by Canadian 88, Mr. Noval and two otherparties (the “**Respondents**”) inrespect of their involvement in a take-over bid made in early 1997 by Canadian88 for the common shares of Morrison Petroleums Ltd., a corporation whosecommon shares were listed on the TSX and the Montreal Stock Exchange. In ajoint submission with the ASC and the OSC, the Respondents agreed that theiractions and the public statements of Mr. Noval on behalf of Canadian 88were contrary to the public interest. Under the terms of the settlementagreement, Canadian 88 was required to make a $200,000 payment to the ASC andwas reprimanded by the OSC. Mr. Noval was prohibited from trading securitiesand from relying on most exemptions available under the securities legislationof Alberta and Ontario for a period of 12 months.

**Conflicts of Interest**

Certain of the directorsand officers of the Corporation are directors and/or officers of other privateand public companies. Some of these private and public companies may, from timeto time, be involved in business transactions or banking relationships which maycreate situations in which conflicts might arise. Any such conflicts shall beresolved in accordance with the procedures and requirements of the relevantprovisions of the *Business*

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*CorporationsAct*(Alberta), including the duty of such directors and officersto act honestly and in good faith with a view to the best interests of theCorporation.

**LEGAL PROCEEDINGS**

The Corporation isinvolved in various claims and litigation arising in the ordinary course of itsbusiness. In the opinion of Canadian Superior, the various claims andlitigation arising therefrom are not expected to have a material adverse effecton the Corporation’s financial position. The Corporation also maintainsinsurance to address any unforeseen claims.

**INTERESTS OF MANAGEMENT AND OTHERSIN MATERIAL TRANSACTIONS**

Within the last threefinancial years or the current financial year of the Corporation, other than asdisclosed herein, none of the directors or officers of the Corporation or anyperson that beneficially owns, directly or indirectly, or who exercises controlor direction over, more than 10% of the outstanding securities of theCorporation, and no associate or affiliate of any such persons, has or has hadany material interest in any transaction or any proposed transaction which materiallyaffects Corporation or any of its affiliates.

During the year endedDecember 31, 2006, the Corporation paid $843,000 (2005-$618,000) foraircraft rentals to a company controlled by Mr. Gregory Noval.

During the year endedDecember 31, 2006, the Corporation also paid $235,000 to a companycontrolled by Mr. Kaare Idland, a director of the Corporation, for oilfieldconstruction services and paid $43,456 to a company controlled by Mr. RichardWatkins, a director of the Corporation, for consulting services.

In November 2004, theCorporation entered into participation agreements in the normal course ofoperations with a company controlled by Mr. Noval, in respect of theCorporation’s offshore Nova Scotia and offshore Trinidad and Tobago prospects.Pursuant to the participation agreements, the Corporation has the right toparticipate on a promoted basis for 16 2/3% of Canadian Superior’s costs of theoffshore Nova Scotia wells (this was subsequently increased to 33 1/3%) and thecompany controlled by Mr. Noval has the right to participate on a promotedbasis for 33 1/3% of Canadian Superior’s costs of certain earning wells inTrinidad and Tobago.

The transactionsdescribed in this section were in the normal course of operations and agreed toby the related company and the Corporation based on extensive negotiations andBoard approval and approval by the Corporation.

**TRANSFER AGENT AND REGISTRAR**

Valiant Trust Company at310, 606 - 4th Street SW Calgary, Alberta, T2P 1T1, is thetransfer agent and registrar for the Common Shares.

**INTERESTS OF EXPERTS**

There is no person orcompany whose profession or business gives authority to a statement made bysuch person or company and who is named as having prepared or certified astatement, report or valuation described or included in a filing, or referredto in a filing, made under National Instrument 51-102 by the Corporationduring, or related to, the Corporation’s most recently completed financial yearother than GLJ, the Corporation’s independent engineering evaluator and MyersNorris Penny LLP, the Corporation’s auditors. Neither GLJ nor any of directors, officers or employees had anyregistered or beneficial interests, direct or indirect, in any securities orother property of the Corporation or of the Corporation’s associates oraffiliates either at the time they prepared the statement, report or valuationprepared by it nor at any time thereafter, nor are any securities or otherproperty of the Corporation to be received by them.  Myers Norris Penny LLP, the Corporation’sauditors, are independent in accordance with the auditor’s rules ofprofessional conduct in a jurisdiction of Canada.

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In addition, none of theaforementioned persons or companies, nor any director, officer or employee ofany of the aforementioned persons or companies, is or is expected to beelected, appointed or employed as a director, officer or employee of theCorporation or of any associate or affiliate of the Corporation.

**AUDIT COMMITTEE**

The Audit Committee ofthe Corporation consists of Messrs. Alexander Squires, Richard Watkins andCharles Dallas, each of whom is considered “independent” and “financiallyliterate” within the meaning of Multilateral Instrument 52-110 - AuditCommittees.

**Mandate of the Audit Committee**

The Audit Committee isappointed by the Board of Directors of the Corporation to assist the Board ofDirectors in fulfilling its oversight responsibilities, including with respectto:

(i)                                     theintegrity of the Corporation’s financial statements

(ii)                                  theintegrity of the financial reporting process

(iii)                               thesystem of internal control and management of financial risks

(iv)                              theexternal auditors’ qualifications and independence

(v)                                 theexternal audit process and the Corporation’s processes for monitoringcompliance with laws and regulations.

The Charter of the AuditCommittee of the Board of Directors of Canadian Superior is attached hereto asAppendix “C”.

**Relevant Education and Experience of Audit CommitteeMembers**

The following is a briefsummary of the education or experience of each member of the Audit Committeethat is relevant to the performance of his responsibilities as a member of theAudit Committee, including any education or experience that has provided themember with an understanding of the accounting principles used by theCorporation.
| **Name of Audit  Committee Member** | ** ** | **Relevant Education and Experience**                                                                                                                                                                                                                                         |
|-------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                |       |                                                                                                                                                                                                                                                                          |
| Alexander Squire, CFA               |       | Since 1997, Mr. Squires has been a Manager Partner  and Director of Brant Securities Ltd. and independent full service securities  firm.                                                                                                                                      |
|                                |       |                                                                                                                                                                                                                                                                          |
| Richard Watkins                     |       | Mr. Watkins has held a variety of accounting and  corporate governance positions spanning a period of over 20 years in the oil  and gas industry.                                                                                                                             |
|                                |       |                                                                                                                                                                                                                                                                          |
| Charles Dallas                      |       | Mr. Dallas has over 40 years of oil and gas  experience in various supervisory positions, including being a controller. He  has also during much of that time, managed his own independent ranch and farm  business, including the financial management of these enterprises. |

 

**Audit Committee Oversight**

At no time since thecommencement of the Corporation’s most recently completed financial year has arecommendation of the Audit Committee to nominate or compensate an externalauditor not been adopted by the Board of Directors of the Corporation.

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**External Auditor Fees**

For the year endedDecember 31, 2006 and 2005, Meyers Norris Penny LLP and itsaffiliates were paid approximately $227,955 and $227,446, respectively, asdetailed below:

**Audit Fees**

Audit fees consist offees for the audit of the Corporation’s annual financial statements or servicesthat are normally provided in connection with statutory and regulatory filingsor engagements. The aggregate audit fees billed by the Corporation’s externalauditor in each of the last two financial years were $141,820 in 2006 and$125,000 in 2005.

**Audit-Related Fees**

Audit-related feesinclude fees relating to the review of the Corporation’s quarterly financialstatements. The aggregate audit-related fees billed by the Corporation’sexternal auditor in each of the last two financial years were $35,490 in 2006and $42,550 in 2005

**Tax Fees**

Tax fees include feesrelating to tax compliance, tax planning, tax advice and various taxationmatters. The aggregate tax fees billed by the Corporation’s external in each ofthe last two financial years were $6,400 in 2006 and $4,600 in 2005.

**All Other Fees**

All other fees consistsof fees for services provided by Meyers Norris Penny LLP other than audit,audit-related and tax services, including prospectus and other offering relatedwork. The aggregate fees billed by the Corporation’s external auditor in eachof the last two financial years other than audit fees, audit-related fees andtax fees, were $44,245 in 2006 and $55,296 in 2005.

**ADDITIONAL INFORMATION**

Additional informationrelating to the Corporation may be found on the internet on the System forElectronic Document Analysis and Retrieval (SEDAR) which can be accessed atwww.sedar.com. Additional information, including directors’ and officers’remuneration and indebtedness, principal holders of the Corporation’ssecurities and securities authorized for issuance under equity compensationplans, if applicable, is contained in the Corporation’s Management InformationCircular for its most recent annual meeting of shareholders that involved theelection of directors. Additional financial information is provided in theCorporation’s financial statements and management’s discussion & analysisfor its most recently completed financial year.

Additional copies of thisannual information form and the documents set forth in this section areavailable upon request by contacting the Corporation at 2700, 605 – 5th Avenue SW T2P 4K9 or by phone at (403) 294-1411or fax at (403) 216-2374.

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**APPENDIX “C”**

**CHARTER OF THE AUDIT COMMITTEE OF THEBOARD OF DIRECTORS OF CANADIAN SUPERIOR ENERGY INC.**

**Purpose/Objectives**

The Audit Committee isappointed by the Board to assist the Board in fulfilling its oversightresponsibilities, including:

·                                          theintegrity of the Corporation’s financial statements

·                                          theintegrity of the financial reporting process

·                                          thesystem of internal control and management of financial risks the externalauditors’ qualifications and independence

·                                          theexternal audit process and the Corporation’s process for monitoring compliancewith laws and regulations

In performing its duties,the Committee will maintain effective working relationships with the Board,management and the external auditors. To perform his or her role effectively,each Committee member will obtain an understanding of the Corporation’sbusiness, operations, risks and related legislation, regulations and industrystandards. So that the Audit Committee can discharge the duties as a whole, allAudit Committee members must be financially literate, and at least one membermust have significant accounting or related financial management experience.

**Authority**

The Board authorizes theCommittee within its scope of duties and responsibilities, to:

·                                          seekany information it requires from any employee of the Corporation (whoseemployees are directed to co-operate with any request made by the Committee);

·                                          seekany information it requires directly from external parties including theexternal auditors and independent reservoir engineering firm; and

·                                          obtainoutside legal or professional advice without seeking Board approval (howeverproviding notice to the Chair of the Board).

**Organization**

The following provisionsand regulations shall apply to the composition of the Committee:

·                                          TheCommittee shall consist of three members of the Board of the Corporation;

·                                          Themembers of the Committee shall be independent members of the Board as definedin section 1.4 of Multilateral Instrument 52-110 Audit Committees, as well asPart 1, section 121(A) of the AMEX Company manual;

·                                          TheChairman of the Committee shall be determined by the Board;

·                                          Twomembers of the Committee shall constitute a quorum thereof;

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·                                          Nobusiness shall be transacted by the Committee except at a meeting of itsmembers at which a quorum is present in person or by telephone or by aresolution in writing signed by all members of the Committee;

·                                          Themeetings and proceedings of the Corporation that regulate meetings andproceedings of the Board shall apply to the Committee;

·                                          TheCommittee may invite such directors, officers or employees of the Corporation,the external auditors and the independent reservoir engineering firm as it maysee fit, to attend its meetings and take part in the discussion andconsideration of the affairs of the Committee; and

·                                          Meetingsshall be held not less than four times per year, generally coinciding with therelease of interim or year-end financial information including consecutivesessions with Management and the External Auditors. Special meetings may beconvened as required upon the request of the Committee. The external auditorsand independent reservoir engineering firm may convene a meeting if theyconsider that it is desirable or necessary; and the proceedings of all meetingswill be minuted.

**Dutiesand Responsibilities**

The Board hereby delegatesand authorizes the Committee to carry out the following duties andresponsibilities to the extent that these activities are not carried out by theBoard as a whole:

***Corporate Information andInternal Control***

·                                          reviewand recommend for approval of quarterly and annual financial statements,MD&A and annual reports of the Corporation;

·                                          reviewof internal control systems maintained by the Corporation;

·                                          reviewof significant accounting and tax compliance issues where there is choice amongvarious alternatives or where application of a policy has a significant effecton the financial results of the Corporation;

·                                          reviewof significant proposed non-recurring events such as mergers, acquisitions ordivestitures; and

·                                          reviewof press releases or other publicly circulated documents containing financialinformation.

***External Auditors***

·                                          retainand/or terminate the external auditors (subject to regulatory and shareholdernotification) who, in turn, will report directly to the Audit Committee;

·                                          reviewthe terms of the external auditors’ engagement and the appropriateness andreasonableness of the proposed engagement fees;

·                                          annually,obtain and review a certificate attesting to the external auditors’independence, identifying all relationships between the external auditors andthe Corporation;

·                                          annually,evaluate the external auditors’ qualifications, performance and independence;

·                                          annually,to assure continuing auditors’ independence, consider the rotation of the leadaudit partner or the external audit firm;

·                                          pre-approveengagements for non-audit services provided by the external auditors or theiraffiliates together with estimated fees and potential issues of independence;and

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·                                          reviewhiring policies for employees or former employees of the external auditors.

***Audit***

·                                          reviewthe audit plan for the coming year with the external auditors and withmanagement;

·                                          reviewwith management and the external auditors any proposed changes in majoraccounting policies, the presentation and impact of significant risks anduncertainties, and key estimates and judgements of management that may bematerial to financial reporting;

·                                          querymanagement and the external auditors regarding significant financial reportingissues during the fiscal period and the method of resolution;

·                                          reviewany problems experienced by the external auditors in performing the audit,including any restrictions imposed by management of significant accountingissues in which there was a disagreement with management;

·                                          reviewaudited annual financial statements and quarterly financial statements withmanagement and the external auditors (including disclosures under “ManagementDiscussion & Analysis”), in

·                                          conjunctionwith the report of the external auditors and obtain explanation from managementof all significant variances between comparative reporting periods; and

·                                          reviewthe auditors’ report to management, containing recommendations of the externalauditors, and management’s response and subsequent remedy of any identifiedweaknesses.

**OtherDuties and Responsibilities**

·                                          Theresponsibilities, practices and duties of the Committee outlined herein are notintended to be comprehensive. The Board may, from time to time charge theCommittee with the responsibility of reviewing items of a financial or control,risk management or reserves nature;

·                                          TheCommittee shall periodically report to the Board the results of reviewsundertaken and any associated recommendations;

·                                          TheCommittee shall monitor the receipt, retention and treatment of complaintsreceived by the issuer regarding accounting, internal accounting controls, orauditing matters; and

·                                          TheCommittee shall monitor the confidential, anonymous submissions by employees ofconcerns regarding questionable accounting or auditing matters.

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