|   | · | business strategy, plans and priorities; |
|--------|--------|------------------------------------------|

|  | 2011 MD&A | Page 1 |
|--|---------------|--------|

----

|   | · | planned exploration and development activities;                                                                                                                                    |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | · | expected sources of funding for the capital program;                                                                                                                               |
|   | · | estimation of reserves and contingent resources and future net revenue associated therewith;                                                                                       |
|   | · | future costs, expenses and royalty rates and development, exploration and other expenses;                                                                                          |
|   | · | expected volume and product mix of the Company's oil and gas production;                                                                                                           |
|   | · | future oil and gas prices and interest rates in respect of the Company's commodity risk management programs;                                                                       |
|   | · | the outcome of financing alternatives in North Africa;                                                                                                                             |
|   | · | other expectations, beliefs, plans, goals, objectives, assumptions, information and statements about possible future events, conditions, results of operations or performance; and |
|   | · | the Company's tax pools.                                                                                                                                                           |

|   | · | the risks of the oil and gas industry, such as operational risks in exploring for, developing and producing crude oil and natural gas, market demand and unpredictable facilities outages; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | · | risks and uncertainties involving geology of oil and gas deposits;                                                                                                                         |
|   | · | uncertainty related to production, marketing and transportation;                                                                                                                           |
|   | · | availability of experienced service industry personnel and equipment;                                                                                                                      |
|   | · | availability of qualified personnel and the ability to attract or retain key employees or members of management;                                                                           |
|   | · | the uncertainty of reserves and resources estimates, reserves life and underlying reservoir risk;                                                                                          |
|   | · | the uncertainty of estimates and projections relating to production, costs and expenses;                                                                                                   |
|   | · | potential delays or changes in plans with respect to exploration or development projects or capital expenditures;                                                                          |
|   | · | delays due to adverse weather conditions;                                                                                                                                                  |
|   | · | fluctuations in oil and gas prices, foreign currency exchange rates and interest rates;                                                                                                    |
|   | · | the outcome and effects of any future acquisitions and dispositions;                                                                                                                       |
|   | · | health, safety and environmental risks;                                                                                                                                                    |
|   | · | uncertainties as to the availability and cost of financing and changes in capital markets;                                                                                                 |
|   | · | risks in conducting foreign operations (for example, political and fiscal instability or the possibility of civil unrest or military action);                                              |
|   | · | risks associated with competition from other producers;                                                                                                                                    |
|   | · | changes in general economic and business conditions; and                                                                                                                                   |
|   | · | the possibility that government policies or laws may change or government approvals may be delayed or withheld.                                                                            |

|  | 2011 MD&A | Page 2 |
|--|---------------|--------|

----

|  | 2011 MD&A | Page 3 |
|--|---------------|--------|

----

|   | · | cautiously using available cash and borrowing capacity while waiting for the outcome of the North African unitization, exploitation and financing alternative program;                                                                         |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | · | developing the Western Canada asset base to increase average daily production, along with replacement of producing reserves on an economic and cost effective basis through exploitation, full-cycle exploration and strategic acquisition;    |
|   | · | currently evaluating its entire acreage position in anticipation of an aggressive oil and liquids oriented, multi-year drilling program;                                                                                                       |
|   | · | establishing organic growth through repeatable drilling programs;                                                                                                                                                                              |
|   | · | providing shareholders access to high-leverage oil-oriented growth in Western Canada by annually purchasing a significant number of lease acreage in emerging “oil-resource” plays such as the Montney and Duvernay oil plays; and |
|   | · | taking the actions necessary to preserve the Company’s assets in North Africa while exploring options.                                                                                                                                   |

|                                       | ($ thousands) |   | ($ per boe) |
|--------------------------------------------|---------------|--------|-------------|
| Three months ended December 31             | 2011          |   | 2010        |   | % change |   | 2011 |   | 2010 |   | % change |
| Petroleum and natural gas sales            | 10,240        |   | 9,738       |   | 5 |   | 38.23 |   | 34.29 |   | 11 |
| Realized gain on financial instruments     | 508           |   | 1,065       |   | (52) |   | 1.90 |   | 3.75 |   | (49) |
| Transportation                             | (255)         |   | (315)       |   | (19) |   | (0.95) |   | (1.11) |   | (14) |
| Royalties                                  | (1,048)       |   | (486)       |   | - |   | (3.91) |   | (1.71) |   | - |
|                                       | 9,445         |   | 10,002      |   | (6) |   | 35.27 |   | 35.22 |   | - |
| Operating expense                          | (3,846)       |   | (3,240)     |   | 20 |   | (14.36) |   | (11.41) |   | 26 |
| Well workover expense                      | (642)         |   | (1,138)     |   | 44 |   | (2.40) |   | (4.01) |   | (40) |
| Operating netback(2)                       | 4,957         |   | 5,624       |   | (12) |   | 18.51 |   | 19.80 |   | (7) |
| General and administrative                 | (2,574)       |   | (3,251)     |   | (19) |   | (9.61) |   | (11.45) |   | (16) |
| Foreign exchange gain (loss)               | 602           |   | 679         |   | (11) |   | 2.25 |   | 2.39 |   | (6) |
| Interest and other income                  | 342           |   | (1)         |   | - |   | 1.28 |   | - |   | - |
| Interest                                   | (217)         |   | (303)       |   | (28) |   | (0.81) |   | (1.07) |   | (24) |
| Bad debt  recovery (expense)     | 45            |   | (1,831)     |   | - |   | 0.17 |   | (6.45) |   | - |
| Part VI.1 tax on preferred share dividends | -             |   | (46)        |   | - |   | - |   | (0.16) |   | - |
| Funds from operations(1,2)                 | 3,155         |   | 871         |   | - |   | 11.79 |   | 3.06 |   | - |
| Decommissioning expenditures               | (351)         |   | (249)       |   | 41 |   | (1.31) |   | (0.88) |   | 49 |
| Changes in non-cash working capital        | 2,284         |   | (531)       |   | - |   | 8.53 |   | (1.87) |   | - |
| Cash from operating activities (1)         | 5,088         |   | 91          |   | - |   | 19.01 |   | 0.31 |   | - |

|  | 2011 MD&A | Page 4 |
|--|---------------|--------|

----

|                                         | ($ thousands) |   | ($ per boe) |
|----------------------------------------------|---------------|--------|-------------|
| Twelve months ended December 31              | 2011          |   | 2010        |   | % change |   | 2011 |   | 2010 |   | % change |
| Petroleum and natural gas sales              | 39,495        |   | 36,880      |   | 7 |   | 38.70 |   | 35.22 |   | 10 |
| Realized gain on financial instruments       | 988           |   | 3,197       |   | (69) |   | 0.97 |   | 3.05 |   | (68) |
| Transportation                               | (1,042)       |   | (1,304)     |   | (20) |   | (1.02) |   | (1.25) |   | (18) |
| Royalties                                    | (4,489)       |   | (4,641)     |   | (3) |   | (4.40) |   | (4.43) |   | (1) |
|                                         | 34,952        |   | 34,132      |   | 2 |   | 34.25 |   | 32.59 |   | 5 |
| Operating expense                            | (13,473)      |   | (11,550)    |   | 17 |   | (13.20) |   | (11.03) |   | 20 |
| Well workover expense                        | (2,054)       |   | (1,486)     |   | 38 |   | (2.01) |   | (1.42) |   | 42 |
| Operating netback(2)                         | 19,425        |   | 21,096      |   | (8) |   | 19.04 |   | 20.14 |   | (5) |
| General and administrative                   | (10,814)      |   | (11,854)    |   | (9) |   | (10.60) |   | (11.32) |   | (6) |
| Foreign exchange gains                       | 593           |   | 1,141       |   | (48) |   | 0.58 |   | 1.09 |   | (47) |
| Interest and other income                    | 428           |   | 410         |   | 4 |   | 0.42 |   | 0.39 |   | 8 |
| Interest                                     | (2,067)       |   | (1,076)     |   | 92 |   | (2.03) |   | (1.03) |   | 97 |
| Bad debt  recovery (expense)       | 168           |   | (2,698)     |   | - |   | 0.16 |   | (2.58) |   | - |
| Part VI.1 tax on preferred share dividends   | (136)         |   | (470)       |   | (71) |   | (0.13) |   | (0.45) |   | (71) |
| Funds from (used for) operations(1,2)        | 7,597         |   | 6,549       |   | 16 |   | 7.44 |   | 6.24 |   | 19 |
| Decommissioning expenditures                 | (1,221)       |   | (284)       |   | - |   | (1.20) |   | (0.27) |   | - |
| Changes in non-cash working capital          | (1,268)       |   | (6,730)     |   | 81 |   | (1.24) |   | (6.43) |   | 81 |
| Cash from (used by) operating activities (1) | 5,108         |   | (465)       |   | - |   | 5.00 |   | (0.46) |   | - |

|                           | Q4     |   | Q3     |   | Q4     |   | Year   |   | Year   |
|--------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Commodity                      | 2011   |   | 2011   |   | 2010   |   | 2011   |   | 2010   |
| Natural gas (mcf/d)            | 12,186 |   | 12,673 |   | 14,140 |   | 12,187 |   | 13,324 |
| Crude oil (bbls/d)             | 587    |   | 631    |   | 440    |   | 538    |   | 464    |
| Natural gas liquids (bbls/d)   | 293    |   | 203    |   | 291    |   | 227    |   | 185    |
| Total production (boe/d) (6:1) | 2,911  |   | 2,946  |   | 3,087  |   | 2,796  |   | 2,870  |

|                           | Q4    |   | Q3    |   | Q4    |   | Year  |   | Year  |
|--------------------------------|-------|--------|-------|--------|-------|--------|-------|--------|-------|
| Region                         | 2011  |   | 2011  |   | 2010  |   | 2011  |   | 2010  |
| Southern Alberta (boe/d)       | 2,324 |   | 2,300 |   | 2,337 |   | 2,158 |   | 1,965 |
| Central Alberta (boe/d)        | 276   |   | 337   |   | 330   |   | 311   |   | 321   |
| Other Western Canada (boe/d)   | 311   |   | 309   |   | 420   |   | 327   |   | 584   |
| Total production (boe/d) (6:1) | 2,911 |   | 2,946 |   | 3,087 |   | 2,796 |   | 2,870 |

|  | 2011 MD&A | Page 5 |
|--|---------------|--------|

----

|                                                                       | Q4      |   | Q3      |   | Q4     |   | Year    |   | Year    |
|----------------------------------------------------------------------------|---------|--------|---------|--------|--------|--------|---------|--------|---------|
|                                                                       | 2011    |   | 2011    |   | 2010   |   | 2011    |   | 2010    |
| ($ thousands, except where otherwise noted)Petroleum and natural gas sales |    |   |    |   |   |   |    |   |    |
| Natural gas                                                                | 3,895   |   | 4,280   |   | 5,245  |   | 16,868  |   | 20,759  |
| Crude oil                                                                  | 4,956   |   | 4,753   |   | 3,028  |   | 17,431  |   | 12,314  |
| Natural gas liquids                                                        | 1,389   |   | 1,246   |   | 1,465  |   | 5,196   |   | 3,807   |
| Transportation                                                             | (255)   |   | (271)   |   | (315)  |   | (1,042) |   | (1,304) |
| Royalties                                                                  | (1,048) |   | (1,291) |   | (486)  |   | (4,489) |   | (4,641) |
| Realized gain on commodity derivatives                                     | 508     |   | 294     |   | 1,065  |   | 988     |   | 3,197   |
| Total                                                                      | 9,445   |   | 9,011   |   | 10,002 |   | 34,952  |   | 34,132  |
| Average sales price (including commodity derivatives)                      |    |   |    |   |   |   |    |   |    |
| Natural gas ($/mcf)                                                        | 3.93    |   | 3.92    |   | 4.85   |   | 4.04    |   | 4.93    |
| Crude oil ($/bbl)                                                          | 91.73   |   | 81.90   |   | 74.86  |   | 88.22   |   | 72.79   |
| Natural gas liquids ($/bbl)                                                | 51.64   |   | 66.83   |   | 54.80  |   | 62.79   |   | 56.52   |
| Average sales price ($/boe)                                                | 40.13   |   | 39.01   |   | 38.04  |   | 39.67   |   | 38.28   |
| AECO 5a ($/mcf)                                                            | 3.29    |   | 3.53    |   | 3.58   |   | 3.49    |   | 3.79    |
| Edmonton Light ($/bbl)                                                     | 97.71   |   | 92.22   |   | 80.83  |   | 95.56   |   | 77.85   |

|                                                 | Three months endedDecember 31 |   | Twelve months endedDecember 31 |
|------------------------------------------------------|-------------------------------|--------|--------------------------------|
|                                                 | 2011                          |   | 2010                           |   | 2011 |   | 2010 |
| ($ thousands, except where otherwise noted)Royalties |                          |   |                           |   |   |   |   |
| Crown                                                | 713                           |   | 299                            |   | 3,572 |   | 3,273 |
| Freehold and overriding                              | 335                           |   | 187                            |   | 917 |   | 1,368 |
| Total                                                | 1,048                         |   | 486                            |   | 4,489 |   | 4,641 |
| Royalties per boe ($)                                | 3.91                          |   | 1.71                           |   | 4.40 |   | 4.43 |
| Average royalty rate (%)                             | 10.0                          |   | 4.6                            |   | 11.4 |   | 12.0 |

|  | 2011 MD&A | Page 6 |
|--|---------------|--------|

----

|                                                                  | Three months endedDecember 31 |   | Twelve months endedDecember 31 |
|-----------------------------------------------------------------------|-------------------------------|--------|--------------------------------|
|                                                                  | 2011                          |   | 2010                           |   | 2011 |   | 2010 |
| ($ thousands)                                                         |                          |   |                           |   |   |   |   |
| Acquisitions                                                          | 153                           |   | 117                            |   | 6,242 |   | 777 |
| Exploration and evaluation                                            | 2,353                         |   | 46,344                         |   | 11,326 |   | 53,108 |
| Drilling and completions                                              | 9,828                         |   | 2,353                          |   | 30,485 |   | 7,792 |
| Plants, facilities and pipelines                                      | 2,559                         |   | 615                            |   | 6,216 |   | 2,873 |
| Land and lease                                                        | 3,316                         |   | 775                            |   | 5,281 |   | 2,827 |
| Capital well workovers                                                | 550                           |   | --                             |   | 858 |   | -- |
| Capitalized general and administrative expenses                       | 898                           |   | 6,519                          |   | 3,312 |   | 18,277 |
| Capital expenditures                                                  | 19,657                        |   | 56,723                         |   | 63,720 |   | 85,654 |
| Trinidad disposition                                                  | --                            |   | --                             |   | (87,908) |   | -- |
| Western Canada disposition                                            | (501)                         |   | --                             |   | (501) |   | -- |
| Exploration and evaluation impairment, charged to exploration expense | (159)                         |   | (186)                          |   | (1,270) |   | (721) |
| Net capital expenditures                                              | 18,997                        |   | 56,537                         |   | (25,959) |   | 84,933 |

|                        | 2011   |   | 2010   |   | 2011     |   | 2010   |
|-----------------------------|--------|--------|--------|--------|----------|--------|--------|
| ($ thousands)               |   |   |   |   |     |   |   |
| Continuing operations       |   |   |   |   |     |   |   |
| Canada                      | 16,381 |   | 4,162  |   | 48,289   |   | 14,997 |
| North Africa                | 2,436  |   | 36,580 |   | 12,182   |   | 43,341 |
| Corporate Assets            | 180    |   | 3      |   | 913      |   | 89     |
|                        | 18,997 |   | 40,745 |   | 61,384   |   | 58,427 |
| Discontinued operations     |   |   |   |   |     |   |   |
| Trinidad and Tobago         | --     |   | 12,830 |   | (87,343) |   | 14,353 |
| United States (LNG Project) | --     |   | 2,962  |   | --       |   | 12,153 |
|                        | --     |   | 15,792 |   | (87,343) |   | 26,506 |
| Net capital expenditures    | 18,997 |   | 56,537 |   | (25,959) |   | 84,933 |

|  | 2011 MD&A | Page 7 |
|--|---------------|--------|

----

| Consideration                 |   | (CDN$ thousands) |
|-------------------------------|--------|------------------|
| Total cash consideration      |   | 6,242            |
|                          |   |             |
| Net assets acquired           |   |             |
| Property, plant and equipment |   | 11,827           |
| Decommissioning provisions    |   |  (5,585)    |
| Net assets                    |   | 6,242            |

|  | 2011 MD&A | Page 8 |
|--|---------------|--------|

----

| Proceeds from disposition                           |   | (CDN$ thousands) |
|-----------------------------------------------------|--------|------------------|
| Cash received                                       |   | 56,877           |
| Debenture retired                                   |   | 19,898           |
| MG Block Performance Guarantee Assumed By Purchaser |   | 11,716           |
| Transaction costs                                   |   | (583)            |
| Net proceeds                                        |   | 87,908           |
|                                                |   |             |
| Net assets disposed at carrying value               |   |             |
| Exploration and evaluation assets                   |   | 79,664           |
| Asset retirement obligation                         |   | (3,040)          |
| Net assets                                          |   | 76,624           |
| Gross gain on disposition                           |   | 11,284           |
| Realized foreign currency translation reserve       |   | (5,975)          |
| Net gain on disposition                             |   | 5,309            |

| millions         | NPV @ 10% |   | NPV @ 12% |   | BOE   |   | % Liquids |
|------------------|-----------|--------|-----------|--------|-------|--------|-----------|
| Opening reserves | $ 124.1   |   | $ 114.4   |   | 10.2  |   | 21%       |
| Production       |      |   |      |   | (1.0) |   |      |
| Additions        |      |   |      |   | 1.5   |   |      |
| Revisions        |      |   |      |   | (1.2) |   |      |
| Closing Reserves | $ 113.6   |   | $ 104.2   |   | 9.5   |   | 27%       |

| Year                                                                                                             | AECO Gas (Cdn/mmbtu) (1) |   | Edmonton Light Sweet Crude Oil (Cdn/bbl) (1) |   |
|------------------------------------------------------------------------------------------------------------------|--------------------------|--------|----------------------------------------------|--------|
| 2012                                                                                                             | $ 3.49                   |   |  $  97.96                     |   |
| 2013                                                                                                             | 4.13                     |   | 101.02                                       |   |
| 2014                                                                                                             | 4.59                     |   | 101.02                                       |   |
| 2015                                                                                                             | 5.05                     |   | 101.02                                       |   |
| 2016                                                                                                             | 5.51                     |   | 101.02                                       |   |
| 2017                                                                                                             | 5.97                     |   | 101.02                                       |   |
| 2018                                                                                                             | 6.21                     |   | 102.40                                       |   |
| 2019                                                                                                             | 6.33                     |   | 104.47                                       |   |
| 2020                                                                                                             | 6.46                     |   | 106.58                                       |   |
| 2021                                                                                                             | 6.58                     |   | 108.73                                       |   |
| Remainder(2)                                                                                                     |   2.0%         |   | 2.0%                                         |   |
| (1)  Source: Indendent qualified reserves evaluator’s price forecast, effective January 1, 2012. |
| (2)  Percentage change represents the change in each year after 2021 to the end of the reserve life.   |

|  | 2011 MD&A | Page 9 |
|--|---------------|--------|

----

|                                                             | Three months endedDecember 31 |   | Twelve months endedDecember 31 |
|------------------------------------------------------------------|-------------------------------|--------|--------------------------------|
|                                                             | 2011                          |   | 2010                           |   | 2011 |   | 2010 |
| ($ thousands, except where otherwise noted)Continuing operations |                          |   |                           |   |   |   |   |
| Gross general and administrative expense                         | 3,455                         |   | 5,826                          |   | 12,604 |   | 16,522 |
| Capitalized general and administrative expense                   |  (898)                   |   | (3,303)                        |   |  (3,312) |   | (5,396) |
|                                                             | 2,557                         |   | 2,523                          |   | 9,292 |   | 11,126 |
| Discontinued operations                                          |                          |   |                           |   |   |   |   |
| Gross general and administrative expense                         | 17                            |   | 3,945                          |   | 1,522 |   | 13,609 |
| Capitalized general and administrative expense                   | --                            |   | (3,217)                        |   | -- |   | (12,881) |
|                                                             | 17                            |   | 728                            |   | 1,522 |   | 728 |
| Total net general and administrative expense                     | 2,574                         |   | 3,251                          |   | 10,814 |   | 11,854 |
| General and administrative expense ($/boe)                       | 9.61                          |   | 9.78                           |   | 10.60 |   | 11.32 |

|  | 2011 MD&A | Page 10 |
|--|---------------|---------|

----

|                          | Three months ended December 31 |   | Twelve months ended December 31 |
|-------------------------------|--------------------------------|--------|---------------------------------|
|                          | 2011                           |   |  2010                      |   | 2011 |   |  2010 |
| Stock option expense          | 455                            |   | 799                             |   | 2,810 |   | 2,160 |
| Stock unit award expense      | 573                            |   | 306                             |   | 1,425 |   | 495 |
| Restricted share unit expense | 143                            |   | --                              |   | 493 |   | -- |
| Share based compensation      | 1,171                          |   | 1,105                           |   | 4,728 |   | 2,655 |

|                                                   | December 31 |   | December 31 |
|--------------------------------------------------------|-------------|--------|-------------|
|                                                   | 2011        |   | 2010        |
| ( $ thousands)                                    |        |   |        |
| Cash and cash equivalents                              | 3,743       |   | 2,649       |
| Accounts receivable                                    | 7,436       |   | 7,147       |
| Prepaid expenses and deposits                          | 1,528       |   | 1,686       |
| Assets of discontinued operations                      | --          |   | 100,692     |
| Accounts payable and accrued liabilities               | (17,655)    |   | (18,126)    |
| Stock based compensation liability                     | (2,448)     |   | (530)       |
| Provisions                                             | (12,730)    |   | (12,692)    |
| Derivative  financial  liabilities | (781)       |   | (5,099)     |
| Short term debt                                        | --          |   | (35,048)    |
| Liabilities of discontinued operations                 | --          |   | (16,650)    |
| Working capital surplus (deficit)                      | (20,907)    |   | 24,029      |

|  | 2011 MD&A | Page 11 |
|--|---------------|---------|

----

|  | 2011 MD&A | Page 12 |
|--|---------------|---------|

----

|                                  | 2011    |   | 2010    |
|---------------------------------------|---------|--------|---------|
| Canadian exploration expense          | 57,861  |   | 56,313  |
| Canadian oil and gas property expense | 49,230  |   | 39,592  |
| Canadian development expense          | 45,579  |   | 16,274  |
| Undepreciated capital costs           | 29,945  |   | 22,740  |
| Foreign exploration expense           | 34,163  |   | 86,965  |
| Non-capital losses                    | 98,429  |   | 110,901 |
| Capital losses                        | 30,234  |   | --      |
| Share issue costs and other           | 3,726   |   | 4,607   |
|                                  | 349,167 |   | 337,392 |

|  | 2011 MD&A | Page 13 |
|--|---------------|---------|

----

| ($ thousands)                                                                        | Petroleum and Natural Gas Sales(1) |
|--------------------------------------------------------------------------------------|------------------------------------|
| Change in average sales price for natural gas by $1.00/mcf                           | 4,448                              |
| Change in the average sales price for crude oil and natural gas liquids by $1.00/bbl | 279                                |
| Change in natural gas production by 1 mmcf/d (2)                                     | 1,384                              |
| Change in crude oil and natural gas liquids production by 100 bbls/d (2)             | 2,959                              |

| (1) | Reflects the change in petroleum and natural gas sales for the twelve months ended December 31, 2011. |
|-----|-------------------------------------------------------------------------------------------------------|

| (2) | Reflects the change in production multiplied by the Company’s average sales prices for the twelve months ended December 31, 2011. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------|

|  | 2011 MD&A | Page 14 |
|--|---------------|---------|

----

|                                   | December31 |   | December 31 |
|----------------------------------------|------------|--------|-------------|
|                                   | 2011       |   | 2010        |
| (CDN$ thousands)                       |       |   |        |
| Western Canada joint interest billings | 2,830      |   | 2,036       |
| Goods and Services Tax receivable      | 740        |   | 1,314       |
| North Africa recoverable expenses      | 113        |   | --          |
| Revenue accruals and other receivables | 3,753      |   | 3,797       |
| Accounts receivables                   | 7,436      |   | 7,147       |
| Cash and cash equivalents              | 3,743      |   | 2,649       |
| Restricted cash                        | --         |   | 19,892      |
| Credit exposure                        | 11,179     |   | 29,688      |

| Term                                                                                                                                      | Contract    |   | Volume (GJ/d)   |   | Fixed Price ($/GJ)    |   | 2011Realized gain       |   | 2011Unrealized gain |
|-------------------------------------------------------------------------------------------------------------------------------------------|-------------|--------|-----------------|--------|-----------------------|--------|-------------------------|--------|---------------------|
|                                                                                                                                      |        |   |            |   |                  |   |                    |   |                |
| March 1, 2011 – December 31, 2011                                                                                                   | Swap        |   | 5,000           |   | $4.11                 |   | $1,093                  |   | --                  |
|                                                                                                                                      |        |   |            |   |                  |   |                    |   |                |
| In exchange for receiving the fixed price on natural gas on the above swap agreement, the Company issued the following call option:  |
| Term                                                                                                                                      | Contract    |   | Volume (Bbls/d) |   | Fixed Price (US$/Bbl) |   |  2011Realized loss |   | 2011Unrealized loss |
|                                                                                                                                      |        |   |            |   |                  |   |                    |   |                |
| March 1, 2011 – December 31, 2012                                                                                                   | Call option |   | 250             |   | $100.00               |   | ($105)                  |   | ($781)              |
|  The following gas price risk contract was in place during the year ended December 31, 2010:                                         |        |   |
| Term                                                                                                                                      | Contract    |   | Volume (GJ/d)   |   | Fixed Price ($/GJ)    |   | 2010Realized gain       |   | 2010Unrealized gain |
|                                                                                                                                      |        |   |            |   |                  |   |                    |   |                |
| January 1, 2010 – December 31, 2010                                                                                                 | Swap        |   | 5,500           |   | $5.50                 |   | $3,197                  |   | --                  |

|  | 2011 MD&A | Page 15 |
|--|---------------|---------|

----

|                                 | December 31 |   | December 31 |
|--------------------------------------|-------------|--------|-------------|
|                                 | 2011        |   | 2010        |
|  (US$ thousands)                |        |   |        |
| Cash and cash equivalents            | 1,020       |   | 1,744       |
| Restricted cash                      | --          |   | 20,000      |
| North Africa receivables             | 111         |   | --          |
| Foreign denominated financial assets | 1,131       |   | 21,744      |

|                                                            | December31 |   | December 31 |
|-----------------------------------------------------------------|------------|--------|-------------|
|                                                            | 2011       |   | 2010        |
| (US$ thousands)                                                 |       |   |        |
| Trinidad payables included in liabilities held for sale         | --         |   | 12,707      |
| LNG payables included in liabilities of discontinued operations | --         |   | 1,075       |
| North Africa payables                                           | 1,720      |   | 9,133       |
| Mariner swap provision                                          | 12,500     |   | 12,500      |
| Convertible preferred shares                                    | --         |   | 15,000      |
| Conversion feature on convertible preferred shares              | --         |   | 4,720       |
| Derivative liability - warrants                                 | --         |   | 406         |
| Foreign denominated financial liabilities                       | 14,220     |   | 55,541      |

|                                     | 2012   |   | 2013   |   | 2014  |   | 2015  |   | 2016  |   | Thereafter |   | Total  |
|------------------------------------------|--------|--------|--------|--------|-------|--------|-------|--------|-------|--------|------------|--------|--------|
| Accounts payable and accrued liabilities | 17,655 |   | --     |   | --    |   | --    |   | --    |   | --         |   | 17,655 |
| Stock based compensation liability       | 2,448  |   | --     |   | --    |   | --    |   | --    |   | --         |   | 2,448  |
| Mariner swap                             | 12,730 |   | --     |   | --    |   | --    |   | --    |   | --         |   | 12,730 |
| Derivative financial liabilities         | 781    |   | --     |   | --    |   | --    |   | --    |   | --         |   | 781    |
| North Africa exploration commitments     | 4,683  |   | 45,765 |   | --    |   | --    |   | --    |   | --         |   | 50,448 |
| Office rent                              | 1,448  |   | 1,212  |   | 1,212 |   | 1,217 |   | 1,233 |   | 7,159      |   | 13,481 |
| Equipment                                | 8      |   | --     |   | --    |   | --    |   | --    |   | --         |   | 8      |
|                                     | 39,753 |   | 46,977 |   | 1,212 |   | 1,217 |   | 1,233 |   | 7,159      |   | 97,551 |

|  | 2011 MD&A | Page 16 |
|--|---------------|---------|

----

|                                                                    | 2011IFRS |   | 2010IFRS  |   | 2009CGAAP |
|-------------------------------------------------------------------------|----------|--------|-----------|--------|-----------|
|                                                                    |     |   |      |   |      |
| Petroleum & natural gas sales (2)                                   | 34,952   |   | 34,132    |   | 31,094    |
| Net loss from continuing operations                                     | (43,475) |   | (66,906)  |   | (92,400)  |
| Net loss from continuing operations per share – basic and diluted | (0.70)   |   | (1.09)    |   | (2.61)    |
| Net loss (1)                                                            | (40,571) |   | (100,224) |   | (53,321)  |
| Net loss per share – basic and diluted(1)                         | (0.65)   |   | (1.64)    |   | (1.51)    |
| Funds from operations (3)                                               | 7,597    |   | 6,549     |   | 1,170     |
| Funds from operations per share – basic and diluted (3)           | 0.12     |   | 0.03      |   | 0.03      |
| Total assets                                                            | 186,887  |   | 264,692   |   | 291,832   |
| Short term debt                                                         | --       |   | 35,048    |   | 39,368    |
| Production (boe/d)                                                      | 2,796    |   | 2,870     |   | 3,020     |
| Operating netback ($/boe)                                               | 19.04    |   | 20.14     |   | 15.92     |

|  | 2011 MD&A | Page 17 |
|--|---------------|---------|

----

| (IFRS)                                                                   | 2011      |   | 2011      |   | 2011      |   | 2011    |   | 2010     |   | 2010    |   | 2010     |   | 2010    |
|--------------------------------------------------------------------------|-----------|--------|-----------|--------|-----------|--------|---------|--------|----------|--------|---------|--------|----------|--------|---------|
|                                                                     | Q4        |   | Q3        |   | Q2        |   | Q1      |   | Q4       |   | Q3      |   | Q2       |   | Q1      |
| Production                                                               |      |   |      |   |      |   |    |   |     |   |    |   |     |   |    |
| Natural gas (mcf/d)                                                      | 12,186    |   | 12,673    |   | 11,509    |   | 12,377  |   | 14,140   |   | 12,417  |   | 13,631   |   | 13,104  |
| Crude oil and natural gas liquids (bbl/d)                                |  880 |   |  834 |   |  672 |   | 677     |   | 730      |   | 646     |   | 620      |   | 595     |
| Total (boe/d)                                                            | 2,911     |   | 2,946     |   | 2,584     |   | 2,740   |   | 3,087    |   | 2,716   |   | 2,892    |   | 2,779   |
|                                                                     |      |   |      |   |      |   |    |   |     |   |    |   |     |   |    |
| Petroleum & natural gas sales (2)                                    | 9,445     |   | 9,011     |   | 7,747     |   | 8,749   |   | 10,002   |   | 7,847   |   | 7,682    |   | 8,601   |
| Net loss from continuing operations                                      | (36,483)  |   | (847)     |   | (1,110)   |   | (5,035) |   | (40,952) |   | (3,333) |   | (19,957) |   | (2,664) |
| Net loss from continuing operations per share – basic and diluted  | (0.58)    |   | (0.01)    |   | (0.02)    |   | (0.08)  |   | (0.66)   |   | (0.05)  |   | (0.33)   |   | (0.05)  |
| Net income (loss) (1)                                                    | (36,500)  |   | (591)     |   | 2,781     |   | (6,261) |   | (74,177) |   | (3,362) |   | (19,988) |   | (2,697) |
| Net income (loss) per share – basic and diluted(1)                 | (0.58)    |   | (0.01)    |   | 0.04      |   | (0.10)  |   | (1.19)   |   | (0.05)  |   | (0.33)   |   | (0.05)  |
| Funds from (used for)operations (3)                                      | 3,155     |   | 1,945     |   | 853       |   | 1,644   |   | 871      |   | 2,528   |   | (690)    |   | 3,840   |
| Funds from (used for) operations per share – basic and diluted (3) | 0.05      |   | 0.03      |   | 0.01      |   | 0.03    |   | 0.01     |   | 0.04    |   | (0.01)   |   | 0.07    |

|   | · | Revenue is directly impacted by the Company’s ability to replace existing production and add incremental production through its on-going workover, recompletion and capital expenditure program.                                               |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | · | Fluctuations in the Company’s petroleum and natural gas sales and net income (loss) from quarter to quarter are primarily caused by variations in production volumes, realized oil and natural gas prices and the related impact of royalties. |
|   | · | Fluctuations in debt levels from quarter to quarter can substantially impact the Company’s net income and cash flow from operations.                                                                                                           |

|  | 2011 MD&A | Page 18 |
|--|---------------|---------|

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|  | 2011 MD&A | Page 19 |
|--|---------------|---------|

----

| (a)  | IFRS transition exemptions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|-----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|      | IFRS 1 requires the presentation of comparative information as at the January 1, 2010, transition date and subsequent comparative periods as well as the consistent and retrospective application of IFRS accounting policies. To assist with the transition, the provisions of IFRS 1 allow for certain mandatory exceptions and optional exemptions for first-time adopters to alleviate the retrospective application of all IFRSs. The Company has applied the following exemptions to full retrospective application of IFRS in accordance with IFRS 1: |
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|      | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | Deemed cost of property plant and equipment |
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | The Company has elected to apply the exemption under IFRS 1 allowing the measurement of oil and gas assets at the date of transition to IFRS to be determined based on the amounts disclosed under the full cost method of accounting in accordance with Canadian GAAP. |
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
|      | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Decommissioning liabilities |
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | The exemption provided in IFRS 1 from the full retrospective application of IFRS 1 has been applied and the difference between the carrying values of the Company’s decommissioning liabilities as measured under IFRS and their carrying values under Canadian GAAP as of January 1, 2010, has been recognized directly in opening deficit. |
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
|      | (iii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Share-based payments |
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | The Company has elected not to apply IFRS 2, Share-based Payments to equity instruments granted after November 7, 2002, that have not vested by the transition date. |
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
|      | (iv)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Borrowing costs |
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | The Company has applied the borrowing cost exemption in IFRS 1. It has applied the requirement of IAS 23 to borrowing costs relating to qualifying assets on a prospective basis from the date of transition to IFRS. |
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
|      | (v)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | Foreign currency translation |

|  | 2011 MD&A | Page 20 |
|--|---------------|---------|

----

|   |                                                                                                                                                                                                 | The cumulative translation differences for all foreign operations are deemed to be zero at the date of transition to IFRS. Cumulative translation differences are recorded prospectively from this date. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                 |                                                                                                                                                                                                     |
|   | (vi)                                                                                                                                                                                                 | Business combinations                                                                                                                                                                                    |
|   |                                                                                                                                                                                                 |                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                 | IFRS 1 allows an entity to use the IFRS rules for business combinations on a prospective basis rather than restating all business combinations.                                                          |
|   |                                                                                                                                                                                                 |                                                                                                                                                                                                     |
| (b)    | Mandatory exceptions to retrospective application                                                                                                                                                    |
|   |                                                                                                                                                                                                 |
|   | Hindsight was not used to create or revise estimates and accordingly the estimates previously made by the Company under Canadian GAAP are consistent with their application under IFRS.              |
|   |                                                                                                                                                                                                 |
|   | The remaining IFRS 1 exemptions were not applicable or material to the preparation of the Company’s Consolidated Statement of Financial Position at the date of transition on January 1, 2010. |
|   |                                                                                                                                                                                                 |
| (c)    | Explanation of significant adjustments                                                                                                                                                               |
|   |                                                                                                                                                                                                 |

|   | (i)    | Assets/liabilities held for sale and discontinued operations                                                                                                                                                                                                                                                                                                       |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                               |
|   |   | Foreign currency translation differences associated with the LNG Project and Trinidad and Tobago assets and liabilities were recorded as part of net loss from discontinued operations under Canadian GAAP. Under IFRS, these differences were reclassified to other comprehensive loss. See section (xi) for details on foreign currency translation differences. |
|   |   |                                                                                                                                                                                                                                                                                                                                                               |
|   |   | Decommissioning provision differences between IFRS and Canadian GAAP associated with Trinidad and Tobago assets were recorded as changes to liabilities held for sale. The impact of changes to the accretion of these provisions was recorded to net loss from discontinued operations. See section (ii) for details on decommissioning provision differences.    |
|   | (ii) | Decommissioning provision |
|--------|------|---------------------------|
|   |   | Under Canadian GAAP, increases in the estimated cash flows were discounted using the current credit-adjusted risk-free rate while downward revisions in the estimated cash flows were discounted using the credit-adjusted risk-free rate that existed when the original liability was recognized. Under IFRS, estimated cash flows are discounted using the risk-free rate that exists at the date of the statement of financial position.                                                                                                                                                                           |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   | In accordance with IFRS 1, the Company elected to re-measure its decommissioning provision at the IFRS transition date and has estimated the related asset by discounting the liability to the date in which the liability arose and recalculated the accumulated depreciation and depletion under IFRS. Adjustments at the IFRS transition date have been recorded to opening deficit. Adjustments arising as a result of changes in the discount rates during 2010 have been recorded to property plant, and equipment. The impact of these changes on accretion has been reflected as a change in financing costs. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | (iii)  | Convertible preferred shares |
|--------|--------|------------------------------|
|   |   |                         |
|   |   | Under Canadian GAAP, the convertible instrument is split into a liability and an equity component. The value of the liability component was determined at the time of placement of the instrument based on the fair value of the debt component of the instrument. The remaining amount was recorded in equity under Canadian GAAP.                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   | The treatment of the liability component determined at the time of placement under IFRS is similar to Canadian GAAP. The initial recognition is at fair value. Under Canadian GAAP the carrying value of the liability component is subsequently accreted to its face value using the effective interest method which is similar to IFRS. No adjustment was required upon adoption of IFRS.                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   | There is no equity instrument recorded for the conversion feature under IFRS. IFRS requires a fixed number of the Company’s own equity instruments to be delivered in exchange for a fixed amount of cash to make recognition as equity possible. As the liability is denominated in United States dollars (“U.S. dollars” or “US$”), and therefore is variable in Canadian dollars, this requirement is not met for the conversion feature of the preferred shares. As a result, under IFRS no equity component can be recorded and the conversion feature is considered an embedded derivative. The embedded derivative is separated and recorded at fair value as a financial derivative liability, with changes in fair value charged to net income or loss. |

|  | 2011 MD&A | Page 21 |
|--|---------------|---------|

----

|   |   | On December 17, 2009, the Company renegotiated the terms of the convertible preferred shares. Pursuant to the terms of the restructuring, the Series A convertible preferred shares were exchanged for Series B convertible preferred shares and common share purchase warrants. Series A and B shares have different conversion prices and different redemption/retraction dates. The Certificate of Amendment which created the Series B shares was amended February 3, 2010. Under Canadian GAAP, the modification resulted in the Series A shares being presented as non-current at December 31, 2009, despite the redemption/retraction date of the Series A shares being December 31, 2010. Under Canadian GAAP, short term debt that is refinanced with long term debt prior to completion of the statement of financial position can be classified as non-current if certain criteria have been met. Under IFRS the appropriate treatment is to reflect the Series A shares as current liabilities in the IFRS opening statement of financial position. The equity treatment of the modification under Canadian GAAP resulted in adjustments to contributed surplus and incremental equity on preferred shares. Under IFRS, these adjustments are reversed as the conversion features of the modified convertible preferred shares are recorded at their fair value. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | (iv)   | Preferred share warrants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   | As part of the February 3, 2010, modification of the convertible preferred shares, the Company issued warrants, the exercise price of which is denominated in U.S. dollars.  Under Canadian GAAP these warrants have been recorded in equity. Under IFRS, the warrants are recorded as a derivative liability at fair value at issuance and at the end of each reporting period, with changes in fair value being recorded in income in the same manner as the convertible preferred shares above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | (v)    | Exploration and evaluation assets and property plant and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   | Under Canadian GAAP, the Company applied the full cost method of accounting for oil and gas exploration, development and production activities. Under the full cost method, all costs associated with these activities were capitalized. Under IFRS, the Company elected an IFRS 1 exemption whereby the Canadian GAAP full cost pool was measured upon transition to IFRS as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

|   |   | -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | exploration and evaluation assets were reclassified from the full cost pool to exploration and evaluation assets at the amount that was recorded under Canadian GAAP; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |   | -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | non-oil and gas assets (corporate assets ) were reclassified from the full cost pool to property plant and equipment;                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |   | -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | LNG Project related costs were identified as intangible start-up costs and reclassified from the full cost pool to property plant and equipment; and                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |   | -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | the remaining full cost pool was allocated to the producing/development assets and components pro rata using reserve values.                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |   | The Company’s exploration and evaluation assets consist of its undeveloped Western Canada land and North Africa offshore assets. Undeveloped land costs identified as exploration and evaluation assets pertain to only those undeveloped sections that the Company intended to actively pursue through its upcoming development programs. Exploration and evaluation assets were assessed for impairment on the IFRS transition date as described in section (vi). Corporate assets and LNG Project costs were also adjusted out of the full cost pool as these were considered non-oil and gas related costs and therefore not subject to the application of the deemed cost exemption. Corporate assets and the LNG Project were evaluated for impairment and subsequently recorded at their carrying values in property plant and equipment. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | (vi)   | Impairments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |   | Under Canadian GAAP, an item of property plant and equipment is deemed recoverable if the undiscounted future cash flows exceed the carrying value of the asset group. Under IFRS, recoverability or property plant and equipment is based on the higher of fair value less costs to sell and value in use of the CGU.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |   | During 2010, ceiling test impairments were recognized under Canadian GAAP at June 30, 2010 and December 31, 2010. Under IFRS, The Company evaluated these assets for indicators of impairment at each reporting period resulting in further impairment adjustments recorded at June 30, 2010 and December 31, 2010 in relation to the Company’s Western Canada producing and developed assets. Impairments were the result of declining long-term natural gas prices resulting in the carrying value of these CGU’s exceeding their                                                                                                                                                                                                                                                                                                        |

|  | 2011 MD&A | Page 22 |
|--|---------------|---------|

----

|   |   | recoverable amounts. Recoverable amounts have been determined using value in use (the net present value of the cash flow or benefit that an asset generates for a specific use) of each CGU.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | (vii)  | Depletion and depreciation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |   | Under IFRS, the Company adopted a policy of depleting its producing and developed oil and gas assets on a unit of production basis over estimated proved plus probable reserves. The depletion policy under Canadian GAAP was based on units of production over proved reserves. Under Canadian GAAP, depletion was calculated using all of Canada as a single cost centre. IFRS requires depletion and depreciation to be calculated based on individual components (i.e. fields or combinations thereof) or CGU’s.                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | (viii) | Exploration costs and other income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |   | Under Canadian GAAP, all exploration costs were capitalized in accordance with the full-cost method of accounting for oil and gas assets. Exploration costs identified under IFRS include those costs associated with leases and licences related to undeveloped land that are no longer being actively pursued by the Company as part of its development program. These costs have been recorded as an adjustment from property, plant and equipment to exploration costs during 2010.                                                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |   | IFRS adjustments related to other income relate to a refund of Nova Scotia offshore work deposits that were recorded against property, plant and equipment under Canadian GAAP during 2010. Under IFRS, carrying value associated with Nova Scotia offshore leases were impaired as part of the application of deemed cost under IFRS 1 on the IFRS transition date. These refunds have been adjusted from property, plant and equipment to other income during 2010.                                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | (ix)   | Provisions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |   | Under IFRS, onerous contracts arise when the costs of meeting the obligations of a contract exceed the benefits to be derived from the agreement. When an onerous contract arises, IFRS requires that a provision be set up for the present obligation of the contract. The Company has lease agreements for office space which it no longer uses, resulting in costs of the agreements outweighing its benefits. Under IFRS, the leases are considered onerous in which case a provision has been recorded on the IFRS transition date as an adjustment to retained earnings. During 2010, the change in provision is recorded as a reduction against general and administrative expense.                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | (x)    | Share-based payments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |   | Under Canadian GAAP, the Company recognized an expense related to share based payments on a straight-line basis through the date of full vesting and did not incorporate a forfeiture multiplier. Under IFRS, the Company is required to recognize the expense over the individual vesting periods for the graded vesting awards and estimate a forfeiture rate.                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | (xi)   | Foreign currency translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |   | IFRS 1 allows companies to deem the cumulative translation difference to be zero at transition date. The gain or loss on a subsequent disposal of any foreign operation then excludes the translation differences that arose before the date of transition to IFRS. The Company has elected to apply this exemption.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |   | When an entity elects to use a deemed cost exemption for certain assets on initial adoption of IFRS, it calculates the cumulative translation amount for those assets not from the date of acquisition but from the date at which the deemed cost amount is determined. The Company has elected to apply the deemed cost exemption for its oil and gas assets as at the date of transition. Therefore oil and gas assets relating to foreign operations identified with a functional currency of U.S. dollars will not be adjusted for foreign exchange differences as the deemed cost has established its reporting currency value. The functional currency carrying value for these assets have been determined by applying the Canadian dollar to U.S. dollar spot rate at the IFRS transition date to the deemed cost amounts. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |   | The financial information for those operations for which the functional currency is concluded to be different from the Company’s reporting currency of Canadian dollars is the LNG Project, Trinidad and Tobago and North Africa. The only adjustment required at the IFRS transition date is to the decommissioning provision balance for the Company’s Block 5(c) Trinidad and Tobago wells. Foreign exchange adjustments during 2010 are required for all non-monetary assets and liabilities. The restatement from functional currency to                                                                                                                                                                                                                                                                          |

|  | 2011 MD&A | Page 23 |
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|   |   | reporting currency on all assets and liabilities have been recorded in other comprehensive income and accumulated under foreign currency translation reserve.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
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|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   | (xii)  | Flow-through shares                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   | Under Canadian GAAP, proceeds from flow-through shares are recorded to share capital. When the tax benefits have been renounced to the flow-through shareholder, the Company records a reduction in share capital with a corresponding increase in the future income tax liability. Under IFRS, share capital for flow-through shares issued is recorded to share capital at the quoted value of the shares at the date of issuance. The difference between the quoted value and the gross proceeds received on the issuance of the shares is recorded as a liability. The tax cost resulting from deduction renouncement, less any proceeds received in excess of the quoted value of the shares, must be included in the determination of the tax expense. The Company’s last issuance of flow-through shares was in 2008 resulting in the difference being applied as an increase to share capital with an offset to opening deficit on the IFRS transition date. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   | (xiii) | Cash flow presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   | Several items within the consolidated statement of cash flows have been reclassified to reflect presentation in accordance with IFRS. In addition, an IFRS difference between operating and investing cash flows under Canadian GAAP arises because of adjustments (viii) and (xi). Adjustment (viii) reclassifies a deposit received to other income; under Canadian GAAP, this was netted against capital expenditures. Adjustment (xi) results in the restatement of foreign denominated working capital within foreign subsidiaries through foreign currency translation reserve, resulting in unrealized foreign exchange that is not captured in net income.                                                                                                                                                                                                                                                                                                         |

| ● | IFRS 10, “Consolidated Financial Statements” supersedes IAS 27 “Consolidation and Separate Financial Statements” and SIC-12 “Consolidation – Special Purpose Entities”. This standard provides a single model to be applied in control analysis for all investees including special purpose entities.                                           |
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| ● | IFRS 11, “Joint Arrangements” divides joint arrangements into two types, joint operations and joint ventures, each with their own accounting model. All joint arrangements are required to be reassessed on transition to IFRS 11 to determine their type to apply the appropriate accounting.                                                                                |
|    |                                                                                                                                                                                                                                                                                                                                                                                      |
| ● | IFRS 12, “Disclosure of Interests in Other Entities” combines in a single standard the disclosure requirements for subsidiaries, associates and joint arrangements as well as unconsolidated structured entities.                                                                                                                                                             |
|    |                                                                                                                                                                                                                                                                                                                                                                                      |
| ● | IFRS 13, “Fair Value Measurement” defines fair value, establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements. This standard defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. |
|    |                                                                                                                                                                                                                                                                                                                                                                                      |
|    | The Company is currently analyzing the expected impact, if any, that the adoption of each of these standards will have on its Consolidated Financial Statements.                                                                                                                                                                                                                          |

|  | 2011 MD&A | Page 24 |
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|  | 2011 MD&A | Page 25 |
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