**UNITED
STATES**


**SECURITIES
AND EXCHANGE COMMISSION**


**WASHINGTON,
D.C. 20549**





**__________________**





**FORM
20-F**


**_________________________**





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





[X]
    ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934 FOR THE FISCAL YEAR ENDED DECEMBER 31,
2004





[
      ]
    TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
      1934 FOR THE TRANSACTION PERIOD FROM ______________ TO
      ___________________





Commission
File Number 0-18939





**BERKLEY
RESOURCES INC.**


*(Exact
name of Company as specified in its charter)*





**A
CORPORATION FORMED UNDER THE LAWS OF BRITISH COLUMBIA,
CANADA**


*(Jurisdiction
of Incorporation or Organization)*





455
Granville Street, Suite 400


Vancouver,
British Columbia V6C 1T1


Canada


*(Address
of principal executive offices)*





Securities
registered or to be registered pursuant to Section 12(b) of the Act:
NONE





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





**Common
      Shares, without Par Value**
      *(Title of
      Class)*





Securities
for which there is a reporting obligation pursuant to Section 15(d) of the Act:
NONE





The
number of outstanding Common Shares as of December 31, 2004 was
9,681,977.





Indicate
by check mark whether the Company (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Company was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. [X] Yes [] No





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


Item 17
[X]   Item 18 [
]





(Applicable
only to issuers involved in bankruptcy proceedings during the past five
years)





Indicate
by check mark whether the Company has filed all documents and reports required
to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court.
NOT APPLICABLE
















**TABLE
OF CONTENTS**





Introduction...................................................................................................................................................................................................................................................3Currency.........................................................................................................................................................................................................................................................3Forward-looking  Statements......................................................................................................................................................................................................................3Part
      I................................................................................................................................................................................................................................................................4Item
      1. Identity of Directors, Senior Management and
      Advisors.................................................................................................................................................4Item
      2. Offer Statistics and Expected
      Timetable...............................................................................................................................................................................4Item
      3. Key
      Information.......................................................................................................................................................................................................................4Item
      4. Information on the
      Company.................................................................................................................................................................................................8Item
      5. Operating and Financial Review and
      Prospects................................................................................................................................................................15Item
      6. Directors, Senior Management and
      Employees................................................................................................................................................................18Item
      7. Major Shareholders and Related Party
      Transactions.......................................................................................................................................................22Item
      8. Financial
      Information.............................................................................................................................................................................................................22Item
      9. The Offer and
      Listing............................................................................................................................................................................................................23Item
      10. Additional
      Information........................................................................................................................................................................................................23Item
      11. Quantitative and Qualitative Disclosures About Market
      Risk.....................................................................................................................................28Item
      12. Description of Securities Other than Equity
      Securities..................................................................................................................................................28Part
      II............................................................................................................................................................................................................................................................28Item
      13. Defaults, Dividend Arrearages and
      Delinquencies........................................................................................................................................................28Item
      14. Material Modifications to the Rights of Security Holders and Use of
      Proceeds.......................................................................................................28Item
      15. Controls and
      Procedures....................................................................................................................................................................................................28Item
      16.
      [Reserved].............................................................................................................................................................................................................................28Item
      16A. Audit Committee Financial
      Expert..................................................................................................................................................................................28Item
      16B. Code of
      Ethics....................................................................................................................................................................................................................28Item
      16C. Principal Accountant Fees and
      Services.......................................................................................................................................................................28Item
      16D. Exemptions from the Listing Standards for Audit
      Committees..................................................................................................................................29Item
      16E. Purchases of Equity Securities by the Issuer and Affiliated
      Purchasers..................................................................................................................29Part
      III...........................................................................................................................................................................................................................................................29Item
      17. Financial
      Statements............................................................................................................................................................................................................29Item
      18. Financial
      Statements............................................................................................................................................................................................................29Item
      19.
      Exhibits..................................................................................................................................................................................................................................29






















2





**Introduction**





Berkley
Resources Inc., which we refer to as the "Company", was organized under the
Company Act of the Province of British Columbia, Canada on July 18, 1986 under
the name of Berkley Resources Inc. by virtue of a statutory amalgamation among
Fortune Island Mines Ltd., Kerry Mining Ltd. and Berkley Resources Inc. The
principal executive office of the Company is located at 455 Granville Street,
Suite 400, Vancouver, British Columbia V6C 1T1, and its telephone number is
604-682-3701. The principal business of the Company is that of a drilling
participant in various oil and gas properties principally located in Alberta and
Saskatchewan, Canada. In August 2001, the Company purchased the remaining
interest in the office building that it occupies and became its sole owner. As a
result, the Company now leases the other offices that it does not occupy to
other businesses.





In this
annual report on Form 20-F, which we refer to as the "Annual Report", except as
otherwise indicated or as the context otherwise requires, the "Company", "we" or
"us" refers to Berkley Resources Inc.





You
should rely only on the information contained in this Annual Report. We have not
authorized anyone to provide you with information that is different. The
information in this Annual Report may only be accurate on the date of this
Annual Report or on or as at any other date provided with respect to specific
information.





**Currency**





Unless we
otherwise indicate in this Annual Report, all references to "Canadian Dollars",
"CDN$" or "$" are to the lawful currency of Canada and all references to "U.S.
Dollars" or "U.S. $" are to the lawful currency of the United
States





**Forward-looking
Statements**





The
following discussion contains forward-looking statements within the meaning of
the United States Private Securities Legislation Reform Act of 1995 concerning
the Company's plans which may affect the future operating results and financial
position. Such statements are subject to risks and uncertainties that could
cause our actual results and financial position to differ materially from those
anticipated in the forward-looking statements. These factors include, but are
not limited to, the factors set forth in the sections entitled "Risk Factors" in
Item 3.D., and "Operating and Financial Review and Prospects" in Item 5.
Statements concerning reserves and resources may also be deemed to constitute
forward-looking statements to the extent that such statements reflect the
conclusion that such reserves and resources may be economically exploitable. Any
statements that express or involve discussions with respect to predictions,
expectations, plans, projections, objectives, assumptions or future events or
performance (often, but not always, using words or phrases such as "expects" or
"does not expect", "is expected", "anticipates", "does not anticipate", "plans",
"estimates", or "intends", or stating that certain actions, events or results
"may", "could", "would", or "will" be taken, occur or be achieved) are not
statements of historical fact and may be "forward-looking
statements."





3





**Part
I**





**Item
1. Identity of Directors, Senior Management and Advisors**





Not
applicable.





**Item
2. Offer Statistics and Expected Timetable**





Not
applicable.





**Item
3. Key Information**





**A.**  **Selected
Financial Data**





The
selected historical financial information presented in the table below for each
of the years ended December 31, 2004, 2003, 2002, 2001 and 2000 is derived from
the audited financial statements of the Company. The audited financial
statements and notes for the balance sheets as at December 31, 2004 and December
31, 2003, and the statements of operations for each of the years in the three
year period ended December 31, 2004, are included in this Annual Report. The
selected historical financial information for the years ended December 31, 2001
and 2000, presented in the table below are derived from financial statements of
the Company that are not included in this Annual Report. The selected financial
information presented below should be read in conjunction with the Company's
financial statements and the notes thereto (Item 17) and the Operating and
Financial Review and Prospects (Item 5) included elsewhere in this Annual
Report.





The
selected financial information for each of the years ended December 31, 2004,
2003 and 2002 has been prepared in accordance with Canadian generally accepted
accounting principles, which is referred to as "Canadian GAAP", and United
States generally accepted accounting principles, which is referred to as "U.S.
GAAP", and the selected financial data for each of the years ended December 31,
2001 and 2000 has been prepared in accordance with Canadian GAAP.





**Year
      Ended December 31****Canadian
      GAAP**
    
    **2004**
    
    **2003**
    
    **2002**
    
    **2001**
    
    **2000****Operations**Oil
      and Gas Revenue
    
    $
    866,811
    
    $
    606,133
    
    $
    406,138
    
    $
    637,497
    
    $
    678,789Oil
      and Gas Production Expense
    
    
    416,254
    
    
    243,717
    
    
    189,681
    
    
    257,862
    
    
    184,168Amortization
      and Depletion
    
    
    260,000
    
    
    79,500
    
    
    39,900
    
    
    482,700
    
    
    97,600Rental
      Revenue
    
    
    232,607
    
    
    238,599
    
    
    235,670
    
    
    208,592
    
    
    174,025Rental
      Operations Expense
    
    
    245,731
    
    
    238,884
    
    
    218,318
    
    
    191,879
    
    
    186,734Net
      Income (loss)
    
    
    (729,034
    )
    
    (255,456
    )
    
    (127,647
    )
    
    (292,576
    )
    
    201,165Net
      Income Per Share (loss)
    
    
    (0.10
    )
    
    (0.04
    )
    
    (.02
    )
    
    (.051
    )
    
    .042**As
      at December 31****2004**
    
    
    **2003**
    
    
    **2002**
    
    
    **2001**
    
    
    **2000****Balance
      Sheet**Total
      Assets
    
    
    6,759,346
    
    
    3,615,691
    
    
    3,829,235
    
    
    3,855,897
    
    
    4,367,927Short
      Term Debt
    
    
    1,968,601
    
    
    711,222
    
    
    758,102
    
    
    909,017
    
    
    894,059Shareholders'
      Equity
    
    
    4,747,715
    
    
    2,767,967
    
    
    3,015,933
    
    
    2,893,580
    
    
    2,986,156Number
      of shares issued and outstanding
    
    
    9,681,977
    
    
    6,810,934
    
    
    6,795,934
    
    
    5,795,934
    
    
    4,795,934**Year
      Ended December 31****U.S.
      GAAP**
    
    
    **2004**
    
    
    **2003**
    
    
    **2002**
    
    
    **2001**
    
    
    **2000****Operations**Oil
      and Gas Revenue
    
    $
    866,811
    
    $
    606,133
    
    $
    406,138
    
    $
    637,497
    
    $
    678,789Rental
      Revenue
    
    
    232,607
    
    
    238,599
    
    
    235,670
    
    
    208,592
    
    
    174,025Net
      Income (loss)
    
    
    (729,034
    )
    
    (255,456
    )
    
    (191,847
    )
    
    (240,576
    )
    
    183,965Net
      Income Per Share (loss)
    
    
    (0.10
    )
    
    (0.04
    )
    
    (0.03
    )
    
    (0.042
    )
    
    0.038**As at December 31****2004**
    
    
    **2003**
    
    
    **2002**
    
    
    **2001**
    
    
    **2000****Balance**
      **Sheet**Total
      Assets
    
    
    6,857,146
    
    
    3,811,591
    
    
    3,927,035
    
    
    4,039,497
    
    
    4,499,527Total
      Liabilities
    
    
    2,011,631
    
    
    847,724
    
    
    813,302
    
    
    962,317
    
    
    1,381,771Shareholders'
      Equity
    
    
    4,845,515
    
    
    2,865,767
    
    
    3,113,733
    
    
    3,077,180
    
    
    3,117,756










4


**Exchange
Rates**





The
following table sets forth information as to the period end, average, high and
low exchange rate data for Canadian Dollars and U.S. Dollars for the periods
indicated based on the noon buying rate in New York City for cable transfers in
Canadian Dollars as certified for customs purposes by the Federal Reserve Bank
of New York (Canadian dollar = U.S. $1).


**Year
      Ended:**
      **December
      31**
    
    **Average**
    
    **Period
      End**
    
    **High**
    
    **Low**2000
    
    
    1.4855
    
    
    1.4995
    
    
    1.5600
    
    
    1.43502001
    
    
    1.5487
    
    
    1.5925
    
    
    1.6023
    
    
    1.49332002
    
    
    1.5704
    
    
    1.5800
    
    
    1.6128
    
    
    1.51082003
    
    
    1.4008
    
    
    1.2923
    
    
    1.5750
    
    
    1.29232004
    
    
    1.3017
    
    
    1.2034
    
    
    1.3970
    
    
    1.1775





The
following table sets forth the high and low exchange rate for the past six
months. As of June 21, 2005, the exchange rate was $1.2310 for each U.S.
$1.00.





**Month**
    
    **High**
    
    **Low**December
      2004
    
    $
    1.2401
    
    $
    1.1856January
      2005
    
    $
    1.2422
    
    $
    1.1982February
      2005
    
    $
    1.2562
    
    $
    1.2294March
      2005
    
    $
    1.2463
    
    $
    1.2017April
      2005
    
    $
    1.2568
    
    $
    1.2146May
      2005
    
    $
    1.2703
    
    $
    1.2373





**B.**
    **Capitalization
      and Indebtedness**





Not
Applicable.





**C.**  **Reasons
for the Offer and Use of Proceeds**





Not
Applicable.





**D.**  **Risk
Factors**





In
addition to the other information presented in this Annual Report, the following
should be considered carefully in evaluating the Company and its business. This
Annual Report contains forward-looking statements that involve risk and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed below and
elsewhere in this Annual Report.





*Failure
to Locate Commercial Quantities of Hydrocarbons and Geological
Risks.* There is
no assurance that commercial quantities of hydrocarbons will be discovered.
Geological conditions are variable and of limited predictability. Even if
production is commenced from a well or field, production will inevitably decline
over the course of time, reducing the operating profitability of the enterprise
and eventually causing its termination.





*Oil
and Natural Gas Prices.* The
Company has little control over the price it receives for its products. Prices
are determined by the worldwide supply of and demand for energy. Levels of
production maintained by the Organization of Petroleum Exporting Countries,
referred to as "OPEC", member nations and other major oil producing countries
are expected to continue to be a major determinant of oil price movements in the
future. As a result, future oil price movements cannot be predicted with any
certainty. Similarly, during the past several years, the market price for
natural gas has been subject to significant fluctuations on a monthly basis as
well as from year to year. These frequent changes in the market price make it
impossible for the Company to predict natural gas price movements with any
certainty. Oil prices started the year 2004 at U.S. $32.78 per barrel compared
to 2003 at U.S. $32.23 per barrel for West Texas Intermediate, or "WTI". Oil
prices held steady throughout 2004 to close at year-end 2004 at U.S. $43.65. The
2004 full year average price for WTI was U.S. $41.00 compared to $31.00 per
barrel in 2003. Natural gas prices opened the year 2004 at Cdn $6.38 per
thousand cubic feet, referred to as "mcf", and closed year-end at Cdn $6.30. The
full year 2004 average price for natural gas at the Alberta Energy Company
trading hub at Suffield, Alberta, referred to as "AECO", was Cdn $6.50 compared
to an average of Cdn $6.70 for the year 2003.


5


The
Company cannot provide assurance that it will be able to market all oil or
natural gas that the Company produces or, if such oil or natural gas can be
marketed, that favorable price and contractual terms can be negotiated. Changes
in oil and natural gas prices may significantly affect the revenues and cash
flow of the Company and the value of its oil and natural gas properties.
Further, significant declines in the prices of oil and natural gas may have a
material adverse effect on the business and financial condition of the
Company.





*It
May Be Difficult to Enforce Civil Liabilities Against the
Company* . Because
the assets of the Company and its subsidiary, as well as the Company ¢ s
jurisdiction of incorporation and the residences of its officers and directors,
are mostly located outside of the United States, it may be difficult or
impossible to enforce judgments granted by a court in the United States against
the assets of the Company and its subsidiaries or the directors and officers of
the Company who reside outside the United States.





*Operating
History and Significant Historical Operating Losses.* We
commenced operations in the early 1980’s. We have five major properties which
have been in production since the mid-1980’s. The majority of wells on the
properties, proved reserves and future production attributable to these
properties are more susceptible to estimation discrepancies than fields with
larger reserves and longer production histories.





We
experienced earnings in fiscal 2000 of $201,165. In fiscal 2001, 2002, 2003 and
2004, we reported losses of $292,576, $127,647, $255,456 and $729,034,
respectively. As at December 31, 2004, we had an accumulated deficit of
$1,323,764. Our future viability should be considered in light of the risks and
difficulties frequently encountered by companies engaged in the junior stages of
oil and gas exploration, development and production activities.





*Penny
Stock Rules May Make it More Difficult to Trade the Company's Common Shares.* The
Securities and Exchange Commission, which we refer to as the "SEC", has adopted
regulations which generally define a "penny stock" to be any equity security
that has a market price, as defined, of less than U.S.$5.00 per share or an
exercise price of less than U.S.$5.00 per share, subject to certain exceptions.
Our securities may be covered by the penny stock rules, which impose additional
sales practice requirements on broker-dealers who sell to persons other than
established customers and accredited investors such as institutions with assets
in excess of U.S.$5,000,000 or an individual with net worth in excess of
U.S.$1,000,000 or annual income exceeding U.S.$200,000 or U.S.$300,000 jointly
with his or her spouse. For transactions covered by this rule, the
broker-dealers must make a special suitability determination for the purchase
and receive the purchaser ¢ s written
agreement of the transaction prior to the sale. Consequently, the rule may
affect the ability of broker-dealers to sell our securities and also affect the
ability of our investors to sell their shares in the secondary
market.





*No
Reliable Information Regarding Reserves* . The
Company has engaged independent petroleum consultants to compile oil and gas
reserve information with respect to its major properties and does have reliable
information regarding the quantities of natural gas or oil that may be
recoverable from these properties in future years, if any. There can be no
assurance, however, that such information has been accurately compiled or is not
based on assumptions which may prove to be inaccurate. Furthermore, if any one
of our major properties stop producing, it could have a material adverse effect
on our business, financial condition and operating results.





*We
are Dependent on Seven Properties* . The
Company currently receives substantially all of its income from seven discrete
areas. If any one of the seven areas stop producing, it could have a material
adverse effect on our business, financial condition and operating
results.





*Risks
Pertaining to Acquisitions and Joint Ventures* . **** Part of
our business strategy is to expand through acquisitions and is therefore
dependent upon our ability to complete suitable acquisitions and effectively
integrate acquired assets into our operations. Suitable acquisitions, on terms
acceptable to us, may not be available in the future or may require us to assume
certain liabilities, including, without limitation, environmental liabilities,
known or unknown.





*Exploration
and Development Risks.* Exploration and development of natural gas and oil involves a high degree of
risk that no commercial production will be obtained or that the production will
be insufficient to recover drilling and completion costs. The costs of drilling,
completing and operating wells is sometimes uncertain, and cost overruns in
exploration and development operations can adversely affect the economics of a
project. Our drilling operations may be curtailed, delayed or canceled as a
result of numerous factors, including title problems, joint venture partner
and/or operator decisions, equipment failures, weather conditions, marine
accidents, fires and explosions, compliance with governmental requirements, and
shortages or delays in the delivery of equipment. Furthermore, the completion of
a well does not ensure a profit on the investment or a recovery of drill,
completion and tie-in costs.





*Replacement
of Reserves.* In
general, the rate of production from natural gas and oil properties declines as
reserves are depleted. The rate of decline depends on reservoir characteristics
and other factors. Except to the extent we acquire properties containing proven
reserves or conduct successful exploration and development activities, or both,
our estimated proven reserves will decline as reserves are exploited. Our future
natural gas and oil production, and therefore cash flow from operations and net
earnings, are highly dependent upon our level of success in finding or acquiring
additional economically recoverable reserves. The business of exploring for,
developing and acquiring reserves is capital intensive. To the extent cash flow
from operations is reduced and external sources of capital become limited or
unavailable, our ability to make the necessary capital investment to maintain or
expand our asset base of natural gas and oil reserves could be materially
impaired.





*Estimating
of Reserves and Future Net Cash Flows Risk.* Estimating
natural gas, natural gas liquids and crude oil reserves, and future net cash
flows includes numerous uncertainties, many of which may be beyond our control.
Such estimates are essential in our decision-making as to whether further
investment is warranted. These estimates are derived from several factors and
assumptions, some of which are:


·  reservoir
characteristics based on variable geological, geophysical and engineering  assessments;
 ·  future
rates of production based on historical draw-down rates;
 ·  future
net cash flows based on commodity price/quality assumptions, production costs,  taxes and
investment decisions;
 ·  recoverable
reserves based on estimated future net cash flows; and
 ·  compliance
expectations based on assumed federal, provincial and environmental laws  and
regulations.


6


Ultimately,
actual production rates, reserves recovered, commodity prices, production costs,
government regulations or taxation may differ materially from those assumed in
earlier reserve estimates. Higher or lower differences could materially impact
our production, revenues, production costs, depletion expense, taxes and capital
expenditures.





Reserve
estimates and net present values reported by us elsewhere in this Annual Report
are based on estimated commodity prices and associated production costs that are
assumed constant for the life of the reserves. Actual future prices and costs
may be materially higher or lower.





We have
historically invested a significant portion of our capital budget in drilling
exploratory wells in search of unproved oil and gas reserves. We cannot be
certain that the exploratory wells we drill will be productive or that we will
recover all or any portion of our investments. In order to increase the chances
for exploratory success, we often invest in seismic or other geoscience data to
assist us in identifying potential drilling objectives. Additionally, the cost
of drilling, completing and testing exploratory wells is often uncertain at the
time of our initial investment. Depending on complications encountered while
drilling, the final cost of the well may significantly exceed that which we
originally estimated.





*Potential
Variability in Quarterly Operating Results.* Demand
for our products will generally increase during the winter because they are
often used as heating fuels. The amount of such increased demand will depend to
some extent upon the severity of winter. Accordingly, our net operating revenues
are likely to increase during winter months, although the amount of increase and
its effect on profitability cannot be predicted. Because of the seasonality of
our business and continuous fluctuations in the prices of our products, our
operating results for any past quarterly period may not necessarily be
indicative of results for future periods and there can be no assurance that we
will be able to maintain steady levels of profitability on a quarterly or annual
basis in the future.





*Competition
and Business Risk Management.* The
natural gas and oil industry is highly competitive. We experience competition in
all aspects of our business, including: searching for, developing and acquiring
reserves; obtaining pipeline and/or facilities processing capacity, leases,
licenses and concessions; and obtaining the equipment and labor needed to
conduct operations and market natural gas and oil. Our competitors include
multinational energy companies, other independent natural gas and oil concerns
and individual producers and operators. Because both natural gas and oil are
fungible commodities, the principal form of competition with respect to product
sales is price competition. Many competitors have financial and other resources
substantially greater than those available to us and, accordingly, may be better
able to respond to factors such as changes in worldwide natural gas or oil
prices, levels of production, the cost and availability of alternative fuels or
the application of government regulations. Such factors, which are beyond our
control, may affect demand for our natural gas and oil production. We expect a
high degree of competition to continue.





*Shortage
of Supplies and Equipment.* Our
ability to conduct operations in a timely and cost effective manner is subject
to the availability of natural gas and crude oil field supplies, rigs, equipment
and service crews. Although none are expected currently, any shortage of certain
types of supplies and equipment could result in delays in our operations as well
as in higher operating and capital costs.





*Interruption
from Severe Weather.* Our
operations are conducted principally in Alberta and Saskatchewan. The weather
during colder seasons in these areas can be extreme and can cause interruption
or delays in our drilling and construction operations.





*Dependence
on Third-Party Pipelines.* Substantially all our sales of oil and natural gas were effected through
deliveries to local third-party gathering systems to processing plants in
Alberta and Saskatchewan. In addition, we rely on access to interprovincial
pipelines for the sale and distribution of substantially all of our gas. As a
result, a curtailment of our sale of natural gas by pipelines or by third-party
gathering systems, an impairment of our ability to transport natural gas on
interprovincial pipelines or a material increase in the rates charged to us for
the transportation of natural gas by reason of a change in federal or provincial
regulations or for any other reason, could have a material adverse effect upon
us. In such event, we would have to obtain other transportation arrangements or
we would have to construct alternative pipelines. There can be no assurance that
we would have economical transportation alternatives or that it would be
feasible for us to construct pipelines. In the event such circumstances were to
occur, our field netbacks from the affected wells would be suspended until, and
if, such circumstances could be resolved.





*Operating
Hazards and Uninsured Risks.* The oil
and gas business involves a variety of operating risks, including fire,
explosion, pipe failure, casing collapse, abnormally pressured formations,
adverse weather conditions, governmental and political actions, premature
reservoir declines, and environmental hazards such as oil spills, gas leaks and
discharges of toxic gases. The occurrences of any of these events with respect
to any property operated or owned (in whole or in part) by us could have a
material adverse impact on us. We, and the operators of our properties, maintain
insurance in accordance with customary industry practices and in amounts that we
believe to be reasonable. However, insurance coverage is not always economically
feasible and is not obtained to cover all types of operational risks. The
occurrence of a significant event that is not fully insured could have a
material adverse effect on our financial condition.





As our
reserves of natural gas, natural gas liquids and crude oil decline, our success
at replacing and adding to them is highly reliant on further exploration and
development. To the extent we succeed, our operating cash flows and other
capital sources may become insufficient so as to impair our ability to re-invest
capital.





*Kyoto
Protocol Risk.* The
Kyoto Protocol treaty, referred to as the "Protocol", was established in 1997 to
reduce emissions of greenhouse gases, referred to as "GHG", that are believed to
be responsible for increasing the earth's surface temperatures and affecting the
global climate change. Canada ratified the Protocol in December 2002. Since the
implementation of the Protocol, approximately 160 countries have committed to
reduce GHG internationally. The Protocol was legally made effective
internationally on February 16, 2005 and Canada has committed to meet a six
percent reduction of emission over base-year 1990 during the period 2008 to
2012. Canadian government assurances of cost and volume limits suggest that
incremental risks and liabilities attributable to addressing Protocol related
policies are manageable. While we believe we are a low-emission producer, it is
not possible to predict the impact of how Protocol-related issues will
ultimately be resolved and to what extent their impact will affect our future
unit operating costs and capital expenditures.


7


*We
will not be able to develop our reserves or make acquisitions if we are unable
to generate sufficient cash flow or raise capital. If we are unable to increase
our reserves, our business will be adversely affected because we will eventually
run out of reserves.* We will
be required to make substantial capital expenditures to develop our existing
reserves, to discover new oil and gas reserves and to make acquisitions. We will
be unable to accomplish these tasks if we are unable to generate sufficient cash
flow or raise capital in the future.





*We
are Subject to Government Regulation on the Removal of Natural Gas from
Canada.* The
price of natural gas sold is not regulated and, therefore, is determined by
negotiation between buyers and sellers. Exports of natural gas from Canada
require the approval of the National Energy Board, or the "NEB". All exports of
natural gas require the issuance by the NEB of a license and the approval of the
Governor in Council. Exporters are free to negotiate prices with purchasers but
natural gas export sales contracts, or any amendment, agreement or change
pertaining thereto, requires NEB approval.





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





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





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





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





Where
they are probable and can be reasonably estimated, future removal and site
restoration costs (as those terms are used under the accounting recommendations
of the Canadian Institute of Chartered Accountants), net of expected recoveries,
are provided for in the Company's financial statements. Costs are estimated in
current dollars based on current requirements of Environmental Legislation,
costs, technology and industry standards and are included in the capital costs
of the oil and gas properties. The liability for site restoration is adjusted
annually for the passage of time and revisions to the original estimates. The
annual charge is included in the operations through depletion and accretion.
Removal and site restoration expenditures are charged to the accumulated
provision as incurred. Based on these parameters, estimated future removal and
site restoration costs primarily related to upstream properties has been
provided for in the financial statements of the Company. Not all future removal
and site restoration costs are foreseeable and not all such costs, even if
foreseeable, can be reasonably estimated based on the parameters noted above
and, as such, are not included in the future removal and site restoration cost
provisions. Although the Company currently does not expect that its future
removal and site restoration costs will have a material adverse effect on its
financial condition or results of operations, there can be no assurance that
such costs could not have such an effect.





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





**Item
4. Information on the Company**





**A.**  **History
and Development of the Company**





The
Company was organized under the Company Act of the Province of British Columbia,
Canada on July 18, 1986 under the name of Berkley Resources Inc. by virtue of a
statutory amalgamation among Fortune Island Mines Ltd., Kerry Mining Ltd. and
Berkley Resources Inc. The principal executive office of the Company is located
at 455 Granville Street, Suite 400, Vancouver, British Columbia V6C 1T1, and its
telephone number is 604-682-3701. The principal business of the Company is that
of a drilling participant in various oil and gas properties principally located
in Alberta and Saskatchewan, Canada. In August 2001, the Company purchased the
remaining interest in the office building that it occupies and became its sole
owner. As a result, the Company now leases the other offices that it does not
occupy to other businesses.


8


The
Company presently participates in approximately 32 oil and gas wells in Alberta
and Saskatchewan ranging from one percent to 35% working interests.
Substantially all of the Company's oil and gas revenue is produced from seven
discrete areas. Three are natural gas producers, three produce oil and one has a
combination of oil and gas. Five areas have been producing for several years
while two (one oil and one gas) are new developments. Since December 31, 2001,
the Company has made principal capital expenditures of $25,458 for the year
ended December 31, 2002, $582,707 for the year ended December 31, 2003 and
$2,540,288 for the year ended December 31, 2004. In 2003, a major portion of the
expenditures were in connection with the acquisition of the Dollard interest in
southwestern Saskatchewan. In 2004, a major portion of the expenditures were
incurred in connection with the drilling program conducted on the Brazeau area
(as to approximately $1.3 million net) and the Senex area (as to approximately
$1.0 million net). In 2005, approximately $1.7 million, gross, of capital
expenditures have been made on the 3-D seismic program on the Senex area (as to
approximately $0.340 million net) and the Brazeau area program (as to
approximately $0.8 million net). In 2005, the Company also divested itself of
its interests in a substantial portion of its Halkirk area leases for
approximately $112,500. These capital expenditures were primarily financed
through the issuance of 2,871,043 common shares for aggregate gross proceeds of
$2,680,520.





Effective
March 1, 2004, the Company swapped its ± 7.68% WI
in most of its Skiff area leases and 25 oil and injection wells located thereon
for a 15 to 20% interest in the Senex area of northern central Alberta. The
Senex area now has four completed wells on the acquired lands, three of which
are considered capable of producing oil in economic quantities. The Company also
sold its interest in a substantial portion of its Halkirk area leases effective
March 1, 2005. These were low interest properties with complex partnership
issues. These transactions result in the Company presently holding participating
interests in approximately 22 oil and gas wells in Alberta capable of production
in economic quantities and ten in Saskatchewan.





The
Company also owns a 100% interest in an office building and land in the downtown
core of Vancouver, British Columbia, Canada.





**B.**  **Business
Overview**





The
Company’s principal business activities are the acquisition, development and
exploration, production, and marketing of petroleum and natural gas reserves and
the management of the Company’s real estate holdings.





The
investments made by the Company in petroleum and natural gas properties are
chosen on the basis of, among other things: (i) the amount of cash available;
(ii) the desired diversification of oil as contrasted by natural gas
exploration; (iii) the geographical area in which the property is located; (iv)
the nature and extent of available geological and geophysical data concerning
the property; and (v) the time at which it is desirable to commence drilling
activities, for reasons such as the availability of drilling equipment and the
provisions of the drilling rights agreement and other relevant
agreements.





In making
an investment, the Company will enter into an operating agreement, which we
refer to as an "Operating Agreement", with other investors. The Operating
Agreement sets forth the participating interest of the parties and incorporates
the operating procedures manual, referred to as the "Manual", adopted by the
Canadian Association of Petroleum Landmen. According to the Manual, the parties'
interest and liability in each investment is several, and not joint, with the
other participants. The interest of the Company in the lands, wells and
equipment is that of tenants in common. Each investor in a drilling property is
deemed to be a "Joint Operator", and an "Operator" is the party appointed to
carry out the operations of the drilling program for the joint account. The
Company would be one of the Joint Operators in any Operating Agreement in which
it participates. Each Joint Operator owns a share of the petroleum substances
produced from the wells which is proportionate to that Joint Operator's
ownership interest. Each Joint Operator, at its own expense, takes in kind and
separately disposes of its proportionate share of production. If the Joint
Operator fails or refuses to take its share of the products, the Operator has
the authority to sell on behalf of that Joint Operator its share of the
production. The Operator is delegated the authority to manage the exploration,
development and operation of the joint lands. The Operator typically has the
authority to commit on behalf of all Joint Operators up to $25,000 without
separate written approval of all Joint Operators. Prior to commencement of work
on any well covered by the Operating Agreement, the Operator must submit to each
Joint Operator a program of drilling and an estimate of drilling costs and
completion costs for approval by all Joint Operators.





Any
assignment or transfer of the Company ¢ s
interest in an Operating Agreement is subject to the procedures set forth in the
Manual. The Company may be required to offer its interest to the Joint Operators
prior to attempting a sale to a third party. In addition, the Company may
"farmout" a portion of its interest and retain an overriding royalty on
production.





The oil
and gas industry deals in two basic forms of ownership interests, namely
"Working Interest" and "Overriding Royalties":





(i)
    Working
      Interest, or "WI": WI means the percentage of undivided interest held by a
      Joint Operator (i.e. leaseholder) in a specific tract of land (i.e. joint
      lands). The WI held by all Joint Operators in any specific tract of joint
      lands must total 100%. Each WI party is responsible for its WI percentage
      share of costs incurred to conduct "work" (i.e. drilling, seismic,
      production etc.) on the joint lands. WI are always considered to be an
      active interest in the costs, risks and benefits associated with the joint
      lands and operations conducted thereon and the oil or gas produced
      therefrom.





(ii)
    Overriding
      Royalties, or "ORR's": ORR's are a specified share of oil and/or gas as
      and when produced. ORR's are free and clear of costs, risk and expense to
      the holder of the ORR. Usually ORR's are based on gross production and as
      such are referred to as "Gross" ORR's or "GORR's". ORR's are considered a
      passive interest in as much as the holder of an ORR is not subject to any
      cost, risk or expense, nor is the ORR holder involved in any
      decision-making with respect to the royalty
lands.





The
Company's program for investing in drilling programs is based on several
factors. The Company endeavors to obtain and review geological opinions on the
property involved and if it is not the Operator of the well, it considers the
reputation of the Operator. The Company attempts to identify drilling programs
offering a low to medium risk on its investments. The Company also tries to keep
a balance between investments in oil and gas. The Company attempts to reduce its
risks by spreading its investments over several drilling ventures. The Company
has not borrowed money for purposes of investing in any oil or gas
venture.




9


In each
investment, the Operator maintains its own staff or retains independent
operating personnel (including landmen, geologists, accountants and engineers)
that are employed to conduct the oil and gas operations of each joint venture,
including supervision of the drilling and producing activities of the joint
venture, and therefore the Company does not maintain independent staff or
employees. The Operator exercises general control over the activities of the
joint venture and has the authority to determine the timing of commencing,
completing or abandoning any particular well authorized for drilling by the
Joint Operators. The Operator maintains all records which are available to the
Company upon reasonable request and at its expense. Most geotechnical
information (such as well logs, geological and geophysical interpretative data)
remains in the possession of the Operator but is available to a Joint Operator
upon request.





**Operating
Costs and Special Project Charges**





In
Canada, the relationship of all investors in a drilling program is that of Joint
Operators. The property on which drilling is conducted is deemed "joint lands"
and is held by the Joint Operators as tenants in common. The Joint Operators are
owners of the undeveloped joint lands and each Joint Operator is entitled to its
percentage of the production and can dispose of it as it deems necessary.
Therefore, the gross revenue from oil or gas production is the percentage of oil
and gas owned by the Company which it has sold to a buyer company. Each Joint
Operator, such as the Company, must pay its share of the expenses incurred in
extracting its share of the production from the well. The Company ¢ s
investment in any one drilling program ranges from approximately $20,000 to
$2,000,000, the majority of which must be paid prior to any production revenue
being realized.





**Company
Activity**





The
Company continues to pursue its dual objectives: (i) to participate in
developing new drilling prospects; and (ii) to purchase on-line production
whenever the right opportunity is found. Areas of significant Company activity
are as follows:





1.
    John
      Lake, Alberta (Twp 55 Rge 1 W4M) - This sweet natural gas producing area
      is located in east central Alberta and was acquired by the Company through
      a farm in arrangement . The Company holds a 10.00% WI in this area which
      is operated by Crescent Point Energy Partnership.





2.
    Carbon
      Area, Alberta (Twp 29 Rge 22 W4M) - This natural gas producing area is
      operated by ATCO Gas and is located in central Alberta. It was acquired by
      the Company through a joint venture agreement. The Company’s interest is a
      6.00% to 10.00% WI.





3.
    Halkirk
      Area, Alberta (Twp 38 Rge 16 W4M) - This oil/natural gas producing area is
      operated by Compton Petroleum Partnership and is located in east central
      Alberta. It was acquired by the Company pursuant to a joint venture
      agreement. The Company’s WI's range from 3.125% to 6.25%. This area is
      operationally complex due to partnership and processing issues. The
      Company sold its interest in a substsantial portion of its Halkirk
      properties effective March 1, 2005 for approximately
    $112,500.





4.
    Zama/Virgo
      Area, Alberta (Twp 114 Rge 5 W6M) - The Company holds a 5.00% ORR on this
      oil production operated by Apache Canada Ltd. It is located in northwest
      Alberta and was acquired in the mid 1990s by the Company through a lease
      purchase and farm out arrangement.





5.
    Dollard
      Area, Saskatchewan (Twp 6 Rge 19 W3M) - This on-line oil production was
      purchased in late 2003 for a cash cost to the Company of $365,970. This
      property is located in southwestern Saskatchewan. Some infill drilling was
      conducted in 2004 which should increase the Company’s net daily production
      from this area to about 25 to 30 barrels per day. Infill drilling,
      retooling of some facilities and planned cleanup work will use up some
      cash in the short term. These expenditures are expected to provide
      increased production and cash flow into 2005 and
beyond.





6.
    Senex
      Area, Alberta (Twp 92/93 Rge 6/7 W5M) - This multi-zone prospect was
      acquired by the Company on March 1, 2004 pursuant to the swap of its Skiff
      property discussed below. The Company holds a 15% to 20% WI in 14 sections
      over this oil and gas prospect. An extensive 3-D seismic program was
      conducted over the joint lands in early 2005 at a cost of approximately
      $1.7 million (the Company's 20% share amounted to $340,000). Drilling is
      expected to resume in the middle of 2005. Two suspended wells acquired in
      the swap were recompleted and placed into production at an initial monthly
      average of approximately 75 barrels per day. Three additional wells
      were drilled in late 2004. Two are producing oil while the third is
      suspended.





7.
    Leduc
      Area, Alberta (Twp 49 Rge 26 W4M) - This D-1 (Wabamun) gas prospect was
      completed and placed into production in August 2004. This single well
      produces at 1.4 million cubic feet per day, or "mmcf/d". The Company
      holds a 4.00% WI in this project. Additional wells are expected to be
      drilled or tested in 2005.





8.
    Crossfield
      Area, Alberta (Twp 28 Rge 1 W5M) - This natural gas prospect is located 50
      miles north of Calgary and is near ready to drill. The property was
      acquired through a joint leasing program. We have surveyed the location
      and acquired the surface lease. Formal licencing procedures will take time
      to complete as this is a “sour-gas” prospect. The Company holds a 35% WI
      in this project, which has as its primary objective, natural gas in the
      Crossfield formation at a depth of approximately 9,800 feet. The test well
      has targeted projected reserves of 30 to 50 billion cubic feet of natural
      gas and drilling costs are estimated at $2.5 million of which the
      Company's share is estimated at approximately $875,000.





9.
    Brazeau
      Area, Alberta (Twp 46 Rge 13 W5M) - This Nisku (D-2) natural gas prospect
      was drilled in the second half of 2004. The Company participated with two
      major oil and gas operators in completing this project which was placed
      into production in February 2005 at the initial rate of 4.0 mmfc/d.
      The Company paid 30% of the well costs to earn its 19.50 % WI. The test
      well cost approximately $7.1 million of which the Company's share was
      approximately $2.13 million.





10.
    Sturgeon
      Lake Area, Alberta (Twp 70 Rge 24 W5M) -This oil prospect is a
      well-defined seismic opportunity with projected recoverable reserves of
      five to ten million barrels and is located in central Alberta. It was
      acquired by the Company through a direct joint lease purchase. The Company
      holds a 27.50% WI in this prospect and it proposes to participate for ±15%
      of the drilling costs and farm out the remaining ±12.50%. The person to
      which the Company has farmed out the remaining 12.5% WI expects to
      complete the purchase of a 28.25% WI and have this project drill-ready by
      the fourth quarter of 2004. The Company's level of participation in the
      well costs will be influenced by the surface location obtained by the
      person to whom the Company has farmed out the remaining 12.5% WI. The
      preferred but more difficult to obtain surface location closer to the
      bottom-hole target (which is under Sturgeon Lake) would see well costs of
      about $2.2 million. The fallback location which is more distant from the
      bottom-hole target would see drilling costs projected at $3.1 million.




10


11.
    Skiff
      Area, Alberta (Twp 5 Rge 14 W4M) - The Company swapped its 5% to 10%
      interests in this oil producing property for a 15% to 20% WI in the Senex
      area in northern central Alberta effective March 1, 2004.





12.
    Other
      Propects - The Company will continue to seekout and develop new drilling
      opportunities for its own account and jointly with other operators.





As
reported throughout 2004, high oil and gas prices have provided the larger oil
and gas producers with huge amounts of unbudgeted cash which they are now using
to purchase on-line production as well as conduct aggressive drilling programs.
This is the first time in several years that conventional oil and gas companies
have been able or willing to compete with Income Trust Funds for on-line
production. The ever increasing prices paid for on-line production and the
threat of increasing interest rates has cooled-down Income Trust Funds to some
degree. Also, Income Trust Funds must, by design, distribute large amounts of
their cash to unit holders. These distributions do not seem to be finding their
way back to industry as quickly as in the past thus opening the field to cash
strong conventional operators. The Company continues its watch for on-line
production that may be found below the radar of both Income Trust Funds and cash
strong mid-sized operators; however these opportunities are very
limited.





**Reserves**





Through
to December 31, 2003, the Company engaged independent petroleum consultants to
compile oil and gas reserve information with respect to its two major producing
properties, Skiff and John Lake. The Company had access to similar oil and gas
reserve information from other Joint Operators or the Operator of the other
major properties. Some information was obtained from the unrelated Joint
Operator ¢ s
independent petroleum consultants. Since the Joint Operator for whom the report
was prepared had a different percentage ownership from that of the Company, it
is necessary to adjust the numbers to reflect the Company ¢ s
percentage of ownership. Furthermore, the oil and gas reserve information relied
upon by the Company in its financial statements ascertains the reserves on
pricing assumptions which are not permitted under SEC rules but are acceptable
under Canadian accounting rules. Effective December 31, 2004, the Company had
all of its major producing properties evaluated by independent petroleum
consultants who assigned total recoverable reserves to the Company's interest of
541,000 barrels of oil equivalent, or "boe": 40% was comprised of natural gas
and 60% was comprised of oil and liquids. Natural gas is converted to boe at the
industry standard rate of 6:1. The Company has an average interest of 15.23% in
8.504 billion cubic feet of recoverable natural gas or 1.295 billion cubic feet
net, which equates to 216,000 boe, and 20.17% in 1.614 million barrels of
recoverable oil which equates to 325,000 barrels net.





**Competition**





The crude
oil and natural gas industry, domestically and in the international arena, is
highly competitive by nature. The Company must compete with integrated oil and
natural gas companies and independent producers and marketers of crude oil and
natural gas products in all aspects of the Company's business. This competition
extends to exploration, property and asset acquisition and the selling of the
Company's crude oil and natural gas products. The financial strength of the
Company's competitors may be at times greater than that of the
Company.





**Government
Regulation and Environmental Matters**





*Government
Regulation*





On March
28, 1985, an agreement regarding energy pricing and taxation, known as the
Western Accord, was entered into by the Government of Canada and the Canadian
provinces of Alberta, Saskatchewan and British Columbia. The Western Accord
called for the deregulation of Canadian crude oil pricing and marketing,
proposed changes to domestic natural gas pricing, and announced the elimination
of an amendment to a number of federal oil and gas taxes, charges and
incentives. Based on the Western Accord, crude oil pricing, including synthetic
oil pricing, was deregulated June 1, 1985, so that prices would be negotiated
between the buyer and seller.





On
October 31, 1985, the Province of Alberta and the Canadian government reached an
agreement that provided a framework for natural gas deregulation. The agreement
established a mechanism to allow prices to be negotiated directly between
consumers and producers. After November 1, 1985, the price of natural gas
exported to the United States or sold in Canada was deregulated.





At the
present time, Canadian natural gas is supplied to California by two pipelines:
(i) a direct link through the San Francisco based Pacific Gas Transmission
Company; and (ii) a displacement link via Pacific International Transmission
Company. Both lines are presently committed. Pacific Gas Transmission has
announced a proposed expansion of its pipeline which will deliver more Alberta
natural gas to California. In 1998, construction of a new pipeline covering
approximately 620 miles was completed, running from Alberta to the Montana
border and to Opal, Wyoming, connecting with the Kern River Gas Transmission Co.
pipeline which runs to southern California. California is an important market
for Alberta natural gas producers because of the growing demand for natural gas
in that state, but such importance has shifted slightly due to the integration
of U.S. Midwest markets through the Alliance Pipeline system, which commenced
operations in 1999.





Since
1974, the Province of Alberta has had a program entitled "Price-Sensitive
Alberta Royalty Tax Credit Program", referred to as the "Tax Credit Program".
The Tax Credit Program provided for a refund of portions of the royalties paid
to the Province of Alberta by the producers on the sale of oil and gas produced
in Alberta. The refund amount to producers is based on the price received for
the oil and gas produced. For financial statement purposes, the Company accounts
for the tax credit by reducing its operating expenses by the amount of the
credit resulting in an increase in income before taxes. For tax purposes, since
it is intended not to be taxed, the amount of the credit is reinstated as an
operating expense and thus reduces taxable income. The maximum credit available
to a company is $1.0 million.





11


*Environmental
Matters*





Environmental
regulations impose, among other things, restrictions, liabilities and
obligations in connection with the generation, handling, use, storage,
transportation, treatment and disposal of hazardous substances and waste, and in
connection with spills, releases and emissions of various substances to the
environment. Environmental regulation also requires that wells, facility sites
and other properties associated with our operations be operated, maintained,
abandoned and reclaimed to the satisfaction of applicable regulatory
authorities. In addition, certain types of operations, including exploration and
development projects and changes to certain existing projects, may require the
submission and approval of environmental impact assessments or permit
applications. Compliance with environmental regulation can require significant
expenditures, including expenditures for clean up costs and damages arising out
of contaminated properties and failure to comply with environmental regulations
may result in the imposition of fines and penalties. We believe that we are in
substantial compliance with such laws and regulations, however, such laws and
regulations may change in the future in a manner which will increase the burden
and cost of compliance.





In 1994,
the United Nations' Framework Convention on Climate Change came into force and
three years later led to the Protocol which requires, upon ratification, nations
to reduce their emissions of carbon dioxide and other greenhouse gases. In
December 2002, the Canadian federal government ratified the Protocol. If certain
conditions are met and the Protocol enters into force internationally, Canada
will be required to reduce its GHG emissions. Currently, the upstream crude oil
and natural gas sector is in discussions with various provincial and federal
levels of government regarding the development of GHG regulations for the
industry. It is premature to predict what impact these potential regulations
could have on the Company's sector but it is possible that the Company would
face increases in operating costs in order to comply with a GHG emissions
target.





Certain
laws and governmental regulations may impose liability on us for personal
injuries, clean-up costs, environmental damages and property damages, as well as
administrative, civil and criminal penalties. We maintain limited insurance
coverage for sudden and accidental environmental damages, but do not maintain
insurance coverage for the full potential liability that could be caused by
sudden and accidental environmental damage. Accordingly, we may be subject to
liability or may be required to cease production from properties in the event of
such damages.





Each
province in Canada has its own regulatory authorities which oversee, licence and
monitor all oil and gas activity including seismic, drilling, production,
transportation, processing and environmental matters related thereto. In
Alberta, where most of the Company’s assets are located, that authority is the
Alberta Energy and Utilities Board or the "AEUB". In order to explore any claim
or lease, it is necessary to obtain a geophysical or drilling license and it may
be necessary to post a bond with notices to several Canadian governmental
agencies, including the provincial environmental agency. The procurement of
drilling licenses has had no material adverse impact on the Company ¢ s
operations. In certain areas defined as "sensitive areas", the provincial
environmental agency requires special work permits. The Company's investments do
not include property located within any defined "sensitive areas".





**Interruption
from Severe Weather**





Presently,
our operations are conducted principally in the central region of Alberta and in
Saskatchewan. The weather can be extreme at times due to cold or rain which can
cause interruption or delays in our drilling and construction
operations.





**C.**  **Organizational
Structure**





The
Company has no subsidiaries.





**D.**  **Property,
Plants and Equipment**





The
Company is in the business of participating in various oil and gas drilling
ventures in Alberta and Saskatchewan, by entering into Operating Agreements with
other investors. Operating Agreements specify that each investors' ownership in
the lands, wells and equipment is that of tenants-in-common. The following map
sets forth the Company's more significant areas of activity:











The
following is a description of the various interests of the Company in its oil
and gas properties as at June 1, 2005.




12


**Lease
      No.**
    **Description**
    **Interest**
    **Status**Berry34305
    Sec.29-27-13
      W4M
    8.92867%
    Not
      ProducingBrazeau
    Sec.13-46-13
      W5M
    30.00%
      WI BPO
    Producing
      - gas19.50%
      WI APOCarbon047790068
    Sec.29-29-22
      W4M
    6%WI
    Producing
      - gas32443
    Sec.32-29-22
      W4M
    6.25%WI
    Producing
      - gas25906
    Sec.28-29-22
      W4M
    6.25%WI
    Producing
      - gas0477010002
    Sec.31-29-22
      W4M
    10%WI
    Producing
      - gasCrossfield
    Twp
      28 Rge 1 W5M
    35%
      WI
    Prep.
      to drillDollard
    Twp
      6/7 Rge 19 W3M
    20%
      WI
    Producing
      - oilEconomy
      Creek5498120007
      5498120007
      5498120008
      5498120008
    Sec.3-70-1W6M
      Sec.10-70-1W6M
      Secs.4,
      5, 8&9-70-1W6M
      Sec.17-70-1W6M
    25%WI
      50%WI
      25%WI
      50%WI
    Not
      Producing
      Not
      Producing
      Not
      Producing
      Not
      Producing0598040371
    Secs.20&21-70-1
      W6M
    50%WI
    Not
      ProducingNorth
      Halkirk34397
    Sec.14-39-16
      W4M
    6.25%WI
    Not
      Producing34398
    S1/2
      & N1/2 Sec.22-39-16 W4M
    6.25%WI
    Not
      Producing26457
    N/2
      Sec.22-39-16 W4M
    6.25%WI
    Not
      ProducingSouth
      Halkirk34282
    Sec.16
      38-16 W4M
    3.125%WI
    Producing
      - gas/oil32298
    Sec.20-38-16
      W4M
    6.25%WI
    Producing
      - gas/oilFreehold
    Sec.E/2
      19-38-16 W4M
    6.25%WI
    Producing
      - gas/oilFreehold
      A-8057
    Sec.8-38-16
      W4M
    6.25%WI
    Producing
      - gas/oilPanCan
      PNG 16258
    NE/4
      Sec.17-38-16 W4M
    6.25%WI
    Producing
      - gas/oil0478020150
    S/2&NE/4
      Sec.18-38-16 W4M
    3.125%WI
    Producing
      - gas/oil0478080305
    SE/4
      Sec.20-38-16 W4M
    0.75%WI
    Producing
      - gas/oilHaven047939297
    Sec.12-25-4
      W4M
    0.3%WI
    Not
      ProducingSec.7,
      18-25-3 W4M
    0.3%WI
    Not
      Producing38054
    Sec.7,
      18&20-25-4 W4M
    0.50%WI
    Not
      ProducingJohn
      Lake40852
    All
      Sec.26&27-55-1 W4M
    10%WI
    Producing
      - gasSec.1-56-1
      W4M
    10%WI
    Producing
      - gas485070102
    W/2
      36-55-1 W4M
    10%WI
    Producing
      - gas487040220
    E/2
      Sec.36-55-1 W4M
    10%WI
    Producing
      - gas40854
    NW/4
      12-56-1 W4M
      SE/4
      14-56-1-W4M
    10%WI
      10%WI
    Producing
      - gas
      Producing
      - gas40853A
    All
      Sec.15-56-1-W4M
    10%WI
    Producing
      - gas40855A
    All
      Sec.24-56-1 W4M
    10%WI
    Producing
      - gas40856
    All
      Sec.34-56-1 W4M
    10%WI
    Producing
      - gasLeduc
      
      Manyberries
    All
      Sec.33-49-26 W4M
    4%
      WI
    Producing
      - gas35828
    SE
      Sec.23-5-5 W4M
    50%WI
    Not
      Producing26592
    W/2
      Sec.23-5-5 W4M
    50%WI
    Not
      Producing01818
    NE/4
      Sec.23-5-5 W4M
    50%WI
    Not
      ProducingOyen30364
    S/2
      Sec.16-29-4 W4M
    1%WI
    Not
      Producing30365
    SW/4
      Sec. 24-29-5 W4M
    0.750%WI
    Not
      Producing29517
    N/2
      Sec.24-29-5 W4M
    0.750%WI
    Not
      ProducingSenex
    Twp
      92/93 Rge 6/7 W5M
    15/20%
      WI
    Producing
      - oilSibbald39367
    Sec.2,4,
      E/2 9&10-28-1 W4M
    0.50%WI
    Producing
      - gas0476122257
    W/2
      9-28-1 W4M
      Sec.3-28-1
      W4M
    0.25%WI
      0.25%WI
    Not
      Producing
      Not
      Producing29513
    S/2
      Sec.15-28-1 W4M
    1.00%WI
    Producing
      - gas6359A
    N/2
      Sec.15&S/2 Sec.22-28-1
    1.00%WI
    Not
      ProducingSkiffSawtooth
    NW1/4Sec.16,SE1/4Sec.20;Lsds
      2,
      7&8
      & SW1/4Sec.21-5-14 W4M
    7.67%WI
    Producing
      - oil0484080300
    NW1/4Sec.29-4-14
      W4M
    10.526%WI
    Producing
      - oilW1/2Sec.32-4-14
      W4M
    5.26315%
    Producing
      - oil048307070286
    Lsds.3,4&5
      of Sec.5-5-14
    5.50%WI
    Producing
      - oilLsds.6
      of Sec.5-5 14 W4M
    5.50%WI
    Producing
      - oilNW1/4
      of Sec.9-5-14 W4M
    5.50%WI
    Producing
      - oil32596
    Lsd.5
      of Sec.16-5-14 W4M
    10%WI
    Producing
      - oil0483030060
    NW1/4
      of Sec.16-5-14-W4M
    10%WI
    Producing
      - oil0496100384
    W1/2&Lsd.10,15-5-14
      W4M
    10%WI
    Producing
      - oil36854
    Lsd.1&NW1/4
      of Sec.21-5-14
    10%WI
    Producing
      - oilLsds.2,7&8
      & SW1/4 of Sec.21-5-14 W4M
    10%WI
    Producing
      - oil7865A
    NE1/4
      of Sec.21-5-14 W4M
    10%WI
    Producing
      - oil0486070002
    NW1/4
      of Sec.22-5-14 W4M
    6.30%WI
    Producing
      - oil0477080167
    SW1/4
      of Sec.28-5-14 W4M
    10%WI
    Producing
      - oilSturgeon
      Lake5495080092
    Sec.23,26,27,34,35-70-24
      W5M
    27.5%WI
    Not
      ProducingZama
      Virgo0591080261
    N/2
      Sec.20-114-5 W6M
    5.00%
      GORR
    Producing
      - oil091120175
    NW/4
      Sec.26-114-5 W6M
    5.00%
      GORR
    Producing
      - oil092020380
    W/2
      Sec.22-115-5 W6M
    Sliding
      Scale ORR
    Producing
      - oil093020449
    SE/4
      Sec.27-114-5 W6M
    50%
      of 10% GORR
    Producing
      - oil


Office
      Building455
      Granville Street
      Vancouver,
      Canada
    Lot
      B, Block 22, District
      Lot
      541, Plan 8227
    100%
    N/A





13


**Productive
Wells and Acreage**





The
following chart of the Company's total gross and net productive wells, expressed
separately for oil and gas, and the total gross and net developed acres (i.e.,
acres spaced or assignable to productive wells) by the geographic areas is as at
June 1, 2005.





**Geographic****Region**
    **Total
      Gross****Wells**
    **Total
      Net Productive****Wells**
    **Target
      Oil Or****Gas**
    **Total
      Gross****Developed
      Acres**
    **Total
      Net****Developed
      Acres**Alberta
    22
    1.1
      oil - 2.0 gas
    both
    12,166
    2,433Saskatchewan
    10
    2
    oil
    4,480
    850





**Undeveloped
Acreage**





As at
June 1, 2005, the amounts of undeveloped acreage, both leases and concessions,
in the western Canada (Alberta) geographic area consists of 40,554 gross acres
and 5,488 net acres. The remaining terms on the leases within those properties
are variable. Producing leases continue for duration of productive
lives.





**Drilling
Activity**





The
following table explains the number of productive and dry exploratory or
development wells drilled in the last three fiscal years. A dry well (hole) is
an exploratory or a development well found to be incapable of producing either
oil or gas in sufficient quantities to justify completion as an oil or gas well.
A productive well is an exploratory or a development well that is not a dry
well. The number of wells drilled refers to the number of wells (holes)
completed at any time during the fiscal years, regardless of when drilling was
initiated. The term "completion" refers to the installation of permanent
equipment for the production of oil or gas, or, in the case of a dry hole, to
the reporting of abandonment to the appropriate agency.




**Exploratory
      Wells Drilled**
    
    **Development
      Wells Drilled****Geographic****Region**
    
    **Year**
    
    **Number
      of Net****Productive**
    
    **Number
      of Net****Dry**
    
    **Number
      of Net****Productive**
    
    **Number
      of Net Dry**Alberta
    
    
    2004
    
    
    0.70
    
    
    0.15
    
    
    0.20
    
    
    Nil2003
    
    
    Nil
    
    
    0.28
    
    
    0.10
    
    
    Nil2002
    
    
    Nil
    
    
    Nil
    
    
    Nil
    
    
    NilSaskatchewan
    
    
    2004
    
    
    Nil
    
    
    Nil
    
    
    0.20
    
    
    Nil2003
    
    
    Nil
    
    
    Nil
    
    
    Nil
    
    
    Nil2002
    
    
    Nil
    
    
    Nil
    
    
    Nil
    
    
    Nil


****


14


**Delivery
Commitments**





The
Company has no obligation to provide a fixed and determinable quantity of oil or
gas in the near future under existing contracts or agreements or material
information concerning the estimated availability of oil and gas from any
principal sources. *See
also* Item 3.
D. Risk Factors regarding quantity and price limitation by government
agencies.





**Item
5. Operating and Financial Review and Prospects**





This
discussion and analysis of the operating results and the financial position of
the Company for the years ended December 31, 2004 and 2003 should be read in
conjunction with the financial statements and the related notes attached
hereto.





**A.**  **Operating
Results**





The
Company's principal business is participating in various oil and gas drilling
ventures in western Canada. The Company has interests in various wells which
vary from 1.00% to 35% and covers approximately 40 oil and gas wells. Based on
its oil and gas revenues for the year ended December 31, 2004, the Company
received substantially all of its income from seven discrete areas: (i) John
Lake; (ii) Skiff; (iii) Zama/Virgo; (iv) Halkirk; (v) Carbon; (vi) Dollard; and
(vii) Leduc. These properties are expected to stay in production during the year
ended December 31, 2005 except for Skiff and Halkirk which have been sold.
Brazeau is expected to produce throughout 2005 as well.





**Overall
Performance**





The
Company operates in two distinct segments, oil and gas and real estate rental.
An overview analysis by segment is as follows:





*Oil
and Gas*





The
Company has continued its commitment to prospect development with the objective
of bringing prospects to drilling stage and then farming out the drilling to
other parties. The strong cash position enjoyed by many operators due to high
oil and gas prices has resulted in a strong demand for drillable prospects. The
Company expects this situation to enable it to leverage-up its investment in
prospects developed by it and brought to drilling stage.





The
Company presently participates in approximately 32 oil and gas wells in Alberta
and Saskatchewan ranging from 1% to 35% working interests. Substantially all of
the oil and gas revenue the Company received in 2004 was from seven discrete
areas: John Lake; Halkirk; Carbon; Skiff; Zama/Virgo; Dollard; and Leduc. There
are four producing gas wells in John Lake; four gas wells in Carbon; seven
producing gas wells in Halkirk (which was sold in March, 2005); 20 producing oil
wells in Skiff (which was sold in March, 2004); two producing oil wells in
Zama/Virgo; ten producing oil wells in Dollard; and one producing gas well in
Leduc. All areas, except Leduc, have been producing for over ten years. The
Company is not the Operator of any of these wells.




*Oil
and Gas Industry Overview*







Although
2004 saw a 32% increase in the average price paid for WTI oil over that paid
during 2003, natural gas prices did not track the substantial increase
experienced for WTI benchmark oil. The steady average price received for natural
gas during 2004 of about Cdn. $6.50 per thousand cubic feet (mcf) followed a 65%
increase during 2003 over 2002. The 2002/2003 increase partially explains the
limited changed during 2004; however natural gas also competes with energy
sources other than WTI oil. Regardless of cause, natural gas prices remained
strong and steady through out 2004 while oil prices soared to new
heights.





Oil
prices opened on January 1, 2004, at U.S. $32.78 per barrel for WTI and rose
steadily throughout 2004 to close on December 31, 2004 at U.S. $43.65. The
average 2004 full year price for WTI was over U.S. $41.00 per barrel, compared
to U.S. $31.00 for 2003 - a 32% increase year over year. Natural gas opened the
year 2004 at Cdn. $6.38 per mcfand closed December 31, 2004 at Cdn. $6.30. The
full year average for 2004 was about Cdn. $6.50 mostly unchanged over 2003. The
first quarter 2005 has seen oil prices exceed U.S. $55.00 per barrel while
natural gas prices have remained steady near Cdn. $7.00 per mcf.





*Real
estate*





The
office building continues to have near full occupancy, with consistent operating
results within a narrow range. In all material respects, the building achieves
breakeven on an operating and cash flow basis. There are no changes foreseen
with respect to this segment.





**Results
of Operations - Year Ended December 31, 2004 Compared to Year Ended December 31,
2003**





The
Company's balance sheet as at December 31, 2004, as compared to December 31,
2003, reflects its expenditures on oil and gas properties and equipment and
rental income for the period ended December 31, 2004 and the results of its
operations for fiscal year December 31, 2004. Overall, total assets increased by
$3,143,655 and total liabilities increased by $1,163,907. The Company's working
capital deficiency increased from $280,293 at December 31, 2003 to a working
capital deficiency of $1,039,862 at December 31, 2004.





*Revenues*





In total,
net oil and gas income was $187,782 for the twelve months to December 31, 2004,
down from $278,147 for the same period for 2003. This was due to higher
amortization and depletion charges in 2004. Gross revenue of $866,811 was up 43%
compared to 2003 and was due to both increased production and pricing. Of this
total gross revenue in 2004, the Company received $273,009 from the Dollard
leases, $234,520 from the John Lake leases, $77,703 from the Carbon leases,
$71,629 from the Senex leases, $57,732 from the Leduc leases, $50,006 from the
Halkirk leases, $41,756 from the Skiff leases and $34,275 from the Zama/Virgo
leases. Operating costs increased by 71% to $416,254 for the twelve months to
December 31, 2004 compared to $243,717 in 2003. This increase was primarily due
to increased production volumes and related production expenses. Amortization
and depletion charges increased from $79,500 in 2003 to $260,000 in 2004.





Rental
revenue for 2004 decreased by $5,992 from 2003 and net rental loss for 2004
increased by $12,839 from 2003. The changes were due to several larger repair
and maintenance projects undertaken during the first three quarters of
2004.





15


*Expenses*





General
and administrative costs for the twelve months ended December 31, 2004 were
$903,692, an increase of $401,893 over fiscal 2003. This increase is due
primarily to the recognition of stock-based compensation expenses of $273,793 in
2004 as compared to $2,390 in 2003. Prior to 2004, the Company was only required
to record the fair market value of stock options granted to non-employees as
illustrated by the lesser 2003 amount. As of January 1, 2004 the Company was
required to record the fair market value of stock options granted to employees
as well as non-employees which resulted in the higher 2004 amount charged to
operations.





Other
general and administrative items that had significant increases in costs were
administrative, office services, and premises expenses, which increased by
$39,385; consulting and management fees, which increased by $58,243; and
professional fees, which increased by $46,779. These increases were primarily
the result of the increase in oil and gas exploration and production
activities.


*Loss
for the period*





Loss for
the twelve months ended December 31, 2004 was $729,034 compared with $255,456
for the twelve months ended December 31, 2003, a decrease of approximately
$473,578. The increase in the loss for the respective periods is due primarily
to higher stock based compensation expense and to a lesser extent an increase in
professional fees, management and consulting fees.





**Results
of Operations - Year Ended December 31, 2003 Compared to Year Ended December 31,
2002**





The
Company's balance sheet as at December 31, 2003, as compared to December 31,
2002, reflects its expenditures on oil and gas properties and equipment and
rental income for the period ended December 31, 2003 and the results of its
operations for fiscal year December 31, 2003. Overall, total assets decreased by
$213,544 and total liabilities increased by $34,422. The Company's working
capital decreased from $431,740 at December 31, 2002 to a working capital
deficiency of $280,293 at December 31, 2003.





*Revenues*





Oil and
gas revenues increased by approximately $199,995 from 2002 to 2003 after
decreasing by approximately $231,000 from 2001 to 2002. The total oil and gas
gross revenues were $606,133 in 2003. Of the total oil and gas revenues of
$406,138 in 2002, the Company received $135,122 from the John Lake leases,
$107,695 from the Skiff leases, $67,200 from the Halkirk leases, $46,153 from
the Carbon leases, and $42,762 from the Zama/Virgo leases. Of the total oil and
gas revenues of $606,133 in 2003, the Company received $201,660 from the John
Lake leases, $160,746 from the Skiff leases, $100,315 from the Halkirk leases,
$68,857 from the Carbon leases and $63,826 from the Zama/Virgo leases. In
general, factors affecting the oil and gas revenues are a combination of oil and
gas production and price fluctuations. The increase in revenue in 2003 was
mainly due to price increases. The Company's oil and gas operating costs
increased by approximately $54,036 from $189,681 in 2002 to $243,717 in 2003
after decreasing by approximately $68,000 from 2001 to 2002. The increase in
operating costs was primarily due to increased royalties and costs associated
with acquiring on-line production.Amortization and depletion expense is
determined by the unit of production method. Accordingly, depletion fluctuates
with levels of production and reserves and is not directly related to oil and
gas revenues which are also dependent upon price fluctuations. Interest income
decreased from $23,506 for the year ended December 31, 2002 to $23,469 for the
year ended December 31, 2003.





Rental
revenue for 2003 was $238,599, an increase of $2,929 compared to $235,670 in
2002. The increase was primarily due to rental rate increases. Rental profit
before interest and amortization was $40,003 in 2003 compared to $67,062 for
2002 and $75,549 for 2001.





*Expenses*





The
Company's administration expenses for the year ended December 31, 2003 of
$501,799 shows an increase of approximately $156,737 from the December 31, 2002
year end amount of $345,062. The increase in administration expenses arose
primarily from an increase of $93,027 for consulting and management fees, a
decrease of $11,617 for professional fees and a increase of $47,701 for
administrative services. The increase of $93,027 in consulting and management
fees arose primarily from the management contract with a former director and
related individual ($30,000 for the year) and $30,000 in fees to the president
of the Company. The increase of $47,701 in office expenses was due to added
space in Calgary, Alberta.





Accounts
payable and accrued liabilities increased by approximately $62,544 from December
31, 2002 to December 31, 2003 after decreasing by approximately $150,915 from
December 31, 2001 to December 31, 2002.





16


Accounts
receivable fluctuate from year to year depending on the timing of production
receipts from operators and amounts due from participants in oil and gas
activities. Accounts receivable increased by approximately $905 from December
31, 2002 to December 31, 2003 and decreased by approximately $7,000 from
December 31, 2001 to December 31, 2002.





**Impact
of Inflation**





Inflation
was modest through 2004. Dramatic swings in world oil prices have affected the
Company much more than inflation. At the end of 2004 all provincial and federal
fiscal regimes were stable which enabled the oil and gas industry to operate
within a predictable environment.





**B.**  **Liquidity
and Capital Resources**





At
December 31, 2004 the Company had current assets of approximately $928,739
comprised of cash and accounts receivable, offset by accounts payable of
approximately $1,522,545.





Total
working capital deficiency at December 31, 2004 was approximately $1,039,862,
compared with a working capital deficiency of approximately $280,293 at December
31, 2003. Total working capital deficiency includes a bank demand loan of
approximately $446,056. The Company's present arrangements with the lender call
for monthly payments of $11,900. Management does not anticipate any material
change to the repayment arrangements to its principal lender.





The
Company's debt facilities available comprises a $50,000 standby line of credit,
none of which had been drawn against at December 31, 2004.





There
have been no material changes in the Company's contractual obligations since its
last fiscal year end, December 31, 2003.





Certain
of the projects set out above will be tested under the Cdn. $3.10 million (the
Company's share) drilling and seismic budget previously set for the fourth
quarter of 2004 and the first half of 2005. Additional projects are under
investigation. Cash flow is projected as sufficient to cover operating needs for
the next fiscal year. New project drilling will be financed by joint ventures or
arranging new financing through the issuance of common shares.The Company's
financial statements are prepared in accordance with Canadian GAAP. US GAAP has
certain notable differences which are set out on Note 14 to the financial
statements of the Company which are included in this Annual Report.





**C.**  **Research
and Development, Patents and License, etc.**





Not
Applicable.





**D.**  **Trend
Information**





The year
2004 saw an increase in oil prices which opened at U.S.$32.78 per barrel for WTI
to a year-end close of U.S.$43.65 per barrel. The 2004 full year average price
for WTI was over U.S.$41.00 per barrel compared to the 2003 average price of
U.S.$31.00 per barrel. In the first quarter of 2005 oil prices exceeded US$55.00
per barrel.





Natural
gas prices held steady during 2004 where the full year average price for natural
gas at the AECO was $6.50/mcf compared to $6.70 per mcf average for year 2003.
During the first quarter of 2005 natural gas prices have remained steady near
$7.00 per mcf.





Regardless
of these and other specific influences on oil and gas prices from time to time,
the management of the Company believes that U.S.$25.00 per barrel for WTI oil is
a reasonable, industry accepted benchmark on which to base investment decisions.
This benchmark price for oil will translate into natural gas prices within the
range of Cdn $3.75 to $6.00 per mcf. The combination of steady natural gas
prices and very strong oil prices during 2004 again provided large amounts of
unbudgeted cash flow to producers. This strong cash flow kept Income Trust Funds
operating at a high activity level as it did for all senior producers. The
inevitable shortage of available on-line production saw Income Trust Funds start
the merger process as a means of maintaining production levels whereas junior
and mid-sized firms turned to the drill bit to develop new reserves. This
combination saw on-line production being purchased at very high prices, if and
when available, and drilling and operating costs reaching record highs, if and
when equipment and services were available. These pressures are expected to
continue into 2005 which will call for diligent attention to forward planning by
the Company and indeed all operators.





Overall,
2004 was highly active on several fronts. In many ways it was a difficult
atmosphere in which to do business. Although 2005 has started off as a
continuation of 2004 the Company is well positioned to operate in this dynamic
milieu and to develop new opportunities from the grassroots.





**E.**  **Off-balance
sheet arrangements**





The
Company does not have any off-balance sheet arrangements.





17


**F.**  **Tabular
disclosure of contractual obligations**





**Payments
      due by period****Total****Amount**
    
    **Less
      than****one
      year**
    
    **One
      to****three
      years**
    
    **Three
      to****five
      years**
    
    **More
      than****five
      years**$
    
    
    $
    
    
    $
    
    
    $
    
    
    $Consulting
      Agreements
    
    
    192,000
    
    
    96,000
    
    
    96,000
    
    
    -
    
    
    -





**G.**  **Safe
Harbor**





Certain
statements in this Annual Report, including those appearing under this Item 5,
constitute "forward-looking statements" within the meaning of the United States
Private Securities Litigation Reform Act of 1995, Section 21E of the United
States Securities Exchange Act of 1934, as amended, and Section 27A of the
United States Securities Act of 1933, as amended. Additionally, forward-looking
statements may be made orally or in press releases, conferences, reports, on our
website or otherwise, in the future, by us or on our behalf. Such statements are
generally identifiable by the terminology used such as "plans", "expects",
"estimates", "budgets", "intends", "anticipates", "believes", "projects",
"indicates", "targets", "objective", "could", "may", or other similar
words.





The
forward-looking statements are subject to known and unknown risks and
uncertainties and other factors that may cause actual results, levels of
activity and achievements to differ materially from those expressed or implied
by such statements. Such factors include, among others: market prices for
natural gas, natural gas liquids and oil products; the ability to produce and
transport natural gas, natural gas liquids and oil; the results of exploration
and development drilling and related activities; economic conditions in the
countries and provinces in which we carry on business, especially economic
slowdown; actions by governmental authorities including increases in taxes,
changes in environmental and other regulations, and renegotiations of contracts;
political uncertainty, including actions by insurgent groups or other conflict;
the negotiation and closing of material contracts; and the other factors
discussed in Item 3 Key Information - "Risk Factors", and in other documents
that we file with the SEC. The impact of any one factor on a particular
forward-looking statement is not determinable with certainty as such factors are
interdependent upon other factors; our course of action would depend upon our
assessment of the future considering all information then available. In that
regard, any statements as to future natural gas, natural gas liquids or oil
production levels; capital expenditures; the allocation of capital expenditures
to exploration and development activities; sources of funding of our capital
program; drilling of new wells; demand for natural gas, natural gas liquids and
oil products; expenditures and allowances relating to environmental matters;
dates by which certain areas will be developed or will come on-stream; expected
finding and development costs; future production rates; ultimate recoverability
of reserves; dates by which transactions are expected to close; cash flows; uses
of cash flows; collectability of receivables; availability of trade credit;
expected operating costs; expenditures and allowances relating to environmental
matters; debt levels; and changes in any of the foregoing are forward-looking
statements, and there can be no assurances that the expectations conveyed by
such forward-looking statements will, in fact, be realized.





Although
we believe that the expectations conveyed by the forward-looking statements are
reasonable based on information available to us on the date such forward-looking
statements were made, no assurances can be given as to future results, levels of
activity, achievements or financial condition.





Readers
should not place undue reliance on any forward-looking statement and should
recognize that the statements are predictions of future results, which may not
occur as anticipated. Actual results could differ materially from those
anticipated in the forward-looking statements and from historical results, due
to the risks and uncertainties described above, as well as others not now
anticipated. The foregoing statements are not exclusive and further information
concerning us, including factors that could materially affect our financial
results, may emerge from time to time. We do not intend to update
forward-looking statements to reflect actual results or changes in factors or
assumptions affecting such forward-looking statements.





**Item
6.**  **Directors,
Senior Management and Employees**





**A.**  **Directors
and Senior Management**





The
following is a list of the Company's directors and officers as at December 31,
2004.





**Name**
    **Position
      Held**
    **Principal
      Occupation, Business or****Employment
      for the Last Five Years**
    **Director/Officer****Since**Louis
      Wolfin(1)
    Director
      and Former Chief Executive Officer
    Mining
      Executive; Chief Executive Officer and Director of Bralorne Gold Mines
      Ltd., Director of Coral Gold Resources Ltd., Director of Avino Silver
      & Gold Mines Ltd., Director of Levon Resources Ltd. and Director of
      Cresval Capital Corp.
    1986
      - PresentMatt
      Wayrynen(1)
    President
      and Director
    Corporate
      Executive; President and Director of Coral Gold Resources Ltd., VP,
      Operations and Director of Bralorne Gold Mines Ltd., Retired Real Estate
      and Investment Adviser.
    June
      2002 - PresentLloyd
      Andrews
    Director
      and Chairman
    Retired
      Businessman; Director of Smith Barney Mutual Fund; Director of Coral Gold
      Corp.; Director of Bralorne Gold Mines Ltd.; and Senior Consultant to Chem
      Nuclear Systems and Flow International.
    June
      2002 - PresentJames
      O’Byrne
    Director
    Oil
      and Gas Consultant; President of O’Byrne Resource Management
      Ltd.
    June
      2003- PresentLindsay
      E. Gorrill(2)
    Director
    Former
      President and Chief Executive Officer of WGI Heavy Minerals Incorporated;
      Manger, KPMG.
    July
      2004-PresentConnie
      Lillico
    Secretary
    Officer
      of five other reporting issuers; Former office administrator and
      paralegal.
    July
      2004-Present
 (1)  Mr. Matt
Wayrynen is the son-in-law of Mr. Louis Wolfin.


(2)  Mr.
Lindsay Gorrill became a director in July 2004.





18


**B.**  **Compensation**





**Compensation
of Directors**





The
directors of the Company have not been paid fees or other cash compensation in
their capacity as directors. The Company has no arrangements, standard or
otherwise, pursuant to which its directors are compensated by the Company or its
subsidiaries for their services in their capacity as directors, or for committee
participation, or involvement in special assignments during the fiscal year
ended December 31, 2004, except that directors may be reimbursed for actual
expenses reasonably incurred in connection with the performance of their duties
as directors and certain directors may be compensated for services as
consultants or experts. Incentive stock options, however, have been granted to
non-executive directors and other insiders of the Company and are outstanding to
purchase an aggregate of 800,000 common shares of the Company as
follows:





**Name
      of Optionee**
    
    **No.
      of Shares**
    
    **Exercise
      Price Per****Share**
    
    **Date
      of Grant**
    
    **Expiry
      Date**Louis
      Wolfin
    
    
    95,000
    
    $
    0.34
    
    
    April
      25, 2000
    
    
    April
      25, 20055,000
    
    $
    0.52
    
    
    September
      19, 2003
    
    
    September
      19, 2008Lloyd
      Andrews
    
    
    200,000
    
    $
    0.52
    
    
    September
      19, 2003
    
    
    September
      19, 2008James
      O'Byrne
    
    
    50,000
    
    $
    0.52
    
    
    September
      19, 2003
    
    
    September
      19, 200820,000
    
    $
    0.81
    
    
    October
      19, 2004
    
    
    October
      19, 2009Matt
      Wayrynen
    
    
    300,000
    
    $
    0.52
    
    
    September
      19, 2003
    
    
    September
      19, 2008Lindsay
      Gorrill
    
    
    50,000
    
    $
    0.81
    
    
    October
      19, 2004
    
    
    October
      19, 2009Ron
      Andrews
    
    
    50,000
    
    $
    0.81
    
    
    October
      19, 2004
    
    
    October
      19, 2009Connie
      Lillico
    
    
    30,000
    
    $
    0.81
    
    
    October
      19, 2004
    
    
    October
      19, 2009





No
pension plan or retirement benefit plans have been instituted by the Company and
none are proposed at this time.





The
following table sets forth particulars concerning the compensation of the
Company's executives for the Company ¢ s
calendar year ended December 31, 2004.





**Summary
      Compensation Table****Annual
      Compensation**
    **Long-Term
      Compensation Awards****Name/Principal****Position**
    **Year**
    **Salary**(1)
    **Bonus
      for****the
      Year**
    **Other
      Annual****Compensation**
    **Securities
      Under Options/SARs****Granted
      (#)****(2)**
    **Restricted
      Shares/Units****Awarded**
    **All
      Other****Compensation**$
    $
    $
    
    $
    $Matt
      Wayrynen
      President
    2004
      2003
      2002(3)
    60,000
      60,000
      30,000
    24,628.73
      NIL
      NIL
    NIL
      NIL
      NIL
    300,000
      300,000
      NIL
    NIL
      NIL
      NIL
    1,082.08
      NIL
      NIL
 (1)  No
executive officer earned in excess of $100,000.


(2)  Represents
total common shares under option as of the end of the calendar
year.


(3)  Became
the president in July, 2002.





No
pension plan or retirement benefit plans have been instituted by the Company and
none are proposed at this time.





**C.**  **Board
Practices**





As of
December 31, 2004, the board of directors of the Company consisted of five
directors: Matt Wayrynen, Lloyd Andrews, Louis Wolfin, James O'Byrne and Lindsay
Gorrill. Each of the directors will serve until the next Annual General Meeting
of shareholders. The officers of the Company are elected by the board and serve
at the pleasure of the board. The size and experience of the board is important
for providing the Company with effective governance. The board’s mandate and
responsibilities can be effectively and efficiently administered through the
five directors. The chairman of the board is not a member of management. The
board has functioned, and is of the view that it can continue to function,
independently of management as required.





The board
has considered the relationships of each director to the Company and considers
two of the five directors to be "unrelated" (Messrs. Andrews and Gorrill).
"Unrelated director", means a director who is independent of management and free
from any interest and any business or other relationship which could reasonably
be perceived to materially interfere with the director’s ability to act with a
view to the best interest of the Company, other than interest and relationships
arising solely from shareholdings.





Two of
the directors (Messrs. Matt Wayrynen and Louis Wolfin) are related family
members.





Procedures
are in place to allow the board to function independently. The board has
experienced directors that have made a significant contribution to the Company’s
success, and are satisfied that it is not constrained in its access to
information, in its deliberations or in its ability to satisfy the mandate
established by law to supervise the business and affairs of the Company. The
Company’s chairman and independent directors meet in the absence of managing
directors. Committees meet independent of management and other directors.
Committees appoint a chairman from their number who presides over the committee
meetings.





The
Company has no standard arrangement pursuant to which directors are compensated
by the Company for their services in their capacity as directors. Further, the
Company has no contracts with any of its directors that provide for payments
upon termination.





19


**Mandate
of the Board of Directors, its Committees and Management**


****


The role
of the board is to oversee the conduct of the Company’s business, including the
supervision of management, and determining the Company’s strategy. Management is
responsible for the Company’s day to day operations, including proposing its
strategic direction and presenting budgets and business plans to the board of
directors for consideration and approval. The strategic plan takes into account,
among other things, the opportunities and risks of the Company’s business.
Management provides the board with periodic assessments as to those risks and
the implementation of the Company’s systems to manage those risks. The board
reviews the personnel needs of the Company from time to time, having particular
regard to succession issues relating to senior management. Management is
responsible for the training and development of personnel. The board assesses
how effectively the Company communicates with shareholders, but has not adopted
a formal communications policy. Through the audit committee, and in conjunction
with its auditors, the board assesses the adequacy of the Company’s internal
control and management information systems. The board looks to management to
keep it informed of all significant developments relating to or effecting the
Company’s operations. Major financings, acquisitions, dispositions and
investments are subject to board approval. A formal mandate for the board of
directors and the chief executive officer has not been considered necessary
since the relative allocation of responsibility is well understood by both
management and the board.





The board
has established that they will meet at a minimum of every three months, unless
additional meetings are required. The board and committees may take action at
these regularly held meetings or at a meeting by conference call or by written
consent.





**Committees**





*Audit
Committee*





The audit
committee assists the board in its oversight of the Company’s financial
statements and other related public disclosures, the Company’s compliance with
legal and regulatory requirements relating to financial reporting, the external
auditors, qualifications and independence and the performance of the internal
audit function and the external auditors. The committee has direct
communications channels with the Company’s auditors. The committee reviews the
Company’s financial statements and related management’s discussion and analysis
of financial and operating results. The committee can retain legal, accounting
or other advisors.





The audit
committee consists of three directors (Messrs. Lindsay Gorrill, Lloyd Andrews
and Louis Wolfin) two of whom are unrelated (Messer. Andrews and Gorrill) and
all of whom are financially literate, and have accounting or related financial
expertise. "Financially literate" means the ability to read and understand a
balance sheet, an income statement, and a cash flow statement. "Accounting or
related financial expertise" means the ability to analyze and interpret a full
set of financial statements, including the notes attached thereto, in accordance
with Canadian GAAP.





It is
intended that this committee will eventually be comprised solely of unrelated
directors.





The board
has adopted a charter for the audit committee which is reviewed annually and
sets out the role and oversight responsibilities of the audit committee with
respect to:





-
    its
      relationship with and expectation of the external auditors, including the
      establishment of the independence of the external auditor and the approval
      of any non-audit mandates of the external
auditor;





-
    determination
      of which non-audit services the external auditor is prohibited from
      providing;





-
    the
      engagement, evaluation, remuneration, and termination of the external
      auditors;





-
    appropriate
      funding for the payment of the auditor’s compensation and for any advisors
      retained by the audit committee;





-
    its
      relationship with and expectation of the internal
  auditor;





-
    its
      oversight of internal control;





-
    disclosure
      of financial and related information; and





-
    any
      other matter that the audit committee feels is important to its mandate or
      that which the board chooses to delegate to
it.





**D.**  **Employees**





The
Company has no full time employees.





20


**E.**  **Share
Ownership**





The
following table sets for the share ownership of the directors and officers of
the Company as of June 1, 2005.





**Name
      of Beneficial Owner**
    
    **Number
      of Shares**
    
    **Percent**Louis
      Wolfin
    
    
    100,000
    
    
    1.00Matt
      Wayrynen(1)
    
    
    1,164,656
    
    
    11.74Lloyd
      Andrews
    
    
    225,000
    
    
    2.27James
      O'Byrne
    
    
    45,000
    
    
    0.45Lindsay
      Gorrill
    
    
    20,000
    
    
    0.20David
      Wolfin
    
    
    100,800
    
    
    1.02Ronald
      Andrews
    
    
    36,500
    
    
    0.37Connie
      Lillico
    
    
    5,000
    
    
    0.05All
      Officers and Directors as a Group (eight in number)
    
    
    1,696,956
    
    
    17.11





(1)  1,163,556
shares are held by his spouse.





*Options
Granted to Directors and Officers During the Fiscal Year*





**Name
      of Director/Officer**
    
    **Securities****Under
      Option**
    
    **Exercise
      Price**
    
    **Purchase
      Price,****if
      any**
    
    **Expiration
      Date**Lindsay
      Gorrill
    
    
    50,000
    
    $
    0.81
    
    
    N/A
    
    
    10/19/09Ron
      Andrews
    
    
    50,000
    
    $
    0.81
    
    
    N/A
    
    
    10/19/09Connie
      Lillico
    
    
    30,000
    
    $
    0.81
    
    
    N/A
    
    
    10/19/09James
      O'Byrne
    
    
    20,000
    
    $
    0.81
    
    
    N/A
    
    
    10/19/09





*Outstanding
Options*





The
following information, as of June 1, 2005, reflects outstanding options held by
directors, officers, employees and consultants of the Company.





**No.
      of Shares**
    
    **Date
      of Grant**
    
    **Exercise
      Price**
    
    **Expiration
      Date**Louis
      Wolfin
    
    
    5,000
    
    
    09/19/03
    
    $
    0.52
    
    
    09/19/08James
      O'Byrne
    
    
    50,000
    
    
    09/19/03
    
    $
    0.52
    
    
    09/19/08Andrea
      Regnier
    
    
    3,000
    
    
    09/19/03
    
    $
    0.52
    
    
    09/19/08David
      Wolfin
    
    
    50,000
    
    
    09/19/03
    
    $
    0.52
    
    
    09/19/08Matt
      Wayrynen
    
    
    300,000
    
    
    09/19/03
    
    $
    0.52
    
    
    09/19/08Lloyd
      Andrews
    
    
    175,000
    
    
    09/19/03
    
    $
    0.52
    
    
    09/19/08David
      Wolfin
    
    
    150,000
    
    
    11/26/03
    
    $
    0.57
    
    
    09/19/08Lynn
      Lydiard
    
    
    15,000
    
    
    03/25/04
    
    $
    0.74
    
    
    09/19/08Jevin
      Werbes
    
    
    6,000
    
    
    03/25/04
    
    $
    0.74
    
    
    09/19/08Lindsay
      Gorrill
    
    
    50,000
    
    
    10/19/04
    
    $
    0.81
    
    
    10/19/09Ron
      Andrews
    
    
    50,000
    
    
    10/19/04
    
    $
    0.81
    
    
    10/19/09Dennis
      Goruk
    
    
    50,000
    
    
    10/19/04
    
    $
    0.81
    
    
    10/19/09Connie
      Lillico
    
    
    30,000
    
    
    10/19/04
    
    $
    0.81
    
    
    10/19/09James
      O'Byrne
    
    
    20,000
    
    
    10/19/04
    
    $
    0.81
    
    
    10/19/09Edward
      Lawson
    
    
    15,000
    
    
    10/29/04
    
    $
    0.77
    
    
    10/29/09Kjeld
      Werbes
    
    
    15,000
    
    
    10/29/04
    
    $
    0.77
    
    
    10/29/09Freddie
      Chapel
    
    
    2,500
    
    
    10/29/04
    
    $
    0.77
    
    
    10/29/09Jim
      Baylis
    
    
    5,000
    
    
    10/29/04
    
    $
    0.77
    
    
    10/29/09Options
      held by officers and directors as a group
    
    
    880,000





21


**Item
7. Major Shareholders and Related Party Transactions**





**A.**  **Major
Shareholders**





As far as
it is known to the Company, it is not directly or indirectly owned or controlled
by any other corporation or by the Canadian Government or any foreign
government, or by any other natural or legal person.





The
following sets forth, as of June 1, 2005, the share ownership of directors,
officers and persons known to the Company to own beneficially five percent (5%)
or more of the outstanding shares of each class of the Company ¢ s voting
securities. The Company's major shareholders do not have different voting rights
and there are no arrangements known to the Company which may at a subsequent
date result in a change of control of the Company:





**Name**
    **Number
      of Shares of Common Stock Owned**
    **Percent
      of Class**Matt
      Wayrynen
    1,110
    *Lisa
      Wayrynen**
    1,163,566
    11.73
 *****  Less than
1%.


******  Spouse of
Matt Wayrynen, the Company's president.





**B.**  **Related
Party Transactions**





The
Company owns a certain office building located in Vancouver, British Columbia.
Tenants in this office building include several companies in which Messr. Wolfin
has an interest. For the years 2004, 2003 and 2002, these related companies paid
annual rent to the Company of $31,200, $31,200 and $31,200, respectively. The
Company believes such rent was comparable to the rent that would have been
charged to an unaffiliated third party.





For the
years 2004, 2003 and 2002, the Company paid to other companies whose
shareholders are directors of the Company $79,200, $55,592 and $48,291,
respectively, for accounting, administrative and premises expenses, and
$133,257, $69,927 and $117,000, respectively, for consulting and management fees
and expenses.





On May 1,
2002, the Company entered into an employment contract with the former
President/CEO Mr. Ernest Calvert, that terminates December 31, 2006. The
agreement provides for an annual salary of $60,000 payable monthly for Mr.
Calvert ¢ s
continued services as a consultant to the Company. In addition, on May 1, 2002
the Company entered into an employment contract with the named former executive
officer ¢ s wife,
namely Janie Calvert, for accounting services. The agreement provides for an
annual salary of $36,000 payable monthly and terminates December 31,
2006.





**C.**  **Interests
of Experts and Counsel**





Not
Applicable.





**Item
8. Financial Information**





**A.**  **Consolidated
Statements and Other Financial Information**





1.  The
following financial statements of the Company are attached to this Annual
Report:





Auditors'
Report.


Balance
Sheet as at December 31, 2004 and 2003.


Statements
of Operations for the years ended December 31, 2004, 2003 and 2002.


Statements
of Retained Earnings (Deficit) for the years ended December 31, 2004, 2003 and
2002.


Statements
of Cash flows for the years ended December 31, 2004, 2003 and 2002.


Notes to
the Financial Statements.





2.  The
Company has never paid any dividends and does not intend to in the near
future.





**B.**  **Significant
Changes**





None.





22


**Item
9. The Offer and Listing**





**A.**  **Offer
and Listing Details**





The
Common stock of the Company is listed on the TSX
Venture Exchange under
the symbol "BKS."





As of
December 31, 2004, 3.5% of the Company ¢ s
outstanding common stock was registered in the names of U.S. residents. There
were, as of December 31, 2004, 36 record holders in the United States. The
Company ¢ s common
stock is issued in registered form and the percentage of shares reported to be
held by record holders in the United States is taken from the records of
Computershare Trust Company of Canada in the City of Vancouver, the registrar
and transfer agent for the common stock.





The high
and low prices expressed in Canadian dollars on the TSX
Venture Exchange for the
Company's common stock for the last six months, for each quarter for the last
two fiscal years, and for the five most recent fiscal years is as follows:





**TSX
      Venture Exchange**
      **(Canadian
      Dollars)**Last
      Six Months
    
    High
    
    LowMay
      2005
    
    
    1.00
    
    
    0.85April
      2005
    
    
    1.15
    
    
    0.85March
      2005
    
    
    1.35
    
    
    0.90February
      2005
    
    
    1.44
    
    
    1.15January
      2005
    
    
    1.49
    
    
    1.20December
      2004
    
    
    1.39
    
    
    1.142004
    
    
    High
    
    
    LowFourth
      Quarter
    
    
    1.50
    
    
    0.96Third
      Quarter
    
    
    1.13
    
    
    0.65Second
      Quarter
    
    
    1.04
    
    
    0.75First
      Quarter
    
    
    1.09
    
    
    0.722003
    
    
    High
    
    
    LowFourth
      Quarter
    
    
    0.80
    
    
    0.68Third
      Quarter
    
    
    0.80
    
    
    0.60Second
      Quarter
    
    
    0.64
    
    
    0.42First
      Quarter
    
    
    0.53
    
    
    0.40Five
      Most Recent Fiscal Years
    
    
    High
    
    
    LowDecember
      31, 2004
    
    
    1.50
    
    
    0.72December
      31, 2003
    
    
    0.80
    
    
    0.40December
      31, 2002
    
    
    0.60
    
    
    0.28December
      31, 2001
    
    
    0.45
    
    
    0.28December
      31, 2000
    
    
    0.51
    
    
    0.20





**B.**  **Plan
of Distribution**





Not
Applicable.





**C.**  **Markets**





The
Company ¢ s common
stock is listed in Canada on the TSX
Venture Exchange under
the symbol "BKS".





**D.**  **Selling
Shareholders**





Not
Applicable.





**E.**  **Dilution**





Not
Applicable.





**F.**  **Expenses
of the Issue**





Not
Applicable.





**Item
10. Additional Information**





**A.**  **Share
Capital**





Not
Applicable.





23


**B.**  **Memorandum
and Articles of Association**





Fortune
Island Mines Ltd., which was incorporated on the first day of February, 1966,
under the name Fortune Island Mines Ltd. (N.P.L.), under Certificate No. 68018,
which converted to a limited company Fortune Island Mines Ltd., on the eight day
of July, 1982, and Kerry Mining Ltd., which was incorporated on the 26th day of
February, 1973, under the name Kerry Mining Ltd. (N.P.L.),under Certificate No.
116112, which converted to a limited company Kerry Mining Ltd., on the seventh
day of July, 1982, and the Company, which was incorporated on the 29th day of
January, 1974, under the name Trevlac Resources, Inc., under Certificate No.
124754 and subsequently changed its name to Berkley Resources Inc., on the 30th
day of July, 1976, were amalgamated on July 18, 1986, pursuant to the Company
Act as one company with the name Berkley Resources Inc.





**Common
Shares**





All
issued and outstanding common shares are fully paid and non-assessable. Each
holder of record of common shares is entitled to one vote for each common share
so held on all matters requiring a vote of shareholders, including the election
of directors. The holders of common shares will be entitled to dividends on a
pro-rata basis, if and when as declared by the board of directors. There are no
preferences, conversion rights, preemptive rights, subscription rights, or
restrictions or transfers attached to the common shares. In the event of
liquidation, dissolution, or winding up of the Company, the holders of common
shares are entitled to participate in the assets of the Company available for
distribution after satisfaction of the claims of creditors.





**Powers
and Duties of Directors**





The
directors shall manage or supervise the management of the affairs and business
of the Company and shall have authority to exercise all such powers of the
Company as are not, by the Company Act or by the Memorandum or the Articles,
required to be exercised by the Company in a general meeting.





Directors
will serve as such until the next annual meeting. In general, a director who is,
in any way, directly or indirectly interested in an existing or proposed
contract or transaction with the Company whereby a duty or interest might be
created to conflict with his duty or interest as a director, shall declare the
nature and extent of his interest in such contract or transaction or the
conflict or potential conflict with his duty and interest as a director. Such
director shall not vote in respect of any such contract or transaction with the
Company in which he is interested and if he shall do so, his vote shall note be
counted, but he shall be counted in the quorum present at the meeting at which
such vote is taken. However, notwithstanding the foregoing, directors shall have
the right to vote on determining the remuneration of the directors.





The
directors may from time to time on behalf of the Company: (a) borrow money in
such manner and amount from such sources and upon such terms and conditions as
they think fit; (b) issue bonds, debentures and other debt obligations; and (c)
mortgage, charge or give other security on the whole or any part of the property
and assets of the Company.





The
majority of the directors of the Company must be persons ordinarily resident in
Canada and one director of the Company must be ordinarily resident in British
Columbia. There is no age limitation, other than the statutorily prescribed
minimum age requirement of 18 years, or minimum share ownership, for the
Company ¢ s
directors.





**Shareholders**





An annual
general meeting shall be held once in every calendar year at such time and place
as may be determined by the directors. A quorum at an annual general meeting and
special meeting shall be two shareholders or one shareholder and a proxy holder
representing another shareholder. There is no limitation imposed by the laws of
Canada or by the charter or other constituent documents of the Company on the
right of a non-resident to hold or vote the common shares, other than as
provided in the Investment Canada Act, referred to as the "Investment Act",
discussed below under "Item 10. Additional Information, D. Exchange Controls."





In
accordance with British Columbia law, directors shall be elected by an "ordinary
resolution" which means (a) a resolution passed by the shareholders of the
Company at a general meeting by a simple majority of the votes cast in person or
by proxy, or (b) a resolution that has been submitted to the shareholders of the
Company who would have been entitled to vote on it in person or by proxy at a
general meeting of the Company and that has been consented to in writing by such
shareholders of the Company holding shares carrying not less than the prescribed
majority of the votes entitled to be cast on it.





Under
British Columbia law certain items such as an amendment to the Company's
articles or entering into a merger, requires approval by a special resolution
which shall mean (a) a resolution passed by a majority of not less than the
prescribed majority of the votes cast by the shareholders of the Company who,
being entitled to do so, vote in person or by proxy at a general meeting of the
company; and (b) a resolution consented to in writing by every shareholder of
the Company who would have been entitled to vote in person or by proxy at a
general meeting of the Company, and a resolution so consented to is deemed to be
a special resolution passed at a general meeting of the Company.





**Recent
Developments**





On March
29, 2004, the British Columbia legislature enacted the British Columbia Business
Corporations Act ("BCBCA") and repealed the British Columbia Company Act (the
"Company Act"). The BCBCA removes many of the restrictions contained in the
Company Act, including restrictions on the residency of directors, the location
of annual general meetings and limits on authorized share capital. As well, the
BCBCA uses new forms and terminology and has replaced the Memorandum with a
Notice of Articles. At the Company's annual and special general meeting, held on
June 13, 2005, shareholders were asked to approve:





1.
    a
      special resolution to remove the application of the Pre-existing Company
      Provisions, as defined in the Business Corporations Act (British
      Columbia);





2.
    a
      special resolution to alter the Company's share structure to an unlimited
      number of common shares without par value; and





3.
    a
      special resolution to approve new articles for the
  Company.





24


The
regulations under the BCBCA effectively added certain provisions, called
"Pre-Existing Company Provisions" or "PCPs", to every company's Notice of
Articles. The PCPs provide that the number of votes required to pass a special
resolution (formerly also referred to as a special resolution under the Company
Act) or a special separate resolution is at least three-quarters of the votes
cast by shareholders present in person or by proxy at the meeting. This is the
majority that was required under the Company Act. The BCBCA allows a special
resolution to be passed by at least two-thirds of the votes cast by shareholders
present in person or by proxy at the meeting. The Company proposes to amend its
Notice of Articles to delete the PCPs so that the provisions of the BCBCA
permitting a two-thirds majority will apply to the Company.





The
shareholders have approved the above resolutions such that special resolutions
will now require a two-thirds majority vote, instead of a three-quarters
majority vote. Management believes that this now provides the Company with
greater flexibility for future corporate activities and is consistent with
special resolution requirements for companies in other
jurisdictions.





**C.**  **Material
Contracts**





Other
than as otherwise disclosed in this Annual Report, the Company has not entered
into any material contracts.





**D.**  **Exchange
Controls**





There is
no law, governmental decree or regulation in Canada that restricts the export or
import of capital or affects the remittance of dividends, interest or other
payments to a non-resident holder of common shares other than withholding tax
requirements. Any such remittances to United States residents are subject to
withholding tax. See "Taxation".





There is
no limitation imposed by the laws of Canada or by the charter or other
constating documents of the Company on the right of a non-resident to hold or
vote the common shares, other than as provided in the Investment Act. The
following discussion summarizes the principal features of the Investment Act for
a non-resident who proposes to acquire the common shares.





The
Investment Act generally prohibits implementation of a reviewable investment by
an individual, government or agency thereof, corporation, partnership, trust or
joint venture (each an "entity") that is not a "Canadian" as defined in the
Investment Act (a "non-Canadian"), unless after review, the Director of
Investments appointed by the minister responsible for the Investment Act is
satisfied that the investment is likely to be of net benefit to Canada. An
investment in the common shares by a non-Canadian other than a "WTO Investor"
(as that term is defined by the Investment Act, and which term includes entities
which are nationals of or are controlled by nationals of member states of the
World Trade Organization) when the Company was not controlled by a WTO Investor,
would be reviewable under the Investment Act if it was an investment to acquire
control of the Company and the value of the assets of the Company, as determined
in accordance with the regulations promulgated under the Investment Act, equals
or exceeds $5 million for direct acquisition and over $50 million for indirect
acquisition, or if an order for review was made by the federal cabinet on the
grounds that the investment related to Canada's cultural heritage or national
identity, regardless of the value of the assets of the Company. An investment in
the common shares by a WTO Investor, or by a non-Canadian when the Company was
controlled by a WTO Investor, would be reviewable under the Investment Act if it
was an investment to acquire control of the Company and the value of the assets
of the Company, as determined in accordance with the regulations promulgated
under the Investment Act, was not less than a specified amount, which for 2004
is any amount in excess of $137 million. A non-Canadian would acquire control of
the Company for the purposes of the Investment Act if the non-Canadian acquired
a majority of the common shares. The acquisition of one third or more, but less
than a majority of the common shares, would be presumed to be an acquisition of
control of the Company unless it could be established that, on the acquisition,
the Company was not controlled in fact by the acquirer through the ownership of
the common shares.





Certain
transactions relating to the common shares would be exempt from the Investment
Act, including: (i) an acquisition of the common shares by a person in the
ordinary course of that person's business as a trader or dealer in securities;
(ii) an acquisition of control of the Company in connection with the realization
of security granted for a loan or other financial assistance and not for a
purpose related to the provisions of the Investment Act; and (iii) an
acquisition of control of the Company by reason of an amalgamation, merger,
consolidation or corporate reorganization following which the ultimate direct or
indirect control in fact of the Company, through the ownership of the common
shares, remained unchanged.





**E.**  **Taxation**





**Canadian
Federal Income Tax Consequences**





The
following summarizes the principal Canadian federal income tax consequences
applicable to the holding and disposition of common shares in the capital of the
Company by a United States resident, and who holds common shares solely as
capital property (a "U.S. Holder"). This summary is based on the current
provisions of the Income Tax Act (Canada) (the "Tax Act"), the regulations
thereunder, all amendments thereto publicly proposed by the government of
Canada, the published administrative practices of Revenue Canada, Customs,
Excise and Taxation, and on the current provisions of the Canada-United States
Income Tax Convention, 1980, as amended (the "Treaty"). Except as otherwise
expressly provided, this summary does not take into account any provincial,
territorial or foreign (including without limitation, any U.S.) tax law or
treaty. It has been assumed that all currently proposed amendments will be
enacted substantially as proposed and that there is no other relevant change in
any governing law or practice, although no assurance can be given in these
respects.





**Each
U.S. Holder is advised to obtain tax and legal advice applicable to such U.S.
Holder's particular circumstances.**





Every
U.S. Holder is liable to pay a Canadian withholding tax on every dividend that
is or is deemed to be paid or credited to the U.S. Holder on the U.S. Holder's
common shares. The statutory rate of withholding tax is 25% of the gross amount
of the dividend paid. The Treaty reduces the statutory rate with respect to
dividends paid to a U.S. Holder for the purposes of the Treaty. Where
applicable, the general rate of withholding tax under the Treaty is 15% of the
gross amount of the dividend, but if the U.S. Holder is a company that owns at
least 10% of the voting stock of the Company and beneficially owns the dividend,
the rate of withholding tax is 5% for dividends paid or credited after 1996 to
such corporate U.S. Holder. The Company is required to withhold the applicable
tax from the dividend payable to the U.S. Holder, and to remit the tax to the
Receiver General of Canada for the account of the U. S. Holder.





25


Pursuant
to the Tax Act, a U.S. Holder will not be subject to Canadian capital gains tax
on any capital gain realized on an actual or deemed disposition of a common
share, including a deemed disposition on death, provided that the U.S. Holder
did not hold the common share as capital property used in carrying on a business
in Canada, and that neither the U. S. Holder nor persons with whom the U.S.
Holder did not deal at arms length (alone or together) owned or had the right or
an option to acquire 25% or more of the issued shares of any class of the
Company at any time in the five years immediately preceding the
disposition.





**United
States Tax Consequences**





*Passive
Foreign Investment Companies*





The
Treaty essentially calls for taxation of shareholders by the shareholder's
country of residence. In those instances in which a tax may be assessed by the
other country, a corresponding credit against the tax owed in the country of
residence is generally available, subject to limitations.





Under
Section 1296 of the Internal Revenue Code of the United States, referred to as
the "Code", a foreign investment corporation is treated as a passive foreign
investment company, referred to as a "PFIC", if it earns 75% or more of its
gross income from passive sources or if 50% or more of the value of its assets
produce passive income. The Company has not been a PFIC for United States
federal income tax purposes for prior taxable years and believes that it will
not be treated as a PFIC for the current and future taxable years, but this
conclusion is a factual determination made annually and subject to
change.





*Controlled
Foreign Corporations*





Sections
951 through 964 and Section 1248 of the Code relate to controlled foreign
corporations, referred to as "CFCs". A foreign corporation that qualifies as a
CFC will not be treated as a PFIC with respect to a shareholder during the
portion of the shareholder's holding period after December 31, 1997, during
which the shareholder is a 10% United States shareholder and the corporation is
a CFC. The PFIC provisions continue to apply in the case of PFIC that is also a
CFC with respect to shareholders that are less than 10% United States
shareholders.





The 10%
United States shareholders of a CFC are subject to current U.S. tax on their pro
rata shares of certain income of the CFC and their pro-rata shares of the CFC's
earnings invested in certain U.S. property. The effect is that the CFC
provisions may impute some portion of such a corporation's undistributed income
to certain shareholders on a current basis and convert into dividend income some
portion of gains on dispositions of stock which would otherwise qualify for
capital gains treatment. **





The
Company does not believe that it will be a CFC. Even if the Company were
classified as a CFC in a future year, however, the CFC rules referred to above
would apply only with respect to 10% shareholders.





*Personal
Holding Company/Foreign Personal Holding Company/Foreign Investment
Company*





A
corporation will be classified as a personal holding company, referred to as a
"PHC", if at any time during the last half of a tax year: (i) five or fewer
individuals (without regard to their citizenship or residence) directly or
indirectly or by attribution own more than 50% in value of the corporation's
stock; and (ii) at least 60% of its ordinary gross income, as specially
adjusted, consists of personal holding company income (defined generally to
include dividends, interest, royalties, rents and certain other types of passive
income). A PHC is subject to a United States federal income tax of 39.6% on its
undistributed personal holding company income (generally limited, in the case of
a foreign corporation, to United States source income).





A
corporation will be classified as a foreign personal holding company, referred
to as an "FPHC", and not a PHC, if at any time during a tax year: (i) five or
fewer individual United States citizens or residents directly or indirectly or
by attribution own more than 50% of the total combined voting power or value of
the corporation's stock; and (ii) at least 60% of its gross income consists of
foreign personal holding company income (defined generally to include dividends,
interest, royalties, rents and certain other types of passive income). Each
United States shareholder in a FPHC is required to include in gross income, as a
dividend, an allocable share of the FPHC's undistributed foreign personal
holding company income (generally the taxable income of the FPHC, as specially
adjusted).





A
corporation will be classified as a foreign investment company, referred to as
an "FIC", if for any taxable year it: (i) is registered under the Investment
Company Act of 1940, as amended, as a management company or share investment
trust or is engaged primarily in the business of investing or trading in
securities or commodities (or any interest therein); and (ii) 50% or more of the
value or the total combined voting power of all the corporation's stock is owned
directly or indirectly (including stock owned through the application of
attribution rules) by United States persons. In general, unless an FIC elects to
distribute 90% or more of its taxable income (determined under United States tax
principles as specially adjusted) to its shareholders, gain on the sale or
exchange of FIC stock is treated as ordinary income (rather than capital gain)
to the extent of such shareholder's ratable share of the corporation's earnings
and profits for the period during which such stock was held.





The
Company believes that it is not and will not be a PHC, FPHC or FIC. However, no
assurance can be given as to the Company's future status.





*Other
Consequences*





To the
extent a shareholder is not subject to the tax regimes outlined above with
respect to foreign corporations that are PFIC, PHC, FPHC or FIC, the following
discussion describes the United States federal income tax consequences arising
from the holding and disposition of the Company's Common Shares.





26


*U.S.
Holders*





A "U.S.
Holder" includes a holder of common shares who is a citizen or resident of the
United States, a corporation created or organized in or under the laws of the
United States or of any political subdivision thereof and any other person or
entity whose ownership of common shares is effectively connected with the
conduct of a trade or business in the United States. A U.S. Holder does not
include persons subject to special provisions of federal income tax laws, such
as tax exempt organizations, qualified retirement plans, financial institutions,
insurance companies, real estate investment trusts, regulated investment
companies, broker-dealers, non-resident alien individuals or foreign
corporations whose ownership of common shares is not effectively connected with
the conduct of a trade or business in the United States and shareholders who
acquired their stock through the exercise of employee stock options or otherwise
as compensation.





*Distribution
of Common Shares*





U.S.
Holders receiving dividend distributions (including constructive dividends) with
respect to the Company's common shares are required to include in gross income
for United States federal income tax purposes the gross amount of such
distribution to the extent that the Company has current or accumulated earnings
or profits, without reduction for any Canadian income tax withheld from such
distributions. Such Canadian tax withheld may be credited, subject to certain
limitations, against the U.S. Holder's United States federal income tax
liability or, alternatively, may be deducted in computing the U.S. Holder's
United States federal income tax by those who itemize deductions. (See more
detailed discussions at "Foreign Tax Credit" below). To the extent that
distributions exceed current or accumulated earnings and profits of the Company,
they will be treated first as a return of capital up to the U.S. Holder's
adjusted basis in the common shares and thereafter as a gain from the sale or
exchange of such shares. Preferential tax rates for the long-term capital gains
are applicable to a U.S. Holder that is an individual, estate or trust. There
are currently no preferential tax rates for long-term capital gains for a U.S.
Holder which is a corporation.





Dividends
paid on the Company's common shares will not generally be eligible for the
dividends received deduction provided to corporations receiving dividends from
certain United States corporations. A U.S. Holder which is a corporation may,
under certain circumstances, be entitled to a 70% deduction of the United States
source portion of dividends received from the Company if such U.S. Holder owns
shares representing at least 10% of the voting power and value of the
Company.





*Foreign
Tax Credit*





A U.S.
Holder who pays (or has withheld from distribution) Canadian income tax with
respect to the ownership of the Company's common shares may be entitled, at the
option of the U.S. Holder, to either a deduction or a tax credit for such
foreign tax paid or withheld. Generally, it will be more advantageous to claim a
tax credit, because a credit reduces United States federal income taxes on a
dollar-for-dollar basis, while a deduction merely reduces the taxpayer's income
subject to tax. This election is made on a year-by-year basis and generally
applies to all foreign income taxes paid by (or withheld from) the U.S. Holder
during that year. There are significant and complex limitations which apply to
the credit, among which is the general limitation that the credit cannot exceed
the proportionate share of the U.S. Holder's United States income tax liability
that the U.S. Holder's foreign source income bears to his or its worldwide
taxable income. In the determination of the application of this limitation, the
various items of income and deduction must be classified into foreign and
domestic sources. Complex rules govern this classification process. There are
further limitations on the foreign tax credit for certain types of income, such
as "passive income", "high withholding tax interest", "financial services
income", "shipping income" and certain other classifications of income. The
availability of foreign tax credit and the application of the limitations on the
credit are fact specific and holders and prospective holders of common shares
should consult their own tax advisors regarding their individual
circumstances.





*Disposition
of Common Shares*





A U.S.
Holder will recognize gain and loss upon the sale of the common shares equal to
the difference, if any, between: (i) the amount of cash plus the fair market
value of any property received; and (ii) the shareholder's tax basis in the
common shares. The gain or loss will be capital gain or loss if the shares are a
capital asset in the hands of the U.S. Holder, and will be a short-term or
long-term capital gain or loss depending on each U.S. Holder's holding period.
Gains and losses are netted and combined according to special rules in arriving
at the overall capital gain or loss for a particular tax year. Deductions for
net capital losses are subject to significant limitations. For U.S. Holders who
are individuals, any unused portion of such net capital loss may be carried over
to be used in later tax years until such net capital loss is thereby exhausted.
For U.S. Holders which are corporations (other than corporations subject to
Subchapter S of the Code), an unused capital loss may be carried back three
years from the loss year and carried forward five years from the loss year to be
offset against capital gains until such net capital loss is thereby
exhausted.





The
foregoing discussion is based upon the sections of the Code, Treasury
Regulations, published Internal Revenue Service rulings, published
administrative positions of the Internal Revenue Service and court decisions
that are currently applicable, any or all of which could be materially adversely
changed, possibly on a retroactive basis, at any time. In addition, this
discussion does not consider the potential effects, both adverse and beneficial,
of recently proposed legislation which, if enacted could be applied, possibly on
a retroactive basis, at any time. A holder or prospective holder of the
Company's common shares should consult his or her own tax advisors about
federal, state local and foreign tax consequences of purchasing, owning and
disposing of the common shares of the Company.





**F.**  **Dividends
and Paying Agents**





Not
Applicable.





**G.**  **Statement
by Experts**





Not
Applicable.





**H.**  **Documents
on Display**





The
Company files annual reports and other information with the SEC. You may read
and copy any document that we file at the SEC's Public Reference Room at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549 or on its website at
www.sec.gov. Please call the SEC at 1-800-SEC-0330 for more information about
the Public Reference Room. The Company also files its annual reports and other
information with the Canadian Securities Administrators via SEDAR at
www.sedar.com.





Copies of
the Company's material contracts are kept in the Company's administrative
headquarters.





27


**I.**  **Subsidiary
Information**





None.





**Item
11. Quantitative and Qualitative Disclosures About Market
Risk**





Because
the Company is a small business issuer, this section is
inapplicable.





**Item
12. Description of Securities Other than Equity Securities**





Not
Applicable.





**Part
II**





**Item
13. Defaults, Dividend Arrearages and Delinquencies**





None.





**Item
14. Material Modifications to the Rights of Security Holders and Use of
Proceeds**





None.





**Item
15. Controls and Procedures**





The
Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's chief
executive officer along with the Company's principal financial officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934,
as amended. Based upon that evaluation, the Company's chief executive officer
along with the Company's principal financial officer concluded that the
Company's disclosure controls and procedures as of the end of the fiscal year
covered by this Form 20-F are effective in timely alerting them to material
information relating to the Company required to be included in this Form 20-F.





**Item
16. [Reserved]**





**Item
16A. Audit Committee Financial Expert**





The board
of directors determined that Mr. Lindsay Gorrill is qualified as an Audit
Committee Financial Expert. Mr. Gorrill is independent as determined by the NASD
listing standards.





**Item
16B. Code of Ethics**





The
Company has not currently adopted a code of ethics but is evaluating its
internal procedures to determine the necessity of same.





**Item
16C. Principal Accountant Fees and Services**





The
independent auditor for the fiscal year ended December 31, 2003 was Hoogendoorn
Vellmer, Chartered Accountants, and for the fiscal year ended December 31, 2004
it was Staley, Okada & Partners, Chartered Accountants.





**Audit
Fees**





The
aggregate fees billed by the Company’s external auditors for professional
services rendered for the audit of the Company's annual financial statements for
the fiscal year ended December 31, 2004 was $30,000 and December 31, 2003 was
$18,000.





**Audit-Related
Fees**





There
were no fees billed for assurance and related services by the principal
accountant that are reasonably related to the performance of the audit or review
of the Company's financial statements for the year ended December 31, 2004 and
December 31, 2003.





28


**Tax
Fees**





The
aggregate fees billed for tax compliance, tax advice and tax planning rendered
by our independent auditors for the fiscal year ended December 31, 2004 was
$1,500 and December 31, 2003 was $1,500. The services comprising these fees were
regarding preparation of corporate tax returns and taxation advisory
services.





**All
Other Fees**





Other
than referred to above, there were no aggregate fees billed for professional
services rendered by the Company’s independent auditors for the fiscal years
ended December 31, 2004 and December 31, 2003.





The Audit
Committee approved 100% of the fees paid to the principal accountant for
audit-related, tax and other fees in the fiscal year 2004. The Audit Committee
pre-approves all non-audit services to be performed by the auditor in accordance
with the Audit Committee Charter. No time was expended on the principal
accountant's engagement to audit the Company's financial statements for the most
recent fiscal year that were attributed to work performed by persons other than
the principal accountant's full-time, permanent employees.





**Item
16D. Exemptions from the Listing Standards for Audit
Committees**





Not
applicable.





**Item
16E. Purchases of Equity Securities by the Issuer and Affiliated
Purchasers**





None.





**Part
III**





**Item
17. Financial Statements**





The
following Financial Statements pertaining to the Company are filed as part of
this annual report:




Auditors'
Report
.............................................................................................F-1
 Balance
Sheets...............................................................................................F-2
 Statements
of
Operations..............................................................................F-3
 Statements
of
Deficit......................................................................................F-4
 Statements
of Cash Flows.................................................................F-5
thru F-6
 Notes to
Financial
Statements........................................................  F-7 thru
F-17
   **Item
18. Financial Statements**





See Item
17.





**Item
19. Exhibits**





**1.**
    **Audited
      Financial Statements and Financial Statement
      Schedules:**




Auditors'
Report
...............................................................................................  F-1
 Balance
Sheets.................................................................................................  F-2
 Statements
of
Operations...............................................................................  F-3
 Statements
of
Deficit.......................................................................................  F-4
 Statements
of Cash
Flows...............................................................  F-5 thru
F-6
 Notes to
Financial
Statements......................................................  F-7 thru
F-17





29


**2.**
    **Exhibits**





Exhibit
      Number
    Name1.
    Memorandum
      of Berkley Resources Inc.*2.
    Articles
      of Berkley Resources Inc.*12.1
    Certification
      of the Principal Executive Officer under the Sarbanes-Oxley
      Act12.2
    Certification
      of the Principal Financial Officer under the Sarbanes-Oxley
      Act13
    Certificate
      under section 906
 *  Previously
filed.








30








**SIGNATURE**





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








**BERKLEY
RESOURCES INC.**











Dated:
June
29, 2005                                                          
By: */s/ Matt
Wayrynen*


Matt Wayrynen, President
















31





**Report
of Independent Registered Chartered Accounting Firm**








**To
the Shareholders of Berkley Resources Inc.:**





We have
audited the accompanying balance sheet of Berkley Resources Inc. (the “Company”)
as at 31 December 2004 and the related statements of operations, deficit, and
cash flows for the year ended 31 December 2004. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.





We
conducted our audits in accordance with Canadian generally accepted auditing
standards and with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to have, nor were we
engaged to perform an audit of its internal control over financial reporting.
Our audit included consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company as at 31 December 2004,
and the results of its operations and its cash flows for the year ended
31 December 2004, in accordance with Canadian generally accepted accounting
principles.





The
comparative figures as at 31 December 2003 and the two year periods ended 31
December 2003 and 2002 are based on financial statements audited by other
auditors who expressed unqualified opinions thereon in their reports dated 31
March 2004 and 11 April 2003.








Vancouver,
B.C. ***“Staley,
Okada & Partners”***


23 April
2005 CHARTERED
ACCOUNTANTS






















F-1




**BERKLEY
      RESOURCES INC.**
      **BALANCE
      SHEETS****December
      31,****2004**
    
    **2003**$
    
    $**ASSETS****Current**Cash
    
    
    712,678
    
    
    235,225Accounts
      receivable
    
    
    145,422
    
    
    100,003Taxes
      recoverable
    
    
    31,079
    
    
    44,492Prepaid
      expenses
    
    
    17,500
    
    
    29,149Due
      from related party
    
    
    22,060
    
    
    22,060928,739
    
    
    430,929**Prepaid
      oil and gas costs**
    
    
    376,693
    
    
    -**Oil
      and gas properties and equipment (Note 4)**
    
    
    3,389,679
    
    
    1,109,391**Rental
      property (Note 5)**
    
    
    2,061,915
    
    
    2,075,370**Other
      property plant and equipment (Note 6)**
    
    
    2,320
    
    
    1**6,759,346**
    
    
    **3,615,691****LIABILITIES****Current**Accounts
      payable and accrued liabilities
    
    
    1,522,545
    
    
    145,413Bank
      loan (Note 7)
    
    
    446,056
    
    
    565,8091,968,601
    
    
    711,222**Site
      restoration liabilities (Note 2(f))**
    
    
    43,030
    
    
    136,5022,011,631
    
    
    847,724**SHAREHOLDERS’
      EQUITY****Share
      capital (Note 8)**
    
    
    5,734,921
    
    
    3,254,426**Contributed
      surplus (Note 9)**
    
    
    336,558
    
    
    77,390**Deficit**
    
    
    (1,323,764
    )
    
    (563,849
    )4,747,715
    
    
    2,767,967**6,759,346**
    
    
    **3,615,691**


Approved
by the Directors:





Director
    /s/
      Matt Wayrynen
    
    Director
    /s/
      Lindsay Gorrill





F-2








**BERKLEY
      RESOURCES INC.**
      **STATEMENTS
      OF OPERATIONS****Years
      Ended December 31,****2004**
    
    **2003**
    
    **2002**$
    
    $
    
    **$****OIL
      AND GAS REVENUE**
    
    866,811
    
    606,133
    
    406,138**Oil
      and gas production expenses**Operating
      costs
    
    
    416,254
    
    
    243,717
    
    
    189,681Amortization
      and depletion
    
    
    260,000
    
    
    79,500
    
    
    39,900Accretion
      of site restoration liabilities
    
    
    2,775
    
    
    4,769
    
    
    -679,029
    
    
    327,986
    
    
    229,581NET
      OIL AND GAS INCOME
    
    
    187,782
    
    
    278,147
    
    
    176,557**RENTAL
      REVENUE**
    
    
    232,607
    
    
    238,599
    
    
    235,670**Rental
      operations expenses**Operating
      costs
    
    
    209,229
    
    
    198,596
    
    
    168,608Interest
      on bank loan
    
    
    23,047
    
    
    26,272
    
    
    35,110Amortization
    
    
    13,455
    
    
    14,016
    
    
    14,600245,731
    
    
    238,884
    
    
    218,318NET
      RENTAL (LOSS) INCOME
    
    
    (13,124
    )
    
    (285
    )
    
    17,352**GENERAL
      AND ADMINISTRATION EXPENSES**Administrative,
      office services and premises
    
    
    188,863
    
    
    149,478
    
    
    104,167Stock
      based compensation
    
    
    273,793
    
    
    2,390
    
    
    -Consulting
      and management fees
    
    
    310,270
    
    
    252,027
    
    
    159,000Professional
      fees
    
    
    101,121
    
    
    54,342
    
    
    65,959Filing
      and transfer agent fees
    
    
    19,413
    
    
    12,176
    
    
    9,467Shareholder
      information
    
    
    9,823
    
    
    11,032
    
    
    3,056Amortization
    
    
    409
    
    
    20,354
    
    
    3,413(903,692
    )
    
    (501,799
    )
    
    (345,062
    )**OTHER
      INCOME (EXPENSES)**Computer
      software written off
    
    
    -
    
    
    (54,988
    )
    
    -Interest
      and other income
    
    
    -
    
    
    23,469
    
    
    23,506-
    
    
    
    
    
    (31,519
    )
    
    23,506**LOSS
      FOR THE YEAR**
    
    
    **(729,034**
    **)**
    
    **(255,456**
    **)**
    
    **(127,647**
    **)****LOSS
      PER SHARE**
    
    
    **(0.10**
    **)**
    
    **(0.04**
    **)**
    
    **(0.02**
    **)****WEIGHTED
      AVERAGE NUMBER OF**
      **SHARES
      OUTSTANDING**
    
    
    **7,175,945**
    
    
    **6,797,184**
    
    
    **6,382,350**





F-3








**BERKLEY
      RESOURCES INC.**
      **STATEMENTS
      OF DEFICIT**





**Years
      Ended December 31,****2004**
    
    **2003**
    
    **2002**$
    
    $
    
    **$****DEFICIT**,
      beginning of year
    
    
    (563,849
    )
    
    (308,393
    )
    
    (180,746
    )Retroactive
      adjustment-Stock
      based compensation (Note 3a)
    
    
    (30,881
    )
    
    -
    
    
    -(594,730
    )
    
    (308,393
    )
    
    (108,746
    )Net
      loss for the year
    
    
    (729,034
    )
    
    (255,456
    )
    
    (127,647
    )**DEFICIT**,
      end of year
    
    
    **(1,323,764**
    **)**
    
    **(563,849**
    **)**
    
    **(308,393**
    **)**





F-4
 **BERKLEY
      RESOURCES INC.**
      **STATEMENTS
      OF CASH FLOWS**


**Years
      Ended December 31,****2004**
    
    **2003**
    
    **2002**$
    
    $
    
    **$****CASH
      PROVIDED BY (USED IN):****OPERATING
      ACTIVITIES**Loss
      for the year
    
    
    (729,034
    )
    
    (255,456
    )
    
    (127,647
    )Items
      not requiring cash in the yearAccretion
      of site restoration liability
    
    
    2,775
    
    
    4,769
    
    
    -Amortization
      and depletion
    
    
    273,864
    
    
    113,870
    
    
    57,913Computer
      software written off
    
    
    -
    
    
    54,988
    
    
    -Stock
      based compensation
    
    
    273,793
    
    
    2,390
    
    
    -(178,602
    )
    
    (79,439
    )
    
    (69,734
    )Net
      change in non-cash working capital balancesAccounts
      receivable
    
    
    (45,419
    )
    
    11,155
    
    
    6,955Prepaid
      expenses
    
    
    11,649
    
    
    (2,527
    )
    
    (25,131
    )Due
      from related party
    
    
    -
    
    
    (12,060
    )
    
    -Computer
      software held for resale
    
    
    -
    
    
    (4,008
    )
    
    (50,980
    )Taxes
      recoverable
    
    
    13,413
    
    
    (40,370
    )
    
    -Accounts
      payable and accrued liabilities
    
    
    1,377,239
    
    
    62,545
    
    
    (43,225
    )1,178,280
    
    
    (64,704
    )
    
    (182,115
    )**INVESTING
      ACTIVITIES**Prepaid
      oil and gas costs
    
    
    (376,693
    )
    
    -
    
    
    -Oil
      and gas properties and equipment, net
    
    
    (2,540,288
    )
    
    (582,707
    )
    
    (25,458
    )Other
      capital assets
    
    
    (2,728
    )
    
    -
    
    
    (17,800
    )Site
      reclamation recovery
    
    
    (96,247
    )
    
    -
    
    
    -(3,015,956
    )
    
    (582,707
    )
    
    (43,258
    )




**FINANCING
      ACTIVITIES**Repayment
      of bank loan
    
    
    (119,753
    )
    
    (109,424
    )
    
    (107,690
    )Issuance
      of common shares
    
    
    2,434,882
    
    
    5,100
    
    
    250,0002,315,129
    
    
    (104,324
    )
    
    142,310**Increase
      (decrease) in cash for the year**
    
    
    477,453
    
    
    (751,735
    )
    
    (83,063
    )**CASH,**beginning of the year
    
    
    235,225
    
    
    986,960
    
    
    1,070,023**CASH,**end of the year
    
    
    **712,678**
    
    
    **235,225**
    
    
    **986,960****CASH
      IS COMPRISED OF:**Cash
    
    
    712,678
    
    
    235,225
    
    
    36,230Bankers’
      acceptances and treasury bills
    
    
    -
    
    
    -
    
    
    950,730**712,678**
    
    
    **235,225**
    
    
    **986,960**





F-5


**BERKLEY
      RESOURCES INC.**
      **STATEMENTS
      OF CASH FLOWS (continued)****Years
      Ended December 31,****2004**
    
    **2003**
    
    **2002**$
    
    
    $
    
    
    **$**
    ******SUPPLEMENTAL
      DISCLOSURE OF NON-CASH**
      **FINANCING
      AND INVESTING ACTIVITIES**Site
      reclamation recovery
    
    
    96,247
    
    
    -
    
    
    -Stock
      option compensation
    
    
    273,793
    
    
    2,390
    
    
    -**SUPPLEMENTAL
      STATEMENTS OF CASH FLOWS**
      **DISCLOSURE**Interest
      on long term debt
    
    
    23,047
    
    
    26,272
    
    
    35,110










F-6





**BERKLEY
      RESOURCES INC.**
      **NOTES
      TO FINANCIAL STATEMENTS**





**NOTE
1 - NATURE OF OPERATIONS**





Berkley
Resources Inc. (“the Company or Berkley”) was created on the amalgamation of
Fortune Island Mines Ltd., Kerry Mining Ltd. and Berkley Resources Ltd. under
the Company Act (British Columbia) on July 18, 1986. The Company is in the
business of acquisition, exploration, development and production from petroleum
and natural gas interests in Alberta and Saskatchewan, Canada. The Company also
rents commercial office space in a building it owns in Vancouver,
Canada.





The
Company will likely have to periodically raise additional funds to participate
in future exploration and development work on its petroleum and natural gas
properties. Management intends to issue additional shares in the upcoming year
for this purpose.





**NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES**





**(a)**
    **Basis
      of presentation**





These
financial statements are prepared in accordance with Canadian generally accepted
accounting principles, which do not materially differ from accounting principles
generally accepted in the United States, except as disclosed in Note
14.





Certain
comparative balances have been reclassified to conform with current year
accounting policies and financial statement presentation.





**(b)**
    **Currency**





All
amounts in these financial statements are expressed in Canadian
dollars.





**(c)**
    **Revenue
      recognition**





Revenue
associated with the sale of crude oil, natural gas and liquids represent the
sales value of the Company’s share of petroleum production during the year
received from third party purchasers on delivery. Differences between production
and amounts delivered and sold are not significant.





Rental
revenue is recognized on a monthly basis under the terms of lease agreements
with tenants.





**(d)**
    **Oil
      and gas properties and equipment**





Berkley
follows the full cost method of accounting for oil and gas properties and
equipment whereby all costs of acquiring, exploring for and developing oil and
gas reserves are capitalized. The Company does not capitalize interest or
administrative expenses.





Capitalized
costs of proven reserves and equipment are depleted using a unit of production
method based upon estimated proven reserves (energy content) net of
royalties.





Unless a
significant amount of reserves is involved, proceeds received from the
disposition of oil and gas properties are credited to the relevant cost centre.
In the event of a significant sale of reserves, a proportionate amount of cost
and accumulated depletion, based upon the ratio of reserves sold to total
reserves, is removed from the appropriate cost centre and the resultant profit
or loss taken into income.







In
accordance with guidelines published by the Canadian Institute of Chartered
Accountants, the company applies an annual “ceiling test” by cost centre to
ensure that capitalized costs net of accumulated depletion do not exceed the
estimated future net revenues from production of proven reserves (based on
commodity prices in effect at the financial statement date and current operating
costs) plus unproven reserves at cost less provisions for impairment. The
aggregate future value for all cost centres is further reduced for recurring
general and administrative costs, future financing costs and income taxes.
Capitalized costs inexcess of this ceiling test limit are written off as
additional depletion.








F-7


**BERKLEY
      RESOURCES INC.**
      **NOTES
      TO FINANCIAL STATEMENTS**





**NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES (continued)**





**(e)**
    **Oil
      and gas properties and equipment
(continued)**





Substantially
all of the Company’s oil and gas interests are conducted jointly with others.
The financial statements reflect only the Company’s share of assets,
liabilities, and operations.





**(f)**
    **Site
      restoration liability**





In
accordance with the new Handbook Section 3110 of the Canadian Institute of
Chartered Accountants, the Company recognizes the fair value of its liability
for asset retirement obligations, which in the oil and gas industry are
categorized as “site restoration costs”, in the year in which such liability is
incurred. Upon recognition of an asset retirement obligation, the capitalized
cost of the oil and gas property is increased by the same amount as the
liability. In periods subsequent to initial measurement, the asset retirement
obligation is adjusted for both the passage of time and revisions to the
original estimates. This policy has been applied prospectively commencing
January 1, 2003. The Company evaluated its site restoration costs effective
January 1, 2003 on a present value basis, giving regard to known estimated site
restoration costs and the estimated time period in which the restoration work
will need to be performed. The present value of the site restoration costs were
added to the capitalized cost of the oil and gas properties and recorded as a
liability at the equivalent amount.





The
following table sets out the activity for the Company’s site restoration
liabilities for the years ending December 31, 2004 and 2003:





**2004**
    
    **2003**$
    
    
    $Opening
      balance
    
    
    136,502
    
    
    55,200Accretion
    
    
    2,775
    
    
    4,769Additions
    
    
    22,915
    
    
    76,533Reduction
      due to subsequentDisposal
      (Note 15(a))
    
    
    (119,162
    )
    
    -43,030
    
    
    136,502





**(g)**
    **Rental
      property and other capital assets**





Land and
building are recorded at cost, net of accumulated amortization on the building.
The cost of the building is amortized over its estimated useful life, currently
at the rate of 4% per annum by the declining balance method.





Other
capital assets consist of computer equipment and is amortized at the rate of 30%
per annum by the declining balance method.


****


**(h)  Financial
instruments**


The
Company’s financial instruments include cash, accounts receivable, taxes
recoverable, due from related party, accounts payable and accrued liabilities
and bank loan. The carrying values of these financial instruments approximate
their fair values.
 
 The
Company is not exposed to significant credit or currency risk on financial
instruments. It is exposed to interest risk on its bank loan.







F-8





**BERKLEY
      RESOURCES INC.**
      **NOTES
      TO FINANCIAL STATEMENTS**





**NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES (continued)**





**(i)**
    **Use
      of estimates**





The
preparation of financial statements in conformity with Canadian generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Significant
areas requiring the use of management estimates relate to the determination of
useful lives of oil and gas properties and equipment and the rental property for
purposes of calculating amortization and depletion.





**(j)**
    **Stock
      based compensation plan**





Compensation
expense is recorded for the estimated fair value of stock options granted. The
estimated fair value of the options at the date of grant is accrued and charged
to operations, with an offsetting credit to contributed surplus, on a
straight-line basis over the vesting period. If and when the stock options are
ultimately exercised, the applicable amounts of contributed surplus are
transferred to share capital (Note 3).





**(k)**
    **Loss
      per share**





Basic
loss per share is calculated by dividing the loss for the year by the weighted
average number of shares outstanding in the year. Diluted loss per share on the
potential exercise of share options and warrants is not presented where it is
anti-dilutive.





**(l)**
    **Income
      taxes**





Future
income tax assets and liabilities are recorded where the accounting net book
value of assets and liabilities differ from their corresponding tax bases. The
benefit of future income tax assets is only recognized when their realization is
considered more likely than not.





**NOTE
3 - ACCOUNTING CHANGES**





**(a)**
    Effective
      January 1, 2004, the Company adopted the provisions of*CICA
      Handbook Section 3870 “Stock Based Compensation and Other Stock Based
      Payments”*with respect to the fair market value accounting for stock options granted
      to employees. In prior years, the Company recorded the fair market value
      of the stock options granted to non-employees only as compensation
      expense. In 2003, the Company did not account for stock based compensation
      when stock options were granted to employees and directors, however, it
      disclosed the pro forma effect of the stock based compensation on its
      financial results. In 2004, the Company adopted the fair value based
      method of accounting for stock based compensation, as described in Note
      2(j). This change has been applied retroactively, however, the financial
      statements for 2003 have not been restated. Rather, the opening retained
      earnings for 2004 has been adjusted to reflect the impact of the new
      accounting policy on the 2003 year. This accounting treatment is in
      keeping with Canadian generally accepted accounting principles. The effect
      of this change was to increase the deficit at January 1, 2004 by $30,881
      to $594,730.






**(b)**
    Effective
      January 1, 2004, the Company adopted, on a prospective basis, the
      recommendations of*Emerging
      Issues Committee - 146*with respect to flow-through shares. For all flow-through shares issued
      subsequent to December 31, 2003, the Company will recognize the future
      income tax liability and a corresponding decrease to shareholders equity
      on the date the company renounces the tax credits associated with the
      expenditures, provided there is reasonable assurance that the expenditures
      will be made. The recognition of any portion of previously unrecognized
      future income tax assets will be recorded as a reduction of income tax
      expenses. This policy has no impact on the December 31, 2004 financial
      statements. The Company will recognize the tax liability and the decrease
      in shareholders equity associated with the 2004 flow through shares in the
      first quarter of the 2005 year.


F-9




**BERKLEY
      RESOURCES INC.**
      **NOTES
      TO FINANCIAL STATEMENTS**





**NOTE
4 - OIL AND GAS PROPERTIES AND EQUIPMENT**


**2004**
    
    **2003**$
    
    
    $Oil
      and gas properties and equipment, cost
    
    
    6,633,806
    
    
    4,093,518Less:
      Accumulated amortization and depletion
    
    
    (3,244,127
    )
    
    (2,984,127
    )**3,389,679**
    
    
    **1,109,391**





Oil and
gas properties and equipment includes the cost of unproven properties of
approximately $188,918 (2003 - $208,000) which are currently not subject to
depletion. The company expects to incur additional oil and gas expenditures in
2005 of approximately $2,000,000 to further develop its existing properties. The
company expects to finance these expenditures through debt (Note 15b), existing
production revenue and a farm out of a portion of its property interests (if
required). In addition, the company may make further oil and gas expenditures on
new properties as finances permit.





During
the year ended December 31, 2004, four property areas produced 76% of the total
oil and gas revenue. There is no guarantee that this revenue will continue in
future periods.





**NOTE
5 - RENTAL PROPERTY**


**2004**
    
    **2003****$**
    
    
    $Building,
      at cost (Note 15(b))
    
    
    447,652
    
    
    447,652Less:
      Accumulated amortization
    
    
    (124,731
    )
    
    (111,276
    )322,921
    
    
    336,376Land,
      at cost
    
    
    1,738,994
    
    
    1,738,994**2,061,915**
    
    
    **2,075,370**





**NOTE
6 - OTHER PROPERTY PLANT AND EQUIPMENT**


**2004**
    
    **2003**Cost
    
    Accumulated
      Amortization
    
    Net
    
    Net$
    
    
    $
    
    
    $
    
    
    $Computer
      equipment
    
    
    15,564
    
    
    (13,245
    )
    
    2,319
    
    
    -Furniture
      and fixtures
    
    
    5,585
    
    
    (5,585
    )
    
    -
    
    
    -Truck
    
    
    39,040
    
    
    (39,039
    )
    
    1
    
    
    1**60,189**
    
    
    **(57,869**
    **)**
    
    **2,320**
    
    
    **1**


**NOTE
7 - BANK LOAN** 
 The bank
loan is payable to the Canadian Imperial Bank of Commerce (“CIBC”), bears
interest at prime plus 0.50% per annum, is due on demand, and is secured by a
first mortgage in the amount of $1,304,000 over the Company’s rental property
(Note 5) and an assignment of rents and insurance. Also, two directors have
supplied guarantees of $150,000 each. The Company is currently making monthly
payments of $11,900 towards interest and reduction of principal.
 
 In
addition, the Company has a $50,000 revolving demand credit line with the CIBC
that bears interest at prime plus 1% per annum. As at December 31, 2004, there
was a nil balance outstanding with regard to the credit line.




F-10





**BERKLEY
      RESOURCES INC.**
      **NOTES
      TO FINANCIAL STATEMENTS**





**NOTE
8 - SHARE CAPITAL**





**(a)****Authorized**100,000,000
      common shares,
      without
      par value





**2004**
    
    **2003**Number
      of shares
    
    Amount
    
    Number
      of shares
    
    Amount**Issued
      and fully paid**
    
    
    
    
    
    $
    
    
    
    
    
    $Balance,
      beginning of year
    
    
    6,810,934
    
    
    3,254,426
    
    
    6,795,934
    
    
    3,249,326Issued
      in the year for cash:Pursuant
      to private placements-flow-through
    
    
    1,726,500
    
    
    1,726,500
    
    
    -
    
    
    --non
      flow-through
    
    
    811,543
    
    
    819,800
    
    
    -
    
    
    -Exercise
      of stock options
    
    
    333,000
    
    
    134,220
    
    
    15,000
    
    
    5,100Less
      share issuance costs
    
    
    -
    
    
    (245,638
    )
    
    -
    
    
    -Add
      contributed surplus on of stock options (Note 9)
    
    
    -
    
    
    45,613
    
    
    -
    
    
    -Balance,
      end of year
    
    
    **9,681,977**
    
    
    **5,734,921**
    
    
    **6,810,934**
    
    
    **3,254,426**





**(b)****Warrants****2004**
    
    **2003**Number
      of shares subject to warrants
    
    Exercise
      price range
    
    Number
      of shares subject to warrants
    
    Exercise
      price rangeOutstanding,
      beginning of year
    
    
    -
    
    
    -
    
    
    -
    
    
    -Granted
    
    
    1,289,232
    
    $
    1.10/$1.50
    
    
    -
    
    
    -Outstanding,
      end of year
    
    
    **1,289,232**
    
    **$**
    **1.10/$1.50**
    
    
    **-**
    
    
    **-**







At
December 31, 2004, the following share purchase warrants were
outstanding:
 
 **Number
      of warrants**
    **Expiry
      date**
    **Exercise
      price Range**241,110
    November
      10, 2005/2006
    $1.10/$1.25553,750
    November
      10, 2005/2006
    $1.25/$1.50129,000
    November
      30, 2005/2006
    $1.10/$1.25319,500
    November
      30, 2005/2006
    $1.25/$1.5045,872
    December
      1, 2006
    $1.36**1,289,232**


F-11




**BERKLEY
      RESOURCES INC.**
      **NOTES
      TO FINANCIAL STATEMENTS**





**NOTE
8 - SHARE CAPITAL (continued)**





**(c)
Management incentive options**





The
Company has established a 2003 Stock Option Plan (“the Plan”) which provides for
the granting of options to acquire up to 1,350,000 shares. The Plan provides for
the granting of options to employees and service providers, with no single
optionee to be granted options in excess of 5% of the number of issued shares of
the Company. All options granted are to be with the allowable discount off
market price and the term of the options granted is not to exceed five years.
Options granted under the plan vest as follows:





1)
    20%
      during the first six months after the date of the
grant;


2)
    20%
      at the end of nine months after the date of
grant;


3)
    20%
      at the end of the twelve months after the date of
grant;


4)
    20%
      at the end of the fifteen months after the date of
  grant;


5)
    20%
      at the end of the eighteen months after the date of
  grant.





**2004**
    
    **2003****Number
      of shares subject to option**
    
    **Weighted
      Average exercise price per share**
    
    **Number
      of Shares subject to option**
    
    **Weighted
      average exercise price per share**Balance
      outstanding,****
      beginning
      of year
    
    
    1,302,500
    
    $
    0.49
    
    
    437,500
    
    $
    0.34Activity
      in the yearGranted
    
    
    287,500
    
    
    0.79
    
    
    885,000
    
    
    0.53Exercised
    
    
    (333,000
    )
    
    0.40
    
    
    (15,000
    )
    
    0.34Cancelled
    
    
    (31,000
    )
    
    0.64
    
    
    -Lapsed
    
    
    -
    
    
    
    
    
    (5,000
    )
    
    0.52Balance
      outstanding, end of year
    
    
    **1,226,000**
    
    **$**
    **0.57**
    
    
    **1,302,500**
    
    **$**
    **0.49**Vested,
      end of year
    
    
    **808,347**
    
    **$**
    **0.49**
    
    
    **653,750**
    
    **$**
    **0.40**





The
weighted average grant date fair value of options granted in 2004 was $0.51 per
share (2003: $0.42).




A summary
of management incentive options outstanding is as follows:
 **2004**
    **2003**Exercise
      Price
      Per
      Share
    Expiry
      Date
    Number
      of Shares Remaining
      Subject
      to Options at December 31$0.34
    April
      25, 2005
    197,500
    422,500$0.52
    September
      19, 2008
    614,000
    730,000$0.57
    September
      19, 2008
    150,000
    150,000$0.74
    September
      19, 2008
    27,000
    -$0.81
    October
      19, 2009
    200,000
    -$0.77
    October
      29, 2009
    37,000
    -**1,226,000**
    **1,302,500**
 The fair
value of the stock options granted were determined on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions:
 
 **2004**
    **2003**Risk
      free interest rate
    3.82%
    3.5%Weighted
      average life
    3
      years
    3
      yearsVolatility
      factor
    62.87%
    85.95%Dividend
      yield
    0%
    0%


F-12




**BERKLEY
      RESOURCES INC.**
      **NOTES
      TO FINANCIAL STATEMENTS**





**NOTE
8 - SHARE CAPITAL (continued)**





**(c)
Management incentive options (continued)**





Option
pricing models require the input of highly subjective assumptions including the
expected price volatility. Changes in the subjective input assumptions can
materially affect the fair value estimate, and therefore the existing models do
not necessarily provide a reliable single measure of the fair value of the
Company’s stock options.





**NOTE
9 - CONTRIBUTED SURPLUS**





**2004**
    
    **2003**$
    
    $Balance,
      beginning of year
    
    
    77,390
    
    
    75,000Retroactive
      adjustment -Stock-based
      compensation (Note 3a)
    
    
    30,988
    
    
    -Stock-based
      compensation on issueOf
      options
    
    
    273,793
    
    
    2,390Exercise
      of stock options (Note 8(a))
    
    
    (45,613
    )
    
    -Balance,
      end of year
    
    
    **336,558**
    
    
    **77,390**





**NOTE
10 - INCOME TAXES**
 
 The
potential benefit of net operating loss carry forwards has not been recognized
in the financial statements since the Company cannot be assured that it is more
likely than not that such benefit will be utilized in future years. The
components of the net deferred tax asset, the statutory tax rate, the effective
rate and the elected amount of the valuation allowance are as
follows:
 
 **December
      31,****2004**
    
    **2003**
    
    **2002**Statutory
      rate
    
    
    **35**
    **%**
    
    **40**
    **%**
    
    **44**
    **%**$
    
    
    $
    
    
    $
    ****Income
      taxes recovered at the Canadian statutory rate
    
    
    1,095,002
    
    
    102,000
    
    
    51,000Benefit
      of tax losses not recognized In year
    
    
    (1,095,002
    )
    
    (102,000
    )
    
    (51,000
    )3⁄4
    
    
    3⁄4
    
    
    3⁄4


F-13




**BERKLEY
      RESOURCES INC.**
      **NOTES
      TO FINANCIAL STATEMENTS**





**NOTE
10 - INCOME TAXES (continued)**





The
approximate tax effects of each type of temporary difference that gives rise to
future tax assets are as follows:





**December
      31,****2004**
    
    **2003**
    
    **2002**$
    
    
    $
    
    
    $
    ****Operating
      loss carry forwards, expiring 2005-2011
    
    
    302,542
    
    
    66,000
    
    
    1,000Property,
      plant and equipment
    
    
    333,262
    
    
    3⁄4
    
    
    3⁄4Undetected
      resource property acquisition and exploration expenditures
    
    
    2,492,774
    
    
    500,000
    
    
    244,000Deferred
      tax assets
    
    
    3,128,578
    
    
    566,000
    
    
    245,000Less:
      valuation allowance
    
    
    (3,128,578
    )
    
    (566,000
    )
    
    (245,000
    )Net
      deferred tax assets
    
    
    3⁄4
    
    
    3⁄4
    
    
    3⁄4





**NOTE
11 - RELATED PARTY TRANSACTIONS**





**(a)**
    As
      at December 31, 2004 there is $22,060 due from a Director (2003:
      $22,060).





(b)
    Accounts
      payable at December 31, 2004 includes $20,975 owed to Directors and or
      former Directors.





(c)
    Management
      and consulting fees totalling $193,257 were paid to Directors and their
      private companies in 2004 (2003: $129,927).





(d)
    During
      the year, current and or former Directors and or Officers exercised
      320,000 options for total


proceeds
of $126,800 (2003: 15,000 options for total proceeds of $5,100). In addition,
current and or former Directors and Officers subscribed for 476,000 shares of
the Company for total proceeds of $476,000 (2003: none).





(e)
    Consulting
      fees totalling $96,000 were paid to a former Director and his spouse in
      2004 (2003: $96,000).




(f)
    Administrative
      services, office supplies and accounting charges totalling $79,200 were
      paid to a private company owned by public companies having common
      Directors (2003: $55,592).


**NOTE
12 - COMMITTMENTS**
 
 Under the
terms of Consulting Agreements with a former Director and his spouse, the
Company is required to make the following future payments, by fiscal
year:
 
 2005
    
    $
    96,0002006
    
    
    96,000$
    192,000


F-14




**BERKLEY
RESOURCES INC.**


**NOTES
TO FINANCIAL STATEMENTS**





**NOTE
13 - SEGMENT DISCLOSURE**





The
Company operates in two segments - oil and gas and real estate rental. Operating
results by segment are reported in the statement of operations. Total assets and
capital expenditures by operating segment are as follows:





**2004**
    
    **2003****Assets
      by operating segment**
    
    
    $
    
    
    $Oil
      and gas
    
    
    4,520,389
    
    
    1,251,126Real
      estate
    
    
    2,010,262
    
    
    2,076,203**Assets
      not allocated**Head
      office
    
    
    228,695
    
    
    288,3626,759,346
    
    
    3,615,691**2004**
    
    
    **2003****Capital
      expenditures by segment**
    
    
    $
    
    
    $Oil
      and gas
    
    
    -
    
    
    582,707Head
      office
    
    
    2,728
    
    
    -**2,728**
    
    
    **582,707**





All of
the Company’s operations are in Canada.  Rental
revenue of $6,000 (2003: $6,000) has been eliminated  on
consolidation representing the rental of office premises by the corporate head
office.





**NOTE
14 - DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY
ACCEPTED**


**ACCOUNTING
PRINCIPLES**





The
financial statements of Berkley have been prepared in accordance with Canadian
generally accepted accounting principles (“Canadian GAAP”) which differs in
certain material respects from accounting principles generally accepted in the
United States of America (“US GAAP”). The material differences between Canadian
and US GAAP and their effect on Berkley’s financial statements are summarized
below:




**Statement
      of operations****2004**
    
    **2003**
    
    **2002**$
    
    
    $
    
    
    $Loss
      for the year under Canadian GAAP
    
    
    (729,034
    )
    
    (255,456
    )
    
    (127,647
    )(Additional)
      reduction in depletion of oil and gas
      Properties
      under US GAAP (a)
    
    
    -
    
    
    -
    
    
    (14,200
    )Increase
      in compensation expense arising
      From
      stock options (b)
    
    
    -
    
    
    -
    
    
    (50,000
    )Loss
      for the year under US GAAP
    
    
    (729,034
    )
    
    (255,456
    )
    
    (191,847
    )Loss
      per share under US GAAP
    
    
    (0.10
    )
    
    (0.04
    )
    
    (0.03
    )


F-15




**BERKLEY
      RESOURCES INC.**
      **NOTES
      TO FINANCIAL STATEMENTS**





**NOTE
14 - DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY
ACCEPTED**


**ACCOUNTING
PRINCIPLES (continued)**





**Statement
      of Cash Flows****2004**
    
    **2003**
    
    **2002**$
    
    $
    
    $Increase
      (decrease) in cash during the year
      -
      Canadian GAAP
    
    
    477,453
    
    
    (751,735
    )
    
    (83,063
    )Decrease
      (increase) in marketable securities (c)
    
    
    -
    
    
    950,730
    
    
    (240,022
    )Increase
      (decrease) in cash during the year under
      US
      GAAP
    
    
    477,453
    
    
    198,895
    
    
    (323,085
    )





**Balance
      Sheets****2004**
    
    **2003**Canadian
      GAAP
    
    US
      GAAP
    
    Canadian
      GAAP
    
    US
      GAAP$
    
    $
    
    $
    
    $Oil
      and gas properties (a)
    
    
    3,389,679
    
    
    3,487,479
    
    
    1,109,391
    
    
    1,207,191Shareholder’s
      equity (a)
    
    
    4,747,715
    
    
    4,845,515
    
    
    2,767,967
    
    
    2,865,767





(a)
    Under
      US GAAP the ceiling test for impairment used in connection with the full
      cost method of accounting for oil and gas operations requires the
      discounting of future net operating revenues by 10%, but without taking
      into account provisions for future administrative costs. Under Canadian
      GAAP, the ceiling test is based on undiscounted future net operating
      revenues, but does require taking into account future administrative
      costs. The cumulative difference between Canadian and US GAAP since
      inception of oil and gas operations to December 31, 2004 is that
      additional depletion of $97,800 has been recorded under Canadian GAAP.
      There was no provision for impairment required in 2004 on the basis of the
      ceiling test applied by either of the Canadian or US methods. In 2002,
      additional depletion of $14,200 was required under US
  GAAP.






(b)
    During
      2004, the Company adopted the fair value based method of accounting under
      Canadian GAAP for stock based compensation, as described in Notes 2(j) and
      3, with retroactive application with restatement of the prior year’s
      statement of operations. Statement of Financial Accounting Standards
      (“SFAS”) No. 148,*Accounting
      for Stock-based Compensation - Transition and Disclosure*,
      issued by the United States Financial Accounting Standards Board (“FASB”)
      provides alternative methods of transition for entities that voluntarily
      change to the fair value based method of accounting and amends the
      disclosure provisions of SFAS No. 123,*Accounting
      for Stock-based Compensation.*For
      US GAAP purposes, the Company has adopted SFAS No. 123 prospectively as of
      January 1, 2003. As a result, the stock option compensation expense
      recognized in 2004 is not materially different between US and Canadian
      GAAP.
 
 In 2001,
the stock compensation expense of $50,000 under US GAAP relates to the expense
as measured by the intrinsic value method in accordance with SFAS No. 123 and
Accounting Principles Board Opinion No. 25.
 
 (c)
    Under
      US GAAP, banker’s acceptances and treasury bills held at December 31, 2003
      and 2002 would have been classified as marketable securities rather than
      cash.


F-16




**BERKLEY
      RESOURCES INC.**
      **NOTES
      TO FINANCIAL STATEMENTS**





**NOTE
14 - DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY
ACCEPTED**


**ACCOUNTING
PRINCIPLES (continued)**





(d)
    Pro-forma
      disclosure of asset retirement obligations





SFAS 143
“Accounting for Asset Retirement Obligations” requires the recognition of the
estimated fair value of asset retirement obligations as a liability commencing
for all fiscal years beginning after June 15, 2002.
The Company has adopted CICA Handbook Section 3110, which is in all material
respects the same as FASB 143, effective January 1, 2003. Accordingly, there
were no material differences between Canadian GAAP and US GAAP in respect of the
accounting for asset retirement obligations.




(e)
    Under
      Canadian GAAP, the future income taxes are calculated based on enacted or
      substantially enacted tax rates applicable to future years. Under US GAAP,
      only enacted rates are used in the calculation of future income taxes.
      This difference in GAAP did not result in a difference in the financial
      position, results of operations or cash flows of the Company for the years
      ended December 31, 2004, 2003 and 2002.


Under
Canadian income tax legislation, a company is permitted to issue shares whereby
the company agrees to incur qualifying expenditures and renounce the related
income tax deductions to the investors. The Company has accounted for the issue
of flow-through shares using a method in accordance with Canadian GAAP. At the
time of issue, the funds received are recorded as share capital. For US GAAP,
the premium paid in excess of the market value is credited to other liabilities
and included in income as the qualifying expenditures are made. There was no
premium on the flow-through shares issued for all periods
presented.





Also,
notwithstanding whether there is a specific requirement to segregate the funds,
the flow through funds which are unexpended at the balance sheet dates are
considered to be restricted and are not considered cash or cash equivalents
under US GAAP. At December 31, 2004, unexpended flow through funds were $897,000
(2003 - $0).





(f)
    In
      May 2003, the FASB issued Statement No. 150 (“SFAS No. 150”),*Accounting
      for Certain Financial*


*Instruments
with Characteristics of both Liabilities and Equity.* SFAS No.
150 establishes standards for classifying and measuring as liabilities certain
financial instruments that embody obligations of the issuer and have
characteristics of both liabilities and equity. SFAS No. 150 represents a
significant change in practice in the accounting for a number of financial
instruments, including mandatorily redeemable equity instruments and certain
equity derivatives. SFAS No. 150 is effective for all financial instruments
created or modified after May 31, 2003, and to other instruments as of September
1, 2003. The Company has not issued any financial instruments that fall under
the scope of SFAS No. 150 and the adoption of this statement did not have a
material impact on the Company’s financial position or results of operations.




**NOTE
15 - SUBSEQUENT EVENTS**
 
 (a)
    Effective
      March 1, 2005, the Company disposed of its interest in its Halkirk
      property for $112,500. In addition, the Company is in the process of
      disposing a second property, the final terms of which have not yet been
      determined.
 
 (b)
    On
      March 16, 2005, the Company secured a mortgage to provide $1,000,000. The
      mortgage bears interest at prime plus 4% per annum (minimum 9.5% per
      annum) with monthly interest only payments of $7,917 and is secured by a
      second mortgage over the Company’s real estate and an assignment of rents
      and a general security agreement.


F-17



















**EXHIBIT
INDEX**
 
 Exhibit
Number    Name
 1.   Memorandum
of Berkley Resources Inc.*
 
 2.   Articles
of Berkley Resources Inc.*
 
 12.1 Certification
of the Principal Executive Officer under the Sarbanes-Oxley Act
 
 12.2 Certification
of the Principal Financial Officer under the Sarbanes-Oxley Act
 
 13 Certificate
under section 906
 
 _______________________________
 *
Previously filed.