**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      20-F/A**


**Amendment
      No. 1**








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


OR


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





For
                the fiscal year ended December 31,
                2006


OR


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





For
                the transition period from ______________ to
                ___________________





OR


[   ]
            SHELL
                COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                EXCHANGE
                ACT OF 1934





Date
                of event requiring this shell company
                report______________





**Commission
      File Number 0-18939**





**BERKLEY
      RESOURCES INC.**


*(Exact
      name of Registrant 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, 2006 was
      18,857,608





Indicate
      by check mark if the Registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.


[   ]
      Yes  [X] No





If
      this
      report is an annual or transition report, indicate by check mark if the
      registrant is not required to file reports pursuant to Section 13 or 15(d)
      of
      the Securities Exchange Act of 1934.  [   ]
      Yes  [X] No





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





Indicate
      by check mark whether the Registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer.  See definition of
      "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
      Act.  (Check on):


Large
      Accelerated File
      [   ]                                                      Accelerated
      Filer
      [   ]                                           Non-Accelerated
      Filer [X]





Indicate
      by check mark which financial statement item the Registrant has elected to
      follow.  Item 17 [X]   Item 18
      [   ]





If
      this
      is an annual report, indicate by check mark whether the Registrant is a shell
      company (as defined in Rule 12b-2 of the Exchange Act).  Yes
      [   ]  No [X]





(APPLICABLE
      ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE
      YEARS.)





Indicate
      by check mark whether the Registrant 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**


****


**Item**
            **Page**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
            11Item
                5.                 Operating and Financial Review and
                Prospects
            20Item
                6.                 Directors, Senior Management and
                Employees
            27Item
                7.                 Major Shareholders and Related Party
                Transactions
            32Item
                8.                 Financial
                Information
            33Item
                9.                 The Offer and
                Listing
            34Item
                10.               Additional Information
            35Item
                11.               Quantitative and Qualitative Disclosures
                About Market
                Risk
            41Item
                12.               Description of Securities Other than Equity
                Securities
            41Part
                II
            41Item
                13.               Defaults, Dividend Arrearages and
                Delinquencies
            41Item
                14.               Material Modifications to the Rights of Security
                Holders
                and Use of Proceeds
            42Item
                15.               Controls and Procedures
            42Item
                16A.           Audit Committee Financial Expert
            42Item
                16B.            Code of Ethics
            42Item
                16C.            Principal Accountant Fees and
                Services
            42Item
                16D.            Exemptions from the Listing Standards for
                Audit
                Committees
            43Item
                16E.            Purchases of Equity Securities by the Issuer
                and
                Affiliated Purchasers
            43Part
                III
            43Item
                17.               Financial Statements
            43Item
                18.               Financial Statements
            43Item
                19.               Exhibits
            43





2
 Table
          of Contents











**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.  Subsequent to December 31, 2006, the Company signed an
      agreement to sell this building and the transaction is expected to close on
      September 7, 2007.





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.





This
      Form
      20-F/A is being filed by Berkley Resources Inc., as Amendment No. 1 to its
      annual report on Form 20-F filed on July 13, 2007.  The purpose of
      this Amendment No. 1 is to amend certain minor inaccuracies and to provide
      further disclosure under Item 4.D "Property, Plants and Equipment", respecting
      the reporting of reserves and production and Item 5.A "Operating Results"
      respecting a clarification on losses for the period.  The report of a
      prior auditor has also been included in the Form 20-F/A.  Except to
      reflect the changes described above, this Amendment No. 1 does not, and does
      not
      purport to, modify or update the disclosure contained in the annual report
      on
      Form 20-F.





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
 Table
          of Contents






**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, 2006, 2005, 2004, 2003 and 2002 is derived
      from
      the audited financial statements of the Company.  The audited
      financial statements and notes for the balance sheets as at December 31, 2006
      and December 31, 2005, and the statements of operations for each of the years
      in
      the three year period ended December 31, 2006, are included in this Annual
      Report at item 17.  The selected historical financial information for
      the years ended December 31, 2003 and 2002, 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, 2006,
      2005 and 2004 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,
      2003 and 2002 has been prepared in accordance with Canadian GAAP
      only.  For a description of the differences between Canadian GAAP and
      U.S. GAAP, see Note 17 of the Company’s financial statements included elsewhere
      in this Annual Report.








**Year
                Ended December
                31****Canadian
                GAAP**
            
            **2006**
            
            
            **2005********(Restated)**1
            
            
            **2004**
            
            
            **2003**
            
            
            **2002**OperationsOil
                and Gas Revenue
            
            $
            1,568,681
            
            
            $
            1,408,858
            
            
            $
            866,811
            
            
            $
            606,133
            
            
            $
            406,138Oil
                and Gas Production Expense
            
            
            828,575
            
            
            
            608,045
            
            
            
            416,254
            
            
            
            243,717
            
            
            
            189,681Interest
                On Loans
            
            
            59,652
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Amortization
                and Depletion
            
            
            1,162,790
            
            
            
            667,794
            
            
            
            262,775
            
            
            
            79,500
            
            
            
            39,900Write-down
                of oil and gas properties
            
            
            2,385,000
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Net
                Oil and Gas Income (Loss)
            
            
            (2,867,336
            )
            
            
            133,019
            
            
            
            187,782
            
            
            
            278,147
            
            
            
            176,557Loss
                for the Period from Continuing Operations2
            
            
            (3,068,631
            )
            
            
            (467,346
            )
            
            
            (715,910
            )
            
            N/A2
            
            
            N/A2Net
                Income (loss)
            
            
            (3,236,759
            )
            
            
            (522,458
            )
            
            
            (729,034
            )
            
            
            (255,456
            )
            
            
            (127,647
            )Basic
                and Diluted Loss Per Share Before Discontinued Operations2
            
            
            (0.21
            )
            
            
            (0.05
            )
            
            
            (0.10
            )
            
            N/A2
            
            
            N/A2Net
                Income Per Share (loss)
            
            
            (0.22
            )
            
            
            (0.05
            )
            
            
            (0.10
            )
            
            
            (0.04
            )
            
            
            (0.02
            )






4
 Table
          of Contents





**As
                  at December 31****2006**
            
            
            **2005
                  (Restated)**1
            
            
            **2004**
            
            
            **2003**
            
            
            **2002**Balance
                SheetTotal
                Assets
            
            $
            11,896,697
            
            
            $
            9,991,350
            
            
            $
            6,759,346
            
            
            $
            3,615,691
            
            
            $
            3,829,235Oil
                and Gas Properties and Equipment
            
            
            8,581,024
            
            
            
            5,339,531
            
            
            
            3,389,679
            
            
            
            1,109,391
            
            
            
            529,651Assets
                of Discontinued Operations2
            
            
            2,038,924
            
            
            
            2,049,015
            
            
            N/A
            
            
            N/A
            
            
            N/ACurrent
                liabilities
            
            
            4,461,639
            
            
            
            2,400,426
            
            
            
            1,968,601
            
            
            
            711,222
            
            
            
            758,102Shareholders'
                Equity
            
            
            7,299,365
            
            
            
            7,505,485
            
            
            
            4,747,715
            
            
            
            2,767,967
            
            
            
            3,015,933Number
                of shares issued and outstanding
            
            
            18,857,608
            
            
            
            14,184,955
            
            
            
            9,681,977
            
            
            
            6,810,934
            
            
            
            6,795,934**Year
                  Ended December 31****U.S.
                GAAP**
            
            **2006**
            
            
            **2005
                  (Restated)**1
            
            
            **2004**
            
            
            **2003**
            
            
            **2002**OperationsOil
                and Gas Revenue
            
            $
            1,568,681
            
            
            $
            1,408,858
            
            
            $
            866,811
            
            
            $
            606,133
            
            
            $
            406,138Rental
                Revenue
            
            
            249,211
            
            
            
            238,466
            
            
            
            232,607
            
            
            
            238,599
            
            
            
            235,670Net
                Income (loss)
            
            
            (4,514,878
            )
            
            
            (2,863,271
            )
            
            
            (729,034
            )
            
            
            (255,456
            )
            
            
            (191,847
            )Net
                Income Per Share (loss)
            
            
            (0.31
            )
            
            
            (0.29
            )
            
            
            (0.10
            )
            
            
            (0.04
            )
            
            
            (0.03
            )**As
                  at December 31****2006**
            
            
            **2005****(Restated)**1
            
            
            **2004**
            
            
            **2003**
            
            
            **2002**Balance
                SheetTotal
                Assets
            
            
            9,251,001
            
            
            
            7,689,747
            
            
            $
            6,857,146
            
            
            $
            3,713,491
            
            
            $
            3,927,035Total
                Liabilities
            
            
            4,597,314
            
            
            
            2,485,865
            
            
            
            2,011,631
            
            
            
            847,724
            
            
            
            813,302Shareholders'
                Equity
            
            
            3,719,643
            
            
            
            5,164,672
            
            
            
            4,845,515
            
            
            
            2,865,767
            
            
            
            3,113,733




1  
        See Note 18 of the financial statements included elsewhere in this Annual
        Report
        (Item 17)
 2   Subsequent
        to the year end, the Company entered into an agreement to sell its real estate
        assets in Vancouver, British Columbia, such assets are now disclosed as
        Discontinued operations, see Note 2 of the financial statements included
        elsewhere in this Annual Report (Item 17)





**Exchange
      Rates**





The
      following table sets forth information as to the fiscal year 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**2002
            1.5704
            1.5800
            1.6128
            1.51082003
            1.4008
            1.2923
            1.5750
            1.29232004
            1.3017
            1.2034
            1.3970
            1.17752005
            1.2116
            1.1656
            1.2703
            1.15072006
            1.1340
            1.1652
            1.1726
            1.0989






5
 Table
          of Contents





The
      following table sets forth the high and low exchange rate for the past six
      months.  As of June 22, 2007, the exchange rate was $1.0676 for each U.S.
      $1.00.





**Month**
            
            **High**
            
            
            **Low**December
                2006
            
            $
            1.1652
            
            
            $
            1.1415January
                2007
            
            $
            1.1824
            
            
            $
            1.1647February
                2007
            
            $
            1.1852
            
            
            $
            1.1586March
                2007
            
            $
            1.1810
            
            
            $
            1.1530April
                2007
            
            $
            1.1583
            
            
            $
            1.1068May
                2007
            
            $
            1.1136
            
            
            $
            1.0701





**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 fluctuated during 2006 between U.S.
      $78 and U.S. $50 per barrel, ending the year at approximately U.S. $60 per
      barrel ($per barrel for West Texas Intermediate, referred to as
      "WTI".  Natural gas prices have also been very volatile fluctuating
      between U.S. $4.60/mcf and U.S. $9/mcf during the year, ending 2006 at a price
      of approximately U.S. $5.70/mcf.  Costs of all related services have
      been high for 2006.





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.





6
 Table
          of Contents






*It
      May Be Difficult to Enforce Civil Liabilities Against the
      Company*.  Because the assets of the Company, 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.





In
      fiscal
      2002, 2003, 2004, 2005 and 2006, we reported losses of $127,647, $255,456,
      $729,034, $522,458 and $3,236,759 respectively.  As at December 31,
      2006, we had an accumulated deficit of $5,082,981.  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.  As at December
      31, 2006, the Company did not have sufficient financial resources to meet its
      flow through expenditure requirements in the 2007 fiscal year in conjunction
      with its flow through financings. The Company has until the end of 2007 to
      meet
      these requirements.





*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 a Limited Number of our Properties*.  The Company
      currently receives substantially all of its income from a limited number of
      its
      properties.  If any one of these properties 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.





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*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.





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.





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*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.





*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 the Province 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
      United States 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.





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*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, United
      States, 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, state, territorial
      or
      federal standards.  A breach of such Environmental Legislation may
      result in the 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.





*Judgments
      based upon the civil liability provisions of the United States federal
      securities laws may be difficult to enforce.*The ability of
      investors to enforce judgments of United States courts based upon the civil
      liability provisions of the United States federal securities laws against the
      Company and the directors and officers of the Company may be limited due to
      the
      fact that the Company and these persons reside outside of the United States
      and,
      in respect of the directors and officers, their assets are located outside
      the
      United States.  There is uncertainty as to whether Canadian courts would:
 (i) enforce judgments of United States courts obtained against the Company
      or its directors and officers predicated upon the civil liability provisions
      of
      the United States federal securities laws, or (ii) entertain original actions
      brought in Canadian courts against the Company or such persons predicated upon
      the federal securities laws of the United States, as such laws may conflict
      with
      Canadian laws.  In Canada, civil rights are within the legislative
      jurisdiction of the Provinces, and the Province of British Columbia, in which
      the Company and the majority of its directors and officers are resident, does
      not have laws for the reciprocal enforcement of judgments of United States
      courts.





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*Our
      directors may be associated with other reporting
      companies.*  Certain of the Company's directors and officers serve
      as directors or officers of other reporting companies or have significant
      shareholdings in other reporting companies and, to the extent that such other
      companies may participate in ventures in which the Company may participate,
      the
      directors of the Company may have a conflict of interest in negotiating and
      concluding terms respecting the extent of such participation.  See “Item 6
– Directors, Senior Management and Employees” and “Item 7 – Major Shareholders
      and Related Party Transactions”.





*We
      depend on certain key personnel.*  We strongly depend on the
      business and technical expertise of our management and key personnel. There
      is
      little possibility that this dependence will decrease in the near term. We
      carry
      no “key man” life insurance on any of our executives. As our operations expand,
      we will require additional key personnel and related resources.





*Our
      share price has been volatile in recent years.*In recent years,
      the securities markets in the United States and Canada have experienced a high
      level of price and volume volatility, and the market price of securities of
      many
      petroleum companies have experienced wide fluctuations in price which have
      not
      necessarily been related to the operating performance, underlying asset values
      or prospects of such companies.  In particular, the per share price of the
      Company’s Common Shares fluctuated from a high of $1.09 to a low of $0.51 on the
      TSX Venture Exchange within the twelve month period preceding the date of this
      Annual Report.  There can be no assurance that continual fluctuations in
      price will not occur.





Our
      common shares are quoted on the Pink Sheets over-the-counter securities market,
      referred to as the "Pink Sheets".  Trading in stock quoted on the Pink
      Sheets is often thin and characterized by wide fluctuations in trading prices,
      due to many factors that may have little to do with our operations or business
      prospects.  This volatility could depress the market price of our
      common stock for reasons unrelated to operating
      performance.  Moreover, the Pink Sheets is not a stock exchange, and
      trading of securities on the Pink Sheets is often more sporadic than the trading
      of securities listed on a quotation system like the Nasdaq or a stock exchange
      like the American Stock Exchange.  Accordingly, shareholders may have
      difficulty reselling any of the shares.





*We
      do
      not expect to pay dividends.*The Company has not paid any
      dividends since incorporation and it has no plans to pay dividends for some
      time.  The directors of the Company will determine if and when
      dividends should be declared and paid in the future based on the Company’s
      financial position at the relevant time.  All of the Common Shares are
      entitled to an equal share of any dividends declared and paid.





Other
      sections of this Annual Report may include additional factors that could
      adversely affect our business and financial performance.  Moreover, we
      operate in a very competitive and rapidly changing environment.  New
      risk factors emerge from time to time and it is not possible for our management
      to predict all risk factors, nor can we assess the impact of all factors on
      our
      business or the extent to which any factor, or combination of factors, may
      cause
      actual results to differ materially from those contained in any forward-looking
      statements.





**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 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.





The
      Company presently participates in approximately 63****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 nine****discrete areas.  Four are
      natural gas producers, three produce oil and two have a combination of oil
      and
      gas.  Eight****areas have been producing for
      several years while one oil producer is a new development.  Since
      December 31, 2003, the Company has made principal capital expenditures of
      $1,301,715 for the year ended December 31, 2004, $3,859,162 for the year ended
      December 31, 2005 and $6,739,047 for  the year ended December 31,
      2006.  In 2006, a major portion of the expenditures were incurred in
      connection with the Brazeau, Sturgeon Lake  and Senex
      projects.  In 2006, approximately $1.6 million of capital expenditures
      have been made on Senex.  These capital expenditures were primarily
      financed through the issuance of shares under a private placement and a mortgage
      on the Company's real estate assets.





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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.  The Company has signed an agreement to sell this building
      and the transaction is expected to close on September 7, 2007.  Please
      refer to Note 19 of the financial statements, included elsewhere in this Annual
      Report (Item 17) for further disclosure regarding this transaction.





**B.           Business
      Overview**





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





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 usually is 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 working interest or 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 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.




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(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.





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




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3.
            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.





4.
            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. The Company’s net daily production from this area is
                approximately 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 over the longer
                term.





5.
            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.  The Company holds a 15% to 20% WI in 70 sections over
                this oil and gas prospect.  An initial 14 section 3-D seismic
                program was conducted over the joint lands in early 2005, supplemented
                by
                an additional 11 section 3-D seismic program in 2006. The lands now
                contain eight wells completed as producers or potential producers:
                two are
                shallow gas completions; three are completed as pumping oilwells;
                two are
                cased as potential oilwells and one is a strong
                oilwell.  Production facilities are being
                constructed.  The one non-producing well drilled on the lands in
                2006 will be used to provide water disposal capabilities for the
                production facility.  The Company intends to participate in a
                2007 drilling program,****with total expenditures of
                approximately $20 million The Company's portion of these expenditures
                total approximately $4 million.





6.
            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 1.0 million cubic feet per day, or
                "mmcf/d".  The Company holds a 4.00% WI in this
                project.





7.
            Crossfield
                Area, Alberta (Twp 28 Rge 1 W5M) - This natural gas prospect is located
                50
                miles north of Calgary and is 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 $4.0 million of which the Company's share is
                estimated at approximately
                $1,400,000.





8.
            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.  The test well produced natural gas for
                approximately 100 days in 2005 then loaded up with water.  It is
                unlikely that it will be returned to economic production over the
                long
                term and accordingly the Company took a 100% write down of this property
                in 2005.  The well has been
                suspended.





9.
            Other
                Prospects - The Company will continue to seek out and develop new
                drilling
                opportunities for its own account and jointly with other
                operators.





The
      oil
      and gas industry had a very active 2006 and first quarter 2007.  The
      current change in tax legislation outlined by the Canadian Finance Minister
      on
      October 31, 2006 has slowed down the activities of the Royalty Income Trusts
      (“RITS”).  We believe this change will benefit the oil and gas junior
      companies, like the Company, in cost of operations, opportunities and more
      funds
      flowing into these juniors where over the past few years the funds were being
      directed into the RITS.   Oil prices fluctuated during 2006
      between U.S. $78 and U.S. $50 per barrel, ending the year at approximately
      U.S.
      $60 per barrel ($per barrel for West Texas Intermediate
      (WTI).  Natural gas prices have also been very volatile fluctuating
      between U.S. $4.60/mcf and U.S. $9/mcf during the year, ending 2006 at a price
      of approximately U.S. $5.70/mcf.  Costs of all related services have
      been high for 2006 but with the changes to the RITS, discussed above, we believe
      that both competition for labour, goods and services throughout industry and
      costs related to drilling and new exploration will soften going through
      2007.





14
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          of Contents






**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 at
      times be greater than that of the Company.





**Government
      Regulation and Environmental Matters**





*Government
      Regulation*





Government
      regulations have a material effect on us to the extent that they require us
      to
      conduct field operations and extraction activities according to prescribed
      environmentally-safe and environmentally sensitive regulations. Also, government
      regulations may restrict the commencement or re-commencement of field activities
      in certain properties in which we hold an interest for the purpose of
      exploration. Examples of types of governmental laws and regulations that may
      have a material effect on our business include:





**•**
            requirements
                to acquire permits before commencing drilling
                operations;





**•**
            requirements
                to restrict the substances that can be released into the environment
                in
                connection with drilling and production
                activities;





**•**
            limitations
                on, or prohibitions to, drilling in protected areas such as offshore
                areas; and





**•**
            requirements
                to mitigate and remediate the effects caused by drilling and production
                operations.





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".





The
      main
      bodies of regulations that apply to us in the areas in which we have significant
      field operations are the*Oil and Gas Conservation Act* of Alberta,
      the*Oil & Gas Conservation Act* and Regulations of Saskatchewan and
      the *Crown Minerals Act* of Saskatchewan and *Petroleum and Natural
      Gas Regulations* of Saskatchewan.





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.  As of January 1, 2007 this tax credit is no
      longer applicable to the Company.





15
 Table
          of Contents






*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.  Although we are not the principal operator of most of our
      oil and gas projects, our communications with such operators have led us to
      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.





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.





**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.
























16
 Table
          of Contents





**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, 2007.





**Lease
                  No.**
            **Description**
            **Interest**
            **Status**Brazeau
            Sec.13-46-13
                W5M
            30.00%
                WI BPO
            Written
                off19.50%
                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
            Licensing
                to drillDollard
            Twp
                6/7 Rge 19 W3M
            20%
                WI
            Producing
                - oilNorth
                Halkirk34398
            S1/2
                Sec.22-39-16 W4M
            6.25%WI
            Producing
                – gas/oil26457
            N/2
                Sec.22-39-16 W4M
            6.25%WI
            Producing
                – gas/oilJohn
                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
                - gas




17
 Table
          of Contents







**Lease
              No.**
            **Description**
            **Interest**
            **Status**40853A
            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
                - gasLeducAll
                Sec.33-49-26 W4M
            4%
                WI
            Producing
                – gasNW/4
                Sec 28-49-26 W4
            4.27%
                WI
            Standing
                - oilOyen30364
            S/2
                Sec.16-29-4 W4M
            1%WI
            Not
                ProducingSenex
            Twp
                92/93  Rge 6/7 W5M
            15/20%
                WI
            Producing
                - oilExplorationSibbald39367
            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
                ProducingSkiff0484080300
            NW1/4Sec.29-4-14
                W4M
            10.526%WI
            Producing
                - oilW1/2Sec.32-4-14
                W4M
            5.26315%
            Producing
                - oil048307070286
            SW/4
                of Sec.5-5-14
            5.50%WI
            Producing
                - oilZama
                Virgo092020380
            W/2
                Sec.22-115-5 W6M
            Sliding
                Scale
            Producing
                - oil





**Office
                Building**455
                Granville Street
              Vancouver,
                Canada
            Lot
                B, Block 22, District
              Lot
                541, Plan 8227
            100%
            N/A





**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, 2007.





**Geographic
                  Region**
            **Total
                  Gross Wells**
            **Total
                  Net Productive Wells**
            **Target
                  Oil Or Gas**
            **Total
                  Gross Developed Acres**
            **Total
                  Net Developed Acres**Alberta
            494
            7.80
            both
            33,232
            4,805Saskatchewan
            14
            2.60
            oil
            1,280
            237





**Undeveloped
      Acreage**





As
      at
      June 1, 2007, the amounts of undeveloped acreage, both leases and concessions,
      in the western Canada (Alberta) geographic area consists of 18,640 gross acres
      and 3,012 net acres.  The remaining terms on the leases within those
      properties are variable.  Producing leases continue for the duration
      of productive lives.





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 Table
          of Contents






**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
            2006
            1.80
            Nil
            1.80
            Nil2005
            0.50
            Nil
            0.20
            Nil2004
            0.70
            0.15
            0.20
            NilSaskatchewan
            2006
            Nil
            Nil
            Nil
            Nil2005
            Nil
            Nil
            0.18
            Nil2004
            Nil
            Nil
            Nil
            Nil





**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.





**Reserves
      and Production**





*Reserves*





The
      Company engages independent petroleum consultants to compile oil and gas reserve
      information with respect to its producing properties.  **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, 2006, the Company had all of its major producing
      properties evaluated by AJM Petroleum Consultants who assigned total recoverable
      reserves to the Company's interest of 258,000 barrels of oil equivalent, or
      "boe": 20% was comprised of natural gas and 80% was comprised of oil and
      liquids.  Natural gas is converted to boe at the industry standard
      rate of 6:1.  The reduction in reserves from 2005 to 2006 was entirely
      related to our independent petroleum engineers assigning no economic reserves
      for our Slave Point zone in our Senex play this year.





The
      following table summarizes estimated net quantities of: (i) proved developed
      non-producing oil and gas reserves; and (ii) total proved developed oil and
      gas
      reserves.  Please note that such estimates are inherently imprecise
      and are continually subject to revisions based on production history, results
      of
      additional exploration and development, prices of oil and gas, and other
      factors.





**December
                  31, 2006**
            **December
                  31, 2005**
            **December
                  31, 2004****Oil**
                **(barrels)**
            **Natural
                  Gas (mcf)**
            **Oil**
                **(barrels)**
            **Natural
                  Gas (mcf)**
            **Oil**
                **(barrels)**
            **Natural**
                **Gas
                  (mcf)**Proved,
                Developed Non-Producing Reserves
            14,400
            21,600
            Nil
            22,000
            3,000
            125,000Total
                Proved and Developed Reserves
            140,600
            235,900
            150,600
            211,500
            33,000
            1,245,000





19
 Table
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Please
      note that the evaluation of the reserves was prepared in accordance with
      Canadian National Instrument 51-101. Proved developed oil and gas reserves
      are
      reserves that can be expected to be recovered through existing wells with
      existing equipment and operating methods.  Proved developed reserves
      include additional oil and gas expected to be obtained through the application
      of fluid injection or other improved recovery techniques for supplementing
      the
      natural forces and mechanisms of primary recovery.





*Production*





The
      following table summarizes the quantities of net oil and of gas produced for
      each of the last three fiscal years.





**For
                  the Period Ending****December
                  31, 2006**
            **December
                  31, 2005**
            **December
                  31, 2004**Oil
                (barrels)
            20,541
            9,384
            10,880Natural
                Gas (mcf)
            52,312
            96,142
            63,882Natural
                Gas Liquids
            Nominal
            Nominal
            Nominal





**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, 2006 and 2005 should be read in
      conjunction with the financial statements and the related notes attached hereto
      (Item 17).





**A.           Operating
      Results**





The
      Company’s principal business activities are the acquisition, development,
      exploration, production and marketing of petroleum and natural gas reserves
      in
      Alberta and Saskatchewan.  The Company also has real estate
      holdings.  The Company's real estate holdings are being sold and the
      transaction is expected to close on September 7, 2007 or
      earlier.  Please refer to Note 19 of the financial statements,
      included elsewhere in this Annual Report (Item 17) for further disclosure
      regarding this transaction.  The Company is a reporting issuer in the
      Provinces of British Columbia and Alberta.





**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 Activity*





The
      Company has continued to pursue quality projects with experienced partners
      in
      high opportunity areas. The Company will put its primary efforts into fully
      developing its existing Senex property and enhancing its representation in
      new
      projects now underway such as Crossfield, Alberta. The Company presently holds
      working interests in approximately 63 oil and gas wells in Alberta and
      Saskatchewan with its working interests ranging from 1% to 35%. Efforts continue
      to purge the Company’s asset base of minor interest properties which will enable
      the Company to focus on higher interest opportunities. Generally the Company
      does not operate joint interest ventures; however Crossfield, Alberta is an
      exception where the Company holds the largest interest at 35%. Presently almost
      all of the Company’s production comes from five discrete areas of which three
      are natural gas and two produce oil.





The
      Company has drilling scheduled for two areas in Alberta during the balance
      of
      2007 and into 2008. Both are high quality prospects, one is natural gas
      (Crossfield) and the second is a combination of dual zone oil and shallow
      natural gas (Senex). The Company recently reported on these two areas as
      follows:





20
 Table
          of Contents






**Senex
      Area, Alberta (Townships. 92/93, Ranges 6/7 W5M):**





Berkley
      (20% ±) and its operating partner Onefour Energy Ltd. (80% ±) have increased
      their land holdings in this area to approximately 70 sections. This increase
      in
      land holdings will provide the Company with a very large block on which to
      develop all three productive formations identified to date. The formations
      are:
      Keg River (oil), Slave Point (oil) and Blue Sky (gas).





The
      Company and its partner have a nine Keg River well drilling program planned
      between August 2007 and April 2008.  This drilling program will cost the
      Company approximately $2 million.   The Company and its partner have
      also planned a 6 well program in the Slave Point zone with an approximate cost
      to the Company of $1.8 million.  The 6 targets are 2 water injection wells
      and 4 targeted as producers.  Over the last year and a half the company and
      it’s partner have completed approximately 45 sections of 3D seismic.  The
      Company is reviewing and analyzing this seismic and may come up with new targets
      in addition to those mentioned above for the next drilling period which is
      August through April.





**Crossfield
      West Area, Alberta (Township 28, Range 1 W5M):**





The
      licensing process of this sour-gas prospect is well underway. The Company (35%)
      and its partners have negotiated extensions to certain of its freehold leases
      which will maintain our existing drilling lease block of six sections; major
      investment has entered the immediate area of the Company’s lease block with an
      undisclosed party paying over three million dollars for near and adjacent leases
      at the March 22, 2006 Alberta Crown Sale, referred to as the "sale".  BP
      Canada paid $532,000 for a one section parcel diagonally offsetting our lands.
      The highest price paid at the Sale was for a one section lease laterally
      adjoining our block where a broker paid $770,304 ($3,009/hectare).  The
      Company and its partners have sufficient holdings to move ahead with our own
      drilling plans; however negotiations are being pursued with the acquiring
      parties to extend our acreage position.  The Company believes that it
      should have its licensing hearing in September or October, 2007 and believes
      that it should be approved to drill before the end of 2007.





*Summary*





The
      Company has made a major commitment to the Senex Area in north-central Alberta.
      Large reserves of oil have been identified in two Devonian formations and a
      significant natural gas reserve in shallow lower Cretaceous sand.
  All three opportunities are being evaluated and the Company has
      drilled 5 successful Keg River wells between August 2006 and February 2007.
        As stated above, we have targeted nine more wells in the Keg river
      zone and 6 more wells in the Slave Point zone which is budgeted to be drilled
      between August 2007 and April 2008.  The Company’s working interest in this
      project is 20%.  Good progress is being made in the licensing process at
      Crossfield.  The Company now expects to go to it’s hearing on licensing in
      either September or October of 2007 and can commence drilling 90 days after
      a
      successful hearing.





*Real
      estate*





The
      office building in downtown Vancouver continues to have near full occupancy,
      with consistent operating results within a narrow range. In all material
      aspects, the building achieved breakeven on an operating basis.  In order
      to expand the Company’s oil and gas opportunities there was an addition of a new
      mortgage on the building in 2005 and subsequent increase in the mortgage in
      the
      third quarter of 2006.  As a result, the building is currently running at a
      monthly cash flow deficit of approximately $15,000.  The Company is selling
      this property for $4 million and is expecting to close the sale of the building
      on or before September 7, 2007.  Because the real estate property is
      being sold and the sale is expected to be completed by September 2007, it is
      now
      disclosed as discontinued operations in the December 31, 2006 year end financial
      statements.





21
 Table
          of Contents






*Selected
      Annual Information*





The
      following financial data is derived from the Company’s financial statements for
      the three most recently completed financial years:





**December
                  31,****2006**
            
            
            **2005**
            
            
            **2004**Total
                oil and gas revenues
            
            $
            1,568,681
            
            
            $
            1,408,858
            
            
            $
            866,811Loss
                for the year before discontinued operations
            
            
            (3,068,631
            )
            
            
            (467,346
            )
            
            
            (715,910
            )Discontinued
                Operations
            
            
            (168,128
            )
            
            
            (55,112
            )
            
            
            (13,124
            )Loss
                per share before discontinued operations
            
            
            (0.21
            )
            
            
            (0.05
            )
            
            
            (0.10
            )Loss
                per share after discontinued operations
            
            
            (0.22
            )
            
            
            (0.05
            )
            
            
            (0.10
            )Total
                assets
            
            
            11,896,679
            
            
            
            9,991,350
            
            
            
            6,759,346Total
                liabilities
            
            
            4,597,314
            
            
            
            2,485,865
            
            
            
            2,011,631Working
                capital (Deficit)
            
            
            (3,189,632
            )
            
            
            (99,421
            )
            
            
            (1,039,862
            )





Total
      oil
      and gas revenues increased by $159,823 over the 2005 fiscal year. Included
      in
      discontinued operations was an increase of $10,745 in 2006 for rental
      revenue.  The increase in total assets from 2005 to 2006 was largely
      due to the Company raising cash through equity and debt financing and using
      those funds in developing its oil and gas properties during
      2006.  Expansion of new oil and gas properties was actually
      $6,739,047, net of a write-down of $2,385,000 and amortization and depletion
      of
      $1,164,948.  Total assets in 2005 have been restated as a result of a
      reduction in that year’s write-down of $1,400,000 to oil and gas
      properties.  The result is an increase in total assets of $1,400,000
      and a decrease in the loss for the year of the same amount.  Overall
      there was a decrease of $1,028,998 in current assets compared to an increase
      of
      $2,934,327 in other assets.  A write-down of $2,385,000 to oil and gas
      properties in 2006 was also the primary reason for the increase in loss for
      the
      year of $2,714,301 for 2006 compared to 2005.  Total liabilities
      increased by $2,111,449 in fiscal 2006 due in large part to the Company
      acquiring a loan of $2,800,000 from Quest Capital Corp., referred to as "Quest",
      and settling the $1,500,000 loan from IMOR Capital Corp. and increasing its
      loan
      with the CIBC from $322,146 to $577,612.





**Results
      of Operations - Year ended December 31, 2006 Compared to Year
      Ended  December 31, 2005.**





*Oil
      and gas*





Oil
      and
      gas revenue was $1,568,681 for 2006 compared to $1,408,858 for 2005, an increase
      of $159,823.  The increase in revenue is primarily due to increased
      production from the Senex property. The production expenses for 2006 were higher
      at $4,436,017 compared to $1,275,839 for 2005, and increase of
      $3,160,178.  The most significant factor in this increase was the
      write-down of $2,385,000 in 2006 compared to no write-down in 2005 followed
      by
      an increase of $494,996 in amortization, depletion and accretion expense in
      2006. There were also increases of $220,530 in operating costs and $59,652
      in
      interest charges.  Interest charges, as noted in the quarter
      comparison above, are due to the new Quest loan.   There was a
      net oil and gas loss of $2,867,336 for 2006 compared to a net oil and gas income
      of $133,019 reported for 2005, an increase in deficit of
      $3,236,759.  As was the case during the fourth quarter of 2006, the
      demand for labour, services and equipment continues to put upward pressure
      on
      prices, thus resulting in higher operating costs.





*Head
      office - general and administrative expenses*





General
      and administrative costs for 2006 were $1,256,996 compared to $1,175,618 for
      2005, an increase of $81,378.  There were increases of $68,284 in
      administrative, office services and premises, $4,058 in stock based
      compensation, $36,435 in management fees, $33,071 in consulting fees, $8,717
      in
      professional fees and $8,601 in filing and transfer agent fees.  The
      increase in administrative, office services and premises were due to the same
      reasons stated in fourth quarter comparison in addition to increased costs
      associated with exploring new business opportunities and an increase in support
      staff.  Management fees are higher in the current year because the
      President was hired in the fourth quarter of 2005 and thus the Company incurred
      a full years worth of management fees compared to a partial amount in the
      previous year.  Consulting fees increased as a result of consulting
      agreements with unrelated parties to seek out and evaluate other financial
      opportunities, look at corporate strategy and equity market planning and provide
      a market valuation of the real estate property.  The change in
      professional fees was due to a variety of factors.  There were
      increases in legal services in regards to evaluating new business opportunities
      and engineering services in regards to the oil and gas reserve report as well
      an
      increase in audit fees and general legal services.





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There
      were decreases of $33,674 in finance fees on debt and $44,810 in shareholder
      information costs.  Shareholder information costs decreased as a
      result of there being no investor relations agreements during 2006 compared
      to a
      $5,000 per month agreement during part of 2005 and a modest decrease in the
      level of company promotion and awareness activities.





*Real
      estate (Discontinued operations)*







The
      net
      rental loss for 2006 was $168,128 compared to $55,112 in 2005, an increase
      of
      $113,016.  Although rental revenue increased by $10,745, operating
      costs and loan interest charges increased as well by $13,021 and $113,916
      respectively.  As discussed in the quarterly comparison above, the
      increase in loan interest charges was due to the payout of the IMOR Capital
      Corp. loan and securing of a new loan with Quest for a higher
      amount.  As well, the Company did not start incurring the interest
      charges until the second quarter of 2005 so 2006 has recorded four more months
      of interest compared to 2005.  In regards to operating costs, the
      costs are fairly consistent between the two years except for cost recoveries
      of
      $16,511 that occurred in the previous year but not the current
      year.





*Loss
      for the year*





Loss
      for
      the 2006 year was $3,236,759 compared with $522,458 for 2005, an increase of
      $2,714,301. The increase in the loss for the respective periods is due to the
      reasons discussed above; most notably the current year write-down to oil and
      gas
      properties and higher operating costs and amortization and depletion charges
      in
      the oil and gas segment, significantly higher interest charges in the real
      estate and oil and gas segments, higher administrative, office services and
      premises costs, and management and consulting fees in the general and
      administrative section.  Although the majority of the proceeds from
      financing activities are used on the oil and gas properties, the portion of
      interest on the loans of which the real estate (discontinued operations)
      provides the security is charged to the real estate segment.





**Results
      of Operations – Year Ended December 31, 2005 Compared to Year Ended December 31,
      2004.**





*Revenues*





In
      total,
      there was a net oil and gas income of $133,019 for the twelve months ended
      December 31, 2005, compared to a net income of $187,782 for the comparable
      period in 2004.  Revenue was up 63% due to increased product prices
      and production levels, while operating costs were up 46%.  Overall
      production expenses were up by 88% due primarily to an increase of $405,019
      in
      amortization and depletion expense.





*Real
      estate*





The
      net
      rental loss for the year ended December 31, 2005 was $55,112, an increase of
      $41,988 over the same period in 2004.  While the rental revenue
      actually increased by $5,859 and operating costs were reduced by $28,450, there
      was an increase in loan interest charges of $76,485 that caused a higher net
      rental loss instead of a net rental income.  The increase in loan
      interest charges was due to the IMOR Capital Corp. loan of $1,500,000 that
      was
      acquired during 2005.





23
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          of Contents






*Expenses*





General
      and administrative costs for the year ended December 31, 2005 were $271,926
      higher than the year ended December 31, 2004.  There were increases of
      $55,370 in administrative, office services and premises expenses, $100,297
      in
      consulting and management fees, $62,423 in professional fees, $95,427 in finance
      fees on debt and $59,894 in shareholder information costs.  The
      increase in finance fees on debt is mostly due to the financing fees related
      to
      an original loan of $1,000,000 from IMOR Capital Corp. which was then increased
      to an amount of $1,500,000.  The increase in administrative costs were
      due to increased travel costs associated with exploring new business
      opportunities, new quarterly directors fees for those directors not earning
      other forms of compensation from the Company and a higher percentage of the
      cost
      sharing agreement with a company providing administrative services being
      implemented midway through the year. The increase in consulting and management
      fees is due to $97,500 bonuses to directors and the hiring of Lindsay Gorrill
      as
      President in the fourth quarter of 2005.  The increase in professional
      fees was due to legal and accounting efforts to meet 2003 and 2004 Form 20-F
      filing requirements with the Securities Exchange
      Commission.  Shareholder information costs increased due to efforts to
      increase company awareness which included an agreement with an investor
      relations firm that cost $5,000 per month.  The investor relations
      agreement was terminated before the year end. Components of administrative,
      office services and premises costs also increase as a result of the Company
      increasing its business activities, infrastructure and company
      awareness.  Although stock-based compensation expense was an amount of
      $173,538 in 2005, it experienced a decrease of $100,255 from the previous
      year.





*Loss
      for the period*





Loss
      before income taxes for the twelve months ended December 31, 2005 was $1,106,164
      compared with $729,034 for the twelve months ended December 31, 2004, an
      increase of $377,130. The increase in the loss for the respective periods is
      primarily due to the reasons discussed above concerning a decrease in net oil
      and gas income, an increase in net rental loss on real estate and an increase
      in
      general and administrative costs.  In addition, there were other
      interest income and interest expense items that had a net effect of increasing
      the loss by $8,453 in fiscal 2005 compared to nil in fiscal 2004.





In
      addition to the above discussion the Company recognized a recovery of future
      income taxes related to the renunciation in 2005 of its 2004 flow through
      shares. This resulted in a recovery of future income taxes of
      $583,706.





**Impact
      of Inflation**





Inflation
      was modest through 2006.  Dramatic swings in world oil prices have
      affected the Company much more than inflation.  At the end of 2006 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, 2006 the Company had current assets of $1,272,007, of which
      $498,246 was comprised of cash. Current liabilities totaled $4,461,639, of
      which
      $3,377,612 was comprised of bank loans concerning the real estate property
      and
      oil and gas properties.  Current assets were used to further
      investment in oil and gas properties and equipment by $6,739,047 in
      2006.





Total
      working capital deficiency at December 31, 2006 is $3,189,632, compared with
      a
      working capital deficiency of approximately $99,421 at December 31,
      2005.





Total
      working capital deficiency includes a bank demand loan of $577,612 and a loan
      of
      $2,800,000 to Quest Capital Corp., referred to as "Quest", that will be due
      September 7, 2007. The Company’s present arrangements with the lender of the
      bank demand loan call for monthly blended payments of $8,000. The Quest loan
      agreement calls for monthly interest only payments of approximately
      $28,000.  These loans will be settled upon completion of the sale of
      the real estate asset.





24
 Table
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The
      Company’s debt facilities available comprises of a $50,000 standby line of
      credit which approximately $nil has been drawn against as of December 31,
      2006.





The
      Company has incurred significant operating losses over the past several fiscal
      years and as at December 31, 2006 the Company does not have sufficient financial
      resources to meet its flow through expenditure requirements in 2007. As at
      December 31, 2006, the Company had a working capital deficit of $3,189,632
      (2005
– $99,421).  The Company’s ability to continue as a going concern is
      dependent upon its ability to raise additional capital through the issuance
      of
      treasury shares or debt and achieve profitable operations in the future.





Subsequent
      to the period ended December 31, 2006, the Company is addressing its’ working
      capital needs by using proceeds from the sale of the real estate asset and
      pursuing additional equity financing.





In
      the
      opinion of the Company, its working capital will be insufficient to meet its
      current requirements.  Since the Company's working capital will be
      insufficient to meet future obligations, the Company will rely on equity
      issuances, debt or possible divestitures of certain of its assets.





*Capital
      Resources*





The
      Company plans to continue its participation in the two projects discussed above.
      The Company expects to finance expenditures on these projects through private
      placements, 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.





There
      are
      no material commitments for capital expenditures although the company intends
      on
      participating in the drilling in the Senex project as indicated
      above.





The
      Company's financial statements are prepared in accordance with Canadian
      GAAP.  US GAAP has certain notable differences which are set out on
      Note 17 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**





Oil
      prices fluctuated during 2006 between U.S. $78 and U.S. $50 per barrel, ending
      the year at approximately U.S. $60 per barrel ($per barrel for West Texas
      Intermediate, "WTI").  Natural gas prices have also been very volatile
      fluctuating between U.S. $4.60/mcf and U.S. $9/mcf during the year, ending
      2006
      at a price of approximately U.S. $5.70/mcf.  Costs of all related
      services have been high for 2006.





The
      oil
      and gas industry had a very active 2006 and first quarter 2007.  The
      current change in tax legislation outlined by the Canadian Finance Minister
      on
      October 31st, 2006 has slowed down the activities of the RITS.  We
      believe this change will benefit the oil and gas junior companies, like Berkley,
      in cost of operations, opportunities and more funds flowing into these juniors
      where over the past few years the funds were being directed into the
      RITS.   Oil prices fluctuated during 2006 between U.S. $78 and
      U.S. $50 per barrel, ending the year at approximately U.S. $60 per barrel ($per
      barrel for WTI).  Natural gas prices have also been very volatile
      fluctuating between U.S. $4.60/mcf and U.S. $9/mcf during the year, ending
      2006
      at a price of approximately U.S. $5.70/mcf.  Costs of all related
      services have been high for 2006 but with the changes to the RITS, discussed
      above, we believe that both competition for labour, goods and services
      throughout industry and costs related to drilling and new exploration will
      soften going through 2007.





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Overall,
      2006 was highly active on several fronts.  In many ways it was a
      difficult atmosphere in which to do business.  Although 2007 has
      started off as a continuation of 2006 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**.**





**F.           Tabular
      disclosure of contractual obligations**





On
      December 12, 2006 the Company entered into a consulting agreement with an
      unrelated party.  The consultant will provide assistance in various
      financing activities.  The Company will pay a cash fee of 7% of the
      gross amount of proceeds of an equity financing or mezzanine financing and
      3% of
      gross amount and proceeds of a debt financing, loan, line of credit or other
      non-equity financing sourced by the consultant respectively.  The
      agreement terminates on November 9, 2007.





The
      following table lists the Company's known contractual obligations as of December
      31, 2006:





**Payments
                  due by period****Total
                  Amount**
            
            
            **Less
                  than one year**
            
            
            **One
                  to three years**
            
            
            **Three
                  to five years**
            
            
            **More
                  than five years**Long-Term
                Debt Obligations
            
            $
            4,053,216
            
            
            $
            3,125,216
            
            
            $
            192,000
            
            
            $
            192,000
            
            
            $
            544,000Consulting
                Agreements
            
            
            16,000
            
            
            
            16,000
            
            
            
            -
            
            
            
            -
            
            
            
            -**Total:**
            
            
            4,069,216
            
            
            
            3,141,216
            
            
            
            192,000
            
            
            
            192,000
            
            
            
            544,000





**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.





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 Table
          of Contents






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,
      2006.





**Name**
            **Position
                  Held**
            **Principal
                  Occupation, Business or Employment for the Last Five
                  Years**
            **Director/Officer
                  Since**Louis
                Wolfin(1)(2)(3)
            Director
                and Former Chief Executive Officer
            Mining
                Executive; Chief Executive Officer and Director of Bralorne Gold
                Mines
                Ltd., President and Director of  Coral Gold Resources Ltd.,
                Director of Avino Silver & Gold Mines Ltd., Chief Executive Officer
                and Director of Levon Resources Ltd. and Director of Cresval Capital
                Corp.
            1986
                – June 2007Matt
                Wayrynen(1)
            Chief
                Executive Officer, Executive Chairman and Director
            Corporate
                Executive; Vice-President of Coral Gold Resources Ltd., VP, Operations,
                Director of Quinto Technology Inc., Director of Bralorne Gold Mines
                Ltd.,
                Retired Real Estate and Investment Adviser.
            June
                2002 - PresentLloyd
                Andrews
            Chairman
                and Director
            Retired
                Businessman; Director of Coral Gold Resources Ltd.; Director of Bralorne
                Gold Mines Ltd. and Director of Avino Silver & Gold Mines
                Ltd.
            June
                2002 – PresentJames
                O’Byrne
            Director
                and VP Operations
            Oil
                and Gas Consultant; President of O’Byrne Resource Management
                Ltd.
            June
                2003- PresentLindsay
                E. Gorrill
            President,
                Chief Operating Officer and Director
            Corporate
                Executive; Chief Financial Officer of Coral Gold Resources Ltd.;
                Former
                President and Chief Executive Officer of WGI Heavy Minerals Incorporated;
                Manager, KPMG.
            July
                2004-PresentDavid
                Wolfin(3)
            Director
                and VP Finance
            Mining
                Executive; Director and VP Finance of Bralorne Gold Mines Ltd., Director
                of Coral Gold Resources Ltd., Director and President of Avino Silver
&
                Gold Mines Ltd., Director of Mill Bay Ventures Inc., Director and
                President of Gray Rock Resources Ltd.,Director of Cresval Capital
                Corp.
                and Director of Levon Resources Ltd.
            June
                2005 - Present




27
 Table
          of Contents





**Name**
            **Position****Held**
            **Principal****Occupation,
              Business or Employment for the Last Five
              Years**
            **Director/Officer
              Since**Ronald
                Andrews
            Director
            Owner
                and operator of Andrews Orchards from 1972 to present, Director of
                North
                Coast Live Insurance Company.
            June
                2005 - PresentPhillip
                Piffer
            Director
            President
                and CEO of Genesis Fueltech Inc. from June 2001 to present.
            November
                2005 - PresentTyrone
                Docherty
            Director
            President,
                Chief Executive Officer and Director of Quinto Technology Inc. from
                1997
                to present.
            August
                2006 – PresentConnie
                Lillico
            Secretary
            Officer
                of six 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. Louis Wolfin did not stand for re-election to the board at the annual
      general meeting of shareholders held on June 12, 2007 and is no longer on the
      board of directors of the Company.


(3)     
      Mr. David Wolfin is the son of Mr. Louis Wolfin.





**B.           Compensation**





**Compensation
      of Directors**





Each
      director of the Company who receives less than $3,000 per month is compensated
      $500 per quarter in their capacities as directors during the most recently
      completed financial year.  The Chairman of each committee is also paid
      an additional $500 per quarter.  The management 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, 2006, 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.  The Company paid an aggregate of $72,000 to
      Wear Wolfin Designs Ltd., a private British Columbia corporation controlled
      by
      the spouse of Matt Wayrynen, the Chief Executive Officer, Executive Chairman
      and
      a director of the Company for management advisory services.  The
      Company paid an aggregate of $60,000 to O’Byrne Resource Management Ltd., a
      private Alberta corporation controlled by Jim O’Byrne, the VP Operations and a
      director of the Company for management advisory services.  The Company
      paid an aggregate of $30,000 to Intermark Capital Corp, a British Columbia
      private corporation controlled by David Wolfin, VP Finance and a director of
      the
      Company for management advisory services.  The Company paid an
      aggregate of US$60,000 to Lindsay Gorrill, the Chief Operating Officer,
      President and a director of the Company for management advisory services.
      Incentive stock options, have been granted to non-executive directors and other
      insiders of the Company and are outstanding to purchase an aggregate of
      1,922,500 common shares of the Company as follows:





**Name
                  of Optionee**
            **No.
                  of Shares**
            **Exercise
                  Price Per Share**
            **Date
                  of Grant**
            **Expiry
                  Date**Louis
                Wolfin
            5,000
            $0.52
            September
                19, 2003
            September
                19, 200875,000
            $0.90
            December
                23, 2005
            December
                23, 2010100,000
            $0.56
            September
                21, 2006
            September
                21, 2011Lloyd
                Andrews
            172,500
            $0.52
            September
                19, 2003
            September
                19, 200845,000
            $0.90
            December
                23, 2005
            December
                23, 2010James
                O'Byrne
            50,000
            $0.52
            September
                19, 2003
            September
                19, 200820,000
            $0.81
            October
                19, 2004
            October
                19, 2009100,000
            $0.90
            December
                23, 2005
            December
                23, 201050,000
            $0.56
            September
                21, 2006
            September
                21, 2011Matt
                Wayrynen
            300,000
            $0.52
            September
                19, 2003
            September
                19, 200850,000
            $0.90
            December
                23, 2005
            December
                23, 2010100,000
            $0.56
            September
                21, 2006
            September
                21, 2011




28
 Table
          of Contents





**Name
              of Optionee**
            **No.
              of Shares**
            **Exercise Price
              Per Share**
            **Date
              of Grant**
            **Expiry
              Date**Lindsay
                Gorrill
            50,000
            $0.81
            October
                19, 2004
            October
                19, 2009150,000
            $0.90
            December
                23, 2005
            December
                23, 2010100,000
            $0.56
            September
                21, 2006
            September
                21, 2011Ron
                Andrews
            50,000
            $0.81
            October
                19, 2004
            October
                19, 200950,000
            $0.90
            December
                23 2005
            December
                23, 2010David
                Wolfin
            50,000
            $0.52
            September
                19, 2003
            September
                19, 2008150,000
            $0.57
            November
                26, 2003
            September
                19, 200850,000
            $0.56
            September
                21, 2006
            September
                26, 2011Phillip
                Piffer
            50,000
            $0.90
            December
                23, 2005
            December
                23, 201050,000
            $0.56
            September
                21, 2006
            September
                26, 2011Tyrone
                Docherty
            30,000
            $0.56
            September
                21, 2006
            September
                21, 2011Connie
                Lillico
            30,000
            $0.81
            October
                19, 2004
            October
                19, 200915,000
            $0.90
            December
                23, 2005
            December
                23, 201030,000
            $0.56
            September
                21, 2006
            September
                21, 2011





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





The
      Company does not have an employment Contract with its executive officers, and
      there are no contractual provisions for termination of employment or change
      in
      responsibilities.





The
      following table sets forth particulars concerning the compensation of the
      Company's executives for the Company's calendar year ended December 31,
      2006.





**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
              Chief
                Executive Officer and Executive Chairman
            2006
              2005
              2004
            66,000
              60,000
              60,000
            Nil
              40,000
              24,628.73
            Nil
              Nil
              Nil
            450,000
              350,000
              300,000
            Nil
              Nil
              Nil
            $1,504
              1,389
              1,082lLindsay
                Gorrill
              President
                and Chief Operating Officer
            2006
              2005
              2004
            69,327
              11,392
              Nil
            Nil
              30,000
              Nil
            Nil
              Nil
              Nil
            300,000
              200,000
              50,000
            Nil
              Nil
              Nil
            Nil
              Nil
              Nil





(1)      No
      executive officer earned in excess of $150,000.


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





**C.           Board
      Practices**





As
      of
      December 31, 2006, the board of directors of the Company consisted of nine
      directors: Matt Wayrynen, Lloyd Andrews, Tyrone Docherty, James O'Byrne, Lindsay
      Gorrill, David Wolfin, Louis Wolfin, Ronald Andrews and Phillip
      Piffer.  Mr. Louis Wolfin did not stand for re-election at the annual
      general meeting of shareholders held on June 12,
      2007.****Each of the directors, except Louis Wolfin, 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.





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The
      board
      has considered the relationships of each director to the Company and considers
      four of the eight directors to be "unrelated" (Messrs. L. Andrews, R. Andrews,
      Docherty and Piffer).  "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.





Messrs.
      Matt Wayrynen, Louis Wolfin and David Wolfin are related family
      members.  Messrs. Lloyd Andews and Ronald Andrews are also 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.





**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, 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. Piffer, R. Andrews, and David
      Wolfin) two of whom are independent, meaning that the member has no direct
      or
      indirect material relationship with the Company, which could, in the view of
      the
      board of directors, reasonably interfere with the exervise of a member's
      judgement, (Messrs. Piffer and R. Andrews). Each of the members of the audit
      committee is financially literate, and has accounting or related financial
      expertise. "Financially literate" means the ability to read and understand
      a set
      of financial statements that present a breadth of complexity of accounting
      issues that are generally comparable to the breadth and complexity of the issues
      that can reasonably be expected to be raised by the Company's financial
      statements.  "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.





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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.





*Compensation
      Committee*





The
      board
      also has a compensation committee.  The compensation committee
      recommends to the board the compensation of the Company's directors and the
      Chief Executive officer which the compensation committee feels is
      suitable.  Its recommendations are reached primarily by comparison of
      the remuneration paid by the Company with publicly available information on
      renumeration paid by other reporting issuers that the committee feels are
      similarly placed within the same business of the Company. As of June 28, 2007,
      the compensation committee was comprised of Ronald Andrews, Lloyd Andrews and
      Matt Wayrynen.





*Corporate
      Governance Committee*





The
      corporate governance committee of the board manages the corporate governance
      system of the board and assists the board in fulfilling its duties to meet
      applicable legal, regulatory and self-regulatory business principles and codes
      of best practice.  As of June 28, 2007 the corporate governance
      committee consisted of Lloyd Andrews, Ronald Andrews, Matt Wayrynen and Phillip
      Piffer.





**D.           Employees**





The
      Company has no full time employees.





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**E.           Share
      Ownership**





The
      following table sets for the share ownership of the directors and officers
      of
      the Company as of June 1, 2007.





**Name
                  of Beneficial Owner**
            
            **Number
                  of Shares**
            
            
            **Percent**Louis
                Wolfin
            
            
            105,000
            
            
            
            0.56
            %Matt
                Wayrynen(1)
            
            
            1,273,178
            
            
            
            6.76
            %Lloyd
                Andrews
            
            
            337,500
            
            
            
            1.79
            %James
                O'Byrne
            
            
            50,000
            
            
            
            0.27
            %Lindsay
                Gorrill
            
            
            143,000
            
            
            
            0.76
            *David
                Wolfin
            
            
            80,300
            
            
            
            0.43
            %Ronald
                Andrews
            
            
            81,000
            
            
            
            0.43
            %Phillip
                Piffer
            
            Nil
            
            
            NilTyrone
                Docherty
            
            Nil
            
            
            NilConnie
                Lillico
            
            
            5,000
            
            
            
            0.03
            %All
                Officers and Directors as a Group (nine in number)
            
            
            2,074,978
            
            
            
            11
            %





(1)      1,191,778
      shares are held by his spouse.





On
      June 27, 2006, the shareholders
      approved the 2006 Stock Option Plan, which we refer to as the
      "Plan".  The Plan provided for the grant of incentive stock options to
      insiders, employees, and other service providers to the Company for up to
      2,837,000 common shares.  To date, stock options to purchase a total
      of up to 2,417,500 shares have been granted under the plan, of which 51,000
      were
      subject to termination leaving options for 470,500shares available for
      issuance.





*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
            
            
            100,000
            
            
            $
            0.56
            
            N/A
            09/21/11Jim
                O’Byrne
            
            
            50,000
            
            
            $
            0.56
            
            N/A
            09/21/11Louis
                Wolfin
            
            
            100,000
            
            
            $
            0.56
            
            N/A
            09/21/11Matt
                Wayrynen
            
            
            100,000
            
            
            $
            0.56
            
            N/A
            09/21/11Phillip
                Piffer
            
            
            50,000
            
            
            $
            0.56
            
            N/A
            09/21/11David
                Wolfin
            
            
            50,000
            
            
            $
            0.56
            
            N/A
            09/21/11Tyrone
                Docherty
            
            
            30,000
            
            
            $
            0.56
            
            N/A
            09/21/11Connie
                Lillico
            
            
            30,000
            
            
            $
            0.56
            
            N/A
            09/21/11





**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 at June 1, 2007, 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.




32
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          of Contents





**Name**
            **Number
                  of Shares of Common Stock Owned**
            **Percent
                  of Class**Matt
                Wayrynen
            81,400
            0.43%Lisa
                Wayrynen**
            1,191,778
            6.32%





*****        Less
      than 1%.


******      Spouse
      of Matt Wayrynen, the Company's Chief Executive Officer and Executive
      Chairman.





**B.           Related
      Party Transactions**





The
      balance of $Nil (2005: $3,454)  is due from a public company with
      common management and a common director.





Amounts
      due to related parties includes  $16,651 (2005 - $15,148) due to
      directors of the Company for directors fees and expense reimbursements; $51,782
      (2005 - $19,769) to a private company owned by public companies having common
      directors that provides administrative services, office supplies and accounting
      services; and $Nil (2005 - $90,000) to directors and officers of the Company
      in
      regards to bonus payments.





Management
      and consulting fees totalling $237,828 were paid to directors and their private
      companies in 2006 (2005: $291,392).





During
      the year, current and/or former directors and/or Officers exercised nil options
      (2005: 217,500 options for total proceeds of $78,900).  In addition,
      current and/or former directors and officers subscribed for 145,500 shares
      of
      the Company for total proceeds of $130,950 (2005: 25,000 shares of the Company
      for total proceeds of $22,500).





Consulting
      fees totalling $96,000 were paid to a former director and his spouse in 2006
      (2005: $96,000).





A
      debt
      financing fee of $Nil was paid to a director in 2006 (2005 -
      $29,000).





Administrative
      services, office supplies and accounting charges totalling $113,865 were paid
      to
      Oniva International Services Corporation, referred to as "Oniva", a private
      company owned by public companies having common directors (2005:
      $121,303).





The
      transactions were in the normal course of operations and agreed to by the
      related party and the Company and have had been measured at the exchange
      amount.





The
      Company takes part in a cost sharing arrangement to reimburse Oniva for a
      variable percentage of its overhead expenses, to reimburse 100% of its
      out-of-pocket expenses incurred on behalf of the Company, and to pay a
      percentage fee based on the total overhead and corporate
      expenses.  The agreement may be terminated with one-month notice by
      either party.





**C.           Interests
      of Experts and Counsel**





Not
      Applicable.





**Item
      8.  Financial Information**





**A.           Financial
      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, 2006 and 2005.


Statements
      of Operations for the years ended December 31, 2006, 2005 and 2004.


Statements
      of Deficit for the years ended December 31, 2006, 2005 and 2004.


Statements
      of Cash flows for the years ended December 31, 2006, 2005 and 2004.


Notes
      to
      the Financial Statements.





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





**B.           Significant
      Changes**





On
      March
      20, 2007 the Company announced that it had entered into an offer to purchase
      and
      contract of purchase and sale relating to its real estate assets consisting
      of
      an office building located at 455 Granville Street, Vancouver, B.C. for the
      sum
      of $4,000,000.  The initial deposit of $500,000 has been deposited
      directly to the Company.  The deposit will bear interest at an annual
      rate of 4% accruing to the benefit of the purchaser and to be applied to the
      purchase price upon closing.  Closing is expected to take place on or
      before September 7, 2007.  On closing, the purchaser will pay
      $3,000,000 and the Company will extend financing to the purchaser in the amount
      of $500,000 in the form of a second mortgage on the property.





On
      January 3, 2007 the Company announced that it had closed the fourth and final
      tranche of a non-brokered private placement of 496,760 flow-through shares,
      referred to as a "Flow-Through Share", at a price of $0.90 per
      share.  A Flow-Through share entitles an investor to the tax benefits
      of the qualifying Canadian exploration expenses incurred by the Company which
      will be "flowed through" to the investor.





On
      May
      22, 2007 the Company announced that it had arranged a non-brokered private
      placement of up to 3,320,000 Flow-Through shares at a price of $0.75 per
      share.  The Company also announced a non-brokered private placement of
      up to 680,000 units, each unit consisting of one common share and one-half
      of a
      non-transferable share purchase warrant.  Each whole warrant entitles
      the holder thereof to purchase one additional share at a price of $1.00 during
      the first year from the date of closing.  This transaction is subject
      to regulatory approval.  The proceeds will be used for additional
      exploration and development work on the Company's Canadian oil and gas
      properties and for general working capital
      requirements.  Subsequently, on June 22, 2007, the Flow Through
      private placement was re-priced to $0.65.  The non-Flow-Through
      private placement was also re-priced to $0.60.





**Item
      9.  The Offer and Listing**





**A.           Offer
      and Listing Details**





As
      of
      December 31, 2006, 3.44% of the Company's outstanding common stock was
      registered in the names of United States residents.  There were, as of
      December 31, 2006, 44record 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**
            **Low**May
                2007
            0.70
            0.59April
                2007
            0.74
            0.65March
                2007
            0.79
            0.51February
                2007
            0.80
            0.60January
                2007
            0.91
            0.74December
                2006
            0.87
            0.85




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 Table
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**2006**
            **High**
            **Low**Fourth
                Quarter
            0.93
            0.65Third
                Quarter
            0.76
            0.61Second
                Quarter
            1.08
            0.66First
                Quarter
            1.10
            0.70**2005**Fourth
                Quarter
            1.06
            0.67Third
                Quarter
            1.01
            0.66Second
                Quarter
            1.15
            0.90First
                Quarter
            1.50
            0.90**Five
                  Most Recent Fiscal Years**December
                31, 2006
            1.10
            0.61December
                31, 2005
            1.50
            0.66December
                31, 2004
            1.50
            0.72December
                31, 2003
            0.80
            0.40December
                31, 2002
            0.60
            0.28





**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", in the United States on the Pink Sheets under the symbol "BRKDF" and
      in
      Germany on the Frankfurt Stock Exchange under the symbol "W8O" and "WKN
      87166".





**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.





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 Table
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**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.





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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.





**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 referred to as an "entity", each an "entity" that is not
      a
      "Canadian" as defined in the Investment Act, referred to as 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 2006 is any amount in excess of $265 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.





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          of Contents






**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, referred to as a "U.S. Holder".  This summary is
      based on the current provisions of the Income Tax Act (Canada), referred to
      as
      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, referred
      to as
      the "Treaty".  Except as otherwise expressly provided, this summary
      does not take into account any provincial, territorial or foreign (including
      without limitation, any United States) 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.





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.





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*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 United States 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 United States 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
      American Job Creation Act of 2004 repealed these rules.  The Company
      was not a PHC, FPHC or FIC.





*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.





39
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          of Contents






*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.





40
 Table
          of Contents






*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 100F Street, N.E., 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.





**I.           Subsidiary
      Information**





None.





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





Not
      Applicable.





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





Not
      Applicable.





**Part
      II**





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





None.





41
 Table
          of Contents






**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 and principal financial officer, of the effectiveness of
      the
      design and operation of the Company’s disclosure controls and procedures
      pursuant to Rule 13(a)-15(b) of the Securities Exchange Act of 1934, as
      amended.  Based upon that evaluation, the Company’s chief executive
      officer and 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:





1.
            effective
                in timely alerting them to information relating to the Company required
                to
                be included in this Form 20-F; and





2.
            effective
                in ensuring that information required to be disclosed by the issuer
                in the
                reports that it files or submits under the Act is recorded, processed,
                summarized and reported, within the time periods specified in the
                Commission’s rules and forms.





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





The
      board
      of directors determined that Mr. Phillip Piffer is qualified as an Audit
      Committee Financial Expert.  Mr. Piffer 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, 2006 was Meyers
      Norris Penny LLP. Staley, Okada & Partners, Chartered Accountants were the
      Company's independent auditors for the fiscal year ended December 31,
      2005.





**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, 2006 was $67,400 and December 31, 2005 was
      $28,215.





**Audit-Related
      Fees**





The
      aggregate 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, 2006
      was $2,148 and December 31, 2005 was $3,372.





**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, 2006 was
      $2,022 and December 31, 2005 was $1,500.  The services comprising
      these fees were in conjunction with the preparation of corporate tax returns
      and
      taxation advisory services.





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 Table
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**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, 2006 and December 31, 2005.





The
      audit
      committee approved 100% of the fees paid to the principal accountant for
      audit-related, tax and other fees in the fiscal year 2006.  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
            48Balance
                Sheets
            50Statements
                of
                Operations
            51Statements
                of
                Deficit
            52Statements
                of Cash
                Flows
            53Notes
                to Financial
                Statements.
            54
                thru 72





**Item
      18.  Financial Statements**





See
      Item
      17.





**Item
      19.  Exhibits**





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





Auditors'
                Report
            48Balance
                Sheets
            50Statements
                of
                Operations
            51Statements
                of
                Deficit
            52Statements
                of Cash
                Flows
            53Notes
                to Financial
                Statements.
            54
                thru 72





43
 Table
          of Contents






**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
                Act13.1
            Certificate
                of the Principal Executive Officer under section 90613.2
            Certificate
                of the Principal Financial Officer under section 90615.1
            Consent
                of Experts





*      Previously
      filed.



































44
 Table
          of Contents










**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:
                November
                13, 2007
            By:
            */s/ Matt
              Wayrynen*Matt
              Wayrynen, Chief Executive
              Officer andExecutive
              Chairman





































45
 Table
          of Contents
































**BERKLEY
      RESOURCES INC.**







**FINANCIAL
      STATEMENTS**









**DECEMBER
      31, 2006 and 2005**







**Canadian
      Funds**































46
 Table
          of Contents







**MANAGEMENT’S
      RESPONSIBILITY FOR FINANCIAL REPORTING**





The
      financial statements and other financial information included in the Annual
      Report are the responsibility of, and have been prepared by, the management
      of
      Berkley Resources Inc. within reasonable limits of materiality. To fulfill
      this
      responsibility, the Company maintains appropriate systems of internal control,
      policies and procedures. These systems of internal control, policies and
      procedures help ensure that the Company’s reporting practices and accounting and
      administrative procedures provide reasonable assurance that the financial
      information is relevant, reliable, and accurate, and that assets are safeguarded
      and transactions are executed in accordance with proper authorization. These
      financial statements have been prepared in accordance with Canadian generally
      accepted accounting principles with a reconciliation to generally accepted
      accounting principles in the United States. When alternative methods exist,
      the
      Company has chosen those that it deems most appropriate in the circumstances,
      in
      order to ensure that the financial statements are presented fairly in all
      respects. Where appropriate, these financial statements reflect estimates based
      on judgments of management. Financial information presented elsewhere in the
      Annual Report is consistent, where applicable, with that shown in the
      accompanying financial statements.





Meyers
      Norris Penny, LLP the independent auditors, have examined the financial
      statements of the Company. The independent auditors’ responsibility is to
      express a professional opinion on the fairness of the financial statements.
      The
      auditors’ report outlines the auditors’ opinion and the scope of their
      examination and their report follows.





The
      financial statements have also been reviewed by the Directors of Berkley
      Resources Inc. and by its Audit Committee. The Audit Committee is comprised
      of
      independent directors, and meets periodically during the year with the
      independent auditors and management. The independent auditors have full and
      unrestricted access to the Audit Committee.





*“Signed”*
            *“Signed”*Matthew
                Wayrynen
            Lindsay
                GorrillExecutive
                Chairman and Chief Executive Officer
            President
                and Chief Operating OfficerApril
                24, 2007































47
 Table
          of Contents








To
      the
      shareholders of Berkley Resources Inc.:





We
      have
      audited the balance sheet of Berkley Resources Inc. as at December 31, 2006
      and
      the statements of operations, deficit and cash flows for the year then
      ended.  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 audit in accordance with Canadian generally accepted auditing
      standards and the standards of the Public Company Accounting Oversight Board
      (United States).  These standards require that we plan and perform an
      audit to obtain reasonable assurance whether the financial statements are free
      of material misstatement.  An audit includes examining, on a test
      basis, evidence supporting the amounts and disclosures in the financial
      statements.  An audit also includes assessing the accounting
      principles used and significant estimates made by management, as well as
      evaluating the overall financial statement presentation.





In
      our
      opinion, these financial statements present fairly, in all material respects,
      the financial position of the Company as at December 31, 2006 and the results
      of
      its operations and its cash flows for the year then ended in accordance with
      Canadian generally accepted accounting principles.





The
      financial statements as at and for the year ended December 31, 2005 and for
      the
      year ended December 31, 2004, prior to the adjustment for certain error
      corrections as described in Note 18, were audited by the other auditors, who
      expressed an opinion without reservation on these statements in their report
      dated April 10, 2006.  We have audited the adjustments to the 2005
      financial statements and in our opinion, such adjustments, in all material
      respects, are appropriate and have been properly applied.








“Signed”





Calgary,
      Canada                                                                                                                                                                                                
   **MEYERS NORRIS PENNY****LLP**


April
      24,
      2007                                                                                                                                                                                        
 Independent Registered Chartered Accountants








Comments
      by Independent Registered Chartered Accountants on Canada - United States of
      America Reporting Differences





The
      standards of the Public Company Accounting Oversight Board (United States)
      require the addition of explanatory paragraphs (following the opinion paragraph)
      when the financial statements are affected by conditions and events that cast
      substantial doubt on the Company’s ability to continue as a going concern, such
      as those described in Note 1 to the financial statements. Our report to the
      shareholders dated April 24, 2007 is expressed in accordance with Canadian
      reporting standards which do not require a reference to such conditions and
      events in the report of the independent registered chartered accountants when
      these are properly accounted for and adequately disclosed in the financial
      statements.








“Signed”





Calgary,
      Canada                                                                                                                                                                                                     
 **MEYERS NORRIS PENNY****LLP**


April
      24,
      2007                                                                                                                                                                                          
 Independent Registered Chartered Accountants







48
 Table
          of Contents


49
 Table
                of Contents
 **BERKLEY
          RESOURCES INC.**
 **BALANCE
          SHEETS**
 December
          31, 2006, and 2005





**As
                at**
            
            **2006**
            
            
            **2005****(Restated)****ASSETS****Current
                Assets**Cash
            
            $
            498,246
            
            
            $
            1,894,681Accounts
                receivable
            
            
            607,436
            
            
            
            278,856Taxes
                recoverable
            
            
            16,145
            
            
            
            22,325Prepaid
                expenses
            
            
            15,933
            
            
            
            101,689Deferred
                financing fees
            
            
            134,247
            
            
            
            -Due
                from related party
            
            
            -
            
            
            
            3,4541,272,007
            
            
            
            2,301,005**Prepaid
                oil and gas costs**
            
            
            -
            
            
            
            295,350**Oil
                and gas properties and equipment**(Note 5)
            
            
            8,581,024
            
            
            
            5,339,531**Other
                property plant and equipment**(Note 7)
            
            
            4,724
            
            
            
            6,449**Assets
                of discontinued operations**(Note 2 and 6)
            
            
            2,038,924
            
            
            
            2,049,015$
            11,896,679
            
            
            $
            9,991,350**LIABILITIES****Current
                Liabilities**Accounts
                payable and accrued liabilities
            
            $
            1,015,594
            
            
            $
            353,363Due
                to related parties (Note 13b)
            
            
            68,433
            
            
            
            124,917Bank
                loans and liabilities of discontinued operations (Note 2 and
                8)
            
            
            3,377,612
            
            
            
            1,922,1464,461,639
            
            
            
            2,400,426**Asset
                Retirement Obligation** (Note 3e and 9)
            
            
            135,675
            
            
            
            85,4394,597,314
            
            
            
            2,485,865Going
                concern (Note 1)Commitments
                (Note 15)Prior
                period adjustment (Note 18)Subsequent
                events (Note 19)**SHAREHOLDERS'
                EQUITY****Share
                Capital** (Note 10)
            
            
            11,577,934
            
            
            
            8,762,671**Contributed
                Surplus**(Note 11)
            
            
            804,412
            
            
            
            589,036**Deficit**
            
            
            (5,082,981
            )
            
            
            (1,846,222
            )7,299,365
            
            
            
            7,505,485$
            11,896,679
            
            
            $
            9,991,350





Approved
      by the Directors:





*“Matt
                Wayrynen”*
            Director
            *“Lindsay
                Gorrill”*
            *Director*





The
      accompanying notes form an integral part of these financial
      statements.




50
 Table
          of Contents


**BERKLEY
            RESOURCES INC.**
 **STATEMENTS
            OF OPERATIONS**
 **For
            the Years Ended December 31**


**2006**
            
            
            **2005**
            
            
            **2004****(Restated)****OIL
                AND GAS REVENUE**
            
            $
            1,568,681
            
            
            $
            1,408,858
            
            
            $
            866,811**Oil
                and gas production expenses**Operating
                costs
            
            
            828,575
            
            
            
            608,045
            
            
            
            416,254Interest
                on loans
            
            
            59,652
            
            
            
            -
            
            
            
            -Amortization,
                depletion and accretion
            
            
            1,162,790
            
            
            
            667,794
            
            
            
            262,775Write-down
                of oil and gas properties
            
            
            2,385,000
            
            
            
            -
            
            
            
            -4,436,017
            
            
            
            1,275,839
            
            
            
            679,029NET
                OIL AND GAS INCOME (LOSS)
            
            
            (2,867,336
            )
            
            
            133,019
            
            
            
            187,782**GENERAL
                AND ADMINISTRATIVE EXPENSES**Administrative,
                office services and premises
            
            
            312,517
            
            
            
            244,233
            
            
            
            188,863Stock
                based compensation
            
            
            177,596
            
            
            
            173,538
            
            
            
            273,793Management
                fees
            
            
            237,828
            
            
            
            201,393
            
            
            
            -Consulting
                fees
            
            
            242,245
            
            
            
            209,174
            
            
            
            310,270Professional
                fees
            
            
            172,261
            
            
            
            163,544
            
            
            
            101,121Finance
                fees on debt
            
            
            61,753
            
            
            
            95,427
            
            
            
            -Filing
                and transfer agent fees
            
            
            25,731
            
            
            
            17,130
            
            
            
            19,413Shareholder
                information
            
            
            24,907
            
            
            
            69,717
            
            
            
            9,823Amortization
            
            
            2,158
            
            
            
            1,462
            
            
            
            409(1,256,996
            )
            
            
            (1,175,618
            )
            
            
            (903,692
            )**OTHER
                INCOME (EXPENSES)**Interest
                expense
            
            
            (848
            )
            
            
            (10,487
            )
            
            
            -Interest
                and other income
            
            
            24,450
            
            
            
            2,034
            
            
            
            -(1,233,394
            )
            
            
            (1,184,071
            )
            
            
            (903,692
            )**LOSS
                BEFORE INCOME TAXES AND**
              **DISCONTINUED
                OPERATIONS**
            
            
            (4,100,730
            )
            
            
            (1,051,052
            )
            
            
            (715,910
            )Recovery
                of future income taxes (Note 12a)
            
            
            1,032,099
            
            
            
            583,706
            
            
            
            -**LOSS
                BEFORE DISCONTINUED OPERATIONS**
            
            
            (3,068,631
            )
            
            
            (467,346
            )
            
            
            (715,910
            )Discontinued
                operations (Note 2)
            
            
            (168,128
            )
            
            
            (55,112
            )
            
            
            (13,124
            )**LOSS
                FOR THE YEAR**
            
            $
            (3,236,759
            )
            
            $
            (522,458
            )
            
            $
            (729,034
            )**BASIC
                AND DILUTED LOSS PER SHARE BEFORE DISCONTINUED
                OPERATIONS**
            
            $
            (0.21
            )
            
            $
            (0.05
            )
            
            $
            (0.10
            )**BASIC
                AND DILUTED LOSS PER SHARE AFTER DISCONTINUED
                OPERATIONS**
            
            $
            (0.22
            )
            
            $
            (0.05
            )
            
            $
            (0.10
            )**WEIGHTED
                AVERAGE NUMBER OF SHARES OUTSTANDING**
            
            
            14,646,442
            
            
            
            9,849,082
            
            
            
            7,175,945





The
      accompanying notes form an integral part of these financial
      statements.





51
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          of Contents


**BERKLEY
            RESOURCES INC.**
 **STATEMENTS
            OF DEFICIT**
 **For
            the Years Ended December 31**





**2006**
            
            
            **2005**
            
            
            **2004****(Restated)****DEFICIT,**beginning of period
            
            $
            (1,846,222
            )
            
            $
            (1,323,764
            )
            
            $
            (563,849
            )**RETROACTIVE
                ADJUSTMENT**Stock
                based compensation (Note 4)
            
            
            -
            
            
            
            -
            
            
            
            (30,881
            )**DEFICIT,
                restated, beginning of period**
            
            
            (1,846,222
            )
            
            
            (1,323,764
            )
            
            
            (594,730
            )Loss
                for the year
            
            
            (3,236,759
            )
            
            
            (522,458
            )
            
            
            (729,034
            )**DEFICIT,**end of year
            
            $
            (5,082,981
            )
            
            $
            (1,846,222
            )
            
            $
            (1,323,764
            )



































































The
      accompanying notes form an integral part of these financial
      statements.





52
 Table
          of Contents


**BERKLEY
            RESOURCES INC.**
 **STATEMENTS
            OF CASH FLOWS**
 **For
            the Years Ended December 31**


**2006**
            
            
            **2005**
            
            
            **2004****(Restated)****CASH
                PROVIDED BY (USED IN)****CONTINUING
                OPERATIONS****OPERATING
                ACTIVITIES**Loss
                for the period from continuing operations
            
            $
            (3,068,631
            )
            
            $
            (467,346
            )
            
            $
            (715,910
            )Items
                not requiring cash in the yearAmortization,
                depletion and accretion
            
            
            1,164,948
            
            
            
            669,256
            
            
            
            263,184Finance
                fees on debt
            
            
            61,753
            
            
            
            -
            
            
            
            -Write-down
                of oil and gas properties
            
            
            2,385,000
            
            
            
            -
            
            
            
            -Recovery
                of future income taxes
            
            
            (1,032,099
            )
            
            
            (583,706
            )
            
            
            -Stock
                based compensation
            
            
            177,596
            
            
            
            173,538
            
            
            
            273,793(311,433
            )
            
            
            (208,258
            )
            
            
            (178,933
            )Net
                change in non-cash working capital balances:Accounts
                receivable
            
            
            (328,580
            )
            
            
            (133,434
            )
            
            
            (45,419
            )Taxes
                recoverable
            
            
            6,180
            
            
            
            8,754
            
            
            
            13,413Prepaid
                expenses
            
            
            85,756
            
            
            
            (9,189
            )
            
            
            11,649Due
                from related party
            
            
            3,454
            
            
            
            18,606
            
            
            
            -Prepaid
                oil and gas costs
            
            
            295,350
            
            
            
            81,343
            
            
            
            (376,693
            )Accounts
                payable and accrued liabilities
            
            
            662,231
            
            
            
            1,833
            
            
            
            42,419Due
                to related parties
            
            
            (56,484
            )
            
            
            124,917
            
            
            
            -356,474
            
            
            
            (115,428
            )
            
            
            (533,564
            )**INVESTING
                ACTIVITIES**Proceeds
                on disposal of oil and gas property
            
            
            -
            
            
            
            112,500
            
            
            
            -Oil
                and gas properties and equipment, net
            
            
            (6,739,047
            )
            
            
            (3,859,162
            )
            
            
            (1,301,715
            )Other
                property, plant and equipment
            
            
            (433
            )
            
            
            (5,548
            )
            
            
            (2,728
            )(6,739,480
            )
            
            
            (3,752,210
            )
            
            
            (1,304,443
            )**FINANCING
                ACTIVITIES**Issuance
                of common shares (net of issue costs)
            
            
            3,689,142
            
            
            
            3,615,396
            
            
            
            2,434,882**Increase
                (Decrease) in cash from continuing operations**
            
            
            (2,693,864
            )
            
            
            (252,242
            )
            
            
            596,875**Increase
                (Decrease) in cash from discontinued operations**(Note
                2)
            
            
            1,297,429
            
            
            
            1,434,245
            
            
            
            (119,422
            )**Cash,
                beginning of year**
            
            
            1,894,681
            
            
            
            712,678
            
            
            
            235,225**Cash,
                end of year**
            
            $
            498,246
            
            
            $
            1,894,681
            
            
            $
            712,678





**SUPPLEMENTAL
                STATEMENTS OF CASH****FLOWS
                DISCLOSURE**Interest
                paid on long-term debt
            
            $
            273,100
            
            
            $
            99,532
            
            
            $
            23,047





The
      accompanying notes form an integral part of these financial
      statements.




53
 Table
          of Contents


**BERKLEY
            RESOURCES INC.**
 **NOTES
            TO FINANCIAL STATEMENTS**
 **December
            31, 2006 and 2005**




**1.**
            **Nature
                of Operations and Going
                Concern**





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 commercial rental operations have
      been discontinued as a result of the planned sale of the building subsequent
      to
      year end (Note 2).





These
      financial statements have been prepared on the basis of accounting principles
      applicable to a going concern which assumes that Berkley will continue in
      operation for the foreseeable future in regards to its oil and gas operations
      and will be able to realize its assets and discharge its liabilities in the
      normal course of operations.





Adverse
      conditions and events cast substantial doubt upon the validity of this
      assumption.  The Company has incurred significant operating losses
      over the past several fiscal years and as at December 31, 2006 the Company
      does
      not have sufficient financial resources to meet its flow through expenditure
      requirements in 2007. As at December 31, 2006, the Company had a working capital
      deficit of $3,189,632 (2005 – $99,421).





The
      Company’s ability to continue as a going concern is dependent upon its ability
      to raise additional capital through the issuance of treasury shares or debt
      and
      achieve profitable operations in the future.





If
      the
      going concern assumption were not appropriate for these financial statements,
      then adjustments would be necessary in the carrying values of assets and
      liabilities, reported revenues and expenses, and the balance sheet
      classifications used.





**2.**
            **Discontinued
                Operations**





Subsequent
      to the year end, the Company has entered into an agreement to sell its real
      estate assets in Vancouver, British Columbia.  Therefore the rental
      property asset and liability amounts are now disclosed as *Assets of
      discontinued operations* and *Bank loans and liabilities of discontinued
      operations* respectively on the Balance Sheet and the operations segment
      disclosed as discontinued operations on the Statement of
      Operations.  The rental property asset is expected to be sold for
      $4,000,000 on or before September 7, 2007 and has a carrying value of
      $2,038,924.  Summarized financial information relating to the
      discontinued operations are as follows:





Assets:





**2006**
            
            
            **2005**Building,
                at cost
            
            $
            447,652
            
            
            $
            447,652Less:  Accumulated
                amortization
            
            
            (147,722
            )
            
            
            (137,631
            )299,930
            
            
            
            310,021Land,
                at cost
            
            
            1,738,994
            
            
            
            1,738,994$
            2,038,924
            
            
            $
            2,049,015





Liabilities:







**2006**
            
            
            **2005**Canadian
                Imperial Bank of Commerce
            
            $
            577,612
            
            
            $
            322,146Canadian
                Imperial Bank of Commerce
            
            
            -
            
            
            
            100,000Quest
                Capital Corp.
            
            
            2,800,000
            
            
            
            -IMOR
                Capital Corp.
            
            
            -
            
            
            
            1,500,000$
            3,377,612
            
            
            $
            1,922,146




54
 Table
          of Contents


**BERKLEY
              RESOURCES INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **December
              31, 2006 and 2005**




**2.**
            **Discontinued
                Operations - Continued**





Operating
      results:





**2006**
            
            
            **2005**
            
            
            **2004**Rental
                Revenue
            
            $
            249,211
            
            
            $
            238,466
            
            
            $
            232,607Rental
                operations expensesOperating
                costs
            
            
            193,800
            
            
            
            180,779
            
            
            
            209,229Interest
                on bank loan
            
            
            213,448
            
            
            
            99,532
            
            
            
            23,047Amortization
            
            
            10,091
            
            
            
            13,267
            
            
            
            13,455417,339
            
            
            
            293,578
            
            
            
            245,731Net
                Rental Loss
            
            $
            (168,128
            )
            
            $
            (55,112
            )
            
            $
            (13,124
            )





Cash
      flows:





**2006**
            
            
            **2005**
            
            
            **2004**Operating
                activitiesLoss
                for the period
            
            $
            (168,128
            )
            
            $
            (55,112
            )
            
            $
            (13,124
            )Amortization
            
            
            10,091
            
            
            
            13,267
            
            
            
            13,455(158,037
            )
            
            
            (41,845
            )
            
            
            331Financing
                activitiesBank
                and other loans received
            
            
            3,055,466
            
            
            
            1,600,000
            
            
            
            -Bank
                and other loans repaid
            
            
            (1,600,000
            )
            
            
            (123,910
            )
            
            
            (119,753
            )1,455,466
            
            
            
            1,476,090
            
            
            
            (119,753
            )Net
                cash increase (decrease) in cash fromdiscontinued
                operations
            
            $
            1,297,429
            
            
            $
            1,434,245
            
            
            $
            (119,422
            )












55
 Table
          of Contents


**BERKLEY
              RESOURCES INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **December
              31, 2006 and 2005**




**3.**
            **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
      17.





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





b)           **Foreign
      currency translation**





The
      accounts of the Company are maintained in Canadian dollars. Monetary assets
      and
      liabilities are translated into Canadian dollars at the year end exchange rates.
      Non-monetary assets and liabilities are translated using historical rates of
      exchange. Revenues and expenses are translated at average rates for the year
      and
      exchange gains and losses on translation are included in
      operations.





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 of activity reports.
      Differences between production and amounts delivered and sold are not
      significant.  Revenue is recognized based upon the monthly report of
      sales from either the third party or the Company’s partner in the
      well.





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. Such costs include land acquisition costs,
      geological and geophysical expenses, carrying charges on non-producing
      properties, costs of drilling both productive and non-productive wells, costs
      of
      production equipment and overhead charges relating to acquisition, exploration
      and development activities.  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) before
      royalties.  For purposes of this calculation, reserves are converted
      to common units on the basis that six thousand cubic feet of natural gas is
      equivalent to one barrel of oil.





Costs
      of
      acquiring and evaluating unproved properties are initially excluded from
      depletion calculations.  These unevaluated properties are assessed
      periodically to ascertain whether impairment has occurred.  When
      proved reserves are assigned or the property is considered to be impaired,
      the
      cost of the property or the amount of the impairment is added to costs subject
      to depletion calculations.





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
      unless this results in a change of 20% or more in the depletion rate. 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.




56
 Table
          of Contents


**BERKLEY
              RESOURCES INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **December
              31, 2006 and 2005**


**3.**
            **Significant
                Accounting Policies** - *Continued*





d)
            **Oil
                and gas properties
                and equipment -***Continued*





The
      Company performs a ceiling test in a two-stage test performed at least
      annually:





i)
            Impairment
                is recognized if the carrying value of the oil and gas assets less
                accumulated depletion and amortization and the lesser of cost and
                fair
                value of unproven properties exceeds the estimated future cash flows
                from
                proved oil and gas reserves, on an undiscounted basis, using forecast
                prices and costs.





ii)
            If
                impairment is indicated by applying the calculations described in
                i)
                above, the Company will measure the amount of the impairment by comparing
                the carrying value of the oil and gas assets less accumulated depletion
                and amortization and the lesser of cost and fair value of unproven
                properties to the estimated future cash flows from the proved and
                probable
                oil and gas reserves, discounted at the Company’s risk-free rate of
                interest, using forecast prices and costs. Any impairment is included
                in
                earnings for the year.





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. As at 31 December 2006 and 2005, the
      Company does not operate any of its oil and gas interests.





e)           **Asset
      retirement obligation**





Effective
      January 1, 2004 the Company retroactively adopted the new Canadian standard
      for
“Asset Retirement Obligations”. This standard requires the recognition of the
      fair value of obligations associated with the retirement of tangible long-lived
      assets to be recorded in the period the asset is put to use, with the
      corresponding increase to the carrying amount of the related asset. The
      obligations recognized are statutory, contractual or legal obligations. The
      liability is accreted over time for changes in the fair value of the liability
      through charges to asset retirement accretion which is included in depletion,
      amortization and accretion expense. The costs capitalized to the related assets
      are amortized to earnings in a manner consistent with the depreciation and
      amortization of the underlying assets. Revisions to the estimated timing of
      cash
      flows or to the original estimated undiscounted costs could also result in
      an
      increase or decrease to the obligation. Actual costs incurred upon settlement
      of
      the retirement obligation are charged against the obligation to the extent
      of
      the liability recorded. Prior to January 1, 2004, the Company provided for
      future site restoration and abandonment costs over the life of the proved
      reserves on a unit-of-production basis.





f)           **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 at the
      rate
      of 4% per annum by the declining balance method.  No amortization was
      taken on the building in the current year, subsequent to these operations being
      discontinued.





Other
      capital assets consist of computer equipment, furniture and equipment and are
      amortized at the following rates per annum by the declining balance
      method:





Computer
                equipment
            30%Furniture,
                fixtures and equipment
            20%





g)           **Financial
      instruments**





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




57
 Table
          of Contents


**BERKLEY
            RESOURCES INC.**
 **NOTES
            TO FINANCIAL STATEMENTS**
 **December
            31, 2006 and 2005**


**3.**
            **Significant
                Accounting Policies** - *Continued*





h)           **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. The amounts
      recorded for depletion and depreciation of petroleum and natural gas properties
      and the provision for asset retirement obligations are based on estimates.
      The
      ceiling test is based on estimates of proven reserves, production rates, oil
      and
      gas prices and other relevant assumptions. By their nature, these estimates
      are
      subject to measurement uncertainty and the effect on the financial statements
      of
      changes in such estimates, in future periods, could be significant.





i)           **Stock
      based compensation plan**





Stock
      based 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.





j)           **Loss
      per share**





Basic
      loss per share is computed by dividing income available to common shareholders
      by the weighted average number of common shares outstanding during the
      period.  The computation of diluted loss per share assumes the
      conversion, exercise or contingent issuance of securities only when such
      conversion, exercise or issuance would have a dilutive effect on loss per
      share.  The dilutive effect of convertible securities is reflected in
      diluted loss per share by application of the "if converted"
      method.  The dilutive effect of outstanding options and warrants and
      their equivalents is reflected in diluted loss per share by application of
      the
      treasury stock method.  This method assumes the proceeds from the
      exercise of dilutive options and warrants are used to purchase common shares
      at
      the weighted average market price during the period.





k)           **Income
      taxes**





The
      Company follows the asset and liability method of accounting for future income
      taxes.  Under this method, future income tax assets and liabilities
      are recorded based on temporary differences between the carrying amount of
      balance sheet items and their corresponding tax bases.  In addition,
      the future benefits of income tax assets, including unused tax losses, are
      recognized, subject to a valuation allowance, to the extent that it is more
      likely than not that such future benefits will ultimately be
      realized.  Future income tax assets and liabilities are measured using
      enacted tax rates and laws expected to apply when the tax liabilities or assets
      are to be either settled or realized.





l)           **Share
      capital**





i)
            The
                proceeds from the exercise of stock options and warrants are recorded
                as
                share capital in the amount for which the option or warrant enabled
                the
                holder to purchase a share in the
                Company.





ii)
            Share
                capital issued for non-monetary consideration is recorded at an amount
                based on fair market value.





All
      costs
      related to issuances of share capital will be charged against the proceeds
      received from the related share capital.




58
 Table
          of Contents


**BERKLEY
              RESOURCES INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **December
              31, 2006 and 2005**


**3.**
            **Significant
                Accounting Policies** - *Continued*





m)           **Variable
      interest entities - change in accounting policy**





The
      Accounting Standards Board (AcSB) issued Accounting Guideline AcG 15
“Consolidation of Variable Interest Entities”, to harmonize the Guideline with
      the equivalent FASB Interpretation No. 46R, “Consolidation of Variable Interest
      Entities.”  The Guideline provides criteria for identifying VIEs and
      further criteria for determining what entity, if any, should consolidate
      them.  The Guideline is effective for annual and interim periods
      beginning on or after November 1, 2004, and upon adoption, will not materially
      impact the Company’s results of operations and financial
      position.  The Guideline is effective January 1, 2005 for the
      Company.





n)           **Flow-through
      shares**





Canadian
      Income Tax Legislation permits an enterprise to issue securities referred to
      as
      flow-through shares, whereby the investor can claim the tax deductions arising
      from the renunciation of the related resource expenditures.  When
      resource expenditures are renounced to the investors and the Company has
      reasonable assurance that the expenditures will be completed, future income
      tax
      liabilities are recognized (renounced expenditures multiplied by the effective
      tax rate) thereby reducing share capital.





If
      a
      company has sufficient unused tax losses and deductions (“losses”) to offset all
      or part of the future income tax liabilities and no future income tax assets
      have been previously recognized on such losses, a portion of such unrecognized
      losses (losses multiplied by the effective corporate tax rate) is recorded
      as
      income up to the amount of the future income tax liability that was previously
      recognized on the renounced expenditures.





o)           **Recent
      accounting pronouncements**





In
      January 2005, the Canadian Institute of Chartered Accountants issued new
      recommendations for the recognition and measurement of financial instruments,
      and amendments to the existing presentation and disclosure standards, effective
      for interim and annual financial statements with fiscal years beginning on
      or
      after October 1, 2006.  Section 3855 Financial Instruments –
Recognition and Measurement establishes standards for recognizing and measuring
      financial assets, financial liabilities and non-financial
      derivatives.  Section 3861 Financial Instruments – Disclosure and
      Presentation discusses the presentation and disclosure of these
      items.  The application of hedge accounting is covered in Section 3865
      Hedges. Section 1530 Comprehensive Income establishes standards for reporting
      and displaying certain gains and losses, such as unrealized gains and losses
      related to hedges or other derivative instruments, outside of net income, in
      a
      statement of comprehensive income. Section 3251 Equity establishes standards
      for
      the presentation of equity and changes in equity, including changes arising
      from
      those items recorded in comprehensive income.  There have also been
      numerous consequential amendments made to other
      Sections.  Transitional provisions are complex and vary based on the
      type of financial instruments under consideration.  Therefore, the
      Company has not yet determined the effect of these new standards on its
      financial statements.





**4.**
            **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
                3i.  This change has been applied retroactively so 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.




59
 Table
          of Contents


**BERKLEY
              RESOURCES INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **December
              31, 2006 and 2005**


**4.**
            **Accounting
                Changes -***Continued*





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.





**5.**
            **Oil
                and Gas Properties and
                Equipment**





**2006**
            
            
            **2005**(Restated)Oil
                and gas properties and equipment, cost
            
            $
            16,035,651
            
            
            $
            9,249,158Less:
                Accumulated amortization and depletion
            
            
            (5,069,627
            )
            
            
            (3,909,627
            )Write-down
                of oil and gas properties
            
            
            (2,385,000
            )
            
            
            -$
            8,581,024
            
            
            $
            5,339,531





Future
      development costs related to proven undeveloped reserves of $ Nil (2005 –
$55,000) have been included in the depletion base calculation at December 31,
      2006.





At
      December 31, 2006, oil and gas properties and equipment includes the cost of
      unproven properties of approximately $3,832,346 (2005 - $330,228) which are
      currently not subject to depletion.





The
      benchmark prices, on which the ceiling test is based, are as
      follows:





**Year**
            **Crude
                Oil**
              **CDN$/bbl**
            **Natural
                Gas**
              **CDN$/mcf**2007
            65.99
            7.212008
            67.71
            7.852009
            66.19
            7.802010
            61.42
            7.932011
            56.68
            8.252012
            53.73
            8.442013
            53.90
            8.582014
            54.93
            8.882015
            56.09
            9.072016
            55.45
            9.28





Benchmark
      prices increase at a rate of 2% per year for both oil and gas after
      2016.





For
      the
      year ended December 31, 2006, a ceiling test write-down of $2,385,000 was
      required.  For the year ended December 31, 2005, no ceiling test
      write-down was required.





During
      the year ended December 31, 2006, five property areas produced more than 95%
      (2005 – 87%) of the total oil and gas revenue.  There is no guarantee
      that this revenue will continue in future periods. In addition, $70,013 of
      2006
      revenue (2005 – $465,401) came from a well that was abandoned in fiscal 2006 and
      is unlikely to produce any future revenue.




60
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          of Contents


**BERKLEY
              RESOURCES INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **December
              31, 2006 and 2005**


**6.**
            **Assets
                of Discontinued Operations**





**2006**
            
            
            **2005**Building,
                at cost
            
            $
            447,652
            
            
            $
            447,652Less:  Accumulated
                amortization
            
            
            (147,722
            )
            
            
            (137,631
            )299,930
            
            
            
            310,021Land,
                at cost
            
            
            1,738,994
            
            
            
            1,738,994$
            2,038,924
            
            
            $
            2,049,015








**7.**
            **Other
                Property, Plant and
                Equipment**





**Cost**
            
            
            **Accumulated
                Amortization**
            
            
            **Net
                2006**
            
            
            **Net
                2005**Computer
                equipment
            
            $
            28,382
            
            
            $
            (25,773
            )
            
            $
            2,609
            
            
            $
            3,806Furniture,
                fixtures and equipment
            
            
            8,521
            
            
            
            (6,407
            )
            
            
            2,114
            
            
            
            2,642Truck
            
            
            39,040
            
            
            
            (39,039
            )
            
            
            1
            
            
            
            1$
            75,943
            
            
            $
            (71,219
            )
            
            $
            4,724
            
            
            $
            6,449








**8.**
            **Bank
                Loans and Liabilities of Discontinued
                Operations**





**2006**
            
            
            **2005**Canadian
                Imperial Bank of Commerce
            
            $
            577,612
            
            
            $
            322,146Canadian
                Imperial Bank of Commerce
            
            
            -
            
            
            
            100,000Quest
                Capital Corp.
            
            
            2,800,000
            
            
            
            -IMOR
                Capital Corp.
            
            
            -
            
            
            
            1,500,000$
            3,377,612
            
            
            $
            1,922,146








The
      bank
      loan of $577,612 payable to the Canadian Imperial Bank of Commerce (“CIBC”)
      bears interest at prime plus 1.00% per annum, is due on demand, and is secured
      by a first mortgage in the amount of $650,000 over the Company’s rental property
*(Note 6)*and an
      assignment of rents and insurance.  Also, one director has supplied a
      guarantee of $300,000.





The
      bank
      loan payable to Quest Capital Corp (“Quest”) bears interest at 12.00% per annum
      with monthly interest only payments of approximately $28,000 and is secured
      by a
      first charge debenture over the Company’s oil and natural gas assets, a second
      mortgage over the Company’s real estate, a promissory note and a general
      security agreement.  The balance is due September 7,
      2007.  The lender, at its option, may extend the maturity date of this
      mortgage at the request of the Company.





The
      bank
      loan payable to IMOR Capital Corp (“IMOR”) had beared interest at prime plus
      6.75% per annum (minimum 11% per annum) with monthly interest only payments
      of
      $13,750 and was secured by a second mortgage over the Company’s real estate and
      an assignment of rents and a general security agreement.  The debt was
      settled in September 2006 with proceeds from the Quest Capital Corp.
      loan.





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,
      2006, there was a nil balance outstanding with regard to the credit
      line.




61
 Table
          of Contents


**BERKLEY
              RESOURCES INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **December
              31, 2006 and 2005**





**9.**
            **Asset
                Retirement Obligation**





The
      following table sets out the activity for the Company’s asset retirement
      obligation for the years ending December 31, 2006 and 2005:





**2006**
            
            
            **2005**Opening
                balance
            
            $
            85,439
            
            
            $
            43,030Accretion
            
            
            2,790
            
            
            
            2,294Additions
            
            
            47,446
            
            
            
            40,115Reduction
                due to disposal
            
            
            -
            
            
            
            -$
            135,675
            
            
            $
            85,439





The
      Company estimates the total undiscounted amount of cash flows required to settle
      its asset retirement obligation is approximately $217,700 (2005 – $144,600)
      which will be incurred between 2007 and 2017.





**10.**
            **Share
                Capital**





a)
            Authorized:





Unlimited
      common shares, without par value





**2006**
            
            
            **2005****Issued
                and fully paid:**
            
            **Number
                of Shares**
            
            
            **Amount**
            
            
            **Number****of****Shares**
            
            
            **Amount**Balance,
                beginning of year
            
            
            14,184,955
            
            
            $
            8,762,671
            
            
            
            9,681,977
            
            
            $
            5,734,921Issued
                in the year for cash:Pursuant
                to private placements:-
                flow-through for cash
            
            
            3,613,015
            
            
            
            3,251,713
            
            
            
            3,629,978
            
            
            
            3,266,980-
                non-flow-through for cash *(Note 11i)*
            
            
            755,600
            
            
            
            642,260
            
            
            
            536,000
            
            
            
            402,000-
                non-flow-through for services
            
            
            301,538
            
            
            
            196,000
            
            
            
            100,000
            
            
            
            75,000Exercise
                of stock options
            
            
            -
            
            
            
            -
            
            
            
            237,000
            
            
            
            89,010Exercise
                of warrants
            
            
            2,500
            
            
            
            3,750
            
            
            
            -
            
            
            
            -Share
                issuance costs
            
            
            -
            
            
            
            (246,361
            )
            
            
            -
            
            
            
            (237,994
            )Future
                income taxes on renouncement of resource property expenditures *(Note
                4b)*
            
            
            -
            
            
            
            (1,114,694
            )
            
            
            -
            
            
            
            (583,706
            )Future
                income taxes on share issue costs
            
            
            -
            
            
            
            82,595
            
            
            
            -
            
            
            
            -Contributed
                surplus on exercise of stock options *(Note 11)*
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            16,460Balance,
                end of year
            
            
            18,857,608
            
            
            $
            11,577,934
            
            
            
            14,184,955
            
            
            $
            8,762,671





b)
            Warrants





**2006**
            ****
            ****
            **2005**
            ********
            ****
            **Number
                of Shares Subject to Warrants**
            ****
            ****
            **Exercise
                price range**
            ****
            ****
            **Number
                of Shares Subject to Warrants**
            ****
            ****
            **Exercise
                price range**Outstanding,
                beginning of year
            
            
            1,925,232
            
            
            $
            1.10/$1.50
            
            
            
            1,289,232
            
            
            $
            1.10/$1.50Issued
            
            
            377,800
            
            
            $
            1.20/$1.50
            
            
            
            636,000
            
            
            $
            1.25Exercised
            
            
            (2,500
            )
            
            $
            1.50
            
            
            
            -
            
            
            
            -Expired
            
            
            (1,286,732
            )
            
            $
            1.10/$1.50
            
            
            
            -
            
            
            
            -Outstanding,
                end of year
            
            
            1,013,800
            
            
            $
            1.20/$1.50
            
            
            
            1,925,232
            
            
            $
            1.10/$1.50




62
 Table
          of Contents


**BERKLEY
              RESOURCES INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **December
              31, 2006 and 2005**


**10.**
            **Share
                Capital** - *Continued*





b)
            Warrants
                -*Continued*





At
      December 31, the following share purchase warrants were
      outstanding:





**Exercise
                price Range**
            **Expiry
                date**
            **2006**
              **Number
                of warrants**
            **2005**
              **Number
                of warrants**$1.25
            November
                10, 2006
            -
            241,110$1.50
            November
                10, 2006
            -
            553,750$1.25
            November
                30, 2006
            -
            129,000$1.50
            November
                30, 2006
            -
            319,500$1.36
            December
                10, 2006
            -
            45,872$1.25
            December
                28, 2007
            636,000
            636,000$1.20/$1.50
            April
                30, 2007 / December 31, 2007
            377,800
            -1,013,800
            1,925,232








c)
            Stock
                options





The
      Company has adopted a 2006 Stock Option Plan (“the Plan”) which provides for the
      granting of options to acquire up to 2,837,000 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 within 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:





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


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


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


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


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





**2006**
            
            
            **2005****Number
                of Shares Subject to Options**
            
            
            **Weighted
                average exercise price per share**
            
            
            **Number
                of Shares Subject to Options**
            
            
            **Weighted
                average exercise price per share**Balance
                outstanding, beginning of year
            
            
            1,634,000
            
            
            $
            0.72
            
            
            
            1,226,000
            
            
            $
            0.57Activity
                in the yearGranted
            
            
            600,000
            
            
            $
            0.56
            
            
            
            645,000
            
            
            $
            0.90Exercised
            
            
            -
            
            
            
            -
            
            
            
            (237,000
            )
            
            $
            0.38Cancelled
            
            
            (20,000
            )
            
            $
            0.78
            
            
            
            -
            
            
            
            -Lapsed
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Balance
                outstanding, end of year
            
            
            2,214,000
            
            
            $
            0.68
            
            
            
            1,634,000
            
            
            $
            0.72Exercisable
                ,end of year
            
            
            1,428,333
            
            
            $
            0.68
            
            
            
            902,900
            
            
            $
            0.58




63
 Table
          of Contents


**BERKLEY
              RESOURCES INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **December
              31, 2006 and 2005**





**10.**
            **Share
                Capital** - *Continued*





c)
            Stock
                options -*Continued*





A
      summary
      of stock options outstanding is as follows:





**2006**
            **2005****Exercise
                Price**
              **Per
                Share**
            **Expiry
                Date**
            **Number
                of Shares Remaining**
              **Subject
                to Options at December 31**$0.52
            September
                19, 2008
            580,500
            580,500$0.57
            September
                19, 2008
            150,000
            150,000$0.74
            September
                19, 2008
            6,000
            21,000$0.81
            October
                19, 2009
            200,000
            200,000$0.77
            October
                29, 2009
            37,500
            37,500$0.90
            December
                23, 2010
            640,000
            645,000$0.56
            September
                21, 2011
            600,000
            -2,214,000
            1,634,000





The
      fair
      value of the stock options granted were $198,900 (2005: $176,500) determined
      on
      the date of grant using the Black-Scholes option pricing model with the
      following weighted average assumptions:





**2006**
            
            
            **2005**Risk
                free interest rate
            
            
            3.91
            %
            
            
            3.83
            %Expected
                life
            
            3
                years
            
            
            3
                yearsVolatility
                factor
            
            
            55
            %
            
            
            58
            %Dividend
                yield
            
            
            0
            %
            
            
            0
            %





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.





**11.**
            **Contributed
                Surplus**





**2006**
            
            
            **2005**Balance,
                beginning of year
            
            $
            589,036
            
            
            $
            336,558Stock-based
                compensation on issue of options
            
            
            177,596
            
            
            
            173,538Value
                of warrants (i)
            
            
            37,780
            
            
            
            95,400Exercise
                of stock options *(Note
                10a)*
            
            
            -
            
            
            
            (16,460
            )$
            804,412
            
            
            $
            589,036





(i)
            During
                the year the Company issued 755,600 units at $0.90 per unit for total
                proceeds of $680,040 with each unit consisting of one common share
                of the
                Company and one half warrants exercisable to April 30, 2007 at $1.20
                per
                warrant and exercisable to December 31, 2007 at $1.50. Management
                determined that $0.05 of the $0.90 unit price was applicable to the
                warrant, therefore $37,780 of total proceeds was been reflected in
                contributed surplus. Should these warrants be exercised the applicable
                amount of contributed surplus will be transferred to share
                capital.





64
 Table
          of Contents


**BERKLEY
              RESOURCES INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **December
              31, 2006 and 2005**





**12.**
            **Income
                Taxes**





a)
            Reconciliation
                of accounting and taxable income, for the years ended December 31
                are as
                follows:





**2006**
            
            
            **2005**
            
            
            **2004**(Restated)Net
                income (loss) for the year before taxes
            
            $
            (4,268,855
            )
            
            $
            (1,106,164
            )
            
            $
            (729,034
            )Combined
                federal and provincial income tax rate
            
            
            34.12
            %
            
            
            34.12
            %
            
            
            34.00
            %Computed
                income tax expense (reduction)
            
            
            (1,456,533
            )
            
            
            (377,423
            )
            
            
            (247,872
            )Increase
                (decrease) resulting fromNon
                deductible Crown Royalties, net
            
            
            22,290
            
            
            
            33,956
            
            
            
            16,627Resource
                Loss (Allowance)
            
            
            (12,658
            )
            
            
            12,292
            
            
            
            (32,880
            )Stock
                based compensation
            
            
            60,596
            
            
            
            59,211
            
            
            
            92,750Deferred
                financing fees
            
            
            21,070
            
            
            
            -
            
            
            
            -Meals
                and entertainment
            
            
            1,323
            
            
            
            1,857
            
            
            
            4,657Tax
                adjustment from rate change and other
            
            
            (892
            )
            
            
            250
            
            
            
            -Change
                in valuation allowance
            
            
            332,705
            
            
            
            (313,849
            )
            
            
            166,718Recovery
                of income taxes
            
            $
            (1,032,099
            )
            
            $
            (583,706
            )
            
            $
            -





b)
            The
                components of the future income tax asset (liability) balances for
                the
                years ended December 31, are as
                follows:





**2006**
            
            
            **2005**(Restated)**Future
                income tax assets**Non-capital
                losses
            
            $
            401,972
            
            
            $
            202,748Share
                issuance costs
            
            
            148,615
            
            
            
            115,136Rental
                property and equipment tax value in excess of book value
            
            
            105,150
            
            
            
            100,616Asset
                Retirement Obligation
            
            
            46,292
            
            
            
            29,049Cumulative
                eligible capital
            
            
            2,386
            
            
            
            2,556**Future
                income tax liabilities**Oil
                and gas properties tax value in excess of book value
            
            
            (135
            )
            
            
            (78,530
            )Allowance
            
            
            (704,280
            )
            
            
            (371,575
            )Future
                income tax asset (liability)
            
            $
            -
            
            
            $
            -





Future
      income tax assets are recorded when it is more likely then not, that they will
      be recovered in future periods.  A full valuation allowance has been
      taken on the future income tax assets as this criteria has not been
      met.





65
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          of Contents


**BERKLEY
              RESOURCES INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **December
              31, 2006 and 2005**





**12.**
            **Income
                Taxes** - *Continued*





c)
            The
                Company has non-capital losses which may be applied to reduce future
                years' taxable income. At December 31, 2006, these losses expire
                as
                follows:





2007
            
            $
            -2008
            
            
            10,7112009
            
            
            58,6842010
            
            
            52,6132014
            
            
            265,6112015
            
            
            208,7002026
            
            
            581,795$
            1,178,114





d)
            Canadian
                development and exploration
                expenditures





As
      at
      December 31, 2006, the Company had $8,580,628 (2005 - $5,108,560) of unused
      Canadian exploration and development expenses available to offset future taxable
      income of the Company. The tax benefit of these expenses carry forward
      indefinitely.





e)
            Flow-through
                shares





In
      2006,
      the Company issued flow-through shares in the amount of $3,251,713 (2005 -
      $3,266,980), excluding share issue costs, to finance eligible Canadian
      exploration expenditures. The resource expenditure deductions for income tax
      purposes related to exploration activities are renounced to investors in
      accordance with income tax legislation, and as a result tax deductibility of
      these costs are not available to the Company.





As
      at
      December 31, 2006 the subscription value of the flow-through shares of
      $3,251,713 (2005 – $3,266,680) had not yet been renounced to the shareholders,
      and $2,673,196 (2005 – $3,069,780) of eligible Canadian exploration expenditures
      had not yet been expended by the Company. The Company is committed to spend
      this
      amount on qualifying expenditures by December 31,
      2007.  Subsequent to the year-end, the Company renounced the
      $3,251,713 (2005 - $3,266,980) to the flow-through shareholders under the CRA
      look back rules.





**13.**
            **Related
                Party Transactions**





a)
            Due
                from related party balance of $Nil (2005: $3,454) is due from a public
                company with common management and a common
                director.





b)
            Due
                to related parties consists of $16,651 (2005 - $15,148) due to Directors
                of the Company for Directors fees and expense reimbursements; $51,782
                (2005 - $19,769) to a private company owned by public companies having
                common Directors that provides administrative services, office supplies
                and accounting services; and $Nil (2005 - $90,000) to Directors and
                Officers of the Company in regards to bonus
                payments.





c)
            Management
                and consulting fees totalling $237,828 were paid to Directors and
                their
                private companies in 2006 (2005:
                $291,392).





d)
            During
                the year, current and/or former Directors and/or Officers exercised
                nil
                options (2005: 217,500 options for total proceeds of
                $78,900).  In addition, current and/or former Directors and
                Officers subscribed for 145,500 shares of the Company for total proceeds
                of $130,950 (2005: 25,000 shares of the Company for total proceeds
                of
                $22,500).





e)
            Consulting
                fees totalling $96,000 were paid to a former Director and his spouse
                in
                2006 (2005: $96,000).





f)
            A
                debt financing fee of $Nil was paid to a director in 2006 (2005 -
                $29,000).





g)
            Administrative
                services, office supplies and accounting charges totalling $113,865
                were
                paid to Oniva International Services Corporation (“Oniva”), a private
                company owned by public companies having common Directors (2005:
                $121,303).






66
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          of Contents


**BERKLEY
              RESOURCES INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **December
              31, 2006 and 2005**


**13.**
            **Related
                Party
                Transactions -***Continued*





The
      transactions were in the normal course of operations and agreed to by the
      related party and the Company and have had been measured at the exchange
      amount.





The
      Company takes part in a cost sharing arrangement to reimburse Oniva for a
      variable percentage of its overhead expenses, to reimburse 100% of its
      out-of-pocket expenses incurred on behalf of the Company, and to pay a
      percentage fee based on the total overhead and corporate
      expenses.  The agreement may be terminated with one-month notice by
      either party.





**14.**
            **Risk
                Management**





The
      carrying values of financial assets and liabilities approximate their fair
      value
      due to their short periods to maturity.  The Company is exposed to
      interest risk on its bank loan and line of credit facility with the Canadian
      Imperial Bank of Commerce.





**15.**
            **Commitments**





a)
            Under
                the terms of Consulting Agreements with a former Director and his
                spouse,
                the Company is required to pay management fees of $16,000 in fiscal
                2007.  Subsequent to the year end, this commitment has been
                fulfilled.





b)
            On
                December 12, 2006, the Company entered into a consulting agreement
                with an
                unrelated party. The consultant will provide assistance in various
                financing activities. The Company will pay a cash fee of 7% of the
                gross
                amount of proceeds of an equity financing or mezzanine financing
                and 3% of
                gross amount and proceeds of a debt financing, loan, line of credit
                or
                other non-equity financing sourced by the consultant respectively.
                The
                agreement terminates on November 9,
                2007.





c)
            As
                at December 31, 2006 $2,673,196 of eligible Canadian exploration
                expenditures had not yet been expended by the Company. The Company
                is
                committed to spend this amount on qualifying expenditures by
                December 31, 2007.





**16.**
            **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:





**2006**
            
            
            **2005***Assets
                by operating segment*Oil
                and gas
            
            $
            9,182,115
            
            
            $
            5,943,675Real
                estate (Discontinued Operations)
            
            
            2,090,035
            
            
            
            2,071,124*Assets
                not allocated*Head
                office
            
            
            624,529
            
            
            
            1,976,551$
            11,896,679
            
            
            $
            9,991,350





**2006**
            
            
            **2005***Capital
                expenditures by segment*Oil
                and gas
            
            $
            6,739,480
            
            
            $
            3,861,287Head
                office
            
            
            -
            
            
            
            3,423$
            6,739,480
            
            
            $
            3,864,710





All
      of
      the Company’s operations are in Canada. Rental revenue of $6,000 (2005: $6,000)
      has been eliminated on roll-up of the divisions representing the rental of
      office premises by the corporate head office.




67
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          of Contents


**BERKLEY
              RESOURCES INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **December
              31, 2006 and 2005**


**17.**
            **Differences
                Between Canadian and United States Generally Accepted Accounting
                Policies**





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**
            
            **2006**
            
            
            **2005**
              **As****restated**
            
            
            **2005**
              **As****previously**
              **reported**
            
            
            **2004**Loss
                for the year under Canadian GAAP
            
            $
            (3,236,759
            )
            
            $
            (522,458
            )
            
            $
            (1,922,458
            )
            
            $
            (729,034
            )Additional
                impairment of oil and gas properties under US GAAP (a)
            
            
            (665,784
            )
            
            
            (2,301,603
            )
            
            
            (600,000
            )
            
            
            -Depletion,
                amortization and accretion  expense (a)
            
            
            321,709
            
            
            
            -
            
            
            
            -
            
            
            
            -Remove
                tax impact on renouncement of flow-through shares
            
            
            (934,044
            )
            
            
            (39,210
            )
            
            
            (583,706
            )
            
            
            -Loss
                for the year under US GAAP
            
            $
            (4,514,878
            )
            
            $
            (2,863,271
            )
            
            $
            (3,106,164
            )
            
            $
            (729,034
            )Loss
                per share under US GAAP
            
            $
            (0.31
            )
            
            $
            (0.29
            )
            
            $
            (0.32
            )
            
            $
            (0.10
            )





**Statement
                of Cash Flows**
            
            **2006**
            
            
            **2005**
              **As
                restated**
            
            
            **2005**
              **As
                previously**
              **reported**
            
            
            **2004**Increase
                (decrease) in cash for the yearunder
                Canadian GAAP
            
            $
            (1,396,435
            )
            
            $
            1,182,003
            
            
            $
            1,182,003
            
            
            $
            477,453Increase
                (decrease) in cash during the yearunder
                US GAAP
            
            $
            (1,396,435
            )
            
            $
            1,182,003
            
            
            $
            1,182,003
            
            
            $
            477,453





**Balance
                Sheets**
            
            **2006**
            
            
            **2005**
              **As
                restated**
            
            
            **2005**
              **As
                previously**
              **reported**Oil
                and gas properties - Canadian GAAP
            
            $
            8,581,024
            
            
            $
            5,339,531
            
            
            $
            3,939,531Additional
                impairment under US GAAP (a)
            
            
            (2,967,387
            )
            
            
            (2,301,603
            )
            
            
            (502,200
            )Depletion,
                amortization and accretion expense (a)
            
            
            321,709
            
            
            
            -
            
            
            
            -**Oil
                and gas properties - US GAAP**
            
            
            5,935,346
            
            
            
            3,037,928
            
            
            
            3,437,331Other
                liabilities (d and i)
            
            
            (934,044
            )
            
            
            (39,210
            )
            
            
            (544,496
            )Shareholders'
                equity  - Canadian GAAP
            
            
            7,299,365
            
            
            
            7,505,485
            
            
            
            6,105,485Share
                capital (e)
            
            
            11,577,934
            
            
            
            8,762,671
            
            
            
            8,762,671Contributed
                surplus
            
            
            804,412
            
            
            
            589,036
            
            
            
            589,036Deficit
            
            
            (5,082,981
            )
            
            
            (1,846,222
            )
            
            
            (3,246,222
            )7,299,365
            
            
            
            7,505,485
            
            
            
            6,105,485Impairment
                of oil and gas properties
            
            
            (2,967,387
            )
            
            
            (2,301,603
            )
            
            
            (462,990
            )Depletion,
                amortization and accretion
            
            
            321,709
            
            
            
            -
            
            
            
            -Tax
                impact on renouncement of flow-through shares
            
            
            (934,044
            )
            
            
            (39,210
            )
            
            
            (583,706
            )**Shareholders'
                equity - US GAAP**
            
            $
            3,719,643
            
            
            $
            5,164,672
            
            
            $
            5,058,789




68
 Table
          of Contents


**BERKLEY
              RESOURCES INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **December
              31, 2006 and 2005**


**17.**
            **Differences
                Between Canadian and United States Generally Accepted Accounting
                Policies**- *Continued*





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% using proved
                reserves
                only under constant pricing. Under Canadian GAAP, the ceiling test
                is
                based on discounted future net operating revenues using the Company’s
                risk-free rate of interest for proved and probable reserves at forecasted
                pricing.





At
      December 31, 2006, the Company applied a ceiling test to its oil and gas
      properties using December 31, 2006 prices of:





Gas
                (per thousand cubic feet)
            $5.95
                CDNCrude
                oil (per barrel)
            $60.20
                CDN





The
      application of the US GAAP ceiling test resulted in an additional impairment
      to
      carrying value of the oil and gas properties of $665,784.  Under
      Canadian GAAP, the application of this test required an additional impairment
      of
      $2,385,000 to the carrying value of the oil and gas properties.





At
      December 31, 2005, the Company applied a ceiling test to its oil and gas
      properties using December 31, 2005 prices of:





Gas
                (per thousand cubic feet)
            $9.54
                CDNCrude
                oil (per barrel)
            $59.44
                CDN





The
      application of the US GAAP ceiling test resulted in an additional impairment
      to
      carrying value of the oil and gas properties of $2,301,603.  Under
      Canadian GAAP, the application of this test required no adjustment to the
      carrying value of the oil and gas properties.





At
      December 31, 2004, the Company applied a ceiling test to its oil and gas
      properties using December 31, 2004 prices of:





Gas
                (per thousand cubic feet)
            $6.35
                CDNCrude
                oil (per barrel)
            $50.25
                CDN





The
      application of the US GAAP ceiling test resulted in no adjustment to the
      carrying value of the oil and gas properties being required.  Under
      Canadian GAAP, the application of this test required no adjustment to the
      carrying value of the oil and gas properties.





In
      addition, the cumulative difference between Canadian and US GAAP since inception
      of oil and gas operations to December 31, 2006 is that additional depletion
      of
      $321,709 (2005 – $Nil, 2004 - $Nil) has been recorded 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
                3i and
                4a, 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 and its amendment SFAS No. 123R, prospectively
                as
                of January 1, 2003.  As a result, the stock option compensation
                expense recognized in 2006 is not materially different between US
                and
                Canadian GAAP.




69
 Table
          of Contents


**BERKLEY
              RESOURCES INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **December
              31, 2006 and 2005**


**17.**
            **Differences
                Between Canadian and United States Generally Accepted Accounting
                Policies**- *Continued*





Stock
                Options
              December
                31, 2006**Number
                of options**
            
            
            **Aggregate
                Intrinsic Value**Options
                outstanding at end of year
            
            
            2,214,000
            
            
            $
            419,225Options
                exercisable at end of year
            
            
            1,428,333
            
            
            $
            264,752





c)
            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.





d)
            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,
                2006, 2005 and 2004.





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.  At the time the expenditures are renounced for tax purposes,
      the tax effect of the expenditures is debited to share capital and a related
      future tax liability is created.  This liability may be subsequently
      removed with tax assets.  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 and renounced.  There was a premium
      received for the 2005 and 2006 flow-through offerings.





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, 2006, unexpended flow-through funds
      were $2,673,196 (2005 - $3,069,780) *(Note
      12e)*.





e)
            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.





f)
            In
                December 2004, FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets
                - An Amendment of APB Opinion No. 29”. The guidance in APB Opinion No. 29,
                “Accounting for Nonmonetary Transactions”, is based on the principle that
                exchanges of nonmonetary assets should be measured based on the fair
                value
                of the assets exchanged. The guidance in that Opinion, however, included
                certain exceptions to that principle.  SFAS No. 153 amends
                Opinion No. 29 to eliminate the exception for nonmonetary exchanges
                of
                similar productive assets and replaces it with a general exception
                for
                exchanges of nonmonetary assets that do not have commercial substance.
                A
                nonmonetary exchange has commercial substance if the future cash
                flows of
                the entity are expected to change significantly as a result of the
                exchange.  The provisions of SFAS No. 153 are effective for
                nonmonetary asset exchanges occurring in fiscal periods beginning
                after
                June 15, 2005. Early application is permitted and companies must
                apply the
                standard prospectively. The adoption of this standard is not expected
                to
                have a material effect on the Company’s results of operations or financial
                position.




70
 Table
          of Contents


**BERKLEY
              RESOURCES INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **December
              31, 2006 and 2005**


**17.**
            **Differences
                Between Canadian and United States Generally Accepted Accounting
                Policies**- *Continued*





g)
            In
                May 2005, the FASB issued SFAS 154, “Accounting Changes and Error
                Corrections,” which replaces APB Opinion No. 20, “Accounting
                Changes,” and supercedes FASB Statement No. 3, “Reporting Accounting
                Changes in Interim Financial Statements – an amendment of APB Opinion No.
                28.” SFAS 154 requires retrospective application to prior periods’
                financial statements of changes in accounting principle, unless it
                is
                impracticable to determine either the period-specific effects or
                the
                cumulative effect of the change.  When it is impracticable to
                determine the period-specific effects of an accounting change on
                one or
                more individual prior periods presented, SFAS 154 requires that the
                new
                accounting principle be applied to the balances of assets and liabilities
                as of the beginning of the earliest period for which retrospective
                application is practicable and that a corresponding adjustment be
                made to
                the opening balance of retained earnings for that period rather than
                being
                reported in an income statement.  When it is impracticable to
                determine the cumulative effect of applying a change in accounting
                principle to all prior periods, SFAS 154 requires that the new accounting
                principle be applied as if it were adopted prospectively from the
                earliest
                date practicable.  SFAS 154 shall be effective for accounting
                changes and corrections of errors made in fiscal years beginning
                after
                December 15, 2005.  The Company does not expect the provisions
                of SFAS 154 will have a significant impact on its results of
                operations.





h)
            In
                February 2006, the FASB issued SFAS No. 155, “Accounting for Certain
                Hybrid Financial Instruments, an amendment of FASB Statements No.
                133 and
                140.”  This statement permits fair value re-measurement for any
                hybrid financial instrument that contains an embedded derivative
                that
                otherwise would require bifurcation.  It establishes a
                requirement to evaluate interests in securitized financial assets
                to
                identify interests that are freestanding derivatives or that are
                hybrid
                financial instruments that contain an embedded derivative requiring
                bifurcation.  In addition, SFAS 155 clarifies which
                interest-only strips and principal-only strips are not subject to
                the
                requirements of Statement 133.  It also clarifies that
                concentrations of credit risk in the form of subordination are not
                embedded derivatives.  SFAS 155 amends Statement 140 to
                eliminate the prohibition on a qualifying special-purpose entity
                from
                holding a derivative financial instrument that pertains to a beneficial
                interest other than another derivative financial
                instrument.  This Statement is effective for all financial
                instruments acquired or issued after the beginning of an entity’s first
                fiscal year that begins after September 15, 2006.  The adoption
                of this standard is not expected to have a material effect on the
                Company’s results of operations or financial
                position.





i)
            Under
                United States GAAP SFAS 109, if flow-through shares are sold at a
                premium,
                the premium is recorded as a liability.  If flow-through shares
                are sold at a discount, the discount is recorded as an
                asset.  As restricted cash is spent, the premium or discount is
                recognized as income or expense,
                respectively.





The
      December 2005 flow-through shares were priced at $0.90 and the fair market
      of
      the Company’s shares was $0.75.





Premium
      on flow-through share issuance is as follows:





3,629,978
                flow-through shares at $0.90
            $
                3,266,9803,629,978
                flow-through shares at $0.75
            2,722,484Premium
                on flow-through shares
            $
                544,496





The
      December 2006 flow-through shares were priced at $0.90 and the fair market
      of
      the Company’s shares was $0.85.





Premium
      on flow-through share issuance is as follows:





3,613,015
                flow-through shares at $0.90
            $
                3,251,7133,613,015
                flow-through shares at $0.85
            3,071,063Premium
                on flow-through shares
            $
                180,650





71
 Table
          of Contents


**BERKLEY
            RESOURCES INC.**
 **NOTES
            TO FINANCIAL STATEMENTS**
 **December
            31, 2006 and 2005**





**17.**
            **Differences
                Between Canadian and United States Generally Accepted Accounting
                Policies**- *Continued*





Presentation





There
      are
      different presentations between Canadian and U.S. GAAP which are as
      follows:





1)
            No
                subtotal is permitted under U.S. GAAP within cashflow from operations
                on
                the statement of cashflows.


2)
            Under
                U.S. GAAP, there is no difference between net income and other
                comprehensive income.





**18.**
            **Prior
                Period Adjustment**





During
      the year the Company determined that the 2005 financial statements erroneously
      stated a write-down against its oil and gas properties and
      equipment.  The original ceiling test calculations resulted in a
      write-down of $1,400,000 which was applied against operations in
      2005.  A correction in the calculations in accordance with Canadian
      GAAP resulted in no write-down being required.  An adjustment has been
      made to credit the write-down expense and debit accumulated amortization and
      depletion for the amount of $1,400,000.  The following outlines the
      adjustment to the 2005 financial statements:





**December
                31, 2005**
              **as
                previously**
              **reported**
            ****
            ****
            **Adjustment**
            ****
            ****
            **December
                31, 2005**
              **as
                restated**AssetOil
                & gas properties and equipment
            
            $
            3,939,531
            
            
            $
            1,400,000
            
            
            $
            5,339,531EquityDeficit
            
            
            3,246,222
            
            
            
            (1,400,000
            )
            
            
            1,846,222ExpenseWrite-down
                of oil and gas properties
            
            
            1,400,000
            
            
            
            (1,400,000
            )
            
            
            -Net
                oil and gas income (loss)
            
            
            (1,266,981
            )
            
            
            1,400,000
            
            
            
            133,019Loss
                or the year
            
            $
            (1,922,458
            )
            
            $
            1,400,000
            
            
            $
            (522,458
            )





**19.**
            **Subsequent
                Event**





Subsequent
      to the year end the Company entered into an offer to purchase for the sale
      of
      the Company’s real estate assets consisting of an office building located in
      Vancouver, British Columbia for the sum of $4,000,000.  An initial
      deposit of $500,000 has been received subsequent to the year end.  On
      closing, the purchaser will pay $3,000,000 and the Company will extend financing
      to the purchaser in the amount of $500,000 in the form of a second mortgage
      on
      the property.  The closing is expected to take place on or before
      September 7, 2007.  No commission or finders fees will be
      paid.











72
 Table
          of Contents











**EXHIBIT
      INDEX**




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
              Act13.1
            Certificate
              of the Principal Executive Officer under section 90613.2
            Certificate
                of the Principal Financial Officer under section 90615.1
            Consent
              of Experts




_______________________________


*  Previously
      filed.
























73