---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C.
20549

FORM 20-F

[ ] 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, 2007
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, 2007
was 21,451,608

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

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TABLE OF CONTENTS

|Item                       |                                                                                    | Page
|-------------------------- | ---------------------------------------------------------------------------------- | ----
|                           |                                                                                    |     
|INTRODUCTION               | 3                                                                                 
|                           |                                                                                    |     
|CURRENCY                   |                                                                                    | 3   
|                           |                                                                                    |     
|FORWARD-LOOKING STATEMENTS | 3                                                                                 
|                           |                                                                                    |     
|PART I                     |                                                                                    | 4   
|Item 1.                    | Identity of Directors, Senior
      Management and Advisors                        | 4   
|Item 2.                    | Offer Statistics
      and Expected Timetable                                      | 4   
|Item 3.                    | Key Information                                                                    | 4   
|Item 4.                    | Information
      on the Company                                                   | 12  
|Item 5.                    | Operating and Financial Review
      and Prospects                                 | 21  
|Item 6.                    | Directors, Senior
      Management and Employees                                   | 30  
|Item 7.                    | Major Shareholders and Related
      Party Transactions                            | 36  
|Item 8.                    | Financial Information                                                              | 37  
|Item 9.                    | The Offer and Listing                                                              | 38  
|Item 10.                   | Additional Information                                                             | 39  
|Item 11.                   | Quantitative and Qualitative
      Disclosures About Market Risk                   | 46  
|Item 12.                   | Description
      of Securities Other than Equity Securities                       | 46  
|                           |                                                                                    |     
|PART II                    |                                                                                    | 46  
|Item 13.                   | Defaults, Dividend Arrearages
      and Delinquencies                              | 46  
|Item 14.                   | Material Modifications
      to the Rights of Security Holders and Use of Proceeds | 46  
|Item 15.                   | Controls and Procedures                                                            | 46  
|Item 16A.                  | Audit Committee
      Financial Expert                                             | 47  
|Item 16B.                  | Code of Ethics                                                                     | 47  
|Item 16C.                  | Principal Accountant
      Fees and Services                                       | 47  
|Item 16D.                  | Exemptions from the Listing
      Standards for Audit Committees                   | 48  
|Item 16E.                  | Purchases of
      Equity Securities by the Issuer and Affiliated Purchasers       | 48  
|                           |                                                                                    |     
|PART III                   |                                                                                    | 49  
|Item 17.                   | Financial Statements                                                               | 49  
|Item 18.                   | Financial Statements                                                               | 49  
|Item 19.                   | Exhibits                                                                           | 49  

2

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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.

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".

Part I

Item 1. Identity of Directors, Senior Management and
Advisors

Not applicable.

3

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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, 2007, 2006, 2005, 2004 and 2003 is derived from the audited financial
statements of the Company. The audited financial statements and notes for the
balance sheets as at December 31, 2007 and December 31, 2006, and the statements
of operations for each of the years in the three year period ended December 31,
2007, are included in this Annual Report at item 17. The selected historical
financial information for the years ended December 31, 2004 and 2003, 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, 2007, 2006 and 2005 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, 2004 and 2003
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                    |   |                        |  
|                                 |   | 2007                   |  
|                                 |   |                        |  
|Operations                       |   |                        |  
|Oil and Gas Revenue              | $ | 1,715,924              |  
|Oil and Gas Production Expense   |   | 1,017,313              |  
|Interest On Loans                |   | 134,264                |  
|Amortization and Depletion       |   | 1,428,068              |  
|Write-down of oil and gas        |   |                        |  
|properties                       |   | 4,083,000              |  
|Net Oil and Gas Income (Loss)    |   | (4,946,721             | )
|Loss for the Period from         |   |                        |  
|Continuing Operationsii          |   | (5,380,576             | )
|Net Income (loss)                |   | (3,525,922             | )
|Basic and Diluted Loss Per Share |   |                        |  
|Before Discontinued Operations2  |   | (0.27                  | )
|Net Income Per Share (loss)      |   | (0.18                  | )

4

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|                            |   | As at December 31 | 
|--------------------------- | - | ----------------- | 
|                            |   |                   | 
|                            |   | 2007              | 
|Balance Sheet               |   |                   | 
|Total Assets                | $ | 5,771,772         | 
|Oil and Gas Properties and  |   |                   | 
|Equipment                   |   | 5,456,007         | 
|Assets of Discontinued      |   |                   | 
|Operations2                 |   | -                 | 
|Current liabilities         |   | 996,647           | 
|Shareholders' Equity        |   | 4,634,975         | 
|Number of shares issued and |   |                   | 
|outstanding                 |   | 21,451,608        | 

|                            |   |            |   |   | Year Ended December 31 |   |   |             |  
|--------------------------- | - | ---------- | - | - | ---------------------- | - | - | ----------- | -
|U.S. GAAP                   |   |            |   |   |                        |   |   | 2005        |  
|                            |   | 2007       |   |   | 2006                   |   |   | (Restated)1 |  
|                            |   |            |   |   |                        |   |   |             |  
|Operations                  |   |            |   |   |                        |   |   |             |  
|Oil and Gas Revenue         | $ | 1,715,924  |   | $ | 1,568,681              |   | $ | 1,408,858   |  
|Rental Revenue              |   | 165,490    |   |   | 249,211                |   |   | 238,466     |  
|Net Income (loss)           |   | (3,244,329 | ) |   | (4,514,878             | ) |   | (2,863,271  | )
|Net Income Per Share (loss) |   | (0.16      | ) |   | (0.31                  | ) |   | (0.29       | )

|                     |  |           |  |  | As
    at December 31 |  |  |             | 
|-------------------- |  | --------- |  |  | --------------------- |  |  | ----------- | 
|                     |  |           |  |  |                       |  |  | 2005        | 
|                     |  | 2007      |  |  | 2006                  |  |  | (Restated)1 | 
|Balance Sheet        |  |           |  |  |                       |  |  |             | 
|Total Assets         |  | 4,097,296 |  |  | 9,251,001             |  |  | 7,689,747   | 
|Total Liabilities    |  | 1,136,797 |  |  | 4,597,314             |  |  | 2,485,865   | 
|                     |  |           |  |  |                       |  |  |             | 
|Shareholders' Equity |  | 2,852,799 |  |  | 3,719,643             |  |  | 5,164,672   | 

|  |                                                                                                                                                                                                                                                                                                              | 
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 
|1 | See Note 18 of the financial statements included
      elsewhere in this Annual Report (Item 17)                                                                                                                                                                                                            
|  |                                                                                                                                                                                                                                                                                                             
|1 | 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
    
    
    Low2003
    
    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
    
    
    1.09892007
    
    1.0748
    
    
    0.9913
    
    
    1.1853
    
    
    0.9170


The following table sets forth
the high and low exchange rate for the past six months. As of June 30, 2008, the
exchange rate was $1.0186 for each U.S. $1.00.

Month
    
    High
    
    
    LowDecember 2007
      
      $ 1.0217
      
      
      $ 0.9785January 2008
      
      $ 1.0324
      
      
      $ 0.9905February 2008
      
      $1.0190
      
      
      $0.9719March 2008
      
      $1.0279
      
      
      $0.9798April 2008
      
      $1.0270
      
      
      $1.0025May 2008
      
      $1.0189
      
      
      $0.9844


5

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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 2007 between U.S.$63.50 and U.S.$95.50
per barrel, ending the year at approximately U.S.$95.00 per barrel ($per barrel
for West Texas Intermediate, referred to as "WTI". Natural gas prices have also
been very volatile fluctuating between U.S.$6.25/mcf and U.S.$8.50/mcf during
the year, ending 2007 at a price of approximately U.S.$7.50/mcf. Costs of all
related services have been high for 2007.

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

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

6

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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 2003, 2004, 2005, 2006
and 2007, we reported losses of $255,456, $729,034, $522,458, $3,236,759 and
$3,525,922 respectively. As at December 31, 2007, we had an accumulated deficit
of $8,743,150. 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, 2007, the Company did not have sufficient financial resources to
meet its flow through expenditure requirements in the 2008 fiscal year in
conjunction with its flow through financings. The Company has until the end of
2008 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.



7

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

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

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

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

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.

8

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

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

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

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

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

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

9

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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.

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.

10

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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.

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.



11

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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 Actof 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
2007, $1,842,000 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.

In August 2001, the Company
purchased the remaining interest in the office building that it occupies and
became its sole owner. On August 31, 2007, the Company sold the office building
for $4 million. From the proceeds, $3.3 million was used to pay the Companys
outstanding corporate debt and the balance was used for exploration and working
capital purposes. This property had been disclosed as discontinued operations in
the December 31, 2006 year end and subsequent financial statements. Please refer
to Note 2 of the financial statements, included elsewhere in this Annual Report
(Item 17) for further disclosure regarding this transaction.

12

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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.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (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.                                                                              

13

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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 Company activity are as follows:

| | 1. | John Lake, Alberta (Twp 55 Rge 1 W4M) - This sweet
      natural gas producing area is located in east central Alberta and was
      acquired by the Company through a farm in arrangement. The Company holds a
      10.00% WI in this area which is operated by Crescent Point Energy
      Partnership.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                           
| | 2. | Carbon Area, Alberta (Twp 29 Rge 22 W4M) - This natural
      gas producing area is operated by ATCO Gas and is located in central
      Alberta. It was acquired by the Company through a joint venture agreement.
      The Companys interest is a 6.00% to 10.00% WI                                  
| |    |                                                                                                                                                                                                                                                                                                           
| | 3. | 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.           

14

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| | 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 approximately
        70 sections over this oil and gas prospect. These 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). During the year ended December 31, 2007,
        the Company and its partner changed their focus on this program and concentrated
        on stabilizing production from the Keg River producing wells while the
        capital program was put on hold. As of the date of this MD&A, the
        Company has an unresolved dispute with its partner with respect to the
        Senex area operations that is subject to a default notice. Several items
        in this account are disputed by the Company. The outcome of this dispute
        is undeterminable at this time.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      



15

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The oil and gas industry has gone
through a turbulent time over the last 18 months even with record prices.
Berkeley believes the current market position will benefit oil and gas junior
companies like Berkley. Oil prices fluctuated between $51 US and $119.38 US per
barrel from January 1, 2007 to April 22, 2008 with prices closing at $119.38 US on April 22, 2008 ($ per barrel
for West Texas Intermediate (WTI)). Natural gas prices have also been very
volatile through the last 15 months fluctuating between $5.50/mcf US and $10.50
US during this same time closing, at $10.20 US on April 22, 2008. Cost of all
related services have been high for 2007 although rig utilization in Alberta is
down and should translate into reduced drilling costs for 2008.

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
theOil and Gas Conservation Act of Alberta, theOil & Gas
Conservation Act and Regulations of Saskatchewan and the Crown Minerals
Act of Saskatchewan and Petroleum and Natural Gas Regulationsof
Saskatchewan.

16

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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.

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.

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:

17

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The following is a description of
the various interests of the Company in its oil and gas properties as at June 1,
2008.

|Lease No.     |  | Description            |  |  | Interest      |  |  | Status              | 
|------------- |  | ---------------------- |  |  | ------------- |  |  | ------------------- | 
|Brazeau       |  | Sec.13-46-13 W5M       |  |  | 30.00% WI BPO |  |  | Written off         | 
|              |  |                        |  |  | 19.50% WI APO |  |  |                     | 
|              |  |                        |  |  |               |  |  |                     | 
|Carbon        |  |                        |  |  |               |  |  |                     | 
|047790068     |  | Sec.29-29-22 W4M       |  |  | 6%WI          |  |  | Producing - gas     | 
|32443         |  | Sec.32-29-22 W4M       |  |  | 6.25%WI       |  |  | Producing - gas     | 
|25906         |  | Sec.28-29-22 W4M       |  |  | 6.25%WI       |  |  | Producing - gas     | 
|0477010002    |  | Sec.31-29-22 W4M       |  |  | 10%WI         |  |  | Producing - gas     | 
|              |  |                        |  |  |               |  |  |                     | 
|Crossfield    |  | Twp 28 Rge 1 W5M       |  |  | 35% WI        |  |  | Licensing to drill  | 
|              |  |                        |  |  |               |  |  |                     | 
|Dollard       |  | Twp 6/7 Rge 19 W3M     |  |  | 20% WI        |  |  | Producing - oil     | 
|              |  |                        |  |  |               |  |  |                     | 
|North Halkirk |  |                        |  |  |               |  |  |                     | 
|34398         |  | S1/2 Sec.22-39-16 W4M  |  |  | 6.25%WI       |  |  | Producing  gas/oil | 
|26457         |  | N/2 Sec.22-39-16 W4M   |  |  | 6.25%WI       |  |  | Producing  gas/oil | 
|              |  |                        |  |  |               |  |  |                     | 
|John Lake     |  |                        |  |  |               |  |  |                     | 
|40852         |  | All Sec.26&27-55-1 W4M |  |  | 10%WI         |  |  | Producing - gas     | 
|              |  | Sec.1-56-1 W4M         |  |  | 10%WI         |  |  | Producing - gas     | 
|485070102     |  | W/2 36-55-1 W4M        |  |  | 10%WI         |  |  | Producing - gas     | 
|487040220     |  | E/2 Sec.36-55-1 W4M    |  |  | 10%WI         |  |  | Producing - gas     | 
|40853A        |  | All Sec.15-56-1-W4M    |  |  | 10%WI         |  |  | Producing - gas     | 
|40855A        |  | All Sec.24-56-1 W4M    |  |  | 10%WI         |  |  | Producing - gas     | 
|40856         |  | All Sec.34-56-1 W4M    |  |  | 10%WI         |  |  | Producing - gas     | 
|              |  |                        |  |  |               |  |  |                     | 
|Leduc         |  |                        |  |  |               |  |  |                     | 
|              |  | All Sec.33-49-26 W4M   |  |  | 4% WI         |  |  | Producing  gas     | 

18

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|Lease No.    |  | Description                |  |  | Interest      |  |  | Status          | 
|------------ |  | -------------------------- |  |  | ------------- |  |  | --------------- | 
|             |  | NW/4 Sec 28-49-26 W4       |  |  | 4.27% WI      |  |  | Standing - oil  | 
|             |  |                            |  |  |               |  |  |                 | 
|Oyen         |  |                            |  |  |               |  |  |                 | 
|30364        |  | S/2 Sec.16-29-4 W4M        |  |  | 1%WI          |  |  | Not Producing   | 
|             |  |                            |  |  |               |  |  |                 | 
|Senex        |  | Twp 92/93 Rge 6/7 W5M      |  |  | 15/20% WI     |  |  | Producing - oil | 
|             |  |                            |  |  |               |  |  | Exploration     | 
|Sibbald      |  |                            |  |  |               |  |  |                 | 
|39367        |  | Sec.2,4, E/2 9&10-28-1 W4M |  |  | 0.50%WI       |  |  | Producing - gas | 
|0476122257   |  | W/2 9-28-1 W4M             |  |  | 0.25%WI       |  |  | Not Producing   | 
|             |  | Sec.3-28-1 W4M             |  |  | 0.25%WI       |  |  | Not Producing   | 
|29513        |  | S/2 Sec.15-28-1 W4M        |  |  | 1.00%WI       |  |  | Producing - gas | 
|6359A        |  | N/2 Sec.15&S/2 Sec.22-28-1 |  |  | 1.00%WI       |  |  | Not Producing   | 
|             |  |                            |  |  |               |  |  |                 | 
|Skiff        |  |                            |  |  |               |  |  |                 | 
|0484080300   |  | NW1/4Sec.29-4-14 W4M       |  |  | 10.526%WI     |  |  | Producing - oil | 
|             |  | W1/2Sec.32-4-14 W4M        |  |  | 5.26315%      |  |  | Producing - oil | 
|048307070286 |  | SW/4 of Sec.5-5-14         |  |  | 5.50%WI       |  |  | Producing - oil | 
|             |  |                            |  |  |               |  |  |                 | 
|Zama Virgo   |  |                            |  |  |               |  |  |                 | 
|092020380    |  | W/2 Sec.22-115-5 W6M       |  |  | Sliding Scale |  |  | Producing - oil | 

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,
2008.

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

Undeveloped Acreage

As at June 1, 2008, 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.



19

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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   |  |      |  |  | Number of Net             |  |  | Number of Net             | 
|Region       |  | Year |  |  | Productive                |  |  | Dry                       | 
|Alberta      |  | 2007 |  |  | Nil                       |  |  | Nil                       | 
|             |  | 2006 |  |  | 1.80                      |  |  | Nil                       | 
|             |  | 2005 |  |  | 0.50                      |  |  | Nil                       | 
|Saskatchewan |  | 2007 |  |  | Nil                       |  |  | Nil                       | 
|             |  | 2006 |  |  | Nil                       |  |  | Nil                       | 
|             |  | 2005 |  |  | 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. 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, 2007 |  |  | December 31, 2006 |  |  | December 31, 2005 | 
|---------------------- |  | ----------------- |  |  | ----------------- |  |  | ----------------- | 
|                       |  | Oil               |  |  | Natural           |  |  | Oil               | 
|                       |  | (barrels)         |  |  | Gas (mcf)         |  |  | (barrels)         | 
|Proved, Developed Non- |  |                   |  |  |                   |  |  |                   | 
|Producing Reserves     |  | 124,000           |  |  | 235,000           |  |  | 14,400            | 
|Total Proved and       |  |                   |  |  |                   |  |  |                   | 
|Developed Reserves     |  | 60,000            |  |  | 321,000           |  |  | 140,600           | 

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.

20

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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, 2007 |  |  | December 31, 2006     |  |  | December 31, 2005 | 
|Oil (barrels)       |  | 20,684            |  |  | 20,541                |  |  | 9,384             | 
|Natural Gas (mcf)   |  | 41,164            |  |  | 52,312                |  |  | 96,142            | 
|Natural Gas Liquids |  | Nominal           |  |  | Nominal               |  |  | Nominal           | 

Item 5. Operating and Financial Review and Prospects

The following discussion and
analysis of the operations, results and financial position of Berkley Resources
Inc. (the Company or Berkley) for the period ended December 31, 2007 should
be read in conjunction with the December 31, 2007 year-end financial statements
and the related notes.

This Management Discussion and
Analysis (MD&A) is dated April 29, 2008 and discloses specified
information up to that date. Berkley is classified as a venture issuer for the
purposes of National Instrument 51-102. The Companys financial statements are
prepared in accordance with generally accepted accounting principles in Canada.
Unless otherwise cited, references to dollar amounts are in Canadian
dollars.

We recommend that readers consult the Cautionary
Statement on the last page of this report.

Description of Business

The Companys principal business
activities are the acquisition, development, exploration and production of
petroleum and natural gas reserves in Alberta and Saskatchewan. The Company is a
reporting issuer in British Columbia and Alberta and trades on the TSX Venture
Exchange under the symbol BKS, on the OTC as a foreign issuer under the symbol
BRKDF and on the Frankfurt Stock Exchange under the symbol W80 and WKN
871666.

Overall Performance

During the year ended December
31, 2007, the Company became a pure oil and gas company after the sale of the
Companys real estate assets in Vancouver, B.C. The Company used the proceeds of
the sale to pay the Companys outstanding corporate debt and the balance was
used for exploration and working capital purposes.

Oil and Gas Industry Overview

The oil and gas industry has gone
through a turbulent time over the last 18 months even with record prices.
Berkeley believes the current market position will benefit oil and gas junior
companies like Berkley. Oil prices fluctuated between $51 US and $119.38 US per
barrel from January 1, 2007 to April 22, 2008 with prices closing at $119.38 US
on April 22, 2008 ($ per barrel for West Texas Intermediate (WTI)). Natural gas
prices have also been very volatile through the last 15 months fluctuating
between $5.50/mcf US and $10.50 US during this same time closing, at $10.20 US
on April 22, 2008. Cost of all related services have been high for 2007 although rig utilization in Alberta is down and should
translate into reduced drilling costs for 2008.

21

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Company Activity

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

Berkley (20% ±) and its operating
partner Onefour Energy Ltd. (80% ±) have approximately 70 sections. These 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).

During the year ended December
31, 2007, the Company and its partner changed their focus on this program and
concentrated on stabilizing production from the Keg River producing wells while
the capital program was put on hold.

As of April 29, 2008, the Company
has an unresolved dispute with its partner with respect to the Senex area
operations that is subject to a default notice. Several items in this account
are disputed by the Company. The outcome of this dispute is undeterminable at
this time.

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

The licensing process of this
sour-gas prospect is stalled. 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. The Companys licensing hearing has been
postponed and the Company is waiting to schedule a new hearing.

Summary

The Company has made a major
commitment to the Senex Area in north-central Alberta. Large resources of oil
have been identified in two Devonian formations and a significant natural gas
reserve in shallow lower Cretaceous sand. As stated above, we are currently
focused on stabilizing our Keg River producers. The licensing process at
Crossfield has been postponed and the Company is working towards a new hearing
date.

Real Estate

The Company sold its real estate
property in downtown Vancouver for $4 million on August 31, 2007. From the
proceeds, $3.3 million was used to pay the Companys outstanding corporate debt
and the balance was used for exploration and working capital purposes. This
property had been disclosed as discontinued operations in the December 31, 2006
year end and subsequent financial statements.

22

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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, |   |  | December 31, |   |  | December  |  
|-------------------------------------------------- |  | ------------ | - |  | ------------ | - |  | --------- | -
|                                                   |  | 2007         |   |  | 2006         |   |  | 31, 2005  |  
|                                                   |  | $            |   |  | $            |   |  | $         |  
|Total oil and gas revenues                         |  | 1,715,924    |   |  | 1,568,681    |   |  | 1,408,858 |  
|Loss for the year before discontinued operations   |  | (5,380,576   | ) |  | (3,068,631   | ) |  | (467,346  | )
|Discontinued operations                            |  | 1,854,654    |   |  | (168,128     | ) |  | (55,112   | )
|Loss per share before discontinued operations      |  | (0.27        | ) |  | (0.21        | ) |  | (0.05     | )
|Loss per share after discontinued
      operations |  | (0.18        | ) |  | (0.22        | ) |  | (0.05     | )
|Total assets                                       |  | 5,771,772    |   |  | 11,896,679   |   |  | 9,991,350 |  
|Total liabilities                                  |  | 1,136,797    |   |  | 4,597,314    |   |  | 2,485,865 |  
|Working capital (Deficit)                          |  | (683,930     | ) |  | (3,189,632   | ) |  | (99,421   | )

Total oil and gas revenues
increased by $147,243 over the 2006 fiscal year. Included in discontinued
operations for fiscal 2007 was a gain on the sale of the building of $1,949,368.
The increase in total assets from fiscal 2005 to fiscal 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 fiscal 2006. Expansion of new
oil and gas properties was actually $2,381,576, net of a write-down of
$4,083,000 and amortization, depletion and accretion of $1,428,068. Total assets
in fiscal 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. Total assets incurred a dramatic decrease of $6,124,907 in fiscal 2007
and ended with a total of $5,771,772. There were two significant factors causing
this decline. In fiscal 2007, there was a current year write-down of $4,083,000
in oil and gas properties and the sale of the real estate assets, which had a
carrying cost of $2,038,924 in the prior year, has removed that asset from the
balance sheet.

Total liabilities increased by
$2,111,449 from fiscal 2005 to fiscal 2006 due in large part to the Company
acquiring a loan of $2,800,000 from Quest Capital Corp. and settling the
$1,500,000 loan from IMOR Capital Corp. and increasing its loan with the CIBC
from $322,146 to $577,612. In the following year, fiscal 2007, these liabilities
were fully settled with the proceeds from the sale of the building. This caused
liabilities to significantly drop during that period. The Company now has no
long term debt except for an asset retirement obligation of $140,150.

Results of Operations

Three months ended December 31, 2007 (Q4-2007) compared
with the three months ended December 31, 2006 (Q4-2006).

Oil and Gas

Oil and gas revenue was $472,254
for Q4-2007 compared to $378,287 for Q4-2006, an increase of $93,967. The
increase in revenue is due primarily to higher oil prices. The production
expenses for Q4-2007 were higher at $4,954,896 compared to $3,290,316 for
Q4-2006, an increase of $1,664,580. There were decreases of $28,883 in operating
costs and $50,815 in interest charges while there were increases of $46,278 in
amortization, depletion and accretion and $1,698,000 in write-downs of oil and
gas properties. The demand for labour, services and equipment has continued to
put upward pressure on prices but the Company had less operating activity during the current year. The reduction in
interest charges are due to no loans existing in Q4-2007. There was a net loss
of $4,482,642 for Q4-2007 compared to $2,912,029 reported for Q4-2006, an
increase of $1,570,613. The increase in oil and gas property write-downs in
Q4-2007 accounts for most of the difference.

23

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Head Office - General and Administrative
Expenses

General and administrative
expenses totaled $176,405 for Q4-2007 compared with $156,329 for Q4-2006. The
increase of $20,076 is a combination of cost increases and decreases. Increases
of $11,946 in administrative, office services and premises, $13,829 in stock
based compensation and $11,953 in professional fees. There were decreases of
$2,483 in management fees, $2,011 in consulting fees, $11,243 in filing and
transfer agent fees, and $1,367 in shareholder information. Administrative,
office services and premises expenses increased in Q4-2007 due to the tax owing
on the renouncement of flow-through expenditures using the look-back rule.
Professional fees increased as a result of higher audit fees. Filing and
transfer agent fees were lower as a result of a reclassification of $8,820 to
share issuance costs which were associated with a private placement. Both
comparative quarters each had a recapture of $134,247 in financing fees on debt.
Q4-2006 had an adjustment of this amount which deferred the financing fees to
the 2007 fiscal year. In 2007 however, there was an adoption of a new accounting
policy concerning financial instruments which required the amount of $134,247 to
be applied against the opening deficit instead of being recorded as part of the
2007 operations.

Real Estate (Discontinued Operations)

There was a net rental gain
before other items of $7,430 for Q4-2007 compared to a net rental loss before
other items of $33,905 for Q4-2006, a difference of $41,335. While the building
continued to be at or near full capacity in Q4-2006, there were interest charges
on long term debt of $47,039 which turned a net gain into a loss. In Q4-2007,
there were no real estate operations and no long term debt subject to interest
charges but instead year end adjustments associated with the finalization of the
sale. Otherwise, monthly operating costs stayed pretty consistent along with
monthly revenues in Q4-2006. There was no amortization recorded for either
quarter due to the status of the asset being changed to that of an asset being
held for sale during the 2006 fiscal year.

There were no other income or
expense items so the net gain or loss for the comparative quarters did not
change from their net rental gains before other items.

Loss for the Period

There was a loss for Q4-2007 of
$3,786,130 compared with a loss of $2,060,027 for Q4-2006, a difference of
$1,726,103. As noted above, there were losses in all three segments in both
Q4-2007 and Q4-2006. The write-downs to oil and gas properties in both
comparative quarters played the primary role in determining the net losses.

Twelve months ended December 31, 2007 (2007) compared
with the twelve months ended December 31, 2006 (2006).

Oil and Gas

In total, there was a net oil and
gas loss of $4,946,721 for 2007, compared to $2,867,336 for 2006, an increase of
$2,079,385. Revenue was up $147,243 due to higher oil prices but operating costs
were up by $188,738. Production expenses increased by $2,226,628 in 2007. As was
the case above in the fourth quarter comparison the year end ceiling test write-downs of the oil and
gas properties caused the significant losses. Overall there were increases in of
$188,738 in operating costs, $74,612 in interest on loans, $265,278 in
amortization, depletion and accretion, and 1,698,000 in write-downs.

24

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Head Office - General and Administrative
Expenses

General and administrative costs
for 2007 were $1,253,810 compared to $1,256,996 for 2006, a decrease of $3,186.
There were increases of $15,439 in administrative, office services and premises,
$41,855 in stock based compensation, $59,171 in management fees, and $19,317 in
shareholder information. The administrative, office services and premises
expense was higher in 2007 due to taxes associated with flow-through expenditure
renouncements using the look-back rule. Management fees were higher due to the
timing of bonus payments otherwise base management fees did not change very
much. Shareholder information costs were higher due to increased efforts to
raise company awareness through promotional materials and trade show
participation.

In 2007, there were decreases of
$69,105 in consulting fees, $3,406 in professional fees, $61,753 in finance fees
on debt, and $4,600 in filing and transfer agent fees. Consulting fees were
lower due to the expiration of some financial consulting agreements in the
current year whereas these agreements were in effect for a longer period of time
in the prior year. Filing and transfer agent fees were lower due to a smaller
private placement in 2007 compared to 2006 and the reclassification of some TSX
Venture Exchange fees to share issuance costs in 2007. The finance fees on debt
in fiscal 2007 was nil instead of $134,247 because of the adoption of a new
financial instruments accounting policy as explained in the fourth quarter
comparative section above.

Real Estate (Discontinued Operations)

The net rental loss before other
items for 2007 was $94,714 compared to $168,128 in 2006, a decrease of $73,414.
The real estate operations wrapped up at the end of August 2007 and as such,
2007 had four fewer months of rental revenue and operating costs. Otherwise,
monthly revenues and operating costs remained fairly consistent and the building
was at or near capacity. As was the case with the three month comparison, the
current periods interest charges were considerably less with the full
settlement of all outstanding long term debt with the building sale
proceeds.

Overall, there was a net income
for 2007 of $1,854,654 compared to a net loss of $168,128 in 2006, a positive
difference of $2,022,782. Once again, the gain from the sale of the building of
$1,949,368 created a net income situation for the current period instead of a
loss.

Loss for the Period

There was an overall loss of
$3,525,922 for 2007 compared with $3,236,759 for 2006, an increase of $289,163.
Both comparative years had significant write-downs in the oil and gas properties
but the increase in write-down in the current year was more than offset by the
gain on the sale of the building.

25

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Summary of Quarterly Results

Period Ended
      2007
      2007
      2007
      2007
      2006
      2006
      2006
      2006Dec 31 
        Q4 $
      Sep 30 
        Q3 $
      June 30 
        Q2 $
      Mar 31 
        Q1 $
      Dec 31 
        Q4 $
      Sep 30 
        Q3 $
      Jun 30 
        Q2 $
      Mar 31 
        Q1 $Net oil and gas income (loss)
    (4,482,642)
    (281,167)
    (142,153)
    (40,759)
    (2,912,029)
    19,890
    (51,335)
    76,138Discontinued operations
    (17,913)
    1,941,312
    (42,015)
    (26,730)
    (33,905)
    (64,441)
    (36,694)
    (33,088)Income (loss) for the period
    (3,786,130)
    1,228,718
    (590,577)
    (377,933)
    (2,060,027)
    (504,034)
    (404,968)
    (267,730)Basic and diluted income (loss) per
      share after discontinued operations
    (0.07)
    0.06
    (0.03)
    (0.02)
    (0.13)
    (0.04)
    (0.03)
    (0.02)


Liquidity

At December 31, 2007 the Company
had current assets of $312,718, of which $47,058 was comprised of cash. Current
liabilities totaled $996,647, of which there is no longer bank loans included
since the sale of the real estate property. Current assets were used to further
investment in oil and gas properties and equipment by $2,381,576 in 2007.

Total working capital deficiency
at December 31, 2007 is $683,930. This amount has been drastically reduced from
a deficiency balance of $3,189,632 on December 31, 2006 due to the proceeds from
the sale of the real estate property being used to pay out a bank demand loan of
$539,749 and a loan of $2,800,000 to Quest.

The Company is addressing its
working capital needs by pursuing additional equity financing. During the twelve
month period ended December 31, 2007, the Company raised $1,400,100 with a
flow-through private placement and $264,000 with a non-flow-through private
placement. The Company also has an agreement with a financial consultant to
explore other financial opportunities.

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.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Related Party Transactions

Amounts owing to related parties
at December 31, 2007 consists of $7,000 (2006 - $16,651) due to Directors of the
Company for Directors fees and expense reimbursements; and $7,261 (2006 -
$51,782) to Oniva International Services Corp. (Oniva), a private company
owned by public companies having common Directors that provides administrative
services, office supplies and accounting services.

26

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Management and consulting fees
totalling $296,999 were paid to Directors and their private companies in 2007
(2006: $237,828).

Consulting fees totalling $16,000
were paid to a former Director and his spouse in 2007 (2006: $96,000). The
consulting fees made in 2007 concluded a five year agreement

During the year, current and/or
former Directors and/or Officers exercised nil options (2006: nil options for
total proceeds of $Nil). In addition, current and/or former Directors and
Officers subscribed for nil shares of the Company for total proceeds of $Nil
(2006: 145,500 shares of the Company for total proceeds of $130,950).

Administrative services, office
supplies and accounting charges totalling $110,161 were paid to Oniva (2006:
$113,865). 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.

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.

Disclosure of Management Compensation

During the year, $104,999 (2006:
$69,328) was paid to the President for services as director and officer of the
Company, $102,000 (2006: $66,000) was paid to the C.E.O. for services as
director and officer of the Company, $32,000 (2006: $42,500) was paid to the
V.P. Finance for services as director and officer of the Company, $60,000 (2006:
$60,000) was paid to the V.P. Operations for services as director and officer of
the Company, and $11,072 (2006: $11,692) was paid to the Secretary for services
as an officer of the Company.

Changes in Accounting Policies

Effective January 1, 2007, the
Company adopted the following new accounting standards issued by the Canadian
Institute of Chartered Accountants (CICA). These accounting policy changes
were adopted on a prospective basis with no restatement of prior period
financial statements:

Section 1530 Comprehensive
Income

Section 3251 Equity

Section 3855 Financial Instruments 
Recognition and Measurement

Section 3861 Financial Instruments 
Disclosure and Presentation

Section 3865 Hedges

These standards address the
classification, recognition and measurement of financials instruments, the
inclusion of other comprehensive income, and establish the standards for hedge
accounting. Upon the adoption of these new standards the Company had no
available-for-sale investments. There were no other opening adjustments recorded
on the adoption of these standards. The Company has determined that there is no
affect of these new standards on its current year financial statements
and has not yet determined its affect on subsequent years financial
statements.

27

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Financial Instruments

Section 3855 requires all
financial assets and liabilities, including derivatives, to be carried at fair
value on the Companys balance sheet with the exception of loans and
receivables, investments that are intended to be held to maturity and
non-trading financial liabilities which are carried at cost or amortized
cost.

The Company has reviewed and
classified its financial instruments as follows:

- Cash is classified as a financial asset held for trading and is measured
  at its fair value. Gains or losses related to periodic revaluation are
  recorded to net income or loss.
- Accounts receivable are classified as loans and receivables and are
  initially measured at their fair value. Subsequent periodic revaluations are
  recorded at their amortized cost using the effective interest rate method.
- Accounts payable, accrued liabilities and revolving credit facility are
  classified as other liabilities and are initially measured at fair value.
  Subsequent periodic revaluations are recorded at their amortized cost using
  the effective interest rate method.

On January 1, 2007, the Company
also adopted CICA Section 1506 Accounting Changes, which expands
requirements relating to voluntary changes in accounting principles, and
requires the Company to disclose new sources of GAAP that have been issued but
are not yet effective. The Company has not made any voluntary changes in
accounting principles affecting these financial statements.

Outstanding Share Data

The Companys authorized share
capital consists of unlimited common shares without par value.

As at December 31, 2007 and April
29, 2008 the Company had 21,451,608 issued and outstanding common shares.

The following is a summary of
stock options outstanding as at December 31, 2007 and April 29,2008:

Expiry Date
      Exercise Price Per Share
      Number of Shares Remaining Subject to OptionsSeptember 19, 2008
    $0.52
    580,500September 19, 2008
    $0.57
    150,000October 19, 2009
    $0.81
    200,000October 29, 2009
    $0.77
    37,500December 23, 2010
    $0.90
    637,500September 21, 2011
    $0.56
    595,000July 4, 2012
    $0.55
    350,0002,550,500


28

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The following is a summary of share purchase warrants
outstanding as at December 31, 2007 and April 29, 2008:

Expiry Date
    Exercise Price Per
      Share
    Number of Underlying
      SharesJanuary 12, 2009
    $1.00
    220,000


Commitment

As at December 31, 2007,
$1,400,100 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, 2008.

Disclosure Controls and Procedures

The Chief Executive Officer and
the Chief Financial Officer of the Company are responsible for evaluating the
effectiveness of the Companys disclosure controls and procedures and have
concluded, based on our evaluation, that they are effective as at December 31,
2007 to ensure that information required to be disclosed in reports filed or
submitted under Canadian securities legislation is recorded, processed,
summarized and reported within the time period specified in those rules and
regulations.

Internal Controls over Financial Reporting

The Chief Executive Officer and
the Chief Financial Officer of the Company are responsible for designing
internal controls over financial reporting, or causing them to be designed under
their supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with Canadian GAAP. The Company assessed the design of
the internal controls over financial reporting as at December 31, 2007 and
concluded that there are material weaknesses in internal controls over financial
reporting, which are as follows:

| | a) | Due to the limited number of staff resources, the Company
      believes there are instances where a lack of segregation of duties exist
      to provide effective controls; and
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                  
| | b) | Due to the limited number of staff resources, the Company
      may not have the necessary in- house knowledge to address complex
      accounting and tax issues that may arise.

The weaknesses and their related
risks are not uncommon in a company the size of the Company because of
limitations in size and number of staff. The Company believes it has taken steps
to mitigate these risks by consulting outside advisors and involving the Audit
Committee and Board of Directors in reviews and consultations where necessary.
However, these weaknesses in internal controls over financial reporting could
result in a more than remote likelihood that a material misstatement would not
be prevented or detected. The Company believes that it must take additional
steps to further mitigate these risks by consulting outside advisors on a more
regular and timely basis.

There have been no changes in the
Companys internal controls over financial reporting that occurred during the
quarter ended December 31, 2007 that have materially affected, or are reasonably
likely to materially affect, the Companys internal controls over financial
reporting.

Additional Information

Additional information relating
to the Company is available on SEDAR at www.sedar.com.

29

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|Cautionary Statement This MD&A is based on a
      review of the Companys operations, financial position and plans for the
      future based on facts and circumstances as of April 22, 2008. Except for
      historical information or statements of fact relating to the Company, this
      document contains forward-looking statements within the meaning of
      applicable Canadian securities regulations. There can be no assurance that
      such statements will prove to be accurate, and future events and actual
      results could differ materially from those anticipated in such statements.
      Important factors that could cause actual results to differ materially
      from our expectations are disclosed in the Companys documents filed from
      time to time via SEDAR with the Canadian regulatory agencies to whose
      policies we are bound. Forward-looking statements are based on the
      estimates and opinions of management on the date the statements are made,
      and we do not undertake any obligation to update forward-looking
      statements should conditions or our estimates or opinions change. These
      statements involve known and unknown risks, uncertainties, and other
      factor that may cause the Companys actual results, levels of activity,
      performance or achievements to be materially different from any future
      results, levels of activity, performance or achievement expressed or
      implied by these 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, 2007.

|                      |  |                                                          |  |  | Principal Occupation, Business or                                                                                                                                                                                                                                                                               |  |  | Director/Officer    | 
|--------------------- |  | -------------------------------------------------------- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ------------------- | 
|Name                  |  | Position Held                                            |  |  | Employment for the Last Five Years                                                                                                                                                                                                                                                                              |  |  | 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 2007    | 
|Matt 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 - Present | 
|Lloyd 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  Present | 
|James OByrne         |  | Director and VP Operations                               |  |  | Oil and Gas Consultant; President of OByrne Resource
      Management Ltd.                                                                                                                                                                                                                                     |  |  | June 2003- Present  | 
|Lindsay 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-Present   | 
|David Wolfin(3)       |  | Director and VP Finance                                  |  |  | Mining Executive; Director and VP Finance of                                                                                                                                                                                                                                                                    |  |  | June 2005 -         | 

30

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|                          |  |                     |  |  | 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. |  |  | Present                 | 
|------------------------- |  | ------------------- |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ----------------------- | 
|Ronald Andrews            |  | Director            |  |  | Owner and operator of Andrews Orchards from 1972 to
      present, Director of North Coast Live Insurance Company.                                                                                                                                                                                               |  |  | June 2005 - Present     | 
|Phillip Piffer            |  | Director            |  |  | President and CEO of Genesis Fueltech Inc. from June 2001
      to present.                                                                                                                                                                                                                                      |  |  | November 2005 - Present | 
|Tyrone Docherty           |  | Director            |  |  | President, Chief Executive Officer and Director of Quinto
      Technology Inc. from 1997 to present.                                                                                                                                                                                                            |  |  | August 2006  Present   | 
|Mimy Fernandez- Maldonado |  | Corporate Secretary |  |  | Officer of six other reporting issuers; Former Corporate
      Secretary of three other reporting issuers.                                                                                                                                                                                                       |  |  | September 2007- 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, 2007, 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 $102,000 to Wear Wolfin
Designs Ltd., a private BC 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 BC 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$104,999 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 2,147,500 common shares of the Company as follows:

31

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|                       |  |               |  | Exercise Price Per |  |                    |  |                   
|---------------------- |  | ------------- |  | ------------------ |  | ------------------ |  | ------------------
|Name of
      Optionee |  | No. of Shares |  | Share              |  | Date of Grant      |  | Expiry Date       
|Lloyd J. Andrews       |  | 172,500       |  | $0.52              |  | September 19, 2003 |  | September 19, 2008
|                       |  | 45,000        |  | $0.90              |  | December 23, 2005  |  | December 23, 2010 
|                       |  | 100,000       |  | $0.55              |  | July 4, 2007       |  | July 4, 2012      
|James O'Byrne          |  | 50,000        |  | $0.52              |  | September 19, 2003 |  | September 19, 2008
|                       |  | 20,000        |  | $0.81              |  | October 19, 2004   |  | October 19, 2009  
|                       |  | 100,000       |  | $0.90              |  | December 23, 2005  |  | December 23, 2010 
|                       |  | 50,000        |  | $0.56              |  | September 21, 2006 |  | September 21, 2011
|Matt Wayrynen          |  | 300,000       |  | $0.52              |  | September 19, 2003 |  | September 19, 2008
|                       |  | 50,000        |  | $0.90              |  | December 23, 2005  |  | December 23, 2010 
|                       |  | 100,000       |  | $0.56              |  | September 21, 2006 |  | September 21, 2011
|                       |  | 80,000        |  | $0.55              |  | July 4, 2007       |  | July 4, 2012      
|Lindsay Gorrill        |  | 50,000        |  | $0.81              |  | October 19, 2004   |  | October 19, 2009  
|                       |  | 150,000       |  | $0.90              |  | December 23, 2005  |  | December 23, 2010 
|                       |  | 100,000       |  | $0.56              |  | September 21, 2006 |  | September 21, 2011
|                       |  | 120,000       |  | $0.55              |  | July 4, 2007       |  | July 4, 2012      
|Ron Andrews            |  | 50,000        |  | $0.81              |  | October 19, 2004   |  | October 19, 2009  
|                       |  | 50,000        |  | $0.90              |  | December 23 2005   |  | December 23, 2010 
|David Wolfin           |  | 50,000        |  | $0.52              |  | September 19, 2003 |  | September 19, 2008
|                       |  | 150,000       |  | $0.57              |  | November 26, 2003  |  | September 19, 2008
|                       |  | 50,000        |  | $0.56              |  | September 21, 2006 |  | September 26, 2011
|Phillip Piffer         |  | 50,000        |  | $0.90              |  | December 23, 2005  |  | December 23, 2010 
|                       |  | 50,000        |  | $0.56              |  | September 21, 2006 |  | September 26, 2011
|Tyrone Docherty        |  | 30,000        |  | $0.56              |  | September 21, 2006 |  | September 21, 2011
|                       |  | 1,967,500     |  |                    |  |                    |  |                   

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, 2007.

32

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|                | Summary Compensation Table | 
|--------------- | -------------------------- | 
|                | Annual Compensation        | 
|                |                            | 
|Name/Principal  |                            | 
|Position        | Year                       | 
|                |                            | 
|Matt Wayrynen   | 2007                       | 
|Chief Executive | 2006                       | 
|Officer and     | 2005                       | 
|Executive       |                            | 
|Chairman        |                            | 
|Lindsay Gorrill | 2007                       | 
|President and   | 2006                       | 
|Chief Operating | 2005                       | 
|Officer         |                            | 

|    |                                                                                       | 
|--- | ------------------------------------------------------------------------------------- | 
|(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, 2007, the
board of directors of the Company consisted of eight directors: Matt Wayrynen,
Lloyd J. Andrews, Tyrone Docherty, James O'Byrne, Lindsay Gorrill, David Wolfin,
Ronald Andrews and Phillip Piffer. Each of the directors will serve until the
next annual general meeting of shareholders. The officers of the Company are
elected by the board and serve at the pleasure of the board. The size and
experience of the board is important for providing the Company with effective
governance. The boards mandate and responsibilities can be effectively and
efficiently administered through the five directors. The chairman of the board
is not a member of management. The board has functioned, and is of the view that
it can continue to function, independently of management as required.

The board has considered the
relationships of each director to the Company and considers four of the eight
directors to be "unrelated" (Messrs. L.J. 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 and David
Wolfin are related family members. Messrs. Lloyd J. Andrews 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.



33

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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 (Messrs. Piffer and R. Andrews), 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 exercise of a
member's judgment. 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.

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;

34

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- 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 remuneration paid by other reporting issuers that the
committee feels are similarly placed within the same business of the Company. As
of June 28, 2008, the compensation committee was comprised of Ronald Andrews,
Lloyd J. 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, 2008 the corporate governance committee consisted of Lloyd J. Andrews,
Ronald Andrews, Matt Wayrynen and Phillip Piffer.

D. Employees

The Company has no full time
employees.

E. Share Ownership

The following table sets for the
share ownership of the directors and officers of the Company as of June 20,
2008.

|Name of Beneficial Owner                                     |  | Number of Shares |  |  | Percent | 
|------------------------------------------------------------ |  | ---------------- |  |  | ------- | 
|Matt Wayrynen(1)                                             |  | 1,300,356        |  |  | 6.06%   | 
|Lloyd Andrews                                                |  | 325,500          |  |  | 1.52%   | 
|James O'Byrne                                                |  | 50,000           |  |  | 0.23%   | 
|Lindsay Gorrill                                              |  | 78,000           |  |  | 0.36%   | 
|David Wolfin                                                 |  | 80,300           |  |  | 0.37%   | 
|Ronald Andrews                                               |  | 108,500          |  |  | 0.51%   | 
|Phillip Piffer                                               |  | Nil              |  |  | Nil     | 
|Tyrone Docherty                                              |  | Nil              |  |  | Nil     | 
|Kelly Hyslop                                                 |  | Nil              |  |  | Nil     | 
|Lisa Sharp                                                   |  | Nil              |  |  | Nil     | 
|Mimy Fernandez-Maldonado                                     |  | Nil              |  |  | Nil     | 
|All Officers and Directors as a Group (nine
      in number) |  | 1,942,656        |  |  | 9.06%   | 

|  |                                          | 
|- | ---------------------------------------- | 
|1 | 1,009,556 shares are held by his
spouse.

35

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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 2,545,000 shares
have been granted under the plan, leaving options for 292,000 shares available
for issuance.

Options Granted to Directors and Officers During the Fiscal
Year

|                               |  | Securities   |  |  | Exercise |  |  | Purchase      |  |  |                 | 
|------------------------------ |  | ------------ |  |  | -------- |  |  | ------------- |  |  | --------------- | 
|Name of
      Director/Officer |  | Under Option |  |  | Price    |  |  | Price, if any |  |  | Expiration Date | 
|Lindsay Gorrill                |  | 120,000      |  |  | $ 0.55   |  |  | N/A           |  |  | 07/04/12        | 
|Lloyd J. Andrews               |  | 100,000      |  |  | $ 0.55   |  |  | N/A           |  |  | 07/04/12        | 
|Matt Wayrynen                  |  | 180,000      |  |  | $ 0.55   |  |  | N/A           |  |  | 07/04/12        | 

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 20, 2008, the share ownership of directors, officers and persons known to
the Company to own beneficially five percent (5%) or more of the outstanding
shares of each class of the Company's voting securities. The Company's major
shareholders do not have different voting rights and there are no arrangements
known to the Company which may at a subsequent date result in a change of
control of the Company.

|Name          |  | Number of Shares of Common Stock Owned |  |  | Percent of Class | 
|------------- |  | -------------------------------------- |  |  | ---------------- | 
|Matt Wayrynen |  | 1,300,356(1)                           |  |  | 6.06%            | 

|    |                                                    | 
|--- | -------------------------------------------------- | 
|(1) | 1,009,556 shares (4.71%) are held by his
  spouse.

B. Related Party Transactions

There is no amount due from
related parties.

Due to related parties consists
of $7,000 (2006 - $16,651) due to Directors of the Company for Directors fees
and expense reimbursements and $7,261 (2006 - $51,782) to a private company
owned by public companies having common Directors that provides administrative
services, office supplies and accounting services.

Management and consulting fees
totaling $296,999 were paid to Directors and their private companies in 2007
(2006: $237,828).

In 2006, current and/or former
Directors and Officers subscribed for 145,500 shares of the Company for total
proceeds of $130,950.

Consulting fees totaling $16,000
were paid to a former Director and his spouse in 2007 (2006: $96,000).

36

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Administrative services, office
supplies and accounting charges totaling $110,161 were paid to Oniva
International Services Corporation (Oniva), a private company owned by public
companies having common Directors (2006: $113,865).

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.

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

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,
      2007 and 2006.Statements of Operations for the years ended December
      31, 2007, 2006 and 2005. Statements of Deficit for the years ended
      December 31, 2007, 2006 and 2005. Statements of Cash flows for the
      years ended December 31, 2007, 2006 and 2005. Notes to the Financial
      Statements.
|   |                                                                                                                                                                                                                                                                                                                                                                           
|2. | The Company has never paid any dividends and does not
      intend to in the near future.                                                                                                                                                                                                                                                                                 

B. Significant Changes

On September 5, 2007 the Company
announced that it had completed the previously announced sale of the Companys
real estate assets consisting of an office building located at 455 Granville
Street, Vancouver, BC to Pender-Granville Properties Limited Partnership (the
Purchaser). The Company received $4,000,000 gross proceeds from the sale.

On June 3, 2008 the Company
announced that it had arranged a non-brokered private placement of up to
2,800,000 units at a price of $0.18 per unit, each unit consisting of one common
share and one non-transferrable share purchase warrant. Each warrant will
entitle the investor to purchase one additional share at a price of $0.30 during
the first year of closing. The net proceeds of the offering will be used for
additional exploration and development work and for general working capital
requirements. This transaction will be subject to regulatory approval.



37

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On July 11, 2008 the Company
announced the sale of twenty-five (25%) percent participation in its Crossfield
Project to an individual, in an arms length transaction, for the sum of
$300,000. The Company estimates that it will cost approximately $6,000,000 to
licence, drill, complete and tie-in the first of four wells planned for this
Project. Each of the subsequent three wells are expected to cost about
$5,000,000 for total exposure to 100% interest being $20/22,000,000. The new
Participant is a well financed individual, experienced in oil and gas investments. He will be a
significant asset to the Crossfield Project. The Company now holds between 35%
and 50% interest in this Project which is a well defined, seismically
controlled, sour-gas prospect in the Crossfield member of the Wabamun formation.
This is the same formation that has produced nearly 1 tcf (one trillion cubic
feet) of its projected 1.8 tcf of natural gas reserves from the giant Crossfield
gas field situated two to five miles east of the Berkley et al prospect which in
turn is about 25 miles north of the City of Calgary.

The Company now plans to move forward with the licencing
process which will include a public hearing later this year. Success there would
enable the parties to commence drilling during the first quarter, 2009.

Item 9. The Offer and Listing

A. Offer and Listing Details

As of December 31, 2007, 3.11% of
the Company's outstanding common stock was registered in the names of United
States residents. There were, as of December 31, 2007, 32 record holders in the
United States. The Company's common stock is issued in registered form and the
percentage of shares reported to be held by record holders in the United States
is taken from the records of Computershare Trust Company of Canada in the city
of Vancouver, the registrar and transfer agent for the common stock.

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

TSX Venture Exchange(Canadian Dollars)Last Six
      Months
    
    High
    
    
    LowMay 2008
    
    0.21
    
    
    0.16April 2008
    
    0.20
    
    
    .018March 2008
    
    0.18
    
    
    .015February 2008
    
    0.20
    
    
    .015January 2008
    
    0.21
    
    
    0.14December 2007
    
    0.23
    
    
    0.162007
    
    High
    
    
    LowFourth Quarter
    
    0.41
    
    
    0.16Third Quarter
    
    0.65
    
    
    0.38Second Quarter
    
    0.74
    
    
    0.55First Quarter
    
    0.91
    
    
    0.512006Fourth Quarter
    
    0.93
    
    
    0.65Third Quarter
    
    0.76
    
    
    0.61Second Quarter
    
    1.08
    
    
    0.66First Quarter
    
    1.10
    
    
    0.70


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TSX Venture Exchange(Canadian Dollars)Five Most
      Recent Fiscal YearsDecember 31, 2007
    
    0.91
    
    
    0.16December 31, 2006
    
    1.10
    
    
    0.61December 31, 2005
    
    1.50
    
    
    0.66December 31, 2004
    
    1.50
    
    
    0.72December 31, 2003
    
    0.80
    
    
    0.40


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.

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.

39

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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
Business Corporations Act of British Columbia or by the Articles of
Incorporation, 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.

40

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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.

41

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

E. Taxation

Canadian Federal Income Tax Consequences

The following summarizes the
principal Canadian federal income tax consequences applicable to the holding and
disposition of common shares in the capital of the Company by a United States
resident, and who holds common shares solely as capital property, 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.

42

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United States Tax Consequences

Passive Foreign Investment Companies

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

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

Controlled Foreign Corporations

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

The 10% United States
shareholders of a CFC are subject to current 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).

43

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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.

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.

44

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

Foreign Tax Credit

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

Disposition of Common Shares

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

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

45

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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.

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.

46

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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, 2007 and for the fiscal year ended December 31,
2006 was Meyers Norris Penny LLP.

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,
2007 was $56,500 and December 31, 2006 was $67,400.

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, 2007 was $7,150 and December 31, 2006
was $2,148.

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, 2007 was $2,900 and December 31, 2006 was
$2,022. The services comprising these fees were in conjunction with the
preparation of corporate tax returns and taxation advisory services.

All Other Fees

Other than referred to above,
there were no aggregate fees billed for professional services rendered by the
Companys independent auditors for the fiscal years ended December 31, 2007 and
December 31, 2006.

The audit committee approved 100%
of the fees paid to the principal accountant for audit-related, tax and other
fees in the fiscal year 2007. 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.

47

---

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.

48

---

Part III

Item 17. Financial Statements

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

Auditors' Report
      53Balance Sheets
      54Statements of Operations
      55Statements of Deficit
      56Statements of Cash Flows
      57Notes to Financial Statements.
      58 thru 79


Item 18. Financial Statements

See Item 17.

Item 19. Exhibits

1.
      Audited Financial Statements and
        Financial Statement Schedules:Auditors'
        Report
      53Balance Sheets
      54Statements
        of Operations
      55Statements of Deficit
      56Statements
        of Cash Flows
      57Notes to Financial Statements.
      58 thru 792.
      Exhibits


|Exhibit Number |  | Name                                                                               
|-------------- |  | -----------------------------------------------------------------------------------
|1.             |  | Memorandum of Berkley Resources
      Inc.*                                        
|2.             |  | Articles of Berkley Resources Inc.*                                                
|12.1           |  | Certification
      of the Principal Executive Officer under the Sarbanes-Oxley Act
|12.2           |  | Certification of the
      Principal Financial Officer under the Sarbanes-Oxley Act
|13.1           |  | Certificate
      of the Principal Executive Officer under section 906             
|13.2           |  | Certificate of the Principal
      Financial Officer under section 906             
|15.1           |  | Consent
      of Experts                                                           

|                                                                                                                                                                                                                                                                                                               | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|* Previously filed.                                                                                                                                                                                                                                                                                           
|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)

49

---

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: July 14, 2008 | By:
      /s/ Matt Wayrynen                     
|                     | Matt
      Wayrynen, Chief Executive Officer and
|                     | Executive
      Chairman                        

50

---



BERKLEY RESOURCES INC.

Financial Statements

DECEMBER 31, 2007 and 2006

Canadian Funds

Index

Balance Sheets

Statements of Operations and Comprehensive
  Loss

Statements of Deficit

Statements of Cash Flows

Notes to Financial Statements

51

---

MANAGEMENTS RESPONSIBILITY FOR FINANCIAL REPORTING

The accompanying financial statements are the responsibility
of, and have been prepared by, the management of Berkley Resources Inc. in
accordance with Canadian generally accepted accounting principle in Canada with
a reconciliation to generally accepted accounting principles in the United
Sates. 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

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. Where appropriate, these financial
statements reflect estimates based on judgments of management.

Meyers Norris Penny LLP, the independent auditors appointed by
Berkley Resources Inc.s shareholders, 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 Gorrill                      
|Executive Chairman and Chief Executive Officer | President and Chief Operating Officer
|April 18, 2008                                 |                                      

52

---

To the shareholders of Berkley Resources Inc.:

We have audited the balance sheets of Berkley Resources Inc. as
at December 31, 2007 and 2006 and the statements of operations and comprehensive
loss, deficit and cash flows for the years 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 audits.

We conducted our audits 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. The Company is not required to have, nor were
we engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Companys internal control over financial reporting. 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,
2007 and 2006 and the results of its operations and its cash flows for the years
then ended in accordance with Canadian generally accepted accounting
principles.

The financial statements as at and for the year ended December
31, 2005, prior to the adjustment for certain error corrections as described in
Note 17, 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.

|Calgary, Canada | MEYERS NORRIS PENNY LLP                     
|--------------- | --------------------------------------------
|April 18, 2008  | 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 18, 2008 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.

|Calgary, Canada | MEYERS NORRIS PENNY LLP                     
|--------------- | --------------------------------------------
|April 18, 2008  | Independent Registered Chartered Accountants

53

---

|BERKLEY RESOURCES
      INC.                                               |   |            |   |   |            |  
|-------------------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|BALANCE SHEETS                                                             |   |            |   |   |            |  
|December 31, 2007
      and 2006                                           |   |            |   |   |            |  
|                                                                           |   |            |   |   |            |  
|As at                                                                      |   | 2007       |   |   | 2006       |  
|                                                                           |   |            |   |   |            |  
|ASSETS                                                                     |   |            |   |   |            |  
|Current Assets                                                             |   |            |   |   |            |  
|Cash                                                                       | $ | 47,057     |   | $ | 498,246    |  
|Accounts receivable                                                        |   | 247,372    |   |   | 607,436    |  
|Taxes recoverable                                                          |   | 12,168     |   |   | 16,145     |  
|Prepaid expenses                                                           |   | 6,120      |   |   | 15,933     |  
|Deferred financing fees                                                    |   | -          |   |   | 134,247    |  
|                                                                           |   | 312,717    |   |   | 1,272,007  |  
|                                                                           |   |            |   |   |            |  
|Oil and gas properties and equipment(Note 5)                               |   | 5,456,007  |   |   | 8,581,024  |  
|Other property and equipment(Note 6)                                       |   | 3,048      |   |   | 4,724      |  
|Assets of
      discontinued operations(Note 2)                            |   | -          |   |   | 2,038,924  |  
|                                                                           |   | 5,459,055  |   |   | 10,624,672 |  
|                                                                           |   |            |   |   |            |  
|                                                                           | $ | 5,771,772  |   | $ | 11,896,679 |  
|                                                                           |   |            |   |   |            |  
|LIABILITIES                                                                |   |            |   |   |            |  
|Current Liabilities                                                        |   |            |   |   |            |  
|Accounts payable and accrued
      liabilities                             | $ | 982,386    |   | $ | 1,015,594  |  
|Due to related parties (Note 12b)                                          |   | 14,261     |   |   | 68,433     |  
|Bank loans and liabilities of discontinued
      operations (Note 2 and 7) |   | -          |   |   | 3,377,612  |  
|                                                                           |   | 996,647    |   |   | 4,461,639  |  
|                                                                           |   |            |   |   |            |  
|Asset
      Retirement Obligation(Note 8)                                  |   | 140,150    |   |   | 135,675    |  
|                                                                           |   |            |   |   |            |  
|                                                                           |   | 1,136,797  |   |   | 4,597,314  |  
|Going concern (Note 1)                                                     |   |            |   |   |            |  
|Commitment (Note 14)                                                       |   |            |   |   |            |  
|Correction of error (Note 17)                                              |   |            |   |   |            |  
|Subsequent event (Note 18)                                                 |   |            |   |   |            |  
|                                                                           |   |            |   |   |            |  
|SHAREHOLDERS' EQUITY                                                       |   |            |   |   |            |  
|                                                                           |   |            |   |   |            |  
|Share Capital(Note 9)                                                      |   | 12,347,593 |   |   | 11,577,934 |  
|Contributed Surplus(Note 10)                                               |   | 1,030,532  |   |   | 804,412    |  
|Deficit                                                                    |   | (8,743,150 | ) |   | (5,082,981 | )
|                                                                           |   |            |   |   |            |  
|                                                                           |   | 4,634,975  |   |   | 7,299,365  |  
|                                                                           |   |            |   |   |            |  
|                                                                           | $ | 5,771,772  |   | $ | 11,896,679 |  

|Approved by the Directors: |          |                   |         
|-------------------------- | -------- | ----------------- | --------
|Matt Wayrynen            | Director | Lindsay Gorrill | Director

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

54

---

|BERKLEY RESOURCES INC.                          |   |            |   |   |            |   |   |            |  
|----------------------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | -
|STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS |   |            |   |   |            |   |  
|For the Years Ended December 31                 |   |            |   |   |            |   |   |            |  
|                                                |   |            |   |   |            |   |   |            |  
|                                                |   | 2007       |   |   | 2006       |   |   | 2005       |  
|                                                |   |            |   |   |            |   |   | (Restated) |  
|OIL AND GAS REVENUE                             | $ | 1,715,924  |   | $ | 1,568,681  |   | $ | 1,408,858  |  
|                                                |   |            |   |   |            |   |   |            |  
|Oil and gas production
      expenses           |   |            |   |   |            |   |   |            |  
|Operating costs                                 |   | 1,017,313  |   |   | 828,575    |   |   | 608,045    |  
|Interest
      on loans                         |   | 134,264    |   |   | 59,652     |   |   | -          |  
|Amortization, depletion
      and accretion     |   | 1,428,068  |   |   | 1,162,790  |   |   | 667,794    |  
|Write-down of oil and
      gas properties      |   | 4,083,000  |   |   | 2,385,000  |   |   | -          |  
|                                                |   | 6,662,645  |   |   | 4,436,017  |   |   | 1,275,839  |  
|                                                |   |            |   |   |            |   |   |            |  
|NET OIL AND
      GAS INCOME (LOSS)             |   | (4,946,721 | ) |   | (2,867,336 | ) |   | 133,019    |  
|                                                |   |            |   |   |            |   |   |            |  
|GENERAL AND ADMINISTRATIVE EXPENSES             |   |            |   |   |            |   |   |            |  
|Administrative, office services and premises    |   | 327,956    |   |   | 312,517    |   |   | 244,233    |  
|Stock-based compensation                        |   | 219,451    |   |   | 177,596    |   |   | 173,538    |  
|Management fees                                 |   | 296,999    |   |   | 237,828    |   |   | 201,393    |  
|Consulting fees                                 |   | 173,140    |   |   | 242,245    |   |   | 209,174    |  
|Professional fees                               |   | 168,855    |   |   | 172,261    |   |   | 163,544    |  
|Finance fees on debt                            |   | -          |   |   | 61,753     |   |   | 95,427     |  
|Filing
      and transfer agent fees            |   | 21,131     |   |   | 25,731     |   |   | 17,130     |  
|Shareholder information                         |   | 44,224     |   |   | 24,907     |   |   | 69,717     |  
|Amortization                                    |   | 2,054      |   |   | 2,158      |   |   | 1,462      |  
|                                                |   | (1,253,810 | ) |   | (1,256,996 | ) |   | (1,175,618 | )
|OTHER INCOME (EXPENSES)                         |   |            |   |   |            |   |   |            |  
|Interest expense                                |   | (50,593    | ) |   | (848       | ) |   | (10,487    | )
|Interest and other
      income                 |   | 7,517      |   |   | 24,450     |   |   | 2,034      |  
|                                                |   | (1,296,886 | ) |   | (1,233,394 | ) |   | (1,184,071 | )
|                                                |   |            |   |   |            |   |   |            |  
|LOSS BEFORE INCOME TAXES AND DISCONTINUED       |   |            |   |   |            |   |   |            |  
|OPERATIONS                                      |   | (6,243,607 | ) |   | (4,100,730 | ) |   | (1,051,052 | )
|Recovery of future income taxes (Note 11a)      |   | 863,031    |   |   | 1,032,099  |   |   | 583,706    |  
|                                                |   |            |   |   |            |   |   |            |  
|LOSS BEFORE DISCONTINUED OPERATIONS             |   | (5,380,576 | ) |   | (3,068,631 | ) |   | (467,346   | )
|Discontinued operations
      (Note 2)          |   | 1,854,654  |   |   | (168,128   | ) |   | (55,112    | )
|                                                |   |            |   |   |            |   |   |            |  
|LOSS AND COMPREHENSIVE LOSS FOR THE YEAR        | $ | (3,525,922 | ) | $ | (3,236,759 | ) | $ | (522,458   | )
|                                                |   |            |   |   |            |   |   |            |  
|BASIC AND DILUTED LOSS PER SHARE
      BEFORE   |   |            |   |   |            |   |   |            |  
|DISCONTINUED OPERATIONS                         | $ | (0.27      | ) | $ | (0.21      | ) | $ | (0.05      | )
|                                                |   |            |   |   |            |   |   |            |  
|BASIC AND DILUTED LOSS PER SHARE AFTER          |   |            |   |   |            |   |   |            |  
|DISCONTINUED
      OPERATIONS                   | $ | (0.18      | ) | $ | (0.22      | ) | $ | (0.05      | )
|                                                |   |            |   |   |            |   |   |            |  
|WEIGHTED AVERAGE NUMBER OF
      SHARES         |   |            |   |   |            |   |   |            |  
|OUTSTANDING                                     |   | 20,063,734 |   |   | 14,646,442 |   |   | 9,849,082  |  

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

55

---

|BERKLEY RESOURCES
      INC.          |   |            |   |   |            |   |   |            |  
|------------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | -
|STATEMENTS OF DEFICIT                 |   |            |   |   |            |   |   |            |  
|For the Years
      Ended December 31 |   |            |   |   |            |   |   |            |  
|                                      |   |            |   |   |            |   |   |            |  
|                                      |   | 2007       |   |   | 2006       |   |   | 2005       |  
|                                      |   |            |   |   |            |   |   | (Restated) |  
|                                      |   |            |   |   |            |   |   |            |  
|DEFICIT,beginning of year             | $ | (5,082,981 | ) | $ | (1,846,222 | ) | $ | (1,323,764 | )
|Change in accounting policy (note 4)  |   | (134,247   | ) |   | -          |   |   | -          |  
|Loss for the year                     |   | (3,525,922 | ) |   | (3,236,759 | ) |   | (522,458   | )
|                                      |   |            |   |   |            |   |   |            |  
|DEFICIT,end of year                   | $ | (8,743,150 | ) | $ | (5,082,981 | ) | $ | (1,846,222 | )

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

56

---

|BERKLEY RESOURCES INC.                                      |   |            |   |   |            |   |   |            |  
|----------------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | -
|STATEMENTS OF CASH FLOWS                                    |   |            |   |   |            |   |   |            |  
|For the Years
      Ended December 31                       |   |            |   |   |            |   |   |            |  
|                                                            |   |            |   |   |            |   |   |            |  
|                                                            |   | 2007       |   |   | 2006       |   |   | 2005       |  
|                                                            |   |            |   |   |            |   |   | (Restated) |  
|CASH PROVIDED BY (USED IN) FROM                             |   |            |   |   |            |   |   |            |  
|CONTINUING
      OPERATIONS                                 |   |            |   |   |            |   |   |            |  
|                                                            |   |            |   |   |            |   |   |            |  
|OPERATING ACTIVITIES                                        |   |            |   |   |            |   |   |            |  
|Loss for
      the period from continuing operations        | $ | (5,380,576 | ) | $ | (3,068,631 | ) | $ | (467,346   | )
|Items not requiring cash in the year                        |   |            |   |   |            |   |   |            |  
|Amortization, depletion and accretion                       |   | 1,430,122  |   |   | 1,164,948  |   |   | 669,256    |  
|Finance fees on debt                                        |   | -          |   |   | 61,753     |   |   | -          |  
|Fair
      value of options issued for services             |   | 2,269      |   |   | -          |   |   | -          |  
|Write-down of oil and gas
      properties                  |   | 4,083,000  |   |   | 2,385,000  |   |   | -          |  
|Recovery
      of future income taxes                       |   | (863,031   | ) |   | (1,032,099 | ) |   | (583,706   | )
|Stock-based compensation                                    |   | 219,451    |   |   | 177,596    |   |   | 173,538    |  
|                                                            |   | (508,765   | ) |   | (311,433   | ) |   | (208,258   | )
|Net change in non-cash working capital balances:            |   |            |   |   |            |   |   |            |  
|Accounts
      receivable                                   |   | 360,064    |   |   | (328,580   | ) |   | (133,434   | )
|Taxes recoverable                                           |   | 3,977      |   |   | 6,180      |   |   | 8,754      |  
|Prepaid
      expenses                                      |   | 9,813      |   |   | 85,756     |   |   | (9,189     | )
|Due from related party                                      |   | -          |   |   | 3,454      |   |   | 18,606     |  
|Prepaid
      oil and gas costs                             |   | -          |   |   | 295,350    |   |   | 81,343     |  
|Accounts payable and
      accrued liabilities              |   | (33,208    | ) |   | 662,231    |   |   | 1,833      |  
|Due to related parties                                      |   | (54,172    | ) |   | (56,484    | ) |   | 124,917    |  
|                                                            |   | (222,291   | ) |   | 356,474    |   |   | (115,428   | )
|                                                            |   |            |   |   |            |   |   |            |  
|INVESTING ACTIVITIES                                        |   |            |   |   |            |   |   |            |  
|Proceeds
      on disposal of oil and gas property          |   | -          |   |   | -          |   |   | 112,500    |  
|Oil and gas properties
      and equipment, net             |   | (2,381,576 | ) |   | (6,739,047 | ) |   | (3,859,162 | )
|Other property and
      equipment                          |   | (378       | ) |   | (433       | ) |   | (5,548     | )
|                                                            |   | (2,381,954 | ) |   | (6,739,480 | ) |   | (3,752,210 | )
|                                                            |   |            |   |   |            |   |   |            |  
|FINANCING ACTIVITIES                                        |   |            |   |   |            |   |   |            |  
|Issuance of common
      shares (net of issue costs)        |   | 1,637,090  |   |   | 3,689,142  |   |   | 3,615,396  |  
|                                                            |   |            |   |   |            |   |   |            |  
|Decrease in cash from continuing
      operations           |   | (967,155   | ) |   | (2,693,864 | ) |   | (252,242   | )
|                                                            |   |            |   |   |            |   |   |            |  
|Increase in cash from discontinued
      operations(Note 2) |   | 515,966    |   |   | 1,297,429  |   |   | 1,434,245  |  
|                                                            |   |            |   |   |            |   |   |            |  
|Cash, beginning of year                                     |   | 498,246    |   |   | 1,894,681  |   |   | 712,678    |  
|                                                            |   |            |   |   |            |   |   |            |  
|Cash, end of year                                           | $ | 47,057     |   | $ | 498,246    |   | $ | 1,894,681  |  
|                                                            |   |            |   |   |            |   |   |            |  
|SUPPLEMENTAL STATEMENTS OF
      CASH                       |   |            |   |   |            |   |   |            |  
|FLOWS DISCLOSURE                                            |   |            |   |   |            |   |   |            |  
|Interest paid on bank
      loans                           | $ | 249,910    |   | $ | 273,100    |   | $ | 99,532     |  

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

57

---

|BERKLEY RESOURCES
      INC.    
|--------------------------------
|NOTES TO FINANCIAL STATEMENTS   
|December 31,
      2007 and 2006

|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 rented
      commercial office space in a building it owns in Vancouver, Canada. The
      commercial rental operations have been discontinued as a result of the
      sale of the building during the year ended December 31, 2007 (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,
      2007 the Company does not have sufficient financial resources to meet its
      flow through expenditure requirements in 2008. As at December 31, 2007,
      the Company had a working capital deficit of $683,930 (2006 
      $3,189,632).                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | 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. The Management of the Company has developed a strategy to
      address this uncertainty, including additional equity and/or debt
      financing; however, there are no assurances that any such financing can be
      obtained on favourable terms, if at all.                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | During March 2007, the Company 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 operationsand Bank loans and liabilities
      of discontinued operationsrespectively on the Balance Sheet and the
      operations segment disclosed as discontinued operations on the Statement
      of Operations. The rental property asset was sold for $4,000,000 on August
      31, 2007 and had a carrying value of $2,038,924 which resulted in a gain
      on the sale of $1,949,368. There were costs of $11,708 in legal fees
      applied against the sale. Proceeds of the sale were used to pay out the
      loans entirely to the Canadian Imperial Bank of Commerce ($539,749) and
      Quest Capital Corp. ($2,800,000) plus accrued interest on the loans of
      $37,863.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | Summarized financial information relating to the
      discontinued operations are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | Assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

| |                                      |   | December 31, 2007 |  |   | December 31, 2006 |  
| | ------------------------------------ | - | ----------------- |  | - | ----------------- | -
| | Building, at cost                    | $ | -                 |  | $ | 447,652           |  
| | Less: Accumulated
      amortization |   | -                 |  |   | (147,722          | )
| |                                      |   | -                 |  |   | 299,930           |  
| | Land, at cost                        |   | -                 |  |   | 1,738,994         |  
| |                                      | $ | -                 |  | $ | 2,038,924         |  

58

---

|BERKLEY RESOURCES
      INC.    
|--------------------------------
|NOTES TO FINANCIAL STATEMENTS   
|December 31,
      2007 and 2006

|2. | Discontinued Operations - Continued
|-- | -----------------------------------

| | Liabilities:                                  |   |                   |  |   |                   | 
| | --------------------------------------------- | - | ----------------- |  | - | ----------------- | 
| |                                               |   |                   |  |   |                   | 
| |                                               |   | December 31, 2007 |  |   | December 31, 2006 | 
| | Canadian Imperial Bank of Commerce
      loan | $ | -                 |  | $ | 577,612           | 
| | Quest
      Capital Corp. loan                |   | -                 |  |   | 2,800,000         | 
| |                                               | $ | -                 |  | $ | 3,377,612         | 

| | Operating results:                                   |   |            |   |   |            |   |   |           |  
| | ---------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | --------- | -
| |                                                      |   |            |   |   |            |   |   |           |  
| |                                                      |   | 2007       |   |   | 2006       |   |   | 2005      |  
| |                                                      |   |            |   |   |            |   |   |           |  
| | Rental revenue                                       | $ | 165,490    |   | $ | 249,211    |   | $ | 238,466   |  
| |                                                      |   |            |   |   |            |   |   |           |  
| | Rental operations expenses                           |   |            |   |   |            |   |   |           |  
| | Operating costs                                      |   | 144,558    |   |   | 193,800    |   |   | 180,779   |  
| | Interest on bank loan                                |   | 115,646    |   |   | 213,448    |   |   | 99,532    |  
| | Amortization                                         |   | -          |   |   | 10,091     |   |   | 13,267    |  
| |                                                      |   |            |   |   |            |   |   |           |  
| |                                                      |   | 260,204    |   |   | 417,339    |   |   | 293,578   |  
| |                                                      |   |            |   |   |            |   |   |           |  
| | Net rental loss before other items                   |   | (94,714    | ) |   | (168,128   | ) |   | (55,112   | )
| |                                                      |   |            |   |   |            |   |   |           |  
| | Gain on
      sales of assets                        |   | 1,949,368  |   |   | -          |   |   | -         |  
| |                                                      |   |            |   |   |            |   |   |           |  
| | Net rental
      gain (loss)                         | $ | 1,854,654  |   | $ | (168,128   | ) | $ | (55,112   | )
| |                                                      |   |            |   |   |            |   |   |           |  
| | Cash flows:                                          |   |            |   |   |            |   |   |           |  
| |                                                      |   |            |   |   |            |   |   |           |  
| |                                                      |   | 2007       |   |   | 2006       |   |   | 2005      |  
| | Operating activities                                 |   |            |   |   |            |   |   |           |  
| | Gain (loss) for the year                             | $ | 1,854,654  |   | $ | (168,128   | ) | $ | (55,112   | )
| | Items not requiring cash                             |   |            |   |   |            |   |   |           |  
| | Amortization                                         |   | -          |   |   | 10,091     |   |   | 13,267    |  
| | Gain on disposal of building                         |   | (1,949,368 | ) |   | -          |   |   | -         |  
| |                                                      |   | (94,714    | ) |   | (158,037   | ) |   | (41,845   | )
| |                                                      |   |            |   |   |            |   |   |           |  
| | Investing activities                                 |   |            |   |   |            |   |   |           |  
| | Proceeds from sale of building, net                  |   | 3,988,292  |   |   | -          |   |   | -         |  
| |                                                      |   |            |   |   |            |   |   |           |  
| |                                                      |   |            |   |   |            |   |   |           |  
| | Financing activities                                 |   |            |   |   |            |   |   |           |  
| | Bank and other loans received                        |   | -          |   |   | 3,055,466  |   |   | 1,600,000 |  
| | Bank and other loans
      repaid                    |   | (3,377,612 | ) |   | (1,600,000 | ) |   | (123,910  | )
| |                                                      |   | (3,377,612 | ) |   | 1,455,466  |   |   | 1,476,090 |  
| |                                                      |   |            |   |   |            |   |   |           |  
| | Net cash increase from discontinued
      operations | $ | 515,966    |   | $ | 1,297,429  |   | $ | 1,434,245 |  

59

---

|BERKLEY RESOURCES
      INC.    
|--------------------------------
|NOTES TO FINANCIAL STATEMENTS   
|December 31,
      2007 and 2006

|3. | Significant Accounting Policies
|-- | -------------------------------
|   |                                
|   | a)                             
|   |                                
|   |                                
|   |                                
|   |                                
|   |                                
|   | b)                             
|   |                                
|   |                                
|   |                                
|   | c)                             
|   |                                
|   |                                
|   |                                
|   |                                
|   |                                
|   | d)                             
|   |                                
|   |                                
|   |                                
|   |                                
|   |                                
|   |                                
|   |                                
|   |                                

60

---

|BERKLEY RESOURCES
      INC.    
|--------------------------------
|NOTES TO FINANCIAL STATEMENTS   
|December 31,
      2007 and 2006

|3. | Significant Accounting Policies-
      Continued
|-- | ------------------------------------------------
|   |                                                 
|   | d)                                              
|   |                                                 
|   |                                                 
|   |                                                 
|   |                                                 
|   |                                                 
|   |                                                 
|   |                                                 
|   |                                                 
|   |                                                 
|   | e)                                              
|   |                                                 
|   |                                                 
|   |                                                 
|   | f)                                              
|   |                                                 
|   |                                                 
|   |                                                 
|   |                                                 

Computer equipment
    30%Furniture, fixtures and equipment
    20%


61

---

|BERKLEY RESOURCES
      INC.    
|--------------------------------
|NOTES TO FINANCIAL STATEMENTS   
|December 31,
      2007 and 2006

|3. | Significant Accounting Policies-
      Continued
|-- | ------------------------------------------------
|   |                                                 
|   | g)                                              
|   |                                                 
|   |                                                 
|   |                                                 
|   | h)                                              
|   |                                                 
|   |                                                 
|   |                                                 
|   | i)                                              
|   |                                                 
|   |                                                 
|   |                                                 
|   | j)                                              
|   |                                                 
|   |                                                 

62

---

|BERKLEY RESOURCES
      INC.    
|--------------------------------
|NOTES TO FINANCIAL STATEMENTS   
|December 31,
      2007 and 2006

|3. | Significant Accounting Policies-
      Continued
|-- | ------------------------------------------------
|   |                                                 
|   | k)                                              
|   |                                                 
|   |                                                 
|   |                                                 
|   | l)                                              
|   |                                                 
|   |                                                 
|   |                                                 
|   |                                                 
|   |                                                 
|   | m)                                              
|   |                                                 
|   |                                                 
|   |                                                 
|   |                                                 
|   |                                                 
|   |                                                 

63

---

|BERKLEY RESOURCES
      INC.    
|--------------------------------
|NOTES TO FINANCIAL STATEMENTS   
|December 31,
      2007 and 2006

|3. | Significant Accounting Policies-
      Continued                                                                                                                                                                                                                                                               
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                
|   | m)                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                
|4. | Accounting Changes                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                
|   | Effective January 1, 2007, the Company adopted the
      following new accounting standards issued by the Canadian Institute of
      Chartered Accountants (CICA). These accounting policy changes were
      adopted on a prospective basis with no restatement of prior period
      financial statements:
|   |                                                                                                                                                                                                                                                                                                                
|   | a)                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                
|   | b)                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                
|   | c)                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                

64

---

|BERKLEY RESOURCES
      INC.    
|--------------------------------
|NOTES TO FINANCIAL STATEMENTS   
|December 31,
      2007 and 2006

|4. | Accounting Changes- Continued
|-- | -----------------------------
|   |                              
|   | c)                           
|   |                              
|   |                              
|   |                              
|   |                              
|   |                              
|   |                              
|   |                              
|   |                              
|   |                              
|   |                              

| |                                   | January 1, 2007
| | --------------------------------- | ---------------
| | Deficit - increase                | 134,247        
| | Deferred financing fees -decrease | 134,247        

| |    | There were no other opening adjustments recorded on the
      adoption of this standard.                                                                                                                                                                                                                                                      
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                               
| | d) | Section 3861 Financial Instruments  Disclosure and
      Presentation                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                               
| | e) | Section 3865 Hedges                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                               
| |    | This new standard specifies the circumstances under which
      hedge accounting is permissible and how hedge accounting may be performed.
      On adoption of these standards, the Company did not have any agreements or
      contracts which are following hedge accounting.                                                             
| |    |                                                                                                                                                                                                                                                                                                                                               
| | f) | Section 1506 Accounting changes                                                                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                               
| |    | This new standard expands requirements relating to
      voluntary changes in accounting principles, and requires the Company to
      disclose new sources of GAAP that have been issued but are not yet
      effective. The Company has not made any voluntary changes in accounting
      principles affecting these financial statements.

65

---

|BERKLEY RESOURCES
      INC.    
|--------------------------------
|NOTES TO FINANCIAL STATEMENTS   
|December 31,
      2007 and 2006

|5. | Oil and Gas Properties and Equipment
|-- | ------------------------------------

| |                                                    |   | 2007       |   |   | 2006       |  
| | -------------------------------------------------- | - | ---------- | - | - | ---------- | -
| | Oil and gas properties and equipment, cost         | $ | 18,417,734 |   | $ | 16,035,651 |  
| |                                                    |   |            |   |   |            |  
| | Less: Accumulated amortization and
      depletion |   | (8,878,727 | ) |   | (5,069,627 | )
| | Write-down of oil
      and gas properties         |   | (4,083,000 | ) |   | (2,385,000 | )
| |                                                    |   |            |   |   |            |  
| |                                                    | $ | 5,456,007  |   | $ | 8,581,024  |  

Future development costs related to
proven undeveloped reserves of $Nil (2006  $Nil) have been included in the
depletion base calculation at December 31, 2007.

At December 31, 2007, oil and gas
properties and equipment includes the cost of unproven properties of
approximately $1,108,931 (2006 - $3,832,346) which are currently not subject to
depletion.

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

Crude Oil
    Natural GasEdmontonPar
      Price
    AECOYear
    CDN$/bbl
    CDN$/mcf2008
    85.65
    6.902009
    84.75
    7.752010
    87.05
    8.102011
    87.25
    8.502012
    85.40
    8.652013
    84.60
    9.102014
    86.30
    9.302015
    88.05
    9.502016
    89.80
    9.652017
    91.60
    9.85


Benchmark prices increase at a rate of
2% per year for both oil and gas after 2017.

For the year ended December 31, 2007, a
ceiling test write-down of $4,083,000 (2006  $2,385,000) was required.

During the year ended December 31,
2007, five property areas produced more than 90% (2006  95%) of the total oil
and gas revenue. There is no guarantee that this revenue will continue in future
periods. In addition, $Nil of 2007 revenue (2006  $70,013) came from a well
that was abandoned in fiscal 2006 and is unlikely to produce any future revenue.

66

---

|BERKLEY RESOURCES
      INC.    
|--------------------------------
|NOTES TO FINANCIAL STATEMENTS   
|December 31,
      2007 and 2006

|6. | Other Property and Equipment
|-- | ----------------------------

| |                                   |   |        |  |   | Accumulated  |   |   |          |  |   |          | 
| | --------------------------------- | - | ------ |  | - | ------------ | - | - | -------- |  | - | -------- | 
| |                                   |   | Cost   |  |   | Amortization |   |   | Net 2007 |  |   | Net 2006 | 
| | Computer equipment                | $ | 28,760 |  | $ | (27,404      | ) | $ | 1,356    |  | $ | 2,609    | 
| | Furniture, fixtures and equipment |   | 8,521  |  |   | (6,830       | ) |   | 1,691    |  |   | 2,114    | 
| | Truck                             |   | 39,040 |  |   | (39,039      | ) |   | 1        |  |   | 1        | 
| |                                   | $ | 76,321 |  | $ | (73,273      | ) | $ | 3,048    |  | $ | 4,724    | 

|7. | Bank Loans and Liabilities of Discontinued
      Operations
|-- | -----------------------------------------------------------

| |                                    |   | 2007 |  |   | 2006      | 
| | ---------------------------------- | - | ---- |  | - | --------- | 
| | Canadian Imperial Bank of Commerce | $ | -    |  | $ | 577,612   | 
| | Quest Capital
      Corp.          |   | -    |  |   | 2,800,000 | 
| |                                    | $ | -    |  | $ | 3,377,612 | 

The bank loan payable to the Canadian
Imperial Bank of Commerce (CIBC) that was subject to interest at prime plus
1.00% per annum, due on demand, and secured by a first mortgage in the amount of
$650,000 over the Companys rental property and an assignment of rents and
insurance was paid out upon the completion of the sale of the discontinued
operations on August 31, 2007.

The bank loan payable to Quest Capital
Corp (Quest) that was subject to interest at 12.00% per annum with monthly
interest only payments of approximately $28,000 and secured by a promissory
note, a second mortgage and assignment of rents over the Companys real estate,
a first charge debenture over the oil and gas assets and a general security
agreement was paid out upon the completion of the sale of the discontinued
operations on August 31, 2007.

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, 2007 and 2006, there was a nil balance outstanding
with regard to the credit line.

67

---

|BERKLEY RESOURCES
      INC.    
|--------------------------------
|NOTES TO FINANCIAL STATEMENTS   
|December 31,
      2007 and 2006

|8. | Asset Retirement Obligation                                                                   
|-- | ----------------------------------------------------------------------------------------------
|   |                                                                                               
|   | The following table sets out the activity for the
      Companys asset retirement obligation:

| |                 |   | 2007    |  |   | 2006    | 
| | --------------- | - | ------- |  | - | ------- | 
| | Opening balance | $ | 135,675 |  | $ | 85,439  | 
| | Accretion       |   | 3,968   |  |   | 2,790   | 
| | Additions       |   | 507     |  |   | 47,446  | 
| |                 | $ | 140,150 |  | $ | 135,675 | 

The Company estimates the total
undiscounted amount of cash flows required to settle its asset retirement
obligation is approximately $249,147 (2006  $217,700) which will be incurred
between 2008 and 2018. The asset retirement obligation calculation assumes a
credit adjusted discount rate of 6% and an inflation rate of 1.5% .

|9. | Share Capitala) Authorized:                 
|-- | --------------------------------------------
|   |                                             
|   | Unlimited common shares, without par
  value

|                                               |  | 2007       |  |   | 2006       |  
|---------------------------------------------- |  | ---------- |  | - | ---------- | -
|                                               |  | Number     |  |   |            |  
|Issued and
      fully paid:                   |  | of Shares  |  |   | Amount     |  
|Balance, beginning of year                     |  | 18,857,608 |  | $ | 11,577,934 |  
|Issued in the year for cash:                   |  |            |  |   |            |  
|Pursuant to private placements:                |  |            |  |   |            |  
|- flow-through for cash                        |  | 2,154,000  |  |   | 1,400,100  |  
|- non-flow-through for cash (Note
      10i)   |  | 440,000    |  |   | 264,000    |  
|- non-flow-through for services                |  | -          |  |   | -          |  
|Exercise of stock options                      |  | -          |  |   | -          |  
|Exercise of warrants                           |  | -          |  |   | -          |  
|Share issuance costs                           |  | -          |  |   | (27,010    | )
|Fair value of private placement Warrants (Note |  |            |  |   |            |  
|10i)                                           |  | -          |  |   | (4,400     | )
|Future income taxes on renouncement of         |  |            |  |   |            |  
|resource property expenditures                 |  | -          |  |   | (870,259   | )
|Future income
      taxes on share issue costs |  | -          |  |   | 7,228      |  
|Balance, end of year                           |  | 21,451,608 |  | $ | 12,347,593 |  

68

---

|BERKLEY RESOURCES
      INC.    
|--------------------------------
|NOTES TO FINANCIAL STATEMENTS   
|December 31,
      2007 and 2006

|9. | Share Capital- Continued
|-- | ------------------------
|   |                         
|   | b)                      

|                               |  | 2007              |   |  | 2006           | 
|------------------------------ |  | ----------------- | - |  | -------------- | 
|                               |  | Number of         |   |  |                | 
|                               |  | Shares Subject    |   |  | Exercise price | 
|                               |  | to
      Warrants |   |  | range          | 
|Outstanding, beginning of year |  | 1,013,800         |   |  | $1.20/$1.50    | 
|Issued                         |  | 220,000           |   |  | $1.00          | 
|Exercised                      |  | -                 |   |  | -              | 
|Expired                        |  | (1,013,800        | ) |  | $1.25/$1.50    | 
|Outstanding, end of year       |  | 220,000           |   |  | $1.00          | 

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

|Exercise price |  |                                    |  |  | 2007               |  |  | 2006               | 
|-------------- |  | ---------------------------------- |  |  | ------------------ |  |  | ------------------ | 
|Range          |  | Expiry date                        |  |  | Number of warrants |  |  | Number of warrants | 
|$1.25          |  | December 28, 2007                  |  |  | -                  |  |  | 636,000            | 
|$1.20/$1.50    |  | April 30, 2007 / December 31, 2007 |  |  | -                  |  |  | 377,800            | 
|$1.00          |  | January 12, 2009                   |  |  | 220,000            |  |  | -                  | 
|               |  |                                    |  |  | 220,000            |  |  | 1,013,800          | 

| | c) | Stock options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | The Company has adopted a 2007 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    | ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | iii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | iv)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | v)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

|                                       |  | 2007             |   |   | 2006           | 
|-------------------------------------- |  | ---------------- | - | - | -------------- | 
|                                       |  |                  |   |   | Weighted       | 
|                                       |  | Number of        |   |   | average        | 
|                                       |  | Shares Subject   |   |   | exercise price | 
|                                       |  | to
      Options |   |   | per share      | 
|Balance outstanding, beginning of year |  | 2,214,000        |   | $ | 0.68           | 
|Activity in the year                   |  |                  |   |   |                | 
|Granted                                |  | 350,000          |   | $ | 0.55           | 
|Exercised                              |  | -                |   |   | -              | 
|Cancelled                              |  | (13,500          | ) | $ | 0.70           | 
|Balance
      outstanding, end of year |  | 2,550,500        |   | $ | 0.66           | 
|                                       |  |                  |   |   |                | 
|Exercisable, end
      of year         |  | 2,150,539        |   | $ | 0.68           | 

69

---

|BERKLEY RESOURCES
      INC.    
|--------------------------------
|NOTES TO FINANCIAL STATEMENTS   
|December 31,
      2007 and 2006

|9. | Share Capital- Continued
|-- | ------------------------
|   |                         
|   | c)                      
|   |                         
|   |                         

| |                |                    | 2007                              | 2006     
| | -------------- | ------------------ | --------------------------------- | ---------
| | Exercise Price |                    | Number of Shares Remaining       
| | Per Share      | Expiry Date        | 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    
| | $0.81          | October 19, 2009   | 200,000                           | 200,000  
| | $0.77          | October 29, 2009   | 37,500                            | 37,500   
| | $0.90          | December 23, 2010  | 637,500                           | 640,000  
| | $0.56          | September 21, 2011 | 595,000                           | 600,000  
| | $0.55          | July
      4, 2012 | 350,000                           | -        
| |                |                    | 2,550,500                         | 2,214,000

The fair value of the stock options
granted were $81,180 (2006: $198,900) determined on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions:

| |                         | 2007    | 2006   
| | ----------------------- | ------- | -------
| | Risk free interest rate | 4.50%   | 3.91%  
| | Expected life           | 3 years | 3 years
| | Volatility factor       | 57%     | 55%    
| | 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.

|10. | Contributed Surplus
|--- | -------------------

| |                                                                            |   | 2007      |  |   | 2006    | 
| | -------------------------------------------------------------------------- | - | --------- |  | - | ------- | 
| |                                                                            |   |           |  |   |         | 
| | Balance, beginning of year                                                 | $ | 804,412   |  | $ | 589,036 | 
| | Stock-based compensation on issue of options                               |   | 219,451   |  |   | 177,596 | 
| | Stock-based compensation on issue of
      options for consulting services |   | 2,269     |  |   | -       | 
| | Value of warrants
      (i and ii)                                         |   | 4,400     |  |   | 37,780  | 
| | Balance, end of year                                                       | $ | 1,030,532 |  | $ | 804,412 | 

| | i)  | During the year the Company issued 440,000 units at $0.60
      per unit for total proceeds of $264,000 with each unit consisting of one
      common share of the Company and one half warrant exercisable to January
      12, 2009 at $1.00 per warrant. Management determined that $0.01 of the
      $0.60 unit price was applicable to the half warrant, therefore $4,400 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.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ii) | During the year ended December 31, 2006 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
      warrant 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 half
warrant,                                                                                                                                            

70

---

|BERKLEY RESOURCES
      INC.    
|--------------------------------
|NOTES TO FINANCIAL STATEMENTS   
|December 31,
      2007 and 2006

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.

|11. | Income Taxes
|--- | ------------
|    |             
|    | a)          

| |                                                 |   | 2007       |   |   | 2006       |   |   | 2005       |  
| | ----------------------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | -
| |                                                 |   |            |   |   |            |   |   | (Restated) |  
| | Net income (loss) for the year before taxes     | $ | (4,523,200 | ) | $ | (4,268,855 | ) | $ | (1,106,164 | )
| | Combined federal and provincial income tax rate |   | 34.12%     |   |   | 34.12%     |   |   | 34.12%     |  
| | Computed income tax expense (reduction)         |   | (1,543,316 | ) |   | (1,456,533 | ) |   | (377,423   | )
| | Increase (decrease) resulting from:             |   |            |   |   |            |   |   |            |  
| | Non deductible
      Crown Royalties, net       |   | -          |   |   | 22,290     |   |   | 33,956     |  
| | Resource loss (allowance)                       |   | -          |   |   | (12,658    | ) |   | 12,292     |  
| | Stock-based
      compensation                  |   | 74,877     |   |   | 60,596     |   |   | 59,211     |  
| | Deferred financing fees                         |   | 45,805     |   |   | 21,070     |   |   | -          |  
| | Meals and
      entertainment                   |   | 1,533      |   |   | 1,323      |   |   | 1,857      |  
| | Tax adjustment from rate change
      and other |   | 574,517    |   |   | (892       | ) |   | 250        |  
| | Non-taxable
      portion of capital gain       |   | (355,766   | ) |   | -          |   |   | -          |  
| | Change in valuation allowance                   |   | 339,319    |   |   | 332,705    |   |   | (313,849   | )
| | Recovery of income taxes                        | $ | (863,031   | ) | $ | (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:
| | -- | -------------------------------------------------------------------------------------------------------------------------

| |                                                                |   | 2007       |   |   | 2006     |  
| | -------------------------------------------------------------- | - | ---------- | - | - | -------- | -
| | Future income tax assets                                       |   |            |   |   |          |  
| | Non-capital losses                                             | $ | 315,300    |   | $ | 401,972  |  
| | Share issuance costs                                           |   | 83,464     |   |   | 148,615  |  
| | Property and equipment                                         |   | 605,587    |   |   | 105,150  |  
| | Asset retirement obligation                                    |   | 37,508     |   |   | 46,292   |  
| | Cumulative eligible capital                                    |   | 1,740      |   |   | 2,386    |  
| | Future income tax liabilities                                  |   |            |   |   |          |  
| | Oil and gas properties tax value in excess
      of book value |   | -          |   |   | (135     | )
| | Allowance                                                      |   | (1,043,599 | ) |   | (704,280 | )
| | 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.

71

---

|BERKLEY RESOURCES
      INC.    
|--------------------------------
|NOTES TO FINANCIAL STATEMENTS   
|December 31,
      2007 and 2006

|11. | Income Taxes- Continued
|--- | -----------------------
|    |                        
|    | c)                     

| | 2008 |   | 10,711    | 
| | ---- | - | --------- | 
| | 2009 |   | 58,684    | 
| | 2010 |   | 52,613    | 
| | 2014 |   | 265,611   | 
| | 2015 |   | 208,700   | 
| | 2026 |   | 581,795   | 
| |      | $ | 1,178,114 | 

| | d) | Canadian development and exploration
  expenditures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | As at December 31, 2007, the Company had $5,160,120 (2006
      - $8,580,628) 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 2007, the Company issued flow-through shares in the
      amount of $1,400,100 (2006 - $3,251,713), 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 the respective year ends the subscription value of
      the flow-through shares of $1,400,100 (2006  $3,251,713) had not yet been
      renounced to the shareholders, and $1,400,100 (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, 2008. Subsequent to the year-end, the Company
      renounced the $1,400,100 (2006 - $3,251,713) to the flow-through
      shareholders under the CRA look back rules.

|12. | Related Party Transactions
|--- | --------------------------
|    |                           
|    | a)                        
|    |                           
|    | b)                        
|    |                           
|    | c)                        
|    |                           
|    | d)                        
|    |                           
|    | e)                        
|    |                           
|    | f)                        

72

---

|BERKLEY RESOURCES
      INC.    
|--------------------------------
|NOTES TO FINANCIAL STATEMENTS   
|December 31,
      2007 and 2006

|12. | Related Party Transactions -Continued                                                                                                                                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                    
|    | 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.
|    |                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The transactions were in the normal course of operations
      and agreed to by the related parties and the Company and have had been
      measured at the exchange amount.                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                    
|13. | 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 line of credit facility with
      the Canadian Imperial Bank of Commerce.                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                    
|14. | Commitment                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                    
|    | As at December 31, 2007 $1,400,100 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, 2008.                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                    
|15. | Segment Disclosure                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The Company operated 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:                                                                                                                                                  

| |                                             |   | 2007      |  |   | 2006       | 
| | ------------------------------------------- | - | --------- |  | - | ---------- | 
| | Assets by operating segment                 |   |           |  |   |            | 
| | Oil and gas                                 | $ | 5,717,253 |  | $ | 9,182,115  | 
| | Real estate (Discontinued
      Operations) |   | -         |  |   | 2,090,035  | 
| |                                             |   |           |  |   |            | 
| | Assets not allocated                        |   |           |  |   |            | 
| | Head office                                 |   | 54,519    |  |   | 624,529    | 
| |                                             | $ | 5,771,772 |  | $ | 11,896,679 | 
| |                                             |   |           |  |   |            | 
| |                                             |   | 2007      |  |   | 2006       | 
| | Capital expenditures by segment             |   |           |  |   |            | 
| | Oil and gas                                 | $ | 2,381,954 |  | $ | 6,739,480  | 
| | Head office                                 |   | -         |  |   | -          | 
| |                                             | $ | 2,381,954 |  | $ | 6,739,480  | 

All of the Companys operations are in
Canada. Rental revenue of $4,000 (2006: $6,000) has been eliminated on roll-up
of the divisions representing the rental of office premises by the corporate
head office.

73

---

|BERKLEY RESOURCES
      INC.    
|--------------------------------
|NOTES TO FINANCIAL STATEMENTS   
|December 31,
      2007 and 2006

|16. | Reconciliation 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 GAAP and US GAAP
      and their effect on Berkleys financial statements are summarized
      below:

|                                                  |   |            |   |   |            |   |   |             |   |   | 2005          |  
|------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | ----------- | - | - | ------------- | -
|                                                  |   |            |   |   |            |   |   | 2005        |   |   | As previously |  
|Statement of Operations                           |   | 2007       |   |   | 2006       |   |   | As restated |   |   | reported      |  
|Loss for the year under Canadian GAAP             | $ | (3,525,922 | ) | $ | (3,236,759 | ) | $ | (522,458    | ) | $ | (1,922,458    | )
|Reduction in (additional) impairment of oil       |   |            |   |   |            |   |   |             |   |   |               |  
|and gas properties
      under US GAAP (a)        |   | 588,730    |   |   | (665,784   | ) |   | (2,301,603  | ) |   | (600,000      | )
|Depletion, amortization and accretion expense     |   |            |   |   |            |   |   |             |   |   |               |  
|(a)                                               |   | 382,472    |   |   | 321,709    |   |   | -           |   |   | -             |  
|Remove tax impact on renouncement of flow-        |   |            |   |   |            |   |   |             |   |   |               |  
|through shares                                    |   | (689,609   | ) |   | (934,044   | ) |   | (39,210     | ) |   | (583,706      | )
|Loss for the year
      under US GAAP             | $ | (3,244,329 | ) | $ | (4,514,878 | ) | $ | (2,863,271  | ) | $ | (3,106,164    | )
|Loss per share under US GAAP                      | $ | (0.16      | ) | $ | (0.31      | ) | $ | (0.29       | ) | $ | (0.32         | )
|                                                  |   |            |   |   |            |   |   |             |   |   |               |  
|                                                  |   |            |   |   |            |   |   |             |   |   | 2005          |  
|                                                  |   |            |   |   |            |   |   | 2005        |   |   | As previously |  
|Statement of Cash Flows                           |   | 2007       |   |   | 2006       |   |   | As restated |   |   | reported      |  
|Increase (decrease) in cash for the year under    |   |            |   |   |            |   |   |             |   |   |               |  
|Canadian GAAP                                     | $ | (451,188   | ) | $ | (1,396,435 | ) | $ | 1,182,003   |   | $ | 1,182,003     |  
|Increase (decrease) in cash during the year under |   |            |   |   |            |   |   |             |   |   |               |  
|US GAAP                                           | $ | (451,188   | ) | $ | (1,396,435 | ) | $ | 1,182,003   |   | $ | 1,182,003     |  

|Balance
      Sheets                                    |   | 2007       |   |   | 2006       |  
|------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|                                                        |   |            |   |   |            |  
|Oil and gas properties - Canadian GAAP                  | $ | 5,456,007  |   | $ | 8,581,024  |  
|Additional impairment under US GAAP (a)                 |   | (2,378,657 | ) |   | (2,967,387 | )
|Depletion, amortization and accretion expense (a)       |   | 704,181    |   |   | 321,709    |  
|Oil and gas
      properties - US GAAP                  |   | 3,781,531  |   |   | 5,935,346  |  
|                                                        |   |            |   |   |            |  
|Other liabilities
      - US GAAP (d and i)             |   | (107,700   | ) |   | (934,044   | )
|                                                        |   |            |   |   |            |  
|Shareholders'
      equity - Canadian GAAP              |   | 4,634,975  |   |   | 7,299,365  |  
|                                                        |   |            |   |   |            |  
|Share capital (e)                                       |   | 12,347,593 |   |   | 11,577,934 |  
|Contributed surplus                                     |   | 1,030,532  |   |   | 804,412    |  
|Deficit                                                 |   | (8,743,150 | ) |   | (5,082,981 | )
|                                                        |   | 4,634,975  |   |   | 7,299,365  |  
|Impairment of oil and gas properties                    |   | (2,378,657 | ) |   | (2,967,387 | )
|Depletion, amortization and accretion                   |   | 704,181    |   |   | 321,709    |  
|Tax impact on
      renouncement of flow-through shares |   | (107,700   | ) |   | (934,044   | )
|Shareholders' equity - US GAAP                          | $ | 2,852,799  |   | $ | 3,719,643  |  

74

---

|BERKLEY RESOURCES
      INC.    
|--------------------------------
|NOTES TO FINANCIAL STATEMENTS   
|December 31,
      2007 and 2006

|16. | Reconciliation Between Canadian and United States
      Generally Accepted Accounting Policies- Continued
|--- | ---------------------------------------------------------------------------------------------------------
|    |                                                                                                          
|    | a)                                                                                                       
|    |                                                                                                          
|    |                                                                                                          

Gas (per thousand cubic feet)
    $ 6.30 CDNCrude oil (per barrel)
    $76.53 CDN


The application of the US GAAP ceiling
test resulted in a decrease to the carrying value of the oil and gas properties
of $3,494,270. Under Canadian GAAP, the application of this test required an
additional impairment to that required under US GAAP of $588,730 for a total
reduction in the carrying value of the oil and gas properties of $4,083,000.

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 a decrease to the carrying value of the oil and gas properties
of $3,050,784. Under Canadian GAAP, the application of this test required a
reduced impairment of $2,385,000 to the carrying value of the oil and gas
properties for a difference between the two of $665,784.

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. The change from the previously reported impairment
amount of $600,000 was a result of the ceiling test initially being calculated
using a discount rate of 5% as opposed to the 10% discount rate that is required
for constant pricing under US GAAP. The revised write-down for the year ended
December 31, 2005 reflects the write-down required as a result of the carrying
value of the oil and gas properties exceeding the ceiling test value under US
GAAP.

In addition, the cumulative difference
between Canadian GAAP and US GAAP since inception of oil and gas operations to
December 31, 2007 is that additional depletion of $704,181 (2006  $321,709,
2005 - $Nil) has been recorded under US GAAP.

75

---

|BERKLEY RESOURCES
      INC.    
|--------------------------------
|NOTES TO FINANCIAL STATEMENTS   
|December 31,
      2007 and 2006

|16. | Reconciliation Between Canadian and United States
      Generally Accepted Accounting Policies- Continued
|--- | ---------------------------------------------------------------------------------------------------------
|    |                                                                                                          
|    | b)                                                                                                       

| | Stock Options                      |  |                   |  |   |                           | 
| | ---------------------------------- |  | ----------------- |  | - | ------------------------- | 
| | December 31, 2007                  |  | Number of options |  |   | Aggregate Intrinsic Value | 
| | Options outstanding at end of year |  | 2,550,500         |  | $ | 574,519                   | 
| | Options exercisable at end of year |  | 2,150,539         |  | $ | 469,667                   | 

| | 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, 2007, 2006 and
      2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | 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 2006 and 2007
      flow-through offerings (note 16i).                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | 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,
      2007, unexpended flow- through funds were $1,400,100 (2006 - $2,673,196)
      (Note 11e).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | 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.

76

---

|BERKLEY RESOURCES
      INC.    
|--------------------------------
|NOTES TO FINANCIAL STATEMENTS   
|December 31,
      2007 and 2006

|16. | Reconciliation Between Canadian and United States
      Generally Accepted Accounting Policies- Continued
|--- | ---------------------------------------------------------------------------------------------------------
|    |                                                                                                          
|    | f)                                                                                                       
|    |                                                                                                          
|    | g)                                                                                                       
|    |                                                                                                          
|    | h)                                                                                                       

77

---

|BERKLEY RESOURCES
      INC.    
|--------------------------------
|NOTES TO FINANCIAL STATEMENTS   
|December 31,
      2007 and 2006

|16. | Reconciliation Between Canadian and United States
      Generally Accepted Accounting Policies- Continued
|--- | ---------------------------------------------------------------------------------------------------------
|    |                                                                                                          
|    | i)                                                                                                       
|    |                                                                                                          
|    |                                                                                                          
|    |                                                                                                          
|    |                                                                                                          

| | 3,613,015 flow-through shares at $0.90 | $ | 3,251,713 | 
| | -------------------------------------- | - | --------- | 
| | 3,613,015 flow-through shares at $0.85 |   | 3,071,063 | 
| | Premium on flow-through shares         | $ | 180,650   | 

The December 2007 flow-through shares
were priced at $0.65 and the fair market of the Companys shares was $0.60.

Premium on flow-through share issuance
is as follows:

| | 2,154,000 flow-through shares at $0.65 | $ | 1,400,100 | 
| | -------------------------------------- | - | --------- | 
| | 2,154,000 flow-through shares at $0.60 |   | 1,292,400 | 
| | Premium on flow-through shares         | $ | 107,700   | 

| | j) | Presentation                                                                                
| | -- | --------------------------------------------------------------------------------------------
| |    |                                                                                             
| |    | There are different presentations between Canadian and
      U.S. GAAP which are as follows:
| |    |                                                                                             
| |    | 1)                                                                                          
| |    |                                                                                             
| |    | 2)                                                                                          

78

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|BERKLEY RESOURCES
      INC.    
|--------------------------------
|NOTES TO FINANCIAL STATEMENTS   
|December 31,
      2007 and 2006

|17. | Correction of error                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | In 2006 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      |   |   |            |   |   | December 31, 2005 |  
| | ------------------------------------ | - | ---------------------- | - | - | ---------- | - | - | ----------------- | -
| |                                      |   | as previously reported |   |   | Adjustment |   |   | as restated       |  
| | Asset                                |   |                        |   |   |            |   |   |                   |  
| | Oil & gas properties and equipment   | $ | 3,939,531              |   | $ | 1,400,000  |   | $ | 5,339,531         |  
| |                                      |   |                        |   |   |            |   |   |                   |  
| | Equity                               |   |                        |   |   |            |   |   |                   |  
| | Deficit                              |   | 3,246,222              |   |   | (1,400,000 | ) |   | 1,846,222         |  
| |                                      |   |                        |   |   |            |   |   |                   |  
| | Expense                              |   |                        |   |   |            |   |   |                   |  
| | Write-down of oil and gas properties |   | 1,400,000              |   |   | (1,400,000 | ) |   | -                 |  
| |                                      |   |                        |   |   |            |   |   |                   |  
| | Net oil and gas income (loss)        |   | (1,266,981             | ) |   | 1,400,000  |   |   | 133,019           |  
| |                                      |   |                        |   |   |            |   |   |                   |  
| | Loss or the year                     | $ | (1,922,458             | ) | $ | 1,400,000  |   | $ | (522,458          | )

|18. | Subsequent Event                                                                                                                                                                                                                                                                                                                                                             
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                              
|    | Subsequent to year end, the Company received a default
      notice concerning amounts owing to its joint venture partner with respect
      to the Senex area operations. There are several items in this account that
      are in dispute and each party is bringing forth its position to the
      courts. The outcome of this dispute is undeterminable at this
  time.

79

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EXHIBIT INDEX

|Exhibit Number | Name                                                                               
|-------------- | -----------------------------------------------------------------------------------
|               |                                                                                    
|1.             | Memorandum of Berkley Resources
      Inc.*                                        
|               |                                                                                    
|2.             | Articles of Berkley Resources Inc.*                                                
|               |                                                                                    
|12.1           | Certification
      of the Principal Executive Officer under the Sarbanes-Oxley Act
|               |                                                                                    
|12.2           | Certification
      of the Principal Financial Officer under the Sarbanes-Oxley Act
|               |                                                                                    
|13.1           | Certificate
      of the Principal Executive Officer under section 906             
|               |                                                                                    
|13.2           | Certificate
      of the Principal Financial Officer under section 906             
|               |                                                                                    
|15.1           | Consent
      of Experts                                                           

|                    | 
|------------------- | 
|* Previously filed.

80

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