**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      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,
                2005


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, 2005 was
      14,184,955





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


[
      ] Yes
      [X] No





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





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





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


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





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





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





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





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








**TABLE
      OF CONTENTS**




**Item**
            **Page**Introduction
            3Currency
            3Forward-looking
                Statements
            3Part
                I
            4Item
                1.Identity
                of Directors, Senior Management and Advisors
            4Item
                2.Offer
                Statistics and Expected Timetable
            4Item
                3.Key
                Information
            4Item
                4.Information
                on the Company
            11Item
                5.Operating
                and Financial Review and
                Prospects
            19Item
                6.Directors,
                Senior Management and
                Employees
            26Item
                7.Major
                Shareholders and Related Party
                Transactions
            31Item
                8.Financial
                Information
            32Item
                9.The
                Offer and Listing
            33Item
                10.Additional
                Information
            34Item
                11.Quantitative
                and Qualitative Disclosures About Market
                Risk
            40Item
                12.Description
                of Securities Other than Equity
                Securities
            40Part
                II
            40Item
                13.Defaults,
                Dividend Arrearages and
                Delinquencies
            40Item
                14.Material
                Modifications to the Rights of Security Holders
                and Use of Proceeds
            40Item
                15.Controls
                and Procedures
            40Item
                16A.Audit
                Committee Financial Expert
            40Item
                16B.Code
                of Ethics
            41Item
                16C.Principal
                Accountant Fees and
                Services
            41Item
                16D.Exemptions
                from the Listing Standards for Audit
                Committees
            41Item
                16E.Purchases
                of Equity Securities by the Issuer and
                Affiliated Purchasers
            41Part
                III
            42Item
                17.Financial
                Statements
            42Item
                18.Financial
                Statements
            42Item
                19.Exhibits
            42




2
 TABLE
          OF CONTENTS


**Introduction**





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





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





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





**Currency**





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





**Forward-looking
      Statements**





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


3
 TABLE
          OF CONTENTS


**Part
      I**





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





Not
      applicable.





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





Not
      applicable.





**Item
      3.    Key Information**





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





The
      selected historical financial information presented in the table below for
      each
      of the years ended December 31, 2005, 2004, 2003, 2002 and 2001 is derived
      from
      the audited financial statements of the Company. The audited financial
      statements and notes for the balance sheets as at December 31, 2005 and December
      31, 2004, and the statements of operations for each of the years in the three
      year period ended December 31, 2005, are included in this Annual Report. The
      selected historical financial information for the years ended December 31,
      2002
      and 2001, 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, 2005,
      2004 and 2003 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,
      2002 and 2001 has been prepared in accordance with Canadian GAAP. For a
      description of the differences between Canadian GAAP and U.S. GAAP, see Note
      16
      of the Company’s financial statements included elsewhere in this Annual
      Report.





**Year
                  Ended December 31****Canadian
                  GAAP**
              
              **2005**
              
              **2004**
              
              **2003**
              
              **2002**
              
              **2001**OperationsOil
                  and Gas Revenue
              
              $
              1,408,858
              
              $
              866,811
              
              $
              606,133
              
              $
              406,138
              
              $
              637,497Oil
                  and Gas Production Expense
              
              
              608,045
              
              
              416,254
              
              
              243,717
              
              
              189,681
              
              
              257,862Amortization
                  and Depletion
              
              
              665,500
              
              
              260,000
              
              
              79,500
              
              
              39,900
              
              
              482,700Rental
                  Revenue
              
              
              238,466
              
              
              232,607
              
              
              238,599
              
              
              235,670
              
              
              208,592Rental
                  Operations Expense
              
              
              293,578
              
              
              245,731
              
              
              238,884
              
              
              218,318
              
              
              191,879Net
                  Income (loss)
              
              
              (1,922,458
              )
              
              (729,034
              )
              
              (255,456
              )
              
              (127,647
              )
              
              (292,576
              )Net
                  Income Per Share (loss)
              
              
              (0.20
              )
              
              (0.10
              )
              
              (0.04
              )
              
              (0.02
              )
              
              (0.051
              )**As
                  at December 31****2005**
              
              
              **2004**
              
              
              **2003**
              
              
              **2002**
              
              
              **2001**Balance
                  SheetTotal
                  Assets
              
              
              8,591,350
              
              
              6,759,346
              
              
              3,615,691
              
              
              3,829,235
              
              
              3,855,897Short
                  Term Debt
              
              
              2,400,426
              
              
              1,968,601
              
              
              711,222
              
              
              758,102
              
              
              909,017Shareholders'
                  Equity
              
              
              6,105,485
              
              
              4,747,715
              
              
              2,767,967
              
              
              3,015,933
              
              
              2,893,580Number
                  of shares issued and outstanding
              
              
              14,184,955
              
              
              9,681,977
              
              
              6,810,934
              
              
              6,795,934
              
              
              5,795,934
  4
 TABLE
            OF CONTENTS
  **Year
                  Ended December 31****U.S.
                  GAAP**
              
              **2005**
              
              **2004**
              
              **2003**
              
              **2002**
              
              **2001**OperationsOil
                  and Gas Revenue
              
              $
              1,408,858
              
              $
              866,811
              
              $
              606,133
              
              $
              406,138
              
              $
              637,497Rental
                  Revenue
              
              
              238,466
              
              
              232,607
              
              
              238,599
              
              
              235,670
              
              
              208,592Net
                  Income (loss)
              
              
              (3,106,164
              )
              
              (729,034
              )
              
              (255,456
              )
              
              (191,847
              )
              
              (240,576
              )Net
                  Income Per Share (loss)
              
              
              (0.32
              )
              
              (0.10
              )
              
              (0.04
              )
              
              (0.03
              )
              
              (0.042
              )**As
                    at December 31****2005**
              
              
              **2004**
              
              
              **2003**
              
              
              **2002**
              
              
              **2001**Balance
                  SheetTotal
                  Assets
              
              
              8,089,150
              
              
              6,857,146
              
              
              3,713,491
              
              
              3,927,035
              
              
              4,039,497Total
                  Liabilities
              
              
              3,030,361
              
              
              2,011,631
              
              
              847,724
              
              
              813,302
              
              
              962,317Shareholders'
                  Equity
              
              
              5,058,789
              
              
              4,845,515
              
              
              2,865,767
              
              
              3,113,733
              
              
              3,077,180




**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 United States Dollars for
      the periods indicated based on the noon buying rate in New York City for cable
      transfers in Canadian Dollars as certified for customs purposes by the Federal
      Reserve Bank of New York (Canadian dollar = U.S. $1).





**Year
                Ended:**
              **December
                31**
            **Average**
            **Period
                End**
            **High**
            **Low**2001
            1.5487
            1.5925
            1.6023
            1.49332002
            1.5704
            1.5800
            1.6128
            1.51082003
            1.4008
            1.2923
            1.5750
            1.29232004
            1.3017
            1.2034
            1.3970
            1.17752005
            1.2116
            1.1656
            1.2703
            1.1507





The
      following table sets forth the high and low exchange rate for the past six
      months. As of June 15, 2006, the exchange rate was $1.1172 for each U.S.
      $1.00.





**Month**
            
            **High**
            
            **Low**December
                2005
            
            $
            1.1736
            
            $
            1.1507January
                2006
            
            $
            1.1891
            
            $
            1.1408February
                2006
            
            $
            1.1177
            
            $
            1.1379March
                2006
            
            $
            1.1722
            
            $
            1.1320April
                2006
            
            $
            1.1718
            
            $
            1.1203May
                2006
            
            $
            1.1232
            
            $
            1.0989





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





Not
      Applicable.





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





Not
      Applicable.





5
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**D.** **Risk
      Factors**





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





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





*Oil
      and Natural Gas Prices.* The
      Company has little control over the price it receives for its products. Prices
      are determined by the worldwide supply of and demand for energy. Levels of
      production maintained by the Organization of Petroleum Exporting Countries,
      referred to as "OPEC", member nations and other major oil producing countries
      are expected to continue to be a major determinant of oil price movements in
      the
      future. As a result, future oil price movements cannot be predicted with any
      certainty. Similarly, during the past several years, the market price for
      natural gas has been subject to significant fluctuations on a monthly basis
      as
      well as from year to year. These frequent changes in the market price make
      it
      impossible for the Company to predict natural gas price movements with any
      certainty. Oil prices started the year 2005 at U.S. $46.84 per barrel compared
      to 2004 at U.S. $32.78 per barrel for West Texas Intermediate, or "WTI". Oil
      prices rose steadily throughout 2005 to close at year-end 2005 at U.S. $65.51.
      The 2005 full year average price for WTI was U.S. $57.16 compared to $41.00
      per
      barrel in 2004. Natural gas prices opened the year 2005 at US$5.52 per thousand
      cubic feet, referred to as "mcf", and closed year-end at US$10.02. The full
      year
      2005 average price for natural gas was US$7.51 compared to an average of US$5.45
      for the year 2004.





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





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





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





In
      fiscal
      2001, 2002, 2003, 2004 and 2005, we reported losses of $292,576, $127,647,
      $255,456, $729,034 and $1,922,458, respectively. As at December 31, 2005, we
      had
      an accumulated deficit of $3,246,222. Our future viability should be considered
      in light of the risks and difficulties frequently encountered by companies
      engaged in the junior stages of oil and gas exploration, development and
      production activities.





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





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





*We
      are Dependent on a Limited Number of our Properties* .
      The
      Company currently receives substantially all of its income from a limited number
      of its properties. If any one of these properties stop producing, it could
      have
      a material adverse effect on our business, financial condition and operating
      results.





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





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





*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.





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





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





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





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





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





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





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





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





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





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





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





*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.





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





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





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





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





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





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





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





*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 $1.08 to a low of $0.66
      within the twelve month period preceding the date of this Form 20-F Annual
      Report.  There can be no assurance that continual fluctuations in price
      will not occur.





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





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





**Item
      4.    Information on the
      Company**





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





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





The
      Company presently participates in approximately 40 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, 2002, the Company has made principal capital
      expenditures of $612,357 for the year ended December 31, 2003, $1,301,715 for
      the year ended December 31, 2004 and $3,859,162 for the year ended December
      31,
      2005. In 2005, a major portion of the expenditures were incurred in connection
      with the Brazeau, Sturgeon Lake and Senex projects. In 2006, approximately
      $1.6
      million of capital expenditures have been made on Senex. These capital
      expenditures were primarily financed through the issuance of shares under a
      private placement.





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





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





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





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





In
      making
      an investment, the Company will enter into an operating agreement, which we
      refer to as an "Operating Agreement", with other investors. The Operating
      Agreement sets forth the participating interest of the parties and incorporates
      the operating procedures manual, referred to as the "Manual", adopted by the
      Canadian Association of Petroleum Landmen. According to the Manual, the parties'
      interest and liability in each investment is several, and not joint, with the
      other participants. The interest of the Company in the lands, wells and
      equipment is that of tenants in common. Each investor in a drilling property
      is
      deemed to be a "Joint Operator", and an "Operator" is the party appointed to
      carry out the operations of the drilling program for the joint account. The
      Company 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.





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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 significant Company activity
      are as follows:





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





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





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





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





5. Senex
          Area, Alberta (Twp 92/93 Rge 6/7 W5M) - This multi-zone prospect was acquired
          by
          the Company on March 1, 2004 pursuant to the swap of its Skiff property.
          The
          Company holds a 15% to 20% WI in 45 sections over this oil and gas prospect.
          An
          initial 14 section 3-D seismic program was conducted over the joint lands
          in
          early 2005, supplemented by an additional 11 section 3-D seismic program
          in
          2006. The lands now contain eight wells completed as producers or potential
          producers: two are shallow gas completions; three are completed as pumping
          oilwells; two are cased as potential oilwells and one is a strong oilwell.
          Production facilities are being constructed. The one non-producing well
          drilled
          on the lands in 2006 will be used to provide water disposal capabilities
          for the
          production facility.




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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
          $3.0 million of which the Company's share is estimated at approximately
          $1,075,000.





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.





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





As
      reported throughout 2005 and 2006, high oil and gas prices have provided the
      larger oil and gas producers with huge amounts of unbudgeted cash which they
      are
      now using to purchase on-line production as well as conduct aggressive drilling
      programs. The high prices paid for on-line production and the threat of
      increasing interest rates has cooled-down Income Trust Funds to some degree.
      Also, Income Trust Funds must, by design, distribute large amounts of their
      cash
      to unit holders. These distributions do not seem to be finding their way back
      to
      the industry as quickly as in the past, thus opening the field to cash-strong
      conventional operators. The Company continues its watch for on-line production
      opportunities; however these opportunities are very limited.





**Reserves**





The
      Company engages independent petroleum consultants to compile oil and gas reserve
      information with respect to its producing properties. The oil and gas reserve
      information relied upon by the Company in its financial statements ascertains
      the reserves on pricing assumptions which are not permitted under SEC rules
      but
      are acceptable under Canadian accounting rules. Effective December 31, 2005,
      the
      Company had all of its major producing properties evaluated by independent
      petroleum consultants who assigned total recoverable reserves to the Company's
      interest of 300,000 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
      2004
      to 2005 was entirely related to the 100% write-down taken on the Brazeau Area
      discussed above.





**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.





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**Government
      Regulation and Environmental Matters**





*Government
      Regulation*





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





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





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





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





*Environmental
      Matters*





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





15
 TABLE
          OF CONTENTS




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





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





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





**Interruption
      from Severe Weather**





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





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





The
      Company has no subsidiaries.





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





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










16
 TABLE
          OF CONTENTS





The
      following is a description of the various interests of the Company in its oil
      and gas properties as at June 1, 2006.





**Lease
                  No.**
              **Description**
              **Interest**
              **Status**Brazeau
              Sec.13-46-13
                  W5M
              30.00%
                  WI BPO
              Producing
                  - gas19.50%
                  WI APOCarbon047790068
              Sec.29-29-22
                  W4M
              6%WI
              Producing
                  - gas32443
              Sec.32-29-22
                  W4M
              6.25%WI
              Producing
                  - gas25906
              Sec.28-29-22
                  W4M
              6.25%WI
              Producing
                  - gas0477010002
              Sec.31-29-22
                  W4M
              10%WI
              Producing
                  - gasCrossfield
              Twp
                  28 Rge 1 W5M
              35%
                  WI
              Prep.
                  to drillDollard
              Twp
                  6/7 Rge 19 W3M
              20%
                  WI
              Producing
                  - oilNorth
                  Halkirk34398
              S1/2
                  Sec.22-39-16 W4M
              6.25%WI
              Producing
                  - gas/oil26457
              N/2
                  Sec.22-39-16 W4M
              6.25%WI
              Producing
                  - gas/oilHaven047939297
              Sec.12-25-4
                  W4M
              0.3%WI
              Not
                  ProducingSec.7,
                  18-25-3 W4M
              0.3%WI
              Not
                  ProducingJohn
                  Lake40852
              All
                  Sec.26&27-55-1 W4M
              10%WI
              Producing
                  - gasSec.1-56-1
                  W4M
              10%WI
              Producing
                  - gas485070102
              W/2
                  36-55-1 W4M
              10%WI
              Producing
                  - gas487040220
              E/2
                  Sec.36-55-1 W4M
              10%WI
              Producing
                  - gas40853A
              All
                  Sec.15-56-1-W4M
              10%WI
              Producing
                  - gas40855A
              All
                  Sec.24-56-1 W4M
              10%WI
              Producing
                  - gas40856
              All
                  Sec.34-56-1 W4M
              10%WI
              Producing
                  - gasLeduc
              All
                  Sec.33-49-26 W4M
              4%
                  WI
              Producing
                  - gasOyen30364
              S/2
                  Sec.16-29-4 W4M
              1%WI
              Not
                  Producing30365
              SW/4
                  Sec. 24-29-5 W4M
              0.750%WI
              Not
                  Producing29517
              N/2
                  Sec.24-29-5 W4M
              0.750%WI
              Not
                  ProducingSenex
              Twp
                  92/93 Rge 6/7 W5M
              15/20%
                  WI
              Producing
                  - oilSibbald39367
              Sec.2,4,
                  E/2 9&10-28-1 W4M
              0.50%WI
              Producing
                  - gas0476122257
              W/2
                  9-28-1 W4M
                Sec.3-28-1
                  W4M
              0.25%WI
                0.25%WI
              Not
                  Producing
                Not
                  Producing29513
              S/2
                  Sec.15-28-1 W4M
              1.00%WI
              Producing
                  - gas6359A
              N/2
                  Sec.15&S/2 Sec.22-28-1
              1.00%WI
              Not
                  Producing
  17
 TABLE
            OF CONTENTS
  **Lease
                No.**
              **Description**
              **Interest**
              **Status**Skiff0484080300
              NW1/4Sec.29-4-14
                  W4M
              10.526%WI
              Producing
                  - oilW1/2Sec.32-4-14
                  W4M
              5.26315%
              Producing
                  - oil048307070286
              SW/4
                  of Sec.5-5-14
              5.50%WI
              Producing
                  - oilZama
                  Virgo092020380
              W/2
                  Sec.22-115-5 W6M
              Sliding
                  Scale
              Producing
                  - oil





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





**Productive
      Wells and Acreage**





The
      following chart of the Company's total gross and net productive wells, expressed
      separately for oil and gas, and the total gross and net developed acres (i.e.,
      acres spaced or assignable to productive wells) by the geographic areas is
      as at
      June 1, 2006.





**Geographic****Region**
            **Total
                Gross****Wells**
            **Total
                Net Productive****Wells**
            **Target
                Oil Or****Gas**
            **Total
                Gross****Developed
                Acres**
            **Total
                Net****Developed
                Acres**Alberta
            27
            3.63
            both
            39,520
            7,677Saskatchewan
            13
            2.40
            oil
            1,280
            237





**Undeveloped
      Acreage**





As
      at
      June 1, 2006, the amounts of undeveloped acreage, both leases and concessions,
      in the western Canada (Alberta) geographic area consists of 41,600 gross acres
      and 7,488 net acres. The remaining terms on the leases within those properties
      are variable. Producing leases continue for the duration of productive lives.





**Drilling
      Activity**





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





**Exploratory
                Wells Drilled**
            **Development
                Wells Drilled****Geographic****Region**
            **Year**
            **Number
                of Net****Productive**
            **Number
                of Net****Dry**
            **Number
                of Net****Productive**
            **Number
                of Net Dry**Alberta
            2005
            0.50
            Nil
            0.20
            Nil2004
            0.70
            0.15
            0.20
            Nil2003
            Nil
            0.28
            0.10
            NilSaskatchewan
            2005
            Nil
            Nil
            0.18
            Nil2004
            Nil
            Nil
            Nil
            Nil2003
            Nil
            Nil
            Nil
            Nil





18
 TABLE
          OF CONTENTS




**Delivery
      Commitments**





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





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





This
      discussion and analysis of the operating results and the financial position
      of
      the Company for the years ended December 31, 2005 and 2004 should be read in
      conjunction with the financial statements and the related notes attached
      hereto.





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





The
      Company’s principal business activities are the acquisition, development,
      exploration, production and marketing of petroleum and natural gas reserves
      in
      Alberta and Saskatchewan. The Company also has real estate holdings. The Company
      is a reporting issuer in the Provinces of British Columbia and
      Alberta.





**Overall
      Performance**





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





*Oil
      and Gas*





The
      Company has continued to pursue quality projects with experienced partners
      in
      high opportunity areas. This approach has provided an overall good result,
      however individual projects will range from very good (Senex Area) to
      disappointing (Sturgeon Lake) to challenging (Brazeau Area). New prospect
      development is highly competitive as established operators are cash rich as
      a
      result of record high oil and gas prices while at the same time unwilling to
      do
      farmout or joint venture deals, preferring to keep for themselves any reasonably
      drill-worthy prospect. Accordingly, the Company will put its primary efforts
      into fully developing its existing projects and enhancing its representation
      in
      new projects now underway such as Crossfield, Alberta.





The
      Company presently holds working interests, ranging from 1% to 35%, in
      approximately 40 oil and gas wells in Alberta and Saskatchewan. Efforts continue
      to purge the Company’s asset base of minor interest properties, which will
      enable the Company to focus on higher interest opportunities. Generally the
      Company does not operate joint interest ventures; however Crossfield, Alberta
      is
      an exception where the Company holds the largest interest at 35%. Presently
      almost all of the Company’s production comes from five discrete areas. Four
      areas have been producing for several years (Dollard, Leduc, Carbon and John
      Lake) while one project (Senex), which has both oil and gas are new
      developments.





*Oil
      and Gas Industry Overview*





2005
      saw
      a 39% increase in the average price paid for West Texas Intermediate (WTI)
      oil
      over that paid during 2004, while average natural gas prices increased 38%.





In
      2005,
      oil prices started the year at U.S. $46.84 per barrel compared to U.S. $32.78
      per barrel in 2004 for West Texas Intermediate, or "WTI". Oil prices rose
      steadily throughout 2005 to close at year-end 2005 at U.S. $65.51. The 2005
      full
      year average price for WTI was U.S. $57.16 compared to $41.00 per barrel in
      2004. Natural gas prices opened the year 2005 at US$5.52 per thousand cubic
      feet, referred to as "mcf", and closed year-end at US$10.02. The full year
      2005
      average price for natural gas was US$7.51 compared to an average of US$5.45
      for
      the year 2004.





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          OF CONTENTS




The
      combination of high natural gas prices and very strong oil prices during 2005
      again provided large amounts of unbudgeted cash flow to producers. This strong
      cash flow again kept Income Trust Funds operating at a high activity level
      as it
      did for all senior producers. The inevitable shortage of available on-line
      production saw Income Trust Funds continue the merger process as a means of
      maintaining production levels whereas junior and mid-sized firms turned to
      the
      drill bit to develop new reserves. This combination saw on-line production
      being
      purchased at very high prices, if and when available, and drilling and operating
      costs reaching record highs, if and when equipment and services were available.
      These pressures are expected to continue into 2006, which will call for diligent
      attention to forward planning by the Company.





Overall,
      2005 was highly active on several fronts. Again it was a difficult atmosphere
      in
      which to do business. Although 2006 has started off as a continuation of 2005
      the Company is well positioned to operate in this dynamic milieu and to develop
      new opportunities from the grassroots.





*Company
      Activity*





The
      Company experienced mixed results in its drilling program during 2005. Its
      15%
      participation in the Sturgeon Lake project combined with its 12.50% farmout
      portion was the correct balance for this high-risk high-opportunity prospect.
      Unfortunately the test well was not successful and this project has been
      abandoned. The Brazeau project lived-up to its initial promise for 100 days
      by
      producing an average of four million cubic feet of gas per day (4.00 mmcf/d)
      before the otherwise often beneficial fracture system in the Nisku formation
      opened itself up to the underlying water which then overpowered the gas
      production from a depth of 11,500 feet. The Company considers it unlikely that
      any curative work can be done economically and therefore it has taken a full
      write-down of the gas reserves allocated at year-end 2004 which it now considers
      to be ‘stranded’. These projects were offset by the success and opportunity at
      Senex and Crossfield respectively as follows:





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





The
      Company (20% ±) and its operating partner Onefour Energy Ltd. (80% ±) have
      increased their land holdings in this Area to 46.25 sections. The lands now
      contain eight wells completed as producers or potential producers: two are
      shallow gas completions; three are completed as pumping oilwells; two are cased
      as potential oilwells and one is a strong flowing oilwell capable of producing
      up to 500/600 barrels/day but currently being produced at 200/300 barrels/day
      while production facilities are being constructed. The one non-producing well
      drilled on the lands will be used to provide water disposal capabilities for
      the
      production facility.





None
      of
      the producing oilwells has any significant water production at this time,
      however the flowing oilwell is expected to gradually produce an increasing
      amount of water. Also, the Company and its partner have a seven to eleven well
      follow-up program planned based on the success of this well with drilling to
      commence in August 2006. The 3-D seismic program conducted in January 2005
      and
      extended during the first quarter of 2006, provides strong support for the
      proposed follow-up drilling program. While operators are restricted for
      environmental reasons from drilling in this area until August, the Company
      and
      its partner are planning an aggressive 3-D seismic supported drilling program
      from August 2006 through March 2007 particularly in relation to developing
      the
      shallow gas and extension drilling related to the deeper flowing oilwell
      prospect.





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





The
      licensing process to drill this sour-gas prospect is well underway. The Company
      (35%) and its partners have negotiated extensions to certain of its freehold
      leases which will maintain our existing drilling lease block of six sections;
      however major competition has entered the immediate area of the lease block
      with
      an undisclosed party paying over three million dollars for near and adjacent
      leases at the March 22, 2006 Alberta Crown Sale. BP Canada added $532,000 for
      a
      one section parcel diagonally offsetting our lands. The highest price paid
      at
      the sale was for a one section lease laterally adjoining the block, where a
      broker paid $770,304 ($3,009/hectare). We do not know the identity of the
      purchaser nor its willingness to do a joint venture. Regardless, the Company
      and
      its partners will continue to move ahead with their own drilling
      plans.





20
 TABLE
          OF CONTENTS




*Production
      Acquisitions*





High
      oil
      and gas prices have provided the larger oil and gas producers with huge amounts
      of cash which they are now using to purchase on-line production as well as
      conduct aggressive drilling programs. 2005 was the first time in several years
      that conventional oil and gas companies have been able or willing to compete
      with Income Trust Funds for on-line production. The ever increasing prices
      paid
      for on-line production and the threat of increasing interest rates plus the
      Federal Government’s announced intent to level the playing field for dividend
      paying companies has cooled-down Income Trust Funds to some degree or moved
      them
      to consider merger opportunities. Also Income Trust Funds must by design,
      distribute large amounts of their cash to unit holders. These distributions
      do
      not seem to be finding their way back to Industry as quickly as in the past
      thus
      opening the field to cash strong conventional operators. The Company continues
      its watch for on-line production that may be found below the radar of both
      Income Trust Funds and cash strong mid-sized operators; however these
      opportunities are very few.





*Summary*





The
      Company has been successful in developing new projects, which offer significant
      upside opportunities. The Senex project offers a long-range exploitation
      opportunity that could occupy the Company’s attention well into the future. The
      Crossfield project is a worthy venture in its own right, however when these
      are
      added to other existing projects, management believes the Company must be seen
      as having placed itself in a very opportune position to add shareholder value
      both in the short and long terms.





*Real
      estate*





The
      office building in downtown Vancouver continues to have near full occupancy,
      with consistent operating results within a narrow range. In all material aspects
      the building achieved breakeven on an operating and cash flow basis. With the
      addition of a new mortgage on the building in 2005, in order to expand the
      Company’s oil and gas opportunities, the building currently is running at an
      annual cash flow deficit of approximately $42,000.  The Company
      believes that it will be able to pay down this mortgage from future oil and
      gas revenues in order to bring this asset cash flow positive in
      2007.





*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,****2005**
            
            **2004**
            
            **2003**Total
                revenues
            
            $
            1,647,324
            
            $
            1,099,418
            
            $
            844,732Loss
                for the year
            
            
            (1,922,458
            )
            
            (729,034
            )
            
            (255,456
            )Loss
                per share
            
            
            (0.195
            )
            
            (0.102
            )
            
            (0.038
            )Total
                Assets
            
            
            8,591,350
            
            
            6,759,346
            
            
            3,615,691Total
                Liabilities
            
            
            2,485,865
            
            
            2,011,631
            
            
            847,724Working
                Capital (Deficit)
            
            
            (99,421
            )
            
            (1,039,862
            )
            
            (280,293
            )





The
      increase in total revenues of $547,906 over the 2004 fiscal year is primarily
      due to an increase of $542,047 in oil and gas revenue. The increase in total
      assets from 2004 to 2005 was largely due to the Company raising cash through
      private placement financing and to a lesser extent, developing new oil and
      gas
      properties during 2005. Expansion of new oil and gas properties was actually
      $2,615,351 net however a write-down of $1,400,000 and amortization and depletion
      of $665,500 reduced the increase to total assets. Overall there was an increase
      of $1,372,266 in current assets compared to an increase of $459,738 in other
      assets. The write-down to oil and gas properties was also the reason for the
      increase in loss of $1,193,424 for fiscal 2005 compared to fiscal 2004. Total
      liabilities increased by $474,234 in fiscal 2005 due to the Company acquiring
      a
      loan of $1,500,000 from IMOR Capital Corp. Proceeds from this loan helped reduce
      accounts payable and accrued liabilities by $1,169,182 during the same
      period.





21
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          OF CONTENTS




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





*Revenues*





In
      total,
      there was a net oil and gas loss of $1,266,981 for the twelve months ended
      December 31, 2005, compared to a net income of $187,782 for the comparable
      period in 2004. Revenue was up 63% due to increased product prices and
      production levels, while operating costs were up 46%. Overall production
      expenses were up by 394% due primarily to an increase of $405,500 in
      amortization and depletion expense and a write down of oil and gas properties
      of
      $1,400,000 for the year ended December 31, 2005.




*Real
      estate*





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





*Expenses*





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





*Loss
      for the period*





Loss
      before income taxes for the twelve months ended December 31, 2005 was $2,506,164
      compared with 729,034 for the twelve months ended December 31, 2004, an increase
      of $1,777,130. The increase in the loss for the respective periods is due to
      the
      reasons discussed above and most particularly the write-down to oil and gas
      properties.





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





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





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





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*Revenues*





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





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





*Expenses*





General
      and administrative costs for the twelve months ended December 31, 2004 were
      $903,692, an increase of $409,181 over fiscal 2003. This increase is due
      primarily to the recognition of stock-based compensation expenses of $273,793
      in
      2004 as compared to $2,390 in 2003. Prior to 2004, the Company was only required
      to record the fair market value of stock options granted to non-employees as
      illustrated by the lesser 2003 amount. As of January 1, 2004 the Company was
      required to record the fair market value of stock options granted to employees
      as well as non-employees which resulted in the higher 2004 amount charged to
      operations.





Other
      general and administrative items that had significant increases in costs were
      administrative, office services, and premises expenses, which increased by
      $46,673; consulting and management fees, which increased by $58,243; and
      professional fees, which increased by $46,779. These increases were primarily
      the result of the increase in oil and gas exploration and production
      activities.





*Loss
      for the period*





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





**Impact
      of Inflation**





Inflation
      was modest through 2005. Dramatic swings in world oil prices have affected
      the
      Company much more than inflation. At the end of 2005 all provincial and federal
      fiscal regimes were stable which enabled the oil and gas industry to operate
      within a predictable environment.




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





At
      December 31, 2005 the Company had current assets of approximately $2,301,005
      of
      which $2,173,537 was comprised of cash and accounts receivable, offset by
      accounts payable and accrued liabilities of $353,363. Current assets were used
      to pay down accounts payable and accrued liabilities by $1,169,182 and further
      investment in oil and gas properties and equipment by $2,615,351 in fiscal
      2005.





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Total
      working capital deficiency at December 31, 2005 is $99,421, compared with a
      working capital deficiency of approximately $1,039,862 at December 31,
      2004.





Total
      working capital deficiency includes a bank demand loan of $322,146, a short
      term
      bank loan of $100,000 due January 3, 2006 and a loan of $1,500,000 to IMOR
      Capital Corp. that will be due September 1, 2006. The Company’s present
      arrangements with the lender of the bank demand loan call for monthly payments
      of $11,900. The short term bank loan was repaid as per the agreement subsequent
      to year end. Management does not anticipate any material change to the repayment
      arrangements to this lender. The IMOR loan agreement calls for monthly interest
      only payments of $13,750 for one year upon which the balance is due. The lender,
      at its option, may extend the maturity date of this mortgage at the request
      of
      the Company.





The
      Company’s debt facilities available comprises of a $50,000 standby line of
      credit which approximately $nil has been drawn against at this date.





Other
      than the second loan agreement, there have been no material changes in the
      Company’s contractual obligations since its latest fiscal year end, December 31,
      2005.





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





*Capital
      Resources*





The
      Company plans to continue its participation in the Senex Area and Crossfield
      West Area 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.





The
      Company's financial statements are prepared in accordance with Canadian GAAP.
      US
      GAAP has certain notable differences which are set out on Note 16 to the
      financial statements of the Company which are included in this Annual
      Report.





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





Not
      Applicable.





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





Oil
      prices started the year 2005 at U.S. $46.84 per barrel compared to 2004 at
      U.S.
      $32.78 per barrel for West Texas Intermediate, or "WTI". Oil prices rose
      steadily throughout 2005 to close at year-end 2005 at U.S. $65.51. The 2005
      full
      year average price for WTI was U.S. $57.16 compared to $41.00 per barrel in
      2004. Natural gas prices opened the year 2005 at US$5.52 per thousand cubic
      feet, referred to as "mcf", and closed year-end at US$10.02. The full year
      2005
      average price for natural gas was US$7.51 compared to an average of US$5.45
      for
      the year 2004. ****





Regardless
      of these and other specific influences on oil and gas prices from time to time,
      the management of the Company believes that U.S $50.00 per barrel for WTI oil
      is
      a reasonable, industry accepted benchmark on which to base investment decisions.
      This benchmark price for oil will translate into natural gas prices within
      the
      range of Cdn $5.00 to $7.00 per mcf. The combination of steady natural gas
      prices and very strong oil prices during 2005 again provided large amounts
      of
      unbudgeted cash flow to producers. This strong cash flow kept Income Trust
      Funds
      operating at a high activity level as it did for all senior producers. The
      inevitable shortage of available on-line production saw Income Trust Funds
      start
      the merger process as a means of maintaining production levels whereas junior
      and mid-sized firms turned to the drill bit to develop new reserves. This
      combination saw on-line production being purchased at very high prices, if
      and
      when available, and drilling and operating costs reaching record highs, if
      and
      when equipment and services were available. These pressures are expected to
      continue into 2006 which will call for diligent attention to forward planning
      by
      the Company and indeed all operators.





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Overall,
      2005 was highly active on several fronts. In many ways it was a difficult
      atmosphere in which to do business. Although 2006 has started off as a
      continuation of 2005 the Company is well positioned to operate in this dynamic
      milieu and to develop new opportunities from the grassroots.





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





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





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





**Payments
                due by period****Total****Amount**
            
            **Less
                than****one
                year**
            
            **One
                to****three
                years**
            
            **Three
                to****five
                years**
            
            **More
                than****five
                years**Consulting
                Agreements
            
            $
            60,000
            
            $
            60,000
            
            $
            -
            
            $
            -
            
            $
            -36,000
            
            
            36,000
            
            
            -
            
            
            -
            
            
            -**Total:**
            
            
            96,000
            
            
            96,000
            
            
            -
            
            
            -
            
            
            -





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





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





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





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





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





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





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





The
      following is a list of the Company's directors and officers as at December
      31,
      2005.





**Name**
            **Position
                Held**
            **Principal
                Occupation, Business or****Employment
                for the Last Five Years**
            **Director/Officer****Since**Louis
                Wolfin(1)
            Director
                and Former Chief Executive Officer
            Mining
                Executive; Chief Executive Officer and Director of Bralorne Gold
                Mines
                Ltd., Director of Coral Gold Resources Ltd., Director of Avino Silver
                & Gold Mines Ltd., Director of Levon Resources Ltd. and Director of
                Cresval Capital Corp.
            1986
                - PresentMatt
                Wayrynen(1)
            Chief
                Executive Officer, Executive Chairman and Director
            Corporate
                Executive; President and Director of Coral Gold Resources Ltd., VP,
                Operations and Director of Bralorne Gold Mines Ltd., Retired Real
                Estate
                and Investment Adviser.
            June
                2002 - PresentLloyd
                Andrews
            Director
                and Chairman
            Retired
                Businessman; Director of Smith Barney Mutual Fund; Director of Coral
                Gold
                Resources Ltd.; Director of Bralorne Gold Mines Ltd.; Director of
                Avino
                Silver & Gold Mines Ltd. and Senior Consultant to Chem Nuclear Systems
                and Flow International.
            June
                2002 - PresentJames
                O’Byrne
            Director
                and VP Operations
            Oil
                and Gas Consultant; President of O’Byrne Resource Management
                Ltd.
            June
                2003- PresentLindsay
                E. Gorrill
            President,
                Chief Operating Officer and Director
            Corporate
                Executive; Chief Financial Officer of Coral Gold Resources Ltd.;
                Former
                President and Chief Executive Officer of WGI Heavy Minerals Incorporated;
                Manager, KPMG.
            July
                2004-PresentDavid
                Wolfin
            Director
                and VP Finance
            Mining
                Executive; Director and VP Finance of Bralorne Gold Mines Ltd., Director
                of Coral Gold Resources Ltd., Director and President of Avino Silver
&
                Gold Mines Ltd., Director of Mill Bay Ventures Inc., Director and
                President of Gray Rock Resources Ltd. and Director of Cresval Capital
                Corp.
            June
                2005 - PresentRonald
                Andrews
            Director
            Owner
                and operator of Andrews Orchards from 1972 to present.
            June
                2005 - PresentPhillip
                Piffer
            Director
            President
                and CEO of Genesis Fueltech Inc. from June 2001 to
                present.
            November
                2005 - PresentConnie
                Lillico
            Secretary
            Officer
                of five other reporting issuers; Former office administrator and
                paralegal.
            July
                2004-Present


___________________________________


(1) Mr.
      Matt
      Wayrynen is the son-in-law of Mr. Louis Wolfin.





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**B.** **Compensation**





**Compensation
      of Directors**





The
      management directors of the Company have not been paid fees or other cash
      compensation in their capacity as directors. The non-management directors of
      the
      Company are paid $500 per quarter. The Chairman of the Board and the Chairman
      of
      each committee of the board is also paid $500 per quarter. 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, 2005, except that
      directors may be reimbursed for actual expenses reasonably incurred in
      connection with the performance of their duties as directors and certain
      directors may be compensated for services as consultants or experts. Incentive
      stock options, however, have been granted to non-executive directors and other
      insiders of the Company and are outstanding to purchase an aggregate of
      1,412,500 common shares of the Company as follows:





**Name
                of Optionee**
            **No.
                of Shares**
            **Exercise
                Price Per****Share**
            **Date
                of Grant**
            **Expiry
                Date**Louis
                Wolfin
            5,000
            $0.52
            September
                19, 2003
            September
                19, 200875,000
            $0.90
            December
                23, 2005
            December
                23, 2010Lloyd
                Andrews
            172,500
            $0.52
            September
                19, 2003
            September
                19, 200845,000
            $0.90
            December
                23, 2005
            December
                23, 2010James
                O'Byrne
            50,000
            $0.52
            September
                19, 2003
            September
                19, 200820,000
            $0.81
            October
                19, 2004
            October
                19, 2009100,000
            $0.90
            December
                23, 2005
            December
                23, 2010Matt
                Wayrynen
            300,000
            $0.52
            September
                19, 2003
            September
                19, 200850,000
            $0.90
            December
                23, 2005
            December
                23, 2010Lindsay
                Gorrill
            50,000
            $0.81
            October
                19, 2004
            October
                19, 2009150,000
            $0.90
            December
                23, 2005
            December
                23, 2010Ron
                Andrews
            50,000
            $0.81
            October
                19, 2004
            October
                19, 200950,000
            $0.90
            December
                23 2005
            December
                23, 2010David
                Wolfin
            50,000
            $0.52
            September
                19, 2003
            September
                19, 2008150,000
            $0.57
            November
                26, 2003
            September
                19, 2008Phillip
                Piffer
            50,000
            $0.90
            December
                23, 2005
            December
                23, 2010Connie
                Lillico
            30,000
            $0.81
            October
                19, 2004
            October
                19, 200915,000
            $0.90
            December
                23, 2005
            December
                23, 2010





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





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The
      following table sets forth particulars concerning the compensation of the
      Company's executives for the Company' s
      calendar year ended December 31, 2005.





**Summary
                Compensation Table****Annual
                Compensation**
            
            **Long-Term
                Compensation Awards****Name/Principal****Position**
            
            **Year**
            
            **Salary**(1)
            
            **Bonus
                for****the
                Year**
            
            **Other
                Annual****Compensation**
            
            **Securities
                Under Options/SARs****Granted
                (#)****(2)**
            
            **Restricted
                Shares/Units****Awarded
                (#)**
            
            **All
                Other****Compensation**Matt
                Wayrynen
              Chief
                Executive Officer and Executive Chairman
            
            
            2005
              2004
              2003
            
            $
            60,000
              60,000
              60,000
            
            $
            40,000
              24,628.73
              Nil
            
            $
            Nil
              Nil
              Nil
            
            
            350,000
              300,000
              300,000
            
            
            Nil
              Nil
              Nil
            
            $
            1,389
              1,082
              NilLindsay
                Gorrill
              President
                and Chief Operating Officer
            
            
            2005
              2004
              2003
            
            
            11,392
              Nil
              Nil
            
            
            30,000
              Nil
              Nil
            
            
            Nil
              Nil
              Nil
            
            
            200,000
              50,000
              Nil
            
            
            Nil
              Nil
              Nil
            
            
            Nil
              Nil
              Nil




(1) No
      executive officer earned in excess of $100,000.


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





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





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





As
      of
      December 31, 2005, the board of directors of the Company consisted of eight
      directors: Matt Wayrynen, Lloyd Andrews, Louis Wolfin, 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
      three of the eight directors to be "unrelated" (Messrs. L. Andrews, R. Andrews
      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.





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





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





The
      Company has no standard arrangement pursuant to which directors are compensated
      by the Company for their services in their capacity as directors other than
      $500
      per quarter to non-management directors and $500 per quarter for the Chairman
      and chairman of each committee. Further, the Company has no contracts with
      any
      of its directors that provide for payments upon termination.





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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, and in conjunction
      with its auditors, the board assesses the adequacy of the Company’s internal
      control and management information systems. The board looks to management to
      keep it informed of all significant developments relating to or effecting the
      Company’s operations. Major financings, acquisitions, dispositions and
      investments are subject to board approval. A formal mandate for the board of
      directors and the chief executive officer has not been considered necessary
      since the relative allocation of responsibility is well understood by both
      management and the board.





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





**Committees**





*Audit
      Committee*





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





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





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





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





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





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





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





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




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-
            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 reviews and
        determines compensation for officers and directors, as well as bonuses and
        other
        incentive programs for employees. As of June 28, 2006, the compensation
        committee was comprised of Ronald Andrews, Lloyd Andrews and Matt
        Wayrynen.
 
 *Corporate
        Governance Committee*
 
 The
        corporate governance committee of the board manages the corporate governance
        system of the board and assists the board in fulfilling its duties to meet
        applicable legal, regulatory and self-regulatory business principles and
        codes
        of best practice. As of June 28, 2006 the corporate governance committee
        consisted of Lloyd 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 15, 2006.





**Name
                of Beneficial Owner**
            
            **Number
                of Shares**
            
            **Percent**Louis
                Wolfin
            
            
            105,000
            
            
            0.74Matt
                Wayrynen(1)
            
            
            1,183,689
            
            
            8.34Lloyd
                Andrews
            
            
            232,500
            
            
            1.64James
                O'Byrne
            
            
            50,000
            
            
            0.35Lindsay
                Gorrill
            
            
            127,500
            
            
            0.90David
                Wolfin
            
            
            90,800
            
            
            0.64Ronald
                Andrews
            
            
            61,000
            
            
            0.37Phillip
                Piffer
            
            
            Nil
            
            
            NilConnie
                Lillico
            
            
            5,000
            
            
            0.04All
                Officers and Directors as a Group (nine in number)
            
            
            
            
            
            12.71




(1) 1,087,389
      shares are held by his spouse.





The
      company currently maintains a formal stock option plan, under which stock
      options have been granted and may be granted to purchase up to 2,837,000 common
      shares. To date, stock options to purchase a total of up to 1,817,500 shares
      have been granted under the plan, of which 31,000 were subject to termination
      leaving options for 1,050,500 shares available for issuance.





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





**Name
                of Director/Officer**
            
            **Securities****Under
                Option**
            
            **Exercise
                Price**
            
            **Purchase
                Price,****if
                any**
            
            **Expiration
                Date**Lindsay
                Gorrill
            
            
            150,000
            
            $
            0.90
            
            
            N/A
            
            
            12/23/10Jim
                O’Byrne
            
            
            100,000
            
            $
            0.90
            
            
            N/A
            
            
            12/23/10Louis
                Wolfin
            
            
            75,000
            
            $
            0.90
            
            
            N/A
            
            
            12/23/10Matt
                Wayrynen
            
            
            50,000
            
            $
            0.90
            
            
            N/A
            
            
            12/23/10Ronald
                Andrews
            
            
            50,000
            
            $
            0.90
            
            
            N/A
            
            
            12/23/10Phillip
                Piffer
            
            
            50,000
            
            $
            0.90
            
            
            N/A
            
            
            12/23/10Lloyd
                Andrews
            
            
            45,000
            
            $
            0.90
            
            
            N/A
            
            
            12/23/10Connie
                Lillico
            
            
            15,000
            
            $
            0.90
            
            
            N/A
            
            
            12/23/10





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*Outstanding
      Options*





The
      following information, as of June 1, 2006, reflects outstanding options held
      by
      directors, officers, employees and consultants of the Company.





**No.
                of Shares**
            
            **Date
                of Grant**
            
            **Exercise
                Price**
            
            **Expiration
                Date**Louis
                Wolfin
            
            
            5,000
            
            
            09/19/03
            
            $
            0.52
            
            
            09/19/08James
                O'Byrne
            
            
            50,000
            
            
            09/19/03
            
            $
            0.52
            
            
            09/19/08Andrea
                Regnier
            
            
            3,000
            
            
            09/19/03
            
            $
            0.52
            
            
            09/19/08David
                Wolfin
            
            
            50,000
            
            
            09/19/03
            
            $
            0.52
            
            
            09/19/08Matt
                Wayrynen
            
            
            300,000
            
            
            09/19/03
            
            $
            0.52
            
            
            09/19/08Lloyd
                Andrews
            
            
            172,500
            
            
            09/19/03
            
            $
            0.52
            
            
            09/19/08David
                Wolfin
            
            
            150,000
            
            
            11/26/03
            
            $
            0.57
            
            
            09/19/08Jevin
                Werbes
            
            
            6,000
            
            
            03/25/04
            
            $
            0.74
            
            
            09/19/08Lindsay
                Gorrill
            
            
            50,000
            
            
            10/19/04
            
            $
            0.81
            
            
            10/19/09Ron
                Andrews
            
            
            50,000
            
            
            10/19/04
            
            $
            0.81
            
            
            10/19/09Dennis
                Goruk
            
            
            50,000
            
            
            10/19/04
            
            $
            0.81
            
            
            10/19/09Connie
                Lillico
            
            
            30,000
            
            
            10/19/04
            
            $
            0.81
            
            
            10/19/09James
                O'Byrne
            
            
            20,000
            
            
            10/19/04
            
            $
            0.81
            
            
            10/19/09Edward
                Lawson
            
            
            15,000
            
            
            10/29/04
            
            $
            0.77
            
            
            10/29/09Kjeld
                Werbes
            
            
            15,000
            
            
            10/29/04
            
            $
            0.77
            
            
            10/29/09Freddie
                Chapel
            
            
            2,500
            
            
            10/29/04
            
            $
            0.77
            
            
            10/29/09Jim
                Baylis
            
            
            5,000
            
            
            10/29/04
            
            $
            0.77
            
            
            10/29/09Lindsay
                Gorrill
            
            
            150,000
            
            
            12/23/05
            
            $
            0.90
            
            
            12/23/10Jim
                O’Byrne
            
            
            100,000
            
            
            12/23/05
            
            $
            0.90
            
            
            12/23/10Louis
                Wolfin
            
            
            75,000
            
            
            12/23/05
            
            $
            0.90
            
            
            12/23/10Ernest
                Calvert
            
            
            75,000
            
            
            12/23/05
            
            $
            0.90
            
            
            12/23/10Matt
                Wayrynen
            
            
            50,000
            
            
            12/23/05
            
            $
            0.90
            
            
            12/23/10Ronald
                Andrews
            
            
            50,000
            
            
            12/23/05
            
            $
            0.90
            
            
            12/23/10Phillip
                Piffer
            
            
            50,000
            
            
            12/23/05
            
            $
            0.90
            
            
            12/23/10Lloyd
                Andrews
            
            
            45,000
            
            
            12/23/05
            
            $
            0.90
            
            
            12/23/10Kevin
                Bales
            
            
            20,000
            
            
            12/23/05
            
            $
            0.90
            
            
            12/23/10Connie
                Lillico
            
            
            15,000
            
            
            12/23/05
            
            $
            0.90
            
            
            12/23/10Jim
                Baylis
            
            
            5,000
            
            
            12/23/05
            
            $
            0.90
            
            
            12/23/10Gloria
                Chan
            
            
            2,500
            
            
            12/23/05
            
            $
            0.90
            
            
            12/23/10Jevin
                Werbes
            
            
            2,500
            
            
            12/23/05
            
            $
            0.90
            
            
            12/23/10Olivia
                De Almeida
            
            
            2,500
            
            
            12/23/05
            
            $
            0.90
            
            
            12/23/10Options
                held by officers and directors as a group
            
            
            1,412,500





**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 15, 2006, 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:




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**Name**
            **Number
                of Shares of Common Stock Owned**
            **Percent
                of Class**Matt
                Wayrynen
            96,300
            *Lisa
                Wayrynen**
            1,087,389
            7.66




***** Less
      than
      1%.


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




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





An
      amount
      of $3,454 (2004: $Nil) is due from a public company with common management
      and a
      common director.





Amounts
      due to related parties include $9,341 (2004 - $nil) to directors of the Company
      for directors fees and expense reimbursements, $90,000 to directors as a bonus,
      $5,807 (2004 - $nil) to the President of the Company and $19,769 (2004 - $nil)
      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 $320,392 were paid to directors and their private
      companies in 2005 (2004: $193,257) which includes a debt financing fee of
      $29,000 which was paid to a director (2004: Nil).





During
      the year, current and or former directors and or Officers exercised 217,500
      options for total proceeds of $78,900 (2004: 320,000 options for total proceeds
      of $126,800). In addition, current and or former directors and Officers
      subscribed for 25,000 shares of the Company for total proceeds of $22,500 (2004:
      476,000 shares of the Company for total proceeds of $476,000).





Consulting
      fees totaling $96,000 were paid to a former director and his spouse in 2005
      (2004: $96,000).





Administrative
      services, office supplies and accounting charges totaling $121,303 were paid
      to
      a private company owned by public companies having common directors (2004:
      $79,200).





**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, 2005 and 2004.


Statements
      of Operations for the years ended December 31, 2005, 2004 and 2003.


Statements
      of Deficit for the years ended December 31, 2005, 2004 and 2003.


Statements
      of Cash flows for the years ended December 31, 2005, 2004 and 2003.


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
      March
      23, 2006 the Company announced that it has commenced trading on the Frankfurt
      Stock Exchange under the symbol "W80".





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**Item
      9.    The Offer and
      Listing**





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





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
      "W80".





As
      of
      December 31, 2005, 2.76 % of the Company' s
      outstanding common stock was registered in the names of United States residents.
      There were, as of December 31, 2005, 37 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
                2006
            
            
            0.89
            
            
            0.70April
                2006
            
            
            1.08
            
            
            0.78March
                2006
            
            
            1.06
            
            
            0.82February
                2006
            
            
            0.85
            
            
            0.75January
                2006
            
            
            0.79
            
            
            0.67December
                2005
            
            
            0.90
            
            
            0702005Fourth
                Quarter
            
            
            1.06
            
            
            0.67Third
                Quarter
            
            
            1.01
            
            
            0.66Second
                Quarter
            
            
            1.15
            
            
            0.90First
                Quarter
            
            
            1.50
            
            
            0.902004Fourth
                Quarter
            
            
            1.50
            
            
            0.96Third
                Quarter
            
            
            1.13
            
            
            0.65Second
                Quarter
            
            
            1.04
            
            
            0.75First
                Quarter
            
            
            1.09
            
            
            0.72Five
                Most Recent Fiscal YearsDecember
                31, 2005
            
            
            1.50
            
            
            0.66December
                31, 2004
            
            
            1.50
            
            
            0.72December
                31, 2003
            
            
            0.80
            
            
            0.40December
                31, 2002
            
            
            0.60
            
            
            0.28December
                31, 2001
            
            
            0.45
            
            
            0.28





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





Not
      Applicable.





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**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".





**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.





**Common
      Shares**





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





**Powers
      and Duties of Directors**





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





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





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





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





**Shareholders**





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





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





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





**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.





35
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The
      Investment Act generally prohibits implementation of a reviewable investment
      by
      an individual, government or agency thereof, corporation, partnership, trust
      or
      joint venture (each an "entity") that is not a "Canadian" as defined in the
      Investment Act (a "non-Canadian"), unless after review, the Director of
      Investments appointed by the minister responsible for the Investment Act is
      satisfied that the investment is likely to be of net benefit to Canada. An
      investment in the common shares by a non-Canadian other than a "WTO Investor"
      (as that term is defined by the Investment Act, and which term includes entities
      which are nationals of or are controlled by nationals of member states of the
      World Trade Organization) when the Company was not controlled by a WTO Investor,
      would be reviewable under the Investment Act if it was an investment to acquire
      control of the Company and the value of the assets of the Company, as determined
      in accordance with the regulations promulgated under the Investment Act, equals
      or exceeds $5 million for direct acquisition and over $50 million for indirect
      acquisition, or if an order for review was made by the federal cabinet on the
      grounds that the investment related to Canada's cultural heritage or national
      identity, regardless of the value of the assets of the Company. An investment
      in
      the common shares by a WTO Investor, or by a non-Canadian when the Company
      was
      controlled by a WTO Investor, would be reviewable under the Investment Act
      if it
      was an investment to acquire control of the Company and the value of the assets
      of the Company, as determined in accordance with the regulations promulgated
      under the Investment Act, was not less than a specified amount, which for 2004
      is any amount in excess of $137 million. A non-Canadian would acquire control
      of
      the Company for the purposes of the Investment Act if the non-Canadian acquired
      a majority of the common shares. The acquisition of one third or more, but
      less
      than a majority of the common shares, would be presumed to be an acquisition
      of
      control of the Company unless it could be established that, on the acquisition,
      the Company was not controlled in fact by the acquirer through the ownership
      of
      the common shares.





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





**E.** **Taxation**





**Canadian
      Federal Income Tax Consequences**





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





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





**United
      States Tax Consequences**





*Passive
      Foreign Investment Companies*





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





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





*Controlled
      Foreign Corporations*





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





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





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





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





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





*Other
      Consequences*





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





*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.





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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.





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





Not
      Applicable.





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





Not
      Applicable.





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





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





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





**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 13a-14 of the Securities Exchange Act of 1934, as amended.
      Based upon that evaluation, the Company’s chief executive officer and principal
      financial officer concluded that the Company’s disclosure controls and
      procedures as of the end of the fiscal year covered by this Form 20-F
      are:





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





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





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





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





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**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 years ended December 31, 2004 and 2005 was
      Staley, Okada & Partners, Chartered Accountants.





**Audit
      Fees**





The
      aggregate fees billed by the Company’s external auditors for professional
      services rendered for the audit of the Company's annual financial statements
      for
      the fiscal year ended December 31, 2005 was $27,500 and December 31, 2004 was
      $30,809.





**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, 2005
      was $3,372. There were no such fees billed for the fiscal year ended December
      31, 2004.





**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, 2005 was
      $1,650 and December 31, 2004 was $1,500. The services comprising these fees
      were
      regarding preparation of corporate tax returns and taxation advisory
      services.





**All
      Other Fees**





Other
      than referred to above, there were no aggregate fees billed for professional
      services rendered by the Company’s independent auditors for the fiscal years
      ended December 31, 2005 and December 31, 2004.





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





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





Not
      applicable.





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





None.





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**Part
      III**





**Item
      17. Financial Statements**





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





Auditors'
                Report
            F-2Balance
                Sheets
            F-3Statements
                of Operations
            F-4Statements
                of Deficit
            F-5Statements
                of Cash Flows
            F-6Notes
                to Financial Statements.
            F-7
                thru F-20





**Item
      18. Financial Statements**





See
      Item
      17.





**Item
      19. Exhibits**





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





Auditors'
                Report
            F-2Balance
                Sheets
            F-3Statements
                of Operations
            F-4Statements
                of Deficit
            F-5Statements
                of Cash Flows
            F-6Notes
                to Financial Statements.
            F-7
                thru F-20





**2.**
            **Exhibits**





Exhibit
                Number
            Name1.
            Memorandum
                of Berkley Resources Inc.*2.
            Articles
                of Berkley Resources Inc.*12.1
            Certification
                of the Principal Executive Officer under the Sarbanes-Oxley
                Act12.2
            Certification
                of the Principal Financial Officer under the Sarbanes-Oxley
                Act13.1
            Certificate
                of the Principal Executive Officer under section 90613.2
            Certificate
                of the Principal Financial Officer under section
                906




* Previously
      filed.








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**SIGNATURE**





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





**BERKLEY
                RESOURCES INC.**Dated: June
                28, 2006
              By:
              */s/ Matt
                Wayrynen*Matt
                Wayrynen, Chief Executive Officer andExecutive
                Chairman










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**BERKLEY
      RESOURCES INC.**




**FINANCIAL
      STATEMENTS**




**DECEMBER
      31, 2005 and 2004**




**Canadian
      Funds**


















F-1
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          OF CONTENTS


Graphic 2
            Suite
                400 - 889 West Pender Street
              Vancouver,
                BC Canada V6C 3B2
              **Tel**604
                694-6070
              **Fax**604
                585-8377
              info@staleyokada.com
              www.staleyokada.com





**Report
      of Independent Registered Public Accounting Firm**








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




We
      have
      audited the accompanying balance sheets of Berkley Resources Inc. (the
      "Company") as at December 31, 2005 and 2004 and the related statements of
      operations, deficit and cash flows for each of the years ended December 31,
      2005
      and 2004. These financial statements are the responsibility of the Company's
      management. Our responsibility is to express an opinion on these financial
      statements based on our audits.




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




In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the financial position of the Company as at December 31,
      2005
      and 2004, and the results of its operations and its cash flows for each of
      the
      years ended December 31, 2005 and 2004, in accordance with Canadian generally
      accepted accounting principles.




The
      comparative figures for the year ended December 31, 2003 are based on financial
      statements audited by another auditor who expressed an unqualified opinion
      in
      his report dated March 31, 2004.




***"Staley,
                Okada & Partners"***Vancouver,
                BC, Canada
            STALEY,
                OKADA & PARTNERSApril
                10, 2006
            CHARTERED
                ACCOUNTANTS





**Comments
      By Auditors For U.S. Reader On Canada - U.S. Reporting
      Conflict**








In
      the
      United States, reporting standards for auditors require the addition of an
      explanatory paragraph (following the opinion paragraph) when financial
      statements are affected by future events, the outcome of which is
      indeterminable. As discussed in Note 1, the Company’s continued existence 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. Our report to the shareholders dated April 10, 2006, is expressed in
      accordance with Canadian reporting standards, which do not require a reference
      to such going concern considerations in the auditors’ report when the situation
      is adequately disclosed in the financial statements.





***"Staley,
                Okada & Partners"***Vancouver,
                BC, Canada
            STALEY,
                OKADA & PARTNERSApril
                10, 2006
            CHARTERED
                ACCOUNTANTS










F-2
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**BERKLEY
        RESOURCES INC.**
 **BALANCE
        SHEETS**
 **For
        the Years Ended December 31**




**2005**
            
            2004**ASSETS****Current
                Assets**Restricted
                cash*(Note
                5)*
            
            **$**
            **1,894,681**
            
            $
            712,678Accounts
                receivable
            
            
            **278,856**
            
            
            145,422Taxes
                recoverable
            
            
            **22,325**
            
            
            31,079Prepaid
                expenses
            
            
            **101,689**
            
            
            17,500Due
                from related parties*(Note
                13a)*
            
            
            **3,454**
            
            
            22,060**2,301,005**
            
            
            928,739**Prepaid
                oil and gas costs**
            
            
            **295,350**
            
            
            376,693**Oil
                and gas properties and equipment***(Note
                6)*
            
            
            **3,939,531**
            
            
            3,389,679**Rental
                property***(Note
                7)*
            
            
            **2,049,015**
            
            
            2,061,915**Other
                property plant and equipment***(Note
                8)*
            
            
            **6,449**
            
            
            2,320**$**
            **8,591,350**
            
            
            6,759,346**LIABILITIES****Current
                Liabilities**Accounts
                payable and accrued liabilities
            
            **$**
            **353,363**
            
            $
            1,522,545Bank
                loans*(Note
                9)*
            
            
            **1,922,146**
            
            
            446,056Due
                to related parties*(Note
                13b)*
            
            
            **124,917**
            
            
            -**2,400,426**
            
            
            1,968,601**Site
                restoration liabilities***(Note
                3e)*
            
            
            **85,439**
            
            
            43,030**2,485,865**
            
            
            2,011,631**Continued
                Operations***(Note
                1)***SHAREHOLDERS'
                EQUITY****Share
                Capital***(Note
                10)*
            
            
            **8,762,671**
            
            
            5,734,921**Contributed
                Surplus***(Note
                11)*
            
            
            **589,036**
            
            
            336,558**Deficit**
            
            
            **(3,246,222**
            **)**
            
            (1,323,764
            )**6,105,485**
            
            
            4,747,715**$**
            **8,591,350**
            
            $
            6,759,346





Approved
      by the Directors:





*"Matt
                Wayrynen"*
            Director
            *"Lindsay
                Gorrill"*
            Director




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




F-3
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          OF CONTENTS





**BERKLEY
      RESOURCES INC.**


**STATEMENTS
      OF OPERATIONS**


**For
      the Years Ended December 31**








**2005**
            
            2004
            
            2003**OIL
                AND GAS REVENUE**
            
            **$**
            **1,408,858**
            
            $
            866,811
            
            $
            606,133**Oil
                and gas production expenses**Operating
                costs
            
            
            **608,045**
            
            
            416,254
            
            
            243,717Amortization
                and depletion
            
            
            **665,500**
            
            
            260,000
            
            
            79,500Write-down
                of oil and gas properties
            
            
            **1,400,000**
            
            
            -
            
            
            -Accretion
                of site restoration liabilities
            
            
            **2,294**
            
            
            2,775
            
            
            4,769**2,675,839**
            
            
            679,029
            
            
            327,986OIL
                AND GAS INCOME (LOSS)
            
            
            **(1,266,981**
            **)**
            
            187,782
            
            
            278,147**RENTAL
                REVENUE**
            
            
            **238,466**
            
            
            232,607
            
            
            238,599**Rental
                operations expenses**Operating
                costs
            
            
            **180,779**
            
            
            209,229
            
            
            198,596Interest
                on bank loan
            
            
            **99,532**
            
            
            23,047
            
            
            26,272Amortization
            
            
            **13,267**
            
            
            13,455
            
            
            14,016**293,578**
            
            
            245,731
            
            
            238,884NET
                RENTAL LOSS
            
            
            **(55,112**
            **)**
            
            (13,124
            )
            
            (285
            )**GENERAL
                AND ADMINISTRATIVE EXPENSES**Consulting
                and management fees
            
            
            **410,567**
            
            
            310,270
            
            
            252,027Administrative,
                office services and premises
            
            
            **244,233**
            
            
            188,863
            
            
            142,190Stock
                based compensation
            
            
            **173,538**
            
            
            273,793
            
            
            2,390Professional
                fees
            
            
            **163,544**
            
            
            101,121
            
            
            54,342Finance
                fees on debt
            
            
            **95,427**
            
            
            -
            
            
            -Shareholder
                information
            
            
            **69,717**
            
            
            9,823
            
            
            11,032Filing
                and transfer agent fees
            
            
            **17,130**
            
            
            19,413
            
            
            12,176Amortization
            
            
            **1,462**
            
            
            409
            
            
            20,354**(1,175,618**
            **)**
            
            (903,692
            )
            
            (494,511
            )**OTHER
                INCOME (EXPENSES)**Computer
                software written off
            
            
            **-**
            
            
            -
            
            
            (54,988
            )Interest
                expense
            
            
            **(10,487**
            **)**
            
            -
            
            
            (7,288
            )Interest
                and other income
            
            
            **2,034**
            
            
            -
            
            
            23,469**(1,184,071**
            **)**
            
            (903,692
            )
            
            (533,795
            )**LOSS
                BEFORE INCOME TAXES**
            
            
            **(2,506,164**
            **)**
            
            (729,034
            )
            
            (255,456
            )Recovery
                of future income taxes*(Note
                12b)*
            
            
            **583,706**
            
            
            -
            
            
            -**LOSS
                FOR THE YEAR**
            
            **$**
            **(1,922,458**
            **)**
            $
            (729,034
            )
            $
            (255,456
            )**LOSS
                PER SHARE**
            
            **$**
            **(0.20**
            **)**
            $
            (0.10
            )
            $
            (0.04
            )**WEIGHTED
                AVERAGE NUMBER OF SHARES OUTSTANDING**
            
            
            **9,849,082**
            
            
            7,175,945
            
            
            6,797,184





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


F-4
 TABLE
          OF CONTENTS





**BERKLEY
      RESOURCES INC.**


**STATEMENTS
      OF DEFICIT**


**For
      the Years Ended December 31**







**2005**
            
            2004
            
            2003**DEFICIT,**beginning
                of period
            
            **$**
            **(1,323,764**
            **)**
            $
            (563,849
            )
            $
            (308,393
            )**RETROACTIVE
                ADJUSTMENT**Stock
                based compensation*(Note
                4)*
            
            
            **-**
            
            
            (30,881
            )
            
            -**DEFICIT**,
                restated, beginning of period
            
            
            **(1,323,764**
            **)**
            
            (594,730
            )
            
            (308,393
            )Loss
                for the year
            
            
            **(1,922,458**
            **)**
            
            (729,034
            )
            
            (255,456
            )**DEFICIT,**end
                of year
            
            **$**
            **(3,246,222**
            **)**
            $
            (1,323,764
            )
            $
            (563,849
            )




















































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








F-5
 TABLE
          OF CONTENTS





**BERKLEY
      RESOURCES INC.**


**STATEMENTS
      OF CASH FLOWS**


**For
      the Years Ended December 31**








**CASH
                PROVIDED BY (USED IN):**
            
            **2005**
            
            2004
            
            2003**OPERATING
                ACTIVITIES**Loss
                for the year
            
            **$**
            **(1,922,458**
            **)**
            $
            (729,034
            )
            $
            (255,456
            )Items
                not requiring cash in the year:Accretion
                of site restoration liability
            
            
            **2,294**
            
            
            2,775
            
            
            4,769Amortization
                and depletion
            
            
            **680,229**
            
            
            273,864
            
            
            113,870Write-down
                of oil and gas properties
            
            
            **1,400,000**
            
            
            -
            
            
            -Recovery
                of future income taxes
            
            
            **(583,706**
            **)**
            
            -
            
            
            -Computer
                software written off
            
            
            **-**
            
            
            -
            
            
            54,988Stock
                based compensation
            
            
            **173,538**
            
            
            273,793
            
            
            2,390**(250,103**
            **)**
            
            (178,602
            )
            
            (79,439
            )Net
                change in non-cash working capital balances:Accounts
                receivable
            
            
            **(133,434**
            **)**
            
            (45,419
            )
            
            11,155Taxes
                recoverable
            
            
            **8,754**
            
            
            13,413
            
            
            (40,370
            )Prepaid
                expenses
            
            
            **(9,189**
            **)**
            
            11,649
            
            
            (2,527
            )Due
                from related parties
            
            
            **18,606**
            
            
            -
            
            
            (12,060
            )Computer
                software held for resale
            
            
            **-**
            
            
            -
            
            
            (4,008
            )Accounts
                payable and accrued liabilities
            
            
            **1,833**
            
            
            42,419
            
            
            92,195Due
                to related parties
            
            
            **124,917**
            
            
            -
            
            
            -**(238,616**
            **)**
            
            (156,540
            )
            
            (35,054
            )**INVESTING
                ACTIVITIES**Prepaid
                oil and gas costs
            
            
            **81,343**
            
            
            (376,693
            )
            
            -Proceeds
                on disposal of oil and gas property
            
            
            **112,500**
            
            
            -
            
            
            -Oil
                and gas properties and equipment, net
            
            
            **(3,859,162**
            **)**
            
            (1,301,715
            )
            
            (612,357
            )Other
                property, plant and equipment
            
            
            **(5,548**
            **)**
            
            (2,728
            )
            
            -**(3,670,867**
            **)**
            
            (1,681,136
            )
            
            (612,357
            )**FINANCING
                ACTIVITIES**Bank
                and other loans received
            
            
            **1,870,000**
            
            
            -
            
            
            -Bank
                and other loans repaid
            
            
            **(393,910**
            **)**
            
            (119,753
            )
            
            (109,424
            )Issuance
                of common shares and warrants
            
            
            **3,615,396**
            
            
            2,434,882
            
            
            5,100**5,091,486**
            
            
            2,315,129
            
            
            (104,324
            )**Increase
                (Decrease) in Cash**
            
            
            **1,182,003**
            
            
            477,453
            
            
            (751,735
            )**Cash,
                Beginning of Year**
            
            
            **712,678**
            
            
            235,225
            
            
            986,960**Cash,
                End of Year**
            
            **$**
            **1,894,681**
            
            $
            712,678
            
            $
            235,225**SUPPLEMENTAL
                DISCLOSURE OF NON-CASH FINANCING AND INVESTING
                ACTIVITIES**Shares
                issued for services - prepaid
            
            **$**
            **75,000**
            
            $
            -
            
            $
            -Recovery
                of future income taxes
            
            **$**
            **583,706**
            
            $
            -
            
            $
            -Site
                reclamation accrued (recovery)
            
            **$**
            **40,115**
            
            $
            (96,247
            )
            $
            -Stock
                option compensation
            
            **$**
            **173,538**
            
            $
            273,793
            
            $
            2,390Accounts
                payable - Oil and gas properties
            
            **$**
            **251,814**
            
            $
            1,423,239
            
            $
            88,419**SUPPLEMENTAL
                STATEMENTS OF CASH FLOWS DISCLOSURE**Interest
                on long-term debt
            
            **$**
            **99,532**
            
            $
            23,047
            
            $
            26,272





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





F-6
 TABLE
          OF CONTENTS





**BERKLEY
      RESOURCES INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


**For
      the Years Ended December 31**





**1.**
            **Continued
                Operations**





These
      financial statements have been prepared on the basis of accounting principles
      applicable to a going concern which assumes that the Company will continue
      in
      operation for the foreseeable future 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, 2005 the Company does not have
      sufficient financial resources to meet its flow through expenditure requirements
      in 2006 *(Note
      5)* .
      As at
      31 December 2005, the Company had working capital deficit $99,421 (2004 -
      $1,039,862).





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





If
      the
      going concern assumption were not appropriate for these consolidated 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.**
            **Nature
                of Operations**





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





**3.**
            **Significant
                Accounting Policies**





a)
            **Basis
                of presentation**





These
      financial statements are prepared in accordance with Canadian generally accepted
      accounting principles, which do not materially differ from accounting principles
      generally accepted in the United States, except as disclosed in Note
      16.





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





b)
            **Currency**





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





c)
            **Revenue
                recognition**





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





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




F-7
 TABLE
          OF CONTENTS





**BERKLEY
      RESOURCES INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


**For
      the Years Ended December 31**







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





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





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





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





Unless
      a
      significant amount of reserves is involved, proceeds received from the
      disposition of oil and gas properties are credited to the relevant cost centre
      unless this results in a change of 20% or more in the depletion rate. In the
      event of a significant sale of reserves, a proportionate amount of cost and
      accumulated depletion, based upon the ratio of reserves sold to total reserves,
      is removed from the appropriate cost centre and the resultant profit or loss
      taken into income.





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





Substantially
      all of the Company’s oil and gas interests are conducted jointly with others.
      The financial statements reflect only the Company’s share of assets,
      liabilities, and operations. As at 31 December 2005, the Company does not
      operate any of its oil and gas interests.





e) **Site
      restoration liability**





The
      recommendations of CICA Handbook Section 3110, Asset Retirement Obligations
      ("CICA 3110"), became effective on January 1, 2004. This section requires the
      recognition of a legal liability for obligations relating to the retirement
      of
      property, plant and equipment and obligations arising from the acquisition,
      construction, development, or normal operation of those assets. Such asset
      retirement costs must be recognized at fair value, when a reasonable estimate
      of
      fair value can be estimated, in the period in which the liability is incurred.
      A
      corresponding increase to the carrying amount of the related asset, where one
      is
      identifiable, is recorded and amortized over the life of the asset. Where a
      related asset is not easily identifiable with a liability, the change in fair
      value over the course of the year is expensed. The amount of the liability
      is
      subject to re-measurement at each reporting period. The estimates are based
      principally on legal and regulatory requirements. It is possible that the
      Company’s estimates of its ultimate reclamation and closure liabilities could
      change as a result of changes in regulations, changes in the extent of the
      environmental remediation required, changes in the means of reclamation or
      changes in cost estimates. Changes in estimates are accounted for prospectively
      commencing in the period the estimate is revised.





The
      following table sets out the activity for the Company’s site restoration
      liabilities for the years ending December 31, 2005 and 2004:




**2005**
            
            2004Opening
                balance
            
            **$**
            **43,030**
            
            $
            136,502Accretion
            
            
            **2,294**
            
            
            2,775Additions
            
            
            **40,115**
            
            
            22,915Reduction
                due to disposal
            
            
            **-**
            
            
            (119,162
            )**$**
            **85,439**
            
            $
            43,030





F-8
 TABLE
          OF CONTENTS





**BERKLEY
      RESOURCES INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


**December
      31, 2005 and 2004**


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





f) **Rental
      property and other capital assets**





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





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





g) **Financial
      instruments**





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





h) **Use
      of estimates**





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





i) **Stock
      based compensation plan**





Compensation
      expense is recorded for the estimated fair value of stock options granted.
      The
      estimated fair value of the options at the date of grant is accrued and charged
      to operations, with an offsetting credit to contributed surplus, on a
      straight-line basis over the vesting period. If and when the stock options
      are
      ultimately exercised, the applicable amounts of contributed surplus are
      transferred to share capital *(Note 10a)* .





j) **Loss
      per share**





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





k) **Income
      taxes**





The
      asset
      and liability method is used for determining future income taxes. Under the
      asset and liability method, the change in the net future tax asset or liability
      is included in income. The income tax effects of temporary differences in the
      time when income and expenses are recognized in accordance with Company
      accounting practices and the time they are recognized for income tax purposes
      are reflected as future income tax assets or liabilities. Future income tax
      assets and liabilities are measured using statutory rates that are expected
      to
      apply to taxable income in the years in which temporary differences are expected
      to be recovered or settled.





F-9
 TABLE
          OF CONTENTS





**BERKLEY
      RESOURCES INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


**December
      31, 2005 and 2004**





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





l) **Share
      Capital**




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





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





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





m) **Flow-Through
      Shares**





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





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





**4.** **Accounting
      Changes**





a) Effective
          January 1, 2004, the Company adopted the provisions of *CICA
          Handbook Section 3870 "Stock Based Compensation and Other Stock Based
          Payments"* with
          respect to the fair market value accounting for stock options granted to
          employees. In prior years, the Company recorded the fair market value of
          the
          stock options granted to non-employees only as compensation expense. In
          2003,
          the Company did not account for stock based compensation when stock options
          were
          granted to employees and directors; however, it disclosed the pro forma
          effect
          of the stock based compensation on its financial results. In 2004, the
          Company
          adopted the fair value based method of accounting for stock based compensation,
          as described in Note 3i. This change has been applied retroactively; however,
          the financial statements for 2003 have not been restated. Rather, the opening
          retained earnings for 2004 has been adjusted to reflect the impact of the
          new
          accounting policy on the 2003 year. This accounting treatment is in keeping
          with
          Canadian generally accepted accounting principles. The effect of this change
          was
          to increase the deficit at January 1, 2004 by $30,881 to
          $594,730.





b) **Variable
          Interest Entities - Change in Accounting
          Policy**





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





F-10
 TABLE
          OF CONTENTS





**BERKLEY
      RESOURCES INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


**December
      31, 2005 and 2004**


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





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





**5.** **Restricted
          Cash**





In
      December 2005, the Company raised $3,266,980 in a flow-through private
      placement. The entire amount of the proceeds is restricted to use for qualifying
      Canadian exploration expenditures. As at 31 December 2005, the Company had
      spent
      $197,200 of the required flow through expenditures of $3,266,980. Management
      expects that the remaining $3,069,780 will be spent in 2006. As at 31 December
      2005, the Company has $1,894,681 to complete its remaining flow through
      expenditures of $3,069,780. As at 31 December 2005, the Company has a short
      fall
      of $1,175,099 in flow through funds.





**6.** **Oil
          and Gas Properties and Equipment**





**2005**
            
            2004Oil
                and gas properties and equipment, cost
            
            **$**
            **9,249,158**
            
            $
            6,633,806Less:
                Accumulated amortization and depletion
            
            
            **(3,909,627**
            **)**
            
            (3,244,127
            )Write-down
                of oil and gas properties
            
            
            **(1,400,000**
            **)**
            
            -**$**
            **3,939,531**
            
            $
            3,389,679





Oil
      and
      gas properties and equipment includes the cost of unproven properties of
      approximately $330,228 (2004 - $188,918) which are currently not subject to
      depletion. The Company expects to finance additional expenditures through
      private placements, existing production revenue, and/or additional debt. In
      addition, the Company may make further oil and gas expenditures on new
      properties as finances permit.





During
      the year ended December 31, 2005, five property areas produced 87% (2004 -
      76%)
      of the total oil and gas revenue. There is no guarantee that this revenue will
      continue in future periods. In addition, $465,401 of 2005 revenue (2004 - nil)
      came from a well that was abandoned in fiscal 2005 and is unlikely to produce
      any future revenue.





**7.** **Rental
          Property**





**2005**
            
            2004Building,
                at cost
            
            **$**
            **447,652**
            
            $
            447,652Less:
                Accumulated amortization
            
            
            **(137,631**
            **)**
            
            (124,731
            )**310,021**
            
            
            322,921Land,
                at cost
            
            
            **1,738,994**
            
            
            1,738,994**$**
            **2,049,015**
            
            $
            2,061,915


F-11
 TABLE
          OF CONTENTS





**BERKLEY
      RESOURCES INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


**December
      31, 2005 and 2004**


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





Cost
            
            Accumulated
                Amortization
            
            **Net
                2005**
            
            Net
                2004Computer
                equipment
            
            $
            27,949
            
            $
            (24,143
            )
            **$**
            **3,806**
            
            $
            2,319Furniture
                and fixtures
            
            
            8,521
            
            
            (5,879
            )
            
            **2,642**
            
            
            -Truck
            
            
            39,040
            
            
            (39,039
            )
            
            **1**
            
            
            1$
            75,510
            
            $
            (69,061
            )
            **$**
            **6,449**
            
            $
            2,320





**9.** **Bank
          Loans**





**2005**
            
            2004Canadian
                Imperial Bank of Commerce
            
            **$**
            **322,146**
            
            $
            446,056Canadian
                Imperial Bank of Commerce
            
            
            **100,000**
            
            
            -IMOR
                Capital Corp.
            
            
            **1,500,000**
            
            
            -**$**
            **1,922,146**
            
            $
            446,056





The
      bank
      loan of $322,146 payable to the Canadian Imperial Bank of Commerce ("CIBC")
      bears interest at prime plus 0.50% per annum, is due on demand, and is secured
      by a first mortgage in the amount of $1,304,000 over the Company’s rental
      property *(Note
      7)* and
      an
      assignment of rents and insurance. Also, two directors have supplied guarantees
      of $150,000 each. The Company is currently making monthly payments of $11,900
      towards interest and reduction of principal.





The
      bank
      loan of $100,000 payable to the Canadian Imperial Bank of Commerce ("CIBC")
      bears interest at prime plus 1.00% per annum, is due on January 3, 2006, and
      is
      unsecured. The $100,000 was repaid subsequent to year-end.





The
      bank
      loan payable to IMOR Capital Corp ("IMOR") bears interest at prime plus 6.75%
      per annum (minimum 11% per annum) with monthly interest only payments of $13,750
      and is secured by a second mortgage over the Company’s real estate and an
      assignment of rents and a general security agreement. The balance is due
      September 1, 2006. The lender, at its option, may extend the maturity date
      of
      this mortgage at the request of the Company.





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, 2005, there
      was a $nil balance outstanding with regard to the credit line.




F-12
 TABLE
          OF CONTENTS





**BERKLEY
      RESOURCES INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


**December
      31, 2005 and 2004**


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




a) Authorized:





Unlimited
      common shares, without par value





**2005**
            
            
            
            2004**Issued
                and fully paid:**
            
            Number
                of Shares
            
            Amount
            
            Number
                of Shares
            
            AmountBalance,
                beginning of year
            
            
            9,681,977
            
            $
            5,734,921
            
            
            6,810,934
            
            $
            3,254,426Issued
                in the year for cash:Pursuant
                to private placements:-
                flow-through
            
            
            3,629,978
            
            
            3,266,980
            
            
            1,726,500
            
            
            1,726,500-
                non-flow-through for cash*(Note
                11i)*
            
            
            536,000
            
            
            402,000
            
            
            811,543
            
            
            819,800-
                non-flow-through for services*(Note
                11i)*
            
            
            100,000
            
            
            75,000
            
            
            -
            
            
            -Exercise
                of stock options
            
            
            237,000
            
            
            89,010
            
            
            333,000
            
            
            134,220Less
                share issuance costs
            
            
            -
            
            
            (237,994
            )
            
            -
            
            
            (245,638
            )Future
                income taxes on renouncement of resource property expenditures*(Note
                4b)*
            
            
            -
            
            
            (583,706
            )
            
            -
            
            
            -Add
                contributed surplus on exercise of stock options*(Note
                11)*
            
            
            -
            
            
            16,460
            
            
            -
            
            
            45,613Balance,
                end of year
            
            
            14,184,955
            
            $
            8,762,671
            
            
            9,681,977
            
            $
            5,734,921





b) Warrants





**2005**
            
            2004Number
                of Shares Subject to Warrants
            
            Exercise
                price range
            
            Number
                of Shares Subject to Warrants
            
            Exercise
                price rangeOutstanding,
                beginning of year
            
            
            1,289,232
            
            $
            1.10/$1.50
            
            
            -
            
            
            -Granted
            
            
            636,000
            
            $
            1.25
            
            
            1,289,232
            
            $
            1.10/$1.50Outstanding,
                end of year
            
            
            1,925,232
            
            $
            1.25/$1.50
            
            
            1,289,232
            
            $
            1.10/$1.50





At
      December 31, 2005, the following share purchase warrants were
      outstanding:





**Number
                of warrants**
            **Expiry
                date**
            **Exercise
                price Range**241,110
            November
                10, 2006
            $1.25553,750
            November
                10, 2006
            $1.50129,000
            November
                30, 2006
            $1.25319,500
            November
                30, 2006
            $1.5045,872
            December
                10, 2006
            $1.36636,000
            December
                28, 2007
            $1.251,925,232







F-13
 TABLE
          OF CONTENTS





**BERKLEY
      RESOURCES INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


**December
      31, 2005 and 2004**


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





c) Management
          incentive options





The
      Company has adopted a 2004 Stock Option Plan (the "Plan") which provides for
      the
      granting of options to acquire up to 1,939,000 shares. The Plan provides for
      the
      granting of options to employees and service providers, with no single optionee
      to be granted options in excess of 5% of the number of issued shares of the
      Company. All options granted are to be with the allowable discount off market
      price and the term of the options granted is not to exceed five years. Options
      granted under the plan vest as follows:





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


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


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


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


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





**2005**
            
            2004Number
                of Shares Subject to Options
            
            Weighted
              average
                exercise
              priceper
                share
            
            Number
                of Shares Subject to Options
            
            Weighted
              average
                exercise
              price
                per shareBalance
                outstanding, beginning of year
            
            
            1,226,000
            
            $
            0.57
            
            
            1,302,500
            
            $
            0.49Activity
                in the yearGranted
            
            
            645,000
            
            $
            0.90
            
            
            287,500
            
            $
            0.79Exercised
            
            
            (237,000
            )
            $
            0.38
            
            
            (333,000
            )
            $
            0.40Cancelled
            
            
            -
            
            
            -
            
            
            (31,000
            )
            $
            0.64Lapsed
            
            
            -
            
            
            -
            
            
            -
            
            
            -Balance
                outstanding, end of year
            
            
            1,634,000
            
            $
            0.72
            
            
            1,226,000
            
            $
            0.57Vested
                ,end of year
            
            
            902,900
            
            $
            0.58
            
            
            808,347
            
            $
            0.49





The
      weighted average grant date fair value of options granted in 2005 was $0.90
      per
      share (2004: $0.79).





A
      summary
      of management incentive options outstanding is as follows:





**2005**
            **2004**Exercise
                PricePer
                Share
            Expiry
                Date
            Number
                of Shares Remaining
              Subject
                to Options at December 31$0.34
            April
                25, 2005
            -
            197,500$0.52
            September
                19, 2008
            580,500
            614,000$0.57
            September
                19, 2008
            150,000
            150,000$0.74
            September
                19, 2008
            21,000
            27,000$0.81
            October
                19, 2009
            200,000
            200,000$0.77
            October
                29, 2009
            37,500
            37,000$0.90
            December
                23, 2010
            645,000
            -1,634,000
            1,225,500





The
      fair
      value of the stock options granted were determined on the date of grant using
      the Black-Scholes option pricing model with the following weighted average
      assumptions:





**2005**
            
            2004Risk
                free interest rate
            
            
            **3.83**
            **%**
            
            3.82
            %Weighted
                average life
            
            
            **3
                years**
            
            
            3
                yearsVolatility
                factor
            
            
            **58.19**
            **%**
            
            62.87
            %Dividend
                yield
            
            
            **0**
            **%**
            
            0
            %







F-14
 TABLE
          OF CONTENTS





**BERKLEY
      RESOURCES INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


**December
      31, 2005 and 2004**


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





c) Management
          incentive options - *Continued*





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





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





**2005**
            
            2004Balance,
                beginning of year
            
            **$**
            **336,558**
            
            $
            77,390Retroactive
                adjustment- Stock-based compensation*(Note
                4a)*
            
            
            **-**
            
            
            30,988Stock-based
                compensation on issue of options
            
            
            **173,538**
            
            
            273,793Value
                of warrants (i)
            
            
            **95,400**
            
            
            -Exercise
                of stock options*(Note
                10a)*
            
            
            **(16,460**
            **)**
            
            (45,613
            )**$**
            **589,036**
            
            $
            336,558





(i) During
          the year the company issued 636,000 units at $0.90 per unit for total proceeds
          of $572,400 with each unit consisting of one common share of the company
          and one
          warrant exercisable for two years at $1.25 per warrant. Management determined
          that $0.15 of the $0.90 unit price was applicable to the warrant, therefore
          $95,400 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





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





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





**2005**
            
            2004
            
            2003Net
                income (loss) for the year
            
            **$**
            **(1,922,458**
            **)**
            $
            (729,034
            )
            $
            (255,456
            )Add:Stock-based
                compensation
            
            
            **173,538**
            
            
            273,864
            
            
            2,390Amortization
            
            
            **14,729**
            
            
            13,864
            
            
            34,370Depletion
            
            
            **665,500**
            
            
            260,000
            
            
            79,500Write-down
                of oil and gas properties
            
            
            **1,400,000**
            
            
            -
            
            
            -Non-deductible
                expenses
            
            
            **13,696**
            
            
            10,921
            
            
            -Crown
                royalty adjustment
            
            
            **48,903**
            
            
            48,903
            
            
            59,231Accretion
                of site restoration costs
            
            
            **2,294**
            
            
            2,775
            
            
            4,769Less:Share
                issuance costs
            
            
            **(96,727**
            **)**
            
            (49,128
            )
            
            -Resource
                allowance
            
            
            **(96,705**
            **)**
            
            (96,705
            )
            
            (13,475
            )Future
                income tax recovery
            
            
            **(583,706**
            **)**
            
            -
            
            
            -Capital
                cost allowance
            
            
            **-**
            
            
            -
            
            
            (18,930
            )Net
                income (loss) for tax purposes
            
            
            **(380,936**
            **)**
            
            (264,540
            )
            
            (52,613
            )Tax
                rate
            
            
            **34**
            **%**
            
            34
            %
            
            34
            %**(129,518**
            **)**
            
            (89,944
            )
            
            (17,888
            )Valuation
                allowance
            
            
            **129,518**
            
            
            89,944
            
            
            17,888**$**
            **-**
            
            $
            -
            
            $
            -







F-15
 TABLE
          OF CONTENTS





**BERKLEY
      RESOURCES INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


**December
      31, 2005 and 2004**


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





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





Future
                income tax assets
            
            **2005**
            
            2004
            
            2003Non-capital
                losses
            
            **$**
            **770,849**
            
            $
            387,619
            
            $
            123,079Share
                issuance costs
            
            
            **337,777**
            
            
            196,510
            
            
            -Rental
                property and equipment tax value in excess of book value
            
            
            **302,419**
            
            
            283,928
            
            
            267,726Oil
                and gas properties tax value in excess of book value
            
            
            **2,885,811**
            
            
            820,310
            
            
            560,310**4,296,856**
            
            
            1,688,367
            
            
            951,115Tax
                rate
            
            
            **34**
            **%**
            
            34
            %
            
            34
            %**1,460,931**
            
            
            574,045
            
            
            323,379Future
                income tax liability on renunciation of flow-through
                expenses
            
            
            **(583,706**
            **)**
            
            -
            
            
            -Allowance
            
            
            **(877,225**
            **)**
            
            (574,045
            )
            
            (323,379
            )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.





c) The
          Company has non-capital losses which may be applied to reduce future years'
          taxable income. At December 31, 2005, these losses expire as
          follows:





2008
            
            $
            11,7822009
            
            
            58,6842010
            
            
            52,6132014
            
            
            264,5402015
            
            
            383,230$
            770,849





d) Canadian
          development and exploration expenditures





As
      at
      December 31, 2005, the Company had $5,108,560 (2004 - $4,209,989) 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
      2005,
      the Company issued flow-through shares in the amount of $3,266,980 (2004 -
      $1,726,500), excluding share issue costs, to finance eligible Canadian
      exploration expenditures. The resource expenditure deductions for income tax
      purposes related to exploration activities are renounced to investors in
      accordance with income tax legislation, and as a result tax deductibility of
      these costs are not available to the Company.





As
      at
      December 31, 2005 the subscription value of the flow-through shares of
      $3,266,980 had not yet been renounced to the shareholders, and $3,069,780 of
      eligible Canadian exploration expenditures had not yet been expended by the
      Company. The Company is committed to spend this amount on qualifying
      expenditures by December  31, 2006. Subsequent to the year-end, the Company
      renounced the $3,266,980 (2004 - $1,726,500) to the flow-through shareholders
      under the CRA look book rules *(Note
      5)* .





F-16
 TABLE
          OF CONTENTS





**BERKLEY
      RESOURCES INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


**December
      31, 2005 and 2004**





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





a)
            Due
                from related party balance of $3,454 (2004: $Nil) is due from a public
                company with common management and a common
                director.





b)
            Due
                to related parties consists of $9,341 (2004 - $nil) due to directors
                of
                the Company for directors fees and expense reimbursements, $90,000
                due to
                directors as a bonus, $5,807 (2004 - $nil) to the President of the
                Company
                and $19,769 (2004 - $nil) to a private company owned by public companies
                having common directors that provides administrative services, office
                supplies and accounting services.





c)
            Management
                and consulting fees totalling $291,392 were paid to directors and
                their
                private companies in 2005 (2004: $193,257).





d)
            During
                the year, current and/or former directors and/or Officers exercised
                217,500 options for total proceeds of $78,900 (2004: 320,000 options
                for
                total proceeds of $126,800). In addition, current and/or former directors
                and Officers subscribed for 25,000 shares of the Company for total
                proceeds of $22,500 (2004: 476,000 shares of the Company for total
                proceeds of $476,000).





e)
            Consulting
                fees totalling $96,000 were paid to a former director and his spouse
                in
                2005 (2004: $96,000).





f)
            Administrative
                services, office supplies and accounting charges totalling $121,303
                were
                paid to a private company owned by public companies having common
                directors (2004: $79,200).





g)
            A
                debt financing fee of $29,000 was paid to a director in 2005 (2004
                -
                $nil).





**14.** **Commitments**





a)
            Under
                the terms of Consulting Agreements with a former director and his
                spouse,
                the Company is required to pay management fees of $96,000 in fiscal
                2006.





b)
            On
                15 February 2006, the Company entered into a consulting agreement
                with an
                unrelated party. The consultant will provide assistance in various
                financing activities. The Company will pay a monthly retainer of
                $6,000
                per month and 5% and 3% of gross proceeds on any equity or debt financing
                sourced by the consultant respectively. The agreement terminates
                on 15
                July 2006.





**15.** **Segment
          Disclosure**




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




**2005**
            
            2004*Assets
                by operating segment*Oil
                and gas
            
            **$**
            **4,543,675**
            
            $
            4,520,389Real
                estate
            
            
            **2,071,124**
            
            
            2,010,262*Assets
                not allocated*Head
                office
            
            
            **1,976,551**
            
            
            228,695**$**
            **8,591,350**
            
            $
            6,759,346





**2005**
            
            2004*Capital
                expenditures by segment*Oil
                and gas
            
            **$**
            **2,125**
            
            $
            -Head
                office
            
            
            **3,423**
            
            
            2,728**$**
            **5,548**
            
            $
            2,728





All
      of
      the Company’s operations are in Canada. Rental revenue of $6,000 (2004: $6,000)
      has been eliminated on consolidation representing the rental of office premises
      by the corporate head office.





F-17
 TABLE
          OF CONTENTS





**BERKLEY
      RESOURCES INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


**December
      31, 2005 and 2004**


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




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





**Statement
                of Operations**
            
            **2005**
            
            2004
            
            2003Loss
                for the year under Canadian GAAP
            
            **$**
            **(1,922,458**
            **)**
            $
            (729,034
            )
            $
            (255.456
            )Additional
                impairment of oil and gas properties under US GAAP (a)
            
            
            **(600,000**
            **)**
            
            -
            
            
            -Remove
                tax impact on renouncement of 2004 flow-through shares
            
            
            **(583,706**
            **)**
            
            -
            
            
            -Loss
                for the year under US GAAP
            
            **$**
            **(3,106,164**
            **)**
            $
            (729,034
            )
            $
            (255,456
            )Loss
                per share under US GAAP
            
            **$**
            **(0.32**
            **)**
            $
            (0.10
            )
            $
            (0.04
            )





**Statement
                of Cash Flows**
            
            **2005**
            
            2004
            
            2003Increase
                (decrease) in cash for the year under Canadian GAAP
            
            **$**
            **1,182,003**
            
            $
            477,453
            
            $
            (751,735
            )Decrease
                (increase) in marketable securities (c)
            
            
            **-**
            
            
            -
            
            
            950,730Increase
                (decrease) in cash during the year under US GAAP
            
            **$**
            **1,182,003**
            
            $
            477,453
            
            $
            198,995





**2005**
            
            2004Balance
                Sheets
            
            Canadian
                GAAP
            
            USGAAP
            
            Canadian
                GAAP
            
            USGAAPOil
                and gas properties (a)
            
            $
            3,939,531
            
            $
            3,437,331
            
            $
            3,389,679
            
            $
            3,487,479Other
                liabilities (j)
            
            
            -
            
            
            (544,496
            )
            
            -
            
            
            -Share
                capital (e)
            
            
            8,762,671
            
            
            8,801,881
            
            
            5,734,921
            
            
            5,734,921Contributed
                surplus
            
            
            589,036
            
            
            589,036
            
            
            336,558
            
            
            336,558Deficit
            
            
            (3,246,222
            )
            
            (4,332,128
            )
            
            (1,323,764
            )
            
            (1,225,964
            )$
            6,105,485
            
            $
            5,058,789
            
            $
            4,747,715
            
            $
            4,845,515





a) Under
          US
          GAAP the ceiling test for impairment used in connection with the full cost
          method of accounting for oil and gas operations requires the discounting
          of
          future net operating revenues by 10%, but without taking into account provisions
          for future administrative costs. Under Canadian GAAP, the ceiling test
          is based
          on undiscounted future net operating revenues, but does require taking
          into
          account future administrative costs. As at December 31, 2005, the application
          of
          the US GAAP ceiling test resulted in an additional impairment to the oil
          and gas
          properties of $600,000. In addition, the cumulative difference between
          Canadian
          and US GAAP since inception of oil and gas operations to December 31, 2005
          is
          that additional depletion of $97,800 has been recorded under Canadian
          GAAP.





b) During
          2004, the Company adopted the fair value based method of accounting under
          Canadian GAAP for stock based compensation, as described in Notes 2i and
          4a,
          with retroactive application with restatement of the prior year’s statement of
          operations. Statement of Financial Accounting Standards ("SFAS") No. 148,
          Accounting for Stock-based Compensation - Transition and Disclosure, issued
          by
          the United States Financial Accounting Standards Board ("FASB") provides
          alternative methods of transition for entities that voluntarily change
          to the
          fair value based method of accounting and amends the disclosure provisions
          of
          SFAS No. 123, Accounting for Stock-based Compensation. For US GAAP purposes,
          the
          Company has adopted SFAS No. 123 and its amendment SFAS No. 123R, prospectively
          as of January 1, 2003. As a result, the stock option compensation expense
          recognized in 2005 is not materially different between US and Canadian
          GAAP.





F-18
 TABLE
          OF CONTENTS





**BERKLEY
      RESOURCES INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


**December
      31, 2005 and 2004**


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




c) Under
      US
      GAAP, banker’s acceptances and treasury bills held at December 31, 2003 would
      have been classified as marketable securities rather than cash.





d) Pro-forma
          disclosure of asset retirement obligations





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





e) Under
          Canadian GAAP, the future income taxes are calculated based on enacted
          or
          substantially enacted tax rates applicable to future years. Under US GAAP,
          only
          enacted rates are used in the calculation of future income taxes. This
          difference in GAAP did not result in a difference in the financial position,
          results of operations or cash flows of the Company for the years ended
          December
          31, 2005, 2004 and 2003.





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
      no
      premium on the flow-through shares issued for 2004, however a premium was
      received for the 2005 flow-through offering.





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, 2005, unexpended flow-through funds were
      $3,069,780 (2004 - $897,000) *(Note
      5)* .





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





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





F-19
 TABLE
          OF CONTENTS





**BERKLEY
      RESOURCES INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


**December
      31, 2005 and 2004**


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





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





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





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





The
      fiscal 2004 flow-through shares were sold at market, therefore, there was
      neither a premium or discount. The December 2005 flow-through shares were priced
      at $0.90 and the fair market of the Company’s shares was $0.75.





Premium
      on flow-through share issuance is as follows:





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





**17.** **Subsequent
          Event**





On
      March
      23, 2006 the Company announced that it has commenced trading on the Frankfurt
      Stock Exchange under the symbol W8O and WKN 871666.





F-20
 TABLE
          OF CONTENTS


**EXHIBIT
      INDEX**


Exhibit
                  Number
              Name1.
              Memorandum
                  of Berkley Resources Inc.*2.
              Articles
                  of Berkley Resources Inc.*12.1
              Certification
                  of the Principal Executive Officer under the Sarbanes-Oxley
                  Act12.2
              Certification
                  of the Principal Financial Officer under the Sarbanes-Oxley
                  Act13.1
              Certificate
                  of the Principal Executive Officer under section 90613.2
              Certificate
                  of the Principal Financial Officer under section
                  906


_______________________________


*
      Previously filed.