##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
   FORM 20-F  (Mark One)o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (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, 2003. OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period fromto. Commission File Number 0-29214   HAWKER RESOURCES INC. (Exact name of Registrant as specified in its charter)
 Alberta, Canada
(Jurisdiction of incorporation or organization) 700, 700  2nd Street S.W.
Calgary, Alberta, T2P 2W1
(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: Title of each class
    
    Name of each exchange on which registeredCommon Shares
    
    Toronto Stock Exchange
 Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: Not Applicable.   As at December 31, 2003, the issuers authorized share capital consisted
of an unlimited number of Common Shares, an unlimited number of Class A Shares
and an unlimited number of preferred shares issuable in series, of which
35,997,200 Common Shares, 3,874,437 Class A Shares and no preferred shares
were outstanding. As at June 30, 2004, the issuers authorized share capital
consisted of an unlimited number of Common Shares and an unlimited number of
preferred shares, issuable in series, of which 41,021,681 Common
Shares and no preferred shares were outstanding.




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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 o No Indicate by check mark which financial statement item the registrant has
elected to follow. x Item 17 o Item 18




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TABLE OF CONTENTS GLOSSARY
    
    
    2ABBREVIATIONS
    
    
    3CONVERSION
    
    
    3FORWARD-LOOKING STATEMENTS
    
    
    3PART I
    
    
    4Item 1. Identity of Directors, Senior Management and Advisers
    
    
    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
    
    
    28Item 6. Directors, Senior Management and Employees
    
    
    34Item 7. Major Shareholders and Related Party Transactions
    
    
    39Item 8. Financial Information
    
    
    41Item 9. The Offer and Listing
    
    
    41Item 10. Additional Information
    
    
    42Item 11. Quantitative and Qualitative Disclosures About Market Risk
    
    
    52Item 12. Description of Securities Other than Equity Securities
    
    
    52PART II
    
    
    53Item 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    53Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    53Item 15. Controls and Procedures
    
    
    53Item 16A. Audit Committee Financial Expert
    
    
    53Item 16B. Code of Ethics
    
    
    53Item 16C. Principal Accountant Fees and Services
    
    
    54Item 16D. Exemptions from the Listing Standards for Audit Committees
    
    
    54Item 16E. Purchases of Equity Securities by the Issuer and affiliated purchases
    
    
    54PART III
    
    
    55Item 17. Financial Statements
    
    
    55Item 18. Financial Statements
    
    
    56Item 19. Exhibits
    
    
    56CERTIFICATIONSFINANCIAL STATEMENTS
    
    
    F-1INDEX TO EXHIBITSArticles of Amalgamation and Registration Statements of the Company dated December 30, 2003Articles of Amalgamation and Registration Statement of the Company dated December 30, 2003Articles of Amalgamation and Registration Statement of the Company dated December 30, 2003Articles of Amendment and Restated Articles of the Company dated May 3, 2004Certification of the CEO Pursuant to Section 302Certification of the CFO pursuant to Section 302Certification of the CEO pursuant to Section 906Certification of the CFO pursuant to Section 906




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GLOSSARY In this document, unless the context otherwise requires, the following words
and phrases have the meanings set forth below: 2% Debenture means a debenture of the Company issued as part of the Financing
on April 3, 2003 in the principal amount of $8.40, bearing interest at the rate
of 2% per annum from the date of issue payable on the earlier of the maturity
date of December 31, 2003 and the date of surrender; Arrangement means the arrangement involving BidCo and Southward pursuant to
section 193 of the Business Corporations Act(Alberta) completed on April 30,
2003; ARTC means Alberta Royalty Tax Credit; BidCo means 1022971 Alberta Ltd., all of the outstanding shares of which were
acquired by the Company for an aggregate consideration of $1.00 on March 31,
2003; Class A Share means a class A share in the capital of the Company; Common Share means a common share in the capital of the Company; Conversion means the deemed exercise of all of the Warrants pursuant to which
the former holders of the Warrants were issued, for each Warrant, 5 Common
Shares and 9 Class A Shares upon the surrender of 5 Series V Shares, 9 Series W
Shares and one 2% Debenture; Company or Hawker means Hawker Resources Inc.; Equity Shares means Common Shares and Class A Shares; Financing means the financing completed by the Company on April 3, 2003
pursuant to which the Company issued 223,798 Common Shares and 430,493 Units
for aggregate gross proceeds of approximately $3.7 million (which Units were
converted to 6,026,902 Equity Shares pursuant to the Conversion); GLJ means Gilbert Laustsen Jung Associates Limited, independent petroleum
engineers, Calgary, Alberta; GLJ Reportmeans the report prepared by GLJ dated March 8, 2004, setting
forth certain information relating to certain of the oil and gas reserves of
the Companys properties and the present value of the estimated future net
reserves associated with such reserves; Gross means Hawkers working interest or royalty interest share of reserves
or production, as the case may be, before the deduction of royalties and, with
respect to land and wells, means the total number of acres or wells, as the
case may be, in which Hawker has a working interest or a royalty interest; McDaniel means McDaniel and Associates Consultants Ltd., independent oil and
natural gas reservoir engineers; McDaniel Reportmeans the report prepared by McDaniel dated March 12, 2004,
setting forth certain information relating to certain of the oil and gas
reserves of the Companys properties and the present value of the estimated
future net reserves associated with such reserves; Myriad Companymeans Myriad Energy Company, a wholly owned subsidiary
of Pointwest; Net means Hawkers working interest share of production or reserves, as the
case may be, after the deduction of royalties, and, with respect to land and
wells, means Hawkers working interest share therein; Optioned Properties means all of the petroleum and natural gas rights and
related assets of Southward other than those which are both west of the fifth
meridian and in the Province of Alberta, as described under the heading Item
4D  Information on the Company  Property, plant and equipment; Pointwestmeans Pointwest Energy Inc.; Purchase Option means the option in favour of the Company to purchase an
undivided interest of up to 49% in the Optioned Properties at a purchase price
based on an ascribed price, as at May 1, 2003 and subject to adjustment, of
$136,900,000 for a 100% interest in the Optioned Properties; Royalty Interest means an interest in an oil and gas property consisting of a
royalty granted in respect of production from the property; SEC means the United States Securities and Exchange Commission; Series V Share means a series V voting preferred share in the capital of the
Company; - 2 -




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Series W Share means a series W non-voting preferred share in the capital of
the Company; Southward means Southward Energy Ltd.; Statements of Revenues and Operating Expenses means the statements of
revenues and operating expenses relating to the proposed acquisition by the
Company of an aggregate 50% undivided interest in the Optioned Properties
audited by Deloitte & Touche LLP; TSX means The Toronto Stock Exchange; Tax Actmeans the Income Tax Act(Canada) and the regulations thereunder, as
amended from time to time; Unit means a Unit issued by the Company on April 3, 2003 pursuant to the
Financing for a subscription price of $8.46787851 per Unit consisting of: (i) a
2% Debenture; (ii) a Warrant; (iii) 5 Series V Shares; and (iv) 9 Series W
Shares; Warrant means a series A warrant of the Company which entitled the holder
thereof to purchase 5 Common Shares and 9 Class A Shares upon the surrender of
5 Series V Shares and 9 Series W Shares and either the surrender of a 2%
Debenture or the payment of $8.40. Pursuant to the Conversion, all of the
Warrants were deemed to be exercised; Working Interest means the percentage undivided interest held by a party in
an oil and gas property; and Zorinmeans Zorin Exploration Ltd. Unless otherwise indicated, references herein to $ or dollars are to
Canadian dollars. 
 ABBREVIATIONS Crude Oil and Natural Gas Liquids
    
    Natural GasBbls
    
    barrels
    
    Mcf
    
    thousand cubic feetbbls/d
    
    barrels per day
    
    Mmcf
    
    million cubic feetMbbls
    
    thousand barrels
    
    Bcf
    
    billion cubic feetBoe
    
    barrels of oil equivalent of natural gas
    
    mcf/d
    
    thousand cubic feet per dayand crude oil on the basis of 1 bbl of
    
    mmcf/d
    
    million cubic feet per daycrude oil for 6 mcf of natural gas
    
    GJ
    
    gigajoulesboe/d
    
    barrels of oil equivalent per day
    
    GJ/d
    
    gigajoules per dayMboe
    
    thousand boeNGLs
    
    natural gas liquidsMmbtu
    
    million British thermal unitsStb
    
    standard stock tank barrel
 
 CONVERSION The following table sets forth certain standard conversions from Standard
Imperial units to the International System of Units (or metric units). To Convert From
    
    To
    
    Multiply Bymcf
    
    Thousand cubic metres (103m3)
    
    0.0282Thousand cubic metres
    
    Mcf
    
    35.494bbls
    
    Cubic metres (m3)
    
    0.159Cubic metres
    
    Bbls
    
    6.290Feet
    
    Metres
    
    0.305Metres
    
    Feet
    
    3.281Miles
    
    Kilometres
    
    1.609Kilometres
    
    Miles
    
    0.621Acres
    
    Hectares
    
    0.405Hectares
    
    Acres
    
    2.471
 
 FORWARD-LOOKING STATEMENTS Certain statements contained in this document constitute forward-looking
statements. When used in this document, the words may, would, could,
will, intend, plan, anticipate, believe, seek, propose,
estimate, expect, and similar expressions, as they relate to the Company,
are intended to identify forward-looking statements. Such statements reflect
the Companys current views with respect to future events and are subject to
certain risks, uncertainties and assumptions. Many factors could cause the
Companys actual results, performance or achievements to vary from those
described in this document. Should one or more of these risks or uncertainties
materialize, or should assumptions - 3 -




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\

underlying forward-looking statements prove incorrect, actual results may vary
materially from those described in this document as intended, planned,
anticipated, believed, estimated or expected. The Company does not intend, and
does not assume any obligation, to update these forward-looking statements. In particular, this document contains forward-looking statements pertaining to the following:  
    
    the quantity of the Companys reserves;
    
    oil and natural gas production levels;
    
    capital expenditure programs;
    
    projections of market prices and costs;
    
    supply and demand for oil and natural gas;
    
    expectations regarding the Companys ability to raise capital and to
continually add to reserves through acquisitions and development; and
    
    treatment under governmental regulatory regimes. The Companys actual results could differ materially from those anticipated in
these forward-looking statements as a result of the risk factors set forth
below and elsewhere in this document:  
    
    volatility in market prices for oil and natural gas;
    
    liabilities and risks inherent in oil and gas operations;
    
    uncertainties for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel;
    
    incorrect assessments of the value of acquisitions; and
    
    geological, technical, drilling and processing problems. 
 PART I 
 Item 1. Identity of Directors, Senior Management and Advisers Not applicable. 
 Item 2. Offer Statistics and Expected Timetable Not applicable. 
 Item 3. Key Information A. Selected financial data. The following selected financial data, for the periods indicated, has been
derived from the Companys financial statements, which are included elsewhere
herein, and was prepared in accordance with Canadian generally accepted
accounting principles (Canadian GAAP). Canadian GAAP differs in certain
respects from U.S. generally accepted accounting principles (U.S. GAAP). For
a description of the material differences between Canadian GAAP and U.S. GAAP
with respect to the Companys financial statements, see note 18 to
the financial statements contained herein. The following selected financial
data is qualified in its entirety by, and should be read in conjunction with
the financial statements and the notes thereto appearing elsewhere in this
annual report and Item 5. Operating and Financial Review and Prospects. The
historical results below are not necessarily indicative of the results to be
expected for any future period. The Companys financial statements are stated in Canadian Dollars (CDN$
or $). -4-




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Selected Consolidated Financial Information
Consolidated Statement of Earnings and Deficit Data Pro FormaNine Months EndedSeptember 30, 2003
    
    Year Ended December 31,(unaudited)
    
    2003
    
    2002
    
    2001
    
    2000
    
    1999(in thousands, except per share amounts)Earnings Statement DataRevenues:Oil and natural gas sales
    
    $
    70,104
    
    
    $
    17,582
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Royalties, net
    
    
    (17,854
    )
    
    
    (4,205
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest and other income
    
    
    450
    
    
    
    565
    
    
    
    139
    
    
    
    729
    
    
    
    1,513
    
    
    
    694Net revenues
    
    
    52,700
    
    
    
    13,942
    
    
    
    139
    
    
    
    729
    
    
    
    1,513
    
    
    
    694Expenses:Production
    
    
    6,725
    
    
    
    2,028
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Research and development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,255
    
    
    
    7,889
    
    
    
    11,248General and administrative.
    
    
    3,099
    
    
    
    4,590
    
    
    
    1,621
    
    
    
    7,106
    
    
    
    3,648
    
    
    
    3,934Interest
    
    
    1,707
    
    
    
    679
    
    
    
    71
    
    
    
    787
    
    
    
    1,176
    
    
    
    1,434Depletion, depreciation
and asset write-downs
    
    
    25,968
    
    
    
    8,933
    
    
    
    26
    
    
    
    9,655
    
    
    
    1,404
    
    
    
    687Site restoration
    
    
    550
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total expenses
    
    
    38,049
    
    
    
    16,230
    
    
    
    1,718
    
    
    
    26,803
    
    
    
    14,117
    
    
    
    17,30314,651
    
    
    
    (2,288
    )
    
    
    (1,579
    )
    
    
    (26,074
    )
    
    
    (12,604
    )
    
    
    (16,609
    )Earnings (loss) before the
following:Lease abandonment expense
    
    
    (322
    )
    
    
    (502
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating costs and
write-downs associated
with assets held For Sale
    
    
    (179
    )
    
    
    (190
    )
    
    
    (7,408
    )
    
    
    
    
    
    
    
    
    
    
    Alberta Heritage
Foundation grant
settlement
    
    
    368
    
    
    
    368
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gain on sale and
distribution of Oncolytics
shares
    
    
    
    
    
    
    
    
    
    
    13,067
    
    
    
    3,004
    
    
    
    
    
    
    
    Share of loss from equity
investment in Oncolytics
    
    
    
    
    
    
    
    
    
    
    (314
    )
    
    
    (1,831
    )
    
    
    (691
    )
    
    
    Gain on dilution of
investment in Oncolytics
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    357
    
    
    
    4,933
    
    
    
    1,236Gain on sale of INH
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    568
    
    
    
    Earnings (loss) before tax
    
    
    14,518
    
    
    
    (2,612
    )
    
    
    3,766
    
    
    
    (24,544
    )
    
    
    (7,794
    )
    
    
    (15,373
    )Non-controlling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    291Income tax recovery (expense)
    
    
    (239
    )
    
    
    4,926
    
    
    
    
    
    
    
    1,556
    
    
    
    (95
    )
    
    
    Net earnings (loss), Canadian
GAAP
    
    $
    14,279
    
    
    $
    2,314
    
    
    $
    3,766
    
    
    $
    (22,988
    )
    
    $
    (7,889
    )
    
    $
    (15,082
    )Net earnings (loss), U.S. GAAP
    
    
    
    
    
    $
    (17,820
    )
    
    $
    9,511
    
    
    $
    (20,367
    )
    
    $
    (12,802
    )
    
    $
    (18,535
    )Basic and diluted net earnings (loss) per shareCanadian GAAP
    
    
    
    
    
    $
    0.14
    
    
    $
    0.76
    
    
    $
    (4.64
    )
    
    $
    (1.63
    )
    
    $
    (4.43
    )U.S. GAAP
    
    
    
    
    
    $
    (1.04
    )
    
    $
    1.92
    
    
    $
    (4.11
    )
    
    $
    (2.65
    )
    
    $
    (5.45
    )Weighted average number of common and Class A
shares outstanding
    
    
    
    
    
    
    17,123,542
    
    
    
    4,959,937
    
    
    
    4,955,199
    
    
    
    4,828,812
    
    
    
    3,400,342
 -5-




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Selected Financial Information
Balance Sheet Data Pro FormaNine Months EndedSeptember 30, 2003
    
    Year Ended December 31,(unaudited)
    
    2003
    
    2002
    
    2001
    
    2000
    
    1999(in thousands, except per share amounts)Current assets
    
    $
    15,391
    
    
    $
    15,922
    
    
    $
    492
    
    
    $
    6,056
    
    
    $
    19,137
    
    
    $
    12,031Investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,745
    
    
    
    7,695
    
    
    
    Assets held for sale
    
    
    2,190
    
    
    
    2,190
    
    
    
    3,500
    
    
    
    
    
    
    
    
    
    
    
    Property and equipment
    
    
    156,976
    
    
    
    166,990
    
    
    
    23
    
    
    
    10,783
    
    
    
    19,494
    
    
    
    21,483$
    174,557
    
    
    $
    185,102
    
    
    $
    4,015
    
    
    $
    22,584
    
    
    $
    46,326
    
    
    $
    33,514Current liabilities
    
    $
    28,163
    
    
    $
    33,750
    
    
    $
    80
    
    
    $
    10,781
    
    
    $
    4,195
    
    
    $
    4,143Other liabilities
    
    
    1,060
    
    
    
    3,746
    
    
    
    387
    
    
    
    387
    
    
    
    1,943
    
    
    
    2,778Bank loan
    
    
    40,406
    
    
    
    44,149
    
    
    
    
    
    
    
    
    
    
    
    5,910
    
    
    
    8,276Total liabilities
    
    
    69,629
    
    
    
    81,645
    
    
    
    467
    
    
    
    11,168
    
    
    
    12,048
    
    
    
    15,197Shareholders equityShare capital
    
    
    115,289
    
    
    
    110,204
    
    
    
    12,741
    
    
    
    84,271
    
    
    
    84,145
    
    
    
    58,834Contributed surplus
    
    
    
    
    
    
    132
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Retained earnings (deficit)
    
    
    (10,361
    )
    
    
    (6,879
    )
    
    
    (9,193
    )
    
    
    (72,855
    )
    
    
    (49,867
    )
    
    
    (40,517
    )Total
    
    
    104,928
    
    
    
    103,457
    
    
    
    3,548
    
    
    
    11,416
    
    
    
    34,278
    
    
    
    18,317$
    174,557
    
    
    $
    185,102
    
    
    $
    4,015
    
    
    $
    22,584
    
    
    $
    46,326
    
    
    $
    33,514Shareholders equity- U.S. GAAP
    
    
    
    
    
    $
    102,502
    
    
    $
    3,548
    
    
    $
    5,671
    
    
    $
    25,912
    
    
    $
    14,864
 Dividends The Company has neither declared nor paid dividends on any of its
outstanding common shares, and does not intend to do so in the foreseeable
future. The Company intends to retain any future earnings to finance the
expansion of its business. Any future determination to pay dividends will be at
the discretion of the Board of Directors of the Company and will be dependent
upon the Companys earnings, capital requirements and financial position, as
well as any other factors deemed relevant by the Board of Directors. Currency and Exchange Rates Canadian Dollar Value for $1.00 U.S. (as published by the Federal Reserve
Bank of New York): On June 30, 2004, the noon buying rate in New York City for cable
transfer in Canadian dollars as certified for customs purposes by the Federal
Reserve Bank of New York was $1.00 U.S. = $ 1.3407 Canadian. All exchange rate calculations below are 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. Year Ended December 31, 1999
    
    
    
    
    
    
    1.4858Year Ended December 31, 2000
    
    
    
    
    
    
    1.4855Year Ended December 31, 2001
    
    
    
    
    
    
    1.5487Year Ended December 31, 2002
    
    
    
    
    
    
    1.5704Year Ended December 31, 2003
    
    
    
    
    
    
    1.4013
 High Rate
    
    Low RateJanuary 2004
    
    
    1.3340
    
    
    
    1.2690February 2004
    
    
    1,3442
    
    
    
    1.3108March 2004
    
    
    1.3480
    
    
    
    1.3080April 2004
    
    
    1.3711
    
    
    
    1.3095May 2004
    
    
    1.3970
    
    
    
    1.3580June 2004
    
    
    1.3772
    
    
    
    1.3407
 -6-




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All dollar amounts set forth herein are in Canadian dollars, except where
otherwise indicated.  B.
    
    Capitalization and indebtedness. Not applicable.  C.
    
    Reasons for the offer and use of proceeds. Not applicable.  D.
    
    Risk factors An investment in the Companys securities should be considered highly
speculative due to the Companys recent change of business and the nature of
such business as well as the Companys present stage of development. A
prospective investor should consider carefully the risk factors set out below. Exploration, Development and Production Risks Oil and gas operations involve many risks which even a combination of
experience and knowledge and careful evaluation may not be able to overcome.
The long-term commercial success of the Company depends on its ability to find,
acquire, develop and commercially produce oil and natural gas reserves.
Without the continual addition of new reserves, any existing reserves the
Company may have at any particular time and the production therefrom will
decline over time as such reserves are exploited. A future increase in the
Companys reserves will depend not only upon the Companys ability to explore
and develop any properties it may have, but also on its ability to select and
acquire suitable producing properties. No assurance can be given that the
Company will be able to continue to locate satisfactory properties for
acquisition or to participate in other ventures or be able to identify and
reach agreement with suitable partners. Moreover, if such acquisitions or
partners are identified, the Company may determine that current markets, terms
of acquisition and participation or pricing conditions make any such
opportunities uneconomic. There is no assurance that commercial quantities of
oil and natural gas will be discovered or acquired by the Company. Future oil and gas exploration may involve unprofitable efforts, not only
from dry wells, but from wells that are productive but do not produce
sufficient net revenues to return a profit after drilling, operating and other
costs. Completion of a well does not assure a profit on the investment or
recovery of drilling, completion and operating costs. In addition, drilling
hazards or environmental damage could greatly increase the cost of operations,
and various field operating conditions may adversely affect the production from
successful wells. These conditions include delays in obtaining governmental
approvals or consents, shut-ins of connected wells resulting from extreme
weather conditions, insufficient storage or transportation capacity or other
geological and mechanical conditions. While close well supervision and
effective maintenance operations can contribute to maximizing production rates
over time, production delays and declines from normal field operating
conditions cannot be eliminated and can be expected to adversely affect revenue
and cash flow levels to varying degrees. In addition, oil and gas operations are subject to the risks of
exploration, development and production of oil and natural gas properties,
including encountering unexpected formations or pressures, premature declines
of reservoirs, blow-outs, cratering, sour gas releases, fires and spills.
Losses resulting from the occurrence of any of these risks could have a
materially adverse effect on future results of operations, liquidity and
financial condition. Insurance The Companys involvement in the exploration for and development of oil
and gas properties may result in the Company becoming subject to liability for
pollution, blow-outs, property damage, personal injury or other hazards.
Although prior to drilling the Company will obtain insurance in accordance with
industry standards to address such risks, such insurance has limitations on
liability that may not be sufficient to cover the full extent of such
liabilities. In addition, such risks may not in all circumstances be insurable
or, in certain circumstances, the Company may elect not to obtain insurance to
deal with specific risks due to the high premiums associated with such
insurance or other reasons. The payment of such uninsured liabilities would
reduce the funds available to the Company. The occurrence of a significant
event that the Company is not fully insured against, or the insolvency of the
insurer of such event, could have a material adverse effect on the Companys
financial position, results of operations or prospects. Prices, Markets and Marketing of Crude Oil and Natural Gas Oil and natural gas are commodities whose prices are determined based on
world demand, supply and other factors, all of which are beyond the control of
the Company. World prices for oil and natural gas have fluctuated widely in
recent -7-




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years. Any material decline in prices could result in a reduction of
net production revenue. Certain wells or other projects may become uneconomic
as a result of a decline in world oil prices and natural gas prices, leading to
a reduction in the volume of the Companys oil and gas reserves. The Company
might also elect not to produce from certain wells at lower prices. All of
these factors could result in a material decrease in the Companys future net
production revenue, causing a reduction in its oil and gas acquisition and
development activities. In addition, bank borrowings available to the Company
are in part determined by the borrowing base of the Company. A sustained
material decline in prices from
historical average prices could limit or reduce the Companys borrowing
base, thereby reducing the debt financing available to the Company, and could
require that a portion of any existing debt financing of the Company be repaid. The marketability and price of oil and natural gas which may be acquired
or discovered by the Company will be affected by numerous factors beyond its
control. The Company may be affected by the differential between the price
paid by refiners for light quality oil and the grades of oil produced by the
Company. The ability of the Company to market its natural gas may depend upon
its ability to acquire space on pipelines which deliver natural gas to
commercial markets. The Company may also likely be affected by deliverability
uncertainties related to the proximity of its reserves to pipelines and
processing facilities and related to operational problems with such pipelines
and facilities and extensive government regulation relating to price, taxes,
royalties, land tenure, allowable production, the export of oil and natural gas
and many other aspects of the oil and natural gas business. Substantial Capital Requirements; Liquidity The Company anticipates that it will make substantial capital expenditures
for the acquisition, exploration, development and production of oil and natural
gas reserves in the future. There can be no assurance that debt or equity
financing or cash generated by operations will be available or sufficient to
meet these requirements or for other corporate purposes or, if debt or equity
financing is available, that it will be on terms acceptable to the Company.
Moreover, future activities may require the Company to alter its capitalization
significantly. The inability of the Company to access sufficient capital for
its operations could have a material adverse effect on the Companys financial
condition, results of operations or prospects. Competition The Company will compete for reserve acquisitions, exploration leases,
licences and concessions and skilled industry personnel with a substantial
number of other oil and gas companies, many of which have significantly greater
financial resources than the Company. The Companys competitors include major
integrated oil and natural gas companies and numerous other independent oil and
natural gas companies and individual producers and operators. The Companys
ability to increase reserves in the future will depend not only on its ability
to explore and develop the properties to be acquired upon the exercise of the
Purchase Option, but also on its ability to select and acquire suitable
producing properties or prospects for exploratory drilling. Competitive
factors in the distribution and marketing of oil and natural gas include price
and methods and reliability of delivery. The oil and gas industry is highly competitive. The Companys competitors
for the acquisition, exploration, production and development of oil and natural
gas properties, and for capital to finance such activities, include companies
that have greater financial and personnel resources available to them than the
Company. The Companys ability to successfully bid on and acquire additional
property rights, to discover reserves, to participate in drilling opportunities
and to identify and enter into commercial arrangements with customers will be
dependent upon developing and maintaining close working relationships with its
future industry partners and joint operators and its ability to select and
evaluate suitable properties and to consummate transactions in a highly
competitive environment. Environmental Risks All phases of the oil and natural gas business present environmental risks
and hazards and are subject to environmental regulation pursuant to a variety
of international conventions and state and municipal laws and regulations.
Environmental legislation provides for, among other things, restrictions and
prohibitions on spills, releases or emissions of various substances produced in
association with oil and gas operations. The legislation also requires that
wells and facility sites be operated, maintained, abandoned and reclaimed to
the satisfaction of applicable regulatory authorities. Compliance with such
legislation can require significant expenditures and a breach may result in the
imposition of fines and penalties, some of which may be material.
Environmental legislation is evolving in a manner expected to result in
stricter standards and enforcement, larger fines and liability and potentially
increased capital expenditures and operating costs. The discharge of oil,
natural gas or other pollutants into the air, soil or water may give rise to
liabilities to governments and third parties and may require the Company to
incur costs to remedy such discharge. No assurance can be given that
environmental laws will not result in a curtailment of production or a material
increase in the costs of -8-




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production, development or exploration activities or
otherwise adversely affect the Companys financial condition, results of
operations or prospects. Reserves Replacement The Companys future oil and natural gas reserves, production, and cash
flows to be derived therefrom are highly dependent on the Company successfully
acquiring or discovering new reserves. Without the continual addition of new
reserves, any existing reserves the Company may have at any particular time and
the production therefrom will decline over time as such existing reserves are
exploited. A future increase in the Companys reserves will depend not only on
the Companys ability to develop any properties it may have from time to time,
but also on its ability to select and acquire suitable producing properties or
prospects. There can be no assurance that the Companys future exploration and
development efforts will result in the discovery and development of additional
commercial accumulations of oil and natural gas. Reliance on Operators and Key Employees To the extent the Company is not the operator of its oil and gas
properties, the Company will be dependent on such operators for the timing of
activities related to such properties and will largely be unable to direct or
control the activities of the operators. In addition, the success of the
Company will be largely dependent upon the performance of its management and
key employees. The Company does not have any key man insurance policies, and
therefore there is a risk that the death or departure of any member of
management or any key employee could have a material adverse effect on the
Company. In assessing the risk of an investment in the Common Shares,
potential investors should recognize that they are relying on the ability and
integrity of the management of the Company. Corporate Matters To date, the Company has not paid any dividends on its outstanding Common
Shares and does not anticipate the payment of any dividends on its Common
Shares in the near future. Certain of the directors and officers of the Company are also directors
and officers of other oil and gas companies involved in natural resource
exploration and development, and conflicts of interest may arise between their
duties as officers and directors of the Company and as officers and directors
of such other companies. Such conflicts must be disclosed in accordance with,
and are subject to such other procedures and remedies as apply under, the
Business Corporations Act(Alberta). Permits and Licenses The operations of the Company may require licenses and permits from
various governmental authorities. There can be no assurance that the Company
will be able to obtain all necessary licenses and permits that may be required
to carry out exploration and development of its projects. Additional Funding Requirements The Companys cash flow from its properties may not be sufficient to fund
its ongoing activities and implement its business plan. From time to time, the
Company may require additional financing in order to carry out its oil and gas
acquisition, exploration and development activities. Failure to obtain such
financing on a timely basis could cause the Company to forfeit its interest in
certain properties, miss certain acquisition opportunities and reduce or
terminate its operations. If the Companys future revenues from its future
reserves decrease as a result of lower oil and natural gas prices or otherwise,
it will affect the Companys ability to expend the necessary capital to replace
its reserves or to maintain its production. If the Companys cash flow from
operations is not sufficient to satisfy its capital expenditure requirements,
there can be no assurance that additional debt or equity financing will be
available to meet these requirements or be available on favourable terms. Issuance of Debt The Companys activities may be financed partially or wholly with debt,
which may increase the Companys debt levels above industry standards. Neither
the Companys articles nor its by-laws limit the amount of indebtedness that
the Company may incur. The level of the Companys indebtedness from time to
time could impair the Companys ability to obtain additional financing in the
future on a timely basis to take advantage of business opportunities that may
arise. -9-




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Availability of Drilling Equipment and Access Restrictions Oil and natural gas exploration and development activities are dependent
on the availability of drilling and related equipment in the particular areas
where such activities will be conducted. Demand for such equipment or access
restrictions may affect the availability of such equipment to the Company
and may delay exploration and development activities. Title Defects Although title reviews will generally be conducted prior to the purchase
of most oil and natural gas producing properties or the commencement of
drilling wells, such reviews may not discover unforeseen title defects that
could adversely affect the Companys title to the property or entitlement to
revenue from the property. Uncertainty of Reserve Information There are numerous uncertainties inherent in estimating quantities of
reserves and cash flows to be derived from exploration and production
activities, including many factors that are beyond the control of the Company.
The reserve and cash flow information set forth in this annual report represent
estimates only. The reserves and estimated future net cash flow from the
Companys properties have been independently evaluated effective December 31,
2003. These evaluations include a number of assumptions relating to factors
such as initial production rates, production decline rates, ultimate recovery
of reserves, timing and amount of capital expenditures, marketability of
production, future prices of oil and natural gas, operating costs and royalties
and other government levies that may be imposed over the producing life of the
reserves. These assumptions were based on price forecasts in use at the date
the relevant evaluations were prepared and many of these assumptions are
subject to change and are beyond the control of the Company. Actual production
and cash flows derived therefrom will vary from these evaluations, and such
variations could be material. The foregoing evaluations are based in part on
the assumed success of activities intended to be undertaken in future years.
The reserves and estimated cash flows to be derived therefrom contained in such
evaluations will be reduced to the extent that such activities do not achieve
the level of success assumed in the evaluations. Canadian and United States practices differ in reporting reserves and
production The Company reports its production and reserve quantities in accordance
with Canadian practices. These practices are different from the practices used
to report production and to estimate reserves in reports and other materials
filed with the SEC by companies in the United States. The Company includes additional information with respect to production and
reserves which is either not generally included or prohibited under rules of
the SEC and practices in the United States. The Company follows the Canadian
practice of reporting gross production and reserve volumes; however, the
Company also follows the United States practice of separately reporting these
volumes on a net basis (after the deduction of royalties and similar payments).
In addition, the Company also follows the Canadian practice of using forecast
prices and costs when it estimates its reserves; however, the Company also
separately estimates its reserves using prices and costs held constant in
accordance with the Canadian reserve reporting requirements. These
requirements are similar to the constant pricing reserve methodology utilized
in the United States. The Company also includes in this annual report estimates of probable
reserves along with estimates of proved reserves. The SEC generally prohibits
the inclusion of estimates of probable reserves in filings made with it;
however, the Company is permitted under the SEC rules to include such
information in this annual report as such information is required to be
disclosed under Canadian disclosure requirements. Kyoto Protocol Canada is a signatory to the United Nations Framework Convention on
Climate Change and has ratified the Kyoto Protocol established thereunder to
set legally binding targets to reduce nation-wide emissions of carbon dioxide,
methane, nitrous oxide and other so-called greenhouse gases. The Companys
exploration and production facilities and other operations and activities will
emit greenhouse gases which may subject the Company to legislation regulating
emissions of greenhouse gases. The Government of Canada has put forward a
Climate Change Plan for Canada which suggests further legislation will set
greenhouse gases emission reduction requirements for various industrial
activities, including oil and gas exploration and production. Future federal
legislation, together with provincial emission reduction requirements, such as
those proposed in Albertas Bill 32: Climate Change and Emissions Management
Act, may require the reduction of emissions or emissions intensity from the
Companys operations and facilities. The direct or indirect costs of these
regulations may adversely affect the business of the Company. -10-




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Government Regulation and Taxation Oil and gas operations are subject to extensive Canadian federal,
provincial and local laws and regulations governing exploration, development,
transportation, production, exports, labour standards, occupational health,
waste disposal,
protection and redemption of the environment, mine safety, hazardous
materials, toxic substances, taxation and other matters. It is believed that
the Company is in substantial compliance with all applicable laws and
regulations. Amendments to current laws and regulations governing oil and gas
operations and the more stringent implementation thereof are actively
considered form time to time and the implementation thereof could have a
material adverse impact on the Company. In addition, taxation laws and
regulations as well as the current administrative practices of both the federal
and provincial tax authorities may be amended or construed in such a way that
is detrimental to the Company or its activities. 
 Item 4. Information on the Company A. History and development of the Company. The Company The Company was incorporated as 599386 Alberta Ltd. under the Business
Corporations Act(Alberta) on February 14, 1994 and changed its name to SYNSORB
Biotech Inc. on March 31, 1994. Effective May 8, 2002: (i) each former holder
of common shares received one new common share for each eight cancelled common
shares they previously held; (ii) the stated capital of the Company was reduced
in respect of the common shares of the Company by $59,896,000; and (iii)
4,000,235 common shares of Oncolytics Biotech Inc. held by the Company were
distributed to its shareholders. By articles of amendment filed on April 3,
2003, the name of the Company was changed to Hawker Resources Inc. and a new
class of non-voting equity shares was created. On December 30, 2003, each of
Pointwest and its wholly-owned subsidiary, Myriad Company, and the Company
amalgamated pursuant to the provisions of the Business Corporations Act
(Alberta) under the name Hawker Resources Inc. On December 31, 2003, 1053639
Alberta Ltd., a wholly-owned subsidiary of the Company, and the Company
amalgamated pursuant to the provisions of the Business Corporations Act
(Alberta) under the name Hawker Resources Inc. On March 17, 2004, Zorin was
wound-up into the Company, pursuant to the provisions of the Business
Corporations Act(Alberta). The
head office of the Company is located at 700, 700 
2nd Street S.W.,
Calgary, Alberta, T2P 2W1, and its telephone number at that address is (403)
261-6883. The registered office of the Company is located at 4500,
855  2nd
Street S.W., Calgary, Alberta, T2P 4K7. History Prior to December 10, 2001, the Company was a biotechnology company
focusing primarily on the discovery and development of pharmaceutical products
for gastroenteric diseases. On that date, the Company announced that it was
terminating the clinical trials of its remaining product and would consider
future strategic alternatives. Over the course of the fiscal year ended December 31, 2002, the Company
divested itself of its position in Oncolytics Biotech Inc. by distributing
4,000,235 of such shares to its shareholders and by selling 2,255,565 of such
shares through the TSX for aggregate gross proceeds of $6,898,000. During that
period, the Company completed staff reductions and the winding-down of its
clinical trials and continued to evaluate strategic alternatives. The Company
held discussions with several industry parties in an attempt to reach a
transaction with another pharmaceutical entity that would make use of the
Companys technology and its specialized manufacturing plant and equipment.
These discussions did not lead to the Company receiving any acceptable proposal
for such a transaction. On October 30, 2002, the Company retained Network Capital Inc. as its
financial advisor to seek a transaction to maximize value for shareholders,
including pursuing transactions that would substantially reorganize the
business of the Company. On November 26, 2002, Southward announced a shareholder value maximization
process, established an independent committee to oversee the process and
retained a financial advisor. The process initiated by Southward required that
binding offers be submitted by interested parties on or prior to March 3, 2003. In late December 2002, the Company approached an investor group led by
David Tuer with respect to the transformation of the Company from a
pharmaceutical research company into an oil and gas enterprise and the
completion of the Financing. On January 6, 2003, the transformation of the
Company to an oil and gas enterprise and the proposed Financing were announced,
subject to obtaining shareholder approval, which was to be sought at the annual
and special meeting of the Company on April 3, 2003. -11-




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In January 2003, the Company sold its manufacturing equipment for
approximately $940,000 in net proceeds and in February 2003, the Company
granted a third party an exclusive license to certain of its patents relating
to toxin binding
sugars for net proceeds of US $240,000. The Company is continuing to
attempt to sell its manufacturing facility and related land. In early March 2003, BidCo entered into an agreement with a third party
which provided, as amended, that in the event that BidCo was successful in
purchasing all of the common shares of Southward, the third party would
purchase all of the petroleum and natural gas rights and related assets of
Southward, except for a 1% interest in the Optioned Properties and 100% of the
seismic data relating to the Optioned Properties, for a purchase price of
$164,631,000, of which $135,531,000 was allocated for internal purposes to a
99% interest in the Optioned Properties. In mid-March 2003, the Purchase Option was granted which provided the
right to purchase an undivided interest of up to 49% in the Optioned Properties
at a purchase price, subject to adjustment, equal to $1,369,000 for each 1%
undivided interest in the Optioned Properties acquired pursuant to the Purchase
Option. The right to exercise the Purchase Option was conditional upon the
completion of the sale of the Southward assets to the grantor of the option,
which condition was satisfied on April 30, 2003. The Purchase Option provided
that it could be assigned to the Company, but that it could not be assigned to
any other party without the prior written consent of the grantor of the option. On March 16, 2003, BidCo entered into an arrangement agreement with
Southward which contemplated that, subject to the terms and conditions of the
agreement, BidCo and Southward would implement the Arrangement. The
Arrangement provided that: (i) shareholders of Southward would transfer all of
the outstanding common shares to BidCo in consideration for $4.77 per share;
and (ii) all of the outstanding options to acquire common shares of Southward
would be terminated, and in consideration for such termination the former
holders of the options would receive the difference between the exercise price
of each of their options and $4.77, provided that if such amount was less than
$0.10 in respect of any option, the former holder thereof would receive $0.10. As a pre-condition to Bidco entering into the arrangement agreement,
Southward agreed that, at the direction of Bidco, it would enter into fixed
price forward sales contracts in respect of up to 12,875 GJ/d of gas production
from the Southward Properties. On March 17, 2003, Southward entered into
forward sales contracts in respect of an aggregate of 12,880 GJ/d for the
balance of 2003 and the first quarter of 2004. On March 31, 2003, the Company acquired the Purchase Option and all of the
shares of BidCo for an aggregate consideration of $1.00. At the annual and special meeting of the shareholders of the Company held
on April 3, 2003 a new board of directors was elected, including the
appointment of David Tuer, an experienced oil and gas senior executive, as the
new Chairman of the Board and Chief Executive Officer of the Company, and the
shareholders approved, among other things: (i) the Financing; (ii) the creation
of the Class A Shares; and (iii) the name change to Hawker Resources Inc. On April 3, 2003, the Company completed the Financing and issued 223,798
Common Shares and 430,493 Units for aggregate proceeds of approximately $3.7
million. The Units were converted into an aggregate of 6,026,902 Common Shares
on May 29, 2003. During the period of March 13, 2003 to April 3, 2003, all
outstanding in-the-money stock options were exercised, resulting in the
issuance of an additional 275,000 Common Shares for aggregate proceeds of
$192,000. On April 28, 2003 the Arrangement was approved by the shareholders and
option holders of Southward and was also approved by the Court of Queens Bench
of Alberta. On April 30, 2003, the Arrangement was completed by Southward and
BidCo in accordance with the arrangement agreement. Pursuant to the
Arrangement, BidCo paid an aggregate of approximately $120 million to the
shareholders and option holders of Southward and Southward became a wholly
owned subsidiary of BidCo. Concurrent with the completion of the Arrangement, Southward completed the
sale of all of its oil and gas assets, with the exception of: (i) a 1%
interest in the Optioned Properties; and (ii) 100% of the seismic data relating
to the Optioned Properties, which were retained by Southward. Prior to the
completion of the Arrangement, the Company granted a call option which gives
the purchaser of the oil and gas assets of Southward the right to acquire from
the Company a 99% interest in the seismic data in respect of the Optioned
Properties, for a purchase price of $3,710,000 (the Purchase Option). On May 30, 2003, pursuant to the Conversion, the securities which
comprised the Units were converted into an aggregate of 6,026,902 Equity Shares
immediately after a receipt was issued for the Companys prospectus qualifying
the issuance of up to $45,000,900 of Common Shares. -12-




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On June 12, 2003, the Company completed a public offering of 14,286,000
Common Shares at a price of $3.15 per share for aggregate gross proceeds of
approximately $45 million. Net proceeds from the offering were used to finance
the acquisition of the Optioned Properties. On June 30, 2003, the Company exercised the Purchase Option and,
accordingly, acquired a 49% interest in the Optioned Properties, and also
purchased the 1% undivided interest in the Optioned Properties. At this time,
the non-cash working capital of Southward was conveyed to the Company. All of the shares of 1022971 Alberta Ltd (including its wholly-owned
subsidiary, Southward, and all other subsidiaries) were sold for nominal
consideration by the Company to an independent third party on June 30, 2003. On August 14, 2003, the Company acquired all of the shares of 1053638
Alberta Ltd. and 1053639 Alberta Ltd., seismic data companies, for an aggregate
consideration equal to $1,500,000. On August 19, 2003, the Company subsequently
sold all of the shares of 1053638 Alberta Ltd. for $300,000. On December 5, 2003, the Company completed a private placement of
2,900,000 flow-through Common Shares at a price of $5.25 per share for gross
proceeds of $15,225,000. The Company agreed to renounce to subscribers under
this private placement Canadian Exploration Expense as defined in the Income
Tax Act(Canada) (the Tax Act) in the aggregate amount of $15,225,000 with an
effective date, for income tax purposes, of on or before December 31, 2003. On December 30, 2003, the Company acquired all of the issued and
outstanding common shares of Pointwest for an aggregate purchase price of
approximately $88 million, inclusive of debt. Prior to such acquisition,
Pointwest was an oil and natural gas exploration and production company based
in Calgary, Alberta with an asset base within an area primarily in northeastern
British Columbia. Concurrent with the completion of the acquisition of Pointwest, the
Company closed a short form prospectus equity financing of 11,200,000 Common
Shares at a price of $4.05 per share for gross proceeds of $43,360,000. The
net proceeds from this equity financing were used to partially finance the
Companys acquisition of all of the shares of Pointwest. The balance of the
funds required to complete the acquisition were advanced to the Company under
an expanded credit facility with the Canadian Imperial Bank of Commerce.
Effective December 30, 2003, each of Pointwest and Myriad Company, its
wholly-owned subsidiary, was amalgamated into the Company pursuant to the
provisions of the Business Corporations Act(Alberta). On March 17, 2004, the Company acquired all of the issued and outstanding
common shares of Zorin for an aggregate purchase price of a cash payment of
approximately $1.5 million and the issuance by the Company of 1,150,000 Common
Shares. Prior to such acquisition, Zorin was a publicly-traded junior oil and
natural gas exploration company based in Calgary, Alberta with activities in
Alberta, Saskatchewan, Ontario and Ohio. Zorins average production for 2003
was approximately 218 bbls/d of oil and NGLs and 924 mcf/d of natural gas. The
majority of the production from the properties in which Zorin has an interest
are operated by Zorin. The Company currently intends to continue the business carried on by Zorin
in the Granlea, Alberta area and vigorously exploit and develop this property
and properties adjacent to Granlea in which the Company has a working interest.
The Company may, however, determine to sell all or any portion of remaining
properties in which Zorin has an interest and may also choose to operate and
exploit such properties in a manner different from that of Zorin. On March
17, 2004 Zorin was wound-up into the Company pursuant to the provisions of
the Business Corporations Act(Alberta).  B.
    
    Business overview. General Development of the Business The Company is a publicly traded Canadian company listed on the TSX
(symbol: HKR) engaged in the business of exploring for and developing oil and
natural gas reserves in Western Canada and acquiring oil and natural gas
properties. The Company intends to report the financial results of its oil and
gas activities as one industry segment. For operational purposes, the Company
intends to manage all of its oil and gas activities as one integrated unit. Corporate Strategy Vision- The Companys primary ongoing business objective is to become a full
cycle oil and gas company with a dual focus on exploration and development
activities and on an active acquisition strategy, with a particular emphasis on
natural gas opportunities. -13-




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Drilling Program- Management intends to employ a cheap deep approach to
exploration by implementing a high density drilling program with low cost
options to look at deeper horizons, while continuing to seek out additional
opportunities to add to the Companys land base. Responsible Fiscal Management- Approximately 50% of the Companys anticipated
cash flow will be directed towards the replacement of existing reserves,
leaving a significant amount of cash flow available for a focused exploration
program or to pay down debt. The Company strives to add value through its
drilling and exploration activities and carefully manages its costs, thereby
positioning itself to add to its inventory of opportunities and undeveloped
land holdings. Prudent Use of Equity Management recognizes that, at this early stage of
development, equity must be used sparingly, and it intends to rely heavily on
operational revenues and debt financing to satisfy liquidity requirements. The
Company will attempt to minimize the dilution that would be caused to existing
shareholders if large amounts of equity were issued. Business Strengths Strength of Management Mr. Tuer has over 28 years of petroleum engineering
and management experience in Canada and internationally, including experience
as President and Chief Executive Officer of one of Canadas largest energy
companies. Mr. Terry Schmidtke has over 24 years of operational experience in
the areas of reservoir engineering, field operations, strategic planning and
acquisitions and divestitures. Mr. Herring has over 22 years of accounting and
oil and gas experience. Experienced, Interested Board The Companys board of directors is comprised
of individuals with broad backgrounds and demonstrated experience in creating
shareholder value. In particular, Mr. Tuer, Mr. Ronald Mathison, Mr. Martin
Lambert and Mr. Stan Grad have extensive industry and transactional experience.
Several of the directors have significant financial stakes in the Company. Focused Production Areas The Company has high quality, tightly focused
properties that management believes can be exploited through additional
developmental drilling. The Companys properties contain close to 100
geophysically and geologically defined locations, and include over 180,000 net
acres of undeveloped land. Emphasis on Gas The Companys early stage production will be 100% natural
gas. As the Company expands, its portfolio of oil producing properties will
increase, but the emphasis on natural gas will remain part of Hawkers business
plan. Price Certainty Through Hedging An integral part of the Companys strategy in
acquiring an interest in the Optioned Properties was the prior negotiation of
the right to secure certain hedging arrangements in respect of a portion of the
production from the properties. These forward sales contracts reduce the
economic uncertainty of the acquisition of an interest in the Optioned
Properties by providing certainty to the price for a material portion of
Hawkers 2003 and first quarter 2004 gas production. Advantageous Tax Position As at December 31, 2003, the Company has
non-capital losses and unclaimed expenditures of approximately $ 18,035,000 and
$ 6,787,000, respectively, that are available for application against future
taxable income. The Company also has approximately $ 5,700,000 of unclaimed
investment tax credits available to reduce future years income tax. Geographic Markets and Revenues During the fiscal year ended December 31, 2003, approximately 98% and 2%
of the Companys revenues were generated from Canadian and international
customers, respectively. During the fiscal years ended December 31, 2002 and
2001, 100% of the Companys revenues were generated from customers in Canada.
During the fiscal year ended December 31, 2000, approximately 94% and 6% of the
Companys revenues were generated from Canadian and international customers,
respectively. During the fiscal years ending December 31, 2002, 2001 and 2000,
100% of the revenues from the Optioned Properties were generated in Canada. Seasonality The Company expects to have seasonal impacts with regard to its
exploration and development program. The Company expects to experience reduced
activity in the second quarter of the fiscal year as limitations on the -14-




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##### Table of Contents



transportation of heavy equipment on municipal roads curtails the ability
of drilling rigs and other oilfield equipment to get to and from well sites. Commodity Price Volatility Crude oil and natural gas prices are volatile and subject to a number of
external factors. Prices are cyclical and fluctuate as a result of shifts in
the balance between supply and demand for crude oil and natural gas, world and
North American market forces, inventory and storage levels, OPEC policy,
weather patterns and other factors. In early 2003, the industry initially saw a
general strengthening of prices for both oil and natural gas. Currently, tight
supply/demand balance has kept prices high for both crude oil and natural gas. Crude oil is influenced by a world economy and OPECs ability to adjust
supply to world demand. Recent success by OPEC and low North American crude
stocks have kept crude oil prices high. However, the Company expects world
prices of crude oil to decrease to historical average levels of approximately
US $24 per barrel (WTI), but also expect continued global political factors to
hold prices at those levels. Natural gas prices are greatly influenced by market forces in North
America. It is generally believed that natural gas has greater stability than
crude oil in terms of short-term pricing as there is a shortage of natural gas
production and natural gas storage levels are low. The Company expects natural
gas prices to moderate somewhat through 2004, but expect the supply of North
American natural gas to continue to be constrained by North American production
decline rates. Industry Consolidation and Competition Over the past few years, consolidation within the Canadian oil and gas
industry has resulted in a significant reduction of the number of junior to
intermediate-sized exploration and production companies. American companies
have also been acquiring companies and assets in Canada. The strong demand for
natural gas production and reserves is expected to result in a continued high
level of corporate and asset transactions as buyers strive to increase their
natural gas assets and sellers take advantage of high transaction prices. Along with this merger and acquisition activity, a number of traditional
exploration and production companies have recently converted into income or
royalty trusts. This trend, which has increased competition for investment
dollars and property acquisitions, is expected to continue in the short-term. As
occurred in 2002 and 2003, the strength of commodity prices resulted in
significantly increased operating cash flows and has led to increased drilling
activity. The Canadian Association of Oilwell Drilling Contractors forecasts a
9% decrease in industry drilling in 2004. Even with this predicted
decrease, industry activity level will
result in competition for oilfield goods and services and may
cause drilling and operating costs to increase. Provincial Royalties and Incentives For crude oil, natural gas and related product production from federal or
provincial Crown lands, the royalty regime is a significant factor in the
profitability of such production operations. Royalties payable on production
from lands other than Crown lands are determined by negotiations between the
freehold mineral owner and the lessee, although production from such lands is
also subject to certain provincial taxes and royalties. Crown royalties are
determined by governmental regulation and are generally calculated as a
percentage of the value of the gross production. The rate of royalties payable
generally depends in part on the type of product being produced, well
productivity, geographical location and field discovery date. From time to
time the various provincial governments in western Canada have established
incentive programs which have included royalty rate reductions, royalty
holidays and tax credits for the purpose of encouraging oil and gas exploration
and development. The trend in recent years has been for provincial governments
to allow such programs to expire without renewal, and consequently few such
programs are currently operative. Crude oil and natural gas royalty holidays for specific wells and royalty
reduction reduce the amount of Crown royalties paid by the Company to the
provincial governments. In Alberta, the Alberta royalty tax credit program
also provides a rebate, to certain eligible producers, on Alberta Crown
royalties paid in respect of eligible producing properties. These incentives
result in increased profitability from operations of the Company. Trademarks and Intellectual Property Rights There are no intellectual property rights, licenses or industrial,
commercial or financial contracts that are material to the Companys business
or profitability. -15-




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Competitive Conditions The oil and gas industry is highly competitive. The Company will compete
for reserve acquisitions, exploration leases, licences and concessions and
skilled industry personnel with a substantial number of other oil and gas
companies, many of which have significantly greater financial resources than
the Company. The Companys competitors include major integrated oil and
natural gas companies and numerous other independent oil and natural gas
companies and individual producers and operators. The Companys ability to
increase reserves in the future will depend not only on its ability to explore
and develop its properties, but also on its ability to select and acquire
suitable producing properties or prospects for exploratory drilling.
Competitive factors in the distribution and marketing of oil and natural gas
include price and methods and reliability of delivery. The Companys ability to successfully bid on and acquire additional
property rights, to discover reserves, to participate in drilling opportunities
and to identify and enter into commercial arrangements with customers will be
dependent upon developing and maintaining close working relationships with its
future industry partners and joint operators and its ability to select and
evaluate suitable properties and to consummate transactions in a highly
competitive environment. Government Regulation The oil and natural gas industry is subject to extensive controls and
regulation imposed by various levels of government. In Western Canada, the
various provincial governments have legislation and regulations, which govern
land tenure, royalties, production rates, environmental protection and the
prevention of waste. The oil and natural gas industry is also subject to
regulation and intervention by governments in such matters as the award of
exploration and production rights, the imposition of specific drilling
obligations, environmental protection controls, control over the development
and abandonment of fields (including restrictions on production) and, possibly,
expropriation or cancellation of contract rights. It is not expected that
these controls and regulation will affect the operations of the Company in a
manner materially different than they would affect other oil and gas companies
of similar size. All current legislation is a matter of public record and the
Company is unable to predict what additional legislation or amendments may be
enacted.  C.
    
    Organizational structure. Hawker
owns, directly or indirectly, all of the issued and outstanding
securities of Mar Oil Company, incorporated in the state of Delaware
and registered to carry on business in the state of Ohio.  D.
    
    Property, plant and equipment. Description of Properties The following is a description of the Companys six principal properties on
production or under development. Lavoy Area The Lavoy area is located approximately 100 kilometres east of Edmonton in a
well-developed natural gas-prone portion of the Western Canada Sedimentary
Basin. Hawker does not operate the property, but owns a 45% average working
interest in this propertys land, facilities, and production which from July 1
to December 31, 2003 averaged 14.4 mmcf/d. Hawker has ownership of a large
undeveloped land base totalling 142,043 net acres (290,169 gross acres).
Geologically, the property is characterized by 14 multi-stacked prospective
horizons where hydrocarbons have been proven to exist. Hawker also has a
working interest position in 10 processing facilities in the area with gross
cumulative capacity of 40 mmcf/d. In 2003, Hawker increased its net land position at Lavoy by purchasing
approximately 3,500 net undeveloped acres through Crown land sales. During the
year, Hawker participated in the drilling of 31 natural gas wells of which 23
were cased. As at December 31, 2003, only 12 of these wells had been connected
into processing facilities and/or pipelines. The Company and the Lavoy
operator are taking steps to accelerate the tie-in process. Hawker and its partner negotiated a farmin on additional lands with a major
operator in the Lavoy region. Drilling success on these lands will increase
Hawkers land position in 2004. With a large undeveloped land base, geologically multi-stacked prospective
horizons, access to processing facilities and compression, Lavoy is Hawkers
largest core area and one where the Company intends to grow its base
production and expand operations. -16-




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Cold Lake/Bonnyville The Cold Lake/Bonnyville property is located approximately 80 kilometres south
of the Cold Lake Air Weapons Range in North Central Alberta. The Cold
Lake/Bonnyville property falls outside of the restrictive gas over bitumen area
ordered by the Alberta Energy Utilities Board (EUB). While Hawkers drilling
operations on the property have not been affected by the order, tie-in and
production delays have been experienced. Hawker assumed operatorship of this property in September 2003 and operates an
average of 8 mmcf/d of natural gas production. Net production in 2003 was 2.0
mmcf/d which reflects Hawkers average 25% working interest in Cold
Lake/Bonnyville. Hawker has a solid land position in the area totalling some
12,840 net acres including 4,320 undeveloped net acres (10,240 gross acres).
The property consists of 29 well sites and one production facility. Similar to
the Lavoy area, Cold Lakes geology is multi-stacked with five prospective
hydrocarbon-bearing horizons. Two natural gas wells were drilled and connected to processing facilities in
late 2003. The wells will begin producing in the first half of 2004 after
receiving regulatory approval. Since assuming operatorship, Hawker spent the
remainder of 2003 reviewing all aspects of this area in detail: facility
capacity, geologic potential, mineral rights availability, as well as possible
competition from third-party operators. Hawker is encouraged by the gas
exploitation upside of the Cold Lake/Bonnyville area and its potential for
contribution to the Companys future growth. North Boundary The North Boundary project is located 55 kilometres northeast of Fort St. John
in British Columbia. Hawker acquired this property through its acquisition of
Pointwest on December 30, 2003. The assets in this region fit well within
Hawkers identified area of interest. The development of the project is in its
infancy and it offers Hawker a base for future low risk expansion as well as
exploration potential. The Company will be focused on exploiting production
from this core region for the next several years. Hawker has an average 85%
working interest in the 42,000 acre land block, which comprises 25,993 net
acres of undeveloped land. Production at December 31, 2003 was approximately
3,100 boe/d, comprising 17 mmcf/d of natural gas and 240 bbls/d of oil and
NGLs. Hawker operates 22 natural gas producing wells, and has a 100% working
interest in the North Boundary gas processing facility, which has a capacity of
28 mmcf/d of sour gas, 6 mmcf/d of sweet gas and 600 barrels per day of oil and
NGLs. At North Boundary, hydrocarbons are produced from eight prospective
horizons to a depth of approximately 1,300 metres. As of year-end, more than 25 prospective locations for exploration or
development drilling were identified. With current 3D seismic coverage over the
majority of the property, and more seismic to be added in 2004, Hawker expects
to expand its presence and production in the area. Hawker believes North
Boundary will be a key asset in fuelling the Companys growth in 2004. The Company is currently in the process of transferring the permits
registered in the name of Pointwest to Hawker in respect of the North Boundary
property Valhalla The Valhalla property is located 160 kilometres northwest of Grande Prairie, in
north central Alberta. Its multiple geological targets are found at a depth of
approximately 1,800 metres in the Cretaceous formations common to Alberta
production. Hawker currently has a working interest in 1,940 gross acres with
a rolling option farmin on an additional 4,160 gross acres granted by a major
resource company. Three producing wells have been drilled on Hawkers acreage. The wells have
been connected to third party processing facilities in the area. Production at
December 31, 2003 was 220 barrels per day, comprising 1 mmcf/d of natural gas
and 55 boed/d of oil and NGLs. Two standing wells which have been drilled but
are not yet tied into pipelines are expected to be brought on production in
2004. Several re-completion opportunities have also been identified and could
be started in 2004. The surrounding area is dominated by several large oil and gas companies, and
offers Hawker limited opportunities for growth beyond 2004. As a result the
Company will evaluate future plans for this property, including a possible
exchange or sale. Chigwell Chigwell is a grassroots exploration prospect that was developed by Hawker in
the second half of 2003. Hawker has reviewed more than 100 existing well data
sets to identify the Chigwell opportunity. Hawker acquired its land position at -17-




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Chigwell in the third quarter of 2003, with two exploration wells subsequently
drilled and cased. Both of these wells tested at commercial flow rates of
natural gas from the Basal Quartz/Ellerslie horizon. This area is well developed in terms of infrastructure, and Hawker has
initiated discussions with third party facility operators regarding access to
available processing and gathering capacity. Hawker plans to drill two
follow-up well locations in early 2004 in conjunction with additional land and
seismic data acquisitions. The Chigwell area is viewed as an emerging focus area for Hawker. The project
exemplifies Hawkers ability to identify drilling opportunities and exploit
them quickly. Purple Springs At Purple Springs in southern Alberta, Hawker farmed in on 6,400 gross acres of
land where the Company plans to drill and tie in 15 wells by June 30, 2004
to earn a 50% working interest position. The program will capitalize on
Hawkers significant technical experience in developing shallow Medicine Hat
gas sands throughout southern Alberta. Future opportunities for the block and
offsetting lands involve infill drilling, and gathering and processing of third
party natural gas through the facilities Hawker will develop in this area.
Exploration prospects for deeper targets in the Viking, Sunburst, and Sawtooth
formations may be evaluated as part of the 2004 drilling program. Wild River Prospect The Wild River project is non-operated and constitutes a significant part of
Hawkers 2004 high risk exploration portfolio. Hawker has a 20% working
interest in five sections of land as well as the associated seismic coverage.
The Wild River prospect is a Nisku pinnacle reef on trend with existing
pinnacle reef production to the south. The feature was identified by seismic
re-processing and as mapped could have significant gas-in-place relative to the
analogous pinnacles in the area. The well located at 8-14-57-23 W5M was spudded
in December 2003 and at year-end was drilling forward. Subsequent to year-end
the well was cased and is currently being evaluated by Hawker and its partners. Other In conjunction with Hawkers acquisition of Southward on April 30, 2003, the
Company acquired access to a large seismic database covering northeast
British Columbia, and extending southeast to the southern Alberta prairies. The
database included some 1,250 kilometres of 2D seismic data and 2,750 square
kilometres of 3D seismic information. Hawkers exploration teams have
extensively reviewed and re-processed certain data to develop an inventory of
potential exploration prospects. Land acquisition strategies have been
developed for these prospects and in some cases land has been acquired. Hawker
expects to drill two of these prospects in early 2004, and will continue
evaluation and land acquisition of the others. In addition to North Boundary and Valhalla, 10 minor properties were acquired
as part of the Pointwest acquisition. The properties are all non-operated with
an average working interest of 30%. Net production at December 31, 2003 from
the combined properties was 1.8 mmcf/d of natural gas and 22 bbls/d of oil and
NGLs. Subsequent to December 31, 2003 and following an evaluation of the
properties exploitation potential, the Company reached an agreement to
sell these properties, with the closing expected at the end of the first
quarter of 2004. -18-




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Drilling Activity The following table sets forth the number of gross and net exploratory and
development wells in which the Company has participated during the periods
indicated. Year Ended December 31 (1)2003Gross Wells (2)
    
    Net Wells (3)ExploratoryNatural Gas
    
    
    5
    
    
    
    3.0Crude Oil
    
    
    
    
    
    
    Dry and Abandoned (4)
    
    
    1
    
    
    
    0.5Total Exploratory
    
    
    6
    
    
    
    3.5DevelopmentNatural Gas
    
    
    20
    
    
    
    9.6Crude Oil
    
    
    2
    
    
    
    1.0Dry and Abandoned (4)
    
    
    7
    
    
    
    3.5Total Development
    
    
    29
    
    
    
    14.1Total Drilling Activity
    
    
    35
    
    
    
    17.6
 Notes:  (1)
    
    Prior to June 2003, the Company was not engaged in the exploration,
development or production of oil or gas and did not hold any interests in any
oil or gas properties.(2)
    
    Gross wells means the total number of wells in which the Company
has an interest.(3)
    
    Net wells means the number of gross wells multiplied by the
Companys working interest therein.(4)
    
    Dry well means a well which is not a productive well or a service well.
A productive well is a well which is capable of producing oil and gas in
commercial quantities or in quantities considered by the operator to be
sufficient to justify the costs required to complete, equip and produce
the well. A service well means a well such as a water or gas-injection,
water-source or water-disposal well. Such wells do not have marketable
reserves of crude oil or natural gas attributed to them but are essential
to the production of the crude oil and natural gas reserves. -19-




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##### Table of Contents



Location of Wells The following table sets forth the Companys interest in producing wells
and wells capable of producing as at December 31, 2003. Wells(1)Producing
    
    Shut-in(4)Property
    
    Gross(2)
    
    Net(3)
    
    Gross(2)
    
    Net(3)Lavoy
    
    
    170
    
    
    
    76.5
    
    
    
    24
    
    
    
    10.8North Boundary
    
    
    23
    
    
    
    16.1
    
    
    
    
    
    
    
    Cold Lake/Bonnyville
    
    
    25
    
    
    
    9.3
    
    
    
    12
    
    
    
    4.8Valhalla
    
    
    4
    
    
    
    3.2
    
    
    
    1
    
    
    
    0.7Other
    
    
    35
    
    
    
    8.0
    
    
    
    3
    
    
    
    2.0Total
    
    
    257
    
    
    
    113.1
    
    
    
    40
    
    
    
    18.3
 Notes: (1)Prior to June 2003, the Company was not engaged in the exploration,
development or production of oil or gas and did not hold any interests in any
oil or gas properties. (2)Gross wells means the total number of wells in which the Company has
an interest. (3)Net wells means the number of gross wells multiplied by the Companys
working interest therein. (4)Shut-in Wells are wells which are capable of economic production or which
the Company considers capable of production but which, for a variety of
reasons, including but not limited to lack of markets or development, are not
currently on production. Land Holdings The following table summarizes the undeveloped land of the Company as at
December 31, 2003. Property
    
    Gross Acres (1)
    
    Net Acres (2)Lavoy
    
    
    290,169
    
    
    
    142,043Cold Lake/Bonnyville
    
    
    10,240
    
    
    
    4,320North Boundary
    
    
    28,710
    
    
    
    25,993Valhalla
    
    
    640
    
    
    
    640Chigwell
    
    
    960
    
    
    
    960Wild River
    
    
    3,200
    
    
    
    640Other
    
    
    16,464
    
    
    
    10,333Total
    
    
    350,383
    
    
    
    184,929
 Notes:  (1)Gross Acres means the total acres in which the Company has an
interest.(2)Net Acres means the total acres in which the Company has an interest
multiplied by the working interest therein. Production Average Daily Production Volumes Prior to June 2003, the Company was not engaged in the exploration,
development or production of oil or gas and did not hold any interests in any
oil or gas properties. The average daily production volumes for the Company for 2003 are set out
below. 20033rd Quarter
    
    4th Quarter
    
    Annual AverageNatural Gas (mmcf/d)
    
    
    16.7
    
    
    
    16.2
    
    
    
    16.3Price ($/mcf)
    
    
    5.81
    
    
    
    5.88
    
    
    
    5.84Royalties
    
    
    1.57
    
    
    
    1.21
    
    
    
    1.40Production Costs
    
    
    0.55
    
    
    
    0.80
    
    
    
    0.67Netback
    
    
    3.69
    
    
    
    3.87
    
    
    
    3.77
 - 20 -




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##### Table of Contents



Selected Reserve Information The following tables set forth certain information relating to the oil and
natural gas reserves of the Companys properties and the present value of
the estimated future net cash flow associated with such reserves as at December
31, 2003. The information set forth below is derived from the McDaniel Report
and the GLJ Report which have been prepared in accordance with the standards
contained in the COGE Handbook and the reserves definitions contained
in National Instrument 51-101 (NI 51-101) and the COGE Handbook. All evaluations and reviews of future net cash
flow are stated prior to any provision for interest costs or general and
administrative costs and after the deduction of estimated future capital
expenditures for wells to which reserves have been assigned. It should not be
assumed that the estimated future net cash flow shown below is representative
of the fair market value of the Companys properties. There is no
assurance that such price and cost assumptions will be attained and variances
could be material. The recovery and reserve estimates of crude oil, NGLs and
natural gas reserves provided herein are estimates only and there is no
guarantee that the estimated reserves will be recovered. Actual crude oil,
NGLs and natural gas reserves may be greater than or less than the estimates
provided herein. The Company has a reserves committee of independent board members which
reviews the qualifications and appointment of the independent qualified
reserves evaluators. The committee also reviews the procedures for providing
information to the evaluators. All booked reserves are based upon annual
evaluation and review by the independent qualified reserves evaluators. SUMMARY OF OIL AND GAS RESERVES
AND NET PRESENT VALUES OF FUTURE NET REVENUE
as of December 31, 2003 CONSTANT PRICES AND COSTS RESERVESLIGHT AND
    
    NATURAL
    
    NATURAL GASMEDIUM OIL
    
    GAS
    
    LIQUIDSGross
    
    Net
    
    Gross
    
    Net
    
    Gross
    
    NetRESERVES CATEGORY
    
    (mbbl)
    
    (mbbl)
    
    (mmcf)
    
    (mmcf)
    
    (mbbl)
    
    (mbbl)ProvedDeveloped Producing
    
    
    164.5
    
    
    
    156.2
    
    
    
    30,857.9
    
    
    
    23,397.4
    
    
    
    135.1
    
    
    
    105.0Developed Non-Producing
    
    
    13.3
    
    
    
    13.0
    
    
    
    7,255.8
    
    
    
    5,490.3
    
    
    
    23.3
    
    
    
    17.3Undeveloped
    
    
    42.5
    
    
    
    31.4
    
    
    
    885.1
    
    
    
    619.3

    
    
    
    3.5
    
    
    
    2.1Total Proved
    
    
    220.3
    
    
    
    200.6
    
    
    
    38,998.8
    
    
    
    29,507.0
    
    
    
    161.9
    
    
    
    124.4Probable
    
    
    68.9
    
    
    
    64.9
    
    
    
    11,540.5
    
    
    
    8,742.7
    
    
    
    40.3
    
    
    
    30.8Total Proved Plus Probable
    
    
    289.2
    
    
    
    265.5
    
    
    
    50,539.3
    
    
    
    38,249.7
    
    
    
    202.2
    
    
    
    155.2
 NET PRESENT VALUES OF FUTURE NET REVENUEBEFORE INCOME TAXES DISCOUNTED AT
    
    AFTER INCOME TAXES DISCOUNTED AT(%/year)
    
    (%/year)0
    
    5
    
    10
    
    15
    
    20
    
    0
    
    5
    
    10
    
    15
    
    20RESERVES CATEGORY
    
    (MM$)
    
    (MM$)
    
    (MM$)
    
    (MM$)
    
    (MM$)
    
    (MM$)
    
    (MM$)
    
    (MM$)
    
    (MM$)
    
    (MM$)PROVEDDeveloped Producing
    
    
    126,270
    
    
    
    109,435
    
    
    
    97,321
    
    
    
    88,117
    
    
    
    80,845
    
    
    
    126,270
    
    
    
    109,435
    
    
    
    97,321
    
    
    
    88,118
    
    
    
    80,846Developed Non-
Producing
    
    
    26,674
    
    
    
    24,004
    
    
    
    21,868
    
    
    
    20,118
    
    
    
    18,656
    
    
    
    26,675
    
    
    
    24,004
    
    
    
    21,868
    
    
    
    20,118
    
    
    
    18,656Undeveloped
    
    
    2,859
    
    
    
    2,250
    
    
    
    1,794
    
    
    
    1,449
    
    
    
    1,183
    
    
    
    2,858
    
    
    
    2,250
    
    
    
    1,794
    
    
    
    1,449
    
    
    
    1,183Total proved
    
    
    155,803
    
    
    
    135,689
    
    
    
    120,983
    
    
    
    109,684
    
    
    
    100,684
    
    
    
    155,803
    
    
    
    135,689
    
    
    
    120,983
    
    
    
    109,685
    
    
    
    100,685Probable
    
    
    45,705
    
    
    
    34,607
    
    
    
    27,591
    
    
    
    22,754
    
    
    
    19,233
    
    
    
    39,644
    
    
    
    29,688
    
    
    
    23,544
    
    
    
    19,385
    
    
    
    16,398Total Proved Plus Probable
    
    
    201,508
    
    
    
    170,296
    
    
    
    148,574
    
    
    
    132,438
    
    
    
    119,917
    
    
    
    195,447
    
    
    
    165,377
    
    
    
    144,527
    
    
    
    129,070
    
    
    
    117,083
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TOTAL FUTURE NET REVENUE
(UNDISCOUNTED)
as of December 31, 2003 CONSTANT PRICES AND COSTS Future
    
    
    
    
    
    FutureNet
    
    
    
    
    
    NetRevenue
    
    
    
    
    
    RevenueWell
    
    Before
    
    
    
    
    
    AfterOperating
    
    Development
    
    Abandonment
    
    Income
    
    Income
    
    IncomeReserves
    
    Revenue
    
    Royalties
    
    Costs
    
    Costs
    
    Costs
    
    Taxes
    
    Taxes
    
    TaxesCategory
    
    (M$)
    
    (M$)
    
    (M$)
    
    (M$)
    
    (M$)
    
    (M$)
    
    (M$)
    
    (M$)Proved
Reserves
    
    
    249,009
    
    
    
    56,310
    
    
    
    28,198
    
    
    
    3,575
    
    
    
    5,123
    
    
    
    155,803
    

    
    
    0
    
    
    
    155,803Proved Plus
Probable Reserves
    
    
    322,286
    
    
    
    72,641
    
    
    
    36,227
    
    
    
    6,696
    
    
    
    5,214
    
    
    
    201,508
    
    
    
    6,061
    
    
    
    195,447
 FUTURE NET REVENUE
BY PRODUCTION GROUP
as of December 31, 2003 CONSTANT PRICES AND COSTS FUTURE NET REVENUEBEFORE INCOME TAXES &ARTC(discounted at 10%/year)RESERVES CATEGORY
    
    PRODUCTION GROUP
    
    (M$)Proved Reserves
    
    Light and Medium Crude Oil (including solution gas and other by-products)
    
    
    373Natural Gas (including by-products but excluding solution gasfrom oil wells
    
    
    108,193Proved Plus Probable Reserves
    
    Light and Medium Crude Oil (including solution gas and other by-products)
    
    
    766Natural Gas (including by-products by excluding solution gasfrom oil wells)
    
    
    132,820
 SUMMARY OF OIL AND GAS RESERVES
AND NET PRESENT VALUES OF FUTURE NET REVENUE
as of December 31, 2003 FORECAST PRICES AND COSTS RESERVESLIGHT AND
    
    NATURAL
    
    NATURAL GASMEDIUM OIL
    
    GAS
    
    LIQUIDSGross
    
    Net
    
    Gross
    
    Net
    
    Gross
    
    NetReserves Category
    
    (mbbl)
    
    (mbbl)
    
    (mmcf)
    
    (mmcf)
    
    (mbbl)
    
    (mbbl)ProvedDeveloped Producing
    
    
    164.5
    
    
    
    156.6
    
    
    
    30,818.2
    
    
    
    23,353.9
    
    
    
    135.0
    
    
    
    105.0Developed Non-Producing
    
    
    13.3
    
    
    
    13.0
    
    
    
    7,249.8
    
    
    
    5,482.3
    
    
    
    23.4
    
    
    
    17.3Undeveloped
    
    
    42.5
    
    
    
    32.3
    
    
    
    885.1
    
    
    
    620.3
    
    
    
    3.5
    
    
    
    2.1Total proved
    
    
    220.3
    
    
    
    201.9
    
    
    
    38,953.1
    
    
    
    29,456.5
    
    
    
    161.9
    
    
    
    124.4Probable
    
    
    69.6
    
    
    
    65.4
    
    
    
    11,528.7
    
    
    
    8,731.4
    
    
    
    40.4
    
    
    
    31.0Total Proved Plus Probable
    
    
    289.9
    
    
    
    267.3
    
    
    
    50,481.8
    
    
    
    38,187.9
    
    
    
    202.3
    
    
    
    155.4
 - 22 -




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##### Table of Contents



NET PRESENT VALUES OF FUTURE NET REVENUE BEFORE INCOME TAXES DISCOUNTED AT
    
    AFTER INCOME TAXES DISCOUNTED AT(%/year)
    
    (%/year)0
    
    5
    
    10
    
    15
    
    20
    
    0
    
    5
    
    10
    
    15
    
    20Reserves Category
    
    (MM$)
    
    (MM$)
    
    (MM$)
    
    (MM$)
    
    (MM$)
    
    (MM$)
    
    (MM$)
    
    (MM$)
    
    (MM$)
    
    (MM$)ProvedDeveloped Producing
    
    
    107,795
    
    
    
    94,662
    
    
    
    85,126
    
    
    
    77,812
    
    
    
    71,976
    
    
    
    107,795
    
    
    
    94,662
    
    
    
    85,126
    
    
    
    77,812
    
    
    
    71,976Developed Non-
Producing
    
    
    22,300
    
    
    
    20,323
    
    
    
    18,706
    
    
    
    17,358
    
    
    
    16,214
    
    
    
    22,300
    
    
    
    20,323
    
    
    
    18,706
    
    
    
    17,358
    
    
    
    16,214Undeveloped
    
    
    1,867
    
    
    
    1,472
    
    
    
    1,159
    
    
    
    917
    
    
    
    728
    
    
    
    1,867
    
    
    
    1,473
    
    
    
    1,159
    
    
    
    917
    
    
    
    728Total proved
    
    
    131,962
    
    
    
    116,457
    
    
    
    104,991
    
    
    
    96,087
    
    
    
    88,918
    
    
    
    131,962
    
    
    
    116,458
    
    
    
    104,991
    
    
    
    96,087
    
    
    
    88,918Probable
    
    
    36,293
    
    
    
    27,534
    
    
    
    22,051
    
    
    
    18,286
    
    
    
    15,544
    
    
    
    36,293
    
    
    
    27,533
    
    
    
    22,051
    
    
    
    18,286
    
    
    
    15,544Total Proved Plus Probable
    
    
    168,255
    
    
    
    143,991
    
    
    
    127,042
    
    
    
    114,373
    
    
    
    104,462
    
    
    
    168,255
    
    
    
    143,991
    
    
    
    127,042
    
    
    
    114,373
    
    
    
    104,462
 TOTAL FUTURE NET REVENUE
(UNDISCOUNTED)
as of December 31, 2003 FORECAST PRICES AND COSTS Future Net
    
    
    
    
    
    Future NetWell
    
    Revenue
    
    
    
    
    
    RevenueOperating
    
    Development
    
    Abandonment
    
    Before
    
    Income
    
    After IncomeReserves
    
    Revenue
    
    Royalties
    
    Costs
    
    Costs
    
    Costs
    
    Income Taxes
    
    Taxes
    
    TaxesCategory
    
    (M$)
    
    (M$)
    
    (M$)
    
    (M$)
    
    (M$)(1)
    
    (M$)(1)
    
    (M$)
    
    (M$)Proved
Reserves
    
    
    222,255
    
    
    
    50,058
    
    
    
    30,673
    
    
    
    3,650
    
    
    
    5,912
    
    
    
    131,962
    
    
    
    0
    
    
    
    131,962Proved Plus
Probable
Reserves
    
    
    285,134
    
    
    
    63,824
    
    
    
    40,025
    
    
    
    6,913
    
    
    
    6,117
    
    
    
    168,255
    
    
    
    0
    
    
    
    168,255
 FUTURE NET REVENUE
BY PRODUCTION GROUP
as of December 31, 2003 FORECAST PRICES AND COSTS FUTURE NET REVENUEBEFORE INCOME TAXES &ARTC (discounted at 10%/year)RESERVES CATEGORY
    
    PRODUCTION GROUP
    
    (M$)Proved Reserves
    
    Light and Medium Crude Oil (including solution gas and other by-products)
    
    
    310Natural Gas (including by-products but excluding solution gasfrom oil wells)
    
    
    94,955Proved Plus Probable Reserves
    
    Light and Medium Crude Oil (including solution gas and other by-products)
    
    
    602Natural Gas (including by-products by excluding solution gasfrom oil wells)
    
    
    114,703
 Notes: (1)Gross Reserves include working interest reserves before the deduction of
royalties. (2)Net Reserves include working interest after royalty deductions plus
royalty interest reserves. (3)The net cumulative cash flow forecasts are after direct lifting costs,
freehold royalties, Crown mineral taxes and future investments. An allowance
for future well abandonment costs for all working interest wells was included,
however, no allowance was made for the abandonment of any facilities. (4)Royalties refers to royalties paid to others. The royalties deducted from
the reserves are based on the percentage royalty calculated by applying the
applicable royalty rate or formula. In the case of Crown sliding scale
royalties which are dependent on selling prices, the price forecasts for the
individual properties in question have been employed. - 23 -




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##### Table of Contents



(5) Reserves are estimated remaining quantities of oil and natural gas and
related substances anticipated to be recoverable from known accumulations, from
a given date forward, based on: analysis of drilling, geological, geophysical
and engineering data; the use of established technology; and specified economic
conditions, which are generally accepted as being reasonable, and shall be
disclosed. Reserves are classified according to the degree of certainty
associated with the estimates. (6) Proved Reserves are those reserves that can be estimated with a high
degree of certainty to be recoverable. It is likely that the actual remaining
quantities recovered will exceed the estimated proved reserves. (7) Probable Reserves are those additional reserves that are less certain to
be recovered than proved reserves. It is equally likely that the actual
remaining quantities recovered will be greater or less than the sum of the
estimated proved plus probable reserves. (8) Developed Reserves are those reserves that are expected to be recovered
from existing wells and installed facilities or, if facilities have not been
installed, that would involve a low expenditure (for example, when compared to
the cost of drilling a well) to put the reserves on production. The developed
category may be subdivided into producing and non-producing. (9) Developed Producing Reserves are those reserves that are expected to be
recovered from completion intervals open at the time of the estimate. These
reserves may be currently producing or, if shut-in, they must have previously
been on production, and the date of resumption of production must be known with
reasonable certainty. (10) Developed Non-Producing Reserves are those reserves that either have not
been on production, or have previously been on production, but are shut-in, and
the date of resumption of production is unknown. (11) Undeveloped Reserves are those reserves expected to be recovered from
known accumulations where a significant expenditure (for example, when compared
to the cost of drilling a well) is required to render them capable of
production. They must fully meet the requirements of the reserves
classification (proved, probable, possible) to which they are assigned. (12) The pricing assumptions used in the McDaniel Report with respect to net
cumulative cash flow as well as the inflation rates used for operating costs
are set forth below. SUMMARY OF PRICING AND INFLATION RATE ASSUMPTIONS
as of December 31, 2003 FORECAST PRICES AND COSTS OILNATURAL
    
    EdmontonWTI
    
    Edmonton
    
    Hardisty
    
    Cromer
    
    GAS(1)
    
    Cond. &Cushing
    
    Par Price 40o
    
    Heavy
    
    Medium
    
    AECO Gas
    
    Natural
    
    INFLATION
    
    EXCHANGEOklahoma
    
    API
    
    12o API
    
    29.0o API
    
    Price
    
    Gasolines
    
    RATES
    
    RATEYear
    
    ($US/bbl)
    
    ($Cdn/bbl)
    
    ($Cdn/bbl)
    
    ($Cdn/bbl)
    
    ($Cdn/GJ)
    
    ($CDn/bbl)
    
    %/Year
    
    ($US/Cdn)Historical2000
    
    
    30.31
    
    
    
    44.72
    
    
    
    27.80
    
    
    
    40.10
    
    
    
    5.32
    
    
    
    46.25
    
    
    
    2.7
    
    
    
    0.6742001
    
    
    25.97
    
    
    
    39.60
    
    
    
    18.05
    
    
    
    32.22
    
    
    
    5.15
    
    
    
    42.42
    
    
    
    2.6
    
    
    
    0.6462002
    
    
    26.10
    
    
    
    39.95
    
    
    
    27.60
    
    
    
    34.93
    
    
    
    3.86
    
    
    
    40.65
    
    
    
    2.2
    
    
    
    0.6372003
    
    
    30.95
    
    
    
    43.10
    
    
    
    27.45
    
    
    
    36.90
    
    
    
    6.30
    
    
    
    43.70
    
    
    
    2.0
    
    
    
    0.715Forecast2004
    
    
    29.00
    
    
    
    37.70
    
    
    
    22.70
    
    
    
    32.20
    
    
    
    5.50
    
    
    
    38.45
    
    
    
    2.0
    
    
    
    0.7502005
    
    

    26.50
    
    
    
    34.30
    
    
    
    21.55
    
    
    
    29.71
    
    
    
    5.19
    
    
    
    35.07
    
    
    
    2.0
    
    
    
    0.7502006
    
    
    25.50
    
    
    
    33.00
    
    
    
    21.56
    
    
    
    28.84
    
    
    
    4.87
    
    
    
    33.78
    
    
    
    2.0
    
    
    
    0.7502007
    
    
    25.00
    
    
    
    32.30
    
    
    
    20.63
    
    
    
    28.06
    
    
    
    4.68
    
    
    
    33.10
    
    
    
    2.0
    
    
    
    0.7502008
    
    
    25.00
    
    
    
    32.30
    
    
    
    20.39
    
    
    
    27.97
    
    
    
    4.53
    
    
    
    33.11
    
    
    
    2.0
    
    
    
    0.7502009
    
    
    25.50
    
    
    
    32.90
    
    
    
    20.76
    
    
    
    28.48
    
    
    
    4.57
    
    
    
    33.73
    
    
    
    2.0
    
    
    
    0.7502010
    
    
    26.00
    
    
    
    33.50
    
    
    
    21.11
    
    
    
    29.00
    
    
    
    4.60
    
    
    
    34.34
    
    
    
    2.0
    
    
    
    0.7502011
    
    
    26.50
    
    
    
    34.20
    
    
    
    21.56
    
    
    
    29.61
    
    
    
    4.69
    
    
    
    35.06
    
    
    
    2.0
    
    
    
    0.7502012
    
    
    27.00
    
    
    
    34.80
    
    
    
    21.91
    
    
    
    30.11
    
    
    
    4.78
    
    
    
    35.68
    
    
    
    2.0
    
    
    
    0.7502013
    
    
    27.50
    
    
    
    35.50
    
    
    
    22.35
    
    
    
    30.72
    
    
    
    4.87
    
    
    
    36.40
    
    
    
    2.0
    
    
    
    0.7502014
    
    
    28.10
    
    
    
    36.20
    
    
    
    22.79
    
    
    
    31.32
    
    
    
    4.97
    
    
    
    37.11
    
    
    
    2.0
    
    
    
    0.7502015
    
    
    28.70
    
    
    
    37.00
    
    
    
    23.32
    
    
    
    32.03
    
    
    
    5.08
    
    
    
    37.93
    
    
    
    2.0
    
    
    
    0.7502016
    
    
    29.30
    
    
    
    37.80
    
    
    
    23.85
    
    
    
    32.73
    
    
    
    5.19
    
    
    
    38.75
    
    
    
    2.0
    
    
    
    0.7502017
    
    
    29.90
    
    
    
    38.60
    
    
    
    24.37
    
    
    
    33.43
    
    
    
    5.29
    
    
    
    39.57
    
    
    
    2.0
    
    
    
    0.7502018
    
    
    30.50
    
    
    
    39.30
    
    
    
    24.79
    
    
    
    34.02
    
    
    
    5.40
    
    
    
    40.29
    
    
    
    2.0
    
    
    
    0.7502019
    
    
    31.10
    
    
    
    40.10
    
    
    
    25.30
    
    
    
    34.72
    
    
    
    5.51
    
    
    
    41.11
    
    
    
    2.0
    
    
    
    0.7502020
    
    
    31.70
    
    
    
    40.90
    
    
    
    25.80
    
    
    
    35.41
    
    
    
    5.61
    
    
    
    41.93
    
    
    
    2.0
    
    
    
    0.7502021
    
    
    32.30
    
    
    
    41.70
    
    
    
    26.30
    
    
    
    36.10
    
    
    
    5.72
    
    
    
    42.75
    
    
    
    2.0
    
    
    
    0.7502022
    
    
    32.90
    
    
    
    42.40
    
    
    
    26.69
    
    
    
    36.69
    
    
    
    5.82
    
    
    
    43.47
    
    
    
    2.0
    
    
    
    0.7502023
    
    
    33.60
    
    
    
    43.30
    
    
    
    27.28
    
    
    
    37.47
    
    
    
    5.95
    
    
    
    44.39
    
    
    
    2.0
    
    
    
    0.750Thereafter
    
    
    33.60
    
    
    
    43.30
    
    
    
    27.28
    
    
    
    37.47
    
    
    
    5.95
    
    
    
    44.39
    
    
    
    0.0
    
    
    
    0.750
  (13)
    
    Operating costs were escalated at a rate of 2.0% per year. The exchange
rate used for the US/Canadian dollar for 2004 was 0.75, for 2005 was 0.75,
for 2006 was 0.75, for 2007 was 0.75 and for 2008 and beyond was 0.75. - 24 -




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##### Table of Contents



(14)
    
    For the constant price evaluations, the McDaniel Report used product
prices in effect as at December 31, 2003 of $39.76 (Edmonton Par Light)
per bbl of oil and $5.87 (Alberta Average) per mmbtu of natural gas.  (15)
    
    McDaniel and GLJ have estimated total capital costs of $6,913,000 and
$6,696,000 (undiscounted) in order to achieve the future proved plus
probable net revenues, of which $3,684,000 and $3,611,000 will be incurred
in 2004 and $2,982,000 and $2,866,000 in 2005 based on Forecast and
Constant prices respectively.  (16)
    
    Total burdens include crown, freehold and overriding royalties as well as
mineral taxes. ASSOCIATED ANDLIGHT AND MEDIUM OIL
    
    NON-ASSOCIATED GAS
    
    NATURAL GAS LIQUIDSNetNet Proved
    
    
    
    
    
    
    
    
    
    ProvedNet
    
    Net
    
    Plus
    
    Net
    
    Net
    
    Plus
    
    
    
    
    
    
    
    
    
    Net Proved PlusProved
    
    Probable
    
    Probable
    
    Proved
    
    Probable
    
    Probable
    
    Net Proved
    
    Net Probable
    
    ProbableFactors
    
    (mbbl)
    
    (mbbl)
    
    (mbbl)
    
    (mmcf)
    
    (mmcf)
    
    (mmcf)
    
    (mbbl)
    
    (mmbl)
    
    (mbbl)December 31, 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Extensions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,892.6
    
    
    
    1,207.1
    
    
    
    4,099.7
    
    
    
    
    
    
    
    
    
    
    
    Improved Recovery
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Technical Revisions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Discoveries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Acquisitions
    
    
    201.9
    
    
    
    64.5
    
    
    
    267.3
    
    
    
    29,571.5
    
    
    
    7,524.3
    
    
    
    37,095.8
    
    
    
    124.4
    
    
    
    31.0
    
    
    

    155.4Dispositions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Economic Factors
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Production
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,007.6
    )
    
    
    
    
    
    
    (3,007.6
    )
    
    
    
    
    
    
    
    
    
    
    December 31, 2003
    
    
    201.9
    
    
    
    64.5
    
    
    
    267.3
    
    
    
    29,456.5
    
    
    
    8,731.4
    
    
    
    38,187.9
    
    
    
    124.4
    
    
    
    31.0
    
    
    

    155.4
 Reconciliation of Reserves Prior to June 2003, the Company was not engaged in the exploration,
development or production of oil or gas and did not hold any interests in any
oil or gas properties. Accordingly, the Company did not have any reserves
prior to June 2003. Additional Information Relating to Reserves Data Prior to June 2003, the Company was not engaged in the exploration,
development or production of oil or gas and did not hold any interests in any
oil or gas properties. Undeveloped Reserves The following table summarizes the gross volumes of proved undeveloped reserves
that were first attributed in each of the most recent financial years: 2003ProductLight and Medium Crude Oil(mbbls)
    
    
    42.5Natural Gas (mmcf)
    
    
    885.1Natural Gas Liquids (mbbls)
    
    
    3.5Total (mbbls)
    
    
    193.5
 The following table summarizes the gross volumes of probable reserves that were
first attributed in each of the most recent financial years: 2003ProductLight and Medium Crude Oil (mbbls)
    
    
    69.6Natural Gas (mmcf)
    
    
    11,528.7Natural Gas Liquids (mbbls)
    
    
    40.4Total (mbbls)
    
    
    2,031.5
 - 25 -




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##### Table of Contents



Undeveloped reserves are those reserves expected to be recovered from known
accumulations where a significant expenditure is required to render them
capable of production. Future Development Costs The following table outlines development costs deducted in the estimation of
future net revenue calculated using no discount. 2004
    
    2005
    
    2006
    
    2007
    
    2008($ Thousands)
    
    ($ Thousands)
    
    ($ Thousands)
    
    ($ Thousands)
    
    ($ Thousands)Reserve CategoryProved
Reserves
(Constant Prices and Costs)
    
    
    3,412
    
    
    
    150
    
    
    
    
    
    
    
    
    
    
    
    12Proved Reserves(Forecast Prices and Costs)
    
    
    3,480
    
    
    
    156
    
    
    
    
    
    
    
    
    
    
    
    14Proved & Probable Reserves(Forecast Prices and
Costs)
    
    
    3,684
    
    
    
    2,982
    
    
    
    27
    
    
    
    27
    
    
    
    110
 The Company has established a $56 million capital program to fund its
exploration and development activities for the 2004 year. Such financing
consists of internally generated cash flows and possible proceeds from minor
divestitures of interests in non-principal properties acquired pursuant to the
acquisitions of Pointwest and Zorin. The Company is currently evaluating
the interests acquired pursuant to the acquisitions of Pointwest and Zorin.
Any decision to divest any interest in such properties will only be
contemplated once such evaluations are complete. The Companys capital
program does not include any corporate acquisition opportunities, which would
likely be financed through debt or equity financings. Other Oil And Gas Information Oil and Gas Properties and Wells As at December 31, 2003, the Company had an interest in 257 gross (113.1
net) producing and 40 gross (18.3 net) non-producing oil and natural gas wells
as follows: PRODUCING
    
    NON-PRODUCINGGross(1)
    
    Net(2)
    
    Gross(1)
    
    Net(2)WellsAlberta
    
    
    234
    
    
    
    97.0
    
    
    
    40
    
    
    
    18.3British Columbia
    
    
    23
    
    
    
    16.1
    
    
    
    
    
    
    
    TOTAL
    
    
    257
    
    
    
    113.1
    
    
    
    40
    
    
    
    18.3
 Notes: (1)Gross wells means the number of wells in which the Company has a
working interest or a royalty interest that may be convertible to a working
interest. (2)Net wells means the aggregate number of wells obtained by multiplying each
gross well by the Companys percentage working interest therein. - 26 -




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Properties
with No Attributed Reserves The following table sets forth the gross and net acres of unproved properties
held by the Company and the net area of unproved property for which the
Company expects its rights to explore, develop and exploit to expire during
the next year: UNPROVED PROPERTIES(acres) LOCATION
    
    Gross
    
    Net
    
    Net Area to Expire in 2004Manitoba
    
    
    80
    
    
    
    18
    
    
    
    0Alberta
    
    
    321,593
    
    
    
    158,918
    
    
    
    19,757British Columbia
    
    
    28,710
    
    
    
    25,993
    
    
    
    4,180TOTAL
    
    
    350,383
    
    
    
    184,929
    
    
    
    23,937
 Abandonment
& Reclamation Costs An allowance for future well abandonment costs was made for all of the
Companys working interest wells, however, no allowance was made for the
reclamation of well sites or the abandonment and reclamation of any facilities. Costs Incurred The following table outlines costs incurred during the financial year ended
December 31, 2003. Property Acquisitions, Dispositions and Capital Expenditures Nature of cost
    
    Amount ($M)Property Acquisition CostsProved
    
    
    Unproved
    
    
    Exploration Costs
    
    
    7,592Development Costs
    
    
    6,912Total
    
    
    14,504
 Exploration and Development Activities The following table summarizes the results of exploration and development
activities during the financial year ended December 31, 2003. Gross
    
    NetDevelopment WellsGas
    
    
    20
    
    
    
    9.6Oil
    
    
    2
    
    
    
    1.0Service
    
    
    
    
    
    
    Dry
    
    
    7
    
    
    
    3.5Exploratory WellsGas
    
    
    5
    
    
    
    3.0Oil
    
    
    
    
    
    
    Service
    
    
    
    
    
    
    Dry
    
    
    1
    
    
    
    0.5Total Wells
    
    
    35
    
    
    
    17.6
 The Company intends to continue to develop its principal properties as well
as continue its grassroots exploration program to establish new core areas in
Alberta and British Columbia. Hawker will continue to target natural gas
properties with multiple horizons in the Western Canada Sedimentary Basin.
These exploration and development activities will be financed through a $56
million capital program for the 2004 year, which financing consists of
internally generated cash flow and proceeds from divestitures of interests in
non-principal properties. - 27 -




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Production Estimates The following tables summarize the volume of total proved production estimated
for 2004 using constant and forecast prices and costs. ESTIMATED PRODUCTIONConstant Prices and Costs
    
    Forecast Prices and CostsLight and Medium Crude Oil (boe/d)
    
    
    123
    
    
    
    123Natural Gas (mcf/d)
    
    
    30,250
    
    
    
    30,250Natural Gas Liquids (boe/d)
    
    
    111
    
    
    
    111
 Environmental Regulation The oil and natural gas industry is currently subject to environmental
regulation pursuant to provincial and federal legislation. Environmental
legislation provides for restrictions and prohibitions on releases or emissions
of various substances produced or utilized in association with certain oil and
gas industry operations. In addition, legislation requires that well and
facility sites be abandoned and reclaimed to the satisfaction of provincial
authorities. Compliance with such legislation can require significant
expenditures. A breach of such legislation may result in the imposition of
material fines and penalties, the revocation of necessary licenses and
authorizations and civil liability for pollution damage. In 1994, the United Nations Framework Convention on Climate Change came
into force and three years later led to the Kyoto Protocol which will require,
upon ratification, nations to reduce their emissions of carbon dioxide and
other greenhouse gases. As a result of Canadas ratification of the Kyoto
Protocol reductions in greenhouse gases from the Companys operations may be
required which could result in increased capital expenditures and reductions in
production of oil and gas. The Company does not face any environmental issues or impacts that are
unique to the Company. However, like all participants in the Canadian oil and
gas industry, reclamation and restoration of abandoned wells and facilities is
recognized as a corporate responsibility. The expenses associated with meeting
this responsibility are provided for on a unit of production basis. 
 Item 5. Operating and Financial Review and Prospects Overview At the Annual and Special Meeting of SYNSORB Biotech Inc. (SYNSORB)
shareholders held April 3, 2003, shareholders approved the planned conversion
of the company into an oil and gas enterprise and changed the companys name to
Hawker Resources Inc. Prior to 2002, SYNSORB conducted pharmaceutical drug
development activities. On December 10, 2001 SYNSORB terminated development of
SYNSORB Cd® including its phase III clinical trials. Subsequent to December
10, 2001 SYNSORB had no drug in active development and was seeking strategic
alternatives. On June 30, 2003, the conversion of the Company to an oil and gas enterprise
was completed when Hawker acquired natural gas properties located in the Lavoy
and Cold Lake areas. Hawkers 2003 operating results reflect the costs of
converting Hawker into an oil and gas enterprise and the results of its first
six months of oil and gas operations. Accordingly, the 2003 operating results
are not directly comparable to the 2002 operating results when the Company was
winding down its biotech operations and seeking strategic alternatives.  A.
    
    Operating Results Year ended
December 31, 2003 compared with Year ended December 31,
2002 Production revenue for the year ended December 31, 2003 was $17,582,000. The
second half of 2003 marked the commencement of oil and gas operations for the
Company and accordingly, there were no production revenues for the year ended
December 31, 2002. All of the Companys production was natural gas. Natural gas sales volumes for
the six months ended December 31, 2003 averaged 16,346 mcf/d and the average
price received was $5.84 per mcf. Hawkers production was from the Lavoy area
and the Cold Lake/Bonnyville area. - 28 -




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The majority of the Companys natural gas production is sold to aggregators and
the Company receives AECO spot or AECO month index prices. The Company has
entered into commodity price contracts to reduce the volatility of commodity
prices and to ensure that funds are available to support planned capital
expenditures. Interest income for the year ended December 31, 2003 was $78,000 versus $32,000
for the year ended December 31, 2002. The increases were due to higher cash
balances on hand during the first half of 2003 when the Company did not have
bank debt, as compared to 2002. Other revenue received by the Company during 2003 primarily related to an
exclusive license agreement of certain of its patents regarding toxin-binding
sugars. Pursuant to this license agreement, the Company received net proceeds
of $375,000. The Company also received a milestone payment of $105,000 with
respect to the previous sale of its INH Technologies Inc. subsidiary. Other
revenue of $107,000 received during the year ended December 31, 2002 also
related to a milestone payment received by the Company with respect to the
previous sale of its INH Technologies Inc. subsidiary. The Company cannot
predict the likelihood, timing or amount of any further milestone or licensing
receipts. Royalty expense for the year ended December 31, 2003 was $4,205,000, or 24% of
production revenue. There was no royalty expense for 2002 as the Company did
not have oil and gas operations. Production expense for 2003 was $2,028,000 or $0.67 per mcf, including
accretion expense of $100,000. There was no production expense for 2002 as the
Company did not have oil and gas operations. Net general and administrative expense for the year ended December 31, 2003 was
$4,590,000, an increase of 183% from the $1,621,000 for the year ended December
31, 2002. The increase in general and administrative expenses was attributable
to the addition of staff, use of consultants and increased general
administrative costs associated with the Company becoming a fully operational
oil and gas entity. General and administrative expenses totalling $564,000
were capitalized for the year ended December 31, 2003. Interest expense for the year ended December 31, 2003 was $679,000 as compared
with $71,000 for the year ended December 31, 2002. The increase in interest
expense was a result of using the credit facility as an operating line of
credit and to fund asset acquisitions. Depletion and depreciation expense for the year ended December 31, 2003 was
$8,933,000 as compared with $26,000 for the year ended December 31, 2002. On
a unit of production basis, depletion and depreciation expense on oil and gas
assets was $17.79 per boe for the year ended December 31, 2003. Depletion and
depreciation associated with oil and gas assets accounted for the large
increase in depletion and depreciation expense for 2003 as compared with 2002.
Depreciation expense for 2002 related solely to computer equipment and office
furniture and equipment. In 2003, the Company retroactively adopted the recommendations of the Canadian
Institute of Chartered Accountants on accounting for asset retirement
obligations. The new pronouncement requires the Company to recognize the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred and a corresponding increase in the carrying value of the
related long-lived asset. The liability is subsequently adjusted due to the
passage of time, and is recognized as an accretion expense in the statement of
earnings. The liability is also adjusted due to revisions in either the timing
or the amount of the original estimated cash flows associated with the
liability. The increase in the carrying value of the capital asset is
amortized using the unit of production method based on estimated gross proven
reserves as determined by independent engineers. The Company did not have long-lived assets subject to retirement obligations as
at December 31, 2002 and therefore this change in accounting policy had no
impact on the December 31, 2002 financial statements. The effect of this
change on the December 31, 2003 balance sheet was an increase in capital assets
of $3,191,000 and the recognition of an asset retirement obligation of
$3,499,000. The change in accounting for asset retirement obligations as
compared to the site restoration approach resulted in an increase in net
earnings of $217,000 for the year ended December 31, 2003 ($0.01 per share). Effective January 1, 2003, the Company adopted the recommendations of the
Canadian Institute of Chartered Accountants on accounting for stock based
compensation. Under this new pronouncement, stock based compensation expense
is recorded for all stock options granted on or after January 1, 2003. For the
year ended December 31, 2003, the impact of the adoption of this standard on
the financial statements as at December 31, 2003 was a decrease in net earnings
of $132,000 ($0.01 per share) and a corresponding increase in contributed
surplus. During the third quarter of 2003, the Company consolidated its office space. A
provision of $322,000 was made during the third quarter for residual lease
costs on office space no longer occupied by the Company. This provision was
increased by $180,000 to a total of $502,000 during the fourth quarter when
sublease arrangements were modified. There - 29 -




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was no lease abandonment expense for 2002. Assets held for sale are comprised of the pharmaceutical manufacturing facility
and related manufacturing equipment associated with the former biotech
operations of the Company. For the year ended December 31, 2003, operating
costs and write-downs associated with assets held for sale were $190,000 as
compared with $7,408,000 for the year ended December 31, 2002. During 2003,
the Company wrote-down the carrying value of assets held for sale by $145,000
to the estimated net realizable value. During 2002, assets held for sale were
written down by a total of $7,097,000. The Companys current income tax expense was solely comprised of the Large
Corporations Tax, and for the year ended December 31, 2003, totaled $345,000.
There was no tax expense for the year ended December 31, 2002. The increase is
due to the higher capital base of the Company attributable to the debt and
equity financings completed during 2003. On December 5, 2003, the Company issued 2,900,000 flow-through shares for
$15,225,000. In accordance with the agreements between the Company and the
flow-through shareholders, the Company renounced $15,225,000 of Canadian
Cumulative Exploration Expense as of December 31, 2003. This renunciation gave
rise to a future tax liability of $5,271,000. The tax pools of the Company are
sufficient to offset this liability and accordingly, a future tax recovery was
recognized in an equal amount. Year ended
December 31, 2002 compared with Year ended December 31,
2001 At December 31, 2001 the Company owned 6,255,800 common shares of Oncolytics
Biotech Inc. (Oncolytics). Effective May 15, 2002 the Company distributed to
its shareholders 4,000,235 common shares of Oncolytics which was accounted for
as a return of capital. The deemed value of these shares, net of expenses, was
$11,600,000 resulting in a gain on distribution of $8,325,000. As part of this
transaction, the Companys holding of 1,500,000 shares in BCY Life Sciences
Inc. was transferred to Oncolytics. No gain or loss was recorded as a result
of that transfer. During the year ended December 31, 2002 the Company sold 2,255,565 common
shares of Oncolytics for net proceeds of $6,898,000 resulting in a gain on sale
of $4,899,000. As at December 31, 2002 the Company did not hold any common
shares of Oncolytics. For the year ended December 31, 2002, the Company had total revenue of
$139,000 compared to $729,000 for the year ended December 31, 2001. Interest
income for the 12 months ended December 31, 2002 decreased significantly
compared to the same period in 2001 as a result of lower average cash balances
on hand and lower interest rates in 2002. Expenses for the year ended December 31, 2002 of $9,126,000 were less than
the expenses of $26,803,000 for the comparable period in 2001. Because the
Company had terminated research and development in late 2001 and made a
provision in that year for future wind down costs associated with drug
development, research development expenses in 2002 were nil. Operating
expenses for the 2002 period were $1,596,000, a significant reduction from
$7,106,000 for 2001. The reduction is due to the termination of almost all
employees, the termination of certain office space effective April 11, 2002 and
the consolidation of all activity at the manufacturing facility. Interest on long term debt in 2002 was $71,000, a significant reduction
from $787,000 in 2001 due to the payment by the Company during 2002 of all of
its long and short-term debt. Amortization in 2002 was $7,216,000 compared to
$9,655,000 in 2001. Included in the 2001 amortization amounts was property and
other capital asset write-downs of $8,203,000 arising from the termination of
the Companys drug development program. The amortization in 2002 included
additional write-downs of the Companys equipment and manufacturing facility
based on the Companys determination that those assets could only be sold on
the basis of general commercial conditions and not their drug specific
attributes. B. Liquidity and capital resources Year ended December 31, 2003 compared with Year ended December 31, 2002 Pursuant to various financing agreements entered into April 3, 2003, the
Company raised $3,645,000 through the issue of 430,493 Series A Debentures for
$3,616,000, 430,493 Series A Warrants for $12,000, 2,152,465 voting preferred
shares for $6,000 and 3,874,437 non-voting preferred shares for $11,000. Each Series A Warrant entitled the holder thereof to purchase five common
shares and nine Class A common shares on the concurrent surrender of the
warrant, five voting preferred shares, nine non-voting preferred shares, and
one Series A Debenture. On May 29, 2003, immediately after the issue of a
receipt for the prospectus offering common shares for sale - 30 -




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and issue, the Series A Warrants were exercised and the Company issued
2,152,465 common shares and 3,874,437 Class A common shares upon the surrender
of the voting and non-voting preferred shares and Series A Debentures. On May 29, 2003, the Company issued a fully marketed prospectus offering
of 14,286,000 common shares to the public priced at $3.15 per share. The issuance
was fully subscribed and the public offering was completed on June 12, 2003.
The Company received $42,301,000, net of underwriting fees. On December 5, 2003, the Company issued through a private placement, 2,900,000
common shares on a flow-through basis at a price of $5.25 per share. The
Company received $14,514,000, net of underwriting fees. On December 30, 2003, the Company issued, pursuant to a prospectus offering,
11,200,000 common shares at a price of $4.05 per share. The Company received
$43,092,000, net of underwriting fees. On March 31, 2003 the Company acquired all of the shares of 1022971 Alberta
Ltd. (1022971) for a nominal amount and the Company was assigned an option to
purchase up to a 49% interest in certain oil and gas properties west of the 4th
meridian (W4M Properties) owned by Southward Energy Ltd. (Southward). On
April 30, 2003, 1022971 acquired all of the shares of Southward. Immediately
thereafter, Southward sold its oil and gas properties, excluding a 1% undivided
interest in the W4M Properties and a 100% interest in seismic data, to an
independent third party. On June 30, 2003, the Company exercised its option to purchase the W4M
Properties. Further on June 30, 2003, the Company purchased the 1% undivided
interest in the W4M Properties of Southward and the non-cash working capital of
Southward was conveyed to the Company. Also on June 30, 2003, all of the
shares of 1022971, which included Southward and all of its subsidiaries, were
sold for nominal consideration to an independent third party. The total
purchase price of the 50% interest in the W4M Properties and non-cash working
capital of $71,337,000 was funded by the net proceeds of the prospectus
offering and bank debt. On August 14, 2003, the Company acquired all of the shares of 1053638 Alberta
Ltd. and 1053639 Alberta Ltd., seismic data companies. On August 19, 2003, the
Company sold all of the shares of 1053638 Alberta Ltd. The net cash
consideration paid was $1,200,000. On December 31, 2003, 1053639 Alberta Ltd.
was amalgamated with Hawker. On December 30, 2003, Hawker acquired all of the shares of Pointwest Energy
Inc., a privately held oil and gas company with operations in Alberta and B.C.,
for total consideration of $67,247,000, funded by bank debt and the net
proceeds of the December 30, 2003 share issue. Pointwest Energy Inc. was
amalgamated with Hawker on December 30, 2003.
During the year ended December 31, 2003, the Company spent $14,783,000 on
capital asset additions, excluding property acquisitions. There were no
capital expenditures during 2002, reflecting the wind-down of the biotech
operations of the Company. Capital Expenditures (in thousands of dollars)
    Year Ended December 31, 2003Exploration and Development ExpendituresLease acquisition and retention
    
    $
    1,916Geological and geophysical
    
    
    4,674Drilling and completion
    
    
    5,439Facilities and equipment
    
    
    2,475Total Exploration and Development Expenditures
    
    
    14,504Other capital assets
    
    
    279Total Capital Expenditures
    
    $
    14,783
 During the second half of 2003, the Company participated in the drilling of 36
gross (17.4 net) wells. This resulted in 29 gross (13.9 net) wells and 7 gross
(3.5 net) dry holes. As at December 31, 2003, 12 of these wells had been
connected into processing facilities and/or pipelines. For the year ended December 31, 2003, proceeds of $1,173,000 were received on
assets held for sale as compared with $44,000 for the year ended December 31,
2002. The assets held for sale relate to the pharmaceutical manufacturing
facility and related manufacturing equipment associated with the former biotech
operations of the Company. During the 2003, the Company received proceeds of $192,000 from the exercise of
stock options under the stock option plan. The options exercised were granted
while the Company was operating as a biotech firm. - 31 -




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The Company has a $54 million extendible revolving term credit facility and a
$10 million non-revolving bridge facility. As at December 31, 2003, $9.9
million of the extendible revolving term facility remained unutilized while the
$10 million non-revolving bridge facility was fully utilized. The Company
plans to use proceeds from oil and gas property sales to fund the repayment of
the non-revolving bridge facility. The capacity of the extendible revolving
term credit facility, combined with cash flow from operations, is expected to
be sufficient to support the Companys 2004 capital program. As at December 31, 2003, the Companys working capital deficiency was
$17,828,000, including the bridge financing of $10,000,000, compared to working
capital of $412,000 as at December 31, 2002, reflecting the business
acquisitions and year end activity level of the Company. Pursuant to the terms of a technology commercialization agreement pertaining to
pharmaceutical drug development, the Company received a grant from the Alberta
Heritage Foundation for Medical Research (AHFMR) in 1995. The Company was
required to repay the amount advanced of $387,000 plus a royalty equivalent to
the amount initially received. Any required repayment and royalty was based on
gross sales of SYNSORB related products commencing January 1, 2000 with
payments equal to the lesser of 5% of gross sales or $100,000 per annum
commencing 90 days after January 1, 2001. Due to the conversion of the Company
into an oil and gas enterprise and the nascent stage of the SYNSORB technology,
the AHFMR accepted a royalty payment of $18,550 during the third quarter of
2003 in exchange for a full release of Hawker from the terms of the technology
commercialization agreement. Risks and Uncertainties The Company is engaged in the exploration, development, production and
acquisition of crude oil and natural gas. This business is inherently risky
and there is no assurance that hydrocarbon reserves will be discovered and
economically produced. Financial risks associated with the petroleum industry
include fluctuations in commodity prices, interest rates, and currency exchange
rates along with the credit risk of the Companys industry partners.
Operational risks include reservoir performance uncertainties, competition,
environmental and safety issues, and a complex and changing regulatory
environment. Hawker is taking steps to reduce its business risks by increasing the number of
core areas it has and increasing the number of areas it operates. This will
spread the operational risks over several areas, reducing the potential impact
on Hawker of unfavourable operational issues that may occur at any one area.
It will also enable Hawker to control the timing, direction and costs related
to exploration and development activities. Environmental and safety risks are
mitigated through compliance with provincial and federal environmental and
safety regulations, by maintaining adequate insurance, and by adopting
appropriate emergency response and safety procedures. The Company manages commodity pricing uncertainties with a risk management
program that encompasses a variety of financial instruments. These include
forward sales contracts on natural gas production and financial sales
contracts. Year ended December 31, 2002 compared with Year ended December 31, 2001 At December 31, 2002 the Companys cash and working capital positions were
$289,000 and $412,000, respectively, compared at December 31, 2001 balances of
$5,841,000 and ($4,725,000) respectively. As at December 21, 2002 the Company had no long term or short term debt. At
December 31, 2001 the current portion of long term debt of the Company was
$5,910,000, all of which was repaid during 2002. The Companys primary source of liquidity during 2002 was the liquidation of
its assets. In 2002 the Company sold 2,255,565 common shares of Oncolytics for
net proceeds of $6,898,000 resulting in a gain on sale of $4,899,000. As at
December 31, 2002 the Company did not hold any common shares of Oncolytics.
During 2002 the Company attempted to dispose of both its manufacturing
equipment and its manufacturing facility. Subsequent to December 31, 2002 the
Company disposed of most of its manufacturing equipment through auction
realizing proceeds, net of expenses, of approximately $900,000 and has listed
its manufacturing building and related land for sale as commercial premises.
The Company also holds miscellaneous intellectual property rights with respect
to certain drug technologies, which it may license, dispose of or abandon. In
February 2003 the Company received U.S.$230,000 for an exclusive license of
certain of its patents regarding toxin binding sugars. No assurance can be
given as to whether any assets can be disposed of or what, if any, proceeds can
or will be received with respect thereto. In addition to the liquidation of assets, the Company may receive milestone
payments and royalties with respect to the previous sale of its INH subsidiary
or may choose to sell these rights. The Company cannot predict the likelihood,
timing or amount of any milestone or royalty receipts. - 32 -




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C. Research and development, patents and licenses, etc. During 2001 and the previous two years, the research and development costs
of the Company were expensed as incurred. Under Canadian GAAP, development
costs should be capitalized if certain criteria are met. Companies with major
products in clinical trials do not necessarily meet these criteria. In the
United States all research and development costs are expensed in accordance
with U.S. GAAP. The Companys development costs in 2001, and the previous two
years, did not meet the following two capitalization criteria: (i) the
technical feasibility of the product or process must have been established; and
(ii) the future market for the product or process must be clearly defined.
With regard to (i), the Company was conducting clinical trials for
SYNSORB Cd® and SYNSORB Pk® and the technical feasibility of these products was not known.
With regard to (ii), the future market for these products was not clearly
defined. For these reasons, the Companys development costs were expensed and
not capitalized. D. Trend information. There are no trends not already detailed in this annual report that the
Company is aware of at this time that may impact the business or future
prospects of the Company. E. Off-balance sheet arrangements. We have not entered into any transactions, arrangements or other
relationships with unconsolidated, limited purpose entities. F. Tabular disclosure of contractual obligations. Forward Contracts Pursuant to the exercise of the option to purchase an undivided interest of up
to 49% in the Southward Properties, the Company acquired an interest in
forward sales contracts and financial hedging contracts with respect to
production from the Southward Properties. Such contracts represent 7,645 GJ/d
of natural gas as follows: Transaction Type
    
    Volume (GJ/d)
    
    Contract Price (GJ/d)
    
    ExpiryCostless Collar
    
    4,830
    
    $
    6.36 - $7.15
    
    
    March 31, 2004Fixed
    
    1,610
    
    $
    6.76
    
    
    March 31, 2004Cogeneration Fuel Supply
    
    263
    
    $
    1.959 - $2.217
    
    
    October 31, 2008Daily Declining Profile(1)
    
    841
    
    Netback(2)
    
    October 31, 2011Reserve Based
    
    101
    
    Netback(3)
    
    Life of reserves
 Notes:  (1)
    
    The Companys obligation under this contract will, on November 1 of
each succeeding year, decline to the following: Date
    
    Obligation (GJ/d)November 1, 2004
    
    
    724November 1, 2005
    
    
    623November 1, 2006 and thereafter
    
    
    568
  (2)
    
    TransCanada Pipelines Limited netback pricing.(3)
    
    Progas Limited netback pricing. Following December 31, 2003, the Company entered into financial hedging
contracts in respect of 28,000 GJ/d of natural gas as follows: Transaction Type
    
    Volume (GJ/d)
    
    AECO Price (GJ/d)
    
    TermCollar
    
    
    5,000
    
    
    $5.50 - $6.35
    
    April 1, 2004 to October 31, 2004Collar
    
    
    8,000
    
    
    $5.50 - $6.40
    
    April 1, 2004 to October 31, 2004Collar
    
    
    5,000
    
    
    $5.50 - $6.36
    
    April 1, 2004 to October 31, 2004Fixed Price Swap
    
    
    5,000
    
    
    $5.745
    
    April 1, 2004 to June 30, 2004Fixed Price Swap
    
    
    5,000
    
    
    $5.745
    
    August 1, 2004 to October 31, 2004Fixed Price Swap
    
    
    5,000
    
    
    $5.7725
    
    April 1, 2004 to October 31, 2004
 - 33 -




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The Company has sufficient production to meet these commitments. 
 Item 6. Directors, Senior Management and Employees A. Directors and senior management. The following are the directors and officers of the Company, their
municipality of residence, their positions with the Company and the periods
during which each has served in such capacity, their principal occupations
within the past five years, and the number and percentage of Common Shares
owned or controlled by them. Number and Percentage ofCommon SharesName and Municipality of
    
    Position with the
    
    
    
    Beneficially Owned orResidence
    
    Company
    
    Principal Occupation For Past Five Years
    
    Controlled(1)David A. Tuer
    
    President and Chief
    
    President and Chief Executive Officer and a
    
    825,466 (2.01%)Calgary, Alberta
    
    Executive Officer
and a Director since
January 6, 2003
    
    Director of Hawker. Prior to October 2001,
President, Chief Executive Officer and a Director
of PanCanadian Petroleum LimitedRonald P. Mathison
    
    Chairman and a
    
    President of Matco Investments Ltd. (a private
    
    3,832,786 (9.34%)(2)Calgary, Alberta
    
    Director since April
3, 2003
    
    investment company). Prior to 1999, Principal,
Peters & Co. LimitedStan G.P. Grad
    
    Director since April
    
    Independent Businessman
    
    47,050 (0.11%)Calgary, Alberta
    
    21, 2003Bruce J. Kenway, C.A.
    
    Director since
    
    Partner, Kenway Mack Slusarchuk Stewart LLP,
    
    70,637 (0.17%)Calgary, Alberta
    
    March 31, 1994
    
    Chartered AccountantsMartin A. Lambert
    
    Director since April
    
    Partner, Bennett Jones LLP (a law firm). Prior to
    
    54,400 (0.13%)(3)Calgary, Alberta
    
    3, 2003
    
    May 2000, Chief Executive Officer and a Partner,
Bennett Jones LLPKeith T. Smith
    
    Director since April
    
    President and Chief Executive Officer of zed.i
    
    22,575 (0.06%)Calgary, Alberta
    
    3, 2003
    
    solutions inc. from April 2001. Prior thereto,
Vice President, Corporate Development with
zed.i solutions inc. since April 2000 and
Executive Vice President of Acanthus Resources
Ltd., a private oil and gas company, from August
1998 to April 2000. Prior thereto, Executive Vice
President of WestCastle Energy Corp., the
Manager of WestCastle Energy Trust, and a
Director of WestCastle Acquisition Corp., the
operating company of WestCastle Energy Trust
from February 1997 to August 1998Barry R. Herring
    
    Chief Financial
    
    Chief Financial Officer of the Company since
    
    40,725 (0.10%)(4)Calgary, Alberta
    
    Officer since May 6,
2003
    
    May 6, 2003. Prior thereto, Vice President,
Finance and Chief Financial Officer of Southward
Energy Ltd. from January 2002 to April 2003,
Senior Vice President of Calpine Canada from
June 2000 to September 2000, Vice President,
Finance and Operations of Quintana Minerals
Canada Corp. from May 1999 to June 2000 and
Vice President, Finance and Operations of Ocean
Energy Inc. from 1997 to 1999.
 - 34 -




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##### Table of Contents



Number and Percentage ofCommon SharesName and Municipality of
    
    Position with the
    
    
    
    Beneficially Owned orResidence
    
    Company
    
    Principal Occupation For Past Five Years
    
    Controlled(1)Terry C. Schmidtke
    
    Chief Operating
    
    Chief Operating Officer of the Company since
    
    62,750 (0.15%) (5)Calgary, Alberta
    
    Officer since April
21, 2003
    
    April 21, 2003. Prior thereto, Senior Vice
President, Central Plains Region for EnCana
Company from April 2002 to March 2003, and
General Manager of various business units of
PanCanadian Petroleum Limited since 1994.Darrell R. Peterson
    
    Corporate Secretary
    
    Partner, Bennett Jones LLP (a law firm) since
    
    3,575 (0.01%)Calgary, Alberta
    
    since April 3, 2003
    
    March 2003. Prior thereto, Associate of Bennett
Jones LLP
 Notes:  (1)
    
    Information as to Common Shares beneficially owned, not being within the
knowledge of the Company, has been furnished by the respective officers
and directors.(2)
    
    Of these Common Shares, 3,641,286 are owned by Matco Capital Ltd. Matco
Capital Ltd. is controlled by Matco Investments Ltd. and Matco Investments
Ltd. is controlled by Ronald Mathison. To the knowledge of the Company,
the only entities with an interest of greater than 10% in Matco Capital
Ltd. are Matco Investments Ltd. and Mountain Moon Capital Inc. To the
knowledge of the Company, the only shareholder holding, directly or
indirectly, greater than 10% of the outstanding shares of Matco
Investments Ltd. is Ronald Mathison and the only shareholders holding,
directly or indirectly, greater than 10% of Mountain Moon Capital Inc. are
members of Martin Lamberts immediate family. In addition to his
beneficial ownership of Common Shares resulting from his control of Matco
Investments Ltd., Mr. Mathison beneficially owns 13,900 Common Shares as a
result of shared power to dispose of such shares.(3)
    
    Excludes 3,641,286 Common Shares held by Matco Capital Ltd. Matco Capital
Ltd. is controlled by Matco Investments Ltd. and Matco Investments Ltd. is
controlled by Ronald Mathison. To the knowledge of the Company, the only
entities with an interest of greater than 10% in Matco Capital Ltd. are
Matco Investments Ltd. and Mountain Moon Capital Inc. To the knowledge of
the Company, the only shareholder holding, directly or indirectly, greater
than 10% of the outstanding shares of Matco Investments Ltd. is Ronald
Mathison and the only shareholders holding, directly or indirectly,
greater than 10% of Mountain Moon Capital Inc. are members of Martin
Lamberts immediate family.(4)
    
    Does not include options to acquire 100,000 Common Shares held by this
individual.(5)
    
    Does not include and options to acquire 75,000 Common Shares held by this
individual. B. Compensation. Compensation
of Executive Officers The following table presents, for the most recently completed financial
year of the Company, the remuneration of the executive officers in place
(collectively, the Named Executive Officers). No other executive officer of
the Company received a combined salary and bonus of more than $100,000 in the
fiscal year ended December 31, 2003. Long-TermAnnual Compensation
    
    CompensationCommonShares UnderOther Annual
    
    Options
    
    All OtherName and Principal
    
    
    
    
    
    Salary
    
    Bonus
    
    Compensation(1)
    
    Granted
    
    CompensationPosition
    
    Year
    
    ($)
    
    ($)
    
    ($)
    
    (#)
    
    ($)David A.
Tuer(2)
    
    
    2003
    
    
    
    175,000
    
    
    
    135,000
    
    
    
    17,625
    
    
    
    
    
    
    
    President and Chief
Executive OfficerJim
Silye(3)
    
    
    2003
    
    
    
    
    (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    President and Chief
Executive Officer
 - 35 -




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##### Table of Contents



Long-TermAnnual Compensation
    
    CompensationCommonShares UnderOther Annual
    
    Options
    
    All OtherName and Principal
    
    
    
    
    
    Salary
    
    Bonus
    
    Compensation(1)
    
    Granted
    
    CompensationPosition
    
    Year
    
    ($)
    
    ($)
    
    ($)
    
    (#)
    
    ($)Barry R. Herring
    
    
    2003
    
    
    
    100,000
    
    
    
    60,000
    
    
    
    11,122
    
    
    
    100,000
    
    
    
    Senior Vice
President, Finance
and Chief Financial
OfficerTerry Schmidtke
    
    
    2003
    
    
    
    100,000
    
    
    
    60,000
    
    
    
    10,732
    
    
    
    75,000
    
    
    
    Senior Vice
President,
Operations and Chief
Operating OfficerJoe Straka
    
    
    2003
    
    
    
    90,000
    (5)
    
    
    
    
    
    
    6,519
    
    
    
    50,000
    
    
    
    Director, Exploration
 Notes: (1) The value of perquisites and benefits for each Named Executive Officer is
less than the lesser of $50,000 and 10% of total annual salary and bonus. (2) Appointed Chief Executive Officer on January 6, 2003. (3) Appointed President and Chief Executive Officer on May 7, 2002. Terminated
employment as Chief Executive Officer on January 6, 2003, and terminated
employment as President on April 3, 2003. (4) A corporation controlled by Mr. Silye received $94,577 for consulting
services from the period of January 2003 to the end of June 2003. (5) A corporation controlled by Mr. Straka received $32,807 for consulting
services provided to the Company prior to Mr. Strakas appointment as
Director, Exploration. The following table details information with respect to the grant of
options by the Company to the Named Executive Officers during the fiscal year
of the Company ended December 31, 2003. Market Value ofCommon Shares% of Total Options
    
    
    
    
    
    Underlying OptionsGranted to
    
    Exercise or Base
    
    on the Date ofCommon Shares Under
    
    Employees in
    
    Price
    
    GrantName
    
    Options Granted
    
    Financial Year
    
    ($/Common Share)
    
    ($/Common Share)
    
    Expiration DateDavid A. Tuer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Jim Silye
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Barry R. Herring
    
    
    100,000
    
    
    
    23.4
    %
    
    $
    3.45
    
    
    $
    3.45
    
    
    May 30, 2008Terry C. Schmidtke
    
    
    75,000
    
    
    
    17.5
    %
    
    $
    3.45
    
    
    $
    3.45
    
    
    May 30, 2008Straka
    
    
    50,000
    
    
    
    11.7
    %
    
    $
    3.90
    
    
    $
    3.90
    
    
    July 1, 2008
 Notes:  (1)
    
    Pursuant to the material terms of the Companys stock option plan
(the Stock Option Plan) under which the options were granted, the
exercise price is not less than the closing market price on The Toronto
Stock Exchange (TSX) on the day preceding the grant and are exercisable
after one year as to one-third per year plus the portion of the optioned
shares which could have been exercised in a previous year.  (2)
    
    The securities under option represent Common Shares. The following table details information with respect to all options of the
Company exercised by Named Executive Officers during the last fiscal year of
the Company and all options held by Named Executive Officers and outstanding on
December 31, 2003. - 36 -




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##### Table of Contents



Value ofUnexercised Options
    
    Unexercised in theat Financial
    
    Money Options atCommon Shares
    
    
    
    
    
    Year-End
    
    Financial Year EndAcquired on
    
    Aggregate Value
    
    Exercisable/unexerci-
    
    Exercisable/unexerci-Exercise
    
    Realized
    
    sable
    
    sableName
    
    (#)
    
    ($)
    
    ($)
    
    ($)(1)David A. Tuer
    
    
    
    
    
    
    
    
    
    
    /
    
    
    
    Jim Silye
    
    
    75,000
    
    
    
    142,750
    
    
    
    /
    
    
    
    Barry R. Herring
    
    
    
    
    
    
    
    
    
    
    /100,000
    
    
    
    /$165,000Terry C. Schmidtke
    
    
    
    
    
    
    
    
    
    
    /75,000
    
    
    
    /$123,750Joe Straka
    
    
    
    
    
    
    
    
    
    
    /50,000
    
    
    
    /$60,000
 Employment Agreements Pursuant to an employment agreement dated as of April 3, 2003, Mr. Tuer is
entitled to an annual base salary of $175,000 per year and to a discretionary
bonus of up to a maximum of 200% of his base salary as determined by the board
of directors of the Company in light of the Companys overall operational and
financial performance. In the event Mr. Tuer is terminated other than for
cause, he is entitled to a payment equal to his annual base salary at the date
of termination multiplied by 1.5 and his average bonus entitlement for the two
preceding years multiplied by 1.5. Mr. Tuers salary is effective from January
6, 2003, the date he became the Chief Executive Officer of the Company. Compensation of Directors During the fiscal year ended December 31, 2003, no directors fees were
paid. Directors of the Company are eligible to receive stock options. During
2003, no options were granted to directors. C. Board practices. Directors are elected annually to the Board at the annual meeting of the
shareholders of the Company. No Director has a service contract with the
Company. Duties and Obligations of the Board of Directors The general duty of the Board of Directors of the Company is to oversee
the management of the business and affairs of the Company. In particular, the
Board of Directors is responsible for the following matters: (a) adopting a strategic planning process for the Company which
establishes the Companys long-term goals and strategies, and monitoring the
success of the Companys management in achieving those goals and implementing
the strategy; (b) identifying the principal risks with respect to all aspects of the
Companys business, ensuring that there are systems in place to effectively
monitor and manage such risks with a view to the long-term viability of the
Company, and achieving a proper balance between the risks incurred and the
potential return to the Companys members; (c) engaging in succession planning, including appointing, training and
monitoring senior management (which includes ensuring that objectives are in
place against which managements performance can be measured), establishing and
maintaining programs to train and develop management, providing for the orderly
succession of management, and assessing the performance and contribution of the
Chief Executive Officer of the Company against mutually established objectives; (d) ensuring that the Company has a policy in place to enable it to
communicate effectively with its shareholders, other stakeholders and the
general public, effectively interpreting the operations of the Company to
shareholders, accommodating feedback from shareholders, and ensuring that there
are effective controls and information systems in place for the Board of
Directors to discharge its responsibilities, such as an audit system which can
inform the Board of Directors about the integrity of the data and the
compliance of the financial information with appropriate accounting principles. - 37 -




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##### Table of Contents



Composition of the Board of Directors The Board of Directors is currently composed of six persons: David Tuer,
Ronald Mathison, Stan Grad, Bruce Kenway, Martin Lambert and Keith Smith. All
of the directors other than Mr. Tuer and Mr. Mathison are considered by the
Board to be unrelated directors. The Toronto Stock Exchange Guidelines
describe an unrelated director as a director who is independent of management
and is free from any interest and any business or other relationship which
could, or could reasonably be perceived to, materially interfere with the
directors ability to act with a view to the best interests of the Company,
other than interests and relationships arising from shareholdings. In
determining whether a director is an unrelated director, the Board considers,
for example, whether the director has a relationship that could, or could be
perceived to, interfere with the directors ability to objectively assess the
performance of management. On this basis, Mr. Tuer, by reason of his office as
Chief Executive Officer, and Mr. Mathison, by reason of his office as Chairman,
are considered related directors. The separation of the position of Chairman from the position of President
and Chief Executive Officer further ensures that the Board maintains its
independence from management. Committees of the Board of Directors There are currently four committees of the Board of Directors. The Audit
Committee is comprised of three directors, two of whom are unrelated directors.
The Corporate Governance Committee is comprised of two directors, one of whom
is an unrelated director. The Reserves Committee and the Compensation
Committee are comprised of two directors, both of whom are unrelated directors.
The mandate and activities of each committee are as follows: Audit Committee: The Audit Committee currently consists of Ronald
Mathison, Bruce Kenway and Martin Lambert. The responsibilities of the Audit
Committee include: (a) assisting the directors with meeting their responsibilities with
respect to financial reporting; (b) reviewing and reporting to the Board of Directors on all audited
financial statements prepared by the Company and enhancing the credibility and
objectivity of all financial reports; (c) reviewing with management and with the external auditor any proposed
changes in major accounting policies, in the presentation and impact of
significant risks and uncertainties, and in key estimates and judgments of
management that may be material to financial reporting; (d) questioning management and the external auditor regarding significant
financial reporting issues discussed during the fiscal period and the method of
resolution; (e) reviewing any problems experienced by the external auditor in
performing the audit, including any restrictions imposed by management or
significant accounting issues on which there was a disagreement with
management; and (f) reviewing the post-audit or management letters containing the
recommendations of the external auditor and managements response, and
following up any identified weaknesses. Corporate Governance Committee:The Corporate Governance Committee
currently consists of Ronald Mathison and Martin Lambert. The Corporate
Governance Committee assists the Board of Directors in discharging its
corporate governance obligations. The responsibilities of the Corporate
Governance Committee include considering the appropriate size and composition
of the Board of Directors and its committees, establishing director selection
criteria, reviewing credentials of nominee directors, making recommendations
relative to the composition of the committees, reviewing the effectiveness of
the Board of Directors operations and its relations with management, and
assessing the performance of the directors including, the Chairman of the Board
of Directors. Reserves Committee:The Reserves Committee currently consists of Stan
Grad and Keith Smith. The responsibilities of the Reserves Committee are to
assist the Board of Directors in respect of annual independent evaluations of
the Companys petroleum and natural gas reserves. In that regard, the Reserves
Committee has the authority and responsibility for reviewing and reporting to
the Board of Directors in respect of the appointment of independent consultants
to assist the Company in the annual evaluation of reserves and the scope of the
annual evaluation of the reserves by the independent consultants. In addition,
the Reserves Committee is responsible for meeting annually with the Companys
senior reserve personnel and the independent consultants of the Company to
review and consider the evaluation of the Companys petroleum and natural gas
reserves and to address matters of concern related thereto. - 38 -




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##### Table of Contents



Compensation
Committee: The Compensation Committee currently consists of Martin A. Lambert and
Keith T. Smith. The Compensation Committee approves the compensation
paid to the Companys officers and in general the overall
compensation paid by the Company to its employees. Decisions Requiring the Prior Approval of the Board of Directors Each committee of the Board of Directors makes recommendations to the
Board on an ongoing basis. Generally, recommendations from a committee of the
Board of Directors require the approval of the full Board before they are
implemented. D. Employees. As
at December 31, 2003, the Company had 14 full-time employees and
retained 15 consultants. There has
not been any significant change in the number of full-time employees
over the last year. E. Share ownership. Information as to share and option information for directors, officers and
key employees is discussed above in Item 6. A. Directors and Senior
Management and in Item 6. B. Compensation. Stock Option Plan Hawker has an incentive option plan (the Stock Option Plan), the purpose
of which is to develop the interests of the directors, officers, employees and
other persons who provide on-going services to the Company in the growth and
development of the Company by providing such individuals with the opportunity
to acquire an increased proprietary interest in the Company and to aid in
attracting as well as retaining and encouraging the continued involvement of
such persons with the Company. The total number of shares issuable pursuant to
the Stock Option Plan is 2,981,513 Common Shares, representing approximately
7.3% of the outstanding Common Shares as at June 30, 2004. The Company
intends to maintain the number of Common Shares issuable pursuant to
outstanding stock options at well under 10% of the number of outstanding Common
Shares. Under the Stock Option Plan, options may be issued to directors, officers,
employees of, and other service providers to, the Company in such numbers and
with vesting provisions as the Board may determine. The exercise price of
options shall be the closing price of the Common Shares on the TSX on the first
date preceding the date of grant on which the Common Shares traded on the TSX,
and the maximum term for options under the Stock Option Plan is ten years. The Stock Option Plan provides that if an optionee ceases to be a
director, officer, or employee of, or service provider to, the Company or any
of its subsidiaries for any reason (other than death), the optionee may
exercise all of the vested options then held by the optionee, but only within
90 days after such cessation and prior to the normal expiry time. In the case
of death of an optionee, all options of such optionee are deemed to have vested
on the day immediately prior to the date of such optionees death, and the
optionees legal personal representative shall have the right to exercise all
or part of such options until the earlier of the date that is one year
thereafter or the normal expiry time. As at December 31, 2003, 444,001 options were outstanding with a weighted
average exercise price of $4.74 and a weighted average remaining contractual
life of 4.46 years. Subsequent to December 31, 2003, an aggregate of 414,200
options were issued with exercise prices ranging from $4.89 to $5.75 and expiry
dates during the first six months of 2009. Subsequent to December 31, 2003,
15,000 options with an exercise price of $3.45 and an expiry date of May 30,
2008 were cancelled. At
the Annual and Special Meeting of Shareholders on April 28,
2004, shareholders approved an amendment to the Stock Option Plan to
provide for a cash payment feature. 
 Item 7. Major Shareholders and Related Party Transactions A. Major shareholders. The following table sets forth information as of June 30, 2004, with
respect to each person known to the Company to own more than 5% of the Common
Shares. As used in this table, beneficial ownership means the sole or shared
power to vote or direct the voting or to dispose or direct the disposition of
any security. For purposes of this table, a person is deemed to be the
beneficial owner of securities that can be acquired within 60 days from June
30, 2004, through the exercise of any option or warrant. Shares subject to
options or warrants that are currently exercisable or - 39 -




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##### Table of Contents



exercisable within 60 days are deemed outstanding for computing the ownership
percentage of the person holding such options or warrants, but are not deemed
outstanding for computing the ownership percentage of any other person. None
of the shareholders listed in the table below have voting rights that are
different from other holders of Common Shares. The amounts and percentages are
based upon 41,021,681 Common Shares issued and outstanding as of June 30,
2004. Designation of
    
    Type ofShareholder
    
    Class
    
    Ownership
    
    Number of Shares
    
    % of ClassRonald P.
Mathison (1)
    
    Common Shares
    
    Note (2)
    
    
    3,832,786
    
    
    
    9.34
    %Allan P. Markin
    
    Common Shares
    
    Note (3)
    
    
    3,812,678
    
    
    
    9.29
    %Matco
Capital (1)
    
    Common Shares
    
    Note (3)
    
    
    3,641,286
    
    
    
    8.88
    %
 Notes:  (1)
    
    Matco Capital Ltd. is controlled by Matco Investments Ltd. and Matco
Investments Ltd. is controlled by Ronald Mathison. To the knowledge of
the Company, the only entities with an interest of greater than 10% in
Matco Capital Ltd. are Matco Investments Ltd. and Mountain Moon Capital
Inc. To the knowledge of the Company, the only shareholder holding,
directly or indirectly, greater than 10% of the outstanding shares of
Matco Investments Ltd. is Ronald Mathison and the only shareholders
holding, directly or indirectly, greater than 10% of Mountain Moon Capital
Inc. are members of Martin Lamberts immediate family.(2)
    
    In addition to his beneficial ownership of Common Shares resulting from
his control of Matco Investments Ltd., Mr. Mathison beneficially owns
13,900 Common Shares as a result of shared power to dispose of such shares.(3)
    
    Legal and beneficial ownership. Of
the Common Shares issued and outstanding as of June 30, 2004,
40,663,829 were registered to Canadian residents
(70 shareholders), 357,421 were
registered to residents of the United States (21 shareholders),
and 431 were registered to residents of foreign countries
(4 shareholders). To the best of the Companys knowledge, the Company is not directly owned
or controlled by another corporation, by any foreign government or by any
natural or legal person. B. Related party transactions. There are no other related party transactions other than those described
below. During
the year ended December 31, 2003 the Company paid $2,150,000 for
legal and advisory services to a law firm, a legal partnership of
which one of the directors is a member. During the year ended December 31, 2002, the Company paid $214,000 to
Scout Capital Company (Scout), a principal shareholder of the Company at the
time of the payment, as reimbursement of Scouts costs with respect to the
Companys annual general meeting, together with $34,000 to reimburse Scout for
expenses incurred on behalf of the Company. Scout also received $50,000
pursuant to an agreement that expired on May 31, 2003 under which Scout was to
provide the Company with certain administrative and executive services. On April 3, 2003, the Company completed a private placement of 75,000
Common Shares for aggregate proceeds of $45,363.64 to Geoffrey Smith, the
President and Chief Executive Officer of Scout. On May 12, 2003 and June 25, 2003, the Company advanced $782,000 and
$1,000,000, respectively, to Southward to fund ongoing working capital
requirements. There are potential conflicts of interest to which the directors and
officers of the Company will be subject in connection with the operations of
the Company. In particular, certain of the directors and officers of the
Company are involved in managerial and/or director positions with other oil and
gas companies whose operations may, from time to time, be in direct competition
with those of the Company or with entities which may, from time to time,
provide financing to, or make equity investments in, competitors of the
Company. Conflicts, if any, will be subject to the procedures and remedies
available under the Business Corporations Act(Alberta). The Business
Corporations Act(Alberta) provides that in the event that a director has an
interest in a contract or proposed contract or agreement, the director shall
disclose his interest in such contract or agreement and shall refrain from
voting on any matter in respect of such contract or agreement unless otherwise
provided by the Business Corporations Act(Alberta). - 40 -




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##### Table of Contents



C. Interests of experts and counsel. Not applicable. 
 Item 8. Financial Information A. Consolidated statements and other financial information. Please see Item 17. Financial Statements for a list of the financial
statements filed as part of this annual report. Dividend Policy The Company has neither declared nor paid dividends on any of its
outstanding common shares, and does not intend to do so in the foreseeable
future. The Company intends to retain any future earnings to finance the
expansion of its business. Any future determination to pay dividends will be at
the discretion of the Board of Directors of the Company and will be dependent
upon the Companys earnings, capital requirements and financial position, as
well as any other factors deemed relevant by the Board of Directors. B. Significant changes. There have been no significant changes following the close of the last
financial year up to the date of this annual report that are known to us that
require disclosure in this annual report and for which disclosure was not made
in this annual report. 
 Item 9. The Offer and Listing A. Offer and listing details. The issued and outstanding Common Shares of the Company (41,021,696
shares as of June 30, 2004) are listed and posted for trading on The Toronto
Stock Exchange under the trading symbol HKR. The Common Shares are registered
shares. The following is a summary of the trading history (in Canadian dollars) of
the Common Shares of the Company on the TSX for:  
    
    the annual high and low market prices for the five most recent full
financial years;  
    
    the quarterly high and low market prices for the two most recent full
financial years and any subsequent period; and  
    
    the high and low monthly market prices for the most recent six
months. High
    
    LowYearFiscal year ended December 31, 1999
    
    $
    4.20
    
    
    $
    1.75Fiscal year ended December 31, 2000
    
    $
    15.00
    
    
    $
    1.15Fiscal year ended December 31, 2001
    
    $
    2.56
    
    
    $
    0.47Fiscal year ended December 31, 2002(1)
    
    $
    2.00
    
    
    $
    0.26Fiscal year ended December 31, 2003
    
    $
    5.50
    
    
    $
    0.73QuarterFiscal year ending December 31, 2002First Quarter
    
    $
    0.59
    
    
    $
    0.26Second Quarter(1)
    
    $
    2.00
    
    
    $
    0.35Third Quarter
    
    $
    1.35
    
    
    $
    0.67Fourth Quarter
    
    $
    0.87
    
    
    $
    0.56Fiscal year ended December 31, 2003First Quarter
    
    $
    3.48
    
    
    $
    0.73Second Quarter
    
    $
    4.48
    
    
    $
    2.62Third Quarter
    
    $
    5.50
    
    
    $
    3.80Fourth Quarter
    
    $
    5.34
    
    
    $
    3.80
 - 41 -




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##### Table of Contents



High
    
    LowMost Recent Six MonthsJanuary 2004
    
    $
    5.90
    
    
    $
    5.00February 2004
    
    $
    5.80
    
    
    $
    5.14March 2004
    
    $
    5.31
    
    
    $
    4.85April 2004
    
    $
    5.42
    
    
    $
    4.85May 2004
    
    $
    5.38
    
    
    $
    5.00June 2004
    
    $
    5.10
    
    
    $
    4.75
 Notes:  (1)
    
    On May 8, 2002, each former holder of Common Shares received one new
Common Share for each eight cancelled shares they previously held. B. Plan of distribution. Not applicable. C. Markets. The Common Shares are listed for trading on The Toronto Stock Exchange.
The Common Shares are not listed for trading on an exchange or in other markets
other than The Toronto Stock Exchange. 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 The Company was incorporated as 599386 Alberta Ltd. on February 14, 1994
under Certificate of Incorporation No. 20599386. On March 31, 1994, the
Company amended and altered its Articles of Incorporation to change its name to
SYNSORB Biotech Inc. Effective May 8, 2002: (i) each former holder of common
shares received one new common share for each eight cancelled common shares
they previously held; (ii) the stated capital of the Company was reduced in
respect of the common shares of the Company by $59,896,000; and (iii) 4,000,235
common shares of Oncolytics Biotech Inc. held by the Company were distributed
to its shareholders. By articles of amendment filed on April 3, 2003, the name
of the Company was changed to Hawker Resources Inc. and a new class of
non-voting equity shares was created. On December 30, 2003, each of Pointwest
and its wholly-owned subsidiary, Myriad Company, and the Company
amalgamated pursuant to the provisions of the Business Corporations Act
(Alberta) under the name Hawker Resources Inc. On December 31, 2003, 1053639
Alberta Ltd., a wholly-owned subsidiary of the Company, and the Company
amalgamated pursuant to the provisions of the Business Corporations Act
(Alberta) under the name Hawker Resources Inc. On March 17, 2004, Zorin was
wound-up into the Company, pursuant to the provisions of the Business
Corporations Act(Alberta). - 42 -




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The Companys Articles of Incorporation, as amended and restated, are
subject to all the provisions of the Business Corporations Act(Alberta) (the
ABCA). The ABCA provides that a company incorporated under that Act has all
the powers and capacities of a natural person. The ABCA further stipulates that
a company must not carry on a business that its articles prohibit. Thus, the
Company has the power and capacity of a natural person. The following brief description of provisions of the ABCA, the Companys
amended and restated Articles of Incorporation and its by-laws does not purport
to be complete and is subject in all respects to the provisions of the ABCA,
the Companys restated Articles of Incorporation and its by-laws. Directors Conflicts of Interest Section 120 of the ABCA requires every director of the Company who is, in
any way, directly or indirectly, interested in a proposed material contract or
transaction of the Company, to disclose the nature and extent of the directors
interest in writing or by requesting to have it entered in the minutes of the
meeting of directors or of meetings of committees of directors. The ABCA further provides that a director or officer of the Company who is
required to disclose an interest may not vote on any resolution to approve the
contract or transaction unless the contract or transaction, (i) is an
arrangement by way of security for money lent to or obligations undertaken by
the director, or a body corporate in which the director has an interest, for
the benefit of the Company or an affiliate, (ii) relates primarily to the
directors or officers remuneration as a director, officer, employee or agent
of the Company or an affiliate, (iii) is for indemnity or insurance for the
director against liability incurred by the director or officer acting in his or
her capacity as director or officer of the Company, or (iv) is with an
affiliate. Quorum Pursuant to the Companys by-laws, the quorum for the transaction of
business at any meeting of its board of directors must consist of a majority of
the directors holding office or such greater number of directors as the
Companys board determines. However, directors must not transact business at a
meeting of the directors unless at least half of the directors present are
Canadian residents. Notwithstanding the foregoing, directors may transact
business at a meeting of the directors when less than half of the directors
present are Canadian residents if:  (a)
    
    a Canadian resident director who is unable to be present approves in
writing or by telephone or other communications facilities the business
transacted at the meeting; and(b)
    
    the number of Canadian resident directors present at the meeting,
together with any Canadian resident director who gives his approval
under clause (a), totals at least half of the directors present at the
meeting. Borrowing Powers Section 2.01 of the Companys bylaws provides that the banking business of
the Company including, without limitation, the borrowing of money and the
granting of security therefor shall be transacted with such bodies corporate or
organizations as may from time to time be designated or authorized by the board
of directors. Pursuant to the Companys Articles, its directors may without the
authorization of its shareholders, borrow money on the credit of the Company,
issue, re-issue, sell or pledge debt obligations of the Company, give a
guarantee on behalf of the Company, mortgage, hypothecate, pledge or otherwise
create a security interest in all or any of the property of the Company,
owned or subsequently acquired, to secure any obligation of the Company. The
Companys directors may also, by resolution, delegate the borrowing powers
referred to above to one of its directors, a committee of directors or one of
its officers. Directors The number of directors shall be not less than one and not more than
eleven. The number of directors may be determined from time to time by an
ordinary resolution of the shareholders passed at a duly convened general
meeting. A director is not required to own any shares of the Company to be
qualified to serve as a director. A director is required to be at least 18
years of age but is not required to retire under any age-limit requirement. Upon each annual meeting, all the directors are deemed to retire. The
number of directors to be elected at any such meeting will be the number of
directors then in office unless the directors or shareholders otherwise
determine. - 43 -




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If the shareholders remove any director before the expiration of his or
her period of office and appoint another person in his or her place, that
person so appointed shall hold office only during the remainder of the time
that the director in whose place he or she is appointed would have held the
office if he or she had not been removed. If the shareholders do not appoint
another director to replace the removed director the vacancy may be filled by
the directors. The directors, or any committee of directors, may take any action required
or permitted to be taken by them and may exercise any of the authorities,
powers and discretions for the time being vested in or exercisable by them by
way of a resolution either passed at a meeting at which a quorum is present or
consented to in writing under the applicable section of the ABCA. The directors may appoint a president, one or more vice-presidents, a
secretary, a treasurer and other officers as determined by the board, including
assistants to the officers so appointed. The directors may specify the duties
of and delegate powers to manage the business and affairs of the Company to
these officers. The Company may also appoint a chairman of the board, who must
also be a director, and assign the powers and duties assigned to the managing
director or president, under the by-laws, or other powers and duties. Rights Attached to Shares The following is a description of the rights, preferences, and
restrictions attached to each class of the Companys shares: Common Shares The holders of Common Shares are entitled to receive notice of, and to one
vote per share at, every meeting of shareholders of the Company, to receive
such dividends as the board of directors declares and to share equally in the
assets of the Company remaining upon the liquidation of the Company after the
creditors of the Company have been satisfied, subject to the prior rights of
the preferred shares. Preferred Shares The preferred shares are issuable in series, with each series consisting
of such number of shares and having such rights, privileges, restrictions and
conditions as may be determined by the board of directors of the Company prior
to the issuance thereof. With respect to the payment of dividends and the
distribution of assets in the event of liquidation, dissolution or winding-up
of the Company, whether voluntary of involuntary, the preferred shares are
entitled to preferences over the Common Shares and any other shares ranking
junior to the preferred shares and may also be given such other preferences
over the Common Shares and any other shares ranking junior to the preferred
shares as may be determined at the time of creation of each series. Alteration of the Rights of Shareholders No rights, privileges or restrictions attached to the shares of the
Company may be altered except with the approval by special resolution passed by
a majority of not less than two-thirds of the votes cast by shareholders who
voted in respect of that resolution or signed by all the shareholders entitled
to vote on that resolution. There are no limitations in the Companys charter on the rights of
non-resident or foreign owners to hold Common Shares of the Company. Shareholders Meetings The ABCA requires the directors of the Company to call an annual meeting
of shareholders not later than fifteen months after the last annual meeting.
Every meeting, other than an annual meeting, shall be called a special meeting.
The directors may, whenever they think fit, convene a special meeting. A notice of the time and place of a meeting of shareholders must be sent
not less than 21 days and not more than 50 days before the meeting. Notice of
a meeting must specify the time and place of a meeting, and, in case of special
business, the general nature of that business and the text of any resolution.
The accidental omission to give notice of any meeting to, or the non-receipt of
any notice by any of the shareholders entitled to receive notice does not
invalidate any proceedings at that meeting. The Companys directors may fix a date that is not less than 21 days and
not more than 50 days before the meeting as the record date for the
determination of the shareholders entitled to notice of the meeting. If a
record date is not fixed, the - 44 -




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record date must be the close of business on the date immediately
preceding the date on which notice is given, or if notice is not given, the
date on which the meeting is held. All business that is transacted at a meeting of shareholders, with the
exception of consideration of the financial statement and the auditors report
thereon, fixing the number of directors, the election of directors and the
appointment of the auditors, is deemed to be special business. The Companys Articles stipulate that business shall be conducted at any
general meeting if there is quorum present at the opening of the meeting not
withstanding that there ceases to be a quorum present throughout the meeting.
A quorum is two shareholders entitled to vote or proxyholders thereof
representing not less than 5% of the outstanding shares of the Company entitled
to vote at the meeting. The Articles stipulate that the Chairman of the Board, or in his absence,
the President of the Company, or in his absence a Vice-President of the Company
who is a shareholder, shall preside as chairman of every general meeting. Unless the directors otherwise determine, the instrument appointing a
proxyholder shall be deposited at a place specified for that purpose in the
notice convening the meeting, not less than forty-eight hours before the time
for holding the meeting at which the proxyholder proposes to vote. Notice of every general meeting should be sent to:  a)
    
    each director;b)
    
    the auditor of the Company; andc)
    
    every shareholder entered in the securities registrar as the holder
of a share or shares carrying the right to vote at such meetings on the
record date or, if no record date was established by the directors, on
the date of mailing such notice. No other person is entitled to receive notice of meetings of shareholders. Change of Control Except for the restrictions set out above that attach to the Companys
shares, there are no provisions in the Companys Articles or other constituent
documents that would delay, defer or prevent a change of control and that would
operate only with respect to a merger, acquisition or corporate restructuring
involving the Company. Shareholder Ownership Disclosure The Companys by-laws do not contain provisions that govern an ownership
threshold above which its shareholder ownership must be disclosed. However,
the Company is governed by the Securities Act(Alberta) and under that Act, a
person or company that becomes an insider (as that term is defined in such
Act), must file a report with the applicable securities commission disclosing
any direct or indirect beneficial ownership or control or direction over the
Companys securities. An insider includes all of the Companys directors and
senior officers, every director or senior office of a company that is itself an
insider of the Company, all its subsidiaries, any person or corporation that,
beneficially owns, directly or indirectly, voting securities of the Company,
exercises control or direction over its voting securities, or beneficially
owns, directly or indirectly, certain voting securities of the Company and
exercises control or direction over certain voting securities of the Company
that carry more than 10% of the voting rights attached to all of its voting
securities, excluding voting securities held by a person or company as
underwriter in the course of a distribution. Capital Changes The Companys Articles and other constituent documents do not contain
provisions that govern changes in its capital that are more stringent than
those required by Canadian securities laws. C. Material contracts. Other than contracts entered into in the ordinary course of business, the
Company has not entered into any other material contracts in the two years
preceding this annual report that continue to exist. - 45 -




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D. Exchange controls. Except for the Investment Canada Act(Canada) and Canadian withholding
taxes described below, there are no limitations on the right of non-residents
of Canada or foreign owners to hold or vote the Common Shares or any of its
other securities imposed by Canadian or provincial laws or any of its
constating documents and there are no Canadian federal or provincial laws,
decrees or regulations that restrict the export or import of capital or affect
the remittance of dividends, interest or other payments to holders of any of
the Companys securities who are not residents of Canada. E. Taxation. The following summary of the material Canadian federal and U.S. federal
income tax considerations generally applicable in respect of the holding or
disposing of Common Shares is provided by the Company. This summary does not
address all possible tax consequences relating to an investment in the Common
Shares of the Company. There may be provincial, territorial, state and local
taxes applicable to a potential shareholder, depending on the shareholders
particular circumstances, which are not addressed in this summary. The tax
consequences to any particular holder, including a U.S. Holder
(defined below) of Common Shares
will vary according to the status of that holder as an
individual, trust, corporation, or member of a partnership, the jurisdiction in
which the holder is subject to taxation, the place where the holder is resident
and generally, according to the holders particular circumstances. United States Federal Income Tax Consequences The following is a general discussion of certain material United States
federal income tax consequences, under current law, generally applicable to a
U.S. Holder (as hereinafter defined) of Common Shares of the Company. This
discussion does not address all potentially relevant federal income tax matters
and it does not address all of the tax consequences that may be relevant to a
particular holder in light of the holders circumstances, or to persons subject
to special provisions of federal income tax law, such as those described below.
In addition, this discussion does not cover any state, local or foreign tax
consequences. See Canadian Federal Income Tax Consequences below. The following discussion is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the Code), Treasury Regulations, published
Internal Revenue Service (IRS) rulings, published administrative positions of
the IRS and court decisions that are currently applicable, any or all of which
could be materially and adversely changed, possibly on a retroactive basis, at
any time and which are subject to differing interpretations. This discussion
does not consider the potential effects, both adverse and beneficial, of any
proposed legislation which, if enacted, could be applied, possibly on a
retroactive basis, at any time. This discussion is for general information
only and it is not intended to be, nor should it be construed to be, legal or
tax advice to any holder or prospective holder of Common Shares of the Company
and no opinion or representation with respect to the United States federal
income tax consequences to any such holder or prospective holder is made.
Accordingly, holders and prospective holders of Common Shares of the Company
should consult their own tax advisors about the federal, state, local, and
foreign tax consequences of purchasing, owning and disposing of Common Shares
of the Company. U.S. Holders As used herein, a U.S. Holder means a holder of Common Shares of the
Company who is (i) a citizen or individual resident of the United States, (ii)
a corporation or entity treated as a corporation for United States federal
income tax purposes that is created or organized in or under the laws of the
United States or of any political subdivision thereof, (iii) an estate whose
income is taxable in the United States irrespective of source or (iv) a trust
if a court within the United States is able to exercise primary supervision
over the administration of the trust and one or more United States persons have
the authority to control all substantial decisions of the trust, or that has a
valid election in effect under applicable U.S. Treasury Regulations to be
treated as a United States person. This summary does not address the tax
consequences to, and U.S. Holder does not include, persons subject to specific
provisions of federal income tax law, such as tax-exempt organizations,
qualified retirement plans, individual retirement accounts and other
tax-deferred accounts, financial institutions, insurance companies, real estate
investment trusts, regulated investment companies, broker-dealers, persons or
entities that have a functional currency other than the U.S. dollar,
are subject to the alternative minimum tax, hold
Common Shares as part of a straddle, hedging, conversion transaction,
constructive sale or other arrangement, or who acquired
their Common Shares through the exercise of employee stock options or otherwise
as compensation for services. This summary is limited to U.S. Holders who own
Common Shares as capital assets within the meaning of Section 1221 of the Code.
If a partnership (including an entity treated as a partnership for
U.S. federal income tax purposes) holds Common Shares, the tax
treatment of a partner in the partnership generally will depend upon
the status of the partner and the activities of the partnership. A
beneficial owner of Common Shares that is a partner of a partnership
holding Common Shares should consult its own tax advisor with respect
to the tax consequences of the purchase, ownership and disposition of
Common Shares. This summary does not address the consequences to a person of the ownership,
exercise or disposition of any options, warrants or other rights to acquire
Common Shares. - 46 -




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Distribution on Common Shares of the Company U.S. Holders receiving dividend distributions (including constructive
dividends) with respect to Common Shares of the Company are required to include
in gross income for United States federal income tax purposes the gross amount
of such distributions, equal to the U.S. dollar value of such distributions on
the date of receipt (based on the exchange rate on such date), to the extent
that the Company has current or accumulated earnings and 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 federal income tax liability or, alternatively, may be
deducted in computing the U.S. Holders federal taxable income by those who
itemize deductions. See 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 gain from the
sale or exchange of the Common Shares. Preferential tax rates for 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 that is a corporation. Dividends
that are received during a tax year beginning before January 1,
2009, by a U.S. Holder that is an individual, an estate or a
trust will be taxed at the rates applicable to long-term capital
gains (the current maximum rate is 15%), provided that such dividends
are received from a qualified foreign corporation and the
U.S. Holder meets certain holding period requirements. Under
guidance published by the U.S. Treasury Department, a
corporation organized under the laws of Canada, such as the Company,
may be treated as a qualified foreign corporation in the event it is
eligible for benefits under the double taxation treaty between the
United States and Canada. A Canadian corporation in whose principal
class of shares there is substantial and regular trading
on a recognized securities exchange generally will be eligible for
benefits of the treaty. The Company believes it currently
satisfies this requirement, although there can be no assurance that
it will continue to do so in the future. Notwithstanding the
foregoing, if the company constitutes a foreign personal
holding company, a foreign investment company, or a passive foreign
investment company, each as defined below, for its taxable year during which
it pays a dividend, or for its immediately preceding taxable year, the company
generally will not be treated as a qualified foreign corporation and
dividends received by U.S. Holders that are individuals, estates or trusts will
be subject to U.S. federal income tax at ordinary income tax rates (and not at
the preferential tax rate applicable to long-term capital gains). As described
below, the Company believes that it has qualified, and in the future may
qualify, as a passive foreign investment company. Accordingly, dividends, if
any, paid in a taxable year in which the Company is a passive foreign
investment company or in the next taxable year would not qualify for the
preferential capital gains tax rate even if the Company is eligible for the
benefits of the U.S.  Canada Income Tax Treaty. At the present
time, only limited guidance has been issued that would further clarify the
application of these rules. In the case of foreign currency received as a dividend that is not
converted by the recipient into U.S. dollars on the date of receipt, a U.S.
Holder will have a tax basis in the foreign currency equal to its U.S. dollar
value on the date of receipt. Generally any gain or loss recognized upon a
subsequent sale or other disposition of the foreign currency,
including an
exchange of such currency for U.S. dollars, will be ordinary income or loss. However, an
individual whose realized gain does not exceed $200 will not recognize that
gain, to the extent that there are no expenses associated with the transaction
that meet the requirements for deductibility as a trade or business expense
(other than travel expenses in connection with a business trip) or as an
expense for the production of income. Dividends paid on the Common Shares of the Company generally will not be
eligible for the dividends received deduction allowed to corporations receiving
dividends from certain United States corporations. A U.S. Holder that is a
corporation and that owns shares representing at least 10% of the voting power
and value of the Company may, under certain circumstances, be entitled to a 70%
(or 80% if the U.S. Holder owns shares representing at least 20% of the voting
power and value of the Company) deduction of the United States source portion
of dividends received from the Company (unless the Company qualifies as a
foreign personal holding company or a passive foreign investment company,
as defined below). The availability of this deduction is subject to several
complex limitations which are beyond the scope of this discussion. Foreign Tax Credit A U.S. Holder that pays (or has withheld from distributions) Canadian
income tax with respect to the ownership of Common Shares of the Company may be
entitled, at the option of the U.S. Holder, to either receive a deduction or a
tax credit for such foreign tax paid or withheld. Generally, it will be more
advantageous to claim a 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
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from) the U.S. Holder during that year. In addition, U.S. Holders which
are corporations that own 10% or more of the voting stock of the Company may be
entitled to a deemed paid foreign tax credit with respect to the payment of
dividends by the Company under certain circumstances. There are significant
and complex rules and limitations that apply to the foreign tax credit
(including the deemed paid foreign tax credit) that are beyond the scope of
this discussion. Because the availability of the foreign tax credit and the
application of the limitations on the credit are fact specific, U.S. Holders of
Common Shares of the Company should consult their own tax advisors regarding
their particular circumstances. Disposition of Common Shares of the Company Subject to the discussion under Passive Foreign Investment Company, set
forth below, a U.S. Holder generally will recognize capital gain or loss upon
the sale or other disposition of Common Shares of the Company 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 of the Company. This gain or loss will be long-term capital gain or
loss if the Common Shares of the Company are held for more than one year.
Preferential tax rates apply to long-term capital gains of U.S.
Holders that
are individuals, estates or trusts. Certain significant limitations exist on
the deductibility of capital losses by both corporations and individuals. Information Reporting and Backup Withholding Certain information reporting rules may apply with respect to
distributions made by the Company or to the proceeds of the sale or other
disposition of Common Shares of the Company, and backup withholding (currently
at the rate of 28%) may apply unless the U.S. Holder provides the appropriate
intermediary with a taxpayer identification number, certified under penalties
of perjury, as well as certain other information or otherwise establishes an
exemption from backup withholding. Any amounts withheld under the U.S. backup
withholding tax rules will be allowed as a refund or a credit against the U.S.
Holders United States federal income tax liability, provided the required
information is furnished to the IRS. Other Considerations In the following circumstances, the above sections of this discussion may
not describe the United States federal income tax consequences resulting from
the holding and disposition of Common Shares. Foreign Personal Holding Company If at any time during a taxable year (i) more than 50% of the total
combined voting power or the total value of the Companys outstanding shares is
owned, directly or indirectly (pursuant to constructive ownership rules), by
five or fewer individuals who are citizens or residents of the United States
and (ii) 60% (50% in some circumstances) or more of the Companys gross income
for such year consists of certain types of passive income (e.g. dividends,
interest, royalties, certain gains from the sale of stock and securities, and
certain gains from commodities transactions), the Company may be treated as a
foreign personal holding company. In that event, U.S. Holders that hold
Common Shares would be required to include in gross income for such year their
allocable portions of such passive income to the extent the Company does not
actually distribute such income. The Company does not believe that it
currently qualifies as a foreign personal holding company. However, there can
be no assurance that the Company will not be considered a foreign personal
holding company for the current or any future taxable year. Foreign Investment Company If 50% or more of the total combined voting power or total value of the
Companys outstanding shares is held, directly or indirectly (pursuant to
constructive ownership rules), by citizens or residents of the United States,
U.S. partnerships or corporations or U.S. estates or trusts (as defined for
United States federal income tax purposes), and the Company is found to be
engaged primarily in the business of investing, reinvesting, or trading in
securities, commodities, or any interest therein, it is possible that the
Company may be treated as a foreign investment company, causing all or part
of any gain realized by a U.S. Holder selling or exchanging Common Shares to be
treated as ordinary income rather than capital gain. The Company does not
believe that it currently constitutes a foreign investment company. However,
there can be no assurance that the Company will not be considered a foreign
investment company for the current or any future taxable year. Controlled Foreign Company If more than 50% of the total combined voting power of all classes of
shares entitled to vote or the total value of the shares of the Company is
owned, actually or constructively, by citizens or residents of the United
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partnerships or corporations, or U.S. estates or trusts (as defined for
U.S. federal income tax purposes), each of which owns, actually or
constructively, 10% or more of the total combined voting power of all classes
of shares entitled to vote of the Company (a United States Shareholder), the
Company could be treated as a controlled foreign corporation (CFC). The
classification of the Company as a CFC would effect many complex results,
including that United States Shareholders would generally (i) be treated as
receiving a current distribution of the Companys Subpart F income and (ii)
also would be subject to current United States federal income tax on their pro
rata shares of the Companys earnings invested in United States property. If
the Company is classified as both a passive foreign investment company, as
described below, and a CFC, the Company generally will not be treated as a
passive foreign investment company with respect to United States Shareholders.
The Company does not believe that it currently constitutes as a CFC. However,
there can be no assurance that the Company will not be considered a CFC for the
current or any future taxable year. Passive Foreign Investment Company Special United States federal income tax rules apply to U.S. Holders of
shares in a passive foreign investment company (PFIC). A PFIC is any
non-U.S. corporation if, for any taxable year, either (i) 75% or more of its
gross income is passive income, which includes interest, dividends and
certain rents and royalties or (ii) 50% or more of the value,
determined on the basis of a quarterly average of the Companys
assets in a taxable year, are held for the production of passive
income. If a foreign
corporation owns, directly or indirectly, at least 25% by value of the stock of
a second corporation, then for purposes of the tests described above, the first
corporation will be treated as owning a proportionate share of the assets of,
and as receiving a proportionate share of the income of, the second
corporation. The Company believes that it qualified as a PFIC for the fiscal
year ended December 2000, may have qualified as a PFIC in prior years and may
qualify as a PFIC in subsequent years. There can be no assurance that the
Companys determination concerning its PFIC status will not be challenged. U.S. Holders of Common Shares of
the Company are urged to consult their tax advisors with respect to how the
PFIC rules affect their tax situation. A U.S. Holder who holds stock in a foreign corporation during any year in
which such corporation is a PFIC is subject to United States federal income
taxation under one of three alternative tax regimes. Under
the first alternative, provided the Company satisfies certain record
keeping requirements, the U.S. Holder may elect to treat the
Company as a qualified electing fund (QEF). A U.S. Holder that elects in a timely manner to treat the Company as a QEF
(an Electing U.S. Holder) will be currently taxable, in each taxable year in
which the Company qualifies as a PFIC, on his pro rata share of the Companys
ordinary earnings and net capital gain (which will be taxed to the Electing
U.S. Holder at ordinary income and capital gains rates,
respectively). These amounts are included in income by the Electing
U.S. Holder in the taxable year in which the Companys
taxable year ends, regardless of whether such amounts are actually
distributed. The QEF election also allows the Electing U.S. Holder to (i) generally
treat any gain realized on the disposition of his Company Common Shares (or
deemed to be realized on the pledge of his shares) as capital gain; (ii) treat
his share of the Companys net capital gain, if any, as long-term capital gain
instead of ordinary income; and (iii) either avoid interest charges resulting
from PFIC status altogether, or make an annual election, subject to certain
limitations, to defer payment of current taxes on his share of the Companys
annual realized net capital gain and ordinary earnings subject, however, to an
interest charge. If the Electing U.S. Holder is not a corporation, such an
interest charge would be treated as personal interest that is not deductible. A
QEF election, once made with respect to the Company, applies to the
tax year for which it was made and to all subsequent tax years,
unless the election is invalidated or terminated, or the IRS consents
to revocation of the election. Nonetheless, there can be no assurance
that the Company will be able to satisfy the record keeping
requirements imposed on a QEF and thus that a U.S. Holder may be
able to make an effective QEF election and treat the Company as a QEF
for any year in which the Company satisfies the definition of a PFIC.
U.S. Holders are urged to consult a tax advisor regarding the
availability of and procedure for making an effective
QEF election. - 49 -




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If a U.S. Holder does not make a timely QEF election during a year in
which it holds (or is deemed to have held) the Common Shares in question and
the Company is a PFIC (a Non-Electing U.S. Holder), then special taxation
rules under Section 1291 of the Code will apply to (i) gains realized on the
disposition (or deemed to be realized by reason of a pledge) of his Company
Common Shares and (ii) certain excess distributions (generally, distributions
received in the current taxable year that are in excess of 125% of the average
distributions received during the three preceding years or, if shorter, the
U.S. Holders holding period) by the Company. A Non-Electing U.S. Holder generally would be required to prorate all
gains realized on the disposition of his Company Common Shares and all excess
distributions on his Company Common Shares over the entire holding period for
the Common Shares. All gains or excess distributions allocated to prior years
of the U.S. Holder (other than years prior to the first taxable year of the
Company during such U.S. Holders holding period and beginning after January 1,
1987 for which it was a PFIC) would be taxed at the highest tax rate for each
such prior year applicable to ordinary income. The Non-Electing U.S. Holder
also would be liable for interest on the foregoing tax liability for each such
prior year calculated as if such liability had been due with respect to each
such prior year. A Non-Electing U.S. Holder that is not a corporation
generally must
treat this interest charge as personal interest which is
wholly nondeductible for federal income tax purposes. The balance of the gain or the excess distribution will
be treated as ordinary income in the year of the disposition or distribution,
and no interest charge will be incurred with respect to such balance. If the Company is a PFIC for any taxable year during which a Non-Electing
U.S. Holder holds Company Common Shares, then the Company will continue to be
treated as a PFIC with respect to such Company Common Shares, even if it is no
longer definitionally a PFIC. A Non-Electing U.S. Holder may terminate this
deemed PFIC status by electing to recognize gain (which will be taxed under the
rules discussed above for Non-Electing U.S. Holders) as if such Company Common
Shares had been sold on the last day of the last taxable year for which it was
a PFIC. Under Section 1291(f) of the Code, the IRS has issued Proposed Treasury
Regulations that, subject to certain exceptions, would treat as taxable certain
transfers of PFIC stock by Non-Electing U.S. Holders that are generally not
otherwise taxed, such as gifts, exchanges pursuant to corporate
reorganizations, and transfers at death. Generally, in such cases the basis of
the Company Common Shares in the hands of the transferee and the basis of any
property received in the exchange for those Common Shares would be increased by
the amount of gain recognized. Under the Proposed Treasury Regulations, an Electing U.S. Holder would not be taxed on
certain transfers of PFIC stock, such as gifts, exchanges pursuant to corporate
reorganizations, and transfers at death. The specific tax effects to the U.S.
Holder and the transferee may vary based on the manner in which the Common
Shares are transferred. U.S. Holders that hold, actually or constructively, marketable stock (as
specifically defined in the Treasury Regulations) of a foreign corporation that
qualifies as a PFIC may elect to mark such stock to the market (a
mark-to-market election). The Company believes that the
Common Shares constitute marketable stock for purposes of the
mark-to-market election. If such an election is made, such U.S. Holder will
generally not be subject to the special taxation rules of Section 1291
discussed above. However, if the mark-to-market election is made by a
Non-Electing U.S. Holder after the beginning of the holding period for the PFIC
stock, then the Section 1291 rules will apply to certain dispositions of,
distributions on and other amounts taxable with respect to the Company Common
Shares. A U.S. Holder who makes the mark-to-market election will include in
income for the taxable year for which the election was made an amount equal to
the excess, if any, of the fair market value of the Common Shares of the
Company as of the close of such tax year over such U.S. Holders adjusted basis
in such Common Shares. In addition, the U.S. Holder is allowed a deduction for
the lesser of (i) the excess, if any, of such U.S. Holders adjusted tax basis
in the Common Shares over the fair market value of such shares as of the close
of the tax year, or (ii) the excess, if any, of (A) the mark-to-market gains
for the Common Shares in the Company included by such U.S. Holder for prior tax
years, including any amount which would have been included for any prior tax
year but for the Section 1291 interest on tax deferral rules discussed above
with respect to Non-Electing U.S. Holders, over (B) the mark-to-market losses
for shares that were allowed as deductions for prior tax years. A U.S.
Holders adjusted tax basis in the Common Shares of the Company will be
adjusted to reflect the amount included in or deducted from income as a result
of a mark-to-market election. A mark-to-market election applies to the taxable
year in which the election is made and to each subsequent taxable year, unless
the Company Common Shares cease to be marketable, as specifically defined, or
the IRS consents to revocation of the election. U.S. Holders
should consult their tax advisor regarding the manner of making such an
election. - 50 -




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U.S. Holders of the Company are urged to consult a tax
advisor with respect to how the PFIC rules affect their tax situation. Canadian Federal Income Tax Considerations The following is a summary of the principal Canadian federal income tax
consequences generally applicable to a holder of one or more Common Shares who,
for the purposes of the Income Tax Act(Canada) (the Tax Act) at all relevant
times, is a non-resident of Canada, holds the Common Shares as capital property
(other than capital property used in or held in connection with a business
being carried on in Canada) and deals at arms length with the Company (a
Holder). This summary does not address the special tax consequences which
may apply to a Holder who is an insurer carrying on an insurance business in
Canada and elsewhere for the purposes of the Tax Act. This summary is based on the current provisions of the Tax Act and the
regulations thereunder and the provisions of the Canada-U.S. Income Tax
Convention, 1980(the Treaty), an understanding of the current administrative
practices of the Canada Revenue Agency, and all specific proposals to amend the
Tax Act and the regulations thereunder announced by or on behalf of the
Canadian Minister of Finance prior to the date hereof, although there is no
certainty that such proposals will be enacted in the form proposed, if at all.
This summary does not otherwise take into account or anticipate any changes in
law, whether by judicial, governmental or legislative decision or action, nor
does it take into account tax legislation or considerations of any province or
territory of Canada or any jurisdiction outside Canada. This summary is of a general nature only, and does not constitute legal or
tax advice to any particular Holder and no representation is made with respect
to the tax consequences to any particular holder. Consequently, Holders should
consult with their own tax advisors with respect to their particular
circumstances. Dividends A Holder will be subject to Canadian withholding tax at the rate of 25%,
or such lower rate as may be available under an applicable tax treaty, on the
gross amount of any dividends paid or credited (or deemed to be paid or
credited) on the Common Shares. By virtue of the Treaty, the rate of any such
Canadian withholding tax on dividends paid or credited (or deemed to be paid or
credited) to a resident of the United States for the purposes of the Treaty
which is the beneficial holder thereof will generally be reduced to 15%,
subject to a further reduction to 5% in the case of a U.S. corporate
shareholder which owns 10% or more of the outstanding Common Shares of the
Company. Disposition of Common Shares A Holder who disposes of Common Shares, including by deemed disposition on
death or otherwise, will not be subject to Canadian tax under the Tax Act on
any resulting capital gain unless the Common Shares constitute taxable
Canadian property to the Holder. In general, Common Shares will only
constitute taxable Canadian property to a Holder if the Common Shares are not
listed on a prescribed stock exchange (which includes The Toronto Stock
Exchange) or, at any time within the five-year period immediately preceding the
disposition, the Holder, persons with whom the Holder did not deal at arms
length, or the Holder together with such persons owned or had an interest in or
the right to acquire more than 25% of the shares of any class or series of the
capital stock of the Company. A Holder who is a resident of the United States for the purposes of the
Treaty and realizes a capital gain on a disposition or deemed disposition of
Common Shares that constitute taxable Canadian property to the Holder will only
be subject to Canadian tax if the Common Shares derive their value principally
from real property situated in Canada. For this purpose, the definition of
real property generally includes rights to explore for natural resources and
rights to amounts computed by reference to the amount or value of production
from such natural resources. The Company is of the view that the value of its
Common Shares is currently derived principally from real property situated in
Canada however, the determination as to whether Canadian tax would be
applicable must be made at the time of the disposition or deemed disposition. - 51 -




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F. Dividends and paying agents. Not applicable. G. Statement by experts. Not applicable. H. Documents on display. We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and we file reports and other information
with the SEC. You may read and copy any of our reports and other information
at, and obtain copies upon payment of prescribed fees from, the Public
Reference Room maintained by the SEC at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549. In addition, the SEC maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC at http://www.sec.gov. The
public may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. We are required to file reports and other information with the securities
commission in all provinces of Canada. You are invited to read and copy any
reports, statements or other information, other than confidential filings, that
we file with the provincial securities commissions. These filings are also
electronically available from the Canadian System for Electronic Document
Analysis and Retrieval (SEDAR) (http://www.sedar.com), the Canadian equivalent
of the SECs electronic document gathering and retrieval system. We will provide without charge to each person, including any beneficial
owner, on the written or oral request of such person, a copy of any or all
documents referred to above which have been or may be incorporated by reference
in this report (not including exhibits to such incorporated information that
are not specifically incorporated by reference into such information). Requests
for such copies should be directed to the Companys principal executive offices
at 700, 700  2nd Street S.W., Calgary, Alberta, T2P 2W1. I. Subsidiary information. The Company owns all of the issued and outstanding shares of Mar Oil
Company, incorporated in the state of Delaware. 
 Item 11. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to cash flow and translation risk due to changes in
the Canadian/United States dollar exchange rate and interest rate fluctuations. The information below about the foreign exchange and interest rate
sensitivity constitutes a forward looking statement. The Companys foreign
exchange rate and interest exposure is due to the changing exchange rate
between the Canadian and United States dollar and fluctuations in interest
rates in Canada. Exposure to exchange rate fluctuations are due to the translation of a
portion of the Companys cash balances, revenues and payables and direct costs. As at December 31, 2003, the Company estimates that a $0.01 decrease in
the value of the Canadian dollar relative to the United States dollar would
have an annualized impact of reducing earnings from operations before taxes by
$20,000. The Company is exposed to interest rate risk relating to any debt pursuant
to a revolving credit facility. The Company does not currently draw on this
facility but does expect to draw on this facility to fund the exercise of the
Purchase Option. The Company is also exposed to interest rate risk relating to
cash balances. The Companys policy is to deposit surplus cash in treasury
accounts at a major Canadian chartered bank. These accounts earn interest at
bank or money market rates in effect at such time. 
 Item 12. Description of Securities Other than Equity Securities Not applicable. - 52 -




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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 As of the end of the period covered by this Annual Report on Form 20-F,
the Company conducted an evaluation (under the supervision and with the
participation of the Companys management, including the Chief Executive
Officer and Chief Financial Officer), pursuant to Rule 13a-15 promulgated under
the Exchange Act, of the effectiveness of the design and operation of the
Companys disclosure controls and procedures. There are inherent limitations
to the effectiveness of any system of disclosure controls and procedures,
including the possibility of human error and the circumvention or overriding of
the controls and procedures. Accordingly, even effective disclosure controls
and procedures can only provide reasonable assurance of achieving their control
objectives. Based upon and as of the date of our evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Companys
disclosure controls and procedures are effective in all material respects to
ensure that information required to be disclosed in the reports the Company
files and submits under the Exchange Act is recorded, processed, summarized and
reported as and when required. There were no significant changes in the Companys internal controls or in
other factors that have materially affected or which could materially affect
the Companys internal controls subsequent to the date the Company carried out
its evaluation. Pointwest was acquired by the Company on December 30, 2003. Due to the
significance of this acquisition, the financial statements of Pointwest as of
and for the years ended December 31, 2001, 2002 and 2003 are included in this
annual report. The financial statements of Pointwest for these periods were
audited in accordance with Canadian generally accepted auditing standards;
however, such financial statements were not audited in accordance with United
States generally accepted auditing standards because Pointwest has never been a
registrant under the Securities Exchange Act of 1934. 
 Item 16A. Audit Committee Financial Expert Our Board of Directors has determined that Bruce Kenway qualifies as an
audit committee financial expert serving on our audit committee. 
 Item 16B. Code of Ethics The
Company has adopted a code of business conduct and a corporate
disclosure policy, both of which apply to the Companys
Chief Executive Officer, Chief Financial Officer and Controller. A copy of
the code and the policy are available, without charge and upon
request from the Assistant Corporate Secretary of the Company at the
Companys head office address. - 53 -




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Item 16C. Principal Accountant Fees and Services Ernst & Young LLP has served as our independent public accountants for the
years ended December 31, 2002 and December 31, 2003. The following table
summarizes the aggregate fees for professional audit services and other
services rendered by Ernst & Young LLP in the past two years. In Canadian dollars 2002
    
    2003Audit Fees
    
    $
    36,583
    
    
    $
    66,900Audit-Related Fees
    
    
    12,655
    
    
    
    44,600Tax
    
    
    7,770
    
    
    
    1,998All Other Fees
    
    
    22,664
    
    
    
    206,323Total
    
    
    79,672
    
    
    
    319,821
 Audit
Fees Audit fees include fees for professional services rendered in connection
with the audit of our annual financial statements set forth in our Annual
Report on Form 20-F and services provided by the audit of our annual financial
statements set forth in our Annual Report on Form 20-F and services provided by
the independent auditors in connection with statutory and regulatory filings or
engagements. Audit
Related Fees Audit-related fees are generally fees billed for services that are closely
related to the performance of the audit or review of financial statements. Tax
Fees Tax fees are fees for professional services rendered related to tax
compliance, tax advice and tax planning. All
Other Fees The Companys audit committee is required to pre-approve all audit and
nonaudit services rendered by and approve the engagement fees and other
compensation to be paid to the independent accountant and its affiliates. When
deciding whether to approve these items, our audit committee takes into
account whether the provision of any non-audit service is compatible with the
independence standards under the guidelines of the SEC and of the Independent
Standards Board. To assist in this undertaking, the audit committee
requires the independent accountant to submit a report describing all
relationships the independent accountant has with the Company and relevant
third parties to determine the independent accountants independence. The
audit committee recommends to the Board the delegation to one or
more designated members of the audit committee the authority to grant
pre-approvals for audit and non-audit services. The decision of any member to
whom the authority is delegated must be presented to the full audit committee. The audit committee has approved all engagements listed above. All of the hours spent on the audit were done by Ernst & Young LLP. 
 Item 16D. Exemptions from the Listing Standards for Audit Committees Not applicable 
 Item 16E. Purchases of Equity Securities by the Issuer and affiliated purchases Not applicable. - 54 -




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PART III 
 Item 17. Financial Statements The financial statements attached to this document were prepared in
accordance with Canadian GAAP and are presented in Canadian dollars. There are
differences between U.S. GAAP and Canadian GAAP. The reconciliation of the
financial statements to the United States GAAP is set forth in the notes to the
financial statements. The following financial statements are filed as part of this annual
report, together with the report of the auditors: PageCompilation Report on Pro Forma Financial Statements of Ernst & Young
LLP dated December 19, 2003
    
    
    F-2Unaudited Pro Forma Consolidated Balance Sheet of Hawker as at
September 30, 2003
    
    
    F-3Unaudited Pro Forma Consolidated Statement of Earnings of Hawker for
the nine months ended September 30, 2003 and year ended December 31,
2002
    
    
    F-5Notes to the Unaudited Pro Forma Consolidated Financial Statements as
at September 30, 2003 and for the nine months ended September 30,
2003 and year ended December 31, 2002
    
    
    F-7Audit Report of KPMG LLP dated April 12, 2003 (except for note 11 as
to which the date is December 12, 2003)
    
    
    F-10Consolidated Balance Sheets of Pointwest as at September 30, 2003 and
December 31, 2002 and 2001
    
    
    F-11Consolidated Statements of Operations and Retained Earnings (Deficit)
of Pointwest for the nine month periods ended September 30, 2003 and
2002, years ended December 31, 2002 and 2001, and period from July 25, 2000 to
December 31, 2000
    
    
    F-12Consolidated Statements of Cash Flows of Pointwest for the nine month
periods ended September 30, 2003 and 2002, years ended December 31, 2002 and 2001, and period from July 25, 2000 to December 31, 2000
    
    
    F-13Notes to the Consolidated Financial Statements of Pointwest as at
September 30, 2003 and December 31, 2002, 2001 and 2000.
    
    
    F-14Audit Report of Ernst & Young LLP dated March 10, 2004 (except for
note 17, which is as of March 17, 2004)
    
    
    F-23Audited Balance Sheets of Hawker as at December 31, 2003 and December
31, 2002
    
    
    F-24Audited Statements of Earnings (Loss) and Deficit of Hawker for the years
ended December 31, 2003, 2002 and 2001
    
    
    F-25Audited Statements of Cash Flows of Hawker for the years ended
December 31, 2003, 2002 and 2001
    
    
    F-26Notes to the December 31, 2003, 2002 and 2001 audited Financial
Statements of Hawker
    
    
    F-27Audit Report of Deloitte & Touche LLP dated April 21, 2003
    
    
    Note 1Audited Statements of Revenues and Operating Expenses relating to the
proposed acquisition by Hawker of the Optioned Properties for each of
the years ended December 31, 2002, 2001 and 2000
    
    
    Note 1Notes to the December 31, 2002, 2001 and 2000 audited Statements of
Revenues and Operating Expenses
    
    
    Note 1Audit Report of Deloitte & Touche LLP dated March 17, 2003
Audited Consolidated Balance Sheets of Southward as at December 31,
2002 and December 31, 2001
    
    
    Note 1Audited Consolidated Statements of Operations and Retained Earnings
of Southward for the years ended December 31, 2002, 2001 and 2000
    
    
    Note 1Audited Consolidated Statements of Cash Flows of Southward for the
years ended December 31, 2002, 2001 and 2000
    
    
    Note 1Notes to the December 31, 2002, 2001 and 2000 audited Consolidated
Financial Statements of Southward
    
    
    Note 1
 Note 1  Previously filed by the Company - 55 -




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Item 18. Financial Statements Not applicable. 
 Item 19. Exhibits The following exhibits are filed as part of this annual report: ExhibitNumber
    
    Description1.1(1)
    
    Articles of Incorporation of the Company dated February 14, 19941.2(1)
    
    Articles of Amendment of the Company dated March 31, 1994.1.3(1)
    
    Articles of Amendment of the Company dated July 12, 1994.1.4(1)
    
    Articles of Arrangement of the Company dated May 8, 2002.1.5(1)
    
    Restated Articles of Incorporation of the Company dated May 8, 2002.1.6(1)
    
    Articles of Amendment and Restated Articles of the Company dated April 3, 2003.1.7(1)
    
    Articles of Amendment and Restated Articles of the Company dated April 3, 2003.1.8
    
    Articles of Amalgamation and
Registration Statement of the Company dated December 30, 20031.9
    
    Articles of Amalgamation and
Registration Statement of the Company dated December 30, 20031.10
    
    Articles of Amalgamation and
Registration Statement of the Company dated December 31, 20031.11
    
    Articles of Amendment and
Restated Articles of the Company dated May 3, 20041.12(1)
    
    By-Law Number 1 of the Company dated March 31, 1994.4.1(1)
    
    Stock Option Plan of the Company12.1
    
    Certification of the Chief
Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200212.2
    
    Certification of the Chief
Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200213.1
    
    Certification of the Chief
Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 200213.2
    
    Certification of the Chief
Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 Note:  (1)
    
    Previously filed by the Company. - 56 -




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SIGNATURES 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 registration statement on its behalf. HAWKER RESOURCES INC.By:
    
    /s/ David A. TuerChief Executive Officer
 Dated: July 15, 2004 - 57 -




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Table of Contents 
Financial Statements. PageCompilation Report on Pro Forma Financial Statements of Ernst & Young
LLP dated December 19, 2003
    
    
    F-2Unaudited Pro Forma Consolidated Balance Sheet of Hawker as at
September 30, 2003
    
    
    F-3Unaudited Pro Forma Consolidated Statement of Earnings of Hawker for
the nine months ended September 30, 2003 and year ended December 31,
2002
    
    
    F-5Notes to the Unaudited Pro Forma Consolidated Financial Statements as
at September 30, 2003 and for the nine months ended September 30,
2003 and year ended December 31, 2002
    
    
    F-7Audit Report of KPMG LLP dated April 12, 2003 (except for note 11 as
to which the date is December 12, 2003)
    
    
    F-10Consolidated Balance Sheets of Pointwest as at September 30, 2003 and
December 31, 2002 and 2001
    
    
    F-11Consolidated Statements of Operations and Retained Earnings (Deficit)
of Pointwest for the nine month periods ended September 30, 2003 and
2002, years ended December 31, 2002 and 2001, and period from July 25, 2000 to
December 31, 2000
    
    
    F-12Consolidated
Statements of Cash Flows of Pointwest for the nine month periods
ended September 30, 2003 and 2002, years ended December 31,
2002 and 2001, and period from July 25, 2000 to
December 31, 2000
    
    
    F-13Notes to the Consolidated Financial Statements of Pointwest as at
September 30, 2003 and December 31, 2002, 2001 and 2000.
    
    
    F-14Audit Report of Ernst & Young LLP dated March 10, 2004 (except for
note 17, which is as of March 17, 2004)
    
    
    F-23Audited Balance Sheets of Hawker as at December 31, 2003 and December
31, 2002
    
    
    F-24Audited
Statements of Earnings (Loss) and Deficit of Hawker for the years
ended December 31, 2003, 2002 and 2001
    
    
    F-25Audited Statements of Cash Flows of Hawker for the years ended
December 31, 2003, 2002 and 2001
    
    
    F-26Notes to the December 31, 2003, 2002 and 2001 audited Financial
Statements of Hawker
    
    
    F-27
 F-1




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COMPILATION REPORT ON
PRO FORMA FINANCIAL STATEMENTS To the Directors of Hawker Resources Inc. We have read the accompanying unaudited pro forma consolidated balance sheet of
Hawker Resources Inc. (the Company) as at September 30, 2003 and unaudited
pro forma consolidated statement of earnings for the nine months then ended and
for the year ended December 31, 2002, and have performed the following
procedures:  1.
    
    Compared the figures in the columns captioned Hawker Resources Inc. to
the unaudited consolidated financial statements of the Company as at
September 30, 2003 and for the nine months then ended, and the audited
financial statements of the Company for the year ended December 31, 2002,
respectively, and found them to be in agreement.2.
    
    Compared the figures in the columns captioned Pointwest Energy Inc.
(Pointwest) to the unaudited consolidated financial statements of
Pointwest as at September 30, 2003 and for the nine months then ended and
the audited consolidated financial statements of Pointwest for the year
ended December 31, 2002, respectively, and found them to be in agreement.3.
    
    Compared the figures in the columns captioned W4M Properties Acquired
to the unaudited statement of revenues and operating expenses for the six
months ended June 30, 2003 and the audited statement of revenues and
operating expenses for the year ended December 31, 2002, respectively, and
found them to be in agreement.4.
    
    Made enquiries of certain officials of the Company who have
responsibility for financial and accounting matters about:  (a)
    
    the basis for determination of the pro forma adjustments; and(b)
    
    whether the pro forma consolidated financial statements
comply as to form in all material respects with applicable
regulatory requirements.  The officials:  (a)
    
    described to us the basis for determination of the pro forma
adjustments, and(b)
    
    stated that the pro forma consolidated financial statements
comply as to form in all material respects with applicable
regulatory requirements.  5.
    
    Read the notes to the unaudited pro forma consolidated financial
statements, and found them to be consistent with the basis described to us
for determination of the pro forma adjustments.6.
    
    Recalculated the application of the pro forma adjustments to the
aggregate of the amounts in the columns captioned Hawker Resources Inc.,
Pointwest Energy Inc. and W4M Properties Acquired as at September 30,
2003 and for the nine months then ended, and for the year ended December
31, 2002, and found the amounts in the column captioned Pro forma to be
arithmetically correct. A pro forma financial statement is based on management assumptions and
adjustments which are inherently subjective. The foregoing procedures are
substantially less than either an audit or a review, the objective of which is
the expression of assurance with respect to managements assumptions, the pro
forma adjustments, and the application of the adjustments to the historical
financial information. Accordingly, we express no such assurance. The foregoing
procedures would not necessarily reveal matters of significance to the pro
forma consolidated financial statements, and we therefore make no
representation about the sufficiency of the procedures for the purposes of a
reader of such statements. Calgary, Canada
    
    (Signed) Ernst & Young LLPDecember 19, 2003
    
    Chartered Accountants
 F-2




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Hawker Resources Inc. PRO FORMA CONSOLIDATED BALANCE SHEET
As at September 30, 2003
(Unaudited) Hawker
    
    PointwestResources
    
    Energy
    
    Pro formaInc.
    
    Inc.
    
    adjustments
    
    
    
    
    
    Pro forma[thousands of Canadian dollars]
    
    $
    
    $
    
    $
    
    Notes
    
    $ASSETSCurrentCash
    
    
    
    
    
    
    220
    
    
    
    (74,473
    )
    
    
    2(b)
    
    
    
    42,452
    
    
    
    2(d)21,801
    
    
    
    2(e)10,000
    
    
    
    2(f)Accounts receivable
    
    
    8,777
    
    
    
    5,267
    
    
    
    
    
    
    
    
    
    
    
    14,044Deposits and prepaid expenses
    
    
    1,030
    
    
    
    317
    
    
    
    
    
    
    
    
    
    
    
    1,3479,807
    
    
    
    5,804
    
    
    
    (220
    )
    
    
    
    
    
    
    15,391Assets held for sale
    
    
    2,190
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,190Capital assets
    
    
    69,684
    
    
    
    56,492
    
    
    
    30,800
    
    
    
    2(b)
    
    
    
    156,97681,681
    
    
    
    62,296
    
    
    
    30,580
    
    
    
    
    
    
    
    174,557
 See accompanying notes to unaudited pro forma consolidated financial statements F-3




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##### Table of Contents



Hawker Resources Inc. PRO FORMA CONSOLIDATED BALANCE SHEET
As at September 30, 2003
(Unaudited) Hawker
    
    PointwestResources
    
    Energy
    
    Pro formaInc.
    
    Inc.
    
    adjustments
    
    
    
    
    
    Pro forma[thousands of Canadian dollars]
    
    $
    
    $
    
    $
    
    Notes
    
    $LIABILITIES AND SHAREHOLDERS EQUITYCurrentAccounts payable and accrued liabilities
    
    
    10,314
    
    
    
    12,599
    
    
    
    
    
    
    
    
    
    
    
    22,913Bank loan
    
    
    
    
    
    
    5,250
    
    
    
    
    
    
    
    
    
    
    
    5,25010,314
    
    
    
    17,849
    
    
    
    
    
    
    
    
    
    
    
    28,163Bank loan
    
    
    23,119
    
    
    
    
    
    
    
    21,801
    
    
    
    2(e)
    
    
    
    40,40610,000
    
    
    
    2(f)(14,514
    )
    
    
    2(g)Leasehold inducements
    
    
    140
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    140Future income taxes
    
    
    
    
    
    
    10,729
    
    
    
    (10,729
    )
    
    
    2(b), 3
    
    
    
    Future site restoration and abandonment costs
    
    
    146
    
    
    
    774
    
    
    
    
    
    
    
    
    
    
    
    92033,719
    
    
    
    29,352
    
    
    
    6,558
    
    
    
    
    
    
    
    69,629Shareholders equityShare capital
    
    
    58,323
    
    
    
    24,901
    
    
    
    (24,901
    )
    
    
    2(b)
    
    
    
    115,28942,452
    
    
    
    2(d)14,514
    
    
    
    2(g)Retained earnings (deficit)
    
    
    (10,361
    )
    
    
    8,043
    
    
    
    (8,043
    )
    
    
    2(b)
    
    
    
    (10,361
    )47,962
    
    
    
    32,944
    
    
    
    24,022
    
    
    
    
    
    
    
    104,92881,681
    
    
    
    62,296
    
    
    
    30,580
    
    
    
    
    
    
    
    174,557
 See accompanying notes to unaudited pro forma consolidated financial statements On behalf of the Board: (Signed) David A. Tuer
    
    (Signed) Ronald P. MathisonDirector
    
    Director
 F-4




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##### Table of Contents



Hawker Resources Inc. PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
For the nine months ended September 30, 2003
(Unaudited) Hawker
    
    W4M
    
    PointwestResources
    
    Properties
    
    Energy
    
    Pro forma[thousands of Canadian dollars except per
    
    Inc.
    
    Acquired
    
    Inc.
    
    adjustments
    
    
    
    
    
    Pro formashare amounts]
    
    $
    
    $
    
    $
    
    $
    
    Notes
    
    $RevenueOil and natural gas sales
    
    
    8,786
    
    
    
    21,248
    
    
    
    40,070
    
    
    
    
    
    
    
    
    
    
    
    70,104Royalties, net
    
    
    (2,389
    )
    
    
    (5,757
    )
    
    
    (9,708
    )
    
    
    
    
    
    
    
    
    
    
    (17,854
    )Interest income
    
    
    68
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68Other
    
    
    382
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3826,847
    
    
    
    15,491
    
    
    
    30,362
    
    
    
    
    
    
    
    
    
    
    
    52,700ExpensesProduction
    
    
    838
    
    
    
    1,795
    
    
    
    4,092
    
    
    
    
    
    
    
    
    
    
    
    6,725General and administrative
    
    
    2,329
    
    
    
    
    
    
    
    770
    
    
    
    
    
    
    
    
    
    
    
    3,099Interest
    
    
    267
    
    
    
    
    
    
    
    213
    
    
    
    1,227
    
    
    
    2(a,e,f,g)
    
    
    
    1,707Depletion and depreciation
    
    
    4,196
    
    
    
    
    
    
    
    11,475
    
    
    
    10,297
    
    
    
    2(c)
    
    
    
    25,968Site restoration
    
    
    146
    
    
    
    
    
    
    
    404
    
    
    
    
    
    
    
    
    
    
    
    5507,776
    
    
    
    1,795
    
    
    
    16,954
    
    
    
    11,524
    
    
    
    
    
    
    
    38,049Earnings (loss) before the following:
    
    
    (929
    )
    
    
    13,696
    
    
    
    13,408
    
    
    
    (11,524
    )
    
    
    
    
    
    
    14,651Lease abandonment expense
    
    
    (322
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (322
    )Operating costs and write-downs associated
with assets held for sale
    
    
    (179
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (179
    )Alberta Heritage Foundation grant settlement
    
    
    368
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    368Earnings (loss) before income taxes
    
    
    (1,062
    )
    
    
    13,696
    
    
    
    13,408
    
    
    
    (11,524
    )
    
    
    
    
    
    
    14,518Income tax expense (recovery)
    
    
    106
    
    
    
    
    
    
    
    5,526
    
    
    
    (5,393
    )
    
    
    3
    
    
    
    239Net earnings (loss)
    
    
    (1,168
    )
    
    
    13,696
    
    
    
    7,882
    
    
    
    (6,131
    )
    
    
    
    
    
    
    14,279Earnings per share[note 4]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.36
 See accompanying notes to unaudited pro forma consolidated financial statements F-5




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##### Table of Contents



Hawker Resources Inc. PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
For the year ended December 31, 2002
(Unaudited) Hawker
    
    W4M
    
    PointwestResources
    
    Properties
    
    Energy
    
    Pro forma[thousands of Canadian dollars except per
    
    Inc.
    
    Acquired
    
    Inc.
    
    adjustments
    
    
    
    
    
    Pro formashare amounts]
    
    $
    
    $
    
    $
    
    $
    
    Notes
    
    $RevenueOil and natural gas sales
    
    
    
    
    
    
    24,395
    
    
    
    20,249
    
    
    
    
    
    
    
    
    
    
    
    44,644Royalties, net
    
    
    
    
    
    
    (6,088
    )
    
    
    (4,701
    )
    
    
    
    
    
    
    
    
    
    
    (10,789
    )Interest income
    
    
    32
    
    
    
    
    
    
    
    27
    
    
    
    
    
    
    
    
    
    
    
    59Other
    
    
    107
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    107139
    
    
    
    18,307
    
    
    
    15,575
    
    
    
    
    
    
    
    
    
    
    
    34,021ExpensesProduction
    
    
    
    
    
    
    3,708
    
    
    
    3,435
    
    
    
    
    
    
    
    
    
    
    
    7,143General and administrative
    
    
    1,596
    
    
    
    
    
    
    
    1,193
    
    
    
    
    
    
    
    
    
    
    
    2,789Interest
    
    
    71
    
    
    
    
    
    
    
    137
    
    
    
    2,425
    
    
    
    2(a,e,f,g)
    
    
    
    2,633Maintenance of patents
    
    
    243
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    243Depletion, depreciation and asset write-downs
    
    
    7,216
    
    
    
    
    
    
    
    6,916
    
    
    
    15,510
    
    
    
    2(c)
    
    
    
    29,642Site restoration
    
    
    
    
    
    
    
    
    
    
    249
    
    
    
    
    
    
    
    
    
    
    
    2499,126
    
    
    
    3,708
    
    
    
    11,930
    
    
    
    17,935
    
    
    
    
    
    
    
    42,699Earnings (loss) before the following:
    
    
    (8,987
    )
    
    
    14,599
    
    
    
    3,645
    
    
    
    (17,935
    )
    
    
    
    
    
    
    (8,678
    )Gain on sale and distribution of Oncolytics shares
    
    
    13,224
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,224Share of loss from equity investment in Oncolytics
    
    
    (471
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (471
    )Earnings (loss) before income taxes
    
    
    3,766
    
    
    
    14,599
    
    
    
    3,645
    
    
    
    (17,935
    )
    
    
    
    
    
    
    4,075Income tax expense (recovery)
    
    
    
    
    
    
    
    
    
    
    1,822
    
    
    
    (1,510
    )
    
    
    3
    
    
    
    312Net earnings (loss)
    
    
    3,766
    
    
    
    14,599
    
    
    
    1,823
    
    
    
    (16,425
    )
    
    
    
    
    
    
    3,763Earnings per share[note 4]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.09
 See accompanying notes to unaudited pro forma consolidated financial statements F-6




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##### Table of Contents



Hawker Resources Inc. NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
As at September 30, 2003 and for the Nine Months Ended September 30, 2003 and Year Ended
December 31, 2002
(Unaudited)
(thousands of Cdn. dollars, except share and per share amounts)  1.
    
    BASIS OF PRESENTATION These unaudited pro forma consolidated financial statements have been prepared
by management in accordance with Canadian generally accepted accounting
principles for inclusion in the short form prospectus of Hawker Resources Inc.
(Hawker) dated December 19, 2003 relating to the sale and issue of 11,200,000
common shares and in the opinion of management contain all adjustments
necessary for fair presentation. These unaudited pro forma financial
statements are based on the historical financial statements of Hawker and
Pointwest Energy Inc. (Pointwest) and historical statements of revenues and
operating expenses of the W4M properties acquired from Southward Energy Ltd.
(Southward), together with other information available to Hawker management. The unaudited pro forma financial statements have been prepared to give effect
to the following transactions:  (a)
    
    the operating revenues and expenses for the period January 1, 2003 to
June 30, 2003 and for the year ended December 31, 2002 of the 50% interest
in certain oil and gas properties west of the fourth meridian (W4M
Properties) acquired by Hawker on June 30, 2003 from Southward;(b)
    
    the proposed acquisition of Pointwest accounted for under the purchase
method of accounting for cash consideration of $74,473;(c)
    
    the sale and issue of flow-through common shares on December 5, 2003; and(d)
    
    the sale and issue of 11,200,000 common shares and application of the net
proceeds thereof, and borrowings of $31,801 under bank loans in connection
with the proposed acquisition of Pointwest. These pro forma financial statements are not necessarily indicative of the
results that actually would have occurred if the transactions reflected herein
had been in effect on the dates indicated or of the results which may be
obtained in the future. The unaudited pro forma consolidated financial statements should be read in
conjunction with:  (a)
    
    the December 31, 2002 audited financial statements of Hawker;(b)
    
    the December 31, 2002 audited financial statements of Pointwest;(c)
    
    the unaudited consolidated financial statements of Hawker as at and for
the nine months ended September 30, 2003;(d)
    
    the unaudited consolidated financial statements of Pointwest as at and
for the nine months ended September 30, 2003;(e)
    
    the audited statement of revenues and operating expenses of the W4M
properties acquired from Southward for the year ended December 31, 2002;
and(f)
    
    the unaudited statement of revenues and operating expenses of the W4M
properties acquired from Southward for the six month period ended June 30,
2003. F-7




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##### Table of Contents



Hawker Resources Inc.NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTSAs at September 30, 2003 and for the Nine Months Ended September 30, 2003 and Year EndedDecember 31, 2002(Unaudited)(thousands of Cdn. dollars, except share and per share amounts)    2.
    
    PRO FORMA ADJUSTMENTS AND ASSUMPTIONS The pro forma balance sheet gives effect to the transactions as if they
occurred on September 30, 2003 and the pro forma statements of earnings give
effect to the transactions as if they occurred on January 1, 2002. The
revenues and operating expenses of the W4M properties for the period from the
date of acquisition on June 30, 2003 to September 30, 2003 are included in the
unaudited interim consolidated statement of earnings and deficit for the nine
months ended September 30, 2003 of Hawker. Accordingly, the pro forma
adjustments with respect to the W4M properties in the nine month pro forma
consolidated statement of earnings are only for the six month period from
January 1, 2003 to June 30, 2003. The accounting policies used in the preparation of the pro forma financial
statements are in accordance with those disclosed in Hawkers audited financial
statements for the year ended December 31, 2002 and unaudited financial
statements for the nine months ended September 30, 2003. These pro forma consolidated financial statements give effect to the following
transactions, assumptions and adjustments: Acquisition of 50% interest in W4M properties  (a)
    
    interest at 5.25% on $24,600 in bank loans obtained to finance the
acquisition amounting to $417 for the six months ended June 30, 2003 and
$1,294 for the year ended December 31, 2002; Acquisition of Pointwest  (b)
    
    The acquisition of Pointwest using the purchase method of accounting and
a preliminary allocation (which may be subject to additional adjustments)
of the purchase price to the fair value of the assets and liabilities
acquired for purposes of preparing these unaudited pro forma financial
statements is as follows: $Cash
    
    
    220Accounts receivable
    
    
    5,267Prepaids
    
    
    317Oil and gas properties
    
    
    87,292Total assets
    
    
    93,096Accounts payable and accrued liabilities
    
    
    (12,599
    )Bank loan
    
    
    (5,250
    )Future site restoration and abandonment
    
    
    (774
    )Net cash cost
    
    
    74,473
 F-8




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##### Table of Contents



Hawker Resources Inc.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
As at September 30, 2003 and for the Nine Months Ended September 30, 2003 and Year Ended
December 31, 2002
(Unaudited)
(thousands of Cdn. dollars, except share and per share amounts) The adjustments to the Pointwest financial statements to reflect the above
purchase allocation are as follows: $Capital assets
    
    
    30,800Elimination of share capital
    
    
    24,901Elimination of retained earnings
    
    
    8,043Future income taxes
    
    
    10,729Net cash cost
    
    
    74,473
  (c)
    
    the provision for depletion and depreciation reflects an increase of
$10,297 resulting from the oil and gas properties acquired in 2(a) and
2(b) for the nine month period ending September 30, 2003 and $15,510 for
the year ended December 31, 2002; Sale and issue of shares and application of net proceeds, and bank borrowings  (d)
    
    the net proceeds of this offering of 11,200,000 common shares by Hawker
amounting to $42,452;(e)
    
    the proceeds of a bank loan for $21,801 with interest at 5.25% amounting
to $856 for the nine month period ending September 30, 2003 and $1,193 for
the year ended December 31, 2002;(f)
    
    the proceeds of a bridge bank loan facility for $10,000 with interest at
7.00% amounting to $524 for the nine month period ending September 30,
2003 and $700 for the year ended December 31, 2002; and Sale and issue of flow-through common shares  (g)
    
    the net proceeds of a private placement of 2,900,000 common shares on a
flow-through basis of $14,514 reflected as a repayment on the bank loans
in (e) and (f) above and the related interest expense reduction of $570
for the nine month period ending September 30, 2003 and $762 for the year
ended December 31, 2002.  3.
    
    INCOME TAXES At September 30, 2003, Hawker had large non-capital losses and unclaimed
expenditures for income tax purposes, the benefit of which has not been
recorded in the financial statements. These unrecorded future income tax
assets exceeded the total future tax liabilities arising from pro forma
adjustments, including differences between the financial reporting and tax
bases of assets recorded in the Pointwest acquisition. Accordingly, it has
been assumed that the benefit of these future tax assets would be recorded to
offset any future income tax liabilities. The income tax expense recorded in
the pro forma consolidated statements of earnings reflects the large
corporations tax that would be incurred based on the unaudited pro forma
consolidated financial statements.  4.
    
    EARNINGS PER SHARE The pro forma earnings per share is based on the number of Hawker shares
outstanding at September 30, 2003 (21,897,200 common shares and 3,874,437 class
A shares) adjusted to account for the issue of 11,200,000 common shares under
this offering in (d) and the issue of 2,900,000 common shares in (g) above as
if these shares had been issued January 1, 2002. F-9




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##### Table of Contents



Report of Independent Registered
Public Accounting Firm To the Board of Directors of
Hawker Resources Inc. We have audited the consolidated balance sheets of Pointwest
Energy Inc. as at December 31, 2002 and 2001 and the
consolidated statements of operations and retained earnings
(deficit) and cash flows for each of the years in the two-year
period ended December 31, 2002 and for the period from July 25,
2000 to December 31, 2000. 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 standards of the
Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements
are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. In our opinion, these consolidated financial statements present
fairly, in all material respects, the financial position of the
company as at December 31, 2002 and 2001 and the results of its
operations and its cash flows for each of the years in the
two-year period ended December 31, 2002 and for the period from
July 25, 2000 to December 31, 2000 in accordance with Canadian
generally accepted accounting principles. Canadian generally accepted accounting principles vary in
certain respects from accounting principles generally accepted
in the United States of America. Information relating to the
nature and effect of such differences is presented in note 12
to the financial statements (signed) KPMG LLP
Chartered Accountants Calgary, Canada
April 12, 2003, except for note 11 as to which the date is December 12, 2003 F-10




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##### Table of Contents



Pointwest Energy Inc.
Consolidated Balance Sheets September 30,
    
    December 31,
    
    December 31,2003
    
    2002
    
    2001(unaudited)AssetsCurrentCash and cash equivalents (note 4)
    
    $
    219,815
    
    
    $
    243,223
    
    
    $
    8,731,454Accounts receivable
    
    
    5,267,443
    
    
    
    5,353,302
    
    
    
    935,728Prepaid expenses and deposits
    
    
    316,776
    
    
    
    177,969
    
    
    
    144,5365,804,034
    
    
    
    5,774,494
    
    
    
    9,811,718Property and equipment (note 5)
    
    
    56,492,081
    
    
    
    42,618,103
    
    
    
    13,536,024$
    62,296,115
    
    
    $
    48,392,597
    
    
    $
    23,347,742LiabilitiesCurrentAccounts payable and accrued liabilities
    
    $
    12,599,416
    
    
    $
    12,581,545
    
    
    $
    2,891,134Demand credit facility (note 6)
    
    
    5,250,000
    
    
    
    5,150,000
    
    
    
    17,849,416
    
    
    
    17,731,545
    
    
    
    2,891,134Provision for site restoration and abandonment
    
    
    774,183
    
    
    
    370,283
    
    
    
    121,683Future income taxes (note 8)
    
    
    10,728,577
    
    
    
    5,228,577
    
    
    
    3,445,18129,352,176
    
    
    
    23,330,405
    
    
    
    6,457,998Shareholders EquityShare capital (note 7)
    
    
    24,900,551
    
    
    
    24,900,551
    
    
    
    18,551,551Retained earnings (deficit)
    
    
    8,043,388
    
    
    
    161,641
    
    
    
    (1,661,807
    )32,943,939
    
    
    
    25,062,192
    
    
    
    16,889,744$
    62,296,115
    
    
    $
    48,392,597
    
    
    $
    23,347,742
 Subsequent event (note 11) On behalf of the Board (signed)David A. TuerDirector                    (signed)Ronald P. MathisonDirector See accompanying notes F-11




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##### Table of Contents



Pointwest Energy Inc.
Consolidated Statements of Operations and Retained Earnings (Deficit) Nine months ended
    
    
    
    
    
    
    
    
    
    Period from July 25September 30
    
    Years ended December 31
    
    to December 312003
    
    2002
    
    2002
    
    2001
    
    2000(unaudited)
    
    (unaudited)RevenuePetroleum and natural
gas sales
    
    $
    40,069,997
    
    
    $
    8,555,195
    
    
    $
    20,248,861
    
    
    $
    1,120,382
    
    
    $
    Royalties, net of ARTC
    
    
    (9,707,815
    )
    
    
    (1,806,422
    )
    
    
    (4,701,366
    )
    
    
    (149,667
    )
    
    
    30,362,182
    
    
    
    6,748,773
    
    
    
    15,547,495
    
    
    
    970,715
    
    
    
    Interest and other
income
    
    
    
    
    
    
    27,731
    
    
    
    27,731
    
    
    
    288,049
    
    
    
    14,72330,362,182
    
    
    
    6,776,504
    
    
    
    15,575,226
    
    
    
    1,258,764
    
    
    
    14,723ExpensesProduction
    
    
    4,091,978
    
    
    
    1,945,965
    
    
    
    3,435,315
    
    
    
    483,000
    
    
    
    General and
administrative
    
    
    770,593
    
    
    
    689,378
    
    
    
    1,193,065
    
    
    
    799,734
    
    
    
    211,586Interest
    
    
    212,893
    
    
    
    57,288
    
    
    
    137,025
    
    
    
    55,538
    
    
    
    Depletion,
depreciation and site
restoration
    
    
    11,878,593
    
    
    
    3,448,228
    
    
    
    7,164,503
    
    
    
    2,510,692
    
    
    
    4,25116,954,057
    
    
    
    6,140,859
    
    
    
    11,929,908
    
    
    
    3,848,964
    
    
    
    215,837Income (loss) before
taxes
    
    
    13,408,125
    
    
    
    635,645
    
    
    
    3,645,318
    
    
    
    (2,590,200
    )
    
    
    (201,114
    )Capital taxes
    
    
    26,378
    
    
    
    19,000
    
    
    
    38,474
    
    
    
    25,000
    
    
    
    Future income tax
(recovery) (note 8)
    
    
    5,500,000
    
    
    
    550,000
    
    
    
    1,783,396
    
    
    
    (1,154,507
    )
    
    
    5,526,378
    
    
    
    569,000
    
    
    
    1,821,870
    
    
    
    (1,129,507
    )
    
    
    (201,114
    )Income (loss) for the
period
    
    
    7,881,747
    
    
    
    66,645
    
    
    
    1,823,448
    
    
    
    (1,460,693
    )
    
    
    (201,114
    )Retained earnings
(deficit), beginning
of period
    
    
    161,641
    
    
    
    (1,661,807
    )
    
    
    (1,661,807
    )
    
    
    (201,114
    )
    
    
    Retained earnings
(deficit), end of
period
    
    $
    8,043,388
    
    
    $
    (1,595,162
    )
    
    $
    161,641
    
    
    $
    (1,661,807
    )
    
    $
    (201,114
    )
 See accompanying notes F-12




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##### Table of Contents



Pointwest Energy Inc.
Consolidated Statements of Cash Flows Period fromNine months ended
    
    
    
    
    
    
    
    
    
    July 25 toSeptember 30
    
    Years ended December 31
    
    December 312003
    
    2002
    
    2002
    
    2001
    
    2000(unaudited)
    
    (unaudited)OperatingIncome (loss)
for the period
    
    $
    7,881,748
    
    
    $
    66,645
    
    
    $
    1,823,448
    
    
    $
    (1,460,693
    )
    
    $
    (201,114
    )Depletion,
depreciation and
site restoration
    
    
    11,878,593
    
    
    
    3,448,228
    
    
    
    7,164,503
    
    
    
    2,510,692
    
    
    
    4,251Future income
tax provision
(recovery)
    
    
    5,500,000
    
    
    
    550,000
    
    
    
    1,783,396
    
    
    
    (1,154,507
    )
    
    
    25,260,341
    
    
    
    4,064,873
    
    
    
    10,771,347
    
    
    
    (104,508
    )
    
    
    (196,863
    )Changes in non-cash working
capital (note 10)
    
    
    (1,752,754
    )
    
    
    (2,184,946
    )
    
    
    (2,704,009
    )
    
    
    (418,780
    )
    
    
    14,87923,507,587
    
    
    
    1,879,927
    
    
    
    8,067,338
    
    
    
    (523,288
    )
    
    
    (181,984
    )FinancingIssue of common shares
    
    
    
    
    
    
    6,349,000
    
    
    
    6,349,000
    
    
    
    15,103,000
    
    
    
    4,935,100Bank borrowing
    
    
    100,000
    
    
    
    5,800,000
    
    
    
    5,150,000
    
    
    
    
    
    
    
    100,000
    
    
    
    12,149,000
    
    
    
    11,499,000
    
    
    
    15,103,000
    
    
    
    4,935,100InvestingExpenditures on property and
equipment
    
    
    (24,650,432
    )
    
    
    (19,614,267
    )
    
    
    (29,575,214
    )
    
    
    (7,880,792
    )
    
    
    (70,188
    )Acquisition of property and
equipment
    
    
    (698,240
    )
    
    
    (6,422,768
    )
    
    
    (6,422,768
    )
    
    
    
    
    
    
    Purchase of Myriad Energy
Corporation (note 3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,822,537
    )
    
    
    Changes in non-cash working
capital (note 10)
    
    
    1,717,677
    
    
    
    4,019,790
    
    
    
    7,943,413
    
    
    
    2,172,143
    
    
    
    (23,630,995
    )
    
    
    (22,017,245
    )
    
    
    (28,054,569
    )
    
    
    (10,531,186
    )
    
    
    (70,188
    )(Decrease)
increase in cash
and cash
equivalents
    
    
    (23,408
    )
    
    
    (7,988,318
    )
    
    
    (8,488,231
    )
    
    
    4,048,526
    
    
    
    4,682,928Cash and cash
equivalents,
beginning of
period
    
    
    243,223
    
    
    
    8,731,454
    
    
    
    8,731,454
    
    
    
    4,682,928
    
    
    
    Cash and cash
equivalents, end
of period
    
    $
    219,815
    
    
    $
    743,136
    
    
    $
    243,223
    
    
    $
    8,731,454
    
    
    $
    4,682,928
 See accompanying notes F-13




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##### Table of Contents



Pointwest Energy Inc.
Notes to the Consolidated Financial Statements  1.
    
    Nature of operations Pointwest Energy Inc. (the Company) is engaged in the exploration for and
production of petroleum and natural gas predominately in Western Canada. The
Company was incorporated under the Business Corporations Act (Alberta) on July
25, 2000. In December 2000, the articles of incorporation were amended to
remove the private company restrictions.  2.
    
    Summary of significant accounting policies These consolidated financial statements have been prepared in accordance with
Canadian generally accepted accounting principles and include the accounts of
the Company and its wholly owned subsidiary, Myriad Energy Corporation and a
production partnership, Pointwest Energy. In all material respects, the
accounting principles followed are generally accepted in the United States
except as disclosed in note 12. The financial statements have, in managements
opinion, been properly prepared using careful judgment within reasonable limits
of materiality and within the framework of the significant accounting policies
summarized below:  a)
    
    Property and equipment  i)
    
    Capitalized costsThe Company follows the full cost method of accounting for its petroleum
and natural gas operations. Under this method, all costs related to the
exploration for and development of petroleum and natural gas reserves are
capitalized. Costs include lease acquisitions, lease rentals on
non-producing properties, geological and geophysical costs, and costs of
drilling both productive and non-productive wells and production equipment
costs. General and administrative costs are not capitalized other than to
the extent of the Companys working interest in operated capital
expenditure programs on which operators fees have been charged equivalent
to standard industry operating agreements. Proceeds from the sale of
properties are applied against capitalized costs and gains or losses are
not recognized unless such sale would alter the depletion rate by more
than 20%.ii)
    
    Depletion and depreciationDepletion and depreciation of oil and gas properties, net of estimated
salvage or residual value, is provided using the unit-of-production method
based upon estimated gross proven petroleum and natural gas reserves as
determined by independent engineers. For depletion and depreciation
purposes, relative volumes of petroleum and natural gas production and
reserves are converted at the energy equivalent conversion rate of six
thousand cubic feet of natural gas to one barrel of crude oil.Office equipment is depreciated on a declining balance basis over its
estimated useful life at rates varying from 20% to 50%.iii)
    
    Impairment testThe Company calculates a ceiling test whereby the carrying value of its
property and equipment, net of recorded future income taxes and the
accumulated provision for future site restoration and abandonment costs,
is compared each reporting period-end to an estimate of future net cash
flow from the production of gross proven reserves plus the lower of cost
or market of unevaluated land and seismic. Net cash flow is estimated
using period-end prices, less estimated future general and administrative
expenses, financing costs, estimated future site restoration and
abandonment costs and income taxes. Should this comparison indicate an
excess carrying value, the excess is charged against operations in the
period as additional depletion and depreciation.  b)
    
    Site restoration and abandonment costsThe estimated cost of site restoration and abandonments is based on the
current cost and the anticipated method and extent of site restoration in
accordance with existing legislation and industry practice. Estimated
future site restoration and abandonment costs are accrued on the
unit-of-production basis based on gross proven reserves. The provision is
recorded on the statement of operations. Future site restoration and
abandonment expenditures are charged to the accumulated provision as
incurred. F-14




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##### Table of Contents



Pointwest Energy Inc.Notes to the Consolidated Financial Statements    c)
    
    Use of estimatesThe 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. The amounts recorded for depletion and
depreciation of property and equipment and the provision for site
restoration and abandonment and the ceiling test are based on estimates of
gross proven reserves, production rates, oil and gas prices, future costs
and other relevant assumptions. These estimates are reviewed regularly and
changes in such estimates in future years could be significant. As
adjustments become necessary, they are reported in earnings in the periods
in which they become known.d)
    
    Joint operationsSubstantially all of the exploration and production activities of the
Company are conducted jointly with others. These consolidated financial
statements reflect only the Companys proportionate interest in such
activities.e)
    
    Flow-through sharesThe Company finances a portion of its exploration and development activities
through the issue of flow-through shares. Under the terms of the
flow-through share issues, the tax deduction of the related expenditures are
renounced to subscribers. For accounting purposes, a future tax liability
is recognized and share capital is reduced when the shares are issued.f)
    
    Future income taxesThe Company follows the liability method of accounting for income taxes.
Under this method future tax assets and liabilities are determined based on
differences between financial reporting and income tax bases of assets and
liabilities, and are measured using substantively enacted tax rates and laws
that will be in effect when the differences are expected to reverse. The
effect on future tax assets and liabilities of a change in tax rates is
recognized in net income in the period in which the change is substantively
enacted.g)
    
    Stock-based compensation planThe Company has a stock based compensation plan, which is described in note
7. No compensation expense is recorded for this plan when stock options are
issued to employees and directors. Any consideration paid on the exercise of
stock options is credited to share capital.h)
    
    Revenue recognitionRevenues from the sale of petroleum and natural gas are recorded when title
passes to an external party.3.
    
    Acquisition In May 2001, the Company acquired all of the issued and outstanding shares of
Myriad Energy Corporation (a private oil and gas company) for total cash
consideration of $5,149,413, including $148,619 of acquisition costs. The
transaction has been accounted for using the purchase method with the results
of operations of Myriad included in the accounts from May 2001. Cash
    
    $
    326,876Non-cash working capital
    
    
    (42,628
    )Property and equipment
    
    
    8,061,487Future site restoration and abandonment
    
    
    (83,183
    )Future tax liability
    
    
    (3,113,139
    )5,149,413Less: cash acquired
    
    
    (326,876
    )Cash expenditure
    
    $
    4,822,537
 F-15




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##### Table of Contents



Pointwest Energy Inc.
Notes to the Consolidated Financial Statements  4.
    
    Cash and cash equivalents September 30,
    
    December 31,
    
    December 31,2003
    
    2002
    
    2001Cash in bank
    
    $
    219,815
    
    
    $
    243,223
    
    
    $
    3,734,654Term deposits
    
    
    
    
    
    
    
    
    
    
    4,996,800$
    219,815
    
    
    $
    243,223
    
    
    $
    8,731,454
  5.
    
    Property and equipment September 30, 2003Accumulateddepletion andCost
    
    depreciation
    
    NetPetroleum and natural gas properties
    
    $
    77,255,770
    
    
    $
    20,809,401
    
    
    $
    56,446,369Office equipment
    
    
    103,351
    
    
    
    57,639
    
    
    
    45,712$
    77,359,121
    
    
    $
    20,867,040
    
    
    $
    56,492,081
 December 31, 2002Accumulateddepletion andCost
    
    depreciation
    
    NetPetroleum and natural gas properties
    
    $
    51,914,893
    
    
    $
    9,346,400
    
    
    $
    42,568,493Office equipment
    
    
    95,556
    
    
    
    45,946
    
    
    
    49,610$
    52,010,449
    
    
    $
    9,392,346
    
    
    $
    42,618,103
 December 31, 2001Accumulateddepletion andCost
    
    depreciation
    
    NetPetroleum and natural gas properties
    
    $
    15,924,543
    
    
    $
    2,450,400
    
    
    $
    13,474,143Office equipment
    
    
    87,924
    
    
    
    26,043
    
    
    
    61,881$
    16,012,467
    
    
    $
    2,476,443
    
    
    $
    13,536,024
 At September 30, 2003 petroleum and natural gas properties included
undeveloped land of $1,549,363 (December 31, 2002  $1,332,401; December 31,
2001  $891,826; December 31, 2000  $Nil), which has been excluded from the
depletion calculation. Future capital expenditures in the amount of $2,603,000
(December 31, 2002  $2,942,000; December 31, 2001  $1,028,000; December 31,
2000  $Nil ) have been included in the depletion calculation. At December 31, 2001, the application of the ceiling test resulted in a $1.7
million pre-tax write-down ($960,000 after tax) of the oil and gas assets. At September 30, 2003 total future site restoration and abandonment costs are
estimated to be $2,046,200 (December 31, 2002  $1,657,000) of which $774,183
has been accrued as at September 30, 2003 (December 31, 2002  $370,283). The Company did not capitalize any general and administrative costs during any
of the periods,other than to the extent of the Companys working interest in
operated capital expenditure programs on which operators fees have been
charged equivalent to standard industry operating agreements. F-16




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##### Table of Contents



Pointwest Energy Inc.Notes to the Consolidated Financial Statements  6.
    
    Demand credit facility The Company has a $20.2 million demand revolving credit facility at an interest
rate of prime plus 0.5% when the debt to equity ratio is equal to or less than
1.5 to 1 and prime plus 0.75% when the debt to equity ratio is greater than 1.5
to 1. Security is provided by a general security agreement, and a $25.0
million floating debenture. The Company had borrowed $5,250,000 under this
facility as at September 30, 2003 (December 31, 2002  $5,150,000).  7.
    
    Share capitala)
    
    AuthorizedUnlimited number of Class A voting sharesb)
    
    Issued NumberClass A common shares
    
    of Shares
    
    AmountBalance  December 31, 2000
    
    
    1,249,100
    
    
    $
    5,353,100Private placements
    
    
    2,499,600
    
    
    
    12,498,000Flow-through shares
    
    
    279,000
    
    
    
    1,395,000Tax benefits related to renounced expenditures on
flow-through shares
    
    
    
    
    
    
    (594,549
    )Share subscription receivable
    
    
    
    
    
    
    (100,000
    )Balance  December 31, 2001
    
    
    4,027,700
    
    
    
    18,551,551Share subscription received
    
    
    
    
    
    
    100,000Private placements
    
    
    1,249,800
    
    
    
    6,249,000Balance  September 30, 2003 and December 31, 2002
    
    
    5,277,500
    
    
    $
    24,900,551
  c)
    
    Private placementUnder the terms of a private placement in December 2000, participants
subscribed for units of the Company. Subscriptions for less than 50,000
units received one common share per unit. Participants subscribing for
50,000 units or greater received 0.1 common shares, 0.6 Class A Call
Obligation and 0.3 Class B Obligation. Each Class A and Class B Obligation
required the holder to subscribe for 1 common share at a price of $5.00 on
or before June 30, 2002. During 2001, obligations called and paid resulted
in the issue of 2,499,600 class A common shares for proceeds of $12,498,000.
During 2002, the balance of obligations were called and paid resulting in
the issue of 1,249,800 class A common shares for proceeds of $6,249,000.d)
    
    Flow-through sharesIn December 2001, 279,000 flow-through Class A shares were issued at $5.00
per share for gross proceeds of $1,395,000. At December 31, 2001 the tax
deductions related to these proceeds were renounced to the investors and the
Company had met its obligations of these expenditures. Of the 279,000 flow
through shares issued during 2001, 264,000 were issued to directors.e)
    
    Stock optionsThe Company has a stock option plan, administered by the board of directors,
in which up to 791,610 shares are reserved for issuance. Under the plan,
the options that have been granted vest one-third per year and expire five
years from date of issuance. F-17




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##### Table of Contents



Pointwest Energy Inc.Notes to the Consolidated Financial Statements  7.
    
    Share capital(continued)Shares have been reserved for the following stock options outstanding: Period ended
    
    Year ended
    
    Year endedSeptember 30, 2003
    
    December 31, 2002
    
    December 31, 2001Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    Average
    
    
    
    
    
    AverageExercise Price
    
    
    
    
    
    Exercise Price
    
    
    
    
    
    Exercise PriceShares
    
    $
    
    Shares
    
    $
    
    Shares
    
    $Opening
    
    
    778,417
    
    
    
    5.00
    
    
    
    573,933
    
    
    
    5.00
    
    
    
    187,180
    
    
    
    5.00Granted
    
    
    13,194
    
    
    
    7.45
    
    
    
    204,484
    
    
    
    5.00
    
    
    
    386,753
    
    
    
    5.00Closing
    
    
    791,611
    
    
    
    5.04
    
    
    
    778,417
    
    
    
    5.00
    
    
    
    573,933
    
    
    
    5.00
  The following summarizes information about stock options outstanding as at
September 30, 2003: Number
    
    Weighted Average
    
    NumberExercise
    
    Outstanding
    
    Remaining
    
    Exercisable
    
    Weighted AveragePrice
    
    At September 30,
    
    Contractual Life
    
    At September 30,
    
    Exercise Price$
    
    2003
    
    (years)
    
    2003
    
    $5.00
    
    
    778,417
    
    
    
    2.0
    
    
    
    518,945
    
    
    
    5.007.45
    
    
    13,194
    
    
    
    3.5
    
    
    
    
    
    
    
    791,611
    
    
    
    2.0
    
    
    
    518,945
    
    
    
    5.00
 During the period ended September 30, 2003, the Company granted 13,194
options to an employee. For the purposes of pro forma disclosure, the
estimated fair value of the options is recognized over the vesting period of
the option. Had the fair value method been used, the Companys income for the
nine months ended September 30, 2003 would have been reduced by $8,816. The value of the stock options granted was determined using the Black-Scholes
option pricing model and resulted in a total pro forma cost of $21,800 based on
the following assumptions: risk free interest rate of 5.0%; expected term of
5.0 years; weighted average stock volatility of 0%; and no expected future
dividends.  8.
    
    Income taxes The components of the future income tax liability are: September 30,
    
    December 31,
    
    December 31,2003
    
    2002
    
    2001Property and equipment
    
    $
    11,344,630
    
    
    $
    5,577,963
    
    
    $
    3,579,250Provision for future site restoration
    
    
    (306,731
    )
    
    
    (155,963
    )
    
    
    (51,861
    )Benefit of non-capital loss
    
    
    
    
    
    
    
    
    
    
    (94,517
    )Benefit of provincial tax deduction
    
    
    (309,342
    )
    
    
    (193,423
    )
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    12,309Liability per financial statements
    
    $
    10,728,577
    
    
    $
    5,228,577
    
    
    $
    3,445,181
 F-18




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##### Table of Contents



Pointwest Energy Inc.
Notes to the Consolidated Financial Statements  8.
    
    Income taxes(continued) The provision for future income taxes differs from the amount computed by
applying the combined federal and provincial tax rates to the loss before
taxes. The difference results from the following: September 30
    
    December 312003
    
    2002
    
    2002
    
    2001
    
    2000Expected income tax rate
    
    
    40.62
    %
    
    
    42.12
    %
    
    
    42.12
    %
    
    
    42.62
    %
    
    
    44.62
    %Expected income tax
expense (recovery)
    
    $
    5,446,380
    
    
    $
    267,734
    
    
    $
    1,535,408
    
    
    $
    (1,103,943
    )
    
    $
    (89,696
    )Crown royalties and
production taxes
    
    
    3,561,405
    
    
    
    735,792
    
    
    
    1,996,773
    
    
    
    56,280
    
    
    
    ARTC
    
    
    (124,829
    )
    
    
    
    
    
    
    (193,206
    )
    
    
    (14,069
    )
    
    
    Resource allowance
    
    
    (3,075,362
    )
    
    
    (459,022
    )
    
    
    (1,343,903
    )
    
    
    33,751
    
    
    
    24,009Benefit of provincial tax
deduction
    
    
    (115,919
    )
    
    
    
    
    
    
    (193,423
    )
    
    
    
    
    
    
    Effect of federal and
provincial tax rate
reduction
    
    
    (316,526
    )
    
    
    
    
    
    
    (41,382
    )
    
    
    (37,043
    )
    
    
    Other
    
    
    124,851
    
    
    
    5,496
    
    
    
    23,129
    
    
    
    (24,412
    )
    
    
    227Recorded benefit of losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (65,071
    )
    
    
    65,460Income tax expense
(recovery)
    
    $
    5,500,000
    
    
    $
    550,000
    
    
    $
    1,783,396
    
    
    $
    (1,154,507
    )
    
    $
    
  9.
    
    Financial instrumentsa)
    
    Fair values of financial assets and liabilitiesFinancial instruments consist of cash and cash equivalents, accounts
receivable, deposits, accounts payable and accrued liabilities and the
demand credit facility. At September 30, 2003 and December 31, 2002 and
2001 there are no significant differences between the carrying amounts
reported on the balance sheet and estimated fair values. At September 2003
and December 31, 2002 and 2001, the Company had no outstanding hedging
contracts.b)
    
    Credit riskThe majority of the accounts receivable are in respect of oil and natural
gas operations. The Company generally extends unsecured credit to these
customers, and therefore, the collection of accounts receivables may be
affected by changes in economic or other conditions. Management believes the
risk is mitigated by the size and reputation of the companies to which they
extend credit. The Company has not experienced any material credit loss in
the collection of receivables to date.c)
    
    Interest rate riskThe Company is exposed to a floating rate of interest on its bank
borrowings. F-19




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##### Table of Contents



Pointwest Energy Inc.Notes to the Consolidated Financial Statements    10.
    
    Supplemental cash flow informationa)
    
    Change in non-cash working capital September 30
    
    December 312003
    
    2002
    
    2002
    
    2001
    
    2000Accounts receivable
    
    $
    85,859
    
    
    $
    (2,819,724
    )
    
    $
    (4,417,574
    )
    
    $
    (932,787
    )
    
    $
    (2,941
    )Prepaid expenses
and deposits
    
    
    (138,807
    )
    
    
    59,408
    
    
    
    (33,433
    )
    
    
    (89,585
    )
    
    
    72,771Accounts payable
and accrued
liabilities
    
    
    17,871
    
    
    
    4,595,160
    
    
    
    9,690,411
    
    
    
    2,818,363
    
    
    
    (54,951
    )Working capital
acquired from
Myriad (note 3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42,628
    )
    
    
    $
    (35,077
    )
    
    $
    1,834,844
    
    
    $
    5,239,404
    
    
    $
    1,753,363
    
    
    $
    14,879
 The change in non-cash working capital has been allocated to the following
activities: September 30
    
    December 312003
    
    2002
    
    2002
    
    2001
    
    2000Operating
    
    $
    (1,752,754
    )
    
    $
    (2,184,946
    )
    
    $
    (2,704,009
    )
    
    $
    (418,780
    )
    
    $
    14,879Investing
    
    $
    1,717,677
    
    
    $
    4,019,790
    
    
    $
    7,943,413
    
    
    $
    2,172,143
    
    
    $
    
  b)
    
    Interest and capital tax paid September 30
    
    December 312003
    
    2002
    
    2002
    
    2001
    
    2000Interest
    
    $
    212,893
    
    
    $
    57,288
    
    
    $
    192,563
    
    
    $
    
    
    
    $
    Capital tax
    
    $
    26,378
    
    
    $
    19,000
    
    
    $
    63,474
    
    
    $
    
    
    
    $
    
  11.
    
    Subsequent event The Company has signed a lock-up agreement with a public
company Hawker Resources Inc. for the sale of all of its shares at a price of
$12.71 per share. As part of the sale, the Company has agreed to pay the
holders of 791,611 outstanding stock options approximately $6.1 million in
exchange for cancellation of their options. F-20




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##### Table of Contents



Pointwest Energy Inc.Notes to the Consolidated Financial Statements  12.
    
    Reconciliation of Canadian and United States generally accepted accounting
principles The financial statements are prepared in accordance with Canadian generally
accepted accounting principles (Canadian GAAP) which, in most respects,
conform to United States generally accepted accounting principles (US GAAP).
Significant differences between Canadian GAAP and US GAAP are as follows: September 30,
    
    December 31,
    
    December 31,
    
    December 31,Notes
    
    2003
    
    2002
    
    2001
    
    2000Net earnings (loss)  Canadian GAAP
    
    
    
    
    
    $
    7,881,747
    
    
    $
    1,823,448
    
    
    $
    (1,460,693
    )
    
    $
    (201,114
    )Production expense
    
    
    (b)
    
    
    
    (32,250
    )
    
    
    
    
    
    
    
    
    
    
    Related
income taxes
    
    
    
    
    
    
    13,100
    
    
    
    
    
    
    
    
    
    
    
    Depletion, depreciation and site
restoration
    
    
    (b)(c)
    
    
    
    764,062
    
    
    
    495,853
    
    
    
    (3,000,000
    )
    
    
    Related
income taxes
    
    
    
    
    
    
    (310,362
    )
    
    
    (208,853
    )
    
    
    1,278,600
    
    
    
    Cost of renunciation of tax
benefits on expenditures
    
    
    (d)
    
    
    
    
    
    
    
    
    
    
    
    (594,549
    )
    
    
    Net earnings
(loss) before cumulative change in accounting policy  US
GAAP
    
    
    
    
    
    $
    8,316,297
    
    
    $
    2,110,448
    
    
    $
    (3,776,642
    )
    
    $
    (201,114
    )Cumulative
effect of change in accounting policy, net of related income taxes
    
    
    (b)
    
    
    
    144,458
    
    
    
    
    
    
    
    
    
    
    
    Net earnings
(loss) and comprehensive earnings (loss)  US
GAAP
    
    
    
    
    
    $
    8,460,755
    
    
    $
    2,110,448
    
    
    $
    (3,776,642
    )
    
    $
    (201,114
    )
 Balance sheet items in accordance with US GAAP are as follows: September 30, 2003
    
    December 31, 2002
    
    December 31, 2001Canadian
    
    US
    
    Canadian
    
    US
    
    Canadian
    
    USNotes
    
    GAAP
    
    GAAP
    
    GAAP
    
    GAAP
    
    GAAP
    
    GAAPProperty and
equipment
    
    
    (b)(c)
    
    
    $
    56,492,081
    
    
    $
    54,703,269
    
    
    $
    42,618,103
    
    
    $
    40,113,956
    
    
    $
    13,536,024
    
    
    $
    10,536,024Provision
for site restoration and abandonment
    
    
    (b)
    
    
    
    774,183
    
    
    
    507,250
    
    
    
    370,283
    
    
    
    370,283
    
    
    
    121,683
    
    
    
    121,683Future
income taxes
    
    
    (b)(c)
    
    
    
    10,728,577
    
    
    
    10,062,090
    
    
    
    5,228,577
    
    
    
    4,158,830
    
    
    
    3,445,181
    
    
    
    2,166,581Share capital
    
    
    (d)
    
    
    
    24,900,551
    
    
    
    25,495,100
    
    
    
    24,900,551
    
    
    
    25,495,100
    
    
    
    18,551,551
    
    
    
    19,146,100Retained earnings
(deficit)
    
    
    (b)(c)(d)
    
    
    
    8,043,388
    
    
    
    6,593,447
    
    
    
    161,641
    
    
    
    (1,867,308
    )
    
    
    (1,661,807
    )
    
    
    (3,977,756
    )
  (a)
    
    Stock based compensation For US reporting purposes, the statement of Financial Accounting Standard No.
123 Accounting for Stock Based Compensation (SFAS 123) requires the
reporting of pro forma amounts for compensation expense that would have been
recorded for the issuance of share options using a fair value option pricing
model. On January 1, 2003, the Company adopted the new CICA standard for
stock-based compensation, resulting in the pro forma disclosure contained in
note 7. The Company has applied this change prospectively commencing on the
date of adoption, effectively eliminating the US GAAP difference associated
with this accounting. The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions: 2002
    
    2001Risk free interest rate
    
    
    5.00
    %
    
    
    5.00
    %Dividend yield
    
    
    0
    %
    
    
    0
    %Volatility factors of expected market price
    
    
    0
    %
    
    
    0
    %Weighted average expected life of the options
    
    5 years
    
    5 years
 F-21




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##### Table of Contents



Pointwest Energy Inc.Notes to the Consolidated Financial Statements Pro forma disclosures of earnings (loss) are presented below as if the Company
had adopted the cost recognition requirements under SFAS 123. For the purposes
of pro forma disclosure, the estimated fair value of the options is recognized over the vesting period of
the option. The compensation cost for the stock-based compensation was
approximately $368,642 in 2002 and $223,472 in 2001. 2002
    
    2001Earnings (loss)  US GAAP
    
    As reported
    
    $
    1,823,448
    
    
    $
    (1,460,693
    )Pro forma
    
    
    1,454,806
    
    
    
    (1,684,165
    )
  (b)
    
    Asset retirement obligations For US GAAP purposes, the Company has adopted SFAS No. 143, Accounting for
Asset Retirement Obligations. Under US GAAP, legal obligations associated
with the retirement of long-lived assets that result from the acquisition,
construction, development and/or the normal operation of long-lived assets must
be recognized at fair value in the period in which the liability is incurred.
The fair value is added to the carrying amount of the associated asset. The
liability is accreted at the end of each period through charges to operating
expenses. For the period ended September 30, 2003, the change results in a reduction to
depletion, depreciation and site restoration expense of $344,374 (net of tax -
$204,489) and an additional charge to production expense of $32,250 (net of tax
- $19,150). The cumulative effect on the consolidated balance sheet is an
increase in property and equipment of $295,647 and a decrease of $266,933 to
the provision for future site restoration and abandonment costs. US GAAP requires that the
cumulative impact of this accounting change be presented in the
period of the change and prior periods are not restated. The reported
expenses would have been reduced by $149,271 (net of tax 
$86,398) and $101,185 (net of tax  $58,060) at
December 31, 2002 and 2001, respectively had the change been
applied retroactively with restatement.  (c)
    
    Impairments Under both US and Canadian GAAP, property, plant and equipment must be assessed
for potential impairments. Under US GAAP, if the sum of the present value of
estimated future net revenues computed by applying current prices of oil and
gas reserves to estimated future production of proved oil and gas reserves,
less estimated future expenditures (based on current costs), discounted at ten
percent, is less than the net capitalized costs (net of deferred income taxes),
the excess is charged to expense. As disclosed in note 2, under Canadian GAAP,
the impairment loss is the difference between the net carrying value of the
asset and the estimated value of future net revenues. For the nine months
ended September 30, 2003, a reduction in depletion expense of $419,688 (net of
tax - $249,211) would be recorded due to impairment charges recorded in fiscal
2001 under US GAAP. For the year ended December 31, 2002, a reduction in
depletion expense of $495,853 (net of tax - $287,000) would be recorded due to
impairment charges recorded in fiscal 2001 under US GAAP. For the year ended
December 31, 2001, an additional impairment charge of $3,000,000 (net of tax -
$1,721,400) would have been recorded under US GAAP. The resulting differences
in recorded carrying values of impaired assets will result in further
differences in depreciation and depletion expense in subsequent years.  (d)
    
    Flow-through shares The Company financed a portion of its activities with flow-through share issues
whereby the tax deductions on expenditures are renounced to the share
subscribers. The estimated cost of the tax deductions renounced to the
shareholders has been reflected as a reduction of the stated value of the
shares. The SEC requires that when the qualifying expenditures are incurred
and renounced to the shareholders the estimated tax cost of the renunciation,
less any proceeds received in excess of the quoted value of the shares is
reflected as a tax expense. F-22




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM To the Directors of
Hawker Resources Inc. We have audited the balance sheets of Hawker Resources Inc. as at December 31,
2003 and 2002 and the statements of earnings (loss) and deficit and cash flows
for each of the years in the three year period ended December 31, 2003. 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 auditing standards generally
accepted in Canada and with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 2003 and
2002 and the results of its operations and its cash flows for each of the years
in the three year period ended December 31, 2003 in accordance with Canadian
generally accepted accounting principles. As discussed in note 3 to the financial statements, in 2003 the Company adopted
new accounting recommendations with respect to stock based compensation. Calgary, CanadaMarch 10, 2004 (except for note 17 which is
    
    (signed) Ernst & Young LLPas of March 17, 2004)
    
    Chartered Accountants
 F-23




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##### Table of Contents



Hawker Resources Inc. Balance SheetsAs at December 31 (in thousands of Canadian dollars)
    
    2003
    
    2002ASSETSCurrentCash
    
    $
    
    
    
    $
    289Accounts receivable
    
    
    11,577
    
    
    
    27Investments
    
    
    2,500
    
    
    
    Prepaids and other current assets
    
    
    1,845
    
    
    
    17615,922
    
    
    
    492Assets held for sale (Note 5)
    
    
    2,190
    
    
    
    3,500Capital assets (Notes 4, 6 and 7)
    
    
    166,990
    
    
    
    23$
    185,102
    
    
    $
    4,015LIABILITIES AND SHAREHOLDERS EQUITYCurrentAccounts payable and accrued liabilities
    
    $
    23,750
    
    
    $
    80Bank loan (Note 7)
    
    
    10,000
    
    
    
    33,750
    
    
    
    80Bank loan (Note 7)
    
    
    44,149
    
    
    
    Leasehold inducements
    
    
    247
    
    
    
    Alberta Heritage Foundation grant (Note 8)
    
    
    
    
    
    
    387Asset retirement obligations (Note 3)
    
    
    3,499
    
    
    
    Commitments and contingencies (Notes 4, 15 and 16)Shareholders Equity (Note 9)Share capital
    
    
    110,204
    
    
    
    12,741Contributed Surplus
    
    
    132
    
    
    
    Deficit
    
    
    (6,879
    )
    
    
    (9,193
    )103,457
    
    
    
    3,548$
    185,102
    
    
    $
    4,015
 See accompanying notes to the financial statements On behalf of the Board:(signed) David A. Tuer
    
    (signed) Ronald P. MathisonDirector
    
    Director
 F-24




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##### Table of Contents



Hawker Resources Inc. Statements of Earnings (Loss) and DeficitFor the years ended December 31 (in thousands of Canadian dollars, except per share amounts)
    
    2003
    
    2002
    
    2001Restated(Note 4 (d))RevenueProduction revenue
    
    $
    17,582
    
    
    $
    
    
    
    $
    Royalties
    
    
    (4,205
    )
    
    
    
    
    
    
    13,377
    
    
    
    
    
    
    
    Interest income
    
    
    78
    
    
    
    32
    
    
    
    515Other
    
    
    487
    
    
    
    107
    
    
    
    21413,942
    
    
    
    139
    
    
    
    729ExpensesProduction
    
    
    2,028
    
    
    
    
    
    
    
    General and administrative (Note 10)
    
    
    4,590
    
    
    
    1,621
    
    
    
    7,106Research and development
    
    
    
    
    
    
    
    
    
    
    9,255Interest on long-term debt
    
    
    679
    
    
    
    71
    
    
    
    787Depletion, depreciation and asset write-downs
    
    
    8,933
    
    
    
    26
    
    
    
    9,65516,230
    
    
    
    1,718
    
    
    
    26,803Loss before the following
    
    
    (2,288
    )
    
    
    (1,579
    )
    
    
    (26,074
    )Lease abandonment expense
    
    
    (502
    )
    
    
    
    
    
    
    Operating costs and write-downs
associated with assets held for sale
    
    
    (190
    )
    
    
    (7,408
    )
    
    
    Gain on the sale and distribution of Oncolytics shares (Note 4)
    
    
    
    
    
    
    13,067
    
    
    
    3,004Gain on dilution of investment in Oncolytics (Note 4)
    
    
    
    
    
    
    
    
    
    
    357Share of loss from equity investment in Oncolytics (Note 4)
    
    
    
    
    
    
    (314
    )
    
    
    (1,831
    )Alberta Heritage Foundation grant settlement (Note 8)
    
    
    368
    
    
    
    
    
    
    
    Earnings (loss) before taxes
    
    
    (2,612
    )
    
    
    3,766
    
    
    
    (24,544
    )TaxesFuture income tax recovery (Note 11)
    
    
    (5,271
    )
    
    
    
    
    
    
    (1,556
    )Capital taxes
    
    
    345
    
    
    
    
    
    
    
    (4,926
    )
    
    
    
    
    
    
    (1,556
    )Net earnings (loss)
    
    
    2,314
    
    
    
    3,766
    
    
    
    (22,988
    )Deficit, beginning of year
    
    
    (9,193
    )
    
    
    (72,855
    )
    
    
    (49,867
    )Reduction of stated capital (Note 9)
    
    
    
    
    
    
    59,896
    
    
    
    Deficit, end of year
    
    $
    (6,879
    )
    
    $
    (9,193
    )
    
    $
    (72,855
    )Basic and diluted net earnings per common share (Note 9)
    
    $
    0.14
    
    
    $
    0.76
    
    
    $
    (4.64
    )
 See accompanying notes to the financial statements F-25




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##### Table of Contents



Hawker Resources Inc. Statements of Cash FlowsYears ended December 31 (in thousands of Canadian dollars)
    
    2003
    
    2002
    
    2001Restated(Note 4 (d))OPERATING ACTIVITIESNet earnings (loss)
    
    $
    2,314
    
    
    $
    3,766
    
    
    $
    (22,988
    )Add (deduct) non-cash items:Depletion, depreciation and asset write-downs
    
    
    9,078
    
    
    
    7,216
    
    
    
    9,655Accretion expense
    
    
    100
    
    
    
    
    
    
    
    Alberta Heritage Foundation grant settlement (Note 8)
    
    
    (368
    )
    
    
    
    
    
    
    Future income tax recovery
    
    
    (5,271
    )
    
    
    
    
    
    
    (1,556
    )Stock-based compensation (Note 10)
    
    
    132
    
    
    
    
    
    
    
    Share of loss from equity investment in Oncolytics
    
    
    
    
    
    
    314
    
    
    
    1,831Gain on sale and distribution of Oncolytics shares
    
    
    
    
    
    
    (13,067
    )
    
    
    (3,004
    )Gain on dilution of investment in Oncolytics
    
    
    
    
    
    
    
    
    
    
    (357
    )Issuance of stock options for services
    
    
    
    
    
    
    12
    
    
    
    5,985
    
    
    
    (1,759
    )
    
    
    (16,419
    )Net change in non-cash working capital (Note 14)
    
    
    5,660
    
    
    
    (4,779
    )
    
    
    3,64211,645
    
    
    
    (6,538
    )
    
    
    (12,777
    )INVESTING ACTIVITIESProceeds from sale of capital assets
    
    
    1,173
    
    
    
    44
    
    
    
    Acquisition of oil and gas properties (Note 4)
    
    
    (139,784
    )
    
    
    
    
    
    
    Additions to oil and gas properties
    
    
    (14,504
    )
    
    
    
    
    
    
    Additions to other capital assets
    
    
    (279
    )
    
    
    
    
    
    
    (944
    )Leasehold inducements received
    
    
    247
    
    
    
    
    
    
    
    Proceeds from sale of Oncolytics shares
    
    
    
    
    
    
    6,898
    
    
    
    3,481Net change in non-cash working capital (Note 14)
    
    
    806
    
    
    
    
    
    
    
    (152,341
    )
    
    
    6,942
    
    
    
    2,537FINANCING ACTIVITIESCommon shares issued on exercise of options
    
    
    192
    
    
    
    
    
    
    
    126Common shares issued for cash
    
    
    105,633
    
    
    
    
    
    
    
    Issue of debentures and warrants
    
    
    3,645
    
    
    
    
    
    
    
    Increase in bank loan
    
    
    37,720
    
    
    
    
    
    
    
    Share issue costs
    
    
    (6,736
    )
    
    
    
    
    
    
    Costs of distribution of shares in Oncolytics
    
    
    
    
    
    
    (46
    )
    
    
    Repayment of bank debt
    
    
    
    
    
    
    (5,910
    )
    
    
    (2,866
    )Alberta Heritage Foundation royalty payment (Note 8)
    
    
    (19
    )
    
    
    
    
    
    
    Net change in non-cash working capital (Note 14)
    
    
    (28
    )
    
    
    
    
    
    
    140,407
    
    
    
    (5,956
    )
    
    
    (2,740
    )Decrease in cash
    
    
    (289
    )
    
    
    (5,552
    )
    
    
    (12,980
    )Cash, beginning of year
    
    
    289
    
    
    
    5,841
    
    
    
    18,821Cash, end of year
    
    $
    
    
    
    $
    289
    
    
    $
    5,841Supplemental disclosure of cash flow information (Note 14)
 See accompanying notes to the financial statements F-26




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##### Table of Contents



Hawker Resources Inc. Notes to Financial StatementsYears ended December 31, 2003, 2002 and 2001(Tabular amounts in thousands of Canadian dollars, unless otherwise noted)  1.
    
    NATURE OF OPERATIONSPrior to 2002, SYNSORB Biotech Inc. (SYNSORB) conducted pharmaceutical
drug research and development. On December 10, 2001 SYNSORB terminated its
drug development activities. At the Annual and Special Meeting of SYNSORB
shareholders held April 3, 2003, shareholders approved the planned
conversion of the company into an oil and gas enterprise and changed the
companys name to Hawker Resources Inc.2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThe financial statements of Hawker Resources Inc. (the Company or
Hawker) have been prepared in accordance with Canadian generally accepted
accounting principles. These are different in some respects from those
generally accepted in the United States. The significant differences are
described in note 18 Reconciliation of Canadian and United States
Generally Accepted Accounting Principles. The timely preparation of
financial statements requires that management makes estimates and
assumptions, and use judgement regarding assets, liabilities, revenues and
expenses. Such estimates primarily relate to unsettled transactions and
events as of the date of the financial statements. Accordingly, actual
results may differ from estimated amounts. In the opinion of management,
these financial statements have been properly prepared within reasonable
limits of materiality and within the framework of the significant
accounting policies summarized below.(a)
    
    Capital AssetsCostThe Company follows the full cost method of accounting whereby all costs
relating to the acquisition of, exploration for and development of oil and
gas reserves are capitalized in a single Canadian cost center. Such costs
include lease acquisition, lease rentals on undeveloped properties,
geological and geophysical, drilling both productive and non-productive
wells, production equipment and overhead charges directly related to
acquisition, exploration and development activities.Gains or losses are not recognized upon the disposition of oil and gas
properties unless such a disposition would change the depletion rate by 20
percent or more. Gains and losses are recognized upon the disposition of
other assets.Other capital assets are recorded at cost. F-27




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##### Table of Contents



Depletion, depreciation and amortizationAll costs of acquisition, exploration and development of oil and gas
reserves, associated tangible plant and equipment costs (net of salvage
value), and estimated costs of future development of proven undeveloped
reserves are depleted and depreciated by the unit of production method
based on estimated gross proven reserves as determined by independent
engineers.Costs of unproved properties and seismic costs on undeveloped land are
initially excluded from oil and gas properties for the purpose of
calculating depletion. When proven reserves are assigned or the property
is considered to be impaired, the cost of the property or the amount of the
impairment is added to costs subject to depletion.The relative volumes of oil and natural gas reserves and production are
converted to equivalent barrels of oil based on the relative energy content
of each product on a 6 to 1 basis.Depreciation of capital assets not related to oil and gas properties is
provided using the declining balance method at rates between 20 and 30%.
Leasehold improvements are amortized on a straight-line basis over the term
of the lease.ImpairmentThe Company applies a ceiling test to the capitalized costs of its oil and
gas properties, net of future income taxes and asset retirement
obligations, to ensure that the net carrying value does not exceed the
estimated value of future net revenues from production of gross proven
reserves plus undeveloped properties less future production-related general
and administrative expenses, financing costs, site restoration and
abandonment costs and income taxes. Any reduction in the net carrying
value of oil and gas properties as a result of the ceiling test is charged
to operations.The calculation of future net revenues is based on sales prices, costs and
regulations in effect at period end.The carrying value of undeveloped properties (land and seismic data) is
reviewed periodically and written down to net realizable value if
impairment is determined.(b)
    
    Asset Retirement ObligationsThe Company recognizes the fair value of a liability for an asset
retirement obligation in the period in which it is incurred and records a
corresponding increase in the carrying value of the related long-lived
asset. The fair value is determined through a review of engineering
studies, industry guidelines, and managements estimate on a site by site
basis. The liability is subsequently adjusted for the passage of time, and
is recognized as an accretion expense in the statement of earnings under
asset retirement obligations. The liability is also adjusted due to
revisions in either the timing or the amount of the original estimated cash
flows associated with the liability. The increase in the carrying value of
the asset is amortized using the unit of production method based on
estimated gross proven reserves as determined by independent engineers.(c)
    
    Leasehold InducementsLeasehold inducements are accounted for as a reduction of rental expense
over the term of the related lease. F-28




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##### Table of Contents



(d)
    
    Revenue RecognitionOil and natural gas sales are recognized as revenue when the commodities
are delivered to purchasers.Revenue from milestone payments and royalties is recognized when received.(e)
    
    Hedging and Forward Sales ContractsIn certain circumstances, fixed price commodity contracts or commodity
derivative contracts are used to reduce the Companys exposure to adverse
fluctuations in commodity prices to protect future cash flow used to
finance the Companys capital expenditure program. Gains and losses
relating to commodity derivative contracts which settle via net cash
payment and that meet hedge criteria are recognized as part of natural gas
sales concurrently with the hedged transaction. The Company does not enter
into financial instruments for trading or speculative purposes.The Company believes the derivative financial instruments are effective as
hedges, both at inception and over the term of the instrument, as the term
to maturity, the notional amount and the commodity price basis in the
instruments all match the terms of the future revenue stream being hedged.Realized and unrealized gains and losses associated with commodity
derivative contracts which have been terminated or cease to be effective
prior to maturity, are deferred as other current, or non-current, assets or
liabilities on the balance sheet, as appropriate, and recognized in
earnings in the period in which the underlying hedged transaction is
recognized. In the event a designated hedged item is sold, extinguished or
matures prior to the termination of the related derivative instrument, any
realized or unrealized gain or loss on such derivative instrument is
recognized in earnings.(f)
    
    Joint VenturesSubstantially all of the Companys exploration, development and production
activities are conducted jointly with others and, accordingly, these
financial statements reflect only the Companys proportionate interest in
such activities. F-29




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##### Table of Contents



(g)
    
    Stock Based CompensationUnder the Companys stock option plan, options to purchase common shares
are granted to directors, officers, employees and consultants at current
market prices. Options issued by the Company in 2003 are accounted for in
accordance with the fair value method of accounting for stock-based
compensation, and as such the cost of the option is charged to earnings
with an offsetting amount recorded to contributed surplus, based on an
estimate of the fair value determined using a Black-Scholes options pricing
model. No compensation expense has been recorded on options issued in 2002
or 2001(see note 10).(h)
    
    InvestmentsInvestments in marketable securities are recorded at the lower of cost and
market value. At December 31, 2003, the investments had a quoted market
value of $3,012,000.The Company used the equity method of accounting for its investment in
Oncolytics Biotech Inc. (Oncolytics) up until the end of the first
quarter of 2002 when it no longer exerted significant influence over
Oncolytics. Under this method of accounting, the Company included in its
net earnings its share of the net earnings or losses of Oncolytics.
Subsequent to this date, the investment was accounted for on a cost basis
and accordingly, no net earnings or losses of Oncolytics have been included
in net earnings subsequent to March 31, 2002 (see note 4(d)).(i)
    
    Future Income TaxesThe Company follows the liability method of accounting for income taxes.
Under this method, future tax assets and liabilities are determined based
on differences between financial reporting and tax bases of assets and
liabilities and are measured using substantially enacted tax rates and laws
that will be in effect when the differences are expected to reverse. Income
tax expense for the period is the tax payable for the period and any change
during the period in future income tax assets and liabilities. A valuation
allowance is recorded to the extent that there is uncertainty regarding
utilization of future tax assets.(j)
    
    Per Common Share AmountsThe Company uses the treasury stock method to determine the dilutive effect
of stock options. This method assumes that proceeds from the exercise of
stock options would be used to purchase common shares at the average market
price during the year.(k)
    
    Measurement UncertaintyThe amount recorded for depletion and depreciation of petroleum and natural
gas properties, the provision for asset retirement obligation costs and the
ceiling test calculation are based on estimates of gross proven reserves,
production rates, commodity prices, future costs and other relevant
assumptions. By their nature, these estimates are subject to measurement
uncertainty and the effect on the financial statements of changes in such
estimates in future years could be significant.(l)
    
    Flow-through Common SharesResource expenditure deductions for income tax purposes related to
exploration and development activities funded by flow-through share
arrangements are renounced to investors in accordance with income tax
legislation. The estimated tax benefits transferred to shareholders are
recorded as future income taxes and a reduction to share capital when the
expenditures are renounced. F-30




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##### Table of Contents



(m)
    
    Research and DevelopmentResearch costs are expensed as incurred. Development costs that meet
specific criteria related to technical, market and financial feasibility
are capitalized.(n)
    
    Comparative FiguresCertain figures provided for 2002 have been reclassified to conform to the
presentation adopted in 2003.3.
    
    CHANGES IN ACCOUNTING POLICIES(a)
    
    Asset Retirement ObligationsIn 2003, the Company retroactively adopted the recommendations of the
Canadian Institute of Chartered Accountants on accounting for asset
retirement obligations. These recommendations replace the existing policy
on future site restoration, and as a result, have been treated as a change
in accounting policy.The new pronouncement requires the Company to recognize the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred and a corresponding increase in the carrying value of the related
long-lived asset. This fair value is determined through a review of
engineering studies, industry guidelines, and managements estimate on a
site by site basis. The liability is subsequently adjusted due to the
passage of time, and is recognized as an accretion expense in the statement
of earnings. The liability is also adjusted due to revisions in either the
timing or the amount of the original estimated cash flows associated with
the liability. The increase in the carrying value of the capital asset is
amortized using the unit of production method based on estimated gross
proven reserves as determined by independent engineers.The Company estimates the undiscounted cash flows related to asset
retirement obligations, adjusted for inflation, to be incurred over the
estimated reserve life of the underlying reserves will total approximately
$4,972,000. The fair value at December 31, 2003 is $3,499,000 using a
discount rate of 6% and an inflation rate of 2%. As at December 31, 2003,
no funds have been set aside to settle this obligation.As the Company did not have long-lived assets subject to retirement
obligations as at December 31, 2002 and 2001, this change in accounting
policy had no impact on the December 31, 2002 and 2001 financial
statements. The effect of this change on the December 31, 2003 balance
sheet was an increase in capital assets of $3,191,000 and the recognition
of an asset retirement obligation of $3,499,000. Accretion expense of
$100,000 was included in production expense for the year ended December 31,
2003. The change in accounting for asset retirement obligations as
compared to the site restoration approach resulted in an increase in net
earnings of $217,000 for the year ended December 31, 2003 ($0.01 per
share).(b)
    
    Stock Based CompensationEffective January 1, 2003, the Company adopted the recommendations of the
Canadian Institute of Chartered Accountants on accounting for stock based
compensation. Under this new pronouncement, stock based compensation
expense is recorded for all stock options granted on or after January 1,
2003. As permitted by the standard, the Company applied the change
prospectively. The pro forma earnings impact of the stock based
compensation expense for stock options granted prior to January 1, 2003 is
disclosed in note 10.For the year ended December 31, 2003, the impact of the adoption of this
standard on the financial statements as at December 31, 2003 was a decrease
in net earnings of $132,000 ($0.01 per share) and a corresponding increase
in contributed surplus. F-31




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##### Table of Contents



4.
    
    BUSINESS ACQUISITIONS AND DISPOSITIONS(a)
    
    1022971 Alberta Ltd.On March 31, 2003 the Company acquired all of the shares of 1022971 Alberta
Ltd. (1022971) for a nominal amount and the Company was assigned an
option to purchase up to a 49% interest in certain oil and gas properties
west of the 4th meridian (W4M Properties) owned by Southward Energy Ltd.
(Southward). On April 30, 2003, 1022971 acquired all of the shares of
Southward. Immediately thereafter, Southward sold its oil and gas
properties, excluding a 1% undivided interest in the W4M Properties and a
100% interest in seismic data, to an independent third party.On June 30, 2003, the Company exercised its option to purchase a 49%
interest in the W4M Properties. Further on June 30, 2003, the Company
purchased the 1% undivided interest in the W4M Properties of Southward and
the non-cash working capital of Southward was conveyed to the Company.
Also on June 30, 2003, all of the shares of 1022971, which included
Southward and all of its subsidiaries, were sold for nominal consideration
to an independent third party.The resultant acquisition of a 50% interest in the W4M Properties on June
30, 2003 has been accounted for using the purchase method of accounting.
The results of operations for the W4M Properties have been included in the
financial statements since June 30, 2003. The following table summarizes the estimated fair value of the assets and
liabilities assumed at the date of acquisition: Capital assets
    
    $
    70,514Asset retirement obligations
    
    
    (2,833
    )Non-cash working capital
    
    
    3,656Cash cost
    
    $
    71,337
  The Company has agreed to indemnify the purchaser of Southward for income
tax and legal expenses to a maximum amount of $1 million for matters
arising prior to the April 30, 2003 acquisition of Southward.(b)
    
    1053638 Alberta Ltd. and 1053639 Alberta Ltd.On August 14, 2003, the Company acquired all of the shares of 1053638
Alberta Ltd. and 1053639 Alberta Ltd., seismic data companies. On August
19, 2003, the Company sold all of the shares of 1053638 Alberta Ltd. The
net acquisitions were accounted for by the purchase method and the purchase
price was allocated as follows: Allocation of purchase price:Capital assets
    
    $
    1,200Cash Cost
    
    $
    1,200
  The disposition of 1053638 Alberta Ltd. did not result in any gain or loss
to the Company. On December 310, 2003, 1053639 Alberta Ltd. was
amalgamated with the Company. F-32




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##### Table of Contents



(c)
    
    Pointwest Energy Inc.On December 30, 2003 the Company acquired all of the shares of Pointwest
Energy Inc. (Pointwest), a privately held oil and gas company. The
acquisition was accounted for by the purchase method and the purchase price
was allocated as follows: Allocation of purchase price:Capital assets
    
    $
    89,363Bank debt
    
    
    (16,429
    )Asset retirement obligations
    
    
    (518
    )Non-cash working capital
    
    
    (5,169
    )Cash cost
    
    $
    67,247
  On December 30, 2003, Pointwest was amalgamated with the Company.  (d)
    
    Oncolytics Biotech Inc.The Company acquired all of the issued and outstanding common shares of
Oncolytics Biotech Inc. (Oncolytics) on April 12, 1999. Oncolytics
subsequently issued common shares which reduced the Companys ownership
interest to 38.6% at December 31, 2000. During 2001, Oncolytics issued
common shares which further reduced the Companys ownership interest and
resulted in a gain on dilution of $357,000. As at December 31, 2001, the
Company held 6,255,800 common shares of Oncolytics Biotech Inc.On May 7, 2002 approval was received from both the shareholders of the
Company and the shareholders of Oncolytics for the distribution of not less
then 4,000,000 Oncolytics shares to the shareholders of the Company on a
pro rata basis. On May 8, 2002 the Company received approval from the
Court of the Queens Bench of Alberta to distribute these Oncolytics shares
and the distribution of 4,000,235 Oncolytics shares was made effective May
15, 2002. The deemed value of these shares on the date of distribution, net
of legal fees with respect to the transaction, was $11,600,000 resulting in
a gain on distribution of $8,325,000. The transaction was marked to market
and accounted for as a return of capital (see Note 9). As part of this
transaction the Companys holding of 1,500,000 million shares in BCY Life
Sciences Inc. was transferred to Oncolytics. No value had been assigned to
these shares in the accounts of the Company and no gain or loss was
recorded as a result of the transaction. The market value of the BCY shares
on May 15, 2002 was $300,000.The Company had used the equity method of accounting for its investment in
Oncolytics Biotech Inc. up until the distribution of the majority of its
holding in Oncolytics on May 15, 2002. Under this method of accounting, the
Company included in its net earnings its share of the net earnings or
losses of Oncolytics. Upon further review of the facts surrounding the
distribution of the Oncolytics shares, the Company has concluded that it
should have ceased to equity account for Oncolytics at the end of the first
quarter of 2002 when it no longer exerted significant influence over
Oncolytics. If the Company had ceased equity accounting for its investment
in Oncolytics at that time, Hawker would not have recorded the portion of
Oncolytics second quarter loss included in its statements. To reflect
this correction, the Company has restated its financial statements for the
year ended December 31, 2002 by decreasing the share of loss from equity
investment in Oncolytics and decreasing the gain on the subsequent sale and
distribution of Oncolytics shares by $157,000 resulting in no change to
reported net earnings for the year. The balance sheet and cash flows for
2002 were not affected by this change.During the year ended December 31, 2002, the Company sold 2,255,565 common
shares in Oncolytics for net proceeds of $6,898,000 resulting in a gain on
sale of $4,742,000. As at December 31, 2002 the Company did not hold any
common shares of Oncolytics.5.
    
    ASSETS HELD FOR SALEAssets held for sale are comprised of the pharmaceutical manufacturing
facility and related manufacturing equipment associated with the former
biotech operations of the Company. During 2003, manufacturing equipment
with a carrying value of $940,000 was sold and the Company wrote down the
carrying value of the remaining assets held for sale by $145,000. The
assets held for sale are recorded at the lower of carrying value and market
value. Market value was based on estimated value as determined by
independent realty advisors. F-33




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##### Table of Contents



6.
    
    CAPITAL ASSETS 2003AccumulatedDepletion andCost
    
    Depreciation
    
    Carrying ValueGas properties
    
    $
    175,631
    
    
    $
    8,916
    
    
    $
    166,715Other
    
    
    295
    
    
    
    20
    
    
    
    275$
    175,926
    
    
    $
    8,936
    
    
    $
    166,990
 2002AccumulatedDepletion andCost
    
    Depreciation
    
    Carrying ValueOther
    
    $
    526
    
    
    $
    503
    
    
    $
    23
  Unproved properties and seismic related to the W4M Properties amounting to
$16,122,000 have been excluded from the depletion and depreciation
calculation for 2003. No depletion and depreciation has been recorded on
the Pointwest properties as they were acquired December 30, 2003. Future
development costs on proven undeveloped reserves of $1,269,000 are included
in the depletion and depreciation calculation.At December 31, 2003, the Company capitalized $564,000 of overhead directly
related to exploration and development activities.7.
    
    BANK LOANThe Company has a $54 million extendible revolving term credit facility
from a Canadian chartered bank. This facility bears interest at rates
varying from Canadian prime rate or U.S. base rate of such bank to the
Canadian prime rate or U.S. base rate plus 75 basis points, payable monthly
in arrears. The Company may also borrow by way of bankers acceptances,
which are subject to a stamping fee, or by way of LIBOR based loans which
are subject to an interest rate spread payable to the bank. The loan is a
revolving facility until June 30, 2004 with annual extension periods
available at the banks discretion. After the revolving phase, the
facility becomes a term facility payable in full one year from the date the
revolving facility is terminated. This facility is subject to semi-annual
review and re-determination of the Companys borrowing base by the bank,
with the next review to occur by March 31, 2004. So long as the loan
remains revolving and the borrowing base supports the facility outstanding,
there are no repayment requirements.The Company also has a $10 million non-revolving bridge facility from the
same Canadian chartered bank. This bridge facility, available to the
Company solely for the acquisition of Pointwest, was fully drawn upon as at
December 31, 2003. The bridge facility bears interest at rates varying
from Canadian prime rate plus 250 basis points, payable monthly in arrears.
The Company may also borrow by way of bankers acceptances that are
subject to a stamping fee payable to the bank. The bridge facility is
repayable in full on or prior to September 30, 2004.While any amounts are outstanding under the bridge facility, the loan
margins on both the extendible revolving term credit facility and the
bridge facility will be increased by (i) 25 basis points effective May 1,
2004; (ii) 50 basis points effective June 1, 2004; (iii) 100 basis points
effective July 1, 2004; (iv) 150 basis points effective August 1, 2004; and
(v) 200 basis points effective September 1, 2004.Collateral pledged for the facilities consists of a first floating
charge demand debenture in the amount of $150 million over all of the
property of the Company.The effective interest rate on the amounts outstanding under the facility
at December 31, 2003 was 5.25%.At December 31, 2003, irrevocable standby letters of credit which guarantee
certain natural gas transportation arrangements had been issued for a total
amount of $311,000. F-34




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##### Table of Contents



8.
    
    ALBERTA HERITAGE FOUNDATION GRANTPursuant to the terms of a technology commercialization agreement
pertaining to pharmaceutical drug development, the Company received a grant
from the Alberta Heritage Foundation for Medical Research (AHFMR) during
1995. The Company was required to repay the amount advanced of $387,000
plus a royalty equivalent to the amount initially received. Any required
repayment and royalty was based on gross sales of SYNSORB related products
commencing January 1, 2000 with payments equal to the lesser of 5% of gross
sales or $100,000 per annum commencing 90 days after January 1, 2001. Due
to the conversion of the Company into an oil and gas enterprise and the
nascent stage of the SYNSORB technology, the AHFMR accepted a royalty
payment of $18,550 during 2003 in exchange for a full release of Hawker
from the terms of the technology commercialization agreement.9.
    
    SHARE CAPITAL(a)
    
    Authorized:Unlimited number of voting common shares without par value.Unlimited number of non-voting class A common shares without par value.Unlimited number of preferred shares to be issued in series.(b)
    
    Common Shares Issued 2003
    
    2002
    
    2001No. of
    
    
    
    
    
    No. of
    
    
    
    
    
    No. ofShares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    AmountBalance, beginning
of year
    
    
    4,959,937
    
    
    $
    12,741
    
    
    
    4,959,937
    
    
    $
    84,271
    
    
    
    4,944,187
    
    
    $
    84,145Reduction of stated
capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (59,896
    )
    
    
    
    
    
    
    Issued for cash
    
    
    28,461,000
    
    
    
    105,633
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Share issue costs
    
    
    
    
    
    
    (6,826
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issued on debenture
and warrant
conversion
    
    
    2,152,465
    
    
    
    1,302
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issued for services
received
    
    
    148,798
    
    
    
    90
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issued for cash on
exercise of options
    
    
    275,000
    
    
    
    192
    
    
    
    
    
    
    
    
    
    
    
    15,750
    
    
    
    126Tax benefits
renounced
    
    
    
    
    
    
    (5,271
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Return of capital on
distribution of
Oncolytics shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,646
    )
    
    
    
    
    
    
    Issuance of stock
options for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    Balance, end of year
    
    
    35,997,200
    
    
    $
    107,861
    
    
    
    4,959,937
    
    
    $
    12,741
    
    
    
    4,959,937
    
    
    $
    84,271
 F-35




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##### Table of Contents



(c)
    
    Class A Common Shares Issued 2003
    
    2002
    
    2001No. of
    
    
    
    
    
    No. of
    
    
    
    
    
    No. ofShares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    AmountBalance, beginning
of year
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Issued on debenture
and warrant conversion
    
    
    3,874,437
    
    
    
    2,343
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, end of year
    
    
    3,874,437
    
    
    $
    2,343
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
  (d)
    
    Contributed Surplus 2003Balance, beginning of year
    
    $
    Stock based compensation
    
    
    132Balance, end of year
    
    $
    132
  (e)
    
    Issue of Debentures and WarrantsPursuant to various financing agreements entered into April 3, 2003, the
Company raised $3,645,000 through the issue of 430,493 Series A Debentures
for $3,616,000, 430,493 Series A Warrants for $12,000, 2,152,465 voting
preferred shares for $6,000 and 3,874,437 non-voting preferred shares for
$11,000.Each Series A Warrant entitled the holder thereof to purchase five common
shares and nine Class A common shares on the concurrent surrender of the
warrant, five voting preferred shares, nine non-voting preferred shares,
and one Series A Debenture. On May 29, 2003, immediately after the issue
of a receipt for the prospectus offering common shares for sale and issue,
the Series A Warrants were exercised and the Company issued 2,152,465
common shares and 3,874,437 Class A common shares upon the surrender of the
voting and non-voting preferred shares and Series A Debentures.(f)
    
    Share ConsolidationOn May 7, 2002, the shareholders of the Company approved the consolidation
of the common shares on the basis of one new common share being issued for
every eight previously issued and outstanding common shares. All
outstanding share and option numbers reflect the one for eight
consolidation. The consolidated shares began trading on May 16, 2002.
Simultaneously with the share consolidation was the distribution of the
4,000,235 shares in Oncolytics to the shareholders of the Company. This
distribution was accounted for as a capital transaction and accordingly,
the stated capital of the common shares was reduced by $11,646,000.(g)
    
    Reduction of Stated CapitalPursuant to the Plan of Arrangement ratified by shareholders of the Company
at the May 7, 2002 Annual and Special Meeting, the stated capital of the
Companys shares was reduced to the net realizable value of the Companys
assets as at May 7, 2002.(h)
    
    Flow-Through SharesDuring 2003, the Company issued common shares on a flow-through basis for
gross proceeds of $15,225,000 to finance certain oil and gas expenditures
to be incurred in 2004. The renouncement of these expenditures was made to
the purchasers of these shares effective December 31, 2003 and accordingly,
share capital has been reduced by the amount of the tax benefits associated
with these expenditures. The corresponding future tax liability has also
been recognized in the current year. F-36




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##### Table of Contents



(i)
    
    Stock OptionsThe Company has a stock option plan that provides for the issuance of
options to its directors, officers, employees and non-employees to acquire
up to 1,181,513 common shares. The dates on which options vest are set by
the board of directors at the time of grant. The exercise price of an
option granted is the closing price of the Companys stock on the last
trading date prior to the grant date. The dates on which options expire
are also set by the board of directors at the time of grant and cannot
exceed ten years. The Company has issued stock options to acquire common
shares through its stock option plan of which the following are outstanding
at December 31, 2003: 2003
    
    2002
    
    2001Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    average
    
    
    
    
    
    averageexercise
    
    
    
    
    
    exercise
    
    
    
    
    
    exerciseNumber of
    
    price
    
    Number of
    
    price
    
    Number of
    
    priceOptions
    
    $
    
    Options
    
    $
    
    Options
    
    $Outstanding at
beginning of the year
    
    
    330,565
    
    
    
    9.80
    
    
    
    244,440
    
    
    
    40.88
    
    
    
    275,877
    
    
    
    49.60Granted
    
    
    428,000
    
    
    
    3.66
    
    
    
    275,000
    
    
    
    0.70
    
    
    
    65,625
    
    
    
    12.88Exercised
    
    
    (275,000
    )
    
    
    0.70
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expired
    
    
    (12,500
    )
    
    
    87.20
    
    
    
    (6,250
    )
    
    
    68.00
    
    
    
    
    
    
    
    Forfeited
    
    
    (27,064
    )
    
    
    52.20
    
    
    
    (182,625
    )
    
    
    35.76
    
    
    
    (97,062
    )
    
    
    46.64Outstanding at year end
    
    
    444,001
    
    
    
    4.74
    
    
    
    330,565
    
    
    
    9.80
    
    
    
    244,440
    
    
    
    40.88Options exercisable at
end of year
    
    
    15,751
    
    
    
    34.27
    
    
    
    329,065
    
    
    
    9.80
    
    
    
    212,550
    
    
    
    45.04
 The following table summarizes information about the stock options outstanding
at December 31, 2003: WeightedNumber
    
    average
    
    Weighted
    
    Numberoutstanding
    
    remaining
    
    average
    
    exercisable
    
    WeightedDecember 31,
    
    contractual
    
    exercise
    
    December 31,
    
    average2003
    
    life (years)
    
    price
    
    2003
    
    exercise priceRange of exercise prices$3.00 to $4.00
    
    
    365,000
    
    
    
    4.44
    
    
    $
    3.57
    
    
    
    
    
    
    
    $4.01 to $5.00
    
    
    60,000
    
    
    
    4.89
    
    
    $
    4.08
    
    
    
    
    
    
    
    $5.01 to $9.00
    
    
    3,000
    
    
    
    4.67
    
    
    $
    5.20
    
    
    
    
    
    
    
    $9.01 to $30.00
    
    
    8,188
    
    
    
    2.33
    
    
    $
    20.06
    
    
    
    7,938
    
    
    $
    20.42$30.01 to $90.00
    
    
    7,813
    
    
    
    4.30
    
    
    $
    48.33
    
    
    
    7,813
    
    
    $
    48.33444,001
    
    
    
    4.46
    
    
    $
    4.74
    
    
    
    15,751
    
    
    $
    34.27
  For the year ended December 31, 2003, no stock options were granted to
non-employees. The Company has undertaken to facilitate the surrender of
out-of-the-money options that were issued in previous years when the
Company conducted pharmaceutical drug development. Subsequent to December
31, 2003, the Company granted options to purchase 64,600 common shares at a
weighted average price of $5.48, which expire during the first quarter of
2009. Also subsequent to December 31, 2003, options to purchase 15,000
common shares at $3.45 were forfeited.(j)
    
    Per Share AmountsThe weighted average number of common shares and Class A common shares
outstanding during the year ended December 31, 2003 of 17,123,542 (2002:
4,959,937; 2001: 4,955,199) were used to calculate net earnings per common
share. For the year ended December 31, 2003, the exercise price of the
outstanding stock options exceeded the average market price of the common
            shares making the options anti-dilutive. For the year ended December 31,
2002, the respective exercise price of the stock options and warrants
exceeded the average market price of the common shares making the options
and warrants anti-dilutive. For the year ended December 31, 2001, option
and warrant conversions were not included in the computation of diluted
earnings per share because the effect on the net loss for the year of the
issue of additional shares on the conversions would be anti-dilutive. F-37




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##### Table of Contents



10.
    
    STOCK BASED COMPENSATIONOptions granted after January 1, 2003 are accounted for using the fair
value method. The fair value of common share options granted in 2003 is
estimated to be $789,000 as at the date of grant using the Black-Scholes
option pricing model and the following weighted average assumptions: 2003Risk-free interest rate (%)
    
    
    3.79Expected life (years)
    
    
    4.00Expected volatility (%)
    
    
    54.59Expected dividend yield (%)
    
    
    0
  The estimated fair value of the options is amortized to expense over the
options vesting period on a straight-line basis. For the year ended
December 31, 2003, stock based compensation expense of $132,000 was
included in general and administrative expenses.Had the fair value based method of accounting for stock based compensation
been used for options granted in 2002, the Companys net earnings and net
earnings per share for the year ended December 31, 2002 would have been
reduced to the pro forma amounts indicated below: 2002Net earningsAs reported
    
    $
    3,766Pro forma
    
    $
    3,646Basic and diluted net earnings per common shareAs reported ($/share)
    
    $
    0.76Pro forma ($/share)
    
    $
    0.74
  The pro forma amounts shown above do not include the compensation costs
associated with stock options granted prior to January 1, 2002. The fair
value of common share options granted in 2002 was estimated to be $120,000
as at the date of grant using the Black-Scholes option pricing model and
the following assumptions: 2002Risk-free interest rate (%)
    
    
    2.89Expected life (years)
    
    
    1.00Expected volatility (%)
    
    
    1.97Expected dividend yield (%)
    
    
    0
 All stock options issued in 2002 were exercised in 2003. F-38




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##### Table of Contents



11.
    
    INCOME TAXESThe provision for income taxes recorded in the financial statements differs
from the amount which would be obtained by applying the statutory income
tax rate to the net earnings (loss) before tax as follows: 2003

    
    2002
    
    2001Earnings (loss) before tax
    
    $
    (2,612
    )
    
    $
    3,766
    
    
    $
    (24,544
    )Statutory Canadian corporate tax rate
    
    
    40.74
    %
    
    
    39.24
    %
    
    
    42.12
    %Anticipated tax expense (recovery)
    
    
    (1,064
    )
    
    
    1,478
    
    
    
    (10,338
    )Non-deductible Crown payments
    
    
    945
    
    
    
    
    
    
    
    Resource allowance
    
    
    (878
    )Recognition of loss carryforward previously unrecognized
    
    
    (5,271
    )
    
    
    
    
    
    
    Effect of tax rate change
    
    
    519
    
    
    
    
    
    
    
    Gain on dilution of investment in Oncolytics
    
    
    
    
    
    
    
    
    
    
    (75
    )Taxable income from investment in Oncolytics
    
    
    
    
    
    
    
    
    
    
    421Non-taxable portion of capital gain
    
    
    
    
    
    
    (2,536
    )
    
    
    (633
    )Non-deductible portion of equity loss
    
    
    
    
    
    
    92
    
    
    
    Non-deductible expenses
    
    
    
    
    
    
    3
    
    
    
    26Future tax assets valuation allowance
    
    
    478
    
    
    
    963
    
    
    
    9,043Future income tax recovery
    
    $
    (5,271
    )
    
    $
    
    
    
    $
    (1,556
    )
  Future income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The
components of the Companys future income tax assets and liabilities are as
follows: 2003
    
    2002Future tax liabilities:Net book value of capital assets in excess of tax pools
    
    $
    (10,726
    )
    
    $
    Future tax assets:Tax pools in excess of net book value of capital assets
    
    
    
    
    
    
    6,422Non-capital loss carryforwards
    
    
    6,243
    
    
    
    11,984Scientific research and development pools
    
    
    7,784
    
    
    
    7,896Share issue costs
    
    
    2,006
    
    
    
    400Attributed Canadian royalty income
    
    
    268
    
    
    
    Asset retirement obligation
    
    
    1,212
    
    
    
    Net future tax assets
    
    
    6,787
    
    
    
    26,702Valuation allowance
    
    
    (6,787
    )
    
    
    (26,702
    )Net future taxes
    
    $
    
    
    
    $
    
  The Company has non-capital losses for income tax purposes of approximately
$18,035,000 which are available for application against future taxable
income and which expire in the following years: 2006
    
    $
    1,4482007
    
    
    5,1032008
    
    
    11,484$
    18,035
  The income tax benefit of these losses has not been recognized in the
financial statements, as reflected in the valuation allowance. The Company
also has approximately $5,700,000 of unclaimed investment tax credits
available to reduce future years income taxes payable. F-39




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##### Table of Contents



12.
    
    RELATED PARTY TRANSACTIONSA director of the Company is a partner of a law firm that was paid
$2,150,000 for legal services for the period from the date elected as a
director, April 3, 2003, to December 31, 2003. The fees charged were based
on standard rates and time spent on Company matters.13.
    
    FINANCIAL INSTRUMENTS(a)
    
    Fair ValueThe Company has financial instruments consisting of accounts receivable,
investments, accounts payable and bank loans. The carrying value of these
instruments approximates fair value unless otherwise stated.Pursuant to the exercise of the option to purchase the W4M properties (Note
4), the Company acquired an interest in forward sales contracts and
financial hedging contracts with respect to production from the purchased
properties as follows: Transaction Type
    
    Volume (GJ/d)
    
    Contract Price (GJ/d)
    
    ExpiryCostless Collar
    
    4,830
    
    $6.36 - $7.15
    
    March 31, 2004Fixed
    
    1,610
    
    $6.76
    
    March 31, 2004Cogeneration Fuel Supply
    
    263
    
    $1.959 - $2.217
    
    October 31, 2008Daily Declining Profile
    
    841(1)
    
    Netback(2)
    
    October 31, 2011Reserve Based
    
    101
    
    Netback(3)
    
    Life of reserves
  Based on dealer quotes, had these contracts been closed on December 31,
2003, a loss of $1,467,000 would have been realized.Notes:(1)
    
    The Companys obligations under this contract will, on November 1 of each
succeeding year, decline to the following: Date
    
    Obligation (GJ/d)November 1, 2004
    
    724November 1, 2005
    
    623November 1, 2006 and thereafter
    
    568
  (2)
    
    TransCanada Pipelines Limited netback pricing.(3)
    
    Progas Limited netback pricing.The following financial hedging contracts were entered into subsequent to
December 31, 2003: Transaction Type
    
    Volume (GJ/d)
    
    AECO Price (GJ/d)
    
    TermCollar
    
    5,000
    
    $5.50 - $6.35
    
    April 1, 2004 to October 31, 2004Collar
    
    8,000
    
    $5.50 - $6.40
    
    April 1, 2004 to October 31, 2004Collar
    
    5,000
    
    $5.50 - $6.36
    
    April 1, 2004 to October 31, 2004Fixed Price Swap
    
    5,000
    
    $5.745
    
    April 1, 2004 to June 30, 2004Fixed Price Swap
    
    5,000
    
    $5.745
    
    August 1, 2004 to October 31, 2004Fixed Price Swap
    
    5,000
    
    $5.7725
    
    April 1, 2004 to October 31, 2004
 F-40




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##### Table of Contents



(b)
    
    Credit Risk  A substantial portion of the Companys accounts receivable are with
entities in the oil and gas industry. The Company generally extends
unsecured credit to these companies, and therefore, the collection of
accounts receivable may be affected by changes in economic or other
conditions and may accordingly impact the Companys overall credit risk.
Management believes the risk is mitigated by the size, reputation and
diversified nature of the companies to which they extend credit. The
Company has not previously experienced any material credit losses on the
collection of receivables.(c)
    
    Interest Rate RiskThe Company is exposed to interest rate risk in relation to interest
expense on its revolving credit facility and non-revolving bridge facility.14.
    
    SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONChanges in non-cash working capital were comprised of the following: 2003
    
    2002
    
    2001Accounts receivable
    
    $
    (11,550
    )
    
    $
    35
    
    
    $
    135Prepaids and other current assets
    
    
    (1,669
    )
    
    
    (23
    )
    
    
    (34
    )Investments
    
    
    (2,500
    )
    
    
    
    
    
    
    Accounts payable and accrued
liabilities
    
    
    23,670
    
    
    
    (4,791
    )
    
    
    3,541Less working capital deficiency
on acquisitions
    
    
    (1,513
    )
    
    
    
    
    
    
    Net change
    
    $
    6,438
    
    
    $
    (4,779
    )
    
    
    3,642Net change by activity:Operating
    
    $
    5,660
    
    
    $
    (4,779
    )
    
    $
    3,642Investing
    
    
    806
    
    
    
    
    
    
    
    Financing
    
    
    (28
    )
    
    
    
    
    
    
    Net change
    
    $
    6,438
    
    
    $
    (4,779
    )
    
    $
    3,642
  Additional information: 2003
    
    2002
    
    2001Cash interest paid
    
    $
    495
    
    
    $
    71
    
    
    $
    787Cash taxes paid
    
    
    
    
    
    
    10
    
    
    
    86
  15.
    
    CONTINGENCIESThe Company, in the normal course of operations, is subject to a variety of
legal and other claims against the Company. Management and the Companys
legal counsel evaluate all claims on their apparent merits, and accrue
managements best estimate of the likely costs to satisfy such claims.
Management believes that the outcome of legal and other claims filed
against the Company will not have a significant impact on the Companys
financial position, operations or cash flows.The Company indemnifies its directors and officers against any and all
claims or losses reasonably incurred in the performance of their service to
the Company to the extent permitted by law. The Company has acquired and
maintains liability insurance for its directors and officers. F-41




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##### Table of Contents



16.
    
    COMMITMENTSThe Company has committed to purchase seismic data in the amount $225,000
during the first six months of 2004.The Company is committed to payments under operating leases for office
space as follows: 2004
    
    $
    6112005
    
    
    7182006
    
    
    4132007
    
    
    3852008
    
    
    385$
    2,512
  17.
    
    SUBSEQUENT EVENTSOn March 17, 2004, the Company acquired 100% of the shares of Zorin
Exploration Ltd. for aggregate consideration of $7.4 million comprising
$1.5 million of cash and $5.9 million of equity representing 1,150,000
common shares.18.
    
    RECONCILIATION OF CANADIAN AND UNITED STATES  GENERALLY
ACCEPTED ACCOUNTING PRINCIPLESThe financial statements are prepared in accordance with Canadian generally
accepted accounting principles (Canadian GAAP) which, in most respects,
conform to United States generally accepted accounting principles (US
GAAP). Significant differences between Canadian GAAP and US GAAP are as
follows: 2003
    
    2002
    
    2001Notes
    
    $
    
    $
    
    $Net earnings
(loss) - Canadian GAAP
    
    
    
    
    
    
    2,314
    
    
    
    3,766
    
    
    
    (22,988
    )Derivatives and other financial instruments
    
    
    (a
    )
    
    
    (1,467
    )
    
    
    
    
    
    
    Investments
    
    
    (b
    )
    
    
    512
    
    
    
    
    
    
    
    Share of loss from equity investment in Oncolytics
    
    
    (c
    )
    
    
    
    
    
    
    314
    
    
    
    1,831Gain on sale of Oncolytics shares
    
    
    (c
    )
    
    
    
    
    
    
    5,431
    
    
    
    476Gain on dilution of investment in Oncolytics
    
    
    (c
    )
    
    
    
    
    
    
    
    
    
    
    (357
    )Amortization
    
    
    (d
    )
    
    
    
    
    
    

    
    
    
    
    671Tax expense on issue of flow-through shares
    
    
    (f
    )
    
    
    (1,936
    )
    
    
    
    
    
    
    Depletion and depreciation
    
    
    (g
    )
    
    
    (17,243
    )
    
    
    
    
    
    
    Net earnings (loss) and comprehensive earnings
(loss) - US GAAP
    
    
    
    
    
    
    (17,820
    )
    
    
    9,511
    
    
    
    (20,367
    )Net earnings
(loss) per common share - US GAAP
    
    
    
    
    
    
    (1.04
    )
    
    
    1.92
    
    
    
    (4.11
    )
  Balance sheet items in accordance with US GAAP are as follows: December 31, 2003
    
    December 31, 2002Canadian
    
    US
    
    Canadian
    
    USGAAP
    
    GAAP
    
    GAAP
    
    GAAP(in thousands of dollars)
    
    Notes
    
    $
    
    $
    
    $
    
    $Investments
    
    
    (b
    )
    
    
    2,500
    
    
    
    3,012
    
    
    
    
    
    
    
    Derivative financial instruments
    
    
    (a
    )
    
    
    
    
    
    
    1,467
    
    
    
    
    
    
    
    Capital assets
    
    
    (g
    )
    
    
    166,990
    
    
    
    149,747
    
    
    
    
    
    
    
    Share capital
    
    
    (f)
    
    
    
    110,204
    
    
    
    112,140
    
    
    
    12,741
    
    
    
    12,741Deficit
    
    
    (a),(b), (f), (g)
    
    
    
    (6,879
    )
    
    
    (27,013
    )
    
    
    (9,193
    )
    
    
    (9,193
    )
 F-42




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##### Table of Contents



(a)
    
    Derivative Financial InstrumentsThe Company has designated, for Canadian GAAP purposes, its derivative
financial instruments as hedges of anticipated revenue. In accordance with
Canadian GAAP, payments or receipts on these contracts are recognized in
income concurrently with the hedged transaction. The fair values of the
contracts deemed to be hedges are not reflected in the financial
statements.For US purposes, the Company has adopted Statement of Financial Accounting
Standards No. 133, as amended, Accounting for Derivative Instruments and
Hedging Activities. With the adoption of this standard, all derivative
instruments are recognized on the balance sheet at fair value. The
standard requires that changes in the derivative instruments fair value be
recognized currently in earnings unless specific hedge accounting criteria
are met.Management has not designated any of the currently held financial
instruments as hedges for US GAAP purposes and accordingly, these
derivatives have been recognized on the balance sheet at fair value with
the change in their value recognized in earnings.Under US GAAP for the year ended December 31, 2003, additional expense of
$1,467,000 before and after taxes (2002: Nil; 2001: Nil) would have been
recorded.(b)
    
    InvestmentsUnder US GAAP, equity securities that are bought and held principally for
the purpose of selling them in the short term are classified as trading
securities and reported at fair value with unrealized gains and losses
included in earnings. Under Canadian GAAP, these gains and losses are not
recognized in earnings until the security is sold. As at December 31,
2003, the Company had unrealized holding gains of $512,000.(c)
    
    Accounting for Oncolytics SharesUS GAAP differences result when accounting for Oncolytics Shares as
follows:  i.
    
    During 1999, the Company acquired Oncolytics for $2,500,000.
Under US GAAP, the purchase price would have been allocated to the
following: (in thousands of dollars)
    
    $Research and development
    
    
    3,615Future tax liability
    
    
    (1,115
    )2,500
  The research and development had no alternative future uses. Under
Canadian GAAP, the research and development has to be capitalized,
however under US GAAP, this amount would have been charged to expense
and accordingly the investment in Oncolytics had no accounting cost
basis under US GAAP.ii.
    
    Under Canadian GAAP, a gain may be realized when a
development stage subsidiary issues shares from treasury diluting
the parent companys ownership. US GAAP does not allow the
recognition of a gain on dilution of a development stage subsidiary.iii.
    
    The write off of the acquisition costs of the Oncolytics
shares, as described in (i), results in a nil accounting cost for
the shares under US GAAP. The accounting cost for Canadian GAAP
subsequently increases for the dilution gains recognized and
decreases to reflect the Companys share of loss from equity
accounting under Canadian GAAP. Adjustments are made under US GAAP
to eliminate the effect of dilution gains, equity losses and the
resulting impact on gains recognized on the sale of Oncolytics
shares. F-43




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##### Table of Contents



(d)
    
    Depreciation on BuildingUnder US GAAP, amortization of the Companys building must commence when it
is physically ready for use. Under Canadian GAAP, amortization begins when
commercial use of the building begins. On January 1, 2000, the Companys
building was physically ready for use, however commercial use had not
commenced. Therefore $671,000 of additional amortization is recorded under
US GAAP in 2000. In 2001, the building was written down to its estimated
net realizable value. Under US GAAP, given amortization was recorded in
2000, the writedown in 2001 has been reduced by $671,000. The building was
held for sale during 2002 and 2003 and was written down to its estimated
net realizable value at December 31, 2002 and 2003. Therefore, in 2002 and
2003, there was no difference in accounting under US GAAP.(e)
    
    Stock Based CompensationFor US reporting purposes, the statement of Financial Accounting Standard
No.123 Accounting for Stock Based Compensation (SFAS 123) requires the
reporting of pro forma amounts for compensation expense that would have
been recorded for the issuance of share options using a fair value option
pricing model. On January 1, 2002, the Company adopted the new CICA
standard for stock-based compensation, resulting in the pro forma
disclosure contained in Note 10. The Company has applied this change
prospectively commencing on the date of adoption, effectively eliminating
the US GAAP difference associated with this accounting.The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions: 2001Risk free interest rate
    
    
    5.13
    %Dividend yield
    
    
    0
    %Volatility factors of expected market price
    
    
    119
    %Weighted average expected life of the options
    
    1 year
  Pro forma disclosures of loss and loss per common share are presented below
as if the Company had adopted the cost recognition requirements under SFAS
123. The compensation cost for the stock-based compensation was
approximately $382,495 in 2001. 2001(in thousands of dollars)
    
    
    
    $Loss  US GAAP
    
    As reported
    
    
    (20,367
    )Pro forma
    
    
    (20,749
    )Loss per common share  US GAAP
    
    As reported ($/share)
    
    
    (4.11
    )Pro forma ($/share)
    
    
    (4.19
    )
  (f)
    
    Flow-Through Shares  Canadian GAAP requires that any cost of future income taxes arising when an
entity renounces the deductibility of expenditures to an investor in
flow-through shares should be accounted for as a cost of issuing the shares
resulting in a reduction of share capital. Under US GAAP, the proceeds
from the issuance of flow-through shares should be allocated between the
offering of shares and the sale of tax benefits. The allocation is made
based on the difference between the quoted price of the existing shares and
the amount the investor pays for the shares. A liability is recognized for
this difference. The liability is reversed when tax benefits are renounced
and a deferred tax liability is recognized at that time. The difference
between the amount of the deferred tax liability and the liability
recognized on issuance is recorded as deferred income tax expense therefore
increasing the deficit and increasing the amount of share capital.(g)
    
    ImpairmentsUnder both US and Canadian GAAP, property, plant and equipment must be
assessed for potential impairments. Under US GAAP, if the sum of the
present value of estimated future net revenues computed by applying current
prices of oil and gas reserves to estimated future production of proved oil
and gas reserves, less estimated future expenditures (based on current
costs), discounted at ten percent, is less than the net capitalized costs
(net of deferred income taxes), the excess is charged to expense. As
disclosed in note 2, under Canadian GAAP, the impairment loss is the
difference between the net carrying value of the asset and the estimated
value of future net revenues. The resulting differences in recorded
carrying values of impaired assets result in further differences in
depreciation and depletion expense in subsequent years. F-44




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##### Table of Contents



INDEX TO EXHIBITS ExhibitNumber
    
    Description1.1(1)
    
    Articles of Incorporation of the Company dated February 14, 19941.2(1)
    
    Articles of Amendment of the Company dated March 31, 1994.1.3(1)
    
    Articles of Amendment of the Company dated July 12, 1994.1.4(1)
    
    Articles of Arrangement of the Company dated May 8, 2002.1.5(1)
    
    Restated Articles of Incorporation of the Company dated May 8, 2002.1.6(1)
    
    Articles of Amendment and Restated Articles of the Company dated April 3, 2003.1.7(1)
    
    Articles of Amendment and Restated Articles of the Company dated April 3, 2003.1.8
    
    Articles of Amalgamation and
Registration Statement of the Company dated December 30, 20031.9
    
    Articles of Amalgamation and
Registration Statement of the Company dated December 30, 20031.10
    
    Articles of Amalgamation and
Registration Statement of the Company dated December 31, 20031.11
    
    Articles of Amendment and
Restated Articles of the Company dated May 3, 20041.12(1)
    
    By-Law Number 1 of the Company dated March 31, 1994.4.1(1)
    
    Stock Option Plan of the Company12.1
    
    Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxly Act of 200212.2
    
    Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxly Act of 200213.1
    
    Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxly Act of 200213.2
    
    Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxly Act of 2002
 Note: (1)
    
    Previously filed by the Company.