UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 20-F



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



OR



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



For the fiscal year ended August 31, 2012



OR



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



OR



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



Date of event requiring this shell company
report ____________________________



For the transition period from_________________to______________



Commission File Number: 0-53646



EAGLEFORD ENERGY INC.

(Exact name of Registrant as specified in
its charter)



Ontario, Canada

(Jurisdiction of incorporation or organization)



1 King Street West, Suite 1505

Toronto, Ontario, Canada, M5H 1A1

(Address of principal executive offices)



James Cassina, Telephone (416) 364-4039,
Fax (416) 364-8244

1 King Street West, Suite 1505, Toronto,
Ontario, Canada, M5H 1A1

(Name, telephone, e-mail and/or facsimile
number and address of company contact person)



Securities registered or to be registered pursuant to section
12(b) of the Act:   None



Securities registered or to be registered pursuant to Section
12(g) of the Act:   Common Stock, no par value



(Title of Class)



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



(Title of Class)



The number of outstanding shares of the issuer’s common
stock as of August 31, 2012 was 96,707,667 shares.



Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.  Yes  ̈  No
x



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



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.    Yes x    No  ̈



Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).     Yes x 
     No  ̈



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



|Large accelerated filer  ̈ | Accelerated filer  ̈ | Non-accelerated filer x
|------------------------- | ------------------- | -----------------------



Indicate by check mark which basis of accounting the registrant
has used to prepare the financial statements included in this filing:



|U.S. GAAP  ̈ | International Financial Reporting Standards
        by the International Accounting
        Standards Board x | Other   ̈
|----------- | ------------------------------------------------------------------------------------------------------------- | --------





If “Other” has been checked in response to the previous
question, indicate by check mark which financial statement item the registrant has elected to follow.  ‘



Item 17  ̈    Item
18  ̈



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











Table of Contents



|GENERAL                                   | 1                                                      
|----------------------------------------- | -------------------------------------------------------
|NOTE REGARDING FORWARD-LOOKING STATEMENTS | 1                                                      
|PART I                                    |                                                        
|ITEM 1                                    | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS  
|A.                                        | DIRECTORS AND SENIOR MANAGEMENT                        
|B.                                        | ADVISERS                                               
|C.                                        | AUDITORS                                               
|ITEM 2                                    | OFFER STATISTICS AND EXPECTED TIMETABLE                
|A.                                        | OFFER STATISTICS                                       
|B.                                        | METHOD AND EXPECTED TIMETABLE                          
|ITEM 3                                    | KEY INFORMATION                                        
|A.                                        | SELECTED FINANCIAL DATA                                
|B.                                        | CAPITALIZATION AND INDEBTEDNESS                        
|C.                                        | REASONS FOR THE OFFER AND USE OF PROCEEDS              
|D.                                        | RISK FACTORS                                           
|ITEM 4                                    | INFORMATION ON THE COMPANY                             
|A.                                        | HISTORY AND DEVELOPMENT OF THE COMPANY                 
|B.                                        | BUSINESS OVERVIEW                                      
|C.                                        | ORGANIZATIONAL STRUCTURE                               
|D.                                        | PROPERTY, PLANTS AND EQUIPMENT                         
|ITEM 4A                                   | UNRESOLVED STAFF COMMENTS                              
|ITEM 5                                    | OPERATING AND FINANCIAL REVIEW AND PROSPECTS           
|A.                                        | OPERATING RESULTS                                      
|B.                                        | LIQUIDITY AND CAPITAL RESOURCES                        
|C.                                        | RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.   
|D.                                        | TREND INFORMATION                                      
|E.                                        | OFF-BALANCE SHEET ARRANGEMENTS                         
|F.                                        | TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS          
|G.                                        | SAFE HARBOR                                            
|ITEM 6.                                   | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES             
|A.                                        | DIRECTORS AND SENIOR MANAGEMENT                        
|B.                                        | COMPENSATION                                           
|C.                                        | BOARD PRACTICES                                        
|D.                                        | EMPLOYEES                                              
|E.                                        | SHARE OWNERSHIP                                        
|ITEM 7                                    | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS      
|A.                                        | MAJOR SHAREHOLDERS                                     
|B.                                        | RELATED PARTY TRANSACTIONS                             
|C.                                        | INTERESTS OF EXPERTS AND COUNSEL                       
|ITEM 8                                    | FINANCIAL INFORMATION                                  
|A.                                        | CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
|B.                                        | SIGNIFICANT CHANGES                                    
|ITEM 9                                    | THE OFFER AND LISTING                                  
|A.                                        | OFFER AND LISTING DETAILS                              
|B.                                        | PLAN OF DISTRIBUTION                                   



i







|C.       | MARKETS                                                                      | 69
|-------- | ---------------------------------------------------------------------------- | --
|D.       | SELLING SHAREHOLDERS                                                         | 69
|E.       | DILUTION                                                                     | 69
|F.       | EXPENSES OF THE ISSUE                                                        | 69
|ITEM 10  | ADDITIONAL INFORMATION                                                       | 69
|A.       | SHARE CAPITAL                                                                | 69
|B.       | MEMORANDUM AND ARTICLES OF ASSOCIATION                                       | 69
|C.       | MATERIAL CONTRACTS                                                           | 72
|D.       | EXCHANGE CONTROLS                                                            | 74
|E.       | TAXATION                                                                     | 75
|F.       | DIVIDENDS AND PAYING AGENTS                                                  | 78
|G.       | STATEMENT BY EXPERTS                                                         | 78
|H.       | DOCUMENTS ON DISPLAY                                                         | 78
|I.       | SUBSIDIARY INFORMATION                                                       | 78
|ITEM 11  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   | 78
|ITEM 12  | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       | 82
|A.       | DEBT SECURITIES                                                              | 82
|B.       | WARRANTS AND RIGHTS                                                          | 82
|C.       | OTHER SECURITIES                                                             | 82
|D.       | AMERICAN DEPOSITORY SHARES                                                   | 82
|PART II  |                                                                              | 82
|ITEM 13  | DEFAULTS, DIVIDENDS ARREARAGES AND DELINQUENCIES                             | 82
|ITEM 14  | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 83
|ITEM 15  | CONTROLS AND PROCEDURES                                                      | 83
|ITEM 16  | [RESERVED]                                                                   | 84
|ITEM 16A | AUDIT COMMITTEE FINANCIAL EXPERT                                             | 84
|ITEM 16B | CODE OF ETHICS                                                               | 84
|ITEM 16C | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                       | 85
|ITEM 16D | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                   | 85
|ITEM 16E | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS       | 85
|ITEM 16F | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT                                 | 85
|ITEM 16G | CORPORATE GOVERNANCE                                                         | 86
|ITEM 16H | MINE SAFETY DISCLOSURE                                                       | 86
|PART III |                                                                              | 86
|ITEM 17  | FINANCIAL STATEMENTS                                                         | 86
|ITEM 18  | FINANCIAL STATEMENTS                                                         | 86
|ITEM 19  | EXHIBITS                                                                     | 86



ii







GENERAL



In this Annual Report, references to “we”,
“us”, “our”, the “Company”, and “Eagleford” mean Eagleford Energy Inc., and its
subsidiaries, unless the context requires otherwise.



We use the Canadian dollar as our reporting
and presentation currency and our consolidated financial statements are prepared in accordance with International Financial Reporting
Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). Note 18 to our
consolidated financial statements provides a reconciliation of our August 31, 2011 consolidated financial statements to IFRS from
the previous Canadian generally accepted accounting principles. All monetary references in this document are to Canadian dollars,
unless otherwise indicated. All references in this document to “dollars” or “$” or “CDN$” mean
Canadian dollars, unless otherwise indicated, and references to “US$” mean United States dollars.



Except as noted, the information set forth
in this Annual Report is as of November 30, 2012 and all information included in this document should only be considered accurate
as of such date. Our business, financial condition or results of operations may have changed since that date.



NOTE REGARDING FORWARD-LOOKING STATEMENTS



Much of the information included in this
Annual Report is based upon estimates, projections or other “forward-looking statements”. Such forward-looking statements
include any projections or estimates made by us and our management in connection with our business operations. These statements
relate to future events or our future financial performance. In some cases you can identify forward-looking statements by terminology
such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”,
“estimates”, “predicts”, “potential” or “continue” or the negative of those terms
or other comparable terminology. While these forward-looking statements, and any assumptions upon which they are based, are made
in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary,
sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Such
estimates, projections or other forward-looking statements involve various risks and uncertainties and other factors, including
the risks in the section titled “Risk Factors” below, which may cause our actual results, levels of activities, performance
or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or
implied by these forward-looking statements. We caution the reader that important factors in some cases have affected and, in the
future, could materially affect actual results and cause actual results to differ materially from the results expressed in any
such estimates, projections or other forward-looking statements. Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required
by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements
to conform those statements to actual results.



The statements contained in Item 4 –
“Information on the Company”, Item 5 – “Operating and Financial Review and Prospects” and Item 11
– “Quantitative and Qualitative Disclosures About Market Risk” are inherently subject to a variety of risks and
uncertainties that could cause actual results, performance or achievements to differ significantly.



PART I



ITEM 1	IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS



| | A. | DIRECTORS AND SENIOR MANAGEMENT
| | -- | -------------------------------



Not applicable.  This Form 20-F is being filed as
an Annual Report under the Exchange Act.



| | B. | ADVISERS
| | -- | --------



Not applicable.  This Form 20-F is being filed as
an Annual Report under the Exchange Act.



| | C. | AUDITORS
| | -- | --------



Not applicable.  This Form 20-F is being filed as
an Annual Report under the Exchange Act.



1







ITEM 2	OFFER
STATISTICS AND EXPECTED TIMETABLE



| | A. | OFFER STATISTICS
| | -- | ----------------



Not applicable.  This Form 20-F is being filed as
an Annual Report under the Exchange Act.



| | B. | METHOD AND EXPECTED TIMETABLE
| | -- | -----------------------------



Not applicable.  This Form 20-F is being filed as
an Annual Report under the Exchange Act.



ITEM 3	KEY
INFORMATION



| | A. | SELECTED FINANCIAL DATA
| | -- | -----------------------



The following table presents selected financial
data derived from our Audited Consolidated Financial Statements for the fiscal years ended August 31, 2012 and 2011. You should
read this information in conjunction with our Audited Consolidated Financial Statements and related notes (Item 18), as well
as Item 4: “Information on the Company” and Item 5: “Operating and Financial Review and Prospects” of this
Annual Report.



Our consolidated financial statements have
been prepared in accordance International Financial Reporting Standards (“IFRS”), as issued by the International Accounting
Standards Board (“IASB”). Note 18 to our consolidated financial statements provides a reconciliation of our August
31, 2011 consolidated financial statements to IFRS from the previous Canadian generally accepted accounting principles. The selected
consolidated statement of operations data set forth below for the years ended August 31, 2012 and 2011 and the selected consolidated
statement of financial position information set forth below as of August 31, 2012 and 2011 is derived from our consolidated financial
statements, which have been audited by Schwartz Levitsky Feldman LLP, Chartered Accountants, Toronto, Canada all of which are attached
to and forming part of this Annual Report under Item 18 – Financial Statements.



2







EAGLEFORD ENERGY INC.

Prepared in accordance with International
Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”)

(STATED IN CANADIAN DOLLARS)

Except share and per share data



|CONSOLIDATED STATEMENT OF FINANCIAL POSITION INFORMATION |  | YEARS ENDED AUGUST 31, |          
|-------------------------------------------------------- |  | ---------------------- | ---------
|                                                         |  | 2012                   |          
|Cash and cash equivalents                                |  | $                      | 330,003  
|Total assets                                             |  | $                      | 8,998,016
|Total liabilities                                        |  | $                      | 6,047,663
|Total shareholders’ equity                               |  | $                      | 2,950,353



|CONSOLIDATED STATEMENT OF OPERATIONS INFORMATION         |  | YEARS ENDED AUGUST 31, |             
|-------------------------------------------------------- |  | ---------------------- | ------------
|                                                         |  | 2012                   |             
|Revenue                                                  |  |                        |             
|Natural gas sales, net of royalties                      |  | $                      | 39,218      
|Expenses                                                 |  |                        |             
|Operating costs                                          |  |                        | 28,471      
|Depletion and accretion                                  |  |                        | 20,509      
|General and administrative                               |  |                        | 705,591     
|Marketing and public relations                           |  |                        | 46,272      
|Impairment loss on property and equipment                |  |                        | 50,774      
|Interest expense                                         |  |                        | 88,789      
|Loss (gain) loss on derivative warrant liabilities       |  |                        | 46,655      
|Loss on settlement of debt                               |  |                        | 1,465,465   
|Stock based compensation                                 |  |                        | 95,910      
|Stock based compensation-non employees                   |  |                        | 75,062      
|Compensation expense on re-pricing of units              |  |                        | 188,625     
|Loss (gain) on foreign exchange                          |  |                        | 36,283      
|Gain on disposal of marketable securities                |  |                        | -           
|                                                         |  |                        | 2,848,406   
|                                                         |  |                        |             
|Net loss                                                 |  | $                      | (2,809,188  
|                                                         |  |                        |             
|Foreign currency translation                             |  |                        | (160        
|                                                         |  |                        |             
|Comprehensive loss                                       |  | $                      | (2, 809,348)
|                                                         |  |                        |             
|Loss per share, basic and diluted                        |  | $                      | (0.034      
|                                                         |  |                        |             
|Weighted average shares outstanding, basic and diluted * |  |                        | 81,769,733  



*Reflects March 16, 2012 two-for-one stock split



3







Exchange Rate Information



The exchange rate between the Canadian
dollar and the U.S. dollar was CDN$1.00 per US$0.9931 (or US$1.00 per CDN$1.0069) as of November 30, 2012.



The average exchange rates for the periods
indicated below (based on the daily noon buying rate for cable transfers in New York City certified for customs purposes by the
Federal Reserve Bank of New York) are as follows:



|                                       |  | YEARS ENDED AUGUST 31, |       
|-------------------------------------- |  | ---------------------- | ------
|                                       |  | 2012                   |       
|Average exchange rate CDN$ per US$1.00 |  |                        | 0.9925
|Average exchange rate US$ per CDN$1.00 |  |                        | 1.0075



The high and low exchange rates between
the Canadian dollar and the U.S. dollar for each of the six months ended November 30, 2012 are as follows:



|               |  | Exchange rate CDN$ per US$1.00 |       
|-------------- |  | ------------------------------ | ------
|Month          |  | Low                            |       
|November  2012 |  |                                | 0.9927
|October 2012   |  |                                | 0.9763
|September 2012 |  |                                | 0.9723
|August 2012    |  |                                | 0.9862
|July 2012      |  |                                | 1.0014
|June 2012      |  |                                | 1.0190



| | B. | CAPITALIZATION AND INDEBTEDNESS
| | -- | -------------------------------



Not Applicable.  This Form 20-F is being filed as
an Annual Report under the Exchange Act.



| | C. | REASONS FOR THE OFFER AND USE OF PROCEEDS
| | -- | -----------------------------------------



Not Applicable.  This Form 20-F is being filed as
an Annual Report under the Exchange Act.



| | D. | RISK FACTORS
| | -- | ------------



Our securities are highly speculative
and subject to a number of risks. You should not consider an investment in our securities unless you are capable of sustaining
an economic loss of the entire investment. In addition to the other information presented in this Annual Report, the following
risk factors should be given special consideration when evaluating an investment in our securities.



General Risk Factors



We require additional capital which
may not be available to us on acceptable terms, or at all.  Both the exploration and development of oil and gas reserves
can be capital-intensive businesses. We have accumulated significant losses and negative cash flows from operations in recent years
which raises doubt as to the validity of the going concern assumption. As at August 31, 2012, we had a working capital deficiency
of $3,819,056 and an accumulated deficit of $4,946,515. We do not have sufficient funds to meet our liabilities for the ensuing
twelve months as they become due. In assessing whether the going concern assumption is appropriate, we take into account all available
information about the future, which is at least, but not limited to, twelve months from August 31, 2012. Our ability to continue
operations and fund our liabilities is dependent on our ability to secure additional financing and cash flow. We are pursuing such
additional sources of financing and cash flow to fund our operations and obligations and while we have been successful in doing
so in the past, there can be no assurance we will be able to do so in the future. We intend to satisfy any additional working capital
requirements from cash flow and by raising capital through public or private sales of debt or equity securities, debt financing
or short-term loans, or a combination of the foregoing.  We have no current arrangements for obtaining additional capital,
and may not be able to secure additional capital, or on terms which will not be objectionable to us or our shareholders.  Under
such circumstances, our failure or inability to obtain additional capital on acceptable terms or at all could have a material adverse
effect on us.



4







We have a history of losses and a
limited operating history as an oil and gas exploration and development company which makes it more difficult to evaluate our future
prospects.   To date, we have incurred significant losses. We have a limited operating history upon which any
evaluation of us and our long-term prospects might be based. We are subject to the risks inherent in the oil and gas industry,
as well as the more general risks inherent to the operation of an established business.  We and our prospects must be
considered in light of the risks, expenses and difficulties encountered by all companies engaged in the extremely volatile and
competitive oil and gas markets. Any future success we might achieve will depend upon many factors, including factors, which may
be beyond our control.  These factors may include changes in technologies, price and product competition, developments
and changes in the international oil and gas market, changes in our strategy, changes in expenses, fluctuations in foreign currency
exchange rates, general economic conditions, and economic and regulatory conditions specific to the areas in which we compete.  To
address these risks, we must, among other things, comply with environmental regulations; expand our portfolio of proven oil and
gas properties and negotiate additional working interests and prospect participations; and expand and replace depleting oil and
gas reserves.



We
have a pending litigation which could have a material effect on our financial condition or profitability.The lessors of
the Matthews lease expressed their belief that the lease had terminated and filed a petition in the District Court, Zavala County,
Texas, seeking a declaration that the lease has terminated. We disagree and believe that we are in compliance with the terms of
the lease. We are defending the allegation and countersuing the lessors for repudiation of the lease and seeking damages. At August
31, 2012, we carry our investment in the Matthews lease at approximately $4,645,534 and the outcome of litigation is uncertain
at this time. If the final outcome of such claim differs adversely from that expected, it would result in an impairment loss on
the consolidated statement of operations and a reduction in exploration and evaluation assets, when determined (See Item 8.A Consolidated
Financial Statements and Other Financial Information – Litigation).



We have significant debt which may
make it more difficult for us to obtain future financing or engage in business combination transactions.   We
have significant debt obligations.  The degree to which this indebtedness could have consequences on our future prospects
includes the effect of such debts on our ability to obtain financing for working capital, capital expenditures or acquisitions.
The portion of available cash flow that will need to be dedicated to repayment of indebtedness will reduce funds available for
expansion.   If we are unable to meet our debt obligations through cash flow from operations, we may be required
to refinance or adopt alternative strategies to reduce or delay capital expenditures, or seek additional equity capital.



Our future operating results are
subject to fluctuation based upon factors outside of our control.   Our operating results may in the future fluctuate
significantly depending upon a number of factors including industry conditions, oil and gas prices, rate of drilling success, rates
of production from completed wells and the timing of capital expenditures.  Such variability could have a material adverse
effect on our business, financial condition and results of operations.  In addition, any failure or delay in the realization
of expected cash flows from operating activities could limit our future ability to participate in exploration or to participate
in economically attractive oil and gas projects.



Our operating results will be affected
by foreign exchange rates.   Since energy commodity prices are primarily priced in US dollars, a portion of our
revenue stream and a portion of our expenses are incurred in US dollars and they are affected by U.S./Canadian dollar exchange
rates.  We do not hedge this exposure.  While to date this exposure has not been material, it may become so in the
future.



Our inability to manage our expected
growth could have a material adverse effect on our business operations and prospects.   We may be subject to
growth-related risks including capacity constraints and pressure on our internal systems and controls. The ability to manage growth
effectively will require us to continue to implement and improve our operational and financial systems and to expend, train and
manage our employee base. The inability to deal with this growth could have a material adverse impact on our business, operations
and prospects.



To compete in our industry, we must
attract and retain qualified personnel.   Our ability to continue our business and to develop a competitive edge
in the marketplace depends, in large part, on our ability to attract and retain qualified management and personnel.  Competition
for such personnel is intense, and we may not be able to attract and retain such personnel which may negatively impact our share
price. We do not have key-man insurance on any of our employees, directors or senior officers and we do not have written employment
agreements with any of our employees, directors or senior officers.



5







We must continue to institute procedures
designed to avoid potential conflicts involving our officers and directors. Some of our directors and officers are or may
serve on the board of directors of other companies from time to time. Pursuant to the provisions of the Business Corporations Act
(Ontario), our directors and senior officers must disclose material interests in any contract or transaction (or proposed
contract or transaction) material to us.  To avoid the possibility of conflicts of interest which may arise out of their
fiduciary responsibilities to each of the boards, all such directors have agreed to abstain from voting with respect to a conflict
of interest between the applicable companies.  In appropriate cases, we will establish a special committee of independent
directors to review a matter in which several directors, or members of management, may have a conflict.



We rely on the expertise of certain
persons and must insure that these relationships are developed and maintained.   We are dependent on the advice
and project management skills of various consultants and joint venture partners contracted by us from time to time.  Our
failure to develop and maintain relationships with qualified consultants and joint venture partners will have a material adverse
effect on our business and operating results.



We must indemnify our officers and
directors against certain actions.   Our articles contain provisions that state, subject to applicable law, we
must indemnify every director or officer, subject to the limitations of the Business Corporations Act (Ontario), against
all losses or liabilities that our directors or officers may sustain or incur in the execution of their duties.  Our
articles further state that no director or officer will be liable for any loss, damage or misfortune that may happen to, or be
incurred by us in the execution of his duties if he acted honestly and in good faith with a view to our best interests. Such limitations
on liability may reduce the likelihood of litigation against our officers and directors and may discourage or deter our shareholders
from suing our officers and directors based upon breaches of their duties to us, though such an action, if successful, might otherwise
benefit us and our shareholders.



We do not currently maintain a permanent
place of business within the United States. A majority of our directors and officers are nationals or residents of countries other
than the United States, and all or a substantial portion of such persons' assets are located outside the United States. As a result,
it may be difficult for investors to enforce within the United States any judgments obtained against our company or our officers
or directors, including judgments predicated upon the civil liability provisions of the securities laws of the United States or
any state thereof.



The global financial crisis is expected
to cause petroleum and natural gas prices to remain volatile for the near future.Recent market events and conditions,
including disruptions in the international credit markets and other financial systems and the deterioration of global economic
conditions, have caused significant volatility to commodity prices. These conditions are continuing, causing a loss of confidence
in the broader U.S. and global credit and financial markets and resulting in the collapse of, and government intervention in, major
banks, financial institutions and insurers and creating a climate of greater volatility, less liquidity, widening of credit spreads,
a lack of price transparency, increased credit losses and tighter credit conditions. Notwithstanding various actions by governments,
concerns about the general condition of the capital markets, financial instruments, banks, investment banks, insurers and other
financial institutions caused the broader credit markets to further deteriorate and stock markets to decline substantially. These
factors have negatively impacted company valuations and will impact the performance of the global economy going forward. Petroleum
and natural gas prices are expected to remain volatile for the near future as a result of market uncertainties over the supply
and demand of these commodities due to the current state of the world economies, OPEC actions and the ongoing global credit and
liquidity concerns.



Since our sole executive officer
does not devote his full time to the performance of his Company duties, he may engage in other work activities to our detriment.  James
Cassina, our sole executive officer, devotes approximately 75% of his work time to the performance of his Company duties. Although
he has an obligation to perform his duties in a manner consistent with our best interests and through his stock ownership in the
Company, is incentivized to do so, may encounter conflicts regarding the availability and use of his work time. Although there
are no such present conflicts, the development thereof could have a material adverse effect on us.



Risks Factors Relating to Our Common
Stock



Our stockholders may have difficulty
selling shares of our common stock as there is a limited public trading market for such stock.  There is only a limited
public market for our common stock, and no assurance can be given that a broad or active public trading market will develop in
the future or, if developed, that it will be sustained. Our common stock trades on the Over-the-Counter Bulletin Board.  In
addition, our common stock has not been qualified under any applicable state blue-sky laws, and we are under no obligation to so
qualify or register our common stock, or otherwise take action to improve the public market for such securities. Our common stock
could have limited marketability due to the following factors, each of which could impair the timing, value and market for such
securities:  (i) lack of profits, (ii) need for additional capital, (ii) limited public market for such securities; (iii)
the applicability of certain resale requirements under the Securities Act; and (iv) applicable blue sky laws and the other factors
discussed in this Risk Factors section.



6







Possible volatility of stock price.
The market price for our common stock may be volatile and is subject to significant fluctuations in response to a variety of factors,
including the liquidity of the market for the common stock, variations in our quarterly operating results, regulatory or other
changes in the oil and gas industry generally, announcements of business developments by us or our competitors, litigation, changes
in operating costs and variations in general market conditions. Because we have a limited operating history, the market price for
our common stock may be more volatile than that of a seasoned issuer. Changes in the market price of our securities may have no
connection with our operating results. No predictions or projections can be made as to what the prevailing market price for our
common stock will be at any time.



We do not anticipate paying dividends
on our common stock.   We presently plan to retain all available funds for use in our business, and therefore
do not plan to pay any cash dividends with respect to our securities in the foreseeable future.  Hence, investors in
our common stock should not expect to receive any distribution of cash dividends with respect to such securities for the foreseeable
future.



Our shareholders may experience dilution
of their ownership interests because of our future issuance of additional shares of common stock.   Our constating
documents authorize the issuance of an unlimited number of shares of common stock, without par value. In the event that we are
required to issue additional shares of common stock or securities exercisable for or convertible into additional shares of common
stock, enter into private placements to raise financing through the sale of equity securities or acquire additional oil and gas
property interests in the future from the issuance of shares of our common stock to acquire such interests, the interests of our
existing shareholders will be diluted and existing shareholders may suffer dilution in their net book value per share depending
on the price at which such securities are sold. If we do issue additional shares, it will cause a reduction in the proportionate
ownership and voting power of all existing shareholders. As of the date of this Annual report we have 1,050,000
common share purchase options outstanding to purchase 1,050,000 common shares and 48,043,680 warrants outstanding to purchase 48,043,680
common shares (see Item 5 Operating and Financial Review and Prospects – Share Capital and Reserves and Derivative Warrant
Liabilities).



Prospective investors in our Company
are urged to seek independent investment advice.   Independent legal, accounting or business advisors (i) have
not been appointed by, and have not represented or held themselves out as representing the interests of prospective investors in
connection with this Annual Report, and (ii) have not “expertized” or held themselves out as “expertizing”
any portion of this Annual Report, nor is our legal counsel providing any opinion in connection with us, our business or the completeness
or accuracy of this Annual Report.  Neither we nor any of our respective officers, directors, employees or agents, including
legal counsel, make any representation or expresses any opinion (i) with respect to the merits of an investment in our common stock,
including without limitation the proposed value of our common stock; or (ii) that this Annual Report provides a complete or exhaustive
description of us, our business or relevant risk factors which an investor may now or in the future deem pertinent in making his,
her or its investment decision.  Any prospective investor in our common stock is therefore urged to engage independent
accountants, appraisers, attorneys and other advisors to (a) conduct such due diligence review as such investor may deem necessary
and advisable, and (b) to provide such opinions with respect to the merits of an investment in our Company and applicable risk
factors upon which such investor may deem necessary and advisable to rely.  We will fully cooperate with any investor
who desires to conduct such an independent analysis so long as we determine, in our sole discretion, that such cooperation is not
unduly burdensome.



Applicable SEC rules governing the
trading of “penny stocks” will limit the trading and liquidity of our common stock and may affect the trade price for
our common stock.   The Securities and Exchange Commission (“SEC”) has adopted rules which generally
define "penny stock" to be any equity security that has a market price (as defined) of less than US$5.00 per share or
an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities will be covered by the penny stock
rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers
and "accredited investors". The term "accredited investor" refers generally to institutions with assets in
excess of US$5,000,000 or individuals with a net worth in excess of US$1,000,000 or annual income exceeding US$200,000 or US$300,000
jointly with their spouse.



7







The penny stock rules require a broker-dealer,
prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document
in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock
market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation
of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny
stock held in the customer's account. The bid and offer quotations, and the broker-dealer and salesperson compensation information,
must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing
before or with the customer's confirmation.



In addition, the penny stock rules require
that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to
the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market
for the shares that are subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers
to trade our securities. We expect that the penny stock rules will discourage investor interest in and limit the marketability
of our common shares.



In addition to the "penny stock"
rules described above, The Financial Industry Regulatory Authority (“FINRA”) has adopted rules that require that in
recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable
for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers
must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and
other information. Under interpretations of these rules, the FINRA believes that there is a high probability that speculative low
priced securities will not be suitable for at least some customers. The FINRA requirements will make it more difficult for broker-dealers
to recommend that their customers buy our common shares, which may limit your ability to buy and sell our shares and have an adverse
effect on the market for our shares.



Risks Factors Relating to Our Business



Our future success is dependent upon
our ability to locate, obtain and develop commercially viable oil and gas deposits.   Our future success is dependent
upon our ability to economically locate commercially viable oil and gas deposits. We may not be able to consistently identify viable
prospects, and such prospects, if identified, may not be commercially exploitable.  Our inability to consistently identify
and exploit commercially viable hydrocarbon deposits would have a material and adverse effect on our business and financial position.



Exploratory drilling activities are
subject to substantial risks.   Our expected revenues and cash flows will be principally dependent upon the success
of any drilling and production from prospects in which we participate.  The success of such prospects will be determined
by the economical location, development and production of commercial quantities of hydrocarbons.  Exploratory drilling
is subject to numerous risks, including the risk that no commercially productive oil and gas reservoirs will be encountered. The
cost of drilling, completing and operating wells is often uncertain, and drilling operations may be curtailed, delayed or canceled
as a result of a variety of factors, including unexpected formation and drilling conditions, pressure or other irregularities in
formations, blowouts, equipment failures or accidents, as well as weather conditions, compliance with governmental requirements
or shortages or delays in the delivery of equipment.  Our inability to successfully locate and drill wells that will
economically produce commercial quantities of oil and gas could have a material adverse effect on our business and, financial position.



Our drilling and exploration plans
will be subject to factors beyond our control.   A prospect is a property that has been identified based on available
geological and geophysical information that indicates the potential for hydrocarbons. Whether we ultimately drill a property may
depend on a number of factors including funding; the receipt of additional seismic data or reprocessing of existing data; material
changes in oil or gas prices; the costs and availability of drilling equipment; the success or failure of wells drilled in similar
formations or which would use the same production facilities; changes in estimates of costs to drill or complete wells; our ability
to attract industry partners to acquire a portion of our working interest to reduce exposure to drilling and completion costs;
decisions of our joint working interest owners; and restrictions under provincial regulators.



Our operating results are subject
to oil and natural gas price volatility.   Our profitability, cash flow and future growth will be affected by
changes in prevailing oil and gas prices.  Oil and gas prices have been subject to wide fluctuations in recent years
in response to changes in the supply and demand for oil and natural gas, market uncertainty, competition, regulatory developments
and other factors which are beyond our control.  It is impossible to predict future oil and natural gas price movements
with any certainty.  We do not engage in hedging activities.  As a result, we may be more adversely affected
by fluctuations in oil and gas prices than other industry participants that do engage in such activities.   An extended
or substantial decline in oil and gas prices would have a material adverse effect on our access to capital, and our financial position
and results of operations.



8







Unforeseen title defects may result
in a loss of entitlement to production and reserves.   Although we conduct title reviews in accordance with industry
practice prior to any purchase of resource assets, such reviews do not guarantee that an unforeseen defect in the chain on title
will not arise and defeat our title to the purchased assets.  If such a defect were to occur, our entitlement to the
production from such purchased assets could be jeopardized.



Estimates of reserves and predictions
of future events are subject to uncertainties.   Certain statements included in this Annual Report contain estimates
of our oil and gas reserves and the discounted future net revenues from those reserves, as prepared by independent petroleum engineers
or us.  There are numerous uncertainties inherent in such estimates including many factors beyond our control. The estimates
are based on a number of assumptions including constant oil and gas prices, and assumptions regarding future production, revenues,
taxes, operating expenses, development expenditures and quantities of recoverable oil and gas reserves.  Such estimates
are inherently imprecise indications of future net revenues, and actual results might vary substantially from the estimates based
on these assumptions.  Any significant variance in these assumptions could materially affect the estimated quantity and
value of reserves.  In addition, our reserves might be subject to revisions based upon future production, results of
future exploration and development, prevailing oil and gas prices and other factors. Moreover, estimates of the economically recoverable
oil and gas reserves, classifications of such reserves and estimates of future net cash flows prepared by independent engineers
at different times may vary substantially.  Information about reserves constitutes forward-looking statements.



The success of our business is dependent
upon our ability to replace reserves.   Our future success depends upon our ability to find, develop and acquire
oil and gas reserves that are economically recoverable.  As a result we must locate, acquire and develop new oil and
gas reserves to replace those being depleted by production.  Without successful funding for acquisitions and exploration
and development activities, our reserves will decline.  We may not be able to find and develop or acquire additional
reserves at an acceptable cost.



Most of our competitors have substantially
greater financial, technical, sales, marketing and other resources than we do.   We engage in the exploration
for and production of oil and gas, industries which are highly competitive. We compete directly and indirectly with oil and gas
companies in our exploration for and development of desirable oil and gas properties. Many companies and individuals are engaged
in the business of acquiring interests in and developing oil and gas properties in the United States and Canada, and the industry
is not dominated by any single competitor or a small number of competitors. Many of such competitors have substantially greater
financial, technical, sales, marketing and other resources, as well as greater historical market acceptance than we do. We will
compete with numerous industry participants for the acquisition of land and rights to prospects, and for the equipment and labor
required to operate and develop such prospects. Competition could materially and adversely affect our business, operating results
and financial condition. Such competitive disadvantages could adversely affect our ability to participate in projects with favorable
rates of return.



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



Our business is subject to interruption
from severe weather. Presently, our operations are conducted principally in the central region of Alberta, Canada and in
Southwest Texas. The weather in these areas and other areas in which we may operate in the future can be extreme and can cause
interruption or delays in our drilling and construction operations.



We are dependent on third-party pipelines
and would experience a material adverse effect on our operations were our access to such pipelines be curtailed or the rates charged
for use thereof materially increased.   Substantially all our sales of natural gas production are effected through
deliveries to local third-party gathering systems to processing plants.  In addition, we rely on access to inter-provincial
pipelines for the sale and distribution of substantially all of our gas. As a result, a curtailment of our sale of natural gas
by pipelines or by third-party gathering systems, an impairment of our ability to transport natural gas on inter-provincial pipelines
or a material increase in the rates charged to us for the transportation of natural gas by reason of a change in federal or provincial
regulations or for any other reason, could have a material adverse effect upon us. In such event, we would have to obtain other
transportation arrangements. We may not have economical transportation alternatives and it may not be feasible for us to construct
pipelines. In the event such circumstances were to occur, our operating netbacks from the affected wells would be suspended until,
and if, such circumstances could be resolved.



9







Our business is subject to operating
hazards and uninsured risks.   The oil and gas business involves a variety of operating risks, including fire,
explosion, pipe failure, casing collapse, abnormally pressured formations, adverse weather conditions, governmental and political
actions, premature reservoir declines, and environmental hazards such as oil spills, gas leaks and discharges of toxic gases. The
occurrence of any of these events with respect to any property operated or owned (in whole or in part) by us could have a material
adverse impact on us. Insurance coverage is not always economically feasible and is not obtained to cover all types of operational
risks. The occurrence of a significant event that is not insured or insured fully could have a material adverse effect on our financial
condition.



Our business is subject to restoration,
safety and environmental risk.   Our present operations are primarily in western Canada and southwest Texas and
certain laws and regulations exist that require companies engaged in petroleum activities to obtain necessary safety and environmental
permits to operate. Such legislation may restrict or delay us from conducting operations in certain geographical areas. Further,
such laws and regulations may impose liabilities on us for remedial and clean-up costs, or for personal injuries related to safety
and environmental damages, such liabilities collectively referred to as “asset retirement obligations”. While our safety
and environmental activities have been prudent in managing such risks, we may not always be successful in protecting us from the
impact of all such risks.



The termination or expiration of
any of our licenses and leases may have a material adverse effect on our results of operations.   Our properties
are held in the form of licenses and leases and working interests in licenses and leases. If we, or the holder of the license or
lease, fail to meet the specific requirement of a license or lease, the license or lease may terminate or expire. We may not meet
the obligations required to maintain each license or lease. The termination or expiration of our licenses or leases or the working
interests relating to a license or lease may have a material adverse effect on our results of operations and business (See Item
8.A Consolidated Financial Statements and Other Financial Information – Litigation for a discussion of our pending litigation
matter involving our Matthews lease).



Compliance with new or modified environmental
laws or regulations could have a materially adverse impact on us.   We are subject to various Canadian and US
laws and regulations relating to the environment.  We believe that we are currently in compliance with such laws and
regulations.  However, such laws and regulations may change in the future in a manner which will increase the burden
and cost of compliance. In addition, we could incur significant liability under such laws for damages, clean-up costs and penalties
in the event of certain discharges into the environment. In addition, environmental laws and regulations may impose liability on
us for personal injuries, clean-up costs, environmental damage and property damage as well as administrative, civil and criminal
penalties. We maintain limited insurance coverage for accidental environmental damages, but do not maintain insurance for the full
potential liability that could be caused by such environmental damage. Accordingly, we may be subject to significant liability,
or may be required to cease production in the event of the noted liabilities.



| | ITEM 4 | INFORMATION ON THE COMPANY
| | ------ | --------------------------



We are amalgamated under the laws of the
Province of Ontario.  Our primary activities are investment in, exploration and development and production of oil and
gas.



We hold a 0.5% non-convertible gross overriding
royalty in a natural gas well located in the Haynes area in the Province of Alberta, Canada.



We hold a 5.1975% working interest held
in trust through a joint venture partner in a natural gas unit located in the Botha area in the Province of Alberta, Canada.



Through Dyami
Energy LLC we hold a 75% working interest before payout which reduces to a 61.50% working interest after payout of $12,500,000
of production revenue in the Matthews lease. Directly, we hold a 10% working interest before payout which reduces to a 7.50% working
interest after payout of $15,000,000 of production revenue in the Matthews lease. We have entered into a farm out agreement for
a portion of our working interests from the surface to the base of the San Miguel formation in the Matthews Lease. The Matthews
lease comprises approximately 2,629 gross acres of land in Zavala County, Texas (See Item 8.A Consolidated Financial Statements
and Other Financial Information – Litigation).



10







Through Dyami
Energy LLC we hold a 100% working interest in the Murphy Lease comprising approximately 2,637 acres of land in Zavala County, Texassubject to a 10% carried interest on the drilling costs from surface to base of the Austin Chalk formation, and a 3% carried
interest on the drilling costs from the top of the Eagle Ford shale formation to basement on the first well drilled into a serpentine
plug and for the first well drilled into a second serpentine plug, if discovered.



Our registered office and management office
is located at 1 King Street West, Suite 1505, Toronto, Ontario, M5H 1A1, Telephone (416) 364-4039, Facsimile (416) 364-8244. Our
books and financial records are located in the registered office and management office.  Our Canadian public filings
can be accessed and viewed via the System for Electronic Data Analysis and Retrieval (“SEDAR”) at www.sedar.com. Readers
can also access and view our Canadian public insider trading reports via the System for Electronic Disclosure by Insiders at www.sedi.ca.
Our Registrar and Transfer Agent is Equity Financial Trust Company located at Suite 400, 200 University Avenue, Toronto, Ontario,
M5H 4H1. Our U.S. public filings are available at the public reference room of the U.S. Securities and Exchange Commission (“SEC”)
located at 100 F Street, N.E., Room 1580, Washington, DC 20549 and at the website maintained by the SEC at www.sec.gov.



| | A. | HISTORY AND DEVELOPMENT OF THE COMPANY
| | -- | --------------------------------------



We were incorporated in Ontario, Canada
on September 22, 1978, under the Business Corporations Act (Ontario), under the name Bonanza Red Lake Explorations Inc.
(“Bonanza Red Lake”).  By prospectus dated November 20, 1978 and a further amendment to the Prospectus dated
January 10, 1979 we became a reporting issuer in the Province of Ontario and raised $250,000 to acquire interests in and to explore
and develop certain mineral lands located near the Town of Red Lake, Ontario, Canada. In 1987, we optioned our mineral lands in
Red Lake, Ontario to Pure Gold Resources Inc., who expended sufficient funds during 1988 and 1989 to earn an 85% interest in our
eight patented mineral claims, and then discontinued its exploration program on the property. Bonanza Red Lake had subsequently
written the carrying amount of these mineral claims down to $1.



On March 29, 2000, Bonanza Red Lake entered
into a Share Exchange Agreement with 1406768 Ontario Inc. (“1406768 Ontario”).  1406768 Ontario is a company
incorporated under the laws of the Province of Ontario by articles of incorporation dated effective March 13, 2000. The purpose
of the transaction was to allow Bonanza Red Lake to acquire a company, 1406768 Ontario, which resulted in our owning part of an
operating business.  At an Annual and Special Meeting of shareholders held on May 10, 2000 we received shareholder approval
for the acquisition of 1406768 Ontario; the consolidation of Bonanza Red Lake’s issued and outstanding common shares on a
one new common share for every three old common shares basis;  a name change from Bonanza Red Lake to Eugenic Corp; a
new stock option plan (the “Plan”) authorizing 1,275,000 common shares to be set aside for issuance under the Plan;
and authorizing the directors to determine or vary the number of directors of the Company from time to time which pursuant to our
Articles provide for a minimum of three and a maximum of ten.



By Articles of Amendment dated August 15,
2000, Bonanza Red Lake consolidated its issued and outstanding common shares on a one new common share for every three old common
shares basis and changed the name of the company to Eugenic Corp.



We completed the acquisition of 1406768
Ontario on October 12, 2000 and acquired all of the issued and outstanding shares of 1406768 Ontario for $290,000. The purchase
price was satisfied by our issuance of 5,800,000 company units at $0.05 per unit.  Each unit consisted of one common
share and one common share purchase warrant entitling the holder to purchase one common share of ours at an exercise price of $0.25
per common share until October 12, 2003. As a result of this transaction, the original shareholders of 1406768 Ontario owned 90.7%
of our issued shares. The acquisition resulted in a change in business and an introduction of new management for us. The acquisition
was accounted for as a reverse take-over of us by 1406768 Ontario. Our net assets acquired at fair value as at October 12, 2000
resulted in a deficiency of assets over liabilities in the amount of $123,170 which was charged to share capital. All of the 5,800,000
outstanding warrants expired on October 12, 2003.



11







On February 5, 2009, we completed a non-brokered
private placement of 2,600,000 units (each a “Unit”) at a purchase price of $0.05 per Unit for gross proceeds of $130,000.
Each Unit was comprised of one common share (each a “Unit Share”) and one purchase warrant (each a “Warrant”).  Each
Warrant is exercisable until February 5, 2014 to purchase one additional share of our common stock (each a “Warrant Share”)
at a purchase price of $0.07 per share. 1407271 Ontario Inc. purchased 1,600,000 units. 1407271 Ontario Inc. is owned 100% by our
former President, Ms. Sandra Hall.  Ms. Hall is also the sole director and officer of 1407271.



On February 25, 2009, we completed a non-brokered
private placement of 1,000,256 units (each a “Unit”) at a purchase price of $0.05 per Unit for gross proceeds of approximately
$50,013. Each Unit was comprised of one common share (each a “Unit Share”) and one purchase warrant (each a “Warrant”).  Each
Warrant is exercisable until February 25, 2014 to purchase one additional share of our common stock (each a “Warrant Share”)
at a purchase price of $0.07 per share. Sandra Hall, our former president and former director, and Milton Klyman, a director, purchased
600,000 Units and 50,000 Units, respectively.



On February 27, 2009, we purchased all
of the issued and outstanding shares issued in the capital stock of 1354166 Alberta Ltd. (“1354166 Alberta”),
a company incorporated on October 3, 2007 in the Province of Alberta Canada (the "Transaction") under the Business Corporations
Act (Alberta).  In connection therewith, we issued to the shareholders of 1354166 an aggregate of 8,910,564 units (each
a "Unit") at $0.05 per unit or an aggregate of $445,528 and following the closing repaid $118,000 of shareholders’
loans in 1354166 by cash payment. . Each unit is comprised of one share of our common stock (each a "Share") and one
purchase warrant (each a "Warrant").  Each Warrant is exercisable until February 27, 2014 to purchase one additional
share of our common stock at a purchase price of $0.07 per share. 1354166 is a private company that has a 5.1975% working interest
held in trust through a joint venture partner in a natural gas unit located in the Botha area of Alberta, Canada.



On February 27, 2009, we entered into an
agreement with a non-related party, to convert debt in the amount of $62,500 through the issuance of a total of 1,250,000 units
at an attributed value of $0.05 per unit (the "Debt Settlement").  Each Unit was comprised of one common share
(each a “Unit Share”) and one purchase warrant (each a “Warrant”).  Each Warrant is exercisable
until February 27, 2014 to purchase one additional share of our common stock (each a “Warrant Share”) at a purchase
price of $0.07 per share.



By Articles of Amendment dated November
12, 2009, 1406768 Ontario changed its name to Eagleford Energy Inc. By Articles of Amalgamation dated November 30, 2009 we amalgamated
with Eagleford Energy Inc. and upon the amalgamation the amalgamated entity's name became Eagleford Energy Inc.



Effective June 10, 2010, we retained Gar
Wood Securities, LLC (“Gar Wood”) to act as Investment Banker/Financial Advisor to the Company for a period of two
years. Under the terms of the Gar Wood engagement, we agreed to pay a fee of 6% of the gross proceeds raised and issue 1,500,000
common share purchase warrants. (



On November 5, 2010 we terminated the agreement
with Gar Wood dated June 10, 2010. As a result 36,430 warrants were cancelled out of the 333,333 warrants issued exercisable at
$1.00 expiring December 10, 2011 and 18,215 warrants were cancelled out of the 166,667 warrants issued exercisable at $1.50 expiring
June 10, 2012. On December 10, 2011 296,903 warrants exercisable at US $1.00 expired. During the year ended August 31, 2012 all
of the remaining warrants expired unexercised.



During the fiscal year ended August 31,
2010, 1,100,000 of our common share purchase warrants were exercised at $0.07 expiring February 5, 2014 for proceeds of $77,000
and 1,000,000 of our common share purchase warrants were exercised at $0.07 expiring February 27, 2014 for proceeds of $70,000.



On August 31, 2010 we acquired a 10% working
interest before payout and a 7.5% working interest after payout of production revenue of $15 million in the Matthews lease comprising
approximately 2,629 gross acres of land in Zavala County, Texas (the “Lease Interest”). As consideration for the Lease
Interest we paid on closing $212,780 (US$200,000), satisfied by US$25,000 in cash and $186,183 (US$175,000) satisfied by the issuance
of a 5% secured promissory note.US$100,000 of principal together with accrued interest is due and payable on February 28, 2011
and US$75,000 of principal together with accrued interest is due and payable on August 31, 2011. The note was secured by the Lease
Interest.



12







On August 31, 2010, we acquired 100% of
the issued and outstanding membership interests of Dyami Energy LLC, a Texas limited liability corporation for consideration of
$4,218,812. (US$3,965,422) satisfied by (i) the issuance of 3,418,467 units of the Company. Each unit is comprised of one common
share and one-half a purchase warrant. Each full warrant is exercisable into one additional common share at US$1.00 per share on
or before August 31, 2014 (the “Units’) and (ii) the assumption of $1,021,344 (US$960,000) of Dyami Energy debt by
way of a secured promissory note payable to Benchmark Enterprises LLC (“Benchmark”). The note bears interest at 6%
per annum, is secured by Dyami’s interest in the Matthews and Murphy leases and was payable on December 31, 2011 or upon
the Company closing a financing or series of financings in excess of US$4,500,000. The due date of the note has been extended until
November 30, 2012 with an interest rate of 10% per annum. On January 3, 2012 we issued 515,406 pre forward split common shares
to shares Benchmark as full settlement of interest due at December 31, 2011 in the amount of $103,028.



Dyami Energy holds a 75% working interest
before payout and a 61.50% working interest after payout of production revenue of $12.5 million in the Matthews Lease comprising
approximately 2,629 gross acres of land in Zavala County, Texas and a 100% working interest in a mineral lease comprising approximately
2,637 acres of land in Zavala County, Texas (the “Murphy Lease”) subject to a 10% carried interest on the drilling
costs from surface to base of the Austin Chalk formation, and a 3% carried interest on the drilling costs from the top of the Eagle
Ford shale formation to basement on the first well drilled into a serpentine plug and for the first well drilled into a second
serpentine plug, if discovered (collectively the “Leases”).



The Members of Dyami entered into lock
up agreements on closing and placed 50% of the Units in escrow (1,709,234 common shares and 854,617 purchase warrants) until such
time that we receive a National Instrument 51-101 compliant report from an independent engineering firm indicating at least
100,000 boe of proven reserves on either the Murphy Lease or any formation below the San Miguel on the Matthews Lease (the “Report”).
In the event the Report is not received by Dyami Energy within two years of the closing date of the acquisition, the escrow units
are to be returned to us for cancellation. On August 31, 2012 we cancelled the 50% of Units held in escrow as the conditions precedent
had not been satisfied and the time allowed for performance expired.



In connection with the Dyami Energy acquisition,
we entered into a one year employment agreement with Eric Johnson and reserved 850,000 common share purchase warrants, exercisable
on an earn-out basis, for the purchase of 850,000 common shares of our stock at a price of US$1.00 per share during a period of
five years from the date of issuance. On April 13, 2011 the employment agreement was terminated.



During the fiscal year ended August 31,
2010 we spent $10,046 on exploration expenditures related to the Matthews Lease.



On March 31, 2011 we entered into a Farmout
Agreement (the “Farmout”) from surface to the base of the San Miguel formation (the “San Miguel”) on the
Matthews Lease located in Zavala County, Texas. Under the Farmout, the farmee may spend up to US$1,050,000 on exploration and development
of the San Miguel to earn a maximum of 42.50% working interest (31.875% net revenue interest). Under the terms of the Farmout,
the farmee may earn an initial 25% of the Company’s working interest in the San Miguel by paying 100% of the costs to drill,
complete, equip and perform an injection operation on a test well to a depth of approximately 3,500 feet (the “Initial Test
Well”). After the performance of the Initial Test Well, the farmee may increase its working interest to 50% of the Company’s
working interest by spending the entire $1,050,000 on additional operations on the San Miguel in a good faith effort to produce
hydrocarbons. We received US$647,536 from the farmee against costs of $711,395 related to the drilling, completion and injection
operation of the Matthews/Dyami #3 well. As of the date of this Annual Report we have not assigned any interest to the farmee in
the San Miguel formation.



During the fiscal year ended August 31,
2011 we drilled four wells we spent $3,262,782 on exploration expenditures related to the Matthews and Murphy Leases.



During the year ended August 31, 2011,
500,000 of our common share purchase warrants were exercised at $0.07 expiring February 5, 2014 for proceeds of $35,000; 625,247
of our common share purchase warrants were exercised at $0.07 expiring February 27, 2014 for proceeds of $44,475; and 2,575,000
of our common share purchase warrants were exercised at $0.20 expiring April 14, 2011 for proceeds of $515,000.



During the year ended August 31, 2011 we
received $2,878,736 and issued demand promissory notes bearing interest at 10% per annum. Interest is payable annually on the anniversary
date of the notes.



During the year ended August 31, 2011 we
paid $98,440 of secured notes and a $110,000 loan payable.



As of the close of business on March 16,
2012, we completed a two-for-one forward stock split, pursuant to which one (1) newly-issued share of the Company’s common
stock was issued to each holder of a share of common stock.



13







During the year ended August 31, 2012 we
completed a financing of 12,575,000 units in the capital of the Company for net proceeds of $2,086,718.



During the year ended August 31, 2012,
we issued 17,150,000 units as full settlement of debt and shareholders’ loans in the amount of $857,500 and issued 3,278,392
common shares as full settlement of interest due on a secured note and shareholders’ loans in the amount of $369,885.



During the year ended August 31, 2012,
we received cash of $321,845 and US$175,000 and issued demand promissory notes bearing interest at 10% per annum.



During the twelve months ended August 31,
2012, we paid $73,380 of secured notes and US$480,000 of shareholders’ loans.



For the twelve
months endedAugust 31, 2012, we incurred $1,559,763 in exploration expenditures related to the
leases in Zavala County, Texas.



During the year ended August 31, 2012,
the lessors of the Matthews Lease expressed their belief that the lease had terminated and filed a petition in the District Court,
Zavala County, Texas, seeking a declaration that the lease has terminated. We disagree and believe that we are in compliance with
the terms of the lease. We are defending the allegation and countersuing the lessors for repudiation of the lease and seeking damages
(See Item 8.A Consolidated Financial Statements and Other Financial Information – Litigation).



Subsequent to our year ended August 31,
2012, we completed a financing of 2,249,790 units in the capital of the Company for US$0.20 per unit for net proceeds of $405,650.
Each unit is comprised on one common share and one-half a common share purchase warrant with each full warrant entitling the holder
to acquire one common share of the Company at US$0.50 or a period of three years from the date of issue.



We intend to apply additional capital to
further enhance our property interests. As part of our oil and gas development program, management of the Company anticipates further
expenditures to expand its existing portfolio of proved reserves. Amounts expended on future exploration and development is dependent
on the nature of future opportunities evaluated by us. These expenditures could be funded through cash held by the Company or through
cash flow from operations. Any expenditure which exceeds available cash will be required to be funded by additional share capital
or debt issued by us, or by other means. Our long-term profitability will depend upon our ability to successfully implement our
business plan.



Our past primary source of liquidity and
capital resources has been proceeds from the issuance of share capital, loans and advances and cash flow from our oil and gas operations.



Our registered office and principal place
of business in Ontario is located at 1 King Street West, Suite 1505, Toronto, Ontario M5H 1A1.  Our telephone number
at that address is (416) 364-4039.



| | B. | BUSINESS OVERVIEW
| | -- | -----------------



Directly and through our wholly owned subsidiaries
1354166 Alberta and Dyami Energy we are primarily engaged in the development, acquisition and production of oil and gas interests
located in Alberta, Canada and Texas, USA.



We have a 0.5% Non Convertible Overriding
Royalty (“NCOR”) in a natural gas well located in Haynes, Alberta, Canada a 5.1975% working interest in a natural gas
unit located in Alberta, Canada.



We also have an 85%
working interest before payout (69% working interest after payout) in Matthews lease comprising 2,629 gross acres of land in Zavala
County, Texas. We have entered into a farm out agreement for a portion of our working interests from the surface to the base of
the San Miguel formation in the Matthews Lease. As of the date of this Annual Report, we have not assigned any working interest
in the San Miguel formation (See, Item 8.A Consolidated Financial Statements and Other Financial Information - Litigation).



In addition, we hold a
100% working interest in the Murphy lease comprising approximately 2,637 acres of land in Zavala County, Texassubject to
a 10% carried interest on the drilling costs from surface to base of the Austin Chalk formation, and a 3% carried interest on the
drilling costs from the top of the Eagle Ford shale formation to basement on the first well drilled into a serpentine plug and
for the first well drilled into a second serpentine plug, if discovered.



14







We have a 0.3% Net Smelter Return Royalty
on 8 patented mining claims located in Red Lake, Ontario, Canada.



For the three fiscal years ending August
31, 2012, 2011 and 2010 the total revenue, net of royalties derived from the sale of our natural gas interests in Canada was as
follows:



|                |  | Total |       
|--------------- |  | ----- | ------
|August 31, 2012 |  | $     | 39,218
|August 31, 2011 |  | $     | 56,916
|August 31, 2010 |  | $     | 80,864



We sell our natural gas production to integrated
oil and gas companies and marketing agencies. Sales prices are generally set at market prices available in Canada or the United
States.



The level of activity in the Canadian oil
and gas industry is influenced by seasonal weather patterns.  Wet weather and spring thaw make the ground unstable and
municipalities and provincial transportation departments enforce road bans that may restrict the level of activity.  Seasonal
factors and unexpected weather patterns may lead to declines in production activity and increased consumer demand or changes in
supply during certain months of the year may influence the commodity prices.



There is an existing and available market
for the oil and gas produced from the properties. However, the prices obtained for production are subject to market fluctuations,
which are affected by many factors, including supply and demand. Numerous factors beyond our control, which could affect pricing
include:



| | • | the level of consumer product demand;
| | - | -------------------------------------

| | • | weather conditions;
| | - | -------------------

| | • | the foreign supply of oil and gas;
| | - | ----------------------------------

| | • | the price of foreign imports;
| | - | -----------------------------

| | • | volatility in market prices for oil and natural gas;
| | - | ----------------------------------------------------

| | • | ability to raise financing;
| | - | ---------------------------

| | • | reliance on third party operators;
| | - | ----------------------------------

| | • | ability to find or produce commercial quantities of oil and natural gas;
| | - | ------------------------------------------------------------------------

| | • | liabilities inherent in oil and natural gas operations;
| | - | -------------------------------------------------------

| | • | dilution of interests in oil and natural gas properties;
| | - | --------------------------------------------------------

| | • | general business and economic conditions;
| | - | -----------------------------------------

| | • | the ability to attract and retain skilled staff;
| | - | ------------------------------------------------

| | • | uncertainties associated with estimating oil and natural gas reserves;
| | - | ----------------------------------------------------------------------

| | • | competition for, among other things, financings, acquisitions of reserves, undeveloped lands and skilled personnel; and
| | - | -----------------------------------------------------------------------------------------------------------------------

| | • | governmental regulation and environmental legislation (See, Item 3.D Risk Factors Relating to our Business).
| | - | ------------------------------------------------------------------------------------------------------------



We caution that the foregoing list of important
factors is not exhaustive. Investors and others who base themselves on our forward-looking statements should carefully consider
the above factors as well as the uncertainties they represent and the risk they entail. We also caution readers not to place undue
reliance on these forward-looking statements. Moreover, the forward-looking statements may not be suitable for establishing strategic
priorities and objectives, future strategies or actions, financial objectives and projections other than those mentioned above.



We do not have a reliance on raw materials,
as we operate in an extractive industry.



We do not have a reliance on any significant
patents.



The oil and gas business is highly competitive
in every phase.  Many of our competitors have greater financial and technical resources, and have established multi-national
operations, secured land rights and licenses, which we may not have.  As a result, we may be prevented from participating
in drilling and acquisition programs (See, Item 3.D Key Information - Risk Factors).



15







Governmental Regulation/Environmental
Issues

Our oil and gas operations are subject
to various United States and Canadian governmental regulations including those imposed by the Texas Railroad Commission and Alberta
Energy Resources Conversation Board and Alberta Utilities Commission. Matters subject to regulation include discharge permits for
drilling operations, drilling and abandonment bonds, reports concerning operations, the spacing of wells, and pooling of properties
and taxation. From time to time, regulatory agencies have imposed price controls and limitations on production by restricting the
rate of flow of oil and gas wells below actual production capacity in order to conserve supplies of oil and gas. The production,
handling, storage, transportation and disposal of oil and gas, by-products thereof, and other substances and materials produced
or used in connection with oil and gas operations are also subject to regulation under federal, state, provincial and local laws
and regulations relating primarily to the protection of human health and the environment. To date, expenditures related to complying
with these laws, and for remediation of existing environmental contamination, have not been significant in relation to the results
of operations of our company. The requirements imposed by such laws and regulations are frequently changed and subject to interpretation,
and we are unable to predict the ultimate cost of compliance with these requirements or their effect on our operations. These regulations
may adversely affect our operations and cost of doing business. It is likely that these laws and regulations will become more stringent
in the future (See, Item 3.D Key Information - Risk Factors).



| | C. | ORGANIZATIONAL STRUCTURE
| | -- | ------------------------



We have two wholly owned subsidiaries.
1354166 Alberta Ltd. is a company incorporated under the Business Corporations Act (Alberta) and Dyami Energy LLC is a Texas
Limited Liability company.



| | D. | PROPERTY, PLANTS AND EQUIPMENT
| | -- | ------------------------------



Our executive offices consist of approximately
140 square feet of office space and are rented at $1,500 per month on a month to month basis.  The address of our executive
offices is 1 King Street West, Suite 1505, Toronto, Ontario Canada.



Canada

We hold directly a 0.5% NCOR in a natural
gas well located in Haynes, Alberta, Canada.



We hold through our wholly owned subsidiary
1354166 Alberta a 5.1975% working interest in a natural gas unit located in Botha, Alberta, Canada.



We have a 0.3% Net Smelter Return Royalty
on eight patented mining claims located in Red Lake, Ontario, Canada.



United States



We hold through our wholly owned subsidiary
Dyami Energy a 75% working interest before payout and a 61.5% working interest after payout of $12,500,000 of production in Matthews
lease comprising approximately2,629 gross acres of land in Zavala County, Texas. In addition,
we hold directly a 10% working interest before payout and a 7.5% working interest after payout of $15,000,000 of production in
Matthews lease. We entered into a farm out agreement for a portion of our working interests from the surface to the base of the
San Miguel formation in the Matthews Lease. To date we have not assigned any interest in the San Miguel formation (See, Item 8.A
Consolidated Financial Statements and Other Financial Information - Litigation).



We hold through our wholly owned subsidiary
Dyami Energy, a 100% working interest in the Murphy lease comprising approximately 2,637 acres of land
in Zavala County, Texassubject to a 10% carried interest on the drilling costs from surface to base of the Austin Chalk
formation, and a 3% carried interest on the drilling costs from the top of the Eagle Ford shale formation to basement on the first
well drilled into a serpentine plug and for the first well drilled into a second serpentine plug, if discovered. The Matthews and
Murphy Leases are subject to royalties payable of 25%.



Our Matthews Lease is situated in Zavala
County, Texas and is part of the Maverick Basin of Southwest Texas and downdip from the United States Geological Studies north
boundary of the Smackover-Austin-Eagle Ford total petroleum system.



The map below indicates the location of
our Matthews Lease and Murphy Lease located in Zavala County, Texas.



16











The table below is a glossary of terms and abbreviations that
may be used in this Item.



GLOSSARY OF TERMS



|Natural Gas                 |  | Mcf   |  | 1,000 cubic feet                 
|--------------------------- |  | ----- |  | ---------------------------------
|                            |  | MMcf  |  | 1,000,000 cubic feet             
|                            |  | Mcf/d |  | 1,000 cubic feet per day         
|                            |  |       |  |                                  
|Oil and Natural Gas Liquids |  | Bbl   |  | Barrel                           
|                            |  | Mbbls |  | 1,000 barrels                    
|                            |  | Blpd  |  | Barrels of liquid per day        
|                            |  | Boe   |  | Barrel of oil equivalent (1)     
|                            |  | Bpd   |  | Barrels per day                  
|                            |  | Boepd |  | Barrels of oil equivalent per day
|                            |  | Bopd  |  | Barrels of oil per day           
|                            |  | NGLs  |  | Natural gas liquids              



(1) Disclosure provided herein in respect
of BOEs may be misleading, particularly if used in isolation.  A BOE conversion ratio of 6 Mcf: 1 Bbl is based on an
energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.



The following table sets forth certain
standard conversions between Standard Imperial Units and the International System of Units (or metric units).



|To Convert From    |  | To           |  | Multiply By |       
|------------------ |  | ------------ |  | ----------- | ------
|                   |  |              |  |             |       
|Mcf                |  | Cubic metres |  |             | 28.174
|Cubic metres       |  | Cubic feet   |  |             | 35.494
|Bbls               |  | Cubic metres |  |             | 0.159 
|Cubic metres       |  | Bbls         |  |             | 6.289 
|Feet               |  | Metres       |  |             | 0.305 
|Metres             |  | Feet         |  |             | 3.281 
|Miles              |  | Kilometers   |  |             | 1.609 
|Kilometers         |  | Miles        |  |             | 0.621 
|Acres (Alberta)    |  | Hectares     |  |             | 0.405 
|Hectares (Alberta) |  | Acres        |  |             | 2.471 



17







Reserve Information: The process
of evaluating reserves is inherently complex.  It requires significant judgments and decisions based on available geological,
geophysical, engineering and economics data.  These estimates may change substantially as additional data from ongoing
development activities and production performance becomes available and as economic conditions impacting oil and gas prices and
costs changes.  The reserve estimates contained herein are based on current production forecasts, prices and economic
conditions.  These factors and assumptions include among others (i) historical production in the area compared with production
rates from analogous producing areas; (ii) initial production rates, (iii) production decline rates, (iv) ultimate recovery of
reserves; (v) success of future development activities; (vi) marketability of production, (vii) effects of government regulation;
and (viii) other government levies imposed over the life of the reserves.



As circumstances change and additional
data becomes available, reserves estimates also change.  Estimates are reviewed and revised, either upward or downward,
as warranted by the new information.  Revisions are often required for changes in well performance, prices, economic
conditions and governmental restrictions.  Revisions to reserve estimates can arise from changes in year–end prices,
reservoir performance and geological conditions or production.  These revisions can be either positive or negative (See
Item 3.D. Key Information – Risk Factors).



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.



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.



The qualitative certainty levels contained
in the definitions in proved, probable and possible reserves are applicable to individual reserves entities, which refers to the
lowest level at which reserves estimates are made, and to reported reserves, which refers to the highest level sum of individual
entity estimates for which reserve estimates are made.



Reported total reserves estimated by deterministic
or probabilistic methods, whether comprised of a single reserves entity or an aggregate estimate for multiple entities, should
target the following levels of certainty under a specific set of economic conditions:



a. There is a 90% probability that at least
the estimated proved reserves will be recovered.

b. There is a 50% probability that at least
the sum of the estimated proved reserves plus probable reserves will be recovered.

c. There is a 10% probability that at least
the sum of the estimated proved reserves plus probable reserves plus possible reserves will be recovered.



A quantitative measure of the probability
associated with a reserves estimate is generated only when a probabilistic estimate is conducted. The majority of reserves estimates
will be performed using deterministic methods that do not provide a quantitative measure of probability. In principle, there should
be no difference between estimates prepared using probabilistic or deterministic methods.



Additional clarification of certainty levels
associated with reserves estimates and the effect of aggregation is provided in Section 5.5.3 of the COGE Handbook. Whether deterministic
or probabilistic methods are used, evaluators are expressing their professional judgement as to what are reasonable estimates.



The crude oil and natural gas industry
commonly applies a conversion factor to production and estimated proved reserve volumes of natural gas in order to determine an
“all commodity equivalency” referred to as barrels of oil equivalent (“boe”). The conversion factor we
have applied in this Report is the current convention used by many oil and gas companies, where six thousand cubic feet (“mcf”)
is equal to one barrel (“bbl”). A boe is based on an energy equivalency conversion method primarily applicable at the
burner tip. It may not represent equivalency at the wellhead and may be misleading if used in isolation.



Internal Controls for Reserves Reporting:
A significant component of our internal controls in our reserve estimation effort is our practice of using an independent third-party
reserve engineering firm to prepare 100% of our year-end proved and probable reserves. The qualifications of this firm are discussed
below under “Independence and Qualifications of Reserve Preparer.” The Board of Directors of the Company has reviewed
the reserves estimates and procedures prior to acceptance of the report.   The Board of Directors has sufficient technical
training and experience to review and approve the report.



18







Our director Mr. McNeil, chair of our petroleum
and natural gas committee maintains oversight and compliance responsibility for the internal reserve estimate process and provides
appropriate data to our independent third party reserve engineers to estimate our year-end reserves. Mr. McNeil is a self-employed
oil and gas consultant and has been a geophysicist since 1972. Mr. McNeil is a member of the Association of Professional, Engineers,
Geologists and Geophysicists of Alberta, Society of Exploration Geophysicists, Canadian Society of Exploration Geophysicists, American
Association of Petroleum Geologists and the Canadian Society of Petroleum Geologists.



Independence and Qualifications of Reserve
Preparer: We engaged Sproule Associates Limited (“Sproule”), third-party reserve engineers, to prepare our reserves
as of the effective date August 31, 2012, 2011 and 2010 completed on October 11, 2012, October 7, 2011 and November 30, 2010 respectively,
in accordance with reserves definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook (COGE),
the Canadian Securities Administrators National Instrument 51-101 (NI 51-101) using Forecast Pricing Assumptions and, for the Securities
and Exchange Commission, using Constant Pricing Assumptions. The technical person responsible for our reserve estimates at Sproule
meets the requirements regarding qualifications, independence, objectivity and confidentiality set forth by The Association of
Professional Engineers, Geologists and Geophysicists of Alberta (APEGGA). Sproule is an independent firm of petroleum engineers,
geologists, geophysicists and petrophysicists; they do not own any interest in our properties and are not employed on a contingent
fee basis.



Year-end reserves quantities for the years
ended August 31, 2012, 2011 and 2010 shown in the following Constant Prices and Cost tables were calculated using the unweighted
arithmetic average of the first-day-of-the-month price for each month within the 12 month period prior to the end of the reporting
period.



Appropriate adjustments have been made
to account for quality and transportation, to the constant natural gas prices, and to the constant natural gas by-products prices
to reflect historical prices received for each area.  It should not be assumed that the discounted net present value
estimated by Sproule represents the fair market value of the reserves. Where the present value is based on constant price and cost
assumptions, there is no assurance that such price and cost assumptions will be attained and variances could be material.



At August 31, 2012, our developed properties
include a 5.1975% working interest in a natural gas unit located in the Botha area Northwest, Alberta near the town of Manning,
Canada held through our wholly owned subsidiary 1354166 Alberta. The unit is governed by a Pooling Agreement dated December 1,
1991 (covering Natural Gas in the Debolt formation) which contains a Right of First Refusal provision. Under a participation agreement
dated October 15, 2003, 1354166 Alberta’s working interest is held in trust by a joint interest partner.



The table below sets out in CDN dollars
the constant prices and the exchange rate used at August 31, 2012, 2011 and 2010. As of August 31, 2012 all of our reserves were
located in Alberta, Canada.



|August 31, 2012 |  | Natural Gas Alberta AECO-C |  | $2.57/MMbtu     
|--------------- |  | -------------------------- |  | ----------------
|                |  | Exchange Rate:             |  | 0.99 $US/$ CDN  
|                |  |                            |  |                 
|August 31, 2011 |  | Natural Gas Alberta AECO-C |  | $3.77/MMbtu     
|                |  | Exchange Rate:             |  | 1.01$ US/$ CDN  
|                |  |                            |  |                 
|August 31, 2010 |  | Natural Gas Alberta AECO-C |  | 4.07 $/MMbtu    
|                |  | Exchange Rate:             |  | 0.956 $ US/$ CDN



Proved and Probable Reserve Quantity
Estimates:   The following table reflects estimates of our proved and probable developed reserves as at August 31,
2012, 2011, and 2010 as reported by Sproule stated in CDN dollars.   All of our gas reserves are located in Canada.
The following table represents our gross and net interest in reserves (after crown royalties, freehold royalties and overriding
royalties and interests owned by others). Numbers may not add due to rounding.



19







|Summary of Oil and Gas Reserves Constant Prices and Costs | 
|--------------------------------------------------------- | 
|Remaining Reserves                                        | 
|                                                          | 
|Reserves Category                                         | 
|August 31, 2012                                           | 
|Proved Developed Producing                                | 
|Probable Developed Producing                              | 
|Total Proved Plus Probable                                | 
|August 31, 2011                                           | 
|Proved Developed Producing                                | 
|Probable Developed Producing                              | 
|Total Proved Plus Probable                                | 
|August 31, 2010                                           | 
|Proved Developed Producing                                | 
|Probable Developed Producing                              | 
|Total Proved Plus Probable                                | 



The following table represents the summary
of our Net Revenue based on Constant Prices and costs before income taxes. Numbers may not add due to rounding.



|Summary of Net Revenue Constant Prices and Costs (Undiscounted) | 
|--------------------------------------------------------------- | 
|Reserves Category                                               | 
|August 31, 2012                                                 | 
|Proved Developed Producing                                      | 
|Probable Developed Producing                                    | 
|Total Proved Plus Probable                                      | 
|August 31, 2011                                                 | 
|Proved Developed Producing                                      | 
|Probable Developed Producing                                    | 
|Total Proved Plus Probable                                      | 
|August 31, 2010                                                 | 
|Proved Developed Producing                                      | 
|Probable Developed Producing                                    | 
|Total Proved Plus Probable                                      | 



The following table represents the summary
of our net present value of Future Net Revenue based on Constant Prices and costs before income taxes and discounted as follows.
Numbers may not add due to rounding.



|Summary of Net Present Values of Future Net Revenue Constant Prices and Costs | 
|----------------------------------------------------------------------------- | 
|                                                                              | 
|                                                                              | 
|Reserves Category                                                             | 
|August 31, 2012                                                               | 
|Proved Developed Producing                                                    | 
|Probable Developed Producing                                                  | 
|Total Proved Plus Probable                                                    | 
|August 31, 2011                                                               | 
|Proved Developed Producing                                                    | 
|Probable Developed Producing                                                  | 
|Total Proved Plus Probable                                                    | 
|August 31, 2010                                                               | 
|Proved Developed Producing                                                    | 
|Probable Developed Producing                                                  | 
|Total Proved Plus Probable                                                    | 



20







Production Volume:   The
following table sets forth the net quantities of natural gas produced during the fiscal years ended August 31, 2012, 2011 and 2010.



|August 31,         |  | 2012 |        |  | 2011 |  |        | 2010 | 
|------------------ |  | ---- | ------ |  | ---- |  | ------ | ---- | 
|Natural Gas  (Mcf) |  |      | 19,593 |  |      |  | 19,500 |      | 



Historical Production:   The
following table sets out our net share of production, average sales prices, average royalties, production costs and average net
back per unit of production for the fiscal years ended August 31, 2012, 2011 and 2010.



|                          |  | For the Years Ended |     
|------------------------- |  | ------------------- | ----
|Historical Production     |  | August 31, 2012     |     
|Natural Gas – Mcf/d       |  |                     | 54  
|Natural Gas Prices- $/Mcf |  | $                   | 2.24
|Royalty Costs - $/Mcf     |  |                     | 0.57
|Production Costs - $/Mcf  |  |                     | 0.55
|Net Back - $/Mcf          |  | $                   | 1.16



Producing and Non Producing Wells:
  The following table sets out the number of gross and net producing oil and natural gas wells and the number of gross
and net non-producing oil and natural gas wells that we have an interest in by location at August 31, 2012, 2011 and 2010. A gross
well is a well in which we own an interest.  A net well represents the fractional interest we own in gross wells.



|August 31                       |  | 2012  |     |  | 2011 |  |        | 2010  | 
|------------------------------- |  | ----- | --- |  | ---- |  | ------ | ----- | 
|                                |  | Gross |     |  | Net  |  |        | Gross | 
|Alberta, Canada                 |  |       |     |  |      |  |        |       | 
|Natural Gas Wells-Producing     |  |       | 3.0 |  |      |  | .15525 |       | 
|Natural Gas Wells-Non Producing |  |       | 6.0 |  |      |  | .3105  |       | 
|Texas, USA                      |  |       |     |  |      |  |        |       | 
|Oil Wells – Non Producing       |  |       | 7   |  |      |  | 6.6    |       | 



Acreage: The following table sets
forth the developed and undeveloped acreage of the projects in which the Company holds an interest, on a gross and a net basis
as of August 31, 2012, 2011 and 2010. The developed acreage is stated on the basis of spacing units designated by provincial authorities
and typically on the basis of 160 acre spacing unit for oil production and 640 acre spacing unit for gas production in Alberta.  Our
developed acreage is located in Alberta, Canada. Our undeveloped acreage is located in Zavala County, Texas.



|August 31,                |  | 2012  |       |  | 2011 |  |       | 2010  | 
|------------------------- |  | ----- | ----- |  | ---- |  | ----- | ----- | 
|                          |  | Gross |       |  | Net  |  |       | Gross | 
|Developed Acreage, Canada |  |       | 8,320 |  |      |  | 432   |       | 
|Undeveloped Acreage, USA  |  |       | 5,266 |  |      |  | 4,793 |       | 



Additional Information Concerning Abandonment
and Reclamation Costs:   We base our estimates for costs of abandonment and reclamation of surface leases and wells
on previous experience with similar well site locations and terrain, estimates obtained from area operators and various regulatory
abandonment guidelines and requirements.



We believe that our range of estimates
for abandonment and reclamation costs are reasonable and applicable to our wells.  Our independent qualified reserves
evaluator has also estimated similar costs in deriving our estimate of future net revenue.



The following table accounts for costs
for only the wells which were evaluated by Sproule and have not included other shut-in, suspended or uncompleted wells in which
the Company has an interest.



21







|Year |  | Proved       |   |  | Proved plus Probable | 
|---- |  | ------------ | - |  | -------------------- | 
|     |  | Undiscounted |   |  | Discounted at 10%    | 
|     |  | $M           |   |  | $M                   | 
|2031 |  |              | 2 |  |                      | 



Ultimately all wells in which the Company has an interest will
require abandonment and reclamation.



The Company’s abandonment and reclamation
obligations result from its ownership interests in petroleum and natural gas assets including well sites, gathering systems and
processing facilities. The total obligation is estimated based on the Company’s net ownership interest in 7.07 net wells.
The Company has estimated the net present value of these obligations to be $114,755 at August 31, 2012 based on an undiscounted
total future liability of $158,974. These payments are expected to be incurred between fiscal 2022 and 2031.



Capitalized Costs related to oil and
gas activities:The following table summarizes the costs incurred in our oil and gas interests for acquisition, exploration,
and development activities for the three years ended August 31, 2012, 2011 and 2010.



|Property, Plant and Equipment                   |  | 2012 |            |   | 2011 |   |           | 2010 | 
|----------------------------------------------- |  | ---- | ---------- | - | ---- | - | --------- | ---- | 
|Net book value at September 1                   |  | $    | 243,000    |   |      | $ | 314,000   |      | 
|Depletion                                       |  |      | (18,045    | ) |      |   | (23,136   | )    | 
|Change in decommissioning  obligation estimates |  |      | 819        |   |      |   | 1,600     |      | 
|Write down of oil and gas interests             |  |      | (50,774    | ) |      |   | (49,464   | )    | 
|Total Property, Plant and Equipment             |  |      | 175,000    |   |      |   | 243,000   |      | 
|Exploration and Evaluation Assets               |  |      |            |   |      |   |           |      | 
|Net book value at September 1                   |  |      | 8,995,878  |   |      |   | 5,695,290 |      | 
|Exploration expenditures                        |  |      | 1,559,763  |   |      |   | 3,262,782 |      | 
|Change in decommissioning  obligation estimates |  |      | 6,546      |   |      |   | 4,332     |      | 
|Foreign Exchange                                |  |      | (36,327    | ) |      |   | (19,167   | )    | 
|Decommissioning obligations                     |  |      | 41,243     |   |      |   | 52,641    |      | 
|Units cancelled                                 |  |      | (2,091,616 | ) |      |   | -         |      | 
|Acquisition of Dyami Energy                     |  |      | -          |   |      |   | -         |      | 
|Acquisition of oil and gas interests            |  |      | -          |   |      |   | -         |      | 
|Total Exploration and Evaluation Assets         |  |      | 8,475,487  |   |      |   | 8,995,878 |      | 
|Total Capitalized                               |  | $    | 8,650,487  |   |      | $ | 9,238,878 |      | 



For the year ended August 31, 2012 the
Company capitalized interest of $289,650 to exploration and evaluation assets (August 31, 2011: $197,690, August 31, 2010: Nil).



Present Activities, Results of Exploration
and Drilling:    During the fiscal year ended August 31, 2012, the Company drilled three exploratory wells on its
leases located in Zavala County, Texas USA. To date the Company has not completed these wells.



The following table sets forth the number
of Eagleford’s gross and net exploratory wells drilled in Texas, USA during the year ended August 31, 2012.  A
gross well is a well in which the Company owns an interest.  A net well represents the fractional interest the Company
owns in gross wells



|August 31                 |  | 2012  |     |  | 2011 |  |     | 2010  | 
|------------------------- |  | ----- | --- |  | ---- |  | --- | ----- | 
|Texas, USA                |  | Gross |     |  | Net  |  |     | Gross | 
|Oil Wells – Non Producing |  |       | 3.0 |  |      |  | 2.7 |       | 



During
fiscal 2012, the Company drilled the Dyami/Murphy #4 well, the Dyami/Murphy #3 and the Dyami/Matthews #2 well. The Company is reviewing
frac design and completions programs from industry specialists(See
Item 8.A Consolidated Financial Statements and Other Financial Information – Litigation).



22







Governmental Regulation/Environmental
Issues:   Our oil and gas operations are subject to various Canadian and US governmental regulations. Matters subject
to regulation include discharge permits for drilling operations, drilling and abandonment bonds, reports concerning operations,
the spacing of wells, and pooling of properties and taxation. From time to time, regulatory agencies have imposed price controls
and limitations on production by restricting the rate of flow of oil and gas wells below actual production capacity in order to
conserve supplies of oil and gas. The production, handling, storage, transportation and disposal of oil and gas, by-products thereof,
and other substances and materials produced or used in connection with oil and gas operations are also subject to regulation under
federal, state, provincial and local laws and regulations relating primarily to the protection of human health and the environment.
To date, expenditures related to complying with these laws, and for remediation of existing environmental contamination, have not
been significant in relation to the results of operations of our company. The requirements imposed by such laws and regulations
are frequently changed and subject to interpretation, and we are unable to predict the ultimate cost of compliance with these requirements
or their effect on our operations  (See, Item 3.D Key Information - Risk Factors).



| | ITEM 4A | UNRESOLVED STAFF COMMENTS
| | ------- | -------------------------



Not Applicable



| | ITEM 5 | OPERATING AND FINANCIAL
REVIEW AND PROSPECTS
| | ------ | --------------------------------------------



The following discussion should be read
in conjunction with our “Selected Financial Data” under Item 3 above, our Audited Consolidated Financial Statements
for the fiscal years ended August 31, 2012 and 2011 and notes thereto included under “Item 18”. We adopted IFRS in
accordance with IFRS 1 First-time Adoption of International Financial Reporting Standards (“IFRS 1”) with a transition
date of September 1, 2010. Consequently, the comparative figures for 2011 and the Company’s consolidated statement of financial
position as at September 1, 2010 have been restated from accounting principles generally accepted in Canada (“Canadian GAAP”)
to comply with IFRS. The reconciliations to IFRS from the previous Canadian GAAP consolidated financial statements are summarized
in Note 18 to our Consolidated Financial Statements. Unless otherwise indicated, discussion under this Item has been prepared in
accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards
Board (“IASB”)and all amounts herein are presented in Canadian dollars, unless otherwise
noted.



Non-IFRS Measurements –Certain
measures in this Discussion and Analysis do not have any standardized meaning as prescribed by IFRS including "Operating net
back" are considered Non-IFRS measures. Therefore, these measures may not be comparable to similar measures presented by other
issuers. These measures are common with the oil and gas industry and have been described and presented in this Management’s
Discussion and Analysis in order to provide shareholders and potential investors with additional information regarding the company's
liquidity and its ability to generate funds to finance its operations. These terms are commonly used in the oil and gas industry
and are therefore presented here to provide balances comparable to other oil and gas production companies.



Certain statements made in this Item
are forward-looking statements under the Reform Act.  Forward- looking statements are based on current expectations that
involve a numbers of risks and uncertainties, which could cause actual events or results to differ materially from those reflected
herein. See, Item 3.D Key Information - Risk Factors for discussion of important factors, which could cause results to differ materially
from the forward-looking statements below.



Overview

Eagleford Energy Inc. is amalgamated under the laws of the Province
of Ontario. We are a reporting issuer with the United States Securities and Exchange Commission and our common shares trade on
the Over-the-Counter Bulletin Board (OTCBB) under the symbol EFRDF.



Our business
focus consists of acquiring, exploring and developing oil and gas interests. The recoverability of the amount shown for these properties
is dependent upon the existence of economically recoverable reserves, the ability of the Company to obtain the necessary financing
to complete exploration and development, and future profitable production or proceeds from disposition of such property.Our
oil and gas interests are locatedin Alberta, Canada and Zavala County, Texas. We also holds a 0.3% net smelter return royalty
on eight mining claims located in Red Lake Ontario which is carried on the Consolidated Statements of Financial Position at $Nil.
We completed a 2-for-1 forward stock split, pursuant to which one (1) newly-issued share of the Company’s
common stock was issued to each holder of a share of common stock as of the close of business on March 16, 2012.



23







Our Audited Consolidated Financial Statements
for the year ended August 31, 2012 and 2011 include the accounts of the Company, and our wholly owned subsidiaries 1354166 Alberta
Ltd. and Dyami Energy LLC.



Capital Management

Our objectives when managing capital are
to ensure we will have sufficient financial capacity, liquidity and flexibility to funds our operations, growth and ongoing exploration
and development commitments on our oil and gas interests. We are dependent on funding these activities through debt and equity
financings. Due to long lead cycles of our exploration activities, our capital requirements currently exceed our operational cash
flow generated. As such we are dependent upon future financings in order to maintain its flexibility and liquidity and may from
time to time be required to issue equity, issue debt, adjust capital spending or seek joint venture partners.



We manage the capital structure and make
adjustments to it in light of changes in economic conditions and the risk characteristics of any underlying assets in order to
meet current and upcoming obligations. Current plans for the development commitments of our Texas leases include debt or equity
financing or seeking and obtaining a joint venture partner.



The board of directors does not establish
quantitative return on capital criteria for management, but rather relies on the expertise of our management and favourable market
conditions to sustain future development of the business.



As at August 31, 2012, August 31, 2011
and September 1, 2010 we considered its capital structure to comprise of shareholders equity and long-term debt.



Management reviews our capital management
approach on an ongoing basis and believes that this approach, given the relative size of us, is reasonable.



There were no changes in our capital management
during the period ended August 31, 2012.



We are not subject to any externally imposed
restrictions on its capital requirements.



SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
FUTURE ACCOUNTING PRONOUNCEMENTS AND SIGNIFICANT ACCOUNTING POLICY DIFFERENCES



Our consolidated financial statements for
the years ended August 31, 2012 and 2011 have been prepared in accordance with International Financial Reporting Standards (“IFRS”),
as issued by the International Accounting Standards Board (“IASB”).



We adopted IFRS in accordance with IFRS
1 First-time Adoption of International Financial Reporting Standards (“IFRS 1”) with a transition date of September
1, 2010. Consequently, the comparative figures for 2011 and our consolidated statement of financial position as at September 1,
2010 have been restated from accounting principles generally accepted in Canada (“Canadian GAAP”) to comply with IFRS.
The reconciliations to IFRS from the previous Canadian GAAP consolidated financial statements are summarized in Note 18 to our
Audited Consolidated Financial Statements (See Item 18– Financial Statements).



Going Concern

These consolidated financial statements
have been prepared on a going concern basis which contemplates the realization of assets and the payment of liabilities in the
ordinary course of business. The Company plans to obtain additional financing by way of debt or the issuance of common shares or
some other means to service its current working capital requirements, any additional or unforeseen obligations or to implement
any future opportunities. Should the Company be unable to continue as a going concern, it may be unable to realize the carrying
value of its assets and to meet its liabilities as they become due. These consolidated financial statements do not include any
adjustments for this uncertainty.



24







The Company has accumulated significant
losses and negative cash flows from operations in recent years which raise doubt as to the validity of the going concern assumption.
At August 31, 2012, the Company had a working capital deficiency of $3,819,056 (August 31, 2011 $5,108,526 and September 1, 2010
$677,449) and an accumulated deficit of $4,946,515 (August 31, 2011 $2,137,327 and September 1, 2010 $1,706,400). The Company does
not have sufficient funds to meet its liabilities for the ensuing twelve months as they fall due. In assessing whether the going
concern assumption is appropriate, management takes into account all available information about the future, which is at least,
but not limited to, twelve months from the end of the reporting period. The Company's ability to continue operations and fund its
liabilities is dependent on its ability to secure additional financing and cash flow. During the year ended August 31, 2012 the
Company extinguished $1,227,386 of debt through the issuance of share capital in the Company. In addition, the Company raised net
proceeds of $2,086,718 through the issuance of share capital. Management is pursuing such additional sources of financing and cash
flow to fund its operations and while it has been successful in doing so in the past, there can be no assurance it will be able
to do so in the future. Management is aware, in making its assessment, of material uncertainties related to events or conditions
that may cast significant doubt upon the Company's ability to continue as a going concern. Accordingly, they do not give effect
to adjustments that would be necessary should the Company be unable to continue as a going concern and therefore realize its assets
and liquidate its liabilities and commitments in other than the normal course of business and at amounts different from those in
the accompanying consolidated financial statements.



BASIS OF PREPARATION



Statement of Compliance

These consolidated financial statements
have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board (“IASB”). These are the Company’s first annual consolidated financial statements prepared
in accordance with IFRS, and the Company has elected September 1, 2010 as the date of transition to IFRS (the “Transition
Date”). IFRS 1, First Time Adoption of IFRS has effected the consolidated financial statements of the Company and the changes
are included in Note 18 to the consolidated financial statements.



Basis of Preparation and First-time
Adoption of IFRS

The Company prepares its financial statements
in accordance with Canadian generally accepted accounting principles as set out in the Handbook of the Canadian Institute of Chartered
Accountants (“CICA Handbook”). In 2010, the CICA Handbook was revised to incorporate International Financial Reporting
Standards (“IFRS”), and require publicly accountable enterprises to apply such standards effective for years beginning
on or after January 1, 2011. Accordingly, these are the Company’s first annual consolidated financial statements prepared
in accordance with IFRS, and IFRS 1 First-time adoption of International Financial Reporting Standards (“IFRS 1”).
In these financial statements, the term “Canadian GAAP” refers to Canadian GAAP before the adoption of IFRS.



These consolidated financial statements
have been prepared in accordance with IFRS as issued by the International Accounting Standards Board (the “IASB”).
The Company has consistently applied the same accounting policies throughout all periods presented, as if these policies had always
been in effect. Note 18 discloses the impact of the transition to IFRS on the Company's reported consolidated statement of financial
position, financial performance and cash flows including the nature and effect of significant changes in accounting policies from
those used in the Company’s consolidated financial statements for the year ended August 31, 2011 prepared under Canadian
GAAP.



Principles of Consolidation

Subsidiaries are all entities (including
special purpose entities) controlled by the Company. Control exists when the Company has the power to govern the financial and
operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that
currently are exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial
statements from the date that control commences until the date that control ceases.



The consolidated financial statements include
the accounts of Eagleford, the legal parent, together with its wholly-owned subsidiaries, 1354166 Alberta Ltd. an Alberta operating
company (“1354166 Alberta”) and Dyami Energy LLC a Texas limited liability company (“Dyami Energy”). All
Intercompany balances and transactions have been eliminated on consolidation.



SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES



Subject to certain IFRS 1 transition elections
(refer to Note 18), the accounting policies set out below have been applied consistently to all years presented in these consolidated
financial statements and have been applied consistently by the Company and its subsidiaries.



25







Cash and Cash Equivalents

Cash and cash equivalents include banks
balances and highly liquid temporary money market instruments with original maturities of three months or less.



Revenue Recognition

Revenues from the production of oil and
gas properties in which the Company has an interest are recognized, on the basis of the Company’s working interest in those
properties, when the significant risks and rewards of ownership of the product is transferred to the buyer, which is usually when
legal title passes to an external party.



Foreign Currencies

The functional and presentation currency
of the Company is the Canadian dollar. The functional currency of the Company’s wholly-owned Alberta subsidiary, 1354166
Alberta is Canadian dollars and the functional currency of the Company’s wholly-owned Texas subsidiary, Dyami Energy is United
States dollars.



Items included in the consolidated financial
statements of each entity are measured using the currency of the primary economic environment in which the entity operates (the
"functional currency"). Foreign currency transactions are translated into the functional currency using the exchange
rates prevailing at the dates of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions
and from the translation of monetary assets and liabilities not denominated in the functional currency of an entity are recognized
in the consolidated statements of operations.



Assets and liabilities of entities with
functional currencies other than Canadian dollars are translated at the period end rates of exchange, and the results of their
operations are translated at average rates of exchange for the period. The resulting translation adjustments are included in the
foreign currency translation reserve under the equity section of the consolidated statement of financial position. Additionally,
foreign exchange gains and losses related to certain intercompany loans that are permanent in nature are also included in the foreign
currency translation reserve.



Loss per Share

The basic loss per share is calculated
by dividing net loss by the weighted average number of common shares outstanding during the period. The diluted loss per share
reflects the dilution that would occur if outstanding stock options and share purchase warrants were exercised or converted into
common shares using the treasury stock method and are calculated by dividing net loss applicable to common shares by the sum of
the weighted average number of common shares outstanding and all additional common shares that would have been outstanding if potentially
dilutive common shares had been issued.



The inclusion of the Company’s stock
options and share purchase warrants in the computation of diluted loss per share would have an anti-dilutive effect on loss per
share and are therefore excluded from the computation.



Marketable Securities

At each financial reporting period, the
Company estimates the fair value of investments which are held-for-trading, based on quoted closing bid prices at the consolidated
statements of financial position date or the closing bid price on the last day the security traded if there were no trades at the
consolidated statements of financial position date and such valuations are reflected in the consolidated financial statements.
The resulting values for unlisted securities whether of public or private issuers, may not be reflective of the proceeds that could
be realized by the Company upon their disposition. The fair value of the securities at August 31, 2012 was $1 (August 31, 2011
and September 1, 2010 - $1).



Financial Instruments

Classification and Measurement

Financial instruments are measured at fair
value on initial recognition of the instrument. Measurement in subsequent periods depends on whether the financial instrument has
been classified as “fair value through profit and loss”, “loans and receivables”, “available-for-sale”,
“held-to-maturity”, or “other financial liability” as defined by IAS 39, “Financial Instruments:
Recognition and Measurement”.



Financial assets and financial liabilities
at “fair value through profit or loss” are either classified as “held for trading” or “designated
at fair value through profit or loss” and are measured at fair value with changes in fair value recognized in the statement
of comprehensive income. Transaction costs are expensed when incurred. The Company has classified cash and cash equivalents, marketable
securities and derivative warrant liabilities as “fair value through profit and loss”.



26







Financial instruments classified as “loans
and receivables”, “held-to-maturity”, or “financial liabilities” are measured at amortized cost using
the effective interest method of amortization. “Loans and receivables” are non-derivative financial assets with fixed
or determinable payments that are not quoted in an active market. “Held-to-maturity” financial assets are non-derivative
investments that an entity has the positive intention and ability to hold to maturity.



“Other financial liabilities measured
at amortized cost” are those financial liabilities that are not designated as “fair value through profit or loss”
and that are not derivatives. The Company has classified trade and other receivables as “loans and receivables” and
trade and other payables, secured notes payable, loans payable, provisions and shareholders’ loans as “other financial
liabilities”.



Financial assets classified as “available-for-sale”
are measured at fair value, with changes in fair value recognized in other comprehensive income. Available-for-sale financial assets
are non-derivatives that are either designated in this category or not classified in any of the other categories. The Company currently
has no assets classified as “available for sale”.



Derivative Financial Instruments

The Company’s derivative instruments
consist of derivative liabilities in relation to its share purchase warrants. In prior years the Company had issued share purchase
warrants in conjunction with offerings for the purchase of common shares of the Company. These share purchase warrants were issued
with an exercise price in US dollars, rather than Canadian dollars (the presentation and functional currency of the Company). Such
share purchase warrants are considered to be derivative instruments and the Company is required to re-measure the fair value of
these at each reporting date. The fair value of these share purchase warrants are re-measured at each statement of financial position
date using the Black Scholes model. Adjustments to the fair value of the share purchase warrants at the statement of financial
position date are recorded to the statement of operations.



Property and Equipment and Exploration
and Evaluation Assets



Exploration and Evaluation Assets
(“E&E”)

Pre-acquisition expenditures on oil and
gas assets are recognized as an expense in the consolidated statements of operations when incurred. In accordance with IFRS 6,
exploration and evaluation costs are capitalized within intangible assets until the success or otherwise of the well or project
has been established and subject to an impairment review. The costs of unsuccessful wells in an area are written off to statement
of operations



Exploration and evaluation costs, including
the costs of acquiring licenses and directly attributable general and administrative costs, initially are capitalized either as
tangible or intangible E&E assets according to the nature of the assets acquired. The costs are accumulated in cost centers
by well, field or exploration area pending determination of technical feasibility and commercial viability.



When E&E assets are determined to be
technically feasible and commercially viable, the accumulated costs are transferred to property and equipment. When E&E assets
are determined not to be technically feasible and commercially viable or the Company decides not to continue with its activity,
the unrecoverable costs are charged to statement of operations as exploration and evaluation expense.



E&E assets are assessed for impairment
in any circumstances where sufficient data exists to determine technical feasibility and commercial viability, and facts and circumstances
suggest that the carrying amount exceeds the recoverable amount. For purposes of impairment testing, E&E assets are allocated
to cash-generating units (“CGUs”).



Development and Production Costs

Items of property and equipment, which
include petroleum and natural gas development and production assets, are measured at cost less accumulated depletion and depreciation
and accumulated impairment losses. Development and production assets are grouped into CGUs for impairment testing.



When significant parts of an item of property
and equipment, including petroleum and natural gas interests, have different useful lives, they are accounted for as separate items
(major components).



27







Gains and losses on disposal of an item
of property and equipment, including petroleum and natural gas interests, are determined by comparing the proceeds from disposal
with the carrying amount of property and equipment and are recognized net in profit or loss.



Subsequent Costs

Costs incurred subsequent to the determination
of technical feasibility and commercial viability and the costs of replacing parts of property and equipment are recognized as
exploration and evaluation assets only when they increase the future economic benefits embodied in the specific asset to which
they relate. All other expenditures are recognized in profit or loss as incurred. Such capitalized exploration and evaluation assets
generally represent costs incurred in developing proved and/or probable reserves and bringing in or enhancing production from such
reserves, and are accumulated on a field or geotechnical area basis. The carrying amount of any replaced or sold component is derecognized.
The costs of the day-to-day servicing of property and equipment are recognized in profit or loss as incurred.



Depletion and Depreciation

The net carrying value of development or
production assets is depleted using the units-of-production method by reference to the ratio of production in the period to the
related proved plus probable reserves, taking into account estimated future development costs necessary to bring those reserves
into production. Future development costs are estimated taking into account the level of development required to produce the reserves.
These estimates are reviewed by independent reserve engineers at least annually for developed properties.



Proved and probable reserves are estimated
using independent reserve engineer reports for developed properties only and represent the estimated quantities of crude oil, natural
gas and natural gas liquids which geological, geophysical and engineering data demonstrate with a specified degree of certainty
to be recoverable in future years from known reservoirs and which are considered commercially producible.



Reserves may be considered commercially
producible if management has the intention of developing and producing them and such intention is based upon:



| | • | a reasonable assessment of the future economic benefit of such production;
| | - | --------------------------------------------------------------------------

| | • | a reasonable expectation that there is a market for all or substantially all the expected oil and
natural gas production; and
| | - | -----------------------------------------------------------------------------------------------------------------------------

| | • | evidence that the necessary production, transmission and transportation facilities are available
or can be made available.
| | - | --------------------------------------------------------------------------------------------------------------------------



Reserves may only be considered proved
and probable if they are supported by either actual production or conclusive formation tests. The area of reservoir considered
proved includes: (a) that portion delineated by drilling and defined by gas-oil and/or oil-water contacts, if any, or both; and
(b) the immediately adjoining portions not yet drilled, but which can be reasonably judged as economically productive on the basis
of available geophysical, geological and engineering data. In the absence of information on fluid contacts, the lowest known structural
occurrence of oil and natural gas controls the lower proved limit of the reservoir.



Depreciation methods, useful lives and
residual values are reviewed at each reporting date.



Impairment



Financial Assets

A financial asset is assessed at each reporting
date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if
objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.



An impairment loss in respect of a financial
asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated
future cash flows discounted at the original effective interest rate.



Individually significant financial assets
are tested for impairment on an individual basis. Remaining financial assets are assessed collectively in groups that share similar
credit risk characteristics.



28







All impairment losses are recognized in
the profit or loss.



An impairment loss is reversed if the reversal
can be related objectively to an event occurring after the impairment loss was recognized. For financial assets measured at amortized
cost the reversal is recognized in profit or loss.



Non-financial Assets

The carrying amounts of the Company’s
non-financial assets, other than E&E assets are reviewed at each reporting date to determine whether there is any indication
of impairment. If any such indication exists, the asset’s recoverable amount is estimated. E&E assets are assessed for
impairment when they are reclassified to property and equipment as petroleum and natural gas interests, and also if facts and circumstances
suggest that their carrying amount exceeds the recoverable amount.



For the purpose of impairment testing,
assets are grouped together into the smallest group of assets that generate cash inflows from continuing use that are largely independent
of the cash inflows of other assets or groups of assets (the “cash-generating unit” or “CGU”). The recoverable
amount of an asset or a CGU is the greater of its value in use and its fair value less costs to sell.



In assessing value in use, the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset. Value in use is generally computed by reference to the present
value of the future cash flows expected to be derived from production of proved and probable reserves.



E&E assets are allocated to related
CGUs when they are assessed for impairment, both at the time of any triggering facts and circumstances as well as upon their eventual
reclassification to producing assets (petroleum and natural gas interests in property and equipment).



An impairment loss is recognized if the
carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit or
loss. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated
to the units and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro rata basis.



In respect of assets other than goodwill,
impairment losses recognized in prior years are assessed at each reporting date for any indications that the loss has decreased
or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable
amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount
that would have been determined, net of depletion and depreciation or amortization, if no impairment loss had been recognized.



Provisions

A provision is recognized if, as a result
of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable
that an outflow of economic benefits will be required to settle the obligation.



Provisions are determined by discounting
the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks
specific to the liability. Provisions are not recognized for future operating losses.



Decommissioning Obligations

The Company’s activities give rise
to dismantling, decommissioning and site disturbance remediation activities. Provision is made for the estimated cost of site restoration
and capitalized in the relevant asset category.



Decommissioning obligations are measured
at the present value of management’s best estimate of the expenditure required to settle the present obligation at the period-end
date. Subsequent to initial measurement, the obligation is adjusted at the end of each period to reflect the passage of time and
changes in the estimated future cash flows underlying the obligation. The increase in the provision due to the passage of time
is recognized as finance costs whereas increases/decreases due to changes in the estimated future cash flows and changes to discount
rate are capitalized. Actual costs incurred upon settlement of the decommissioning obligations are charged against the provision
to the extent the provision was established.



29







Borrowing Costs

Borrowing costs incurred for the construction
of qualifying assets are capitalized during the period of time that is required to complete and prepare the assets for their intended
use or sale. All other borrowing costs are recognized in profit or loss using the effective interest method. Interest income is
recognized as it accrues in profit or loss, using the effective interest method.



Taxes

Tax expense comprises current and deferred
tax. Tax is recognized in the consolidated statements of operations except to the extent it relates to items recognized in other
comprehensive income or directly in equity.



Current Income tax

Current tax expense is based on the results
for the year as adjusted for items that are not taxable or not deductible. Current tax is calculated using tax rates and laws that
were enacted or substantively enacted at the end of the reporting period. Management periodically evaluates positions taken in
tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Provisions are established
where appropriate on the basis of amounts expected to be paid to the tax authorities.



Deferred tax

Deferred tax assets and liabilities are
recognized for the future income tax consequences attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted
or substantively enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected
to be recovered or settled. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current
tax liabilities and asset and they relate to the income taxes levied by the same authority on the same taxable entity, or on different
tax entities where these entities intend to settle current tax liabilities and asset on a net basis or their tax assets and liabilities
will be realized simultaneously.



Deferred tax assets and liabilities are
not recognized in respect of temporary differences that arise on initial recognition of assets and liabilities acquired other than
in a business combination.



Share-Based Compensation

The Company has a share-based compensation
plan that grants stock options to employees and non-employees. This plan is an equity settled plan. The company uses the fair value
method for accounting for stock-based awards to employees and non-employees.



The fair value determined at the grant
date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Company’s
estimate of equity instruments that will eventually vest. At the end of each reporting period, the Company revises its estimate
of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized
in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to contributed
surplus.



Equity-settled share-based payment transactions
with parties other than employees are measured at the fair value of the goods or services received, except where that fair value
cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at
the date the Company obtains the goods or the counterparty renders the service.



Warrants

When the Company issues units comprising
common shares and warrants, the Company follows the relative fair value method of accounting for warrants attached to and issued
with common shares of the Company. Under this method, the fair value of warrants issued is estimated using a Black-Scholes option
price model. The fair value is then related to the total of the net proceeds received on issuance of the common shares and the
fair value of the warrants issued therewith. The resultant relative fair value is allocated to warrants from the net proceeds and
the balance of the net proceeds is allocated to the common shares issued.



Critical Accounting Estimates and Judgments

The timely preparation of the consolidated
financial statements in accordance with IFRS requires that management make estimates and assumptions and use judgment regarding
the measured amounts of assets, liabilities and contingent liabilities at the date of the consolidated financial statements and
reported amounts of revenue and expenses during the reporting period. Such estimates and judgments are continuously evaluated and
are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable
under the circumstances. Actual outcomes may differ from these estimates.



30







The key sources of estimation uncertainty
that have a significant risk of causing material adjustment to the amounts recognized in the consolidated financial statements
are:



Valuation and classification of exploration
and evaluation assets

The value of exploration and evaluation
assets are dependent upon the discovery of economically recoverable reserves which in turn is dependent on future oil and natural
gas prices, future capital expenditures and environmental and regulatory restrictions. The decision to transfer exploration and
evaluation assets to property and equipment is based upon management’s determination of an area’s technical feasibility
and commercial viability based on proved and/or probable reserve estimates.



Matthews Lease Litigation

The lessors
of the Matthews lease expressed their belief that the lease has terminated and filed a petition in the District Court, Zavala County,
Texas, seeking a declaration that the lease has terminated. The Company disagrees and believes that it is in full compliance with
the terms of the lease. The Company is defending the allegation and countersuing the lessor for repudiation of the lease and seeking
damages (See Item 8.A Consolidated Financial Statements and Other Financial Information – Litigation).



Stock Based Compensation

The Company measures the cost of equity-settled
transactions to the relative fair value of the equity instruments at the date at which they are issued. Estimating relative fair
value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the
terms and conditions of the instrument. This estimate also requires determining and making assumptions about the most appropriate
inputs to the valuation model including the expected life, volatility, discount rates and dividend yield.



Decommissioning Liabilities

Decommissioning liabilities consist of
asset retirement obligations that are based, in part, on estimates of future costs to settle the obligation, in addition to estimates
of the useful life of the underlying assets, the rate of inflation and the risk-free discount rate.



Fair Value of Financial Instruments

The estimated fair value of financial assets
and liabilities, by their very nature, are subject to measurement uncertainty.



Assessment of Commercial Reserves

Management is required to assess the level
of the Company’s commercial reserves together with the future expenditures to access those reserves, which are utilized in
determining the depletion charge for the period, assessing whether any impairment charge is required against producing and developed,
and the determination of the deferred tax liability. By their nature, these estimates of discovered proved and probable crude oil
and natural gas reserves, including the estimates of future prices, costs, related future cash flows and the selection of a pre-tax
risked discount rate relevant to the asset in question are subject to measurement uncertainty. The Company employs an independent
reserves evaluator who periodically assesses the Company’s level of commercial reserves by reference to data sets including
geological, geophysical and engineering data together with reports, presentation and financial information pertaining to the contractual
and fiscal terms applicable to the Company’s assets. Significant judgment is involved when determining whether there have
been any significant changes in the Company’s reserves.



Income taxes

Income taxes liability is estimated for
the Company, including an assessment of temporary differences. Any temporary differences will generally result in the recognition
of deferred tax assets and liabilities in the financial statements. Management`s judgment is required in the calculation of current
and deferred taxes.



Provisions

Considerable judgment is used in measuring
and recognizing provisions and the exposure to contingent liabilities. Judgment is necessary to determine the likelihood that a
pending litigation or other claim will succeed, or a liability will arise and to quantify the possible range of the final settlement.



31







Significant changes in the assumptions,
including those with respect to future business plan and cash flows, could materially change the recorded carrying amounts.



RECENT
ACCOUNTING PRONOUNCEMENTS



All accounting standards effective for
periods on or after January 1, 2011 have been adopted as part of the transition to IFRS. The following are new IFRS pronouncements
that have been issued, although not yet effective and have not been early adopted, and may have an impact on the Company in the
future as discussed below.



IFRS 7, “Financial Instruments”:
Disclosures”, which requires disclosure of both gross and net information about financial instruments eligible for offset
in the statement of financial position and financial instruments subject to master netting agreements. Concurrent with the amendments
to IFRS 7, the IASB also amended IAS 32, “Financial Instruments: Presentation” to clarify the exiting requirements
for offsetting financial instruments in the statement of financial position. The amendments to IAS 32 are effective as of January
1, 2014. The Company does not expect to have a significant impact on its consolidated financial statements.



IFRS 10, “Consolidated Financial
Statements” replaces the consolidation requirements of SIC-12 Consolidation Special Purpose Entities and IAS 27 “Consolidated
Separate Financial Statements”. It introduces a new principle-based definition of control, applicable to all investees to
determine the scope of consolidation. The standard provides the framework for consolidated financial statements and their preparation
based on the principle of control. This new standard is effective for the Company’s Interim and Consolidated financial statements
commencing September 1, 2013. The Company does not expect to have a significant impact on its consolidated financial statements.



IFRS 11 “Joint Arrangements”
which replaces IAS 31, “Interests in Joint Ventures”. IFRS 11 divides joint arrangements into two types, each having
its own accounting model. A “joint operation” continues to be accounted for using proportionate consolidation, whereas
a “joint venture” must be accounted for using equity accounting. This differs from IAS 31, where there was the choice
to use proportionate consolidation or equity accounting for joint ventures. A “joint operation” is defined as the joint
operators having rights to the assets, and obligations for the liabilities, relating to the arrangement. In a “joint venture”,
the joint ventures partners have rights to the net assets of the arrangement, typically through their investment in a separate
joint venture entity. This new standard is effective for the Company’s Interim and Consolidated financial statements commencing
September 1, 2013. The Company does not expect to have a significant impact on its consolidated financial statements.



IFRS 12 “Disclosure of Interests
in Other Entities” is a new standard, which combines all of the disclosure requirements for subsidiaries, associates and
joint arrangements, as well as unconsolidated structured entities. This new standard is effective for the Company’s Interim
and Consolidated financial statements commencing September 1, 2013. The Company does not expect to have a significant impact on
its consolidated financial statements.



IFRS 13 “Fair Value Measurement”
replaces the fair value guidance contained in individual IFRS with a single source of fair value measurement guidance. The standard
also requires disclosures which enable users to assess the methods and inputs used to develop fair value measurements. This new
standard is effective for the Company’s Interim and Consolidated financial statements commencing September 1, 2013. The Company
does not expect to have a significant impact on its consolidated financial statements.



IAS 1 “Presentation of Financial
Statements” was amended by the IASB in September 2011 in order to align the presentation of items in comprehensive income
with US GAAAP standards. Items in other comprehensive income will be required to be presented in two categories: items that will
be reclassified into profit or loss and those that will not be reclassified. The flexibility to present a statement of comprehensive
income remains unchanged. The amendments to IAS 1 are effective for annual periods beginning on or after July 1, 2012. This new
standard is effective for the Company’s Interim and Consolidated financial statements commencing September 1, 2013. The Company
does not expect to have a significant impact on its consolidated financial statements.



IAS 27, “Separate Financial Statements”.
In May 2011, the IASB amended IAS 27, Separate Financial Statements (“IAS 27”). This amendment removes the requirements
for consolidated statements from IAS 27, and moves it over to IFRS 10 “Consolidated Financial Statements”. The amendment
mandates that when a company prepares separate financial statements, investment in subsidiaries, associates, and jointly controlled
entities are to be accounted for using either the cost method or in accordance with IFRS 9 “Financial Instruments”.
In addition, this amendment determines the treatment for recognizing dividends, the treatment of certain group reorganizations,
and some disclosure requirements. This amendment is effective for the Company’s interim and annual consolidated financial
statements commencing September 1, 2013. The Company is assessing the impact of this amended standard on its consolidated financial
statements.



32







IAS 28, “Investments in Associates
and Joint Ventures”. In May 2011, the IASB amended IAS 28, investments in Associates and Joint Ventures (“IAS 28”).
This amendment requires any retained portion of an investment in an associate or joint venture that has not been classified as
held for sale to be measured using the equity method until disposal. After disposal, if the retained interest continues to be an
associate or joint venture, the amendment requires for it to be continued to be accounted for under the equity method. The amendment
also disallows the re measurement of any retained interest in an investment upon the cessation of significant influence or joint
control. This amended standard is effective for the Company’s interim and annual consolidated financial statements commencing
September 1, 2013. The Company is assessing the impact of this amended standard on its consolidated financial statements.



IFRS 9, “Financial Instruments”.
In October 2010, the IASB issued IFRS 9, Financial Instruments (“IFRS 9”). IFRS 9, which replaces IAS 39, Financial
Instruments: Recognition and Measurement, establishes principles for the financial reporting of financial assets and financial
liabilities that will present relevant and useful information to users of financial statements for their assessment of the amounts,
timing and uncertainty of an entity’s future cash flows. This new standard is effective for the Company’s interim and
annual consolidated financial statements commencing September 1, 2015. The Company is assessing the impact of this new standard
on its consolidated financial statements.



SIGNIFICANT ACCOUNTING POLICY DIFFERENCES



Transition to IFRS



The Company completed its changeover to
IFRS, with a transition date of September 1, 2010. On the transition date, we adjusted our account balances to IFRS and our financial
reporting was changed to be in accordance with IFRS thereafter. A full description of our new accounting policies is outlined in
Note 3 to our audited consolidated financial statements for the year ended August 31, 2012. Additionally, transition date information
and reconciliations between IFRS and previous Canadian GAAP for comparative periods in 2011 are described in Note 18 to our audited
consolidated financial statements for the year ended August 31, 2012.



The following outlines significant accounting
policy differences between IFRS and previous Canadian GAAP applicable from the date of transition to IFRS on September 1, 2010.



| | (i) | Share Purchase Warrants
| | --- | -----------------------

Under Canadian GAAP the share purchase
warrants issued with an exercise price in US dollars, rather than Canadian dollars were classified as a component of equity. Under
IFRS, because the specified exercise price is denominated in United States dollars (a currency other than the functional currency
of the Company), the warrants are considered derivative liabilities. The warrants are required to be fair valued at each reporting
period, with changes in that fair value being recorded in profit or loss.



| | (ii) | Borrowing Costs
| | ---- | ---------------

Under Canadian GAAP the Company expensed
all of its borrowing costs attributed to acquisitions, construction or production of assets. Under IFRS the Company is required
to capitalize borrowing costs directly attributed to acquisitions, construction or production of qualifying assets as part of the
cost of the asset.



| | (iii) | Decommissioning Obligations
| | ----- | ---------------------------

Under Canadian GAAP, future cash flows
relating to the funding of asset retirement obligations were discounted at a credit adjusted risk free rate. Under IFRS the future
cash flows are discounted using a pre-tax risk free rate that reflects current market assessments of the time value of money and
the risks specific to the obligation.



Segmented Information

The Company’s reportable and geographical
segments are Canada and the United States. The accounting policies used for the reportable segments are the same as the Company’s
accounting policies.



For the purposes of monitoring segment
performance and allocating resources between segments, the Company’s executive officer monitors the tangible, intangible
and financial assets attributable to each segment. All assets are allocated to reportable segments. The following tables show information
regarding the Company’s reportable segments.



33







|For the year ended August 31, 2012 |  | Canada |            |   | United States |   |               | Total | 
|---------------------------------- |  | ------ | ---------- | - | ------------- | - | ------------- | ----- | 
|Net revenue                        |  | $      | 39,218     |   |               |   | -             |       | 
|Net loss                           |  | $      | (2,588,298 | ) |               |   | (220,890      | )     | 
|For the year ended August 31, 2011 |  |        | Canada     |   |               |   | United States |       | 
|Net revenue                        |  | $      | 56,916     |   |               |   | -             |       | 
|Net loss                           |  | $      | (371,361   | ) |               |   | (59,566       | )     | 
|As at August 31, 2012              |  |        | Canada     |   |               |   | United States |       | 
|Total Assets                       |  | $      | 3,983,791  |   |               | $ | 5,014,225     |       | 
|Total Liabilities                  |  | $      | 5,478,773  |   |               | $ | 568,890       |       | 
|As at August 31, 2011              |  |        |            |   |               |   |               |       | 
|Total assets                       |  | $      | 5,745,321  |   |               | $ | 3,830,655     |       | 
|Total liabilities                  |  | $      | 6,241,697  |   |               | $ | 606,979       |       | 
|As at September 1, 2010            |  |        |            |   |               |   |               |       | 
|Total assets                       |  | $      | 5,213,827  |   |               | $ | 893,625       |       | 
|Total liabilities                  |  | $      | 3,361,515  |   |               | $ | 210,669       |       | 



Other Information

Additional information relating to us may
be obtained or viewed from the System for Electronic Data Analysis and Retrieval at www.sedar.com and our future United States
Securities and Exchange Commission filings can be viewed through the Electronic Data Gathering Analysis and Retrieval System (EDGAR)
at www.sec.gov.



SHARE CAPITAL AND RESERVES



On March 16, 2012, the Company completed
a 2-for-1 stock split, pursuant to which one (1) newly-issued share of the Company’s common stock was issued to each holder
of a share of common stock as of the close of business. The forward stock split has been applied retrospectively for all periods
presented.



Authorized:

Unlimited number of common shares

Unlimited non-participating, non-dividend
paying, voting redeemable preference shares



Issued:



The following table sets out the changes
in common shares during the respective periods:



|Common Shares                   |  | Number* |            |   | Amount |  
|------------------------------- |  | ------- | ---------- | - | ------ | -
|Balance September 1, 2010       |  |         | 59,502,051 |   |        | $
|Exercise of warrants (note a)   |  |         | 7,420,692  |   |        |  
|Issued as compensation (note b) |  |         | 200,000    |   |        |  
|Balance August 31, 2011         |  |         | 67,122,743 |   |        |  
|Debt settlement (note c)        |  |         | 3,107,006  |   |        |  
|Debt settlement (note d)        |  |         | 6,000,000  |   |        |  
|Debt settlement (note e)        |  |         | 11,150,000 |   |        |  
|Private placement (note f)      |  |         | 2,000,000  |   |        |  
|Private placement (note g)      |  |         | 3,750,000  |   |        |  
|Private placement (note h)      |  |         | 6,825,000  |   |        |  
|Debt settlement (note i)        |  |         | 171,386    |   |        |  
|Cancelled (note j)              |  |         | (3,418,468 | ) |        |  
|Balance August 31, 2012         |  |         | 96,707,667 |   |        | $



* Reflects the March 16, 2012 two-for-one stock split



34







The following table sets out the changes in warrants during
the respective periods:



|                               |  | August 31, 2012     |            |  | August 31, 2011         |  
|------------------------------ |  | ------------------- | ---------- |  | ----------------------- | -
|Warrants                       |  | Number of Warrants* |            |  | Weighted Average Price* |  
|Outstanding, beginning of year |  |                     | 21,050,948 |  |                         | $
|Warrants exercised (note a)    |  |                     | -          |  |                         |  
|Debt settlement (note d)       |  |                     | 6,000,000  |  |                         | $
|Debt settlement (note e)       |  |                     | 11,150,000 |  |                         | $
|Private placement (note f)     |  |                     | 2,000,000  |  |                         | $
|Balance, end of year           |  |                     | 40,200,948 |  |                         | $



* Reflects the March 16, 2012 two-for-one stock split



(a)       During the year ended August 31,
2011, 1,000,000 common share purchase warrants were exercised at $0.04 expiring February 5, 2014 for proceeds of $35,000. The amount
allocated to warrants based on relative fair value using the Black Scholes model was $12,000; 1,200,000 common share purchase warrants
were exercised at $0.04 expiring February 25, 2014 for proceeds of $42,000. The amount allocated to warrants based on relative
fair value using the Black Scholes model was $14,400; 70,692 common share purchase warrants were exercised at $0.04 expiring February
27, 2014 for proceeds of $2,475. The amount allocated to warrants based on relative fair value using the Black Scholes model was
$822; and 5,150,000 common share purchase warrants were exercised at $0.10 expiring April 14, 2011 for proceeds of $515,000. The
amount allocated to warrants based on relative fair value using the Black Scholes model was $100,875.



(b)       In April 29,
2011, the Company entered into a consulting agreement with a service provider to provide corporate marketing and public relations
to the Company for a period of six months. As compensation, the Company agreed to issue 200,000 common shares and 100,000 common
share purchase warrants exercisable at US $0.63 per common share expiring May 4, 2012. The amount allocated to common shares was
based on the share price at the time of issuance was $95,800 and the amount allocated to derivative warrant liabilities based on
fair value using the Black Scholes model was $37,054. For the year ended August 31, 2011 $88,569 was recorded as marketing and
public relations expense and $44,285 was recorded as prepaid expenses. On May 4, 2012 100,000 warrants expired. The amount allocated
to derivative financial instruments based on fair value using the Black Scholes model was $39,440 with a corresponding increase
to contributed surplus.



(c)       During the year ended August 31,
2012, the Company issued 3,107,006 common shares as full settlement of interest due on shareholders’ loans in the amount
of $325,903. The amount allocated to common shares based on fair value was $395,589 and $69,686 was recorded as a loss on settlement
of debt in the statement of operations and comprehensive loss.



(d)       On January 24, 2012, the Company
converted shareholders’ loans in the aggregate amount of $300,000 through the issuance of a total of 6,000,000 units in the
capital of the Company at $0.05 per unit. Each unit is comprised of one (1) common share and one (1) purchase warrant exercisable
until January 24, 2015 to purchase one (1) additional common share of the Company at a purchase price of $0.05 per share. The fair
value of the common shares issued on the settlement date was $522,856 and the amount allocated to warrants based on relative fair
value using the Black Scholes model was $507,038 and $729,894 was recorded as a loss on settlement of debt.



(e)       On February 17, 2012, the Company
converted debt and shareholders’ loans in the aggregate amount of $557,500 through the issuance of a total of 11,150,000
units in the capital of the Company at of $0.05 per unit. Each unit is comprised of one (1) common share and one (1) purchase warrant
exercisable until February 17, 2015 to purchase one (1) additional common share of the Company at a purchase price of $0.05 per
share. The fair value of the common shares issued on the settlement date was $627,511 and the amount allocated to warrants based
on relative fair value using the Black Scholes model was $595,310 and $665,321 was recorded as a loss on settlement of debt.



(f)       On February 17, 2012, the Company
completed a non-brokered private placement of a total of 2,000,000 units in the capital of the Company at a purchase price of $0.05
per unit for net proceeds of $100,000. Each unit is comprised of one (1) common share and one (1) purchase warrant exercisable
until February 17, 2015 to purchase one (1) additional common share of the Company at a purchase price of $0.05 per share. The
amount allocated to warrants based on relative fair value using the Black Scholes model was $67,541.



35







(g)       On April 13, 2012, the Company
completed private placements for gross proceeds of $748,425 of equity capital from arm’s length private placement funding
through the issuance of 3,000,000 units at a price of US$0.25 per unit. Each unit is comprised of one common share and one-half
a common share purchase warrant, with each whole warrant entitling the holder to acquire one common share of the Company at US$0.50
for a period of three years from the date of issuance. The amount allocated to derivative warrant liabilities for warrants based
on fair value using the Black Scholes model was $282,604. In connection with the private placement, the Company paid cash commissions
and other expenses of $45,030 and issued an aggregate of 240,000 broker warrants.  Each broker warrant entitles the holder
to acquire one common share of the Company at an exercise price of US$0.25 for a period of three years from the date of issuance.
The amount allocated to derivative warrant liabilities based on fair value using the Black Scholes model was $78,005 with a corresponding
decrease in common shares. The Company subsequently re-priced the offering at US$0.20 and issued an additional 750,000 units on
July 27, 2012. The fair value of the units based on the new offering price was determined to be $188,625. The amount allocated
to contributed surplus was $132,616 and the amount allocated to derivative warrant liabilities based on fair value using the Black
Scholes model was $56,009. In addition, the Company issued an additional 60,000 broker warrants.  Each broker warrant entitles
the holder to acquire one common share of the Company at an exercise price of US$0.25 for a period of three years from the date
of issuance. The amount allocated to derivative warrant liabilities based on fair value using the Black Scholes model for broker
warrants was $14,109 with a corresponding decrease in contributed surplus.



(h)       On July 20, 2012 and August 7, 2012
the Company completed private placements for gross proceeds of $1,365,561 of equity capital from arm’s length private placement
funding through the issuance of 6,825,000 units at a price of US$0.20 per unit. Each unit is comprised of one common share and
one-half a common share purchase warrant, with each whole warrant entitling the holder to acquire one common share of the Company
at US$0.50 for a period of three years from the date of issuance. The amount allocated to derivative warrant liabilities for warrants
based on fair value using the Black Scholes model was $460,907. In connection with the private placement, the Company paid cash
commissions and other expenses of $82,239 and issued an aggregate of 546,000 broker warrants.  Each broker warrant entitles
the holder to acquire one common share of the Company at an exercise price of US$0.25 for a period of three years from the date
of issuance. The amount allocated to derivative warrant liabilities based on fair value using the Black Scholes model was $119,887
with a corresponding decrease in common shares.



(i)       On May 8, 2012, the Company issued
171,385 common shares as full settlement of interest due on shareholders’ loans in the amount of $43,983. The amount allocated
to common shares based on fair value was $44,547 and $564 was recorded as a loss on settlement of debt in the statement of operations
and comprehensive loss.



(j)       On August 31, 2012 the Company cancelled
3,418,468 common shares and 1,709,234 common shares purchase warrants exercisable at US$0.50 until August 31, 2014. The common
shares and warrants had been issued August 31, 2010 as partial consideration of the purchase price for Dyami Energy and held in
escrow pending the satisfaction of certain conditions precedent to their release on August 31, 2012. The conditions precedent had
not been satisfied and the time allowed for performance expired. The Company recorded a reduction in exploration and evaluation
assets of $2,091,616, a reduction in common shares of $1,397,199, a reduction of derivative warrant liabilities of $675,487 and
a reduction in contributed surplus of $18,930.



The following table summarizes the outstanding warrants as at
August 31, 2012:



|Number of Warrants* |  | Exercise Price* |      |  | Expiry Date |                   | Weighted Average Remaining Life (Years) |  |      | Warrant Value ($) | 
|------------------- |  | --------------- | ---- |  | ----------- | ----------------- | --------------------------------------- |  | ---- | ----------------- | 
|2,000,000           |  | $               | 0.04 |  |             | February 5, 2014  |                                         |  | 1.43 |                   | 
|800,512             |  | $               | 0.04 |  |             | February 25, 2014 |                                         |  | 1.49 |                   | 
|18,250,436          |  | $               | 0.04 |  |             | February 27, 2014 |                                         |  | 1.49 |                   | 
|6,000,000           |  | $               | 0.05 |  |             | January 24, 2015  |                                         |  | 2.40 |                   | 
|11,150,000          |  | $               | 0.05 |  |             | February 17, 2015 |                                         |  | 2.47 |                   | 
|2,000,000           |  | $               | 0.05 |  |             | February 17, 2015 |                                         |  | 2.47 |                   | 
|40,200,948          |  | $               | 0.04 |  |             |                   |                                         |  | 1.94 |                   | 



* Reflects the March 16, 2012 two-for-one stock split



36







The fair value of the warrants issued during
the year ended August 31, 2012, were estimated using the Black-Scholes pricing model with the following assumptions:



|Black-Scholes Assumptions used |  |  |     |  
|------------------------------ |  |  | --- | -
|Risk-free interest rate        |  |  | 1   | %
|Expected volatility            |  |  | 218 | %
|Expected life (years)          |  |  | 3   |  
|Dividend yield                 |  |  | -   |  



The following table summarizes the outstanding warrants as at
August 31, 2011:



|Number of Warrants* |  | Exercise Price* |      |  | Expiry Date |                   | Weighted Average Remaining Life (Years) |  |      | Warrant Value ($) | 
|------------------- |  | --------------- | ---- |  | ----------- | ----------------- | --------------------------------------- |  | ---- | ----------------- | 
|2,000,000           |  | $               | 0.04 |  |             | February 5, 2014  |                                         |  | 2.44 |                   | 
|800,512             |  | $               | 0.04 |  |             | February 25, 2014 |                                         |  | 2.49 |                   | 
|18,250,436          |  | $               | 0.04 |  |             | February 27, 2014 |                                         |  | 2.50 |                   | 
|21,050,948          |  | $               | 0.04 |  |             |                   |                                         |  | 2.49 |                   | 

* Reflects the March 16, 2012 two-for-one stock split



The following table summarizes the outstanding warrants as at
September 1, 2010:



|Number of Warrants* |  | Exercise Price* |      |  | Expiry Date |                   | Weighted Average Remaining Life (Years) |  |      | Warrant Value ($) | 
|------------------- |  | --------------- | ---- |  | ----------- | ----------------- | --------------------------------------- |  | ---- | ----------------- | 
|5,150,000           |  | $               | 0.10 |  |             | April 14, 2011    |                                         |  | 0.62 |                   | 
|1,000,000           |  | $               | 0.04 |  |             | February 5, 2014  |                                         |  | 3.43 |                   | 
|2,000,512           |  | $               | 0.04 |  |             | February 25, 2014 |                                         |  | 3.49 |                   | 
|20,321,128          |  | $               | 0.04 |  |             | February 27, 2014 |                                         |  | 3.49 |                   | 
|28,471,640          |  | $               | 0.04 |  |             |                   |                                         |  | 2.97 |                   | 



* Reflects the March 16, 2012 two-for-one stock split



The following table summarizes the weighted average shares outstanding:



|Weighted Average Shares Outstanding*                   |  | 2012 |            |  | 2011 | 
|------------------------------------------------------ |  | ---- | ---------- |  | ---- | 
|Weighted average shares outstanding, basic and diluted |  |      | 81,769,733 |  |      | 



* Reflects the March 16, 2012 two-for-one stock split



The effects of any potential dilutive instruments
on loss per share are anti-dilutive and therefore have been excluded from the calculation of diluted loss per share.



Share Purchase Options

The Company has a stock option plan to
provide incentives for directors, officers, employees and consultants of the Company. The maximum number of shares, which may be
set aside for issuance under the stock option plan, is 20% of the issued and outstanding common shares of the Company on a rolling
basis.



The following table is a summary of the status of the Company’s
stock options and changes during the period:



|                                               |  | Number of Options* |           |  | Weighted Average Exercise Price |  
|---------------------------------------------- |  | ------------------ | --------- |  | ------------------------------- | -
|Balance, September 1, 2010 and August 31, 2011 |  |                    | -         |  |                                 | $
|Granted                                        |  |                    | 1,050,000 |  |                                 |  
|Balance, August 31, 2012                       |  |                    | 1,050,000 |  |                                 | $

* Reflects the March 16, 2012 two-for-one stock split



37







The following table is a summary of the Company's stock options
outstanding and exercisable at August 31, 2012:





|Options Outstanding |      | Options Exercisable |                   
|------------------- | ---- | ------------------- | ------------------
|Exercise Price      |      |                     | Number of Options*
|$                   | 0.16 |                     |                   
|$                   | 0.25 |                     |                   
|                    |      |                     |                   

* Reflects the March 16, 2012 two-for-one stock split



Stock Based Compensation

On March 1, 2012, the Company granted options
to purchase 600,000 common shares to directors. These options are exercisable at $0.16 per share, vesting immediately and expire
on February 28, 2017. The Company recorded non-cash stock based compensation expense of $95,910.



Stock Based Compensation – Non
Employees

On March 1, 2012, the Company granted options
to purchase 400,000 common shares to a consultant. These options are exercisable at $0.16 per share, vesting immediately and expire
on February 28, 2017. The Company recorded non-cash stock based compensation expense of $63,940.



On July 24, 2012, the Company granted options
to purchase 50,000 stock options to a consultant of the Company. These options are exercisable at $0.25 per share, vest immediately
and expire on July 23, 2017. The Company recorded non-cash share based compensation expense of $11,122.



The fair value of the stock options granted
were estimated on the date of the grant using the Black Scholes option pricing model with the following weighted average assumptions
used.



|                                         |  | March 1, 2012 |      |   | July 24, 2012 |  
|---------------------------------------- |  | ------------- | ---- | - | ------------- | -
|Weighted average fair value per option   |  | $             | 0.16 |   |               | $
|Weighted average risk free interest rate |  |               | 1.44 | % |               |  
|Forfeiture rate                          |  |               | 0    | % |               |  
|Weighted average expected volatility     |  |               | 213  | % |               |  
|Expected life (years)                    |  |               | 5    |   |               |  
|Dividend yield                           |  |               | Nil  |   |               |  



Transactions for the respective periods are as follows:



|                                               |  | Amount |        
|---------------------------------------------- |  | ------ | -------
|Balance, August 31, 2011 and September 1, 2010 |  | $      | -      
|Stock based compensation                       |  |        | 170,972
|Balance August 31, 2012                        |  | $      | 170,972



Compensation Expense on Re-pricing Units

On April 13, 2012, the Company completed
private placements of equity capital for gross proceeds of $748,425 from arm’s length private placement funding through the
issuance of 3,000,000 units at a price of US$0.25 per unit. The Company subsequently re-priced the offering at US$0.20 and issued
an additional 750,000 units on July 27, 2012. The fair value of the additional units issued based on the new offering price was
determined to be $188,625 and was expensed to the statement of operations.



|Black-Scholes Assumptions used |  |  |      |  
|------------------------------ |  |  | ---- | -
|Risk-free interest rate        |  |  | 1.16 | %
|Expected volatility            |  |  | 192  | %
|Expected life (years)          |  |  | 2.9  |  
|Dividend yield                 |  |  | -    |  



38







Contributed Surplus

Contributed surplus transactions for the respective periods
are as follows:



|                                                                                |  | Amount |        
|------------------------------------------------------------------------------- |  | ------ | -------
|Balance, September 1, 2010                                                      |  | $      | 43,750 
|Imputed interest (see Item 7 Major Shareholders and Related Party Transactions) |  |        | 5,750  
|Warrants cancelled (note c)                                                     |  |        | 36,237 
|Balance, August 31, 2011                                                        |  |        | 85,737 
|Imputed interest (see Item 7 Major Shareholders and Related Party Transactions) |  |        | 2,334  
|Warrants expired (note b, c)                                                    |  |        | 318,552
|Warrants cancelled (note j)                                                     |  |        | (18,930
|Compensation expense on re-pricing of units                                     |  |        | 118,507
|Balance, August 31, 2012                                                        |  | $      | 506,200



Overall Performance

Revenue, net of royalties for the year
ended August 31, 2012 was down $17,698 to $39,218 compared to $56,916 for the year ended August 31, 2011. The decrease in net revenue
during 2012 is primarily attributed to declines in natural gas prices received from the Company’s Botha, Alberta property.
Net loss for the year ended August 31, 2012 was $2,809,188 compared to a net loss of $430,927 for the year ended August 31, 2011.
The increase in net loss during 2012 was primarily related to a loss on settlement of debt in the amount of $1,465,465 compared
to Nil in 2011, stock based compensation expense of $170,972 compared to Nil in 2011, an unrealized loss on derivative warrant
liabilities of $46,655 versus a gain of $126,410 for the year ended August 31, 2011, higher administrative costs of $705,591 compared
to $502,474 in the prior period in 2011 and compensation expense on re-pricing units of $188,625 compared to Nil in 2011.



During the year ended August 31, 2012 the
Company completed financings through the issuance of 12,575,000 units in the capital of the Company for net proceeds of $2,086,718.



During the year ended August 31, 2012,
the Company issued 17,150,000 units as full settlement of debt and shareholders’ loans in the amount of $857,500 and issued
3,278,392 common shares as full settlement of interest due on a secured note and shareholders’ loans in the amount of $369,886.



During the year ended August 31, 2012,
the Company received cash of $321,845 and US$175,000 and issued demand promissory notes bearing interest at 10% per annum.



For the twelve months ended August 31,
2012, the Company paid $73,380 of secured notes and re-paid US$480,000 of shareholders’ loans.



For the twelve
months endedAugust 31, 2012, the Company incurred $1,559,763 in exploration expenditures related
to the leases in Zavala County, Texas.



As part of the Company’s oil and
gas development program, management of the Company anticipates further expenditures to expand its existing portfolio of proved
reserves. Amounts expended on future exploration and development is dependent on the nature of future opportunities evaluated by
the Company. Any expenditure which exceeds available cash will be required to be funded by additional share capital or debt issued
by the Company, or by other means. The Company’s long-term profitability will depend upon its ability to successfully implement
its business plan.



The Company’s past primary source
of liquidity and capital resources has been proceeds from the issuance of share capital, shareholders’ loans and cash flow
from oil and gas operations.



Selected Financial Information



The following table reflects the summary
of results for the years set out.



39







|                                  |  | For the Years Ended |           
|--------------------------------- |  | ------------------- | ----------
|                                  |  | August 31,          |           
|                                  |  | 2012                |           
|Revenue, net of royalties         |  | $                   | 39,218    
|Net loss                          |  | $                   | (2,809,188
|Loss per share, basic and diluted |  | $                   | (0.034    
|Assets                            |  | $                   | 8,998,016 
|Long term liabilities             |  | $                   | 1,881,078 



August 31, 2012 – 2011

For the year ended August 31, 2012 revenue
decreased compared to revenue in the prior period as a result of lower natural gas prices received from the Company’s Botha,
Alberta property. Net loss for the year ended August 31, 2012 was $2,809,188 compared to a net loss of $430,927 for the year ended
August 31, 2011. The increase in net loss during 2012 was primarily related to a loss on settlement of debt in the amount of $1,465,465
compared to Nil in 2011, stock based compensation expenses of $170,972 compared to Nil in 2011, an unrealized loss on derivative
warrant liabilities of $46,655 versus a gain of $126,410 for the year ended August 31, 2011 and higher administrative costs of
$705,591 compared to 502,474 in the prior period in 2011. For the year ended August 31, 2012 assets decreased by $577,960 to $8,998,016
compared to $9,575,976 for the same period in 2011. The decrease in assets is primarily a result of a decrease in exploration and
evaluation assets of $520,391 and a decrease of $68,000 in property and equipment. The decreases in exploration and evaluation
assets are attributed to the cancellation of 3,418,468 common shares and 1,709,234 common shares purchase warrants that had been
issued August 31, 2010 as partial consideration of the purchase price for Dyami Energy and held in escrow pending the satisfaction
of certain conditions precedent to their release on August 31, 2012. The conditions precedent had not been satisfied and the time
allowed for performance expired and the Company recorded a reduction of $2,091,616 in exploration and evaluation assets. In addition,
the company incurred expenditures of $1,559,763 versus $3,262,782 in 2011 on the leases in Zavala County, Texas. Long term liabilities
increased in fiscal 2012 by $478,026 to $1,881,078 compared to $1,403,052 in 2011 as a result of increases in provisions and derivative
warrant liabilities.



RESULTS OF OPERATIONS



|                                  |  | For the Years Ended |            |   | For the Three Months Ended |  
|--------------------------------- |  | ------------------- | ---------- | - | -------------------------- | -
|Historical                        |  | August 31           |            |   | August 31                  |  
|Production                        |  | 2012                |            |   | 2011                       |  
|Natural gas – mcf/d               |  |                     | 54         |   |                            |  
|Historical Prices                 |  |                     |            |   |                            |  
|Natural Gas - $/mcf               |  | $                   | 2.24       |   |                            | $
|Royalties costs - $/mcf           |  | $                   | 0.57       |   |                            | $
|Production costs - $/mcf          |  | $                   | 0.55       |   |                            | $
|Net back - $/mcf                  |  | $                   | 1.16       |   |                            | $
|Operations                        |  |                     |            |   |                            |  
|Revenue, net of royalties         |  | $                   | 39,218     |   |                            | $
|Net loss                          |  | $                   | (2,809,188 | ) |                            | $
|Loss per share, basic and diluted |  | $                   | (0.034     | ) |                            | $



Production Volume

For the year ended August 31, 2012 average
natural gas sales volumes remained relatively consistent at 54 mcf/d compared to 53 mcf/d for the same period in 2011. Total production
volume for the year ended August31, 2012 was 19,593 mcf compared to 19,500 mcf for the same twelve month period in 2011.



For the three months ended August 31, 2012
average natural gas sales volumes remained relatively consistent at 54 mcf/d compared to 53 mcf/d for the same period in 2011.
Total production volume for the three months ended August 31, 2012 was 5,008 mcf compared to 4,957 mcf for the same twelve month
period in 2011.



Commodity Prices

For the year ended August 31, 2012 average
natural gas prices received per mcf decreased by 39% to $2.24 compared to $3.68 for the year ended August 31, 2011.



For the three months ended August 31, 2012
average natural gas prices received per mcf decreased by 47% to $1.92 compared to $3.62 for the three months ended August 31, 2011.



The decrease in average natural gas prices
received was attributed to lower commodity prices for natural gas for the three and twelve months ended August 31, 2012.



40







Revenue, Net of Royalties



|                          |  | Year Ended |        |   | Three Months Ended |  
|------------------------- |  | ---------- | ------ | - | ------------------ | -
|                          |  | August 31, |        |   | August 31,         |  
|                          |  | 2012       |        |   | 2011               |  
|Natural gas sales         |  | $          | 44,408 |   |                    | $
|Royalties                 |  |            | (5,190 | ) |                    |  
|Revenue, net of royalties |  | $          | 39,218 |   |                    | $



Natural gas sales for the year ended August
31, 2012 was down $27,298 to $44,408 compared to $71,786 for the year ended August 31, 2011.



Natural gas sales for the three months
ended August 31, 2012 was down $8,255 to $9,670 compared to $17,925 for the three months ended August 31, 2011.



The decrease in sales for the twelve month
and three month periods ended August 31, 2012 was attributed to lower commodity prices received for natural gas.



Royalties for the year ended August 31,
2012 were $5,190 versus $14,870 for the comparable twelve month period in 2011. The decrease in royalties for the year ended August
31, 2012 was primarily attributed to receipt of royalty credits in the current year.



Royalties for the three months ended August
31, 2012 were $3,906 versus $2,367 for the comparable three month period in 2011. The increase in royalties for the three months
ended August 31, 2012 was primarily attributed to receipt of royalty credits in the prior three month period in 2011.



As a result of the above, revenue, net
of royalties for the year ended August 31, 2012 decreased by 31% to $39,218 compared to $56,916 for the same twelve month period
in 2011.



As a result of the above, revenue, net
of royalties for the three months ended August 31, 2012 decreased by 63% to $5,764 compared to $15,558 for the same three month
period in 2011.



Operating Costs

For year ended August 31, 2012 operating
costs were $28,471 down $23,719 compared to operating costs of $52,190 for the year ended August 31, 2011.



For three months ended August 31, 2012
the Company recovered operating costs of $31,277 compared to operating costs of $2,524 for the three months ended August 31, 2011.



The decrease in operating costs for three
months and twelve months ended August 31, 2012 was attributed to credits for gas processing charges.



Depletion and Accretion

Depletion and accretion for the year ended
August 31, 2012 decreased by $3,403 to $20,509 compared to $23,912 for the year ended August 31, 2011.



Depletion and accretion for the three months
ended August 31, 2012 decreased by $616 to $5,386 compared to $6,002 for the three months ended August 31, 2011



The decrease in depletion and accretion
for the three months and twelve months ended August 31, 2012 was primarily attributed to lower carrying costs for the Company’s
Botha, Alberta property.



41







General and Administrative Expenses



|                             |  | For the Year |         |  | For the Three Months |  
|---------------------------- |  | ------------ | ------- |  | -------------------- | -
|                             |  | August 31,   |         |  | August 31,           |  
|                             |  | 2012         |         |  | 2011                 |  
|Professional fees            |  | $            | 352,315 |  |                      | $
|Head office costs            |  |              | 55,500  |  |                      |  
|Management fees              |  |              | 75,000  |  |                      |  
|Transfer and registrar costs |  |              | 29,172  |  |                      |  
|Shareholders information     |  |              | 39,708  |  |                      |  
|Office and general costs     |  |              | 16,385  |  |                      |  
|Advisory fees                |  |              | 46,192  |  |                      |  
|Directors fees               |  |              | 4,100   |  |                      |  
|Salaries and wages           |  |              | -       |  |                      |  
|Reserve report fees          |  |              | 5,655   |  |                      |  
|Consulting fees and expenses |  |              | 81,564  |  |                      |  
|Total                        |  | $            | 705,591 |  |                      | $



General and administrative expenses for
the year ended August 31, 2012 were $203,117 higher to $705,591 compared to $502,474 for the year ended August 31, 2011. The increase
in expenses during 2012 was primarily attributed to an increase in professional fees of $141,682 to $352,315 compared to $210,633
in 2011. These professional fee increases are primarily related to litigation costs incurred related to the Matthews Lease, Texas.
In addition, the Company recorded an increase of $23,346 in consulting fees compared to Nil in the prior period, an increase in
advisory fees of $46,192 compared to Nil in 2011, Also, during fiscal 2012 management fees increased by $18,750 transfer and registrar
costs increased by $13,792. For the year ended August 31, 2011 salaries and wages were $44,061 compared to Nil in the current year.



General and administrative expenses for
the three months ended August 31, 2012 were $202,533 higher to $315,802 compared to $113,269 for the year ended August 31, 2011.
The increase in expenses during 2012 was primarily attributed to an increase in professional fees of $134,699 to $190,656 compared
to $55,957 in 2011. These professional fee increases are primarily attributed to litigation costs incurred related to the Matthews
Lease, Texas. In addition, the Company incurred an increase in advisory fees of $46,192 compared to Nil in 2011 and an increase
in consulting fees of $15,360 to $28,733 compared to $13,373 in the prior three month period. During fiscal 2012, head office costs
increased by $6,001 to $19,500 compared to $13,499 for the three months ended in fiscal 2011.



Marketing and Public Relations

For the year ended August 31, 2012, the
Company incurred marketing and public relations costs of $46,272 compared to $88,569 in the comparable twelve month period ended
August 31, 2011.



For the three months ended August 31, 2012,
the Company incurred marketing and public relations costs of Nil compared to $66,428 in the comparable three month period in 2011.



Impairment Loss on Property and Equipment

For the three and twelve months ended August
31, 2012 the Company recorded an impairment loss of $50,774 on its Alberta, Canada property as a result of an evaluation prepared
by an independent reserves evaluator versus an impairment loss of $48,249 for the three and twelve months ended August 31, 2011.
The evaluations were based on future pre-tax cash flows of the proved and probable reserves using forecast prices and discounted
by 10%.



Interest Expense

For the year ended August 31, 2012 the
Company incurred interest of $88,789 versus interest costs of $68,199 for the year ended August 31, 2011.



For the three months ended August 31, 2012
the Company incurred interest of $22,931 versus interest costs of $19,605 for the three months ended August 31, 2011.



The overall increase in interest for the
periods in 2012 was attributed to increases in shareholders’ loans during the respective periods.



Loss (gain) on Derivative Warrant Liabilities

For the year ended August 31, 2012, the
Company recorded an unrealized loss on derivative warrant liabilities of $46,655 compared to an unrealized gain of $126,410 for
the year ended August 31, 2011.



For the three months ended August 31, 2012,
the Company recorded an unrealized loss on derivative warrant liabilities of $46,604 compared to an unrealized loss of $13,030
for the three months ended August 31, 2011.



42







The Company has warrants issued with an
exercise price in US dollars which is different to the functional currency of the Company (Canadian Dollars) and accordingly the
warrants are treated as a derivative financial liability and the fair value movement during the period is recognized in the statement
of operations.



Loss on Settlement of Debt

For the year endedAugust 31, 2012
the Company recorded a loss on settlement of debt in the amount of $1,465,465 compared to Nil for the same twelve month period
in 2011.



For the three months ended August 31, 2012
the Company recorded a loss on settlement of debt in the amount of Nil compared to Nil for the same twelve month period in 2011.



During the year ended August 31, 2012,
the Company issued 3,278,392 common shares as full settlement of interest due on a secured note and shareholders’ loans in
the amount of $369,886. The amount allocated to common shares based on fair value was $440,136 and $70,250 was recorded as a loss
on settlement of debt. In addition, the Company converted debt and shareholders’ loans of $857,500 through the issuance of
17,150,000 units in the capital of the Company. The fair value of the units issued on the settlement date was $2,252,715 and $1,395,215
was recorded as a loss on settlement of debt.



Stock Based Compensation Expense

For the year ended August 31, 2012 the
Company recorded stock based compensation of $95,910 compared to Nil for the same period in 2011.



For the three months ended August 31, 2012
the Company recorded stock based compensation of Nil compared to Nil for the same period in 2011.



On March 1, 2012, the Company granted options
to purchase 600,000 common shares to directors and recorded non-cash stock based compensation costs of $95,910.



Stock Based Compensation-Non Employees

For the year ended August 31, 2012 the
Company recorded stock based compensation to non-employees of $75,062 compared to Nil for the same period in 2011



For the three months ended August 31, 2012
the Company recorded stock based compensation of $11,122 compared to Nil for the same period in 2011.



On March 1, 2012, the Company granted options
to purchase 400,000 common shares to a consultant and recorded non-cash stock based compensation expense of $63,940 and on July
24, 2012, the Company granted options to purchase 50,000 stock options to a consultant of the Company and recorded non-cash share
based compensation expense of $11,122.



Compensation Expense on Re-pricing Units

For the year
ended August 31, 2012 the Company recordedcompensation expense on re-pricing units of $188,625 compared to Nil in the prior
year 2011.



For the three
months ended August 31, 2012 the Company recordedcompensation expense on re-pricing units of $188,625 compared to Nil in
the same three month period in 2011.



On April 13, 2012, the Company completed
private placements for gross proceeds of $748,425 through the issuance of 3,000,000 units at a price of US$0.25 per unit. The Company
re-priced the offering at US$0.20 and issued an additional 750,000 units on July 27, 2012. The fair value of the 750,000 units
based on the new offering price was determined to be $188,625 and was recorded on the statement of operations.



Loss (Gain) on Foreign Exchange

For the year
ended August 31, 2012 the Company recorded a loss on foreign exchange of $36,283 versus a gain on foreign exchange of $161,340for the same three month period in 2011.



For the three months ended August 31, 2012
the Company recorded a gain on foreign exchange of $156,186 compared to a loss of $35,271 for the same three month period in 2011.



43







These foreign exchange gains and losses
are attributed to the translation of monetary assets and liabilities not denominated in the functional currency of the Company.



Gain on Disposal of Marketable Securities

For the year ended August 31, 2012 the
Company recorded a gain on disposal of marketable securities of Nil compared to $8,000 for the same twelve month period in 2011.



For the three months ended August 31, 2012
the Company recorded a gain on disposal of marketable securities of Nil compared to $8,000 for the same three month period in 2011.



Net Loss

Net loss for the year ended August 31,
2012 was $2,809,188 compared to a net loss of $430,927 for the year ended August 31, 2011. The increase in net loss during 2012
was primarily related to a loss on settlement of debt in the amount of $1,465,465 compared to Nil in 2011, stock based compensation
expenses of $170,972 compared to Nil in 2011 an unrealized loss on derivative warrant liabilities of $46,655 versus a gain of $126,410
for the year ended August 31, 2011 and compensation expense on re-pricing units of $188,625 compared to Nil in 2011. During fiscal
2012, general and administrative costs increased by $203,117 to $705,591 compared to $502,474 for the same period in 2011.



Net loss for the three months ended August
31, 2012 was $354,808 compared to a net loss of $280,820for the three ended August 31, 2011. The increase in net loss during 2012
was primarily related to an increase in compensation expense on re-pricing units of $188,625 compared to Nil in 2011 partially
offset by unrealized gain on foreign exchange of $156,186 in 2012 versus an unrealized loss on foreign exchange of $35,271 for
the year ended August 31, 2011. In addition during 2012 the Company recorded an unrealized gain on derivative warrant liabilities
of $46,605 versus a loss of $13,030 during 2011. During the three month period in 2012, general and administrative costs were $202,533
higher to $315,802 compared to $113,269 for the same three month period in 2011.



Loss on Translation of Foreign Subsidiary

For the year ended August 31, 2012 the
Company incurred a loss on translation of foreign subsidiary of $160 versus a loss of $109,303 for the year ended August 31, 2011.



For the three months ended August 31, 2012
the Company incurred a loss on translation of foreign subsidiary of $96,043 versus a loss of $114,091 for the same period in 2011.



These losses are related to translation
differences between Dyami Energy’s US dollar functional currency converted into Canadian dollars at the period end exchange
rates, and the results operations converted at average rates of exchange for the period.



Comprehensive Loss

Comprehensive loss for the year ended August
31, 2012 was $2,809,348 compared to a comprehensive loss of $540,230 for the year ended August 31, 2011.



Comprehensive loss for the three months
ended August 31, 2012 was $450,851 compared to a comprehensive loss of $394,911 for the three months August 31, 2011.



Loss per Share, Basic and Diluted

Basic and diluted net loss per share for
the year ended August 31, 2012 was $0.034 compared to a basic and diluted net loss per share of $0.007 for the same period in 2011.



Basic and diluted net loss per share for
the three months ended August 31, 2012 was $0.005 compared to basic and diluted net loss per share of $0.004 for the same period
in 2011.



CAPITAL EXPENDITURES



For the year ended August 31, 2012, the
Company incurred exploration expenditures of $1,559,763 on its Leases located in Zavala County, Texas ($3,262,782 August 31, 2011).



44







The Company expects that its capital expenditures
will increase in future reporting periods as the Company incurs costs to explore and develop its oil and gas properties.



FINANCING ACTIVITIES



During the year ended August 31, 2012 the
Company completed financings through the issuance of 12,575,000 units in the capital of the Company for net proceeds of $2,086,718.



During the year ended August 31, 2012,
the Company issued 17,150,000 units as full settlement of debt and shareholders’ loans in the amount of $857,500 and issued
3,278,392 common shares as full settlement of interest due on a secured note and shareholders’ loans in the amount of $369,886.



During the year ended August 31, 2012,
the Company received cash of $321,845 and US$175,000 and issued demand promissory notes bearing interest at 10% per annum.



For the twelve months ended August 31,
2012, the Company paid $73,380 of secured notes and paid US$480,000 of shareholders’ loans.



SUMMARY OF QUARTERLY RESULTS



The following tables reflect the summary
of quarterly results for the periods set out.



|                                  |  | 2012      |          |   | 2012   |   |          | 2012        |  |   | 2011        |  
|--------------------------------- |  | --------- | -------- | - | ------ | - | -------- | ----------- |  | - | ----------- | -
|For the quarter ending            |  | August 31 |          |   | May 31 |   |          | February 29 |  |   | November 30 |  
|Revenue, net of royalties         |  | $         | 5,764    |   |        | $ | 13,275   |             |  | $ | 8,377       |  
|Net loss for the period           |  | $         | (354,808 | ) |        | $ | (646,429 | )           |  | $ | (1,466,298  | )
|Loss per share, basic and diluted |  | $         | (0.005   | ) |        | $ | (0.008   | )           |  | $ | (0.040      | )



Fiscal 2012

Revenue, net of royalties for the four
quarters fluctuated as a result of changes in production volume and commodity prices. The material changes in net income or loss
during the quarters is primarily related to increases in general and administrative costs, gain or loss on foreign exchange and
the fair value movement of derivative warrant liabilities during the respective periods. During the quarter ended February, 2012
the Company recorded a loss on settlement of debt of $1,448,361. During the quarter ended May 31, 2012 the Company recorded $159,850
in stock based compensation expenses. During the year ended August 31, 2012, the Company recorded compensation expense on re-pricing
units of $188,625 and an impairment of property and equipment in the amount of $50,744.



|                                 |  | 2011   |          |   | 2011   |   |          | 2011        |  |   | 2010        | 
|-------------------------------- |  | ------ | -------- | - | ------ | - | -------- | ----------- |  | - | ----------- | 
|For the quarter ending           |  | August |          |   | May 31 |   |          | February 28 |  |   | November 30 | 
|Revenue, net of royalties        |  | $      | 15,558   |   |        | $ | 12,474   |             |  | $ | 14,903      | 
|Net income (loss) for the period |  | $      | (280,820 | ) |        | $ | (101,243 | )           |  | $ | 19,146      | 
|Income (loss) per share, basic   |  | $      | (0.004   | ) |        | $ | (0.004   | )           |  | $ | 0.001       | 
|Income (loss) per share, diluted |  | $      | 0.004    | ) |        | $ | (0.004   | )           |  | $ | 0.000       | 



Fiscal 2011

Revenue, net of royalties for the four
quarters fluctuated as a result of changes in production volume and commodity prices. The material changes in net income or loss
during fiscal 2011 quarters is primarily related to increases in general and administrative costs, marketing and public relations
and the fair value movement of derivative warrant liabilities during the respective period. During the quarter ended February 28,
2011 the Company recorded a gain on foreign exchange of $150,532. For the quarter ended August 31, 2011 the Company recorded marketing
and public relations costs of $88,569 and an impairment of property and equipment in the amount of $48,249.



| | B. | LIQUIDITY AND CAPITAL RESOURCES
| | -- | -------------------------------



Cash as of August 31, 2012 was $330,003
compared to cash of $165,266 at August 31, 2011. During the year ended August 31, 2012 we raised net proceeds of $2,086,718 through
the issuance of share capital and received cash of $321,845 and US$175,000 and issued demand loans bearing interest at 10% per
annum.



45







For the year
ended August 31, 2012 the primary use of funds was related to exploration expenditures incurred in the amount of $1,559,763
for the Company’s leases located in Zavala County, Texas and administrative expenses. In addition,
we paid $73,380 in secured notes and US$480,000 of shareholders’ loans. Our working capital deficiency at August 31, 2012
is $3,819,056 compared to a working capital deficiency of $5,108,526 at August 31, 2011.



Our current assets of $347,529 as at August
31, 2012, ($337,098 as of August 31, 2011) include the following items: cash $330,003 ($165,266 as of August 31, 2011); marketable
securities $1 ($1 as of August 31, 2011); trade and other receivables $17,525 ($127,546 as of August 31, 20011); and prepaid expenses
and deposits of Nil ($44,285 as of August 31, 2011).



Our
current liabilities of $4,166,585 as of August 31, 2012 ($5,445,624
as of August 31, 2011) include the following items: trade and other payables $1,039,959 ($1,197,695 as of August 31, 2011); shareholders’
loans $2,179,778 ($2,936,236 as of August 31, 2011); secured note payable of $946,848 ($1,012,644 as of August 31, 2011); and derivative
warrant liabilities of Nil ($299,049 as of August 31, 2011).



At August 31, 2012 we had outstanding the
following common share purchase warrants: 21,050,948 warrants exercisable at $0.04 per share; 19,150,000 warrants exercisable at
$0.05 per share; 6,996,732 warrants exercisable at US$0.50 per share; and 846,000 warrants exercisable at US$0.25. If any of these
common share purchase warrants are exercised it would generate additional capital for us.



Management of ours recognizes that cash flow from operations
is not sufficient to expand its oil and gas operations and reserves or meet its working capital requirements. We have liquidity
risk which necessitates us to obtain debt financing, enter into joint venture arrangements, or raise equity. There is no assurance
we will be able to obtain the necessary financing in a timely manner.



Our past primary source of liquidity and
capital resources has been proceeds from the issuance of share capital, shareholders’ loans and cash flow from oil and gas
operations.



If we issued additional common shares from treasury it would
cause our current shareholders dilution.



Outlook and Capital Requirements

A part of our oil and gas development program,
we anticipate further expenditures to expand our existing portfolio of proved reserves. Amounts expended on future exploration
and development is dependent on the nature of future opportunities evaluated by us. Any expenditure which exceeds available cash
will be required to be funded by additional share capital or debt issued by us, or by other means. Our long-term profitability
will depend upon our ability to successfully implement our business plan.



| | C. | RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES
| | -- | ----------------------------------------------



We do not engage in research and development activities.



| | D. | TREND INFORMATION
| | -- | -----------------



Seasonality

Our oil and gas operations is not a seasonal
business, but increased consumer demand or changes in supply in certain months of the year can influence the price of produced
hydrocarbons, depending on the circumstances. Production from our oil and gas properties is the primary determinant for the volume
of sales during the year.



There are a number of trends that have
been developing in the oil and gas industry during the past several years that appear to be shaping the near future of the business.



The first trend is the volatility of commodity
prices. Natural gas is a commodity influenced by factors within North America. A tight supply demand balance for natural gas causes
significant elasticity in pricing, whereas higher than average storage levels tend to depress natural gas pricing. Drilling activity,
weather, fuel switching and demand for electrical generation are all factors that affect the supply-demand balance. Recently, liquefied
natural gas shipments to North America have also resulted in natural gas supply and natural gas pricing being based more on factors
other than supply and demand in North America. Changes to any of these or other factors create price volatility.



46







Crude oil is influenced by the world economy,
Organization of the Petroleum Exporting Countries' ("OPEC") ability to adjust supply to world demand and weather. Political
events also trigger large fluctuations in price levels. The current global financial crisis has reduced liquidity in financial
markets thereby restricting access to financing and has caused significant volatility to commodity prices. Petroleum prices are
expected to remain volatile for at least the near term as a result of market uncertainties over the supply and demand of these
commodities due to the current state of the world economies, OPEC actions and the ongoing global credit and liquidity concerns.



The impact on the oil and gas industry
from commodity price volatility is significant. During periods of high prices, producers generate sufficient cash flows to conduct
active exploration programs without external capital. Increased commodity prices frequently translate into very busy periods for
service suppliers triggering premium costs for their services. Purchasing land and properties similarly increase in price during
these periods. During low commodity price periods, acquisition costs drop, as do internally generated funds to spend on exploration
and development activities. With decreased demand, the prices charged by the various service suppliers also decline.



World oil and gas prices are quoted in
United States dollars and the price received by Canadian producers is therefore effected by the Canadian/U.S. dollar exchange rate,
which will fluctuate over time. Material increases in the value of the Canadian dollar may negatively impact production revenues
from Canadian producers. Such increases may also negatively impact the future value of such entities' reserves as determined by
independent evaluators. In recent years, the Canadian dollar has increased materially in value against the United States dollar
although the Canadian dollar has recently decreased from such levels.



A second trend within the Canadian oil
and gas industry is the "renewal" of private and small junior oil and gas companies starting up business. These companies
often have experienced management teams from previous industry organizations that have disappeared as a part of the ongoing industry
consolidation. Many are able to raise capital and recruit well qualified personnel. To the extent that this trend continues, we
will have to compete with these companies and others to attract qualified personnel.



A third trend currently affecting the oil
and gas industry is the impact on capital markets caused by investor uncertainty in the global economy. Market events and conditions
in recent years including disruptions in the international credit markets and other financial systems and the deterioration of
global economic conditions have caused significant volatility to commodity prices. These conditions caused a loss of confidence
in the global credit and financial markets. Notwithstanding various actions by governments, concerns about the general condition
of the capital markets, financial instruments, banks, investment banks, insurers and other financial institutions caused the broader
credit markets to further deteriorate and stock markets to decline substantially. These factors have negatively impacted company
valuations and may impact the performance of the global economy going forward. The recovery from the recession has been slow in
various jurisdictions including in Europe and the United States and has been impacted by various ongoing factors including sovereign
debt levels and high levels of unemployment which continue to impact commodity prices and result in high volatility in the stock
market.



| | E. | OFF-BALANCE SHEET ARRANGEMENTS
| | -- | ------------------------------



There are no off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on our financial condition, changes of financial condition,
revenues, or expenses, results of operations, liquidity, capital expenditures or capital resources, which individually or in the
aggregate are material to our investors.



| | F. | TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
| | -- | ---------------------------------------------



The following table illustrates our contractual
obligations as at August 31, 2012.



|August 31, 2012           |  | Payments Due by Period |          
|------------------------- |  | ---------------------- | ---------
|                          |  | Total                  |          
|Trade and others payables |  | $                      | 1,039,959
|Secured note payable (1)  |  |                        | 946,848  
|Shareholders loans (1)    |  |                        | 2,179,778
|Total                     |  | $                      | 4,166,585



| | (1) | Translated at current exchange rate.
| | --- | ------------------------------------



47







Secured Notes Payable

At August 31, 2011 the Company had a secured
promissory note payable to Source Re Work Program, Inc. (“Source”) in the amount of US$75,000 (September 1, 2010 US$175,000).
On September 1, 2011 the Company paid the balance due on the secured promissory note of US$75,000 together with accrued interest
to August 31, 2011 of US$6,250 (September 1, 2010 Nil).



At August 31, 2012, the Company had a US$960,000,
6% per annum secured promissory note payable to Benchmark Enterprises LLC (August 31, 2011 and September 1, 2010 US$960,000). The
note was payable on December 31, 2011 or upon the Company closing a financing or series of financings in excess of US$4,500,000.
The due date of the note was extended until February 28, 2013 with an interest rate of 10% per annum. For the year ended August
31, 2012 the Company recorded interest of $83,947. At August 31, 2012 included in trade and other payables is interest of $63,296
(August 31, 2011 $92,219 and September 1, 2010 $26,862). During the year ended August 31, 2012 the Company issued 1,030,812 common
shares as full settlement of interest due in the amount of $103,021. The noteis secured by Dyami Energy’s interest
in the Matthews and Murphy Leases, Zavala County, Texas (the “Leases”). The carrying value of Dyami Energy’s
interest in the Leases at August 31, 2012 was $4,645,534. The Company may, in its sole discretion, prepay any portion of the principal
amount.



Provisions



|                           |  | Decommissioning Provisions (Note a) |         |   | Other Provisions (Note b) |   |         | Total Provisions | 
|-------------------------- |  | ----------------------------------- | ------- | - | ------------------------- | - | ------- | ---------------- | 
|Balance, September 1, 2010 |  | $                                   | 6,555   |   |                           | $ | 66,813  |                  | 
|Accretion expense          |  |                                     | 859     |   |                           |   |         |                  | 
|Additions                  |  |                                     | 52,641  |   |                           |   |         |                  | 
|Change in estimate         |  |                                     | 4,633   |   |                           |   |         |                  | 
|Foreign exchange           |  |                                     |         |   |                           |   | (5,669  | )                | 
|Balance, August 31, 2011   |  |                                     | 64,688  |   |                           |   | 61,144  |                  | 
|Accretion expense          |  |                                     | 2,464   |   |                           |   |         |                  | 
|Additions                  |  |                                     | 41,243  |   |                           |   | 64,866  |                  | 
|Change in estimate         |  |                                     | 7,365   |   |                           |   |         |                  | 
|Foreign exchange           |  |                                     | (1,005  | ) |                           |   | (93     | )                | 
|Balance, August 31, 2012   |  | $                                   | 114,755 |   |                           | $ | 125,917 |                  | 



| | a) | Decommissioning Obligations
| | -- | ---------------------------

The Company’s decommissioning obligations
result from its ownership interests in petroleum and natural gas assets including well sites, gathering systems and processing
facilities. The total decommissioning obligation is estimated based on the Company’s net ownership interest in all wells
and facilities, estimated costs to reclaim and abandon these wells and facilities, and the estimated timing of the costs to be
incurred in future years. The Company has estimated the net present value of decommissioning obligations to be $114,755 at August
31, 2012 (August 31, 2011 $64,688 and September 1, 2010 $6,555) based on an undiscounted total future liability of $158,974 (August
31, 2011 $102,974 and September 1, 2010 $12,474). These payments are expected to be incurred between fiscal 2022 and 2031. The
discount factor, being the risk free rate related to the liability is 2.37% (August 31, 2011 3.10% and September 1, 2010 3.33%).



| | b) | Other Provisions
| | -- | ----------------

During the year ended August 31, 2010 a
vendor of Dyami Energy filed a claim in the District Court of Harris County, Texas seeking payment of US$62,800. Dyami Energy is
disputing the claim on the basis of excessive charges. The full amount of the provision has been recorded and any legal costs will
be expensed as incurred. The outcome of this claim is uncertain at this time.



During the year ended August 31, 2012 a
vendor of Dyami Energy filed a claim in the District Court of Harris County, Texas seeking payment of US$64,866. Dyami Energy is
disputing the amount charged due to faulty equipment. The full amount of the provision has been recorded and any legal costs will
be expensed as incurred. The outcome of this claim is uncertain at this time.



The above amounts have been classified
as long term, however not discounted as the impact to the consolidated financial statement is immaterial.



48







Derivative Warrant Liabilities

The Company has warrants issued with an
exercise price in US dollars which are different from the functional currency of the Company (Canadian Dollars) and accordingly
the warrants are treated as a financial liability and the fair value movement during the period is recognized in the profit or
loss.



The following tables sets out the changes
in derivative warrant liabilities during the respective periods.



|                               |  | Number of Warrants* |            |   | Fair Value Assigned |   |           | Average Exercise Price US $ | 
|------------------------------ |  | ------------------- | ---------- | - | ------------------- | - | --------- | --------------------------- | 
|September 1, 2010              |  |                     | 4,418,468  |   |                     | $ | 1,701,861 |                             | 
|Warrants cancelled             |  |                     | (109,290   | ) |                     |   | (37,024   | )                           | 
|Warrants issued                |  |                     | 100,000    |   |                     |   | 37,842    |                             | 
|Change in fair value estimates |  |                     | -          |   |                     |   | (126,410  | )                           | 
|As at August 31, 2011          |  |                     | 4,409,178  |   |                     |   | 1,576,269 |                             | 
|Warrants expired               |  |                     | (990,712   | ) |                     |   | (318,552  | )                           | 
|Warrants issued                |  |                     | 5,287,500  |   |                     |   | 799,520   |                             | 
|Broker warrants issued         |  |                     | 846,000    |   |                     |   | 212,001   |                             | 
|Warrants cancelled             |  |                     | (1,709,234 | ) |                     |   | (675,487  | )                           | 
|Change in fair value estimates |  |                     | -          |   |                     |   | 46,655    |                             | 
|As at August 31, 2012          |  |                     | 7,842,732  |   |                     | $ | 1,640,406 |                             | 

* Reflects the March 16, 2012 two-for-one stock split



On August 31, 2010, the Company issued
3,418,468 common share purchase warrants exercisable at US$0.50 per common share until August 31, 2014. On August 31, 2012 1,709,234
common share purchase warrants were cancelled and the fair value measured using the Black Scholes valuation model was $675,487.



On June 10, 2010, the Company issued 666,666
common share purchase warrants exercisable at US$0.50 per common share until December 10, 2011. On November 20, 2010 the Company
cancelled 72,860 warrants and fair value measured using the Black Scholes valuation model of $23,791 was recorded as an increase
to contributed surplus. On December 10, 2011 the remaining 593,808 warrants expired and the fair value measured using the Black
Scholes valuation model of $179,113 was recorded as an increase to contributed surplus.



On June 10, 2010, the Company issued 333,334
common share purchase warrants exercisable at US$0.75 per common share until June 10, 2012. On November 20, 2010 the Company cancelled
36,430 warrants and the fair value measured using the Black Scholes valuation model of $12,446 was recorded as an increase to contributed
surplus. On June 10, 2012 the remaining 296,904 warrants expired and the fair value measured using the Black Scholes valuation
model of $99,999 was recorded as an increase to contributed surplus.



On April 29, 2011, the Company issued 100,000
common share purchase warrants exercisable at US $0.75 per common share expiring May 4, 2012 and fair value measured using black
scholes valuation model at $37,055. On May 4, 2012, 100,000 expired and the fair value measured using the Black Scholes valuation
model of $39,440 was recorded as an increase to contributed surplus.



On April 13, 2012 and July 27, 2012 the
Company issued 1,875,000 common share purchase warrants exercisable at US$0.50 and 300,000 common share purchase broker warrants
exercisable at US$0.25 expiring April 13, 2015. The fair value measured using the Black Scholes valuation model was $338,813 and
$92,114, respectively.



On July 20, 2012 the Company issued 912,500
common share purchase warrants exercisable at US$0.50 and 146,000 common share purchase broker warrants exercisable at US$0.25
expiring July 20, 2015. The fair value measured using the Black Scholes valuation model was $124,288 and $33,454, respectively.



On August 7, 2012 the Company issued 2,500,000
common share purchase warrants exercisable at US$0.50 and 400,000 common share purchase broker warrants exercisable at US$0.25
expiring August 7, 2015. The fair value measured using the Black Scholes valuation model was $336,419 and $86,433, respectively
(August 31, 2012 $332,429 and $85,557).



The following tables sets out the number
of derivative warrant liabilities outstanding at August 31, 2012:



49







|Number of Warrants* |  | Exercise Price US ($) |      |  | Expiry Date |                 | Weighted Average Life Remaining (Years) |  |      | Fair Value CDN ($) | 
|------------------- |  | --------------------- | ---- |  | ----------- | --------------- | --------------------------------------- |  | ---- | ------------------ | 
|1,709,232           |  | $                     | 0.50 |  |             | August 31, 2014 |                                         |  | 2.00 |                    | 
|1,875,000           |  | $                     | 0.50 |  |             | April 13, 2015  |                                         |  | 2.62 |                    | 
|300,000             |  | $                     | 0.25 |  |             | April 13, 2015  |                                         |  | 2.62 |                    | 
|912,500             |  | $                     | 0.50 |  |             | July 20, 2015   |                                         |  | 2.88 |                    | 
|146,000             |  | $                     | 0.25 |  |             | July 20, 2015   |                                         |  | 2.88 |                    | 
|2,500,000           |  | $                     | 0.50 |  |             | August 7, 2015  |                                         |  | 2.93 |                    | 
|400,000             |  | $                     | 0.25 |  |             | August 7, 2015  |                                         |  | 2.93 |                    | 
|7,842,732           |  |                       |      |  |             |                 |                                         |  | 2.20 |                    | 

* Reflects the March 16, 2012 two-for-one stock split



The fair value of the warrants issued during the year ended
August 31, 2012, were estimated using the Black-Scholes pricing model with the following assumptions:



|Black-Scholes Assumptions used |  |  |           | 
|------------------------------ |  |  | --------- | 
|Risk-free interest rate        |  |  | 1%-1.3%   | 
|Expected volatility            |  |  | 192%-199% | 
|Expected life (years)          |  |  | 3         | 
|Dividend yield                 |  |  | -         | 



The following tables sets out the number of derivative warrant
liabilities outstanding at August 31, 2011:



|Number of Warrants* |  | Exercise Price US ($) |      |  | Expiry Date |                   | Weighted Average Life Remaining (Years) |  |      | Fair Value CDN ($) | 
|------------------- |  | --------------------- | ---- |  | ----------- | ----------------- | --------------------------------------- |  | ---- | ------------------ | 
|593,806             |  | $                     | 0.50 |  |             | December 10, 2011 |                                         |  | 0.28 |                    | 
|296,906             |  | $                     | 0.75 |  |             | June 10, 2012     |                                         |  | 0.78 |                    | 
|3,418,466           |  | $                     | 0.50 |  |             | August 31, 2014   |                                         |  | 3.00 |                    | 
|100,000             |  | $                     | 0.75 |  |             | April 29, 2012    |                                         |  | 0.66 |                    | 
|4,409,178           |  |                       |      |  |             |                   |                                         |  | 2.43 |                    | 

* Reflects the March 16, 2012 two-for-one stock split



The fair value of the warrants issued during
the year ended August 31, 2011, were estimated using the Black-Scholes pricing model with the following assumptions:



|Black-Scholes Assumptions used |  |  |     |  
|------------------------------ |  |  | --- | -
|Risk-free interest rate        |  |  | 1.7 | %
|Expected volatility            |  |  | 254 | %
|Expected life (years)          |  |  | 1   |  
|Dividend yield                 |  |  | -   |  



The following tables sets out the number of derivative warrant
liabilities outstanding at September 1, 2010:



|Number of Warrants* |  | Exercise Price US ($) |      |  | Expiry Date |                   | Weighted Average Life Remaining (Years) |  |      | Fair Value CDN ($) | 
|------------------- |  | --------------------- | ---- |  | ----------- | ----------------- | --------------------------------------- |  | ---- | ------------------ | 
|666,668             |  | $                     | 0.50 |  |             | December 10, 2011 |                                         |  | 1.28 |                    | 
|333,334             |  | $                     | 0.75 |  |             | June 10, 2012     |                                         |  | 1.78 |                    | 
|3,418,466           |  | $                     | 0.50 |  |             | August 31, 2014   |                                         |  | 4.00 |                    | 
|4,418,468           |  |                       |      |  |             |                   |                                         |  | 3.42 |                    | 

* Reflects the March 16, 2012 two-for-one stock split



The fair value of the warrants issued during the year ended
September 1, 2010, were estimated using the Black-Scholes pricing model with the following assumptions:



50







|Black-Scholes Assumptions used |  |  |     |  
|------------------------------ |  |  | --- | -
|Risk-free interest rate        |  |  | 3   | %
|Expected volatility            |  |  | 234 | %
|Expected life (years)          |  |  | 4   |  
|Dividend yield                 |  |  | -   |  



| | G. | SAFE HARBOR
| | -- | -----------



Certain statements in Sections 5.E and
5.F of this Annual Report may constitute "forward looking statements" within the meaning of the United States Private
Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section
27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used
such as "plans", "expects", "estimates", "budgets", "intends", "anticipates",
"believes", "projects", "indicates", "targets", "objective", "could",
"may", or other similar words. The forward-looking statements are subject to known and unknown risks and uncertainties
and other factors that may cause actual results, levels of activity and achievements to differ materially from those expressed
or implied by such statements. Readers should not place undue reliance on any forward-looking statement and should recognize that
the statements are predictions of future results, which may not occur as anticipated.



| | ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
| | ------- | ------------------------------------------



| | A. | DIRECTORS AND SENIOR MANAGEMENT
| | -- | -------------------------------



The following table sets forth the names of all of our directors
and executive officers as of the date of the filing of this Annual Report, with each position and office held by them in our Company,
and the period of their service as a director or as an officer.



|Name           |  | Age |  | Position with the Company                                                |  | Date First Elected as Director
|-------------- |  | --- |  | ------------------------------------------------------------------------ |  | ------------------------------
|James Cassina  |  | 56  |  | President, Chief Executive Officer, Chief Financial Officer and Director |  | February 9, 2010              
|Milton Klyman  |  | 87  |  | Director                                                                 |  | November 15, 1996             
|Colin McNeil   |  | 66  |  | Director                                                                 |  | June 18, 2010                 
|Alan D. Gaines |  | 57  |  | Director                                                                 |  | January 25, 2012              



All of our directors serve until our next
Annual General Meeting or until a successor is duly elected, unless the office is vacated in accordance with our Articles or Bylaws.  Subject
to the terms of their employment agreements, if any, executive officers are appointed by the Board of Directors to serve until
the earlier of their resignation or removal, with or without cause by the directors.  James Cassina, our sole executive
officer, devotes approximately 40% of his work time to his duties as an officer and director.



There are no family relationships between
any of our directors or executive officers.  There are no arrangements or understandings between any two or more directors
or executive officers.



Mr. Cassina has been an officer since June
18, 2010 a director of ours since February 9, 2010. Mr. Cassina is an officer of Dyami Energy LLC our Texas subsidiary. As Chairman
of Assure Energy, Inc. (“Assure”) (OTCBB: ASUR), an oil and gas exploration and production company, Mr. Cassina led
Assure’s merger in September 2005 with Geocan Energy Inc. (TSX: GCA) (“Geocan”), an oil and gas company which
then grew to daily production of over 3,700 barrels of oil or gas equivalents. Mr. Cassina thereafter served as a Director of Geocan
and later Chairperson of its Board appointed Special Advisory Committee formed to seek strategic alternatives to enhance shareholder
value. Subsequently Geocan merged with Arsenal Energy Inc. in October 2008. Mr. Cassina served in various senior capacities, including
President, and Director from 1999 to 2002 and then Chairman until March 2007 of EnerNorth Industries Inc. (AMEX: ENY), an international
enterprise engaged in engineering and offshore fabrication, oil and gas exploration and production, and in India, independent power
project development.



Mr. Milton Klyman has been a director of
ours since November 15, 1996.  Mr. Klyman was also our Treasurer from December 31, 2003 to December 28, 2007. From February
27, 2009 to present, Mr. Klyman has been a director of 1354166 Alberta Ltd., our Alberta subsidiary. Mr. Klyman is a self-employed
financial consultant and has been a Chartered Accountant since 1952. Mr. Klyman is a Life Member of the Canadian Institute of Chartered
Accountants.  Mr. Klyman serves as a director on the board of Western Troy Capital Resources Inc Mr. Klyman served as
a director of the EnerNorth from April 2001 until March 21, 2007.



51







On March 20, 2007 EnerNorth filed an Assignment
in Bankruptcy under the Bankruptcy and Insolvency Act (Canada).



Mr. Colin McNeil, has been a director of
ours since June 18, 2010. Mr. McNeil is a self-employed oil and gas consultant and has been a geophysicist since 1972. Mr. McNeil
has managed exploration programs and structured technical assessments for companies in the Middle East, Africa, Asia, Central and
South America, the Arctic, and Canada.Mr. McNeil is a member of the Association of Professional, Engineers, Geologists and Geophysicists
of Alberta, Society of Exploration Geophysicists, Canadian Society of Exploration Geophysicists, American Association of Petroleum
Geologists and the Canadian Society of Petroleum Geologists.



Mr. Alan D. Gaines, B.B.A, M.B.A was appointed
to the Board of Directors of Eagleford Energy On January 25, 2012. Mr. Gaines has approximately 30 years experience as an energy
investment and merchant banker, and has participated in raising significant debt and equity during his career. The notable experience
of Mr. Gaines extends to operations as well. Mr. Gaines founded and served as CEO of Dune Energy from inception in May 2001 through
May 2007. In May 2007, Dune Energy completed the acquisition of Goldking Energy Corporation for $327 million, raising total proceeds
of $540 million in senior notes and convertible preferred stock, as well as refinancing existing indebtedness in conjunction with
the acquisition. Concurrent with the closing of the Goldking transaction, new operating management, including a new CEO, was hired
by Dune Energy to oversee day to day operations. Mr. Gaines retained his title of Chairman of the Board.



| | B. | COMPENSATION
| | -- | ------------



Executive Compensation



The following table presents a summary
of all annual and long-term compensation paid or accrued by us including our subsidiaries, for services rendered to us by our executive
officers and directors in any capacity for the year ended August 31, 2012.





|Summary Compensation Table (CDN$)                                  | 
|------------------------------------------------------------------ | 
|Name and Principal Position                                        | 
|                                                                   | 
|James Cassina, Chief Executive Officer, President and Director (4) | 
|Milton Klyman, Director                                            | 
|Colin McNeil, Director                                             | 
|Alan D. Gaines, Director                                           | 



| | (1) | Management fees.
| | --- | ----------------

| | (2) | These amounts represent the value of stock options granted. The fair value of the option grated
is estimated on the date of grant using the Black Scholes option pricing model taking into account the following assumptions: (i)
risk free interest rate (%); (ii) expected life (years); (iii) expected volatility (%). This is consistent with the accounting
values used in the Company’s consolidated financial statements. The dollar amount in the column represents the total value
ascribed to the stock options.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Accrued on account of directors fees at a rate of $100 per meeting.
| | --- | -------------------------------------------------------------------



52







Outstanding Option-Based Awards



The following table sets forth the outstanding option-based
awards for the Company held by executive officers and directors at August 31, 2012.





|                                                               |  | Option-based Awards (CDN$)                                  |        
|-------------------------------------------------------------- |  | ----------------------------------------------------------- | -------
|Name                                                           |  | Number of Securities underlying unexercised options (#) (1) |        
|James Cassina, Chief Executive Officer, President and Director |  |                                                             | 200,000
|Milton Klyman, Director                                        |  |                                                             | 200,000
|Colin McNeil, Director                                         |  |                                                             | 200,000



| | (1) | On March 1, 2012, the Company granted options to purchase 600,000 common shares to directors. These
options are exercisable at $0.16 per share, vest immediately and expire on February 28, 2017.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Calculated using the closing price of the Company’s common shares of the OTCBB on August
31, 2012 of US$0.35 and subtracting the exercise price of in-the-money stock options.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Converted to Canadian dollars using the Bank of Canada noon exchange rate on August 31, 2012.
| | --- | ---------------------------------------------------------------------------------------------



Compensation Discussion and Analysis



Objective of the Compensation Program



The objectives of the Company's compensation
program are to attract, hold and inspire performance of its named executive officers (“NEOs”) of a quality and nature
that will enhance the sustainable profitability and growth of the Company. The Company views it as an important objective of the
Company's compensation program to ensure staff retention.



The Compensation Review Process



To determine compensation payable, the
compensation committee of the Company (the "Compensation Committee") determines an appropriate compensation reflecting
the need to provide incentive and compensation for the time and effort expended by the NEOs of the Company while taking into account
the financial and other resources of the Company.



The Company’s Compensation Committee
is comprised of Milton Klyman (Chair) and Colin McNeil. The Compensation Committee is comprised entirely of independent directors.
Compensation is determined in the context of our strategic plan, our growth, shareholder returns and other achievements and considered
in the context of position descriptions, goals and the performance of each NEO. With respect to directors’ compensation,
the Compensation Committee reviews the level and form of compensation received by the directors, members of each committee, the
board chair and the chair of each board committee, considering the duties and responsibilities of each director, his or her past
service and continuing duties in service to us. The compensation of directors, the CEO and executive officers of competitors are
considered, to the extent publicly available, in determining compensation and the Compensation Committee has the power to engage
a compensation consultant or advisor to assist in determining appropriate compensation.



Elements of Executive Compensation



The Company's NEO compensation program
is based on the objectives of: (a) recruiting and retaining the executives critical to the success of the Company; (b) providing
fair and competitive compensation; (c) balancing the interests of management and shareholders of the Company; and (d) rewarding
performance, on the basis of both individual and corporate performance.



53







For the financial year ended August 31,
2012, the Company's NEO compensation program consisted of the following elements:



| | (a) | a management fee (the "Short-Term Incentive").
| | --- | ----------------------------------------------



| | (b) | a long-term equity compensation consisting of stock options granted under the Company's stock incentive
plan ("Long-Term Incentive").
| | --- | -------------------------------------------------------------------------------------------------------------------------------------



The specific rationale and design of each
of these elements are outlined in detail below.



Short-Term Incentive



Salaries form an essential element of the
Company's compensation mix as they are the first base measure to compare and remain competitive relative to peer groups. Base salaries
are fixed and therefore not subject to uncertainty and are used as the base to determine other elements of compensation and benefits.
The base salary provides an immediate cash incentive for the Named Executive Officers. The Compensation Committee and the Board
review salaries at least annually.



Base salary/management fees of the Named
Executive Officers is set by the Compensation Committee on the basis of the applicable officer’s responsibilities, experience
and past performance. In determining the base salary to be paid to a particular Named Executive Officer, the Compensation Committee
considers the particular responsibilities related to the position, the experience level of the officer, and his or her past performance
at the Company and the current financial position of the Company.



Long-Term Incentive

The granting of stock options is a variable
component of compensation intended to reward the Company's Named Executive Officers for their success in achieving sustained, long-term
profitability and increases in stock value. Stock options ensure that the Named Executive Officers are motivated to achieve long-term
growth of the Company and continuing increases in shareholder value. In terms of relative emphasis, the Company places more importance
on stock options.



The Company provides long-term incentive
compensation through its stock option plan. The Compensation Committee recommends the granting of stock options from time to time
based on its assessment of the appropriateness of doing so in light of the long-term strategic objectives of the Company, its current
stage of development, the need to retain or attract particular key personnel, the number of stock options already outstanding and
overall market conditions. The Compensation Committee views the granting of stock options as a means of promoting the success of
the Company and higher returns to its shareholders. The Board grants stock options after reviewing recommendations made by the
Compensation Committee.



Stock Option Plan

The Company’s Amended Stock Option
Plan (the "Plan") was adopted by the board of directors on January 20, 2012 and approved by a majority of our shareholders
voting at the Annual and Special Meeting held on February 24, 2012.  The Plan was adopted in order that we may be able
to provide incentives for directors, officers, employees, consultants and other persons (an "Eligible Individual") to
participate in our growth and development by providing us with the opportunity through share options to acquire an ownership interest
in us.  Directors and officers currently are not remunerated for their services except as stated in "Executive Compensation"
above.



The maximum number of common shares which
may be set aside for issue under the Plan is an amount not to exceed 20% of the total shares issued and outstanding of the Company
as of the date of each Option grant provided that the board has the right, from time to time, to increase such number subject to
the approval of our shareholders and any relevant stock exchange or other regulatory authority.   Any common shares
subject to an option, which are not exercised, will be available for subsequent grant under the Plan.  The option price
of any common shares is to be determined by the Board in its sole discretion..



54







Options granted under the Plan may be exercised
during a period no exceeding five years, subject to earlier termination upon the optionee ceasing to be an Eligible Individual,
or, in accordance with the terms of the grant of the option.  The options are non-transferable and non-assignable except
between an Eligible Individual and a related corporation controlled by such Eligible Individual upon the consent of the board of
directors.  The Plan contains provisions for adjustment in the number of shares issuable there under in the event of
subdivision, consolidation, reclassification, reorganization or change in the number of common shares, a merger or other relevant
change in the Company’s capitalization.  The board of directors may from time to time amend or revise the terms
of the Plan or may terminate the Plan at any time. The Company does not have any other long-term incentive plans, including any
supplemental executive retirement plans.



Overview of How the Compensation
Program Fits with Compensation Goals



The compensation package is designed to
meet the goal of attracting, holding and motivating key talent in a highly competitive oil and gas exploration environment through
salary and providing an opportunity to participate in the Company’s growth through stock options. Through the grant of stock
options, if the price of the Company shares increases over time, both the Named Executive Officer and shareholders will benefit.



Incentive Plan Awards

At August 31, 2012 the Company has outstanding
600,000 stock options exercisable at $0.16 until February 28, 2017 to Named Executive Officers and directors.



Pension Plan Benefits

The Company does not currently provide
pension plan benefits to its Named Executive Officers.



Termination and Change of Control Benefits

The Company does not currently have executive
employment agreements in place with any of its Named Executive Officers.



The Company has no compensatory plan, contract
or arrangement where a named executive officer or director is entitled to receive compensation in the event of resignation, retirement,
termination, change of control or a change in responsibilities following a change in control.



Director Compensation

Each director of the Company is entitled
to receive the sum of $100 for each meeting of the directors, meeting of a committee of the directors or meeting of the shareholders
attended. During the fiscal year ended August 31, 2012 no amount was paid by the Company with respect to such fees.



Retirement Policy for Directors

The Company does not have a retirement
policy for its directors.



Directors’ and Officers’ Liability Insurance

The Company does not maintain directors’
and officers’ liability insurance.



| | C. | BOARD PRACTICES
| | -- | ---------------



Board of Directors



The mandate of our board of directors,
prescribed by the Business Corporations Act (Ontario), is to manage or supervise the management of our business and affairs and
to act with a view to our best interests. In doing so, the board oversees the management of our affairs directly and through its
committees.



The term of Mr. Klyman as a director began
on August 10, 2000. Mr. Cassina was appointed as a director on February 9, 2010, Mr. McNeil who was appointed on June 18, 2010
and Mr. Gaines was appointed as a director on January 25, 2012. Our directors serve until our next Annual General Meeting or until
a successor is duly elected, unless the office is vacated in accordance with our Articles or Bylaws.  Our sole executive
officer was appointed by our Board of Directors to serve until the earlier of his resignation or removal, with or without cause
by the directors. There was no compensation paid by us to our directors during the fiscal year ended August 31, 2012 for their
services in their capacity as directors or any compensation paid to committee members.



55







As of the date of this Annual Report our
board of directors consists of four directors, three of which are "independent directors" in that they are "independent
from management and free from any interest and any business or other relationship which could, or could reasonably be perceived
to, materially interfere with the directors ability to act with a view to our best interests, other than interests and relationships
arising from shareholding".  The independent directors are Milton Klyman, Colin McNeil and Mr. Gaines.  It
is our practice to attempt to maintain a diversity of professional and personal experience among our directors.



The independent directors of the Company
do not hold regularly scheduled meetings at which non-independent directors and members of management are not in attendance. The
Company holds meetings as required, at which the opinions of the independent directors are sought and duly acted upon for all material
matters relating to the Company.



Directorships

The following directors of ours are directors
of other Canadian or United States reporting issuers as follows:



|Milton Klyman | Western Troy Capital Resources Inc.
|------------- | -----------------------------------



Board and Committee Meetings

The board of directors has met at least once annually or otherwise
as circumstances warrant to review our business operations, corporate governance and financial results.  The table below
reflects the attendance of each director of ours at each Board and committee meeting of the Board during the fiscal year ended
August 31, 2012.



|Name           |  | Board ofDirectorsMeetings |  | AuditCommitteeMeetings |  | CompensationCommitteeMeetings |  | Petroleum andNatural GasCommitteeMeetings |  | DisclosureCommitteeMeetings | 
|-------------- |  | ------------------------- |  | ---------------------- |  | ----------------------------- |  | ----------------------------------------- |  | --------------------------- | 
|Milton Klyman  |  | 5                         |  | 4                      |  | Nil                           |  | 1                                         |  | Nil                         | 
|James Cassina  |  | 5                         |  | 4                      |  | Nil                           |  | 1                                         |  | Nil                         | 
|Colin McNeil   |  | 5                         |  | 4                      |  | Nil                           |  | 1                                         |  | Nil                         | 
|Alan D. Gaines |  | 3                         |  | Nil                    |  | Nil                           |  | Nil                                       |  | Nil                         | 



Board Mandate

The Board assumes responsibility for stewardship
of the Company, including overseeing all of the operation of the business, supervising management and setting milestones for the
Company. The Board reviews the statements of responsibilities for the Company including, but not limited to, the code of ethics
and expectations for business conduct.



The Board approves all significant decisions
that affect the Company and its subsidiaries and sets specific milestones towards which management directs their efforts.



The Board ensures, at least annually, that
there are long-term goals and a strategic planning process in place for the Company and participates with management directly or
through its committees in developing and approving the mission of the business of the Company and the strategic plan by which it
proposes to achieve its goals, which strategic plan takes into account, among other things, the opportunities and risks of the
Company's business. The strategic planning process is carried out at each Board meeting where there are regularly reviewed specific
milestones for the Company.



The strategic planning process incorporates
identifying the main risks to the Company's objectives and ensuring that mitigation plans are in place to manage and minimize these
risks. The Board also takes responsibility for identifying the principal risks of the Company's business and for ensuring these
risks are effectively monitored and mitigated to the extent practicable. The Board appoints senior management.



The Company adheres to regulatory requirements
with respect to the timeliness and content of its disclosure. The Board approves all of the Company's major communications, including
annual and quarterly reports and press releases. The Chief Executive Officer authorizes the issuance of news releases. The Chief
Executive Officer is generally the only individual authorized to communicate with analysts, the news media and investors about
information concerning the Company.



The Board and the audit committee of the
Company (the "Audit Committee") examines the effectiveness of the Company's internal control processes and information
systems.



56







The Board as a whole, given its small size,
is involved in developing the Company's approach to corporate governance. The number of scheduled board meetings varies with circumstances.
In addition, special meetings are called as necessary. The Chief Executive Officer establishes the agenda at each Board meeting
and submits a draft to each director for their review and recommendation for items for inclusion on the agenda. Each director has
the ability to raise subjects that are not on the agenda at any board meeting. Meeting agendas and other materials to be reviewed
and/or discussed for action by the Board are distributed to directors in time for review prior to each meeting. Board members have
full and free access to senior management and employees of the Company.



Position Descriptions

The Board has not developed written position
descriptions for the Chairman of the Board or the Chief Executive Officer. The Board is currently of the view that the respective
corporate governance roles of the Board and management, as represented by the Chief Executive Officer, are clear and that the limits
to management's responsibility and authority are well-defined.



Each of the Audit Committee, Compensation
Committee, Disclosure Committee and a Petroleum and Natural Gas Committee has a chair and a mandate.



Orientation and Continuing Education

We have developed an orientation program
for new directors including a director’s manual ("Director’s Manual") which contains information regarding
the roles and responsibilities of the board, each board committee, the board chair, the chair of each board committee and our president.
The Director’s Manual contains information regarding its organizational structure, governance policies including the Board
Mandate and each Board committee charter, and our code of business conduct and ethics. The Director’s Manual is updated as
our business, governance documents and policies change. We update and inform the board regarding corporate developments and changes
in legal, regulatory and industry requirements affecting us.



Ethical Business Conduct

We have adopted a written code of business
conduct and ethics (the "Code") for our directors, officers and employees. The board encourages following the
Code by making it widely available. It is distributed to directors in the Director’s Manual and to officers, employees and
consultants at the commencement of their employment or consultancy.  The Code reminds those engaged in service to us
that they are required to report perceived or actual violations of the law, violations of our policies, dangers to health, safety
and the environment, risks to our property, and accounting or auditing irregularities to the chair of the Audit Committee who is
an independent director of ours. In addition, to requiring directors, officers and employees to abide by the Code, we encourage
consultants, service providers and all parties who engage in business with us to contact the chair of the Audit Committee regarding
any perceived and all actual breaches by our directors, officers and employees of the Code. The chair of our Audit Committee is
responsible for investigating complaints, presenting complaints to the applicable board committee or the board as a whole, and
developing a plan for promptly and fairly resolving complaints. Upon conclusion of the investigation and resolution of a complaint,
the chair of our Audit Committee will advise the complainant of the corrective action measures that have been taken or advise the
complainant that the complaint has not been substantiated. The Code prohibits retaliation by us, our directors and management,
against complainants who raise concerns in good faith and requires us to maintain the confidentiality of complainants to the greatest
extent practical. Complainants may also submit their concerns anonymously in writing. In addition to the Code, we have an Audit
Committee Charter and a Policy of Procedures for Disclosure Concerning Financial/Accounting Irregularities.



Since the beginning of our most recently
completed financial year, no material change reports have been filed that pertain to any conduct of a director or executive officer
that constitutes a departure from the Code. The board encourages and promotes a culture of ethical business conduct by appointing
directors who demonstrate integrity and high ethical standards in their business dealings and personal affairs. Directors are required
to abide by the Code and expected to make responsible and ethical decisions in discharging their duties, thereby setting an example
of the standard to which management and employees should adhere. The board is required by the Board Mandate to satisfy our CEO
and other executive officers are acting with integrity and fostering a culture of integrity throughout the Company. The board is
responsible for reviewing departures from the Code, reviewing and either providing or denying waivers from the Code, and disclosing
any waivers that are granted in accordance with applicable law. In addition, the board is responsible for responding to potential
conflict of interest situations, particularly with respect to considering existing or proposed transactions and agreements in respect
of which directors or executive officers advise they have a material interest. The Board Mandate requires that directors and executive
officers disclose any interest and the extent, no matter how small, of their interest in any transaction or agreement with us,
and that directors excuse themselves from both board deliberations and voting in respect of transactions in which they have an
interest. By taking these steps the board strives to ensure that directors exercise independent judgment, unclouded by the relationships
of the directors and executive officers to each other and us, in considering transactions and agreements in respect of which directors
and executive officers have an interest.



57







Nomination of Directors

The Board has not appointed a nominating
committee and does not believe that such a committee is warranted at the present time. The entire Board determines new nominees
to the Board, although a formal process has not been adopted. The nominees are generally the result of recruitment efforts by the
Board members, including both formal and informal discussions among Board members and officers. The Board generally looks for the
nominee to have direct experience in the oil and gas business and significant public company experience. The nominee must not have
a significant conflicting public company association.



Compensation

The Board determines director and executive
officer compensation by recommendation of the Compensation Committee. The Company's Compensation Committee reviews the amounts
and effectiveness of compensation. Each of the members of the Compensation Committee are independent. The Board reviews the adequacy
and form of compensation and compares it to other companies of similar size and stage of development. There is no minimum share
ownership requirement of directors.



The Compensation Committee convenes at
least once annually to review director and officer compensation and status of stock options. The Compensation Committee also responds
to requests from management and the Board to review recommendations of management for new senior employees and their compensation.
The Compensation Committee has the power to approve and/or amend these recommendations.



The Company has felt no need to retain
any compensation consultants or advisors at any time since the beginning of the Company's most recently completed financial year.



Committees of the Board

Our board of directors discharges its responsibilities
directly and through committees of the board of directors, currently consisting of the Audit Committee, a compensation committee
(the "Compensation Committee"), a disclosure committee (the "Disclosure Committee") and a petroleum
and natural gas committee (the "Petroleum and Natural Gas Committee").



Each of the Audit Committee, Disclosure
Committee and the Petroleum and Natural Gas Committee consists of a majority of independent directors, while the Compensation Committee
consists of independent directors.  Each Committee has a specific mandate and responsibilities, as reflected in the charters
for each committee.



Audit Committee

The mandate of the Audit Committee is formalized
in a written charter.  The members of the Audit Committee are James Cassina, Milton Klyman (Chair) and Colin McNeil.
Based on his professional certification and experience, the board has determined that Milton Klyman is an Audit Committee Financial
Expert and that James Cassina and Colin McNeil are financially literate. The Audit Committee's primary duties and responsibilities
are to serve as an independent and objective party to monitor our financial reporting process and control systems, review and appraise
the audit activities of our independent auditors, financial and senior management, and the lines of communication among the independent
auditors, financial and senior management, and the board of directors for financial reporting and control matters including investigating
fraud, illegal acts or conflicts of interest.



Compensation Committee

The mandate of the Compensation Committee
is formalized in a written charter. The members of the Compensation Committee are Colin McNeil and Milton Klyman (Chair).  The
Compensation Committee is comprised entirely of independent directors. Compensation is determined in the context of our strategic
plan, our growth, shareholder returns and other achievements and considered in the context of position descriptions, goals and
the performance of each individual director and officer. With respect to directors’ compensation, the Compensation Committee
reviews the level and form of compensation received by the directors, members of each committee, the board chair and the chair
of each board committee, considering the duties and responsibilities of each director, his or her past service and continuing duties
in service to us. The compensation of directors, the CEO, CFO and executive officers of competitors are considered, to the extent
publicly available, in determining compensation and the Compensation Committee has the power to engage a compensation consultant
or advisor to assist in determining appropriate compensation.



58







Disclosure Committee

The mandate of the Disclosure Committee
is formalized in a written charter. The members of the Disclosure Committee are Milton Klyman, Colin McNeil and James Cassina (Chair).  The
Committee's duties and responsibilities include, but are not limited to, review and revise our controls and other procedures ("Disclosure
and Controls Procedures") to ensure that (i) information required by us to be disclosed to the applicable regulatory authorities
and other written information that we will disclose to the public is reported accurately and on a timely basis, and (ii) such information
is accumulated and communicated to management, as appropriate to allow timely decisions regarding required disclosure; assist in
documenting and monitoring the integrity and evaluating the effectiveness of the Disclosure and Control Procedures; the identification
and disclosure of material information about us, the accuracy completeness and timeliness of our financial reports and all communications
with the investing public are timely, factual and accurate and are conducted in accordance with applicable legal and regulatory
requirements.



Petroleum and Natural Gas Committee

The members of the Petroleum and Natural
Gas Committee are Milton Klyman, James Cassina and Colin McNeil (Chair).  The Petroleum and Natural Gas Committee has
the responsibility of meeting with the independent engineering firms commissioned to conduct the reserves evaluation on our oil
and natural gas assets and to discuss the results of such evaluation with each of the independent engineers and management.  Specifically,
the Petroleum and Natural Gas Committee’s responsibilities include, but are not limited to, a review of management’s
recommendations for the appointment of independent engineers, review of the independent engineering reports and considering the
principal assumptions upon which such reports are based, appraisal of the expertise of the independent engineering firms retained
to evaluate our reserves, review of the scope and methodology of the independent engineers’ evaluations, reviewing any problems
experienced by the independent engineers in preparing the reserve evaluation, including any restrictions imposed by management
or significant issues on which there was a disagreement with management and a review of reserve additions and revisions which occur
from one report to the next.



Assessments

The board assesses, on an annual basis,
the contributions of the board as a whole, the Audit Committee and each of the individual directors, in order to determine whether
each is functioning effectively. The board monitors the adequacy of information given to directors, communication between the board
and management and the strategic direction and processes of the board and committees.  The Audit Committee will annually
review the Audit Committee Charter and recommend, if any, revisions to the board as necessary.



Audit Committee

The mandate of the Audit Committee is formalized
in a written charter.  The members of the audit committee of the board are James Cassina, Milton Klyman (Chairman) and
Colin McNeil. Based on his professional certification and experience, the board has determined that Milton Klyman is an Audit Committee
Financial Expert and that Colin McNeil and James Cassina are financially literate. The audit committee's primary duties and responsibilities
are to serve as an independent and objective party to monitor our financial reporting process and control systems, review and appraise
the audit activities of our independent auditors, financial and senior management, and the lines of communication among the independent
auditors, financial and senior management, and the board of directors for financial reporting and control matters including investigating
fraud, illegal acts or conflicts of interest.



Relevant Education and Experience of Audit Committee Members

Milton Klyman is the Chairman of the Audit
Committee.  He is a self-employed financial consultant and has been a Chartered Accountant since 1952.  Milton
Klyman is a Life Member of the Institute of Chartered Accountants of Ontario, a Life member of the Canadian Institute of Mining
Metallurgy and Petroleum and a Fellow of the Institute of Chartered Secretaries and Administrators.



James Cassina is a consultant in business
development, mergers and acquisitions and corporate finance. James Cassina has served as a director and held various executive
positions with public companies.



59







Colin McNeil is an independent consulting
geophysicist and has managed exploration programs and structured technical assessments for companies in the Middle East, Africa,
Asia, Central and South America, the Arctic, and Canada Colin McNeil has served as a director and held various positions with public
and private companies.



Audit Committee Charter

| | • | Our Audit Committee Charter (the “Charter”) has been adopted by our board of directors.  The
Audit Committee of the board (the “Committee”) will review and reassess this charter annually and recommend any proposed
changes to the board for approval.  The Audit Committee’s primary duties and responsibilities are to:
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Oversee (i) the integrity of our financial statements; (ii) our compliance with legal and regulatory
requirements; and (iii) the independent auditors’ qualifications and independence.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Serve as an independent and objective party to monitor our financial reporting processes and internal
control systems.
| | - | ----------------------------------------------------------------------------------------------------------------------



| | • | Review and appraise the audit activities of our independent auditors and the internal auditing
functions.
| | - | ---------------------------------------------------------------------------------------------------------



| | • | Provide open lines of communication among the independent auditors, financial and senior management,
and the board for financial reporting and control matters.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



Role and Independence: Organization

The Committee assists the board on fulfilling
its responsibility for oversight of the quality and integrity of our accounting, auditing, internal control and financial reporting
practices.  It may also have such other duties as may from time to time be assigned to it by the board.



The Audit Committee is to be comprised
of at least three directors.  The majority of the Committee members must be independent from management and free from
any relationship that, in the opinion of the Board, would interfere with the exercise of his or her independent judgment as a member
of the Committee.



All members shall, to the satisfaction
of the board, be financially literate (i.e. will have the ability to read and understand a balance sheet, an income statement,
a cash flow statement and the notes attached thereto), and at least one member shall have accounting or related financial management
expertise to qualify as “financially sophisticated”.  A person will qualify as “financially sophisticated”
if an individual who possesses the following attributes:



| | • | an understanding of financial statements and generally accepted accounting principles;
| | - | --------------------------------------------------------------------------------------



| | • | an ability to assess the general application of such principles in connection with the accounting
for estimates, accruals and reserves;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------



| | • | experience preparing, auditing, analyzing or evaluating financial statements that present a breadth
and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably
be expected to be raised by our financial statements, or experience actively supervising one or more persons engaged in such activities;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | an understanding of internal controls and procedures for financial reporting; and
| | - | ---------------------------------------------------------------------------------



| | • | an understanding of audit committee functions.
| | - | ----------------------------------------------



Colin McNeil and Milton Klyman are “independent”
as defined by the Securities and Exchange Commission, and the Board has determined that Milton Klyman is an “audit committee
financial expert” as defined in Item 401(h) of Regulation S-K promulgated by the Securities and Exchange Commission.



The Committee members will be elected annually
at the first meeting of the Board following the annual meeting of shareholders.  Each member of the Committee serves
during the pleasure of the Board and, in any event, only so long as he or she is a director.



60







One member of the Committee shall be appointed
as chair.  The chair shall be responsible for leadership of the Committee, including scheduling and presiding over meetings
and making regular reports to the Board.  The chair will also maintain regular liaison with the CEO, CFO, and the lead
independent audit partner.



Responsibilities and Powers

Although the Committee may wish to consider
other duties from time to time, the general recurring activities of the Committee in carrying out its oversight role are described
below.



| | · | Annual review and revision of the Charter as necessary with the approval of the board.
| | - | --------------------------------------------------------------------------------------



| | · | Review and obtain from the independent auditors a formal written statement delineating all relationships
between the auditor and us, consistent with Independence Standards Board Standard 1.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Recommending to the board the independent auditors to be retained (or nominated for shareholder
approval) to audit our financial statements.  Such auditors are ultimately accountable to the board and the Committee,
as representatives of the shareholders.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Evaluating, together with the board and management, the performance of the independent auditors
and, where appropriate, replacing such auditors.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Obtaining annually from the independent auditors a formal written statement describing all relationships
between the auditors and us. The Committee shall actively engage in a dialogue with the independent auditors with respect to any
relationship that may impact the objectivity and the independence of the auditors and shall take, or recommend that the board take,
appropriate actions to oversee and satisfy itself as to the auditors’ independence.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Ensuring that the independent auditors are prohibited from providing the following non-audit services
and determining which other non-audit services the independent auditors are prohibited from providing:
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | Bookkeeping or other services related to our accounting records or
consolidated financial statements;
| | - | -----------------------------------------------------------------------------------------------------



| | o | Financial information systems design and implementation;
| | - | --------------------------------------------------------



| | o | Appraisal or valuation services, fairness opinions, or contribution-in-kind
reports;
| | - | ------------------------------------------------------------------------------------



| | o | Actuarial services;
| | - | -------------------



| | o | Internal audit outsourcing services;
| | - | ------------------------------------



| | o | Management functions or human resources;
| | - | ----------------------------------------



| | o | Broker or dealer, investment advisor or investment banking services;
| | - | --------------------------------------------------------------------



| | o | Legal services and expert services unrelated to the audit; and
| | - | --------------------------------------------------------------



| | o | Any other services which the Public Company Accounting Oversight
Board determines to be impermissible.
| | - | ------------------------------------------------------------------------------------------------------



| | · | Approving any permissible non-audit engagements of the independent
auditors.
| | - | ----------------------------------------------------------------------------



| | · | Meeting with our auditors and management to review the scope of the
proposed audit for the current year, and the audit procedures to be used, and to approve audit fees.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Reviewing the audited consolidated financial statements and discussing
them with management and the independent auditors.  Consideration of the quality our accounting principles as applied
in its financial reporting.  Based on such review, the Committee shall make its recommendation to the Board as to the
inclusion of our audited consolidated financial statement in our Annual Report to Shareholders.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



61







| | · | Discussing with management and the independent auditors the quality
and adequacy of and compliance with our internal controls.
| | - | ------------------------------------------------------------------------------------------------------------------------------



| | · | Establishing procedures: (i) for receiving, handling and retaining
of complaints received by us regarding accounting, internal controls, or auditing matters, and (ii) for employees to submit confidential
anonymous concerns regarding questionable accounting or auditing matters.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Review and discuss all related party transactions involving us.
| | - | ---------------------------------------------------------------



| | · | Engaging independent counsel and other advisors if the Committee
determines that such advisors are necessary to assist the Committee in carrying out its duties.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Publicly disclose the receipt of warning about any violations of
corporate governance rules.
| | - | --------------------------------------------------------------------------------------------



Authority

The Committee will have the authority to
retain special legal, accounting or other experts for advice, consultation or special investigation.  The Committee may
request any officer or employee of ours, our outside legal counsel, or the independent auditor to attend a meeting of the Committee,
or to meet with any member of, or consultants to, the Committee.  The Committee will have full access to our books, records
and facilities.



Meetings

The Committee shall meet at least yearly,
or more frequently as the Committee considers necessary.  Opportunities should be afforded periodically to the external
auditor and to senior management to meet separately with the independent members of the Committee. Meetings may be with representatives
of the independent auditors, and appropriate members of management, all either individually or collectively as may be required
by the Chairman of the Committee.



The independent auditors will have direct
access to the Committee at their own initiative.



The Chairman of the Committee will report
periodically the Committee’s findings and recommendations to the board of directors.



| | D. | EMPLOYEES
| | -- | ---------



As of August 31, 2012 and the date of the
filing of this Annual Report we did not have any employees other than our sole executive officer.



| | E. | SHARE OWNERSHIP
| | -- | ---------------



Our common shares are owned by Canadian
residents, United States residents and residents of other countries.  The only class of our securities, which is outstanding
as of the date of the filing of this Annual Report, is common stock.  All holders of our common stock have the same voting
rights with respect to their ownership of our common stock.



The following table sets forth as of November
30, 2012, certain information with respect to the amount and nature of beneficial ownership of the common stock held by (i) each
person known to our management to be the beneficial owner of more than 5% of our outstanding shares of common stock; (ii) each
person who is a director or an executive officer of ours; and (iii) all directors and executive officers of ours, as a group.  Shares
of our common stock subject to options, warrants, or convertible securities currently exercisable or convertible or exercisable
or convertible within 60 days of the date of filing of this Annual Report are deemed outstanding for computing the share ownership
and percentage of the person holding such options, warrants, or convertible securities but are not deemed outstanding for computing
the percentage of any other person.



62







|Name and Owner                                    |  | Identity                                   |  | Amount and Natureof BeneficialOwnershipof Common Stock  (1) |            |  | Note |  |                | Percentage | 
|------------------------------------------------- |  | ------------------------------------------ |  | ----------------------------------------------------------- | ---------- |  | ---- |  | -------------- | ---------- | 
|Alan D. Gaines                                    |  | Director                                   |  |                                                             | 8,000,000  |  |      |  | (2             | )          | 
|Milton Klyman                                     |  | Director                                   |  |                                                             | 400,000    |  |      |  | (3             | )          | 
|Colin McNeil                                      |  | Director                                   |  |                                                             | 200,000    |  |      |  | (4             | )          | 
|James Cassina                                     |  | Officer/Director and Principal Shareholder |  |                                                             | 24,537,704 |  |      |  | (5             | )          | 
|Core Energy Enterprise Inc. (6)                   |  | Principal Shareholder                      |  |                                                             | 8,146,704  |  |      |  | (7             | )          | 
|Gerald Hickson                                    |  | Principal Shareholder                      |  |                                                             | 8,500,000  |  |      |  | (8             | )          | 
|All officers and directors as a group (4 persons) |  |                                            |  |                                                             | 33,137,704 |  |      |  | (2) (3) (4) (5 | )          | 



63







| | (1) | Unless otherwise indicated, the persons named have sole ownership,
voting and investment power with respect to their stock, subject to applicable laws relative to rights of spouses.  Percentage
ownership is based on 98,957,457 shares of common stock outstanding as of the date of filing of this Annual Report.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Includes 4,000,000 outstanding shares and 4,000,000 shares underlying
4,000,000 presently exercisable warrants.
| | --- | ---------------------------------------------------------------------------------------------------------------



| | (3) | Includes 100,000 outstanding shares, 100,000 shares underlying 100,000 presently exercisable warrants
and 200,000 shares underlying 200,000 presently exercisable stock options.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Includes 200,000 shares underlying 200,000 presently exercisable stock options.
| | --- | -------------------------------------------------------------------------------



| | (5) | Includes 4,073,208 outstanding shares and 4,073,208 shares underlying 4,073,208 presently exercisable
warrants owned by Core Energy Enterprises Inc.  Also includes 8,199,450 outstanding shares and 7,991,838 shares underlying
7,991,838 presently exercisable warrants and 200,000 shares underlying 200,000 presently exercisable stock options owned directly
by James Cassina.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (6) | James Cassina has voting and investment power with respect to the
shares owned by Core Energy Enterprises Inc.
| | --- | --------------------------------------------------------------------------------------------------------------



| | (7) | Includes 4,073,208 outstanding shares underlying 4,073,208 shares
underlying presently exercisable warrants.
| | --- | ------------------------------------------------------------------------------------------------------------





| | (8) | Includes 6,000,000 outstanding shares and 2,500,000 presently exercisable warrants.
| | --- | -----------------------------------------------------------------------------------



As of the date of the filing of this Annual
Report, to the knowledge of our management, there are no arrangements which, could at a subsequent date result in a change in control
of us.  As of such date, and except as disclosed herein, our management has no knowledge that we are owned or controlled
directly or indirectly by another company or any foreign government.



ITEM 7     MAJOR SHAREHOLDERS AND RELATED
PARTY TRANSACTIONS



| | A. | MAJOR SHAREHOLDERS
| | -- | ------------------



There are 98,957,457 issued and outstanding
shares of our common stock as of November 30, 2012.  As of November 30, 2012, to the best of our knowledge, no persons
hold directly or indirectly or exercise control or direction over, shares of our common stock carrying 5% or more of the voting
rights attached to all issued and outstanding shares of the common stock except as stated under Item 6.E above or set out in the
table below.  The shares of our common stock, owned by our major shareholders have identical voting rights as those owned
by our other shareholders.



|Name                            |  | Amount and Nature of Beneficial Ownership of Common Stock |            |  | Note |  |    | Percentage | 
|------------------------------- |  | --------------------------------------------------------- | ---------- |  | ---- |  | -- | ---------- | 
|Alan D. Gaines                  |  |                                                           | 8,000,000  |  |      |  | (1 | )          | 
|James Cassina                   |  |                                                           | 24,537,704 |  |      |  | (2 | )          | 
|Core Energy Enterprise Inc. (3) |  |                                                           | 8,146,704  |  |      |  | (4 | )          | 
|Gerald Hickson                  |  |                                                           | 8,500,000  |  |      |  | (5 | )          | 



| | (1) | Includes 4,000,000 outstanding shares and 4,000,000 shares underlying 4,000,000 presently exercisable
warrants.
| | --- | ---------------------------------------------------------------------------------------------------------------



| | (2) | Includes 4,073,208 outstanding shares and 4,073,208 shares underlying 4,073,208 presently exercisable
warrants owned by Core Energy Enterprises Inc.  Also includes 8,199,450 outstanding shares and 7,991,838 shares underlying
7,991,838 presently exercisable warrants and 200,000 shares underlying 200,000 presently exercisable stock options owned directly
by James Cassina.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



64







| | (3) | James Cassina has voting and investment power with respect to the
shares owned by Core Energy Enterprises Inc.
| | --- | --------------------------------------------------------------------------------------------------------------



| | (4) | Includes 4,073,208 outstanding shares underlying 4,073,208 shares
underlying presently exercisable warrants.
| | --- | ------------------------------------------------------------------------------------------------------------



| | (5) | Includes 6,000,000 outstanding shares and 2,500,000 presently exercisable warrants.
| | --- | -----------------------------------------------------------------------------------



The following table discloses the geographic
distribution of the majority of the holders of record of our common stock as of date of November 30, 2012.



|Country   |  | NumberofShareholders |       |  | NumberofShares |  |            | PercentageofShareholders |  |  | PercentageofShares |  
|--------- |  | -------------------- | ----- |  | -------------- |  | ---------- | ------------------------ |  |  | ------------------ | -
|Canada    |  |                      | 1,073 |  |                |  | 33,611,604 |                          |  |  | 94.12              | %
|USA       |  |                      | 48    |  |                |  | 34,728,638 |                          |  |  | 4.21               | %
|All Other |  |                      | 19    |  |                |  | 30,617,215 |                          |  |  | 1.67               | %
|Total     |  |                      | 1,140 |  |                |  | 98,957,457 |                          |  |  | 100                | %



We are not directly or indirectly owned
or controlled by another corporation, by any foreign government or by any other natural or legal person. There are no arrangements
known to us, the operation of which may at a subsequent date result in a change in the control of us.



| | B. | RELATED PARTY TRANSACTIONS
| | -- | --------------------------



The following transactions with individuals
related to the Company arose in the normal course of business have been accounted for at the exchange amount being the amount agreed
to by the related parties, which approximates the arm’s length equivalent value.



Compensation of Key Management Personnel

The remuneration of directors and other
members of key management personnel during the years ended were as follows:



|                                       |  | August 31, 2012 |         |  | August 31, 2011 |  
|-------------------------------------- |  | --------------- | ------- |  | --------------- | -
|Short term employee benefits (1)       |  | $               | 75,000  |  |                 | $
|Directors stock based compensation (3) |  |                 | 95,910  |  |                 |  
|                                       |  | $               | 170,910 |  |                 | $



The following balances owing to the President
of the Company are included in trade and other payables and are unsecured, non-interest bearing and due on demand:



|                                       |  | August 31, 2012 |         |  | August 31, 2011 |   |        | September 1, 2010 (2) | 
|-------------------------------------- |  | --------------- | ------- |  | --------------- | - | ------ | --------------------- | 
|Short term employee benefits (1)       |  | $               | 131,250 |  |                 | $ | 56,250 |                       | 
|Expenses paid on behalf of the Company |  |                 | 1,896   |  |                 |   | -      |                       | 
|                                       |  | $               | 133,146 |  |                 | $ | 56,250 |                       | 



| | (1) | Commencing December 1, 2010 the Company accrues management fees for the President of the Company
at a rate of $6,250 per month.
| | --- | -------------------------------------------------------------------------------------------------------------------------------

| | (2) | Management fees to the former President of the Company.
| | --- | -------------------------------------------------------

| | (3) | On March 1, 2012, the Company granted 600,000 share purchase options to directors with an exercise
price of $0.16 per share expiring on February 28, 2017.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------



At August 31, 2012 the amount of directors’
fees included in trade and other payables was $12,900 (August 31, 2011 $8,800 and September 1, 2010 $6,700).



At August 31, 2012 the Company had promissory
notes payable to the President of $28,845 and US$300,000 (August 31, 2011 US$300,000). For the year ended August 31, 2012 the Company
recorded interest of $32,538 At August 31, 2012, included in trade and other payables is interest of $28,687 (August 31, 2011 $26,135).
During the year ended August 31, 2012 the Company issued 207,612 common shares to the President as full settlement of interest
due in the amount of $30,195. The notes are due on demand and bear interest at 10% per annum. Interest is payable annually on the
anniversary date of the notes.



65







On September 1, 2011 the Company paid to
Source Re Work Program, Inc. (“Source”) the secured promissory note in full in the amount of US$75,000 together with
accrued interest of US$6,250. Eric Johnson was the President of Source, is a shareholder of the Company and was the Vice President
of Operations for Dyami Energy until April 13, 2011.



At August 31, 2012 the Company has a US$960,000,
10% per annum secured promissory note payable to Benchmark Enterprises LLC (“Benchmark”). Benchmark is a shareholder
of the Company. For the year ended August 31, 2012 the Company recorded interest of $83,947. At August 31, 2012 included in trade
and other payables is interest of $63,296 (August 31, 2011 $92,219). During the year ended August 31, 2012 the Company issued 1,030,812
common shares as full settlement of interest due in the amount of $103,021.



At August 31, 2012 included in trade and
other payables is $14,649 due to Gottbetter & Partners LLP for legal fees (August 31, 2011 $68,918). On February 17, 2012 the
Company converted $50,000 of debt into 1,000,000 pre forward split units of the Company at $0.05 per unit. During the year ended
August 31, 2012 the Company completed private placements of 10,575,000 units in the capital of the Company for gross proceeds of
$2,113,986 and paid to Gottbetter Capital Markets, LLC, placement agent fees of $99,326 and issued 846,000 common share purchase
warrants exercisable at US$0.25 for a period of three years from the date of issue. Gottbetter Capital Group, Inc. is a shareholder
of the Company. Adam Gottbetter is the managing and principal partner of Gottbetter & Partners LLP, and the beneficial owner
of Gottbetter Capital Group, Inc., and Gottbetter Capital Markets, LLC.



At August 31, 2012 the Company had an unsecured,
non-interest bearing and repayable on demand shareholder loan in the amount of Nil (August 3, 2011 and September 1, 2010 $57,500).
For the year ended August 31, 2012 interest was imputed at a rate of 10% per annum and interest of $2,334 was recorded and included
in contributed surplus (August 31, 2011 $5,750). On January 24, 2012 the Company converted $50,000 of the loan into 1,000,000 units
and on February 17, 2012 the Company converted the balance of the loan, $7,500 into 150,000 units in the capital of the Company
at $0.05per unit.



During the year ended August 31, 2012,
the Company received US$175,000 and $293,000 and issued promissory notes to five shareholders. During the year ended August 31,
2012 the Company paid US$480,000 in promissory notes. At August 31, 2012, the Company had shareholders’ loans payable of
US $1,583,740 and $293,000 (August 31, 2011 US$2,490,000 and CDN$149,000). The notes are payable on demand and bear interest at
10% per annum. Interest is payable annually on the anniversary date of the notes. For the year ended August 31, 2012 the Company
recorded interest of $254,117. At August 31, 2012, included in trade and other payables is interest of $190,484 (August 31, 2011
$171,640). During the year ended August 31, 2012 the Company issued 2,039,969 common shares as full settlement of interest due
on shareholder notes in the amount of $236,669.



On January 24, 2012 the Company converted
$250,000 of shareholders’ loans into 5,000,000 units in the capital of the Company at $0.05 per unit and on February 17,
2012 the Company converted $500,000 into 10,000,000 units in the capital of the Company at $0.05 per unit.



Inter-Company Balances

As at August 31, 2012, the inter-company
balance due from our wholly owned subsidiary 1354166 Alberta was $88,000. As at August 31, 2012, the inter-company balance due
from our wholly owned subsidiary Dyami Energy was $5,225,602. As of November 30, 2012, the inter-company balance due from 1354166
Alberta is $88,000 and the inter-company balance due from Dyami Energy is $5,271,634.



| | C. | INTERESTS OF EXPERTS AND COUNSEL
| | -- | --------------------------------



Not Applicable.  This Form 20-F is being filed as
an Annual Report under the Exchange Act.



ITEM 8     FINANCIAL INFORMATION



| | A. | CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
| | -- | -------------------------------------------------------



The Company's Audited Consolidated Financial Statements for
the fiscal years ended August 31, 2012 and 2011 and the notes thereto required as part of this Annual Report are filed under Item
18 of this Annual Report.



66







Litigation

Except as
discussed below there are no pending legal proceedings to which we or our subsidiary is a party or of which any of our property
is the subject. There are no legal proceedings to which any of the directors, officers or affiliates or any associate of any such
directors, officers or affiliates of either our company or our subsidiary is a party or has a material interest adverse to us except
for the following:



Matthews Lease Litigation

The lessor of the Matthews lease expressed
their belief that the Lease has terminated and on April 30, 2012 filed a petition in the District Court of Zavala County, Texas,
seeking a declaration that the lease has terminated (Case No. 12-04-12751-ZCV). The Company disagrees and believes that it is in
full compliance with the terms of the lease. The Company is defending the allegation and countersuing the lessor for repudiation
of the lease and seeking damages.



The Company elected to conduct the continuous
drilling program provision of the lease in order to extend the term of the lease beyond its primary term. The Company commenced
actual drilling operations on a well, within the 180 day time period allowed and defined in the amended lease every such period
since the end of the primary term.



In March 2012, the
Companynotified the lessor of its intention to continue drilling the No. 2-H well initiated in October 2011 and suspended,
and to drill a new well, the 4-H under the continuous-drilling program.



Upon receipt of this notice, and before
the 180-day deadline to commence actual drilling operations expired, the lessor informed the Companythat it was taking the position that the lease had terminated because the Company allegedly failed to drill the No. 2-H
well in a good faith attempt to secure production, and thus failed to comply with the continuous drilling program. The lessor later
added that the Company was 2 days late having a drill bit contact the surface of the earth and turn to the right. Based on the
Company’s extensive logging, coring, and laboratory work and analysis, the Company was highly confident that these wells
would produce in commercial quantities, which would have benefitted the lessor and the other royalty owner, and would have allowed
the Company to begin to recoup its investment in the lease. Extended development drilling would have followed. Accordingly the
Company is seeking specific performance or damages from the lessors.



As at August 31, 2012, no amounts of contingent
loss due to the impairment of the above mentioned lease have been recorded in these consolidated financial statements. According
to the Company's legal counsel, there are no dispositive motions pending, a trial date has not been set and in their opinion it
is not possible to evaluate the likelihood of an unfavorable outcome or the amount or range of potential loss.



The Company
carries its investment in the Matthews lease at approximately $4,645,534. If the final outcome of such claim differs adversely
from that expected, it would result in an impairment loss equal to the carrying value of the Matthews lease, when determined.(See “Item 5 – Operating and Financial Review and Prospects – Critical Accounting Estimates”).



The following table summarizes the sensitivity
of the carrying value of the Company’s Matthews lease for the year ended August 31, 2012. When assessing the potential impact
of a negative result, the Company believes that the carrying value is a reasonable measure. A negative result could impact the
Company’s net loss, as follows:



|Sensitivity Analysis of the Carrying value of the Matthews lease |  | Effect on Net Loss |          
|---------------------------------------------------------------- |  | ------------------ | ---------
|Net loss at August 31, 2012                                      |  | $                  | 2,809,187
|Impairment loss on Matthews lease                                |  |                    | 4,645,534
|Net loss after impairment                                        |  | $                  | 7,454,722



Other Litigation

During the year ended August 31, 2010 a
vendor of Dyami Energy filed a claim in the District Court of Harris County, Texas seeking payment of US$62,800. Dyami Energy is
disputing the claim on the basis of excessive charges. The full amount of the provision has been recorded and any legal costs will
be expensed as incurred. The outcome of this claim is uncertain at this time.



During the year ended August 31, 2012 a
vendor of Dyami Energy filed a claim in the District Court of Harris County, Texas seeking payment of US$64,866. Dyami Energy is
disputing the amount charged due to faulty equipment. The full amount of the provision has been recorded and any legal costs will
be expensed as incurred. The outcome of this claim is uncertain at this time.



67







Dividends

We have not paid any dividends on our common
stock during the past five years. We do not intend to pay dividends on shares of common stock in the foreseeable future as we anticipate
that our cash resources will be used to finance growth.



| | B. | SIGNIFICANT CHANGES
| | -- | -------------------



There have been no significant changes
that have occurred since the date of our annual financial statements included with this Annual Report except as disclosed in the
Annual Report.



ITEM 9     THE OFFER AND LISTING



Common Shares

Our authorized capital consists of an unlimited
number of common shares without par value, of which 98,957,457 were issued and outstanding as of November 30, 2012. All shares
are initially issued in registered form. There are no restrictions on the transferability of our common shares imposed by our constating
documents.  Holders of our common shares are entitled to one vote for each common share held of record on all matters
to be acted upon by our shareholders. Holders of common shares are entitled to receive such dividends as may be declared from time
to time by our board of directors, in their discretion. In addition we are authorized to issue an unlimited number of preferred
shares, with such rights, preferences and privileges as may be determined from time to time by our board of directors.  There
were no preferred shares outstanding at November 30, 2012.



Our common shares entitle their holders
to: (i) vote at all meetings of our shareholders except meetings at which only holders of specified classes of shares are entitled
to vote, having one vote per common share, (ii) receive dividends at the discretion of our board of directors; and (iii) receive
our remaining property on liquidation, dissolution or winding up.



| | A. | OFFER AND LISTING DETAILS
| | -- | -------------------------



Our common
stock became eligible for trading on October 22, 2009 on the Over the Counter Bulletin Board ("OTCBB") under the symbol
(“EGNKF”). Following the amalgamation on November 30, 2009 with our wholly owned subsidiary 1406768 Ontario, we changed
our name to Eagleford Energy Inc. and commenced trading under the symbol (“EFRDF”). Prior to our common stock being
listed on the OTCBB, our common stock had not publicly traded since 1990. We completed a 2-for-1
forward stock split, pursuant to which one (1) newly-issued share of the Company’s common stock was issued to each holder
of a share of common stock as of the close of business on March 16, 2012.



The following table set forth the reported
high and low bid prices for shares of our common stock on the OTCBB in US dollars for the periods indicated.



|                            |  | Period (1)                      |  |  | High (3) |      |  | Low(3) |  
|--------------------------- |  | ------------------------------- |  |  | -------- | ---- |  | ------ | -
|Fiscal Year August 31, 2012 |  | Year Ended August 31, 2012      |  |  | $        | 0.51 |  |        | $
|Fiscal Year August 31, 2011 |  | Year Ended August 31, 2011      |  |  | $        | 1.02 |  |        | $
|Fiscal Year August 31, 2010 |  | Year Ended August 31, 2010      |  |  | $        | 0.65 |  |        | $
|                            |  |                                 |  |  |          |      |  |        |  
|Fiscal Year 2013 by Quarter |  | First Quarter ended 11/30/2012  |  |  | $        | 0.40 |  |        | $
|                            |  |                                 |  |  |          |      |  |        |  
|Fiscal Year 2012 By Quarter |  | First Quarter ended 11/30/2011  |  |  | $        | 0.35 |  |        | $
|                            |  | Second Quarter Ended 02/29/2012 |  |  | $        | 0.30 |  |        | $
|                            |  | Third Quarter Ended 05/31/2012  |  |  | $        | 0.50 |  |        | $
|                            |  | Fourth Quarter Ended 08/31/2012 |  |  | $        | 0.51 |  |        | $
|                            |  |                                 |  |  |          |      |  |        |  
|Fiscal Year 2011 By Quarter |  | First Quarter ended 11/30/2010  |  |  | $        | 1.02 |  |        | $
|                            |  | Second Quarter Ended 02/28/2011 |  |  | $        | 1.00 |  |        | $
|                            |  | Third Quarter Ended 05/31/2011  |  |  | $        | 0.62 |  |        | $
|                            |  | Fourth Quarter Ended 08/31/2011 |  |  | $        | .088 |  |        | $
|                            |  |                                 |  |  |          |      |  |        |  
|Fiscal Year 2010 By Quarter |  | First Quarter ended 11/30/2009  |  |  | $        | 0.00 |  |        | $
|                            |  | Second Quarter Ended 02/28/2010 |  |  | $        | 0.03 |  |        | $
|                            |  | Third Quarter Ended 05/31/2010  |  |  | $        | 0.00 |  |        | $
|                            |  | Fourth Quarter Ended 08/31/2010 |  |  | $        | 0.65 |  |        | $
|                            |  |                                 |  |  |          |      |  |        |  
|Calendar Year 2012 by Month |  | August                          |  |  | $        | 0.51 |  |        | $
|                            |  | September                       |  |  | $        | 0.40 |  |        | $
|                            |  | October                         |  |  | $        | 0.30 |  |        | $
|                            |  | November                        |  |  | $        | 0.24 |  |        | $



68







Notes



| | (1) | Our stock commenced trading on the OTCBB on October 22, 2009.
| | --- | -------------------------------------------------------------



| | (2) | The closing price on the OTCBB for our common stock on November 30, 2012 was $0.18.
| | --- | -----------------------------------------------------------------------------------



| | (3) | Adjusted for 2-for-1 forward stock split on March 16, 2012.
| | --- | -----------------------------------------------------------



There is currently only a limited public
market for the common stock in the United States. There can be no assurance that a more activemarket will develop in the future.



| | B. | PLAN OF DISTRIBUTION
| | -- | --------------------



Not Applicable.  This Form 20-F is being filed as
an Annual Report under the Exchange Act.



| | C. | MARKETS
| | -- | -------



See Item 9.A.



| | D. | SELLING SHAREHOLDERS
| | -- | --------------------



Not Applicable.  This Form 20-F is being filed as
an Annual Report under the Exchange Act.



| | E. | DILUTION
| | -- | --------



Not Applicable.  This Form 20-F is being filed as
an Annual Report under the Exchange Act.



| | F. | EXPENSES OF THE ISSUE
| | -- | ---------------------



Not Applicable.  This Form 20-F is being filed as
an Annual Report under the Exchange Act.



ITEM 10    ADDITIONAL INFORMATION



| | A. | SHARE CAPITAL
| | -- | -------------



Not Applicable.  This Form 20-F is being filed as
an Annual Report under the Exchange Act.



| | B. | MEMORANDUM AND ARTICLES OF ASSOCIATION
| | -- | --------------------------------------



Certificate of Incorporation

We were incorporated under the Business
Corporations Act (Ontario) on September 22, 1978 under the name Bonanza Red Lake Explorations Inc.  The corporation number
as assigned by Ontario is 396323.



Articles of Amendment dated January
14, 1985

By Articles of Amendment dated January
14, 1985, our Articles were amended as follows:



1.   The
minimum number of directors of the Company shall be 3 and the maximum number of directors of the Company shall be 10.



69







2.   (a)	Delete
the existing objects clauses and provide that there are no restrictions on the business we may carry on or on the powers that we
may exercise;



(b)	Delete
the term "head office" where it appears in the articles and substitute therefor the term "registered office";



(c)Delete
the existing special provisions contained in the articles and substitute therefor the following:



The following special provisions shall
be applicable to the Company:



Subject to the provisions of the Business
Corporations Act, as amended or re-enacted from time to time, the directors may, without authorization of the shareholders:



| | (i) | borrow money on the credit
of the Company;
| | --- | ------------------------------------------



| | (ii) | issue, re-issue, sell or
pledge debt obligations of the Company;
| | ---- | ----------------------------------------------------------------



| | (iii) | give a guarantee on behalf
of the Company to secure performance of an obligation of any person;
| | ----- | -----------------------------------------------------------------------------------------------



| | (iv) | mortgage, hypothecate,
pledge or otherwise create a security interest in all or any property of the  Company owned or subsequently acquired,
to secure any obligation of the Company; and
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (v) | by resolution, delegate
any or all such powers to a director, a committee of directors or an officer of the Company.
| | --- | --------------------------------------------------------------------------------------------------------------------



3.	(a)	Provide
that the Company is authorized to issue an unlimited number of shares;



(b)	Provide that the Company is
authorized to issue an unlimited number of preference shares.



Articles of Amendment dated August 16,
2000

By Articles of Amendment dated August 16,
2000 our articles were amended to consolidate our issued and outstanding common shares on the basis on one common share for every
three issued and outstanding common shares in our capital, and change our name from Bonanza Red Lake Explorations Inc. to Eugenic
Corp.



Our Articles of Amendment state that there
are no restrictions on the business that may carry on, but do not contain a stated purpose or objective.



Articles of Amalgamation dated November
30, 2009

By Articles of Amalgamation dated November
30, 2009 we amalgamated with our wholly owned subsidiary Eagleford Energy Inc. (formerly: 1406768 Ontario Inc.) and changed the
entity’s name to Eagleford Energy Inc.



Our Articles of Amalgamation state that
there are no restrictions on the business that may carry on or on the powers the Company may exercise.



We are authorized to issue an unlimited
number of common shares and an unlimited number of preference shares of which Nil were outstanding as of the date of this Annual
Report (the “Preference Shares”).

A description of the rights,
preferences and privileges relating to the Company's Preference Shares is as follows:



(a)Our Preference Shares have a par
value of one-tenth of one cent (1/10) and are redeemable, voting, non-participating shares.



(b)No dividends at any time shall be
declared, set aside or paid on our Preference Shares.



(c)In the event of a liquidation, dissolution
or winding of the Company or other distribution of assets or property of the Company among shareholders for the purpose of winding
up its affairs, the holders of the Preference Shares shall be entitled to received from the assets and property of the Company
a sum equivalent to the aggregate par value of the Preference Shares held by them respectively before any amount shall be paid
or any property or assets of the Company distributed to holders of any common shares or shares of any other class ranking junior
to the Preference Shares. After payment to the holders of the Preference Shares of the amount so payable to them as above provided,
they shall not be entitled to share in any further distribution of the assets or property of the Company.



70







(d)      The Company may not redeem the Preference
Shares prior to the expiration of five years from the respective dates of issuance thereof, without the prior consent of the holders
of the Preference Shares to be redeemed. The Company shall redeem all of the then outstanding Preference Shares five years from
the respective dates of issue



(e)        The Company may at any time or times
purchase for cancellation all or any part of the Preference Shares outstanding from time to time from the holders thereof, at a
price not exceeding the par value thereof, with the consent of the holders thereof.



(f)        The holders of the Preference Shares
shall be entitled to receive notice of and attend all meetings of shareholders of the Company and shall have one (1) vote for each
Preference Share held at all meetings of the shareholders of the Company.



Other Provisions

The following special provisions shall
be applicable to the Company:



Subject to the provisions of the Business
Corporations Act, as amended or re-enacted from time to time, the directors may, without authorization of the shareholders:



|(i) | borrow money on the credit
of the Company;
|--- | ------------------------------------------



|(ii) | issue, re-issue, sell or pledge debt obligations of the
Company;
|---- | ----------------------------------------------------------------



|(iii) | give a guarantee on behalf
of the Company to secure performance of an obligation of any person;
|----- | -----------------------------------------------------------------------------------------------



|(iv) | mortgage, hypothecate,
pledge or otherwise create a security interest in all or any property of the  Company owned or subsequently acquired,
to secure any obligation of the Company; and
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(v) | by resolution, delegate
any or all such powers to a director, a committee of directors or an officer of the Company.
|--- | --------------------------------------------------------------------------------------------------------------------



Articles of Amendment dated effective
March 16, 2012

By
Articles of Amendment dated effective March 16, 2012 our articles were amended to



a)
     To change each issued and outstanding
common share in the capital of the Corporation into two (2) common share of the Corporation (the "Stock Split") effective
as of the close of business on March 16, 2012; and



b)
     To provide that no fractional shares
shall be issued as a result of the Stock Split, and if any fractional share would otherwise result from the Stock Split, such fractional
share shall be rounded up to the nearest whole share and distributed to the holder of the fractional interest as his or her interest
appears



Bylaws

At the Annual and Special Meeting of Shareholders
held on February 24, 2012, shareholders approved a resolution to repeal and replace the Company's By-Law No. 1 and Special By-Law
No. 1 (the "Old By-Laws") with a new By-Law No. 1 (the "New By-Laws") in order to reflect the
current circumstances and practices of the Company and certain amendments to the Business Corporations Act(Ontario) (the
"OBCA"), which came into force on August 1, 2007.



No director of ours is permitted to vote
on any resolution to approve a material contract or transaction in which such director has a material interest (Bylaws, Article
3.17).



Neither our Articles nor our Bylaws limit
the directors’ power, in the absence of an independent quorum, to vote compensation to themselves or any members of their
body.  The Bylaws provide that directors shall receive remuneration as the board of directors shall determine from time
to time (Bylaws, Article 3.19).



71







Under our Articles and Bylaws, our board
of directors may, without the authorization of our shareholders, (i) borrow money upon our credit; (ii) issue, reissue, sell or
pledge debt obligations of ours; whether secured or unsecured (iii) give a guarantee on behalf of us to secure performance of obligations;
and (iv) charge, mortgage, hypothecate, pledge or otherwise create a security interest in all currently owned or subsequently acquired
real or personal, movable or immovable, tangible or intangible, property of ours to secure obligations(Bylaws, Article 13.1).



The annual meeting of
shareholders shall be held at such time in each year as the board, the Chairman of the Board (if any), The Chief Executive Officer,
or the President may from time to time determine, for the purpose of considering the financial statements and reports required
by the Act to be placed before the annual meeting, electing directors, appointing an auditor and for the transaction of such other
business as may properly be brought before the meeting (Bylaws, Article 9.1).



The board, the Chairman
of the Board (if any) or the President shall have power to call a special meeting of shareholders at any time (Bylaws, Article
9.2).



Shareholders of record must be given
notice of any meeting not less than 21 days or more than 50 days before the date of the meeting or as otherwise prescribed by applicable
laws.  Notice of a meeting of shareholders called for any purpose other than consideration of the financial statements
and auditors report, election of directors and reappointment of the incumbent auditor shall state or be accompanied by a statement
of the nature of such business in sufficient detail to permit the shareholder to form a reasoned judgment thereon and the text
of any special resolution or by-law to be submitted to the meeting (Bylaws, Article 9.4). Our board of directors is permitted to
fix a record date for any meeting of the shareholders that is between 30 and 60 days prior to such meeting or as otherwise prescribed
by applicable laws. (Bylaws, Article 9.6).  The only persons entitled to be present at a meeting of shareholders shall
be those entitled to vote thereat, the directors and the auditor of the Company and others who, although not entitled to vote are
entitled or required under any provision of the Act or the articles or the by-laws to be present at the meeting. Any other person
may be admitted only on the invitation of the chairman of the meeting or with the consent of the meeting (Bylaws, Article 9.9).



Neither our Articles nor our Bylaws discuss
limitations on the rights to own securities or exercise voting rights thereon, and there is no provision of our Articles or Bylaws
that would delay, defer or prevent a change in control of us, or that would operate only with respect to a merger, acquisition,
or corporate restructuring involving us or any of its subsidiaries.  Our Bylaws do not contain a provision indicating
an ownership threshold above which shareholder ownership must be disclosed.



Other Provisions

Neither our Articles nor our Bylaws discuss
the retirement or non-retirement of directors under an age limit requirement or the number of shares required for director qualification.



Neither our Articles nor our Bylaws require
that a director hold a share in the capital of the Company as qualification for his/her office.



Neither our Articles nor our Bylaws contain
sinking fund provisions, provisions allowing us to make further capital calls with respect to any shareholder of ours, or provisions
which discriminate against any holders of securities as a result of such shareholder owning a substantial number of shares.



| | C. | MATERIAL CONTRACTS
| | -- | ------------------



During the two year period preceding the
filing date of this Annual Report, we entered into no material contracts other than contracts entered into in the ordinary course
except for the following:



On December 31, 2011 we entered into an
agreement with Benchmark Enterprises LLC (“Benchmark”) to amend the terms of the US$960,000 Secured Note payable to
Benchmark, to extend the Maturity Date from December 31, 2011 to June 30, 2012 and to provide for the accrual of interest on the
outstanding principal amount at a rate of 10% per annum through the Maturity Date.



On June 30, 2012 we entered into an agreement
with Benchmark to further amend the terms of the US$960,000 Secured Note payable to Benchmark, to extend the Maturity Date from
June 30, 2012 to November 30, 2012 and to provide for the interest on the outstanding principal amount at a rate of 10% per annum
through the Maturity Date.



On November 23, 2012 we entered into an
agreement with Benchmark to further amend the terms of the US$960,000 Secured Note payable to Benchmark, to extend the Maturity
Date from November 30, 2012 to March 1, 2013 and to provide for the interest on the outstanding principal amount at a rate of 10%
per annum through the Maturity Date.



72







On March 12, 2012 we entered into an Agreement
with Gottbetter Capital Markets, LLC (“Placement Agent”) to act as a non-exclusive Placement Agent in connection with
a private placement (the “Offering”) of units (“Units”) in the capital of the Company. Each Unit consisted
of (i) one (1) share of the Company’s Common Stock (the “Common Stock”) and (ii) a three (3) year warrant (each,
an “Investor Warrant” and collectively, the “Investor Warrants”) to purchase one half (1/2) of one (1)
share of Common Stock at an exercise price of Fifty Cents ($0.50 USD) per full share (the “Investor Warrant Shares”).
The Offering Price for the Units was Twenty Cents ($0.20 USD) per Unit. The Company raised gross proceeds of US$2,564,958 through
the issuance of 12,824,790 Units, paid cash commissions to the Placement Agent of $136,197 and issued Placement Agent warrants
to purchase 1,025,983 shares of Common Stock at an exercise price of Twenty Five Cents ($0.25 USD) for a period of three years
from the date of issue.



On
June 1, 2012 we retained The PrinceRidge Group LLC (“PrinceRidge”) to act as exclusive Financial Advisor to the Company
for a period of six months, to assist the Company in identifying and evaluating potential transactions to enhance the future growth
and expansion of the Company (the “Advisory Agreement”). Under
the terms of the Advisory Agreement, upon request by the Company, PrinceRidge will assist the Company in various matters including,
as appropriate:



| | a. | familiarizing itself, to the extent it deems appropriate and feasible, with the business, operations,
assets, financial condition, management and prospects of the Company,
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | conducting an examination of the documents and records pertaining to the Company, interviewing
Company personnel and consultants engaged by the Company, and making such other reasonable investigations as PrinceRidge deems
necessary and appropriate under the circumstances,
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. | performing financial analysis of the Company and comparisons with other companies in its industry,
| | -- | --------------------------------------------------------------------------------------------------



| | d. | working with the Company to document financial projections for the Company including capital requirements
and prospective cash flow and earnings,
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------



| | e. | developing and organizing information for presentation to potential Investors or Buyers, including
marketing brochures,
| | -- | -----------------------------------------------------------------------------------------------------------------------



| | f. | identifying, screening and contacting prospective Investors or Buyers, as appropriate, and advising
the Company on how to effectively access, attract and communicate with such potential Investors or Buyers,
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | g. | evaluating and recommending financial terms with respect to a Transaction,
| | -- | --------------------------------------------------------------------------



| | h. | providing advice relating to capital markets activities and general market conditions,
| | -- | --------------------------------------------------------------------------------------



| | i. | assisting the Company in negotiating the financial aspects of any Transaction, and
| | -- | ----------------------------------------------------------------------------------



| | j. | providing such other financial advisory and investment banking services as are normal and customary
for similar transactions and as may be mutually agreed upon by the Company and PrinceRidge.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In return for PrinceRidge's services, the
Company paid to PrinceRidge an engagement fee of US$15,000, and is paying a monthly advisory fee equal to US$10,000. The Company
may also pay success fees equal to:



| | (a) | in the case of any Placement with one or more Investors, a cash fee equal to 8.0% of the transaction
amount receivable by the Company for equity or equity linked securities and 4.0% of the transaction amount for any debt securities;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



73







| | (b) | in the case of any sale transaction with one or more buyers, a cash fee equal to 4.0% of the transaction
amount) paid to the Company in any such sale transaction;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | in the case of any PIPE transaction, a cash fee equal to 8.0% of the transaction amount raised
by such PIPE transaction; and
| | --- | ----------------------------------------------------------------------------------------------------------------------------

| | (d) | in the case of any business combination, a cash fee equal to 4.0% of the transaction amount payable,
receivable or retained by the Company, as applicable
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------



As of the date of filing this report the
Company has not paid any success fees to PrinceRidge.



On November 14, 2012 we entered into a
letter agreement to amend the terms of the Advisory Agreement dated June 1, 2012 with PrinceRidge to extend the terms of the Advisory
Agreement for an additional three month term and in return for PrinceRidge’s advisory services the Company will pay an additional
US$30,000 in advisory fees due and payable on March 1, 2013.



| | D. | EXCHANGE CONTROLS
| | -- | -----------------



There are no governmental laws, decrees
or regulations in Canada that restrict the export or import of capital, or affect the remittance of dividends, interest or other
payments to a non-resident holder of our common stock, other than withholding tax requirements (See "Taxation" below).



Except as provided in the Investment Canada
Act, there are no limitations imposed under the laws of Canada, the Province of Ontario, or by our constituent documents on the
right of a non-resident to hold or vote our common stock.



The Investment Canada Act (the "ICA"),
which became effective on June 30, 1985, regulates the acquisition by non-Canadians of control of a Canadian business enterprise.  In
effect, the ICA requires review by Investment Canada, the agency which administers the ICA, and approval by the Canadian government,
in the case of an acquisition of control of a Canadian business by a non-Canadian where: (i) in the case of a direct acquisition
(for example, through a share purchase or asset purchase), the assets of the business are CDN $5 million or more in value; or (ii)
in the case of an indirect acquisition (for example, the acquisition of the foreign parent of the Canadian business) where the
Canadian business has assets of CDN $5 million or more in value or if the Canadian business represents more than 50% of the assets
of the original group and the Canadian business has assets of CDN $5 million or more in value.  Review and approval are
also required for the acquisition or establishment of a new business in areas concerning "Canada's cultural heritage or national
identity" such as book publishing, film production and distribution, television and radio production and distribution of music,
and the oil and natural gas industry, regardless of the size of the investment.



As applied to an investment in us, three
methods of acquiring control of a Canadian business would be regulated by the ICA: (i) the acquisition of all or substantially
all of the assets used in carrying on the Canadian business; (ii) the acquisition, directly or indirectly, of voting shares of
a Canadian corporation carrying on the Canadian business; or (iii) the acquisition of voting shares of an entity which controls,
directly or indirectly, another entity carrying on a Canadian business.  An acquisition of a majority of the voting interests
of an entity, including a corporation, is deemed to be an acquisition of control under the ICA.  An acquisition of less
than one-third of the voting shares of a corporation is deemed not to be an acquisition of control.  An acquisition of
less than a majority, but one-third or more, of the voting shares of a corporation is presumed to be an acquisition of control
unless it can be established that on the acquisition the corporation is not, in fact, controlled by the acquirer through the ownership
of voting shares.  For partnerships, trusts, joint ventures or other unincorporated entities, an acquisition of less
than a majority of the voting interests is deemed not to be an acquisition of control.



In 1988, the ICA was amended, pursuant
to the Free Trade Agreement dated January 2, 1988 between Canada and the United States, to relax the restrictions of the ICA.  As
a result of these amendments, except where the Canadian business is in the cultural, oil and gas, uranium, financial services or
transportation sectors, the threshold for direct acquisition of control by US investors and other foreign investors acquiring control
of a Canadian business from US investors has been raised from CDN $5 million to CDN $150 million of gross assets, and indirect
acquisitions are not reviewable.



In addition to the foregoing, the ICA requires
that all other acquisitions of control of Canadian businesses by non-Canadians are subject to formal notification to the Canadian
government.  These provisions require a foreign investor to give notice in the required form, which notices are for information,
as opposed to review, purposes.



74







| | E. | TAXATION
| | -- | --------



Certain Canadian Federal Income Tax Consequences

The following discussion describes the
principal Canadian federal income tax consequences applicable to a holder of our common shares which are traded on the OTCBB, who,
at all material times, is a resident of the United States for purposes of the Canada-United States Income Tax Convention (the "Treaty")
entitled to the full benefit of the Treaty and is not a resident, or deemed to be a resident, of Canada, deals at arm's length
and is not affiliated with the Company, did not acquire our common shares by virtue of employment, is not a financial institution,
specified financial institution, registered non-resident insurer, authorized foreign bank, partnership or a trust as defined in
the Income Tax Act (Canada) (the "ITA"), holds our common shares as capital property and as beneficial owner, and does
not use or hold, is not deemed to use or hold, his or her common shares in connection with carrying on a business in Canada and,
did not, does not and will not have a fixed base or permanent establishment in Canada within the meaning of the Treaty (a "non-resident
holder").



This description is based upon the current
provisions of the ITA, the regulations thereunder (the "Regulations"), management's understanding of the current publicly
announced administration and assessing policies of Canada Revenue Agency, and all specific proposals (the "Tax Proposals")
to amend the ITA and Regulations announced by the Minister of Finance (Canada) prior to the date hereof.  This description
is not exhaustive of all possible Canadian federal income tax consequences and, except for the Tax Proposals, does not take into
account or anticipate any changes in law, whether by legislative, governmental or judicial action, nor does it take into account
any income tax laws or considerations of any province or territory of Canada or foreign tax considerations which may differ significantly
from those discussed below.



The following discussion is for general
information only and is not intended to be, nor should it be construed to be, legal or tax advice to any holder of common shares
of the Company, and no opinion or representation with respect to the Canadian Federal Income Tax consequences to any such holder
or prospective holder is made.  Accordingly, holders and prospective holders of common shares are urged to consult with
their own tax advisors about the federal, provincial and foreign tax consequences of purchasing, owning and disposing of common
shares.



Dividends

Dividends paid on our common shares to
a non-resident holder will be subject to a 25% withholding tax pursuant to the provision of the ITA.  The Treaty provides
that the normal 25% withholding tax rate is generally reduced to 15% on dividends paid on shares of a corporation resident in Canada
(such as the Company) to beneficial owners who are residents of the United States.  However, if the beneficial owner
is a resident of the United States and is a corporation which owns at least 10% of the voting stock of the Company, the withholding
tax rate on dividends is reduced to 5%.



Capital Gains

A non-resident of Canada is subject to
tax under the ITA in respect of a capital gain realized upon the disposition of a share of a corporation if the shares are considered
to be "taxable Canadian property" of the holder within the meaning of the ITA and no relief is afforded under an applicable
tax treaty.  For purposes of the ITA, a common share of the Company will be taxable Canadian property to a non-resident
holder if more than 50% of the fair market value of the common share during the 60 month period immediately preceding the disposition
of the common share, was derived directly or indirectly from real or immovable property situated in Canada, Canadian resource properties
or any options or interests in such properties.



In the case of a non-resident holder to
whom shares of our common stock represent taxable Canadian property and who is a resident in the United States and not a former
resident of Canada, no Canadian taxes will be payable on a capital gain realized on such shares by reason of the Treaty unless
the value of such shares is derived principally from real property situated in Canada within the meaning of the Treaty at the time
of the disposition.



Certain United States Federal Income
Tax Consequences

The following is a general discussion of
certain possible United States Federal income tax consequences, under current law, generally applicable to a US Holder (as defined
below) of our common shares.  This discussion does not address all potentially relevant Federal income tax matters and
does not address consequences peculiar to persons subject to special provisions of Federal income tax law, such as those described
below as excluded from the definition of a US Holder.  In addition, this discussion does not cover any state, local or
foreign tax consequences (See “Certain Canadian Federal Income Tax Consequences” above).



75







The following discussion is based upon
the sections 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.  In
addition, this discussion does not consider the potential effects, both adverse and beneficial, of recently proposed legislation
which, if enacted, could be applied, possibly on a retroactive basis, at any time.  The following 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, 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 are urged
to consult their own tax advisors about the Federal, state, local, and foreign tax consequences of purchasing, owning and disposing
of common shares.



U.S. Holders

As used herein, a “U.S. Holder”
means a holder of common shares who is a citizen or individual resident (as defined under United States tax laws) of the United
States; a corporation created or organized in or under the laws of the United States or of any political subdivision thereof; an
estate the income of which is taxable in the United States irrespective of source; or a trust if (a) a court within the United
States is able to exercise primary supervision over the trust’s administration and one or more United States persons have
the authority to control all of its substantial decisions or (b) the trust was in existence on August 20, 1996 and has properly
elected to continue to be treated as a United States person.  This summary does not address the United States tax consequences
to, and U.S. Holder does not include, persons subject to specific provisions of federal income tax law, including but not limited
to 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, non-resident
alien individuals, persons or entities that have a “functional currency” other than the U.S. dollar, persons who hold
common shares as part of a straddle, hedging or a conversion transaction, and persons who acquire their common shares as compensation
for services.  This discussion is limited to U.S. Holders who own common shares as capital assets and who hold the common
shares directly (e.g., not through an intermediary entity such as a corporation, partnership, limited liability company, or trust).  This
discussion does not address the consequences to a person or entity of the ownership, exercise or disposition of any options, warrants
or other rights to acquire common shares.



Distributions on Our Common Shares

Subject to the discussion below regarding
passive foreign investment companies (“PFICs”), the gross amount of any distribution (including non-cash property)
by us (including any Canadian taxes withheld therefrom) with respect to common shares generally should be included in the gross
income of a U.S. Holder as foreign source dividend income to the extent such distribution is paid out of current or accumulated
earnings and profits of ours, as determined under United States Federal income tax principles.  Distributions received
by non-corporate U.S. Holders may be subject to United States Federal income tax at lower rates than other types of ordinary income
(generally 15%) in taxable years beginning on or before December 31, 2010 if certain conditions are met.  These conditions
include the Company not being classified as a PFIC, it being a “qualified foreign corporation,” the U.S. Holder’s
satisfaction of a holding period requirement, and the U.S. Holder not treating the distribution as “investment income”
for purposes of the investment interest deduction rules.  To the extent that the amount of any distribution exceeds our
current and accumulated earnings and profits for a taxable year, the distribution first will be treated as a tax-free return of
capital to the extent of the U.S. Holder’s adjusted tax basis in our common shares and to the extent that such distribution
exceeds the Holder’s adjusted tax basis in our common shares, will be taxed as capital gain.  In the case of U.S.
Holders that are corporations, such dividends generally will not be eligible for the dividends received deduction.



If a U.S. Holder receives a dividend in
Canadian dollars, the amount of the dividend for United States federal income tax purposes will be the U.S. dollar value of the
dividend (determined at the spot rate on the date of such payment) regardless of whether the payment is later converted into U.S.
dollars.  In such case, the U.S. Holder may recognize additional ordinary income or loss as a result of currency fluctuations
between the date on which the dividend is paid and the date the dividend amount is converted into U.S. dollars.



76







Disposition of Common Shares

Subject to the discussion below regarding
PFIC’s, gain or loss, if any, realized by a U.S. Holder on the sale or other disposition of our common shares (including,
without limitation, a complete redemption of our common shares) generally will be subject to United States Federal income taxation
as capital gain or loss in an amount equal to the difference between the U.S. Holder’s adjusted tax basis in our common shares
and the amount realized on the disposition. Net capital gain (i.e., capital gain in excess of capital loss) recognized by a non-corporate
U.S. Holder (including an individual) upon a sale or other disposition of our common shares that have been held for more than one
year will generally be subject to a maximum United States federal income tax rate of 15% subject to the PFIC rules below.  Deductions
for capital losses are subject to certain limitations.  If the U.S. Holder receives Canadian dollars on the sale or disposition,
it will have a tax basis in such dollars equal to the U.S. dollar value.  Generally, any gain or loss realized on a subsequent
disposition of the Canadian dollars will be U.S. source ordinary income or loss.



U.S. “Anti-Deferral” Rules

Passive Foreign Investment Company (“PFIC”)
Regime.  If we, or a non-U.S. entity directly or indirectly owned by us (“Related Entity”), has 75% or
more of its gross income as “passive” income, or if the average value during a taxable year of ours or the Related
Entity’s “passive assets” (generally, assets that generate passive income) is 50% or more of the average value
of all assets held by us or the Related Entity, then the United States PFIC rules may apply to U.S. Holders.  If we or
a Related Entity is classified as a PFIC, a U.S. Holder will be subject to increased tax liability in respect of gain recognized
on the sale of his, her or its common shares or upon the receipt of certain distributions, unless such person makes a “qualified
electing fund” election to be taxed currently on its pro rata portion of our income and gain, whether or not such
income or gain is distributed in the form of dividends or otherwise, and we provide certain annual statements which include the
information necessary to determine inclusions and assure compliance with the PFIC rules.  As another alternative to the
foregoing rules, a U.S. Holder may make a mark-to-market election to include in income each year as ordinary income an amount equal
to the increase in value of its common shares for that year or to claim a deduction for any decrease in value (but only to the
extent of previous mark-to-market gains).  We or a related entity can give no assurance as to its status as a PFIC for
the current or any future year.  U.S. Holders should consult their own tax advisors with respect to the PFIC issue and
its applicability to their particular tax situation.



Controlled Foreign Corporation Regime
(“CFC”).  If a U.S. Holder (or person defined as a U.S. persons under Section 7701(aX301 of the Code)
owns 10% or more of the total combined voting power of all classes of our stock (, a “U. S. Shareholder”) and U.S.
Shareholders own more than 50% of the vote or value of our Company, we would be a “controlled foreign corporation”.  This
classification would result in many complex consequences, including the required inclusion into income by such U. S. Shareholders
of their pro rata shares of “Subpart F income” of our Company (as defined by the Code) and our earnings invested in
“US property” (as defined by the Code).  In addition, under Section 1248 of the Code, gain from the sale
or exchange of our common shares by a US person who is or was a U. S. Shareholder at any time during the five year period before
the sale or exchange may be treated as ordinary income to the extent of earnings and profits of ours attributable to the stock
sold or exchanged.  It is not clear the CFC regime would apply to the U.S. Holders of our common shares, and is outside
the scope of this discussion.



Foreign Tax Credit

A U.S. Holder who pays (or has withheld
from distributions) Canadian income tax with respect to us may be entitled to either a deduction or a tax credit for such foreign
tax paid or withheld, at the option of the U.S. Holder.  Generally, it will be more advantageous to claim a credit because
a credit reduces United States federal income tax on a dollar-for-dollar basis, while a deduction merely reduces the taxpayer’s
income subject to tax.  This election is made on a year-by-year basis and generally applies to all foreign taxes paid
by (or withheld from) the U.S. Holder during that year.



There are significant and complex limitations
which apply to the credit, among which is the general limitation that the credit cannot exceed the proportionate share of the U.S.
Holder’s United States income tax liability that the U.S. Holder’s foreign source income bears to its worldwide taxable
income.  This limitation is designed to prevent foreign tax credits from offsetting United States source income.  In
determining this limitation, the various items of income and deduction must be classified into foreign and domestic sources.  Complex
rules govern this classification process.



In addition, this limitation is calculated
separately with respect to specific “baskets” of income such as passive income, high withholding tax interest, financial
services income, shipping income, and certain other classifications of income.  Foreign taxes assigned to a particular
class of income generally cannot offset United States tax on income assigned to another class.  Under the American Jobs
Creation Act of 2004 (the “Act”), this basket limitation will be modified significantly after 2006.



77







Unused foreign tax credits can generally
be carried back one year and carried forward ten years.  U.S. Holders should consult their own tax advisors concerning
the ability to utilize foreign tax credits, especially in light of the changes made by the Act.



Backup Withholding

Payment of dividends and sales proceeds
that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information
reporting requirement and to backup withholding unless the US Holder (i) is a corporation or other exempt recipient or (ii) in
the case of backup withholding, provides a correct taxpayer identification number and certifies that no loss of exemption from
backup withholding has occurred



The amount of any backup withholding from
a payment to a US Holder will be allowed as a credit against the US Federal income tax liability of the US Holder and may entitle
the US Holder to a refund, provided that the required information is furnished to the IRS.



| | F. | DIVIDENDS AND PAYING AGENTS
| | -- | ---------------------------



Not Applicable.  This Form 20-F is being filed as
an Annual Report filed under the Exchange Act.



| | G. | STATEMENT BY EXPERTS
| | -- | --------------------



Not Applicable.  This Form 20-F is being filed as
an Annual Report filed under the Exchange Act.



| | H. | DOCUMENTS ON DISPLAY
| | -- | --------------------



The documents and exhibits referred to
in this Annual Report are available for inspection at the registered and management office at 1 King Street West, Suite 1505, Toronto,
Ontario M5H 1A1 during normal business hours.



| | I. | SUBSIDIARY INFORMATION
| | -- | ----------------------



Not Applicable.  This Form 20-F is being filed as
an Annual Report filed under the Exchange Act.



ITEM 11       QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK



The Company is exposed in varying degrees
of risks arising from financial its instruments. The Company has entered
into certain financial derivative contracts. These instruments are not used for trading or speculative purposes. The Company has
not designated its financial derivative contracts as effective accounting hedges, and thus has not applied hedge accounting. As
a result, all financial derivative contracts are classified as fair value through “fair value through profit or loss”
and are recorded on the statement of financial position at fair value.



The Board approves
and monitors the risk management processes. The Board’s main objectives for managing risks are to ensure liquidity, the fulfillment
of obligations and limited exposure to credit and market risks while ensuring greater returns on any surplus funds.



Financial Instruments and Concentration
of Risks

The Company has classified its financial
instruments as follows:



|Financial Instrument                         |  | Category                          |  | Measurement method
|-------------------------------------------- |  | --------------------------------- |  | ------------------
|Cash and cash equivalents                    |  | Fair value through profit or loss |  | Fair value        
|Marketable securities                        |  | Fair value through profit or loss |  | Fair value        
|Derivative warrant liabilities               |  | Fair value through profit or loss |  | Fair value        
|Trade and other receivables                  |  | Loans and receivables             |  | Amortized cost    
|Due from related party                       |  | Other financial liabilities       |  | Amortized cost    
|Trade and other payables                     |  | Other financial liabilities       |  | Amortized cost    
|Loan payable                                 |  | Other financial liabilities       |  | Amortized cost    
|Provisions                                   |  | Other financial liabilities       |  | Amortized cost    
|Secured note payable and shareholders’ loans |  | Other financial liabilities       |  | Amortized cost    

The types of risk exposure and the ways
in which such exposures are managed are as follows:



78







Credit Risk

Credit risk is primarily related to the
Company’s receivables from joint venture partners and the risk of financial loss if a partner or counterparty to a financial
instrument fails to meet its contractual obligations. Receivables from joint venture partners are normally collected within one
to three months of the joint venture bill being issued to the partner. The Company historically has not experienced any collection
issues with its joint venture partners to date. The Company attempts to mitigate the risk from joint venture receivables by obtaining
partner approval of significant capital expenditures prior to expenditure. The Company establishes an allowance for doubtful accounts
as determined by management based on their assessed collectability; therefore, the carrying amount of trade and other receivables
generally represents the maximum credit exposure. The Company believes that its counterparties currently have the financial capacity
to settle outstanding obligations in the normal course of business.



Concentration risks exist in cash and cash
equivalents because significant balances are maintained with one financial institution. The risk is mitigated because the financial
institution is an international bank.



The Company’s maximum exposure to credit risk is as follows:



|                              |  | August 31, 2012 |         |  | August 31, 2011 |   |         | September 1, 2010 | 
|----------------------------- |  | --------------- | ------- |  | --------------- | - | ------- | ----------------- | 
|Cash and cash equivalents     |  | $               | 330,003 |  |                 | $ | 165,266 |                   | 
|Trade and other receivables   |  |                 | 17,525  |  |                 |   | 127,546 |                   | 
|Prepaid expenses and deposits |  |                 | -       |  |                 |   | 44,285  |                   | 
|Due from related party        |  |                 | -       |  |                 |   | -       |                   | 
|Balance                       |  | $               | 347,528 |  |                 | $ | 337,097 |                   | 



Liquidity Risk

The Company monitors its liquidity position
regularly to assess whether it has the funds necessary to fulfill planned exploration commitments on its oil and gas properties
or that viable options are available to fund such commitments from new equity issuances or alternative sources such as farm-out
agreements. However, as an exploration company at an early stage of development and without significant internally generated cash
flow, there are inherent liquidity risks, including the possibility that additional financing may not be available to the Company,
or that actual exploration expenditures may exceed those planned. The current uncertainty in global markets could have an impact
on the Company’s future ability to access capital on terms that are acceptable to the Company. The Company has so far been
able to raise the required financing to meet its obligations however, there can be no assurance that it will continue to do so
in the future.



The following table illustrates the contractual
maturities of financial liabilities:



|August 31, 2012           |  | Payments Due by Period |          
|------------------------- |  | ---------------------- | ---------
|                          |  | Total                  |          
|Trade and others payables |  | $                      | 1,039,959
|Secured note payable (1)  |  |                        | 946,848  
|Shareholders loans (1)    |  |                        | 2,179,778
|Total                     |  | $                      | 4,166,585



|August 31, 2011           |  | Payments Due by Period |          
|------------------------- |  | ---------------------- | ---------
|                          |  | Total                  |          
|Trade and others payables |  | $                      | 1,197,695
|Secured notes payable (1) |  |                        | 1,012,644
|Shareholders loans (1)    |  |                        | 2,936,236
|Total                     |  | $                      | 5,146,575



|September 1, 2010         |  | Payments Due by Period |          
|------------------------- |  | ---------------------- | ---------
|                          |  | Total                  |          
|Trade and others payables |  | $                      | 421,928  
|Secured notes payable (1) |  |                        | 1,207,527
|Shareholders loans        |  |                        | 57,500   
|Loan payable              |  |                        | 110,000  
|Total                     |  | $                      | 1,796,955



| | (2) | Translated at current exchange rate.
| | --- | ------------------------------------



79







Market Risk

Market risk represents the risk of loss
that may impact our financial position, results of operations, or cash flows due to adverse changes in financial market prices,
including interest rate risk, foreign currency exchange rate risk, commodity price risk, and other relevant market or price risks.
The Company does not use derivative financial instruments or derivative commodity instruments to mitigate this risk.



The oil and gas industry is exposed to
a variety of risks including the uncertainty of finding and recovering new economic reserves, the performance of hydrocarbon reservoirs,
securing markets for production, commodity prices, interest rate fluctuations, potential damage to or malfunction of equipment
and changes to income tax, royalty, environmental or other governmental regulations.



Market events and conditions in recent
years including disruptions in the international credit markets and other financial systems and the deterioration of global economic
conditions have caused significant volatility to commodity prices. These conditions caused a loss of confidence in the broader
U.S. and global credit and financial markets. Notwithstanding various actions by governments, concerns about the general condition
of the capital markets, financial instruments, banks, investment banks, insurers and other financial institutions caused the broader
credit markets to further deteriorate and stock markets to decline. These factors have negatively impacted company valuations and
may impact the performance of the global economy going forward. Although economic conditions improved towards the latter portion
of 2009, the recovery has been slow in various jurisdictions including in Europe and the United States and has been impacted by
various ongoing factors including sovereign debt levels and high levels of unemployment which continue to impact commodity prices
and to result in volatility in the stock market.



The Company mitigates these risks by:



| | • | utilizing competent, professional consultants as support
to company staff.
| | - | --------------------------------------------------------------------------

| | • | performing geophysical, geological or engineering analyses
of prospects.
| | - | ------------------------------------------------------------------------

| | • | focusing on a limited number of core properties.
| | - | ------------------------------------------------



| | (i) | Commodity Price Risk
| | --- | --------------------



Commodity price risk is the risk that the
fair value or future cash flows will fluctuate as a result of changes in commodity prices. Commodity prices for petroleum and natural
gas are impacted by world economic events that dictate the levels of supply and demand.



The Company believes that movement in commodity
prices that are reasonably possible over the next twelve month period will not have a significant impact on the Company.



Commodity Price Sensitivity



The following table summarizes the sensitivity
of the fair value of the Company’s risk management position for the year ended August 31, 2012 and 2011 to fluctuations in
natural gas prices, with all other variables held constant. When assessing the potential impact of these price changes, the Company
believes that 10 percent volatility is a reasonable measure. Fluctuations in natural gas prices potentially could have resulted
in unrealized gains (losses) impacting net income as follows:



|            |  | 2012         |            |   | 2011         |  
|----------- |  | ------------ | ---------- | - | ------------ | -
|            |  | Increase 10% |            |   | Decrease 10% |  
|Net revenue |  | $            | 43,764     |   |              | $
|Net loss    |  | $            | (2,804,642 | ) |              | $



80







| | (ii) | Currency Risk
| | ---- | -------------



The Company is exposed to the fluctuations
in foreign exchange rates. The prices received by the Company for the production of natural gas and natural gas liquids are primarily
determined in reference to United States dollars but are settled with the Company in Canadian dollars. The Company’s cash
flow for commodity sales will therefore be impacted by fluctuations in foreign exchange rates.



The Company operates in Canada and a portion
of its expenses are incurred in US dollars. A significant change in the currency exchange rates between the Canadian dollar relative
to US dollar could have an effect on the Company’s financial instruments. The Company does not hedge its foreign currency
exposure.



The following assets and liabilities are
denominated in US dollars at August 31, 2012, August 31, 2011 and September 1, 2010:



|Financial Instruments                             |  | August 31, 2012 |            |   | August 31, 2011 |   |            | September 1, 2010 | 
|------------------------------------------------- |  | --------------- | ---------- | - | --------------- | - | ---------- | ----------------- | 
|Cash and cash equivalents                         |  | $               | 311,318    |   |                 | $ | 117,383    |                   | 
|Trade and other receivables                       |  |                 | -          |   |                 |   | 72,487     |                   | 
|Exploration and evaluation assets                 |  |                 | 5,083,874  |   |                 |   | 3,758,168  |                   | 
|Due from related party                            |  |                 | -          |   |                 |   | -          |                   | 
|Trade and other  payables                         |  |                 | (402,633   | ) |                 |   | (754,696   | )                 | 
|Provisions                                        |  |                 | (226,494   | ) |                 |   | (116,924   | )                 | 
|Derivative warrant liabilities                    |  |                 | (1,614,996 | ) |                 |   | (1,613,584 | )                 | 
|Shareholders’ loans                               |  |                 | (1,883,740 | ) |                 |   | (2,790,000 | )                 | 
|Secured notes payable                             |  |                 | (960,000   | ) |                 |   | (1,035,000 | )                 | 
|Net assets denominated in US$                     |  | $               | 307,329    |   |                 | $ | (2,362,166 | )                 | 
|Net asset CDN dollar equivalent at period end (1) |  | $               | 303,120    |   |                 | $ | (2,311,143 | )                 | 



| | (1) | Translated at the exchange rate in effect at August 31, 2012 $0.9863 (August 31, 2011 $0.9784,
September 1, 2010 $1.0639)
| | --- | -------------------------------------------------------------------------------------------------------------------------



The following table shows the estimated
sensitivity of the Company’s total comprehensive loss for the periods set out from a change in the U.S dollar exchange rate
in which the Company has exposure with all other variables held constant.



|                                   |  | August 31, 2012                                                                 |        |  | August 31, 2011                                                                |  |         | September 1, 2010                                                               | 
|---------------------------------- |  | ------------------------------------------------------------------------------- | ------ |  | ------------------------------------------------------------------------------ |  | ------- | ------------------------------------------------------------------------------- | 
|                                   |  | Increase                                                                        |        |  | Decrease                                                                       |  |         | Increase                                                                        | 
|Percentage change in
    US Dollar |  | In total comprehensive loss
    from  a change in % in the US Exchange Rate ($) |        |  | In total comprehensive loss
    from a change in % in the US Exchange Rate ($) |  |         | In total comprehensive loss
    from  a change in % in the US Exchange Rate ($) | 
|2%                                 |  |                                                                                 | 6,062  |  |                                                                                |  | (6,062  | )                                                                               | 
|4%                                 |  |                                                                                 | 12,125 |  |                                                                                |  | (12,125 | )                                                                               | 
|6%                                 |  |                                                                                 | 18,187 |  |                                                                                |  | (18,187 | )                                                                               | 
|8%                                 |  |                                                                                 | 24,250 |  |                                                                                |  | (24,250 | )                                                                               | 
|10%                                |  |                                                                                 | 30,312 |  |                                                                                |  | (30,312 | )                                                                               | 



| | (iii) | Interest Rate Risk
| | ----- | ------------------



Interest rate risk refers to the risk that
the value of a financial instrument or cash flows associated with the instrument will fluctuate due to changes in market interest
rates. The majority of the Company’s debt is short-term in nature with fixed rates.



Based on management's knowledge and experience
of the financial markets, the Company believes that the movements in interest rates that are reasonably possible over the next
twelve month period will not have a significant impact on the Company.



| | (iv) | Fair Value of Financial Instruments
| | ---- | -----------------------------------



The Company’s financial instruments
included on the consolidated statement of financial position as at August 31, 2012 and 2011 and September 1, 2010, are comprised
of cash and cash equivalents, marketable securities, trade and other receivables, due from related party, trade and other payables,
secured notes payable, shareholders’ loans, provisions, loan payable, and derivative warrant liabilities.



81







The Company classifies the fair value of
financial instruments measured at fair value according to the following hierarchy based on the amount of observable inputs used
to value the instrument.



• Level 1 – Quoted prices are
available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions
occur in sufficient frequency and volume to provide pricing information on an ongoing basis.



• Level 2 – Pricing inputs are
other than quoted prices in active markets included in Level 1. Prices in Level 2 are either directly or indirectly observable
as of the reporting date. Level 2 valuations are based on inputs, including quoted forward prices for commodities, time value and
volatility factors, which can be substantially observed or corroborated in the marketplace.



• Level 3 – Valuations in this
level are those with inputs for the asset or liability that are not based on observable market data.



|                                    |  | August 31, 2012      |           |  | August 31, 2011  |  |           | September 1, 2010    | 
|----------------------------------- |  | -------------------- | --------- |  | ---------------- |  | --------- | -------------------- | 
|Financial Instrument Classification |  | Carrying
    Value $ |           |  | Fair Value
    $ |  |           | Carrying
    Value $ | 
|Fair value through profit or loss:  |  |                      |           |  |                  |  |           |                      | 
|Cash and cash equivalents           |  |                      | 330,003   |  |                  |  | 330,003   |                      | 
|Marketable securities               |  |                      | 1         |  |                  |  | 1         |                      | 
|Derivative warrant liabilities      |  |                      | 1,640,406 |  |                  |  | 1,640,406 |                      | 
|Loans and receivables:              |  |                      |           |  |                  |  |           |                      | 
|Trade and other receivables         |  |                      | 17,525    |  |                  |  | 17,525    |                      | 
|Due from related party              |  |                      | -         |  |                  |  | -         |                      | 
|Other financial liabilities:        |  |                      |           |  |                  |  |           |                      | 
|Trade and other payables            |  |                      | 1,039,959 |  |                  |  | 1,039,959 |                      | 
|Secured notes payable               |  |                      | 946,848   |  |                  |  | 946,848   |                      | 
|Shareholders’ loans                 |  |                      | 2,179,778 |  |                  |  | 2,179,778 |                      | 
|Loan payable                        |  |                      | -         |  |                  |  | -         |                      | 
|Provisions                          |  |                      | 240,672   |  |                  |  | 240,672   |                      | 



Cash and cash equivalents, derivative warrant
liabilities and marketable securities are stated at fair value (Level 1 measurement). The carrying value of trade and other receivables,
due from related party, trade and other payables, secured notes payable, shareholders’ loans and loan payable approximate
their fair value due to the short-term maturity of these financial instruments (Level 3 measurement).



ITEM 12       DESCRIPTION
OF SECURITIES OTHER THAN EQUITY SECURITIES



| | A. | DEBT SECURITIES
| | -- | ---------------



Not applicable.



| | B. | WARRANTS AND RIGHTS
| | -- | -------------------



Not applicable.



| | C. | OTHER SECURITIES
| | -- | ----------------



Not Applicable.



| | D. | AMERICAN DEPOSITORY SHARES
| | -- | --------------------------



Not Applicable.



PART II



ITEM 13       DEFAULTS,
DIVIDENDS ARREARAGES AND DELINQUENCIES



Not applicable.



82







| | ITEM 14 | MATERIAL MODIFICATIONS
TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
| | ------- | ----------------------------------------------------------------------------



Not applicable.



| | ITEM 15 | CONTROLS AND PROCEDURES
| | ------- | -----------------------



Disclosure Controls and Procedures

Under the supervision and with the participation
of our senior management, including our chief executive officer and chief financial officer, James Cassina, we conducted an evaluation
of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by
this annual report (the “Evaluation Date”). Based on this evaluation, our chief executive officer and chief financial
officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information
relating to us, required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is recorded,
processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated
to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions
regarding required disclosure.



Management’s Annual Report on
Internal Control over Financial Reporting

Our management is responsible for establishing
and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external reporting purposes in accordance with generally accepted accounting principles.



Our internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect transactions and dispositions of assets; (ii) provide reasonable assurances that transactions are recorded as necessary
to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and
expenditures are being made only in accordance with authorizations of management and the directors of the Company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's
assets that could have a material effect on our financial statements. Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.



Management assessed the effectiveness of
our internal control over financial reporting as of August 31, 2012 based on the framework established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that assessment, management
concluded that, as of August 31, 2012, our internal control over financial reporting was effective based on the criteria established
in Internal Control—Integrated Framework.



Limitations on Effectiveness of Controls
and Procedures

Our management, including our Chief Executive
Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), does not expect that our disclosure
controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Our control
systems are designed to provide such reasonable assurance of achieving their objectives. Further, the design of a control system
must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include, but are not limited
to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management
override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood
of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future
conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies
or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error
or fraud may occur and not be detected.



83







Changes in Internal Control over Financial
Reporting

There have been no changes in our internal
control over financial reporting that occurred during the quarter ended August 31, 2012 that have materially affected or are reasonably
likely to materially affect our internal control over financial reporting.



| | ITEM 16 | [RESERVED]
| | ------- | ----------



| | A. | AUDIT COMMITTEE FINANCIAL EXPERT
| | -- | --------------------------------



Our Board of Directors has determined
that Mr. Milton Klyman is an "audit committee financial expert", as defined in Item 16A of Form 20-F and is
independent. Milton Klyman is the Chairman of the Audit Committee.  He is a self-employed financial consultant and has
been a Chartered Accountant since 1952.  Milton Klyman is a Life Member of the Institute of Chartered Accountants of
Ontario, a Life member of the Canadian Institute of Mining Metallurgy and Petroleum and a Fellow of the Institute of Chartered
Secretaries and Administrators.



| | B. | CODE OF ETHICS
| | -- | --------------



We have adopted a written code of business
conduct and ethics (the "Code") for our directors, officers and employees. The board encourages following the Code by
making it widely available. It is distributed to directors in the Director’s Manual and to officers, employees and consultants
at the commencement of their employment or consultancy.  The Code reminds those engaged in service to us that they are
required to report perceived or actual violations of the law, violations of our policies, dangers to health, safety and the environment,
risks to our property, and accounting or auditing irregularities to the chair of the Audit Committee who is an independent director
of ours. In addition, to requiring directors, officers and employees to abide by the Code, we encourage consultants, service providers
and all parties who engage in business with us to contact the chair of the Audit Committee regarding any perceived and all actual
breaches by our directors, officers and employees of the Code. The chair of our Audit Committee is responsible for investigating
complaints, presenting complaints to the applicable board committee or the board as a whole, and developing a plan for promptly
and fairly resolving complaints. Upon conclusion of the investigation and resolution of a complaint, the chair of our Audit Committee
will advise the complainant of the corrective action measures that have been taken or advise the complainant that the complaint
has not been substantiated. The Code prohibits retaliation by us, our directors and management, against complainants who raise
concerns in good faith and requires us to maintain the confidentiality of complainants to the greatest extent practical. Complainants
may also submit their concerns anonymously in writing. In addition to the Code, we have an Audit Committee Charter and a Policy
of Procedures for Disclosure Concerning Financial/Accounting Irregularities.



Since the beginning of our most recently
completed financial year, no material change reports have been filed that pertain to any conduct of a director or executive officer
that constitutes a departure from the Code. The board encourages and promotes a culture of ethical business conduct by appointing
directors who demonstrate integrity and high ethical standards in their business dealings and personal affairs. Directors are required
to abide by the Code and expected to make responsible and ethical decisions in discharging their duties, thereby setting an example
of the standard to which management and employees should adhere. The board is required by the Board Mandate to satisfy our CEO
and other executive officers are acting with integrity and fostering a culture of integrity throughout the Company. The board is
responsible for reviewing departures from the Code, reviewing and either providing or denying waivers from the Code, and disclosing
any waivers that are granted in accordance with applicable law. In addition, the board is responsible for responding to potential
conflict of interest situations, particularly with respect to considering existing or proposed transactions and agreements in respect
of which directors or executive officers advise they have a material interest. The Board Mandate requires that directors and executive
officers disclose any interest and the extent, no matter how small, of their interest in any transaction or agreement with us,
and that directors excuse themselves from both board deliberations and voting in respect of transactions in which they have an
interest. By taking these steps the board strives to ensure that directors exercise independent judgment, unclouded by the relationships
of the directors and executive officers to each other and us, in considering transactions and agreements in respect of which directors
and executive officers have an interest. Our Code applies to our directors, officers and employees, including our principal executive
officer, principal financial officer, principal accounting officer or persons performing similar functions of the Company. There
have been no waivers of our Code granted to our principal executive officer, principal financial officer, principal accounting
officer or controller, or similar persons during the period covered by this Annual Report.



Upon written request to us at our registered
and management office attention: the President, we will provide by mail, to any person without charge a copy of our Code of Ethics.



84







| | C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
| | -- | --------------------------------------



It is the policy of the Audit Committee
that all audit and non-audit services are pre-approved prior to engagement. Before the initiation of each audit, the principal
accountant submits a budget of the expected range of expenditures to complete their audit engagement (including Audit Fees, Audit-Related
Fees and Tax Fees) to the Audit Committee for approval. In the event that the principal accountant exceeds these parameters, the
individual auditor is expected to communicate to management the reasons for the variances, so that such variances can be ratified
by the Audit Committee. As a result, 100% of expenditures within the scope of the noted budget are approved by the Audit Committee.



During fiscal 2012 and 2011 there were
no hours performed by any person other than the primary accountant’s fulltime permanent employees.



Since the commencement of the Company's
most recently completed financial year, no recommendations were made by the Audit Committee to nominate or compensate an external
auditor.



External Auditor Service Fees (By Category)

The aggregate fees billed or accrued for
professional fees rendered by Schwartz Levitsky Feldman llp, Chartered Accountants for the years ended August 31, 2012 and August
31, 2011 are as follows:



|Nature of Services    |  | Fees Paid to Auditor for Year-endedAugust 31, 2012 |        |  | Fees Paid to Auditor for Year-endedAugust 31, 2011 |  
|--------------------- |  | -------------------------------------------------- | ------ |  | -------------------------------------------------- | -
|Audit Fees(1)         |  | $                                                  | 55,000 |  |                                                    | $
|Audit-Related Fees(2) |  |                                                    | Nil    |  |                                                    |  
|Tax Fees(3)           |  |                                                    | 7,900  |  |                                                    |  
|All Other Fees(4)     |  |                                                    | Nil    |  |                                                    |  
|TOTALS                |  | $                                                  | 62,900 |  |                                                    | $










Notes:



| | 1. | "Audit Fees" include fees necessary to perform the annual audit and any quarterly
reviews of the Company's financial statements management discussion and analysis. This includes fees for the review of tax provisions
and for accounting consultations on matters reflected in the financial statements. This also includes audit or other attest services
required by legislation or regulation, such as comfort letters, consents, reviews of securities filings and statutory audits.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | "Audit-Related Fees" include fees for assurance and related services that are
reasonably related to the performance of the audit or review of the Company's financial statements and that are not included in
"Audit Fees".
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | "Tax Fees" include fees for all professional services rendered by the Company's
auditors for tax compliance, tax advice and tax planning.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------



| | 4. | "All Other Fees" include all fees for products and services provided by the Company's
auditors not included in "Audit Fees", "Audit-Related Fees" and "Tax Fees".
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| | D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
| | -- | ----------------------------------------------------------



Not Applicable.



| | E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
| | -- | ----------------------------------------------------------------------



Not applicable.



| | F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
| | -- | --------------------------------------------



Not Applicable.



85







| | G. | CORPORATE GOVERNANCE
| | -- | --------------------



Not Applicable.



| | H. | MINE SAFETY DISCLOSURE
| | -- | ----------------------



Not applicable.



PART III



ITEM 17       FINANCIAL
STATEMENTS



Not applicable.



ITEM 18     FINANCIAL STATEMENTS



The following attached Consolidated Financial
Statements are included in this Annual Report on Form 20-F beginning with page F-1:



1.          Audited
Consolidated Financial Statements of Eagleford Energy Inc. for the years ended August 31, 2012 and 2011, comprised of the following:



(a)          Independent Auditor’s Report
of Schwartz Levitsky Feldman LLP, Chartered Accountants for the years ended August 31, 2012 and 2011;



(b)          Consolidated
Statements of Financial Position as at August 31, 2012, 2011 and September 1, 2010;



(c)          Consolidated Statements of Operations
and Comprehensive Loss for the years ended August 31, 2012 and 2011;



(d)          Consolidated
Statements of Shareholders’ Equity for the years ended August 31, 2012 and 2011;



(e)          Consolidated
Statements of Cash Flows for the years ended August 31, 2012 and 2011;



(f)          Notes
to the Consolidated Financial Statements.



ITEM 19     EXHIBITS



The following exhibits are included in the Annual Report on
Form 20-F:



|Exhibit # |  | Description                                                                                                                                                             
|--------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.1       |  | Certificate of Incorporation of Bonanza Red Lake Explorations Inc. (presently known as Eagleford Energy Inc.) dated September 22, 1978 (1)                              
|1.2       |  | Articles of Amendment dated January 14, 1985 (1)                                                                                                                        
|1.3       |  | Articles of Amendment dated August 16, 2000 (1)                                                                                                                         
|1.4       |  | Bylaw No 1 of Bonanza Red Lake Explorations Inc. (presently known as Eagleford Energy Inc.) (1)                                                                         
|1.5       |  | Special By-Law No 1 – Respecting the borrowing of money and the issue of securities of Bonanza Red Lake Explorations Inc. (presently known as Eagleford Energy Inc.) (1)
|1.6       |  | Articles of Amalgamation dated November 30, 2009 (3)                                                                                                                    
|4.1       |  | 2000 Stock Option Plan (1)                                                                                                                                              
|4.2       |  | Code of Business Conduct and Ethics (1)                                                                                                                                 
|4.3       |  | Audit Committee Charter (1)                                                                                                                                             
|4.4       |  | Petroleum and Natural Gas Committee Charter (1)                                                                                                                         
|4.5       |  | Compensation Committee Charter (1)                                                                                                                                      
|4.6       |  | Purchase and Sale Agreement dated February 5, 2008 among Eugenic Corp., 1354166 Alberta Ltd., and the Vendors of 1354166 Alberta Ltd. (1)                               
|4.7       |  | Amended Audit Committee Charter (3)                                                                                                                                     
|4.8       |  | Amended Stock Option Plan (4)                                                                                                                                           
|4.9       |  | Asset Purchase Agreement between Eagleford Energy Inc., and Source Re-Work Program Inc., dated May 12, 2010 (6)                                                         



86







|4.10      |  | Addendum dated June 10, 2010 to the Asset Purchase Agreement between Eagleford Energy Inc. and Source Re-Work Program Inc., dated May 12, 2010 (6)             
|--------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.11      |  | Addendum 2 dated June 30, 2010 to the Asset Purchase Agreement between Eagleford Energy Inc. and Source Re-Work Program Inc., dated May 12, 2010 (6)           
|4.12      |  | Acquisition  Agreement among Eagleford Energy Inc., Dyami Energy LLC and the Members of Dyami Energy LLC dated August 10, 2010 (5)                             
|4.13      |  | Financial Advisory Services Agreement between Eagleford Energy Inc. and GarWood Securities, LLC dated June 10, 2010 (6)                                        
|4.14      |  | Amended Stock Option Plan, February 24, 2011 (7)                                                                                                               
|4.15      |  | Amendment dated December 31, 2011 to 6% Secured Promissory Note between Eagleford Energy Inc. and Benchmark Enterprises LLC (8)                                
|4.16      |  | Consent of Sproule Associates Limited dated February 16, 2012 (9)                                                                                              
|4.17      |  | Evaluation of P&NG Reserves of Eagleford Energy Inc., at August 31, 2011 (11)                                                                                  
|4.18      |  | Amended Stock Option Plan, February 24, 2012  (8)                                                                                                              
|4.19      |  | By-Law No. 1, February 24, 2012 (8)                                                                                                                            
|4.20      |  | Articles of Amendment, effective March 16, 2012  (10)                                                                                                          
|4.21      |  | 2nd Amendment dated June 30, 2012 to 6% Secured Promissory Note between Eagleford Energy Inc. and Benchmark Enterprises LLC (12)                               
|4.22      |  | Evaluation of P&NG Reserves of Eagleford Energy Inc., at August 31, 2012 (12)                                                                                  
|4.23      |  | Consent of Sproule Associates Limited dated (12)                                                                                                               
|4.24      |  | Placement Agency Agreement dated March 12, 2012 between Eagleford Energy Inc. and Gottbetter Capital Markets, LLC(12)                                          
|4.25      |  | Amendment dated April 13, 2012 to Placement Agency Agreement dated March 12, 2012 between Eagleford Energy Inc. and Gottbetter Capital Markets, LLC (12)       
|4.26      |  | Amendment No. 2 dated July 17, 2012 to Placement Agency Agreement dated March 12, 2012 between Eagleford Energy Inc. and Gottbetter Capital Markets, LLC (12)  
|4.27      |  | Amendment No. 3 dated August 14, 2012 to Placement Agency Agreement dated March 12, 2012 between Eagleford Energy Inc. and Gottbetter Capital Markets, LLC (12)
|4.28      |  | Amendment No. 4 dated August 31, 2012 to Placement Agency Agreement dated March 12, 2012 between Eagleford Energy Inc. and Gottbetter Capital Markets, LLC (12)
|4.29      |  | 3rd Amendment dated November 23, 2012 to 6% Secured Promissory Note between Eagleford Energy Inc. and Benchmark Enterprises LLC (12)                           
|8.1       |  | Subsidiaries of Eagleford Energy Inc. (12)                                                                                                                     
|12.1/12.2 |  | Section 302 Certification of Chief Executive and Financial Officer (12)                                                                                        
|13.1/13.2 |  | Section 906 Certification of Chief Executive and Financial Officer (12)                                                                                        



|Reference # |  | Incorporated by Reference                                                                                             
|----------- |  | ----------------------------------------------------------------------------------------------------------------------
|(1)         |  | Previously filed on April 29, 2009 by Registrant as part of Registration Statement on Form 20-F (SEC File No. 0-53646)
|(2)         |  | Previously Filed by Registrant as part of Amendment #2 to Registration Statement on Form 20F/A on July 14, 2009       
|(3)         |  | Previously Filed by Registrant on Form 6 K on December 1, 2009                                                        
|(4)         |  | Previously filed by Registrant on Form 20F/A on March 12, 2010                                                        
|(5)         |  | Previously filed by Registrant on Form 6-K on September 16, 2010                                                      
|(6)         |  | Previously Filed by Registrant on Form 20F on February 11, 2011                                                       
|(7)         |  | Previously filed by Registrant on Form 6-K on January 27, 2011                                                        
|(8)         |  | Previously filed by Registrant on Form 6-K on February 1, 2012                                                        
|(9)         |  | Previously filed by Registrant on Form 20F on February 16, 2012                                                       
|(10)        |  | Previously filed by Registrant on Form 6-K on March 9, 2012                                                           
|(11)        |  | Previously filed by Registrant on Form 20F/A on April 26, 2012                                                        
|(12)        |  | Filed as an Exhibit hereto                                                                                            



87







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



|EAGLEFORD ENERGY INC.
|---------------------
|                     
|By:                  
|                     
|                     



Date: December 31, 2012



88







INDEX TO FINANCIAL STATEMENTS



Audited Consolidated Financial Statements of Eagleford Energy
Inc. for the years ended August 31, 2012 and 2011, comprised of the following:



|(a) | Independent Auditor’s Report of Schwartz Levitsky Feldman LLP, Chartered Accountants for the years ended August 31, 2012 and 2011; | F-4   
|--- | ---------------------------------------------------------------------------------------------------------------------------------- | ------
|(b) | Consolidated Statements of Financial Position for the years ended August 31, 2012 and 2011;                                        | F-5   
|(c) | Consolidated Statements of Operations and Comprehensive Loss for the years ended August 31, 2012 and 2011;                         | F-6   
|(d) | Consolidated Statements of Shareholders’ Equity for the years ended August 31, 2012 and 2011;                                      | F-7   
|(e) | Consolidated Statements of Cash Flows for the years ended August 31, 2012 and 2011;                                                | F-8   
|(f) | Notes to the Consolidated Financial Statements.                                                                                    | F9-F45



F-1







ITEM 1







Consolidated Financial
Statements



For the years ended
August 31, 2012 and 2011



(Expressed in Canadian
Dollars)



F-2











Consolidated Financial
Statements

For the years ended
August 31, 2012 and 2011

(Expressed in Canadian
Dollars)



|Contents                                                    
|------------------------------------------------------------
|                                                            
|                                                            
|Independent Auditors' Report                                
|                                                            
|Consolidated Financial Statements                           
|                                                            
|Consolidated Statements of Financial Position               
|                                                            
|Consolidated Statements of Operations and Comprehensive Loss
|                                                            
|Consolidated Statements of Shareholders’ Equity             
|                                                            
|Consolidated Statements of Cash Flows                       
|                                                            
|Notes to Consolidated Financial Statements                  



F-3







Schwartz Levitsky
Feldman llp

CHARTERED ACCOUNTANTS

LICENSED PUBLIC ACCOUNTANTS

TORONTO·MONTREAL



INDEPENDENT
AUDITOR’S REPORT



To
the Shareholders of Eagleford Energy Inc



We have audited the accompanying
consolidated financial statements of Eagleford Energy Inc and its subsidiaries (the “Company”), which comprise the
consolidated statements of financial position as at August 31, 2012, August 31, 2011 and September 1, 2010, and the consolidated
statements of operations and comprehensive loss, changes in shareholders’ equity and cash flows for the years ended August
31, 2012 and August 31, 2011, and a summary of significant accounting policies and other explanatory information.



Management's Responsibility
for the Consolidated Financial Statements

Management
is responsible for the preparation and fair presentation of these consolidated financial statements in accordance withInternational
Financial Reporting Standards as issued by the International Accounting Standards Board,and for such
internal control as management determines is necessary to enable the preparation of consolidated financial statements that are
free from material misstatement, whether due to fraud or error.



Auditor’s Responsibility

Our
responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits
in accordance with Canadian generally accepted auditing standardsand the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we comply with ethical requirements and plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.



An audit involves performing
procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures
selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant
to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's
internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.



We believe that the audit
evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.



Opinion

In
our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Eagleford
Energy Inc and its subsidiaries as at August 31, 2012, August 31, 2011 and September 1, 2010, and their financial performance and
cash flows for the years ended August 31, 2012, and August 31, 2011 in accordance withInternational Financial Reporting
Standards.



Emphasis of Matter

Without qualifying our
opinion, we draw your attention to Note 1 in the consolidated financial statements which indicates that the Company incurred a
net loss of $2,809,188 during the year ended August 31, 2012 and as of that date its current liabilities exceed its current assets
by $3,819,056. These conditions, along with other matters as set forth in Note 1, indicate the existence of a material uncertainty
that may cast significant doubt about the Company's ability to continue as a going concern.



Without qualifying
our opinion, we also draw your attention to Notes 7 and 17 to the consolidated financial statements which indicate that
the lessor of the Matthews lease has expressed its belief that the lease has terminated and filed a petition in the
District Court, Zavala County, Texas, seeking a declaration to this effect. The Company disagrees and believes that it is in
full compliance with the terms of the lease. The Company is defending these allegations and is countersuing the lessor
for repudiation of the lease and seeking damages.

/s/         Schwartz
Levitsky Feldman, llp



|Toronto, Ontario, Canada | Chartered Accountants      
|------------------------ | ---------------------------
|December 21, 2012        | Licensed Public Accountants



2300 Yonge
Street, Suite 1500

Toronto,
Ontario M4P 1E4

Tel: 416
785 5353

Fax: 416
785 5663



F-4











|Consolidated Statements of Financial Position
|---------------------------------------------
|(Expressed in Canadian Dollars)              
|                                             
|Assets                                       
|Current assets                               
|Cash and cash equivalents                    
|Marketable securities (Note 6)               
|Trade and other receivables                  
|Prepaid expenses and deposits                
|Due from related party (Note 11)             
|Total current assets                         
|Non-current assets                           
|Property and equipment (Note 8)              
|Exploration and evaluation assets (Note 7)   
|Total non-current assets                     
|                                             
|Total Assets                                 
|                                             
|Liabilities and Shareholders’ Equity         
|Current liabilities                          
|Trade and other payables                     
|Secured note payable (Note 12)               
|Shareholders loans (Note 11)                 
|Loan payable                                 
|Derivative warrant liabilities (Note 13)     
|Total current liabilities                    
|Non-current liabilities                      
|Secured notes payable (Note 12)              
|Derivative warrant liabilities (Note 13)     
|Provisions (Note 9)                          
|Total non-current liabilities                
|                                             
|Total Liabilities                            
|                                             
|Shareholders’ Equity                         
|Share capital (Note 10)                      
|Share purchase warrants (Note 10)            
|Share purchase options  (Note 10)            
|Contributed surplus (Note 10)                
|Foreign currency translation reserve         
|Deficit                                      
|Total Shareholders’ Equity                   
|                                             
|Total Liabilities and Shareholders’ Equity   



|Going Concern (Note 1)                                                                
|--------------------------------------------------------------------------------------
|Related Party Transactions and Balances (Note 11)                                     
|Subsequent Event (Note 20)                                                            
|Commitments and Contingencies (Note 17)                                               
|Approved by the Board of Directors                                                    
|                                                                                      
|/s/ James Cassina                                                                     
|James Cassina, Director                                                               
|The accompanying notes are an integral part of these consolidated financial statements



F-5











|Consolidated Statements of Operations and Comprehensive Loss  
|--------------------------------------------------------------
|                                                              
|For the years ended August 31, (Expressed in Canadian Dollars)
|                                                              
|Revenue                                                       
|Natural gas sales, net of royalties                           
|Expenses                                                      
|Operating costs                                               
|Depletion and accretion                                       
|General and administrative                                    
|Marketing and public relations                                
|Impairment loss on property and equipment (Note 8)            
|Interest expense                                              
|Loss (gain) on derivative warrant liabilities (Note 13)       
|Loss on settlement of debt (Note 10)                          
|Stock based compensation (Note 10)                            
|Stock based compensation - non employees (Note 10)            
|Compensation expense on re-pricing of units (Note 10)         
|Loss (gain) on foreign exchange                               
|Gain on disposal of marketable securities                     
|                                                              
|                                                              
|Net loss                                                      
|                                                              
|Foreign currency translation                                  
|                                                              
|Comprehensive loss                                            
|                                                              
|Loss per share, basic and diluted                             
|                                                              
|Weighted average shares outstanding, basic and diluted *      



|* Reflects the March 16, 2012 two-for-one stock split (Refer to Note 10)              
|--------------------------------------------------------------------------------------
|                                                                                      
|The accompanying notes are an integral part of these consolidated financial statements



F-6











|Consolidated Statements of Changes in Shareholders Equity
|---------------------------------------------------------
|For the years ended August 31, 2012 and 2011             
|(Expressed in Canadian Dollars)                          



|                                         |  | SHARE
    CAPITAL Number of shares* |            |   | SHARE
    CAPITAL Amount $ |  |            | SHARE
    PURCHASE WARRANTS $ |  |  | SHARE
    PURCHASE OPTIONS $ |   |  | CONTRI-
BUTED
    SURPLUS $ |         |  | FOREIGN
    CURRENCY TRANS- LATION RESERVE $ |  |         | DEFICIT
    $ |  |  | TOTAL
    EQUITY $ |  
|---------------------------------------- |  | ----------------------------------- | ---------- | - | -------------------------- |  | ---------- | ----------------------------- |  |  | ---------------------------- | - |  | --------------------------- | ------- |  | -------------------------------------------- |  | ------- | ------------- |  |  | ------------------ | -
|Balance, September 1, 2010 (Note 18)     |  |                                     | 59,502,051 |   |                            |  | 3,817,184  |                               |  |  | 380,734                      |   |  |                             | -       |  |                                              |  | 43,750  |               |  |  | -                  |  
|Issuance of units as compensation        |  |                                     | 200,000    |   |                            |  | 95,800     |                               |  |  | -                            |   |  |                             | -       |  |                                              |  | -       |               |  |  | -                  |  
|Warrants exercised                       |  |                                     | 7,420,692  |   |                            |  | 722,572    |                               |  |  | (128,097                     | ) |  |                             | -       |  |                                              |  | -       |               |  |  | -                  |  
|Warrants cancelled                       |  |                                     | -          |   |                            |  | -          |                               |  |  | -                            |   |  |                             | -       |  |                                              |  | 36,237  |               |  |  | -                  |  
|Imputed Interest                         |  |                                     | -          |   |                            |  | -          |                               |  |  | -                            |   |  |                             | -       |  |                                              |  | 5,750   |               |  |  | -                  |  
|Foreign currency translation             |  |                                     | -          |   |                            |  | -          |                               |  |  | -                            |   |  |                             | -       |  |                                              |  | -       |               |  |  | (109,303           | )
|Net loss for the year                    |  |                                     | -          |   |                            |  | -          |                               |  |  | -                            |   |  |                             | -       |  |                                              |  | -       |               |  |  | -                  |  
|Balance, August 31, 2011 (Note 18)       |  |                                     | 67,122,743 |   |                            |  | 4,635,556  |                               |  |  | 252,637                      |   |  |                             | -       |  |                                              |  | 85,737  |               |  |  | (109,303           | )
|Issuance of shares as debt settlement    |  |                                     | 3,107,006  |   |                            |  | 395,589    |                               |  |  | -                            |   |  |                             | -       |  |                                              |  | -       |               |  |  | -                  |  
|Issuance of units as debt settlement     |  |                                     | 17,150,000 |   |                            |  | 1,150,367  |                               |  |  | 1,102,348                    |   |  |                             | -       |  |                                              |  | -       |               |  |  | -                  |  
|Private placement of units               |  |                                     | 2,000,000  |   |                            |  | 32,459     |                               |  |  | 67,541                       |   |  |                             | -       |  |                                              |  | -       |               |  |  | -                  |  
|Private placement of units               |  |                                     | 3,000,000  |   |                            |  | 342,786    |                               |  |  | -                            |   |  |                             | -       |  |                                              |  | -       |               |  |  | -                  |  
|Compensation expense on re-pricing units |  |                                     | 750,000    |   |                            |  | -          |                               |  |  | -                            |   |  |                             | -       |  |                                              |  | 118,507 |               |  |  | -                  |  
|Private placement of units               |  |                                     | 6,825,000  |   |                            |  | 702,528    |                               |  |  |                              |   |  |                             |         |  |                                              |  |         |               |  |  |                    |  
|Warrants expired                         |  |                                     | -          |   |                            |  | -          |                               |  |  | -                            |   |  |                             | -       |  |                                              |  | 318,552 |               |  |  | -                  |  
|Issuance of shares as debt settlement    |  |                                     | 171,386    |   |                            |  | 44,547     |                               |  |  | -                            |   |  |                             | -       |  |                                              |  | -       |               |  |  | -                  |  
|Imputed interest                         |  |                                     | -          |   |                            |  | -          |                               |  |  | -                            |   |  |                             | -       |  |                                              |  | 2,334   |               |  |  | -                  |  
|Stock based compensation                 |  |                                     | -          |   |                            |  | -          |                               |  |  |                              |   |  |                             | 170,972 |  |                                              |  | -       |               |  |  | -                  |  
|Units cancelled                          |  |                                     | (3,418,468 | ) |                            |  | (1,397,199 | )                             |  |  | -                            |   |  |                             | -       |  |                                              |  | (18,930 | )             |  |  | -                  |  
|Foreign currency translation             |  |                                     | -          |   |                            |  | -          |                               |  |  | -                            |   |  |                             | -       |  |                                              |  | -       |               |  |  | (160               | )
|Net loss  for the year                   |  |                                     | -          |   |                            |  | -          |                               |  |  | -                            |   |  |                             | -       |  |                                              |  | -       |               |  |  | -                  |  
|Balance, August 31, 2012                 |  |                                     | 96,707,667 |   |                            |  | 5,906,633  |                               |  |  | 1,422,526                    |   |  |                             | 170,972 |  |                                              |  | 506,200 |               |  |  | (109,463           | )



* Reflects the March 16, 2012 two-for-one stock split (Refer
to Note 10)



The accompanying notes are an integral
part of these consolidated financial statements



F-7











|Consolidated Statements of Cash Flows
For the years ended August 31, (Expressed in Canadian Dollars) |  | 2012 |            |   | 2011 |  
|---------------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | -
|                                                                                                     |  |      |            |   |      |  
|Cash provided by (used in )                                                                          |  |      |            |   |      |  
|Operating activities                                                                                 |  |      |            |   |      |  
|Net loss for the period                                                                              |  | $    | (2,809,188 | ) |      | $
|Items not involving cash:                                                                            |  |      |            |   |      |  
|Depletion and accretion                                                                              |  |      | 20,509     |   |      |  
|Imputed interest                                                                                     |  |      | 2,334      |   |      |  
|Unrealized Loss (gain) on derivative warrant liabilities                                             |  |      | 46,655     |   |      |  
|Loss on settlement of debt                                                                           |  |      | 1,465,465  |   |      |  
|Impairment loss on property and equipment                                                            |  |      | 50,774     |   |      |  
|Shares and warrants issue for services                                                               |  |      | 44,285     |   |      |  
|Compensation expense on re-pricing of units                                                          |  |      | 188,625    |   |      |  
|Stock based compensation                                                                             |  |      | 170,972    |   |      |  
|Provisions                                                                                           |  |      | 64,773     |   |      |  
|Gain on disposal of marketable securities                                                            |  |      | -          |   |      |  
|Net changes in non-cash working capital (Note 15)                                                    |  |      | 372,170    |   |      |  
|                                                                                                     |  |      | (382,626   | ) |      |  
|Investing activities                                                                                 |  |      |            |   |      |  
|Additions to exploration and evaluations assets                                                      |  |      | (1,559,763 | ) |      |  
|Proceeds on disposal of marketable securities                                                        |  |      | -          |   |      |  
|                                                                                                     |  |      | (1,559,763 | ) |      |  
|Financing activities                                                                                 |  |      |            |   |      |  
|Private placement of units, net of share issue costs                                                 |  |      | 2,086,718  |   |      |  
|Secured notes payable, net                                                                           |  |      | (65,796    | ) |      |  
|Shareholders’ loans, net                                                                             |  |      | 50,042     |   |      |  
|Repayment of loan payable                                                                            |  |      | -          |   |      |  
|Warrants exercised                                                                                   |  |      | -          |   |      |  
|                                                                                                     |  |      | 2,070,964  |   |      |  
|                                                                                                     |  |      |            |   |      |  
|Effect of exchange rate changes on cash and cash equivalents                                         |  |      | 36,162     |   |      |  
|Increase in cash and cash equivalents for the year                                                   |  |      | 128,575    |   |      |  
|Cash and cash equivalents, beginning of year                                                         |  |      | 165,266    |   |      |  
|Cash and cash equivalents, end of year                                                               |  | $    | 330,003    |   |      | $



Supplemental Cash Flow Information and Non-cash Transactions
(Note 15)



The accompanying notes are an integral
part of these consolidated financial statements



F-8







|                                              
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|(Expressed In Canadian Dollars)               
|For The Years Ended August 31, 2012 and 2011  



| | 1. | Nature of Business and Going Concern
| | -- | ------------------------------------



Eagleford Energy Inc. (“Eagleford”
or the “Company”) was amalgamated under the Business Corporations Act (Ontario) on November 30, 2009. The principal
activities of the Company consist of exploration, development and production of petroleum and natural gas properties. In addition,
the Company holds a 0.3% net smelter return royalty on 8 mining claim blocks located in Red Lake, Ontario which is carried on the
consolidated statement of financial position at nil.



The company's registered office is 1 King
Street West, Suite 1505, Toronto, Ontario, M5H 1A1.



The Company’s common shares trade
on the Over-the-Counter Bulletin Board (OTCBB) under the symbol EFRDF.



These consolidated financial
statements have been prepared on a going concern basis which contemplates the realization of assets and the payment of liabilities
in the ordinary course of business. The Company plans to obtain additional financing by way of debt or the issuance of common shares
or some other means to service its current working capital requirements, any additional or unforeseen obligations or to implement
any future opportunities. Should the Company be unable to continue as a going concern, it may be unable to realize the carrying
value of its assets and to meet its liabilities as they become due. These consolidated financial statements do not include any
adjustments for this uncertainty.



The
Company has accumulated significant losses and negative cash flows from operations in recent years which raise doubt as to the
validity of the going concern assumption. At August 31, 2012, the Company had a working capital deficiency of $3,819,056 (August
31, 2011 $5,108,526 and September 1, 2010 $677,449) and an accumulated deficit of $4,946,515 (August 31, 2011 $2,137,327 and September
1, 2010 $1,706,400). The Company does not have sufficient funds to meet its liabilities for the ensuing twelve months as they
fall due. In assessing whether the going concern assumption is appropriate, management takes into account all available information
about the future, which is at least, but not limited to, twelve months from the end of the reporting period. The Company's ability
to continue operations and fund its liabilities is dependent on its ability to secure additional financing and cash flow. During
the year ended August 31, 2012 the Company extinguished $1,227,386 of debt through the issuance of share capital in the Company.
In addition, the Company raised net proceeds of $2,086,718 through the issuance of share capital. Management is pursuing such
additional sources of financing and cash flow to fund its operations and while it has been successful in doing so in the past,
there can be no assurance it will be able to do so in the future. Management is aware, in making its assessment, of material uncertainties
related to events or conditions that may cast significant doubt upon the Company's ability to continue as a going concern. Accordingly,
they do not give effect to adjustments that would be necessary should the Company be unable to continue as a going concern and
therefore realize its assets and liquidate its liabilities and commitments in other than the normal course of business and at
amounts different from those in the accompanying consolidated financial statements.



| | 2. | Basis of Preparation
| | -- | --------------------



Statement of Compliance

These consolidated financial
statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by
the International Accounting Standards Board (“IASB”). These are the Company’s first annual consolidated financial
statements prepared in accordance with IFRS, and the Company has elected September 1, 2010 as the date of transition to IFRS (the
“Transition Date”). IFRS 1, First Time Adoption of IFRS has effected the consolidated financial statements of the Company
and the changes are included in Note 18.



These consolidated financial
statements of the Company were approved by the Board of Directors on December 21, 2012.



F-9







|                                              
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|(Expressed In Canadian Dollars)               
|For The Years Ended August 31, 2012 and 2011  



Basis of Preparation
and First-time Adoption of IFRS

The Company prepares
its financial statements in accordance with Canadian generally accepted accounting principles as set out in the Handbook of the
Canadian Institute of Chartered Accountants (“CICA Handbook”). In 2010, the CICA Handbook was revised to incorporate
International Financial Reporting Standards (“IFRS”), and require publicly accountable enterprises to apply such standards
effective for years beginning on or after January 1, 2011. Accordingly, these are the Company’s first annual consolidated
financial statements prepared in accordance with IFRS, and IFRS 1 First-time adoption of International Financial Reporting Standards
(“IFRS 1”). In these financial statements, the term “Canadian GAAP” refers to Canadian GAAP before the
adoption of IFRS.



These consolidated financial
statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board (the “IASB”).
The Company has consistently applied the same accounting policies throughout all periods presented, as if these policies had always
been in effect. Note 18 discloses the impact of the transition to IFRS on the Company's reported consolidated statement of financial
position, financial performance and cash flows including the nature and effect of significant changes in accounting policies from
those used in the Company’s consolidated financial statements for the year ended August 31, 2011 prepared under Canadian
GAAP.



The accounting policies
applied in these audited consolidated financial statements are based on IFRS effective for the year ended August 31, 2012, as issued
and outstanding as of December 21, 2012 the date the Board of Directors approved the statements.



Principles of Consolidation

Subsidiaries are all
entities (including special purpose entities) controlled by the Company. Control exists when the Company has the power to govern
the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential
voting rights that currently are exercisable are taken into account. The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control commences until the date that control ceases.



The consolidated financial
statements include the accounts of Eagleford, the legal parent, together with its wholly-owned subsidiaries, 1354166 Alberta Ltd.
an Alberta operating company (“1354166 Alberta”) and Dyami Energy LLC a Texas limited liability company (“Dyami
Energy”). All Intercompany balances and transactions have been eliminated on consolidation.



| | 3. | Summary of Significant Accounting Policies
| | -- | ------------------------------------------



Subject to certain IFRS
1 transition elections (refer to Note 18), the accounting policies set out below have been applied consistently to all years presented
in these consolidated financial statements and have been applied consistently by the Company and its subsidiaries.



Cash and Cash Equivalents

Cash and cash equivalents include banks
balances and highly liquid temporary money market instruments with original maturities of three months or less.



Revenue Recognition

Revenues from the production
of oil and gas properties in which the Company has an interest are recognized, on the basis of the Company’s working interest
in those properties, when the significant risks and rewards of ownership of the product is transferred to the buyer, which is usually
when legal title passes to an external party.



Foreign Currencies

The functional and presentation
currency of the Company is the Canadian dollar. The functional currency of the Company’s wholly-owned Alberta subsidiary,
1354166 Alberta is Canadian dollars and the functional currency of the Company’s wholly-owned Texas subsidiary, Dyami Energy
is United States dollars.



F-10







|                                              
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|(Expressed In Canadian Dollars)               
|For The Years Ended August 31, 2012 and 2011  



Items included in the
consolidated financial statements of each entity are measured using the currency of the primary economic environment in which the
entity operates (the "functional currency"). Foreign currency transactions are translated into the functional currency
using the exchange rates prevailing at the dates of the transaction. Foreign exchange gains and losses resulting from the settlement
of such transactions and from the translation of monetary assets and liabilities not denominated in the functional currency of
an entity are recognized in the consolidated statements of operations.



Assets and liabilities of entities with
functional currencies other than Canadian dollars are translated at the period end rates of exchange, and the results of their
operations are translated at average rates of exchange for the period. The resulting translation adjustments are included in the
foreign currency translation reserve under the equity section of the consolidated statement of financial position. Additionally,
foreign exchange gains and losses related to certain intercompany loans that are permanent in nature are also included in the foreign
currency translation reserve.



Loss per Share

The basic loss per share
is calculated by dividing net loss by the weighted average number of common shares outstanding during the period. The diluted loss
per share reflects the dilution that would occur if outstanding stock options and share purchase warrants were exercised or converted
into common shares using the treasury stock method and are calculated by dividing net loss applicable to common shares by the sum
of the weighted average number of common shares outstanding and all additional common shares that would have been outstanding if
potentially dilutive common shares had been issued.



The inclusion of the
Company’s stock options and share purchase warrants in the computation of diluted loss per share would have an anti-dilutive
effect on loss per share and are therefore excluded from the computation.



Marketable Securities

At each financial reporting
period, the Company estimates the fair value of investments which are held-for-trading, based on quoted closing bid prices at the
consolidated statements of financial position date or the closing bid price on the last day the security traded if there were no
trades at the consolidated statements of financial position date and such valuations are reflected in the consolidated financial
statements. The resulting values for unlisted securities whether of public or private issuers, may not be reflective of the proceeds
that could be realized by the Company upon their disposition. The fair value of the securities at August 31, 2012 was $1 (August
31, 2011 and September 1, 2010 - $1) (see Note 6).



Financial Instruments

Classification and Measurement

Financial instruments are measured at fair
value on initial recognition of the instrument. Measurement in subsequent periods depends on whether the financial instrument has
been classified as “fair value through profit and loss”, “loans and receivables”, “available-for-sale”,
“held-to-maturity”, or “other financial liability” as defined by IAS 39, “Financial Instruments:
Recognition and Measurement”.



Financial assets and financial liabilities
at “fair value through profit or loss” are either classified as “held for trading” or “designated
at fair value through profit or loss” and are measured at fair value with changes in fair value recognized in the statement
of comprehensive income. Transaction costs are expensed when incurred. The Company has classified cash and cash equivalents, marketable
securities and derivative warrant liabilities as “fair value through profit and loss”.



Financial instruments classified as “loans
and receivables”, “held-to-maturity”, or “financial liabilities” are measured at amortized cost using
the effective interest method of amortization. “Loans and receivables” are non-derivative financial assets with fixed
or determinable payments that are not quoted in an active market. “Held-to-maturity” financial assets are non-derivative
investments that an entity has the positive intention and ability to hold to maturity.



F-11







|                                              
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|(Expressed In Canadian Dollars)               
|For The Years Ended August 31, 2012 and 2011  



“Other financial liabilities measured
at amortized cost” are those financial liabilities that are not designated as “fair value through profit or loss”
and that are not derivatives. The Company has classified trade and other receivables as “loans and receivables” and
trade and other payables, secured notes payable, loans payable, provisions and shareholders’ loans as “other financial
liabilities”.



Financial assets classified as “available-for-sale”
are measured at fair value, with changes in fair value recognized in other comprehensive income. Available-for-sale financial assets
are non-derivatives that are either designated in this category or not classified in any of the other categories. The Company currently
has no assets classified as “available for sale”.



Derivative Financial Instruments

The Company’s derivative
instruments consist of derivative liabilities in relation to its share purchase warrants. In prior years the Company had issued
share purchase warrants in conjunction with offerings for the purchase of common shares of the Company. These share purchase warrants
were issued with an exercise price in US dollars, rather than Canadian dollars (the presentation and functional currency of the
Company). Such share purchase warrants are considered to be derivative instruments and the Company is required to re-measure the
fair value of these at each reporting date. The fair value of these share purchase warrants are re-measured at each statement of
financial position date using the Black Scholes model. Adjustments to the fair value of the share purchase warrants at the financial
position date are recorded to the statement of operations.



Property and Equipment and Exploration
and Evaluation Assets



Exploration and Evaluation Assets
(“E&E”)

Pre-acquisition expenditures on oil and
gas assets are recognized as an expense in the consolidated statements of operations when incurred. In accordance with IFRS 6,
exploration and evaluation costs are capitalized within intangible assets until the success or otherwise of the well or project
has been established and subject to an impairment review. The costs of unsuccessful wells in an area are written off to statement
of operations.



Exploration and evaluation costs, including
the costs of acquiring licenses and directly attributable general and administrative costs, initially are capitalized either as
tangible or intangible E&E assets according to the nature of the assets acquired. The costs are accumulated in cost centers
by well, field or exploration area pending determination of technical feasibility and commercial viability.



When E&E assets are determined to be
technically feasible and commercially viable, the accumulated costs are transferred to property and equipment. When E&E assets
are determined not to be technically feasible and commercially viable or the Company decides not to continue with its activity,
the unrecoverable costs are charged to statement of operations as exploration and evaluation expense.



E&E assets are assessed for impairment
in any circumstances where sufficient data exists to determine technical feasibility and commercial viability, and facts and circumstances
suggest that the carrying amount exceeds the recoverable amount. For purposes of impairment testing, E&E assets are allocated
to cash-generating units (“CGUs”).



Development and Production Costs

Items of property and equipment, which
include petroleum and natural gas development and production assets, are measured at cost less accumulated depletion and depreciation
and accumulated impairment losses. Development and production assets are grouped into CGUs for impairment testing.



When significant parts of an item of property
and equipment, including petroleum and natural gas interests, have different useful lives, they are accounted for as separate items
(major components).



Gains and losses on disposal of an item
of property and equipment, including petroleum and natural gas interests, are determined by comparing the proceeds from disposal
with the carrying amount of property and equipment and are recognized in profit or loss.

F-12







|                                              
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|(Expressed In Canadian Dollars)               
|For The Years Ended August 31, 2012 and 2011  



Subsequent Costs

Costs incurred subsequent to the determination
of technical feasibility and commercial viability and the costs of replacing parts of property and equipment are recognized as
exploration and evaluation assets only when they increase the future economic benefits embodied in the specific asset to which
they relate. All other expenditures are recognized in profit or loss as incurred. Such capitalized exploration and evaluation assets
generally represent costs incurred in developing proved and/or probable reserves and bringing in or enhancing production from such
reserves, and are accumulated on a field or geotechnical area basis. The carrying amount of any replaced or sold component is derecognized.
The costs of the day-to-day servicing of property and equipment are recognized in profit or loss as incurred.



Depletion and Depreciation

The net carrying value of development or
production assets is depleted using the units-of-production method by reference to the ratio of production in the period to the
related proved plus probable reserves, taking into account estimated future development costs necessary to bring those reserves
into production. Future development costs are estimated taking into account the level of development required to produce the reserves.
These estimates are reviewed by independent reserve engineers at least annually for developed properties.



Proved and probable reserves are estimated
using independent reserve engineer reports for developed properties only and represent the estimated quantities of crude oil, natural
gas and natural gas liquids which geological, geophysical and engineering data demonstrate with a specified degree of certainty
to be recoverable in future years from known reservoirs and which are considered commercially producible.



Reserves may be considered commercially
producible if management has the intention of developing and producing them and such intention is based upon:



| | • | a reasonable assessment of the future economic benefit of such production;
| | - | --------------------------------------------------------------------------

| | • | a reasonable expectation that there is a market for all or substantially all the expected oil and
natural gas production; and
| | - | -----------------------------------------------------------------------------------------------------------------------------

| | • | evidence that the necessary production, transmission and transportation facilities are available
or can be made available.
| | - | --------------------------------------------------------------------------------------------------------------------------



Reserves may only be considered proved
and probable if they are supported by either actual production or conclusive formation tests. The area of reservoir considered
proved includes: (a) that portion delineated by drilling and defined by gas-oil and/or oil-water contacts, if any, or both; and
(b) the immediately adjoining portions not yet drilled, but which can be reasonably judged as economically productive on the basis
of available geophysical, geological and engineering data. In the absence of information on fluid contacts, the lowest known structural
occurrence of oil and natural gas controls the lower proved limit of the reservoir.



Depreciation methods, useful lives and
residual values are reviewed at each reporting date.



Impairment

Financial Assets

A financial asset is assessed at each reporting
date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if
objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.



An impairment loss in respect of a financial
asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated
future cash flows discounted at the original effective interest rate.



Individually significant financial assets
are tested for impairment on an individual basis. Remaining financial assets are assessed collectively in groups that share similar
credit risk characteristics.



All impairment losses are recognized in
the profit or loss.



F-13







|                                              
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|(Expressed In Canadian Dollars)               
|For The Years Ended August 31, 2012 and 2011  



An impairment loss is reversed if the reversal
can be related objectively to an event occurring after the impairment loss was recognized. For financial assets measured at amortized
cost the reversal is recognized in profit or loss.



Non-financial Assets

The carrying amounts of the Company’s
non-financial assets, other than E&E assets are reviewed at each reporting date to determine whether there is any indication
of impairment. If any such indication exists, the asset’s recoverable amount is estimated. E&E assets are assessed for
impairment when they are reclassified to property and equipment as petroleum and natural gas interests, and also if facts and circumstances
suggest that their carrying amount exceeds the recoverable amount.



For the purpose of impairment testing,
assets are grouped together into the smallest group of assets that generate cash inflows from continuing use that are largely independent
of the cash inflows of other assets or groups of assets (the “cash-generating unit” or “CGU”). The recoverable
amount of an asset or a CGU is the greater of its value in use and its fair value less costs to sell.



In assessing value in use, the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset. Value in use is generally computed by reference to the present
value of the future cash flows expected to be derived from production of proved and probable reserves.



E&E assets are allocated to related
CGUs when they are assessed for impairment, both at the time of any triggering facts and circumstances as well as upon their eventual
reclassification to producing assets (petroleum and natural gas interests in property and equipment).



An impairment loss is recognized if the
carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit or
loss. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated
to the units and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro rata basis.



In respect of assets other than goodwill,
impairment losses recognized in prior years are assessed at each reporting date for any indications that the loss has decreased
or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable
amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount
that would have been determined, net of depletion and depreciation or amortization, if no impairment loss had been recognized.



Provisions

A provision is recognized if, as a result
of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable
that an outflow of economic benefits will be required to settle the obligation.



Provisions are determined by discounting
the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks
specific to the liability. Provisions are not recognized for future operating losses.



Decommissioning Obligations

The Company’s activities give rise
to dismantling, decommissioning and site disturbance remediation activities. Provision is made for the estimated cost of site restoration
and capitalized in the relevant asset category.



F-14







|                                              
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|(Expressed In Canadian Dollars)               
|For The Years Ended August 31, 2012 and 2011  



Decommissioning obligations are measured
at the present value of management’s best estimate of the expenditure required to settle the present obligation at the period-end
date. Subsequent to initial measurement, the obligation is adjusted at the end of each period to reflect the passage of time and
changes in the estimated future cash flows underlying the obligation. The increase in the provision due to the passage of time
is recognized as finance costs whereas increases/decreases due to changes in the estimated future cash flows and changes to discount
rate are capitalized. Actual costs incurred upon settlement of the decommissioning obligations are charged against the provision
to the extent the provision was established.



Borrowing Costs

Borrowing costs incurred for the construction
of qualifying assets are capitalized during the period of time that is required to complete and prepare the assets for their intended
use or sale. All other borrowing costs are recognized in profit or loss using the effective interest method. Interest income is
recognized as it accrues in profit or loss, using the effective interest method.



Taxes

Tax expense comprises
current and deferred tax. Tax is recognized in the consolidated statements of operations except to the extent it relates to items
recognized in other comprehensive income or directly in equity.



Current Income tax

Current tax expense is
based on the results for the year as adjusted for items that are not taxable or not deductible. Current tax is calculated using
tax rates and laws that were enacted or substantively enacted at the end of the reporting period. Management periodically evaluates
positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Provisions
are established where appropriate on the basis of amounts expected to be paid to the tax authorities.



Deferred tax

Deferred tax assets and
liabilities are recognized for the future income tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using
enacted or substantively enacted tax rates expected to apply to taxable income in the years in which these temporary differences
are expected to be recovered or settled. Deferred tax assets and liabilities are offset if there is a legally enforceable right
to offset current tax liabilities and asset and they relate to the income taxes levied by the same authority on the same taxable
entity, or on different tax entities where these entities intend to settle current tax liabilities and asset on a net basis or
their tax assets and liabilities will be realized simultaneously.



Deferred tax assets and
liabilities are not recognized in respect of temporary differences that arise on initial recognition of assets and liabilities
acquired other than in a business combination.



Share-Based Compensation

The Company has a share-based
compensation plan that grants stock options to employees and non-employees. This plan is an equity settled plan. The company uses
the fair value method for accounting for stock-based awards to employees and non-employees.



The fair value determined
at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based
on the Company’s estimate of equity instruments that will eventually vest. At the end of each reporting period, the Company
revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates,
if any, is recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment
to contributed surplus.



Equity-settled share-based payment transactions
with parties other than employees are measured at the fair value of the goods or services received, except where that fair value
cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at
the date the Company obtains the goods or the counterparty renders the service.



F-15







|                                              
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|(Expressed In Canadian Dollars)               
|For The Years Ended August 31, 2012 and 2011  



Warrants

When the Company issues units comprising
common shares and warrants, the Company follows the relative fair value method of accounting for warrants attached to and issued
with common shares of the Company. Under this method, the fair value of warrants issued is estimated using a Black-Scholes option
price model. The fair value is then related to the total of the net proceeds received on issuance of the common shares and the
fair value of the warrants issued therewith. The resultant relative fair value is allocated to warrants from the net proceeds and
the balance of the net proceeds is allocated to the common shares issued.



Critical Accounting Estimates and Judgments

The timely preparation
of the consolidated financial statements in accordance with IFRS requires that management make estimates and assumptions and use
judgment regarding the measured amounts of assets, liabilities and contingent liabilities at the date of the consolidated financial
statements and reported amounts of revenue and expenses during the reporting period. Such estimates and judgments are continuously
evaluated and are based on management’s experience and other factors, including expectations of future events that are believed
to be reasonable under the circumstances. Actual outcomes may differ from these estimates.



The key sources of estimation
uncertainty that have a significant risk of causing material adjustment to the amounts recognized in the consolidated financial
statements are:



Valuation and classification of exploration
and evaluation assets

The value of exploration and evaluation
assets are dependent upon the discovery of economically recoverable reserves which in turn is dependent on future oil and natural
gas prices, future capital expenditures and environmental and regulatory restrictions. The decision to transfer exploration and
evaluation assets to property and equipment is based upon management’s determination of an area’s technical feasibility
and commercial viability based on proved and/or probable reserve estimates.



Matthews Lease Litigation

The lessors of the Matthews
lease expressed their belief that the lease has terminated and filed a petition in the District Court, Zavala County, Texas,
seeking a declaration that the lease has terminated. The Company disagrees and believes that it is in full compliance with the
terms of the lease. The Company is defending the allegation and countersuing the lessor for repudiation of the lease and seeking
damages (see Note 7).



Stock Based Compensation

The Company measures
the cost of equity-settled transactions to the relative fair value of the equity instruments at the date at which they are issued.
Estimating relative fair value for share-based payment transactions requires determining the most appropriate valuation model,
which is dependent on the terms and conditions of the instrument. This estimate also requires determining and making assumptions
about the most appropriate inputs to the valuation model including the expected life, volatility, discount rates and dividend yield.



Decommissioning Liabilities

Decommissioning liabilities
consist of asset retirement obligations that are based, in part, on estimates of future costs to settle the obligation, in addition
to estimates of the useful life of the underlying assets, the rate of inflation and the risk-free discount rate.



Fair Value of Financial
Instruments

The estimated fair value
of financial assets and liabilities, by their very nature, are subject to measurement uncertainty.



Assessment of Commercial
Reserves

Management is required
to assess the level of the Company’s commercial reserves together with the future expenditures to access those reserves,
which are utilized in determining the depletion charge for the period, assessing whether any impairment charge is required against
producing and developed, and the determination of the deferred tax liability. By their nature, these estimates of discovered proved
and probable crude oil and natural gas reserves, including the estimates of future prices, costs, related future cash flows and
the selection of a pre-tax risked discount rate relevant to the asset in question are subject to measurement uncertainty.

F-16







|                                              
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|(Expressed In Canadian Dollars)               
|For The Years Ended August 31, 2012 and 2011  



The Company employs an
independent reserves evaluator who periodically assesses the Company’s level of commercial reserves by reference to data
sets including geological, geophysical and engineering data together with reports, presentation and financial information pertaining
to the contractual and fiscal terms applicable to the Company’s assets. Significant judgment is involved when determining
whether there have been any significant changes in the Company’s reserves.



Income taxes

Income taxes liability
is estimated for the Company, including an assessment of temporary differences. Any temporary differences will generally result
in the recognition of deferred tax assets and liabilities in the financial statements. Management’s judgment is required
in the calculation of current and deferred taxes.



Provisions

Considerable judgment
is used in measuring and recognizing provisions and the exposure to contingent liabilities. Judgment is necessary to determine
the likelihood that a pending litigation or other claim will succeed, or a liability will arise and to quantify the possible range
of the final settlement.



Significant changes in
the assumptions, including those with respect to future business plan and cash flows, could materially change the recorded carrying
amounts.



| | 4. | Recent Accounting Pronouncements
| | -- | --------------------------------



All
accounting standards effective for periods on or after January 1, 2011 have been adopted as part of the transition to IFRS. The
following are new IFRS pronouncements that have been issued, although not yet effective and have not been early adopted, and may
have an impact on the Company in the future as discussed below.



IFRS 7, “Financial
Instruments”: Disclosures”, which requires disclosure of both gross and net information about financial instruments
eligible for offset in the statement of financial position and financial instruments subject to master netting agreements. Concurrent
with the amendments to IFRS 7, the IASB also amended IAS 32, “Financial Instruments: Presentation” to clarify the exiting
requirements for offsetting financial instruments in the statement of financial position. The amendments to IAS 32 are effective
as of January 1, 2014. The Company does not expect to have a significant impact on its consolidated financial statements.



IFRS 10, “Consolidated
Financial Statements” replaces the consolidation requirements of SIC-12 Consolidation Special Purpose Entities and IAS 27
“Consolidated Separate Financial Statements”. It introduces a new principle-based definition of control, applicable
to all investees to determine the scope of consolidation. The standard provides the framework for consolidated financial statements
and their preparation based on the principle of control. This new standard is effective for the Company’s Interim and Consolidated
financial statements commencing September 1, 2013. The Company does not expect to have a significant impact on its consolidated
financial statements.



IFRS 11 “Joint
Arrangements” which replaces IAS 31, “Interests in Joint Ventures”. IFRS 11 divides joint arrangements into two
types, each having its own accounting model. A “joint operation” continues to be accounted for using proportionate
consolidation, whereas a “joint venture” must be accounted for using equity accounting. This differs from IAS 31, where
there was the choice to use proportionate consolidation or equity accounting for joint ventures. A “joint operation”
is defined as the joint operators having rights to the assets, and obligations for the liabilities, relating to the arrangement.
In a “joint venture”, the joint ventures partners have rights to the net assets of the arrangement, typically through
their investment in a separate joint venture entity. This new standard is effective for the Company’s Interim and Consolidated
financial statements commencing September 1, 2013. The Company does not expect to have a significant impact on its consolidated
financial statements.



F-17











|                                              
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|(Expressed In Canadian Dollars)               
|For The Years Ended August 31, 2012 and 2011  



IFRS 12 “Disclosure of Interests
in Other Entities” is a new standard, which combines all of the disclosure requirements for subsidiaries, associates and
joint arrangements, as well as unconsolidated structured entities. This new standard is effective for the Company’s Interim
and Consolidated financial statements commencing September 1, 2013. The Company does not expect to have a significant impact on
its consolidated financial statements.



IFRS 13 “Fair Value Measurement”
replaces the fair value guidance contained in individual IFRS with a single source of fair value measurement guidance. The standard
also requires disclosures which enable users to assess the methods and inputs used to develop fair value measurements. This new
standard is effective for the Company’s Interim and Consolidated financial statements commencing September 1, 2013. The Company
does not expect to have a significant impact on its consolidated financial statements.



IAS 1 “Presentation of Financial
Statements” was amended by the IASB in September 2011 in order to align the presentation of items in comprehensive income
with US GAAAP standards. Items in other comprehensive income will be required to be presented in two categories: items that will
be reclassified into profit or loss and those that will not be reclassified. The flexibility to present a statement of comprehensive
income remains unchanged. The amendments to IAS 1 are effective for annual periods beginning on or after July 1, 2012. This new
standard is effective for the Company’s Interim and Consolidated financial statements commencing September 1, 2013. The Company
does not expect to have a significant impact on its consolidated financial statements.



IAS 27 “Separate Financial Statements”.
In May 2011, the IASB amended IAS 27, Separate Financial Statements (“IAS 27”). This amendment removes the requirements
for consolidated statements from IAS 27, and moves it over to IFRS 10 “Consolidated Financial Statements”. The amendment
mandates that when a company prepares separate financial statements, investment in subsidiaries, associates, and jointly controlled
entities are to be accounted for using either the cost method or in accordance with IFRS 9 “Financial Instruments”.
In addition, this amendment determines the treatment for recognizing dividends, the treatment of certain group reorganizations,
and some disclosure requirements. This amendment is effective for the Company’s interim and annual consolidated financial
statements commencing September 1, 2013. The Company is assessing the impact of this amended standard on its consolidated financial
statements.



IAS 28 “Investments in Associates
and Joint Ventures”. In May 2011, the IASB amended IAS 28, investments in Associates and Joint Ventures (“IAS 28”).
This amendment requires any retained portion of an investment in an associate or joint venture that has not been classified as
held for sale to be measured using the equity method until disposal. After disposal, if the retained interest continues to be an
associate or joint venture, the amendment requires for it to be continued to be accounted for under the equity method. The amendment
also disallows the re measurement of any retained interest in an investment upon the cessation of significant influence or joint
control. This amended standard is effective for the Company’s interim and annual consolidated financial statements commencing
September 1, 2013. The Company is assessing the impact of this amended standard on its consolidated financial statements.



IFRS 9 “Financial Instruments”.
In October 2010, the IASB issued IFRS 9, Financial Instruments (“IFRS 9”). IFRS 9, which replaces IAS 39, Financial
Instruments: Recognition and Measurement, establishes principles for the financial reporting of financial assets and financial
liabilities that will present relevant and useful information to users of financial statements for their assessment of the amounts,
timing and uncertainty of an entity’s future cash flows. This new standard is effective for the Company’s interim and
annual consolidated financial statements commencing September 1, 2015. The Company is assessing the impact of this new standard
on its consolidated financial statements.



| | 5. | Segmented Information
| | -- | ---------------------



The Company’s reportable and geographical
segments are Canada and the United States. The accounting policies used for the reportable segments are the same as the Company’s
accounting policies.



For the purposes of monitoring segment
performance and allocating resources between segments, the Company’s executive officer monitors the tangible, intangible
and financial assets attributable to each segment.



F-18







|                                              
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|(Expressed In Canadian Dollars)               
|For The Years Ended August 31, 2012 and 2011  



All assets are allocated to reportable
segments. The following tables show information regarding the Company’s reportable segments.



|For the year ended August 31, 2012 |  | Canada |            |   | United States |  |          | Total | 
|---------------------------------- |  | ------ | ---------- | - | ------------- |  | -------- | ----- | 
|Net revenue                        |  | $      | 39,218     |   |               |  | -        |       | 
|Net loss                           |  | $      | (2,588,298 | ) |               |  | (220,890 | )     | 



|For the year ended August 31, 2011 |  | Canada |          |   | United States |  |         | Total | 
|---------------------------------- |  | ------ | -------- | - | ------------- |  | ------- | ----- | 
|Net revenue                        |  | $      | 56,916   |   |               |  | -       |       | 
|Net loss                           |  | $      | (371,361 | ) |               |  | (59,566 | )     | 



|As at August 31, 2012   |  | Canada |           |  | United States |   |           | Total | 
|----------------------- |  | ------ | --------- |  | ------------- | - | --------- | ----- | 
|Total Assets            |  | $      | 3,983,791 |  |               | $ | 5,014,225 |       | 
|Total Liabilities       |  | $      | 5,478,773 |  |               | $ | 568,890   |       | 
|As at August 31, 2011   |  |        |           |  |               |   |           |       | 
|Total assets            |  | $      | 5,745,321 |  |               | $ | 3,830,655 |       | 
|Total liabilities       |  | $      | 6,241,697 |  |               | $ | 606,979   |       | 
|As at September 1, 2010 |  |        |           |  |               |   |           |       | 
|Total assets            |  | $      | 5,213,827 |  |               | $ | 893,625   |       | 
|Total liabilities       |  | $      | 3,361,515 |  |               | $ | 210,669   |       | 



| | 6. | Marketable Securities
| | -- | ---------------------



|                                                    |  | August 31, 2012 |  
|--------------------------------------------------- |  | --------------- | -
|Investments in quoted company security (see Note 3) |  |                 |  
|(September 1, 2010 and August 31, 2011 - $1)        |  | $               | 1



| | 7. | Exploration and Evaluation Assets
| | -- | ---------------------------------



|Cost                                           |  |   |            |  
|---------------------------------------------- |  | - | ---------- | -
|Balance September 1, 2010                      |  | $ | 5,695,290  |  
|Additions                                      |  |   | 3,262,782  |  
|Decommissioning obligations                    |  |   | 52,641     |  
|Change in decommissioning obligation estimates |  |   | 4,332      |  
|Foreign exchange                               |  |   | (19,167    | )
|Balance August 31, 2011                        |  |   | 8,995,878  |  
|Additions                                      |  |   | 1,559,763  |  
|Units cancelled                                |  |   | (2,091,616 | )
|Decommissioning obligations                    |  |   | 41,243     |  
|Change in decommissioning obligation estimates |  |   | 6,546      |  
|Foreign exchange                               |  |   | (36,327    | )
|Balance August 31, 2012                        |  | $ | 8,475,487  |  



The Company’s exploration and evaluation
assets are located in Texas, USA. As at and for the years ended August 31, 2012 and August 31, 2011 no impairment loss was recorded.
For the year ended August 31, 2012 the Company capitalized interest of $289,650 to exploration and evaluation assets (August 31,
2011: $197,690).



Mathews Lease, Zavala County, Texas,
USA

On August 31, 2012 the Company cancelled
3,418,468 common shares and 1,709,234 common share purchase warrants. The common shares and warrants had been issued August 31,
2010 as partial consideration of the purchase price for Dyami Energy and held in escrow pending the satisfaction of certain conditions
precedent to their release on August 31, 2012. The conditions precedent had not been satisfied and the time allowed for performance
expired. The Company recorded a reduction in exploration and evaluation assets of $2,091,616.



F-19







|                                              
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|(Expressed In Canadian Dollars)               
|For The Years Ended August 31, 2012 and 2011  



Dyami Energy holds a 75% working interest
before payout and a 61.50% working interest after payout of production revenue of $12.5 million and Eagleford holds a 10% working
interest before payout and a 7.5% working interest after payout of production revenue of $15 million in a mineral lease comprising
approximately 2,629 gross acres of land in Zavala County, Texas. The royalties payable under the Matthews lease are 25%.



The Matthews Oil and Gas Lease had a primary
term of three years commencing April 1, 2008, unless commercial production is established from a well or lands pooled therewith
or the lessee is then engaged in actual drilling or reworking on any well within 90 days thereafter. The lease shall remain in
force so long as the drilling or reworking is processed without cessation of more than 90 days. Once production is established,
the lease is held by production so long as a new well is commenced within 180 days of completion of the prior well, which is defined
as 15 days following reaching total depth in a well or the total length of a horizontal well.



Matthews Lease Litigation

The lessor of the Matthews lease expressed
their belief that the lease has terminated and filed a petition in the District Court, Zavala County, Texas, seeking a declaration
that the lease has terminated. The Company disagrees and believes that it is in full compliance with the terms of the lease. The
Company is defending the allegation and countersuing the lessor for repudiation of the lease and seeking damages.



The Company elected to conduct the continuous
drilling program provision of the lease in order to extend the term of the lease beyond its primary term. The Company commenced
actual drilling operations on a well, within the 180 day time period allowed and defined in the amended lease every such period
since the end of the primary term.



In March 2012, the
Companynotified the lessor of its intention to continue drilling the No. 2-H well initiated in October 2011 and suspended,
and to drill a new well, the 4-H under the continuous-drilling program.



Upon receipt of this notice, and before
the 180-day deadline to commence actual drilling operations expired, the lessor informed the Companythat it was taking the position that the lease had terminated because the Company allegedly failed to drill the No. 2-H
well in a good faith attempt to secure production, and thus failed to comply with the continuous drilling program. The lessor later
added that the Company was 2 days late having a drill bit contact the surface of the earth and turn to the right. Based on the
Company’s extensive logging, coring, and laboratory work and analysis, the Company was highly confident that these wells
would produce in commercial quantities, which would have benefitted the lessor and the other royalty owner, and would have allowed
the Company to begin to recoup its investment in the lease. Extended development drilling would have followed. Accordingly the
Company is seeking specific performance or damages from the lessors.



As at August 31, 2012, no amounts of contingent
loss due to the impairment of the above mentioned lease have been recorded in these consolidated financial statements. According
to the Company's legal counsel, there are no dispositive motions pending, a trial date has not been set and in their opinion it
is not possible to evaluate the likelihood of an unfavorable outcome or the amount or range of potential loss.



The Company carries its investment in the
Matthews lease at approximately $4,645,534. If the final outcome of such claim differs adversely from that expected, it would result
in an impairment loss equal to the carrying value of the Matthews lease, when determined.



Murphy Lease, Zavala County, Texas,
USA

Dyami Energy holds a 100% working interest
in a mineral lease comprising approximately 2,637 acres of land in Zavala County, Texas (the “Murphy Lease”) subject
to a 10% carried interest on the drilling costs from surface to base of the Austin Chalk formation, and a 3% carried interest on
the drilling costs from the top of the Eagle Ford shale formation to basement on the first well drilled into a serpentine plug
and for the first well drilled into a second serpentine plug, if discovered. Thereafter Dyami Energy’s working interests
range from 90% to 97%. The royalties payable under the Murphy Lease are 25%.



F-20







|                                              
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|(Expressed In Canadian Dollars)               
|For The Years Ended August 31, 2012 and 2011  



Dyami Energy is required to drill a well
every six months in order to maintain the Murphy Lease. Three years after the cessation of continuous drilling, all rights below
the deepest producing horizon in each unit then being held by production, shall be released and re-assigned to the Lessor, unless
the drilling of another well has been proposed on said unit, approved in writing by Lessor, and timely commenced.



| | 8. | Property and Equipment
| | -- | ----------------------



|                                               |  | Petroleum and Natural Gas Properties |         
|---------------------------------------------- |  | ------------------------------------ | --------
|Cost or deemed cost                            |  |                                      |         
|Balance September 1, 2010                      |  | $                                    | 314,000 
|Change in decommissioning obligation estimates |  |                                      | 302     
|Balance August 31, 2011                        |  |                                      | 314,302 
|Change in decommissioning obligation estimates |  |                                      | 819     
|Balance August 31, 2012                        |  | $                                    | 315,121 
|                                               |  |                                      |         
|Accumulated depletion and impairment           |  |                                      |         
|Balance September 1, 2010                      |  |                                      | -       
|Depletion                                      |  | $                                    | (23,053 
|Impairment                                     |  |                                      | (48,249 
|Balance August 31, 2011                        |  |                                      | (71,302 
|Depletion                                      |  |                                      | (18,045 
|Impairment                                     |  |                                      | (50,774 
|Balance August 31, 2012                        |  | $                                    | (140,121
|                                               |  |                                      |         
|Carrying Value                                 |  |                                      |         
|At September 1, 2010                           |  | $                                    | 314,000 
|At August 31, 2011                             |  | $                                    | 243,000 
|At August 31, 2012                             |  | $                                    | 175,000 



As at and for the year ended August 31,
2012 and 2011, no general and administrative costs were capitalized. For the year ended August 31, 2012 the Company recorded an
impairment loss of $50,774 on its Alberta, Canada property as a result of an evaluation prepared by an independent reserves evaluator
(August 31, 2011 $48,249). The evaluation was based on future pre-tax cash flows of the proved and probable reserves using forecast
prices and discounted by 10%.



Alberta, Canada

The Company has a 0.5% non convertible
gross overriding royalty in a natural gas well located in the Haynes area of Alberta and a 5.1975% interest in a natural gas unit
located in the Botha area of Alberta, Canada.



| | 9. | Provisions
| | -- | ----------



|                           |  | Decommissioning Provisions (Note a) |         |   | Other Provisions (Note b) |   |         | Total Provisions | 
|-------------------------- |  | ----------------------------------- | ------- | - | ------------------------- | - | ------- | ---------------- | 
|Balance, September 1, 2010 |  | $                                   | 6,555   |   |                           | $ | 66,813  |                  | 
|Accretion expense          |  |                                     | 859     |   |                           |   |         |                  | 
|Additions                  |  |                                     | 52,641  |   |                           |   |         |                  | 
|Change in estimate         |  |                                     | 4,633   |   |                           |   |         |                  | 
|Foreign exchange           |  |                                     |         |   |                           |   | (5,669  | )                | 
|Balance, August 31, 2011   |  |                                     | 64,688  |   |                           |   | 61,144  |                  | 
|Accretion expense          |  |                                     | 2,464   |   |                           |   |         |                  | 
|Additions                  |  |                                     | 41,243  |   |                           |   | 64,866  |                  | 
|Change in estimate         |  |                                     | 7,365   |   |                           |   |         |                  | 
|Foreign exchange           |  |                                     | (1,005  | ) |                           |   | (93     | )                | 
|Balance, August 31, 2012   |  | $                                   | 114,755 |   |                           | $ | 125,917 |                  | 



F-21







|                                              
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|(Expressed In Canadian Dollars)               
|For The Years Ended August 31, 2012 and 2011  



| | a) | Decommissioning Obligations
| | -- | ---------------------------

The Company’s decommissioning obligations
result from its ownership interests in petroleum and natural gas assets including well sites, gathering systems and processing
facilities. The total decommissioning obligation is estimated based on the Company’s net ownership interest in all wells
and facilities, estimated costs to reclaim and abandon these wells and facilities, and the estimated timing of the costs to be
incurred in future years. The Company has estimated the net present value of decommissioning obligations to be $114,755 at August
31, 2012 (August 31, 2011 $64,688 and September 1, 2010 $6,555) based on an undiscounted total future liability of $158,974 (August
31, 2011 $102,974 and September 1, 2010 $12,474). These payments are expected to be incurred between fiscal 2022 and 2031. The
discount factor, being the risk free rate related to the liability is 2.37% (August 31, 2011 3.10% and September 1, 2010 3.33%).



| | b) | Other Provisions
| | -- | ----------------

During the year ended August 31, 2010 a
vendor of Dyami Energy filed a claim in the District Court of Harris County, Texas seeking payment of US$62,800. Dyami Energy is
disputing the claim on the basis of excessive charges. The full amount of the provision has been recorded and any legal costs will
be expensed as incurred. The outcome of this claim is uncertain at this time.



During the year ended August 31, 2012 a
vendor of Dyami Energy filed a claim in the District Court of Harris County, Texas seeking payment of US$64,866. Dyami Energy is
disputing the amount charged due to faulty equipment. The full amount of the provision has been recorded and any legal costs will
be expensed as incurred. The outcome of this claim is uncertain at this time.



The above amounts have been classified
as long term, however not discounted as the impact to the consolidated financial statements is immaterial.



| | 10. | Share Capital and reserves
| | --- | --------------------------



On March 16, 2012, the Company completed
a 2-for-1 stock split, pursuant to which one (1) newly-issued share of the Company’s common stock was issued to each holder
of a share of common stock as of the close of business. The forward stock split has been applied retrospectively for all periods
presented.



Authorized:

Unlimited number of common shares

Unlimited non-participating, non-dividend
paying, voting redeemable preference shares



Issued:

The following table sets out the changes
in common shares during the respective periods:



|Common Shares                   |  | Number* |            |   | Amount |  
|------------------------------- |  | ------- | ---------- | - | ------ | -
|Balance September 1, 2010       |  |         | 59,502,051 |   |        | $
|Exercise of warrants (note a)   |  |         | 7,420,692  |   |        |  
|Issued as compensation (note b) |  |         | 200,000    |   |        |  
|Balance August 31, 2011         |  |         | 67,122,743 |   |        |  
|Debt settlement (note c)        |  |         | 3,107,006  |   |        |  
|Debt settlement (note d)        |  |         | 6,000,000  |   |        |  
|Debt settlement (note e)        |  |         | 11,150,000 |   |        |  
|Private placement (note f)      |  |         | 2,000,000  |   |        |  
|Private placement (note g)      |  |         | 3,750,000  |   |        |  
|Private placement (note h)      |  |         | 6,825,000  |   |        |  
|Debt settlement (note i)        |  |         | 171,386    |   |        |  
|Cancelled (note j)              |  |         | (3,418,468 | ) |        |  
|Balance August 31, 2012         |  |         | 96,707,667 |   |        | $

* Reflects the March 16, 2012 two-for-one
stock split



F-22







|                                              
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|(Expressed In Canadian Dollars)               
|For The Years Ended August 31, 2012 and 2011  



The following table sets out the changes
in warrants during the respective periods:



|                               |  | August 31, 2012     |            |  | August 31, 2011         |  
|------------------------------ |  | ------------------- | ---------- |  | ----------------------- | -
|Warrants                       |  | Number of Warrants* |            |  | Weighted Average Price* |  
|Outstanding, beginning of year |  |                     | 21,050,948 |  |                         | $
|Warrants exercised (note a)    |  |                     | -          |  |                         |  
|Debt settlement (note d)       |  |                     | 6,000,000  |  |                         | $
|Debt settlement (note e)       |  |                     | 11,150,000 |  |                         | $
|Private placement (note f)     |  |                     | 2,000,000  |  |                         | $
|Balance, end of year           |  |                     | 40,200,948 |  |                         | $

* Reflects the March 16, 2012 two-for-one stock split



(a)            During the year ended August 31,
2011, 1,000,000 common share purchase warrants were exercised at $0.04 expiring February 5, 2014 for proceeds of $35,000. The amount
allocated to warrants based on relative fair value using the Black Scholes model was $12,000; 1,200,000 common share purchase warrants
were exercised at $0.04 expiring February 25, 2014 for proceeds of $42,000. The amount allocated to warrants based on relative
fair value using the Black Scholes model was $14,400; 70,692 common share purchase warrants were exercised at $0.04 expiring February
27, 2014 for proceeds of $2,475. The amount allocated to warrants based on relative fair value using the Black Scholes model was
$822; and 5,150,000 common share purchase warrants were exercised at $0.10 expiring April 14, 2011 for proceeds of $515,000. The
amount allocated to warrants based on relative fair value using the Black Scholes model was $100,875.



(b)            In April 29, 2011, the Company entered
into a consulting agreement with a service provider to provide corporate marketing and public relations to the Company for a period
of six months. As compensation, the Company agreed to issue 200,000 common shares and 100,000 common share purchase warrants exercisable
at US $0.63 per common share expiring May 4, 2012. The amount allocated to common shares was based on the share price at the time
of issuance was $95,800 and the amount allocated to derivative warrant liabilities based on fair value using the Black Scholes
model was $37,054. For the year ended August 31, 2011, $88,569 was recorded as marketing and public relations expense and $44,285
was recorded as prepaid expenses. On May 4, 2012, 100,000 warrants expired. The amount allocated to derivative financial instruments
based on fair value using the Black Scholes model was $39,440 with a corresponding increase to contributed surplus (see Note 13).



(c)            During the year ended August 31,
2012, the Company issued 3,107,006 common shares as full settlement of interest due on shareholders’ loans in the amount
of $325,903. The amount allocated to common shares based on fair value was $395,589 and $69,686 was recorded as a loss on settlement
of debt in the statement of operations and comprehensive loss.



(d)            On January 24, 2012, the Company
converted shareholders’ loans in the aggregate amount of $300,000 through the issuance of a total of 6,000,000 units in the
capital of the Company at $0.05 per unit. Each unit is comprised of one (1) common share and one (1) purchase warrant exercisable
until January 24, 2015 to purchase one (1) additional common share of the Company at a purchase price of $0.05 per share. The fair
value of the common shares issued on the settlement date was $522,856 and the amount allocated to warrants based on relative fair
value using the Black Scholes model was $507,038 and $729,894 was recorded as a loss on settlement of debt.



(e)            On February 17, 2012, the Company
converted debt and shareholders’ loans in the aggregate amount of $557,500 through the issuance of a total of 11,150,000
units in the capital of the Company at of $0.05 per unit. Each unit is comprised of one (1) common share and one (1) purchase warrant
exercisable until February 17, 2015 to purchase one (1) additional common share of the Company at a purchase price of $0.05 per
share. The fair value of the common shares issued on the settlement date was $627,511 and the amount allocated to warrants based
on relative fair value using the Black Scholes model was $595,310 and $665,321 was recorded as a loss on settlement of debt.



F-23







|                                              
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|(Expressed In Canadian Dollars)               
|For The Years Ended August 31, 2012 and 2011  



(f)            On February 17, 2012, the Company
completed a non-brokered private placement of a total of 2,000,000 units in the capital of the Company at a purchase price of $0.05
per unit for net proceeds of $100,000. Each unit is comprised of one (1) common share and one (1) purchase warrant exercisable
until February 17, 2015 to purchase one (1) additional common share of the Company at a purchase price of $0.05 per share. The
amount allocated to warrants based on relative fair value using the Black Scholes model was $67,541.



(g)            On April 13, 2012, the Company completed
private placements for gross proceeds of $748,425 of equity capital from arm’s length private placement funding through the
issuance of 3,000,000 units at a price of US$0.25 per unit. Each unit is comprised of one common share and one-half a common share
purchase warrant, with each whole warrant entitling the holder to acquire one common share of the Company at US$0.50 for a period
of three years from the date of issuance. The amount allocated to derivative warrant liabilities for warrants based on fair value
using the Black Scholes model was $282,604. In connection with the private placement, the Company paid cash commissions and other
expenses of $45,030 and issued an aggregate of 240,000 broker warrants.  Each broker warrant entitles the holder to acquire
one common share of the Company at an exercise price of US$0.25 for a period of three years from the date of issuance. The amount
allocated to derivative warrant liabilities based on fair value using the Black Scholes model was $78,005 with a corresponding
decrease in common shares. The Company subsequently re-priced the offering at US$0.20 and issued an additional 750,000 units on
July 27, 2012. The fair value of the units based on the new offering price was determined to be $188,625. The amount allocated
to contributed surplus was $132,616 and the amount allocated to derivative warrant liabilities based on fair value using the Black
Scholes model was $56,009. In addition, the Company issued an additional 60,000 broker warrants.  Each broker warrant entitles
the holder to acquire one common share of the Company at an exercise price of US$0.25 for a period of three years from the date
of issuance. The amount allocated to derivative warrant liabilities based on fair value using the Black Scholes model for broker
warrants was $14,109 with a corresponding decrease in contributed surplus (see Note 13)



(h)            On July 20, 2012 and August 7, 2012
the Company completed private placements for gross proceeds of $1,365,561 of equity capital from arm’s length private placement
funding through the issuance of 6,825,000 units at a price of US$0.20 per unit. Each unit is comprised of one common share and
one-half a common share purchase warrant, with each whole warrant entitling the holder to acquire one common share of the Company
at US$0.50 for a period of three years from the date of issuance. The amount allocated to derivative warrant liabilities for warrants
based on fair value using the Black Scholes model was $460,907. In connection with the private placement, the Company paid cash
commissions and other expenses of $82,239 and issued an aggregate of 546,000 broker warrants.  Each broker warrant entitles
the holder to acquire one common share of the Company at an exercise price of US$0.25 for a period of three years from the date
of issuance. The amount allocated to derivative warrant liabilities based on fair value using the Black Scholes model was $119,887
with a corresponding decrease in common shares (see Note 13).



(i)            On May 8, 2012, the Company issued
171,385 common shares as full settlement of interest due on shareholders’ loans in the amount of $43,983. The amount allocated
to common shares based on fair value was $44,547 and $564 was recorded as a loss on settlement of debt in the statement of operations
and comprehensive loss.



(j)            On August 31, 2012 the Company cancelled
3,418,468 common shares and 1,709,234 common shares purchase warrants exercisable at US$0.50 until August 31, 2014. The common
shares and warrants had been issued August 31, 2010 as partial consideration of the purchase price for Dyami Energy and held in
escrow pending the satisfaction of certain conditions precedent to their release on August 31, 2012. The conditions precedent had
not been satisfied and the time allowed for performance expired. The Company recorded a reduction in exploration and evaluation
assets of $2,091,616, a reduction in common shares of $1,397,199, a reduction of derivative warrant liabilities of $675,487 and
a reduction in contributed surplus of $18,930 (see Note 13).



F-24







|                                              
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|(Expressed In Canadian Dollars)               
|For The Years Ended August 31, 2012 and 2011  



The following table summarizes the outstanding
warrants as at August 31, 2012:



|Number of |            |  | Exercise |   |      | Expiry |  |                   | Weighted Average       |  |  | Warrant   | 
|--------- | ---------- |  | -------- | - | ---- | ------ |  | ----------------- | ---------------------- |  |  | --------- | 
|Warrants* |            |  | Price*   |   |      | Date   |  |                   | Remaining Life (Years) |  |  | Value ($) | 
|          | 2,000,000  |  |          | $ | 0.04 |        |  | February 5, 2014  |                        |  |  | 1.43      | 
|          | 800,512    |  |          | $ | 0.04 |        |  | February 25, 2014 |                        |  |  | 1.49      | 
|          | 18,250,436 |  |          | $ | 0.04 |        |  | February 27, 2014 |                        |  |  | 1.49      | 
|          | 6,000,000  |  |          | $ | 0.05 |        |  | January 24, 2015  |                        |  |  | 2.40      | 
|          | 11,150,000 |  |          | $ | 0.05 |        |  | February 17, 2015 |                        |  |  | 2.47      | 
|          | 2,000,000  |  |          | $ | 0.05 |        |  | February 17, 2015 |                        |  |  | 2.47      | 
|          | 40,200,948 |  |          | $ | 0.04 |        |  |                   |                        |  |  | 1.94      | 

* Reflects the March 16, 2012 two-for-one
stock split



The fair value of the warrants issued during
the year ended August 31, 2012, were estimated using the Black-Scholes pricing model with the following assumptions:



|Black-Scholes Assumptions used |  |  |     |  
|------------------------------ |  |  | --- | -
|Risk-free interest rate        |  |  | 1   | %
|Expected volatility            |  |  | 218 | %
|Expected life (years)          |  |  | 3   |  
|Dividend yield                 |  |  | -   |  



The following table summarizes the outstanding
warrants as at August 31, 2011:



|Number of |            |  | Exercise |   |      | Expiry |  |                   | Weighted Average       |  |  | Warrant   | 
|--------- | ---------- |  | -------- | - | ---- | ------ |  | ----------------- | ---------------------- |  |  | --------- | 
|Warrants* |            |  | Price*   |   |      | Date   |  |                   | Remaining Life (Years) |  |  | Value ($) | 
|          | 2,000,000  |  |          | $ | 0.04 |        |  | February 5, 2014  |                        |  |  | 2.44      | 
|          | 800,512    |  |          | $ | 0.04 |        |  | February 25, 2014 |                        |  |  | 2.49      | 
|          | 18,250,436 |  |          | $ | 0.04 |        |  | February 27, 2014 |                        |  |  | 2.50      | 
|          | 21,050,948 |  |          | $ | 0.04 |        |  |                   |                        |  |  | 2.49      | 

* Reflects the March 16, 2012 two-for-one
stock split



The following table summarizes the outstanding
warrants as at September 1, 2010:



|Number of Warrants* |            |  | Exercise Price* |   |      | Expiry Date |  |                   | Weighted Average Remaining Life (Years) |  |  | Warrant Value ($) | 
|------------------- | ---------- |  | --------------- | - | ---- | ----------- |  | ----------------- | --------------------------------------- |  |  | ----------------- | 
|                    | 5,150,000  |  |                 | $ | 0.10 |             |  | April 14, 2011    |                                         |  |  | 0.62              | 
|                    | 1,000,000  |  |                 | $ | 0.04 |             |  | February 5, 2014  |                                         |  |  | 3.43              | 
|                    | 2,000,512  |  |                 | $ | 0.04 |             |  | February 25, 2014 |                                         |  |  | 3.49              | 
|                    | 20,321,128 |  |                 | $ | 0.04 |             |  | February 27, 2014 |                                         |  |  | 3.49              | 
|                    | 28,471,640 |  |                 | $ | 0.04 |             |  |                   |                                         |  |  | 2.97              | 

* Reflects the March 16, 2012 two-for-one
stock split



The following table summarizes the weighted
average shares outstanding:



|Weighted Average Shares Outstanding*                   |  | 2012 |            |  | 2011 | 
|------------------------------------------------------ |  | ---- | ---------- |  | ---- | 
|Weighted average shares outstanding, basic and diluted |  |      | 81,769,733 |  |      | 

* Reflects the March 16, 2012 two-for-one
stock split



F-25







|                                              
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|(Expressed In Canadian Dollars)               
|For The Years Ended August 31, 2012 and 2011  



The effects of any potential dilutive instruments
on loss per share are anti-dilutive and therefore have been excluded from the calculation of diluted loss per share.



Share Purchase Options

The Company has a stock option plan to
provide incentives for directors, officers, employees and consultants of the Company. The maximum number of shares, which may be
set aside for issuance under the stock option plan, is 20% of the issued and outstanding common shares of the Company on a rolling
basis.



The following table is a summary of the
status of the Company’s stock options and changes during the period:



|                                               |  | Number      |           |  | Weighted Average |  
|---------------------------------------------- |  | ----------- | --------- |  | ---------------- | -
|                                               |  | of Options* |           |  | Exercise Price   |  
|Balance, September 1, 2010 and August 31, 2011 |  |             | -         |  |                  | $
|Granted                                        |  |             | 1,050,000 |  |                  |  
|Balance, August 31, 2012                       |  |             | 1,050,000 |  |                  | $

* Reflects the March 16, 2012 two-for-one
stock split



The following table is a summary of the
Company's stock options outstanding and exercisable at August 31, 2012:



|Options Outstanding |      |  | Options Exercisable | 
|------------------- | ---- |  | ------------------- | 
|Exercise Price      |      |  | Number of Options   | 
|$                   | 0.16 |  |                     | 
|$                   | 0.25 |  |                     | 
|                    |      |  |                     | 

* Reflects the March 16, 2012 two-for-one
stock split



Stock Based Compensation

On March 1, 2012, the Company granted options
to purchase 600,000 common shares to directors. These options are exercisable at $0.16 per share, vesting immediately and expire
on February 28, 2017. The Company recorded non-cash stock based compensation expense of $95,910.



Stock Based Compensation – Non
Employees

On March 1, 2012, the Company granted options
to purchase 400,000 common shares to a consultant. These options are exercisable at $0.16 per share, vesting immediately and expire
on February 28, 2017. The Company recorded non-cash stock based compensation expense of $63,940.



On July 24, 2012, the Company granted options
to purchase 50,000 stock options to a consultant of the Company. These options are exercisable at $0.25 per share, vest immediately
and expire on July 23, 2017. The Company recorded non-cash share based compensation expense of $11,122.



The fair value of the stock options granted
were estimated on the date of the grant using the Black Scholes option pricing model with the following weighted average assumptions
used.



|                                         |  | March 1, 2012 |      |   | July 24, 2012 |  
|---------------------------------------- |  | ------------- | ---- | - | ------------- | -
|Weighted average fair value per option   |  | $             | 0.16 |   |               | $
|Weighted average risk free interest rate |  |               | 1.44 | % |               |  
|Forfeiture rate                          |  |               | 0    | % |               |  
|Weighted average expected volatility     |  |               | 213  | % |               |  
|Expected life (years)                    |  |               | 5    |   |               |  
|Dividend yield                           |  |               | Nil  |   |               |  



F-26







|                                              
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|(Expressed In Canadian Dollars)               
|For The Years Ended August 31, 2012 and 2011  



Transactions for the respective periods
are as follows:



|                                               |  | Amount |        
|---------------------------------------------- |  | ------ | -------
|Balance, August 31, 2011 and September 1, 2010 |  | $      | -      
|Stock based compensation                       |  |        | 170,972
|Balance August 31, 2012                        |  | $      | 170,972



Compensation Expense on Re-pricing Units



On April 13, 2012, the Company completed
private placements of equity capital for gross proceeds of $748,425 from arm’s length private placement funding through the
issuance of 3,000,000 units at a price of US$0.25 per unit. The Company subsequently re-priced the offering at US$0.20 and issued
an additional 750,000 units on July 27, 2012. The fair value of the additional units issued based on the new offering price was
determined to be $188,625 and was expensed to the statement of operations.



|Black-Scholes Assumptions used |  |  |      |  
|------------------------------ |  |  | ---- | -
|Risk-free interest rate        |  |  | 1.16 | %
|Expected volatility            |  |  | 192  | %
|Expected life (years)          |  |  | 2.9  |  
|Dividend yield                 |  |  | -    |  



Contributed Surplus

Contributed surplus transactions for the
respective periods are as follows:



|                                            |  | Amount |        
|------------------------------------------- |  | ------ | -------
|Balance, September 1, 2010                  |  | $      | 43,750 
|Imputed interest (Note 11)                  |  |        | 5,750  
|Warrants cancelled (note c)                 |  |        | 36,237 
|Balance, August 31, 2011                    |  |        | 85,737 
|Imputed interest (Note 11)                  |  |        | 2,334  
|Warrants expired (note b, c)                |  |        | 318,552
|Warrants cancelled (note j)                 |  |        | (18,930
|Compensation expense on re-pricing of units |  |        | 118,507
|Balance, August 31, 2012                    |  | $      | 506,200



| | 11. | Related Party Transactions and Balances
| | --- | ---------------------------------------



The following transactions with individuals
related to the Company arose in the normal course of business have been accounted for at the exchange amount being the amount agreed
to by the related parties, which approximates the arm’s length equivalent value.



Compensation of Key Management Personnel

The remuneration of directors and other
members of key management personnel during the years ended were as follows:



|                                       |  | August 31, 2012 |         |  | August 31, 2011 |  
|-------------------------------------- |  | --------------- | ------- |  | --------------- | -
|Short term employee benefits (1)       |  | $               | 75,000  |  |                 | $
|Directors stock based compensation (3) |  |                 | 95,910  |  |                 |  
|                                       |  | $               | 170,910 |  |                 | $



F-27







|                                              
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|(Expressed In Canadian Dollars)               
|For The Years Ended August 31, 2012 and 2011  



The following balances owing to the President
of the Company are included in trade and other payables and are unsecured, non-interest bearing and due on demand:



|                                       |  | August 31, 2012 |         |  | August 31, 2011 |   |        | September 1, 2010 (2) | 
|-------------------------------------- |  | --------------- | ------- |  | --------------- | - | ------ | --------------------- | 
|Short term employee benefits (1)       |  | $               | 131,250 |  |                 | $ | 56,250 |                       | 
|Expenses paid on behalf of the Company |  |                 | 1,896   |  |                 |   | -      |                       | 
|                                       |  | $               | 133,146 |  |                 | $ | 56,250 |                       | 



| | (1) | Commencing December 1, 2010 the Company accrues management fees for the President of the Company
at a rate of $6,250 per month.
| | --- | -------------------------------------------------------------------------------------------------------------------------------

| | (2) | Management fees to the former President of the Company.
| | --- | -------------------------------------------------------

| | (3) | On March 1, 2012, the Company granted 600,000 share purchase options to directors with an exercise
price of $0.16 per share expiring on February 28, 2017.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------



At August 31, 2012 the amount of directors’
fees included in trade and other payables was $12,900 (August 31, 2011 $8,800 and September 1, 2010 $6,700).



At August 31, 2012 the Company had promissory
notes payable to the President of $28,845 and US$300,000 (August 31, 2011 US$300,000). For the year ended August 31, 2012 the Company
recorded interest of $32,538. At August 31, 2012, included in trade and other payables is interest of $28,687 (August 31, 2011
$26,135). During the year ended August 31, 2012 the Company issued 207,612 common shares to the President as full settlement of
interest due in the amount of $30,195. The notes are due on demand and bear interest at 10% per annum. Interest is payable annually
on the anniversary date of the notes.



On September 1, 2011 the Company paid to
Source Re Work Program, Inc. (“Source”) the secured promissory note in full in the amount of US$75,000 together with
accrued interest of US$6,250. Eric Johnson was the President of Source, is a shareholder of the Company and was the Vice President
of Operations for Dyami Energy until April 13, 2011 (see Note 12).



At August 31, 2012 the Company has a US$960,000,
10% per annum secured promissory note payable to Benchmark Enterprises LLC (“Benchmark”). Benchmark is a shareholder
of the Company. For the year ended August 31, 2012 the Company recorded interest of $83,947. At August 31, 2012 included in trade
and other payables is interest of $63,296 (August 31, 2011 $92,219). During the year ended August 31, 2012 the Company issued 1,030,812
common shares as full settlement of interest due in the amount of $103,021 (see Note 12).



At August 31, 2012 included in trade and
other payables is $14,649 due to Gottbetter & Partners LLP for legal fees (August 31, 2011 $68,918). On February 17, 2012 the
Company converted $50,000 of debt into 1,000,000 units of the Company at $0.05 per unit. During the year ended August 31, 2012
the Company completed private placements of 10,575,000 units in the capital of the Company for gross proceeds of $2,113,986 and
paid to Gottbetter Capital Markets, LLC, placement agent fees of $99,326 and issued 846,000 common share purchase warrants exercisable
at US$0.25 for a period of three years from the date of issue. Gottbetter Capital Group, Inc. is a shareholder of the Company.
Adam Gottbetter is the managing and principal partner of Gottbetter & Partners LLP, and the beneficial owner of Gottbetter
Capital Group, Inc., and Gottbetter Capital Markets, LLC.



At August 31, 2012 the Company had an unsecured,
non-interest bearing and repayable on demand shareholder loan in the amount of Nil (August 31, 2011 and September 1, 2010 $57,500).
For the year ended August 31, 2012 interest was imputed at a rate of 10% per annum and interest of $2,334 was recorded and included
in contributed surplus (August 31, 2011 $5,750). On January 24, 2012 the Company converted $50,000 of the loan into 1,000,000 units
and on February 17, 2012 the Company converted the balance of the loan, $7,500 into 150,000 units in the capital of the Company
at $0.05 per unit.



F-28







|                                              
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|(Expressed In Canadian Dollars)               
|For The Years Ended August 31, 2012 and 2011  



During the year ended August 31, 2012,
the Company received US$175,000 and $293,000 and issued promissory notes to five shareholders. During the year ended August 31,
2012 the Company paid US$480,000 in promissory notes. At August 31, 2012, the Company had shareholders’ loans payable of
US $1,583,740 and $293,000 (August 31, 2011 US$2,490,000 and CDN$149,000). The notes are payable on demand and bear interest at
10% per annum. Interest is payable annually on the anniversary date of the notes. For the year ended August 31, 2012 the Company
recorded interest of $254,117. At August 31, 2012, included in trade and other payables is interest of $190,484 (August 31, 2011
$171,640). During the year ended August 31, 2012 the Company issued 2,039,969 common shares as full settlement of interest due
on shareholder notes in the amount of $236,669.



On January 24, 2012 the Company converted
$250,000 of shareholders’ loans into 5,000,000 units in the capital of the Company at $0.05 per unit and on February 17,
2012 the Company converted $500,000 into 10,000,000 units in the capital of the Company at $0.05 per unit.



| | 12. | Secured Notes Payable
| | --- | ---------------------



At August 31, 2011 the Company had a secured
promissory note payable to Source Re Work Program, Inc. (“Source”) in the amount of US$75,000 (September 1, 2010 US$175,000).
On September 1, 2011 the Company paid the balance due on the secured promissory note of US$75,000 together with accrued interest
to August 31, 2011 of US$6,250 (September 1, 2010 Nil).



At August 31, 2012, the Company had a US$960,000,
6% per annum secured promissory note payable to Benchmark Enterprises LLC (August 31, 2011 and September 1, 2010 US$960,000). The
note was payable on December 31, 2011 or upon the Company closing a financing or series of financings in excess of US$4,500,000.
The due date of the note was extended until February 28, 2013 with an interest rate of 10% per annum. For the year ended August
31, 2012 the Company recorded interest of $83,947. At August 31, 2012 included in trade and other payables is interest of $63,296
(August 31, 2011 $92,219 and September 1, 2010 $26,862). During the year ended August 31, 2012 the Company issued 1,030,812 common
shares as full settlement of interest due in the amount of $103,021. The noteis secured by Dyami Energy’s interest
in the Matthews and Murphy Leases, Zavala County, Texas (the “Leases”). The carrying value of Dyami Energy’s
interest in the Leases at August 31, 2012 was $4,645,534. The Company may, in its sole discretion, prepay any portion of the principal
amount.



| | 13. | Derivative Warrant Liabilities
| | --- | ------------------------------



The Company has warrants issued with an
exercise price in US dollars which are different from the functional currency of the Company (Canadian Dollars) and accordingly
the warrants are treated as a financial liability and the fair value movement during the period is recognized in the profit or
loss.



The following tables sets out the changes
in derivative warrant liabilities during the respective periods.



|                               |  | Number of Warrants* |            |   | Fair Value Assigned |   |           | Average Exercise Price US $ | 
|------------------------------ |  | ------------------- | ---------- | - | ------------------- | - | --------- | --------------------------- | 
|September 1, 2010              |  |                     | 4,418,468  |   |                     | $ | 1,701,861 |                             | 
|Warrants cancelled             |  |                     | (109,290   | ) |                     |   | (37,024   | )                           | 
|Warrants issued                |  |                     | 100,000    |   |                     |   | 37,842    |                             | 
|Change in fair value estimates |  |                     | -          |   |                     |   | (126,410  | )                           | 
|As at August 31, 2011          |  |                     | 4,409,178  |   |                     |   | 1,576,269 |                             | 
|Warrants expired               |  |                     | (990,712   | ) |                     |   | (318,552  | )                           | 
|Warrants issued                |  |                     | 5,287,500  |   |                     |   | 799,520   |                             | 
|Broker warrants issued         |  |                     | 846,000    |   |                     |   | 212,001   |                             | 
|Warrants cancelled             |  |                     | (1,709,234 | ) |                     |   | (675,487  | )                           | 
|Change in fair value estimates |  |                     | -          |   |                     |   | 46,655    |                             | 
|As at August 31, 2012          |  |                     | 7,842,732  |   |                     | $ | 1,640,406 |                             | 

* Reflects the March 16, 2012 two-for-one
stock split



F-29







|                                              
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|(Expressed In Canadian Dollars)               
|For The Years Ended August 31, 2012 and 2011  



On August 31, 2010, the Company issued
3,418,468 common share purchase warrants exercisable at US$0.50 per common share until August 31, 2014. On August 31, 2012 1,709,234
common share purchase warrants were cancelled and the fair value measured using the Black Scholes valuation model was $675,487.



On June 10, 2010, the Company issued 666,666
common share purchase warrants exercisable at US$0.50 per common share until December 10, 2011. On November 20, 2010 the Company
cancelled 72,860 warrants and fair value measured using the Black Scholes valuation model of $23,791 was recorded as an increase
to contributed surplus. On December 10, 2011 the remaining 593,808 warrants expired and the fair value measured using the Black
Scholes valuation model of $179,113 was recorded as an increase to contributed surplus.



On June 10, 2010, the Company issued 333,334
common share purchase warrants exercisable at US$0.75 per common share until June 10, 2012. On November 20, 2010 the Company cancelled
36,430 warrants and the fair value measured using the Black Scholes valuation model of $12,446 was recorded as an increase to contributed
surplus. On June 10, 2012 the remaining 296,904 warrants expired and the fair value measured using the Black Scholes valuation
model of $99,999 was recorded as an increase to contributed surplus.



On April 29, 2011, the Company issued 100,000
common share purchase warrants exercisable at US $0.75 per common share expiring May 4, 2012 and fair value measured using Black
Scholes valuation model at $37,055. On May 4, 2012, 100,000 expired and the fair value measured using the Black Scholes valuation
model of $39,440 was recorded as an increase to contributed surplus.



On April 13, 2012 and July 27, 2012 the
Company issued 1,875,000 common share purchase warrants exercisable at US$0.50 and 300,000 common share purchase broker warrants
exercisable at US$0.25 expiring April 13, 2015. The fair value measured using the Black Scholes valuation model was $338,813 and
$92,114, respectively.



On July 20, 2012 the Company issued 912,500
common share purchase warrants exercisable at US$0.50 and 146,000 common share purchase broker warrants exercisable at US$0.25
expiring July 20, 2015. The fair value measured using the Black Scholes valuation model was $124,288 and $33,454, respectively.



On August 7, 2012 the Company issued 2,500,000
common share purchase warrants exercisable at US$0.50 and 400,000 common share purchase broker warrants exercisable at US$0.25
expiring August 7, 2015. The fair value measured using the Black Scholes valuation model was $336,419 and $86,433, respectively
(August 31, 2012 $332,429 and $85,557).



The following tables sets out the number
of derivative warrant liabilities outstanding at August 31, 2012:



|Number of
 Warrants* |           |  | Exercise Price US 
($) |   |      | Expiry Date |  |                 | Weighted
 Average Remaining Life
 (Years) |  |  | Fair Value  CDN ($) | 
|-------------------- | --------- |  | ---------------------- | - | ---- | ----------- |  | --------------- | ----------------------------------------- |  |  | ------------------- | 
|                     | 1,709,232 |  |                        | $ | 0.50 |             |  | August 31, 2014 |                                           |  |  | 2.00                | 
|                     | 1,875,000 |  |                        | $ | 0.50 |             |  | April 13, 2015  |                                           |  |  | 2.62                | 
|                     | 300,000   |  |                        | $ | 0.25 |             |  | April 13, 2015  |                                           |  |  | 2.62                | 
|                     | 912,500   |  |                        | $ | 0.50 |             |  | July 20, 2015   |                                           |  |  | 2.88                | 
|                     | 146,000   |  |                        | $ | 0.25 |             |  | July 20, 2015   |                                           |  |  | 2.88                | 
|                     | 2,500,000 |  |                        | $ | 0.50 |             |  | August 7, 2015  |                                           |  |  | 2.93                | 
|                     | 400,000   |  |                        | $ | 0.25 |             |  | August 7, 2015  |                                           |  |  | 2.93                | 
|                     | 7,842,732 |  |                        |   |      |             |  |                 |                                           |  |  | 2.20                | 

* Reflects the March 16, 2012 two-for-one
stock split



F-30







|                                              
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|(Expressed In Canadian Dollars)               
|For The Years Ended August 31, 2012 and 2011  



The fair value of the warrants issued during
the year ended August 31, 2012, were estimated using the Black-Scholes pricing model with the following assumptions:



|Black-Scholes Assumptions used |  |  |           | 
|------------------------------ |  |  | --------- | 
|Risk-free interest rate        |  |  | 1%-1.3%   | 
|Expected volatility            |  |  | 192%-199% | 
|Expected life (years)          |  |  | 3         | 
|Dividend yield                 |  |  | -         | 



The following tables sets out the number
of derivative warrant liabilities outstanding at August 31, 2011:



|Number of Warrants* |           |  | Exercise Price US ($) |   |      | Expiry Date |  |                   | Weighted Average Remaining Life (Years) |  |  | Fair Value  CDN ($) | 
|------------------- | --------- |  | --------------------- | - | ---- | ----------- |  | ----------------- | --------------------------------------- |  |  | ------------------- | 
|                    | 593,806   |  |                       | $ | 0.50 |             |  | December 10, 2011 |                                         |  |  | 0.28                | 
|                    | 296,906   |  |                       | $ | 0.75 |             |  | June 10, 2012     |                                         |  |  | 0.78                | 
|                    | 3,418,466 |  |                       | $ | 0.50 |             |  | August 31, 2014   |                                         |  |  | 3.00                | 
|                    | 100,000   |  |                       | $ | 0.75 |             |  | April 29, 2012    |                                         |  |  | 0.66                | 
|                    | 4,409,178 |  |                       |   |      |             |  |                   |                                         |  |  | 2.43                | 

* Reflects the March 16, 2012 two-for-one
stock split



The fair value of the warrants issued during
the year ended August 31, 2011, were estimated using the Black-Scholes pricing model with the following assumptions:



|Black-Scholes Assumptions used |  |  |     |  
|------------------------------ |  |  | --- | -
|Risk-free interest rate        |  |  | 1.7 | %
|Expected volatility            |  |  | 254 | %
|Expected life (years)          |  |  | 1   |  
|Dividend yield                 |  |  | -   |  



The following tables sets out the number
of derivative warrant liabilities outstanding at September 1, 2010:



|Number of Warrants |           |  | Exercise Price US ($) |   |      | Expiry Date |  |                   | Weighted Average Remaining Life (Years) |  |  | Fair Value CDN ($) | 
|------------------ | --------- |  | --------------------- | - | ---- | ----------- |  | ----------------- | --------------------------------------- |  |  | ------------------ | 
|                   | 666,668   |  |                       | $ | 0.50 |             |  | December 10, 2011 |                                         |  |  | 1.28               | 
|                   | 333,334   |  |                       | $ | 0.75 |             |  | June 10, 2012     |                                         |  |  | 1.78               | 
|                   | 3,418,466 |  |                       | $ | 0.50 |             |  | August 31, 2014   |                                         |  |  | 4.00               | 
|                   | 4,418,468 |  |                       |   |      |             |  |                   |                                         |  |  | 3.42               | 

* Reflects the March 16, 2012 two-for-one
stock split



The fair value of the warrants issued during
the year ended September 1, 2010, were estimated using the Black-Scholes pricing model with the following assumptions:



|Black-Scholes Assumptions used |  |  |     |  
|------------------------------ |  |  | --- | -
|Risk-free interest rate        |  |  | 3   | %
|Expected volatility            |  |  | 234 | %
|Expected life (years)          |  |  | 4   |  
|Dividend yield                 |  |  | -   |  



F-31



















Notes to the Consolidated Financial Statements

(Expressed In Canadian Dollars)

For The Years Ended August 31, 2012 and 2011








14.	Financial
Instruments and Concentration of Risks



The Company has classified its financial
instruments as follows:





|Financial Instrument                         |  | Category                          |  | Measurement method
|-------------------------------------------- |  | --------------------------------- |  | ------------------
|Cash and cash equivalents                    |  | Fair value through profit or loss |  | Fair value        
|Marketable securities                        |  | Fair value through profit or loss |  | Fair value        
|Derivative warrant liabilities               |  | Fair value through profit or loss |  | Fair value        
|Trade and other receivables                  |  | Loans and receivables             |  | Amortized cost    
|Due from related party                       |  | Other financial liabilities       |  | Amortized cost    
|Trade and other payables                     |  | Other financial liabilities       |  | Amortized cost    
|Loan payable                                 |  | Other financial liabilities       |  | Amortized cost    
|Provisions                                   |  | Other financial liabilities       |  | Amortized cost    
|Secured note payable and shareholders’ loans |  | Other financial liabilities       |  | Amortized cost    









The types of risk exposure
and the ways in which such exposures are managed are as follows:



Credit Risk

Credit risk is primarily
related to the Company’s receivables from joint venture partners and the risk of financial loss if a partner or counterparty
to a financial instrument fails to meet its contractual obligations. Receivables from joint venture partners are normally collected
within one to three months of the joint venture bill being issued to the partner. The Company historically has not experienced
any collection issues with its joint venture partners to date. The Company attempts to mitigate the risk from joint venture receivables
by obtaining partner approval of significant capital expenditures prior to expenditure. The Company establishes an allowance for
doubtful accounts as determined by management based on their assessed collectability; therefore, the carrying amount of trade
and other receivables generally represents the maximum credit exposure. The Company believes that its counterparties currently
have the financial capacity to settle outstanding obligations in the normal course of business.



Concentration risks
exist in cash and cash equivalents because significant balances are maintained with one financial institution. The risk is mitigated
because the financial institution is an international bank.



The Company’s
maximum exposure to credit risk is as follows:



|                              |  | August 31, 2012 |         |  | August 31, 2011 |   |         | September 1, 2010 | 
|----------------------------- |  | --------------- | ------- |  | --------------- | - | ------- | ----------------- | 
|Cash and cash equivalents     |  | $               | 330,003 |  |                 | $ | 165,266 |                   | 
|Trade and other receivables   |  |                 | 17,525  |  |                 |   | 127,546 |                   | 
|Prepaid expenses and deposits |  |                 | -       |  |                 |   | 44,285  |                   | 
|Due from related party        |  |                 | -       |  |                 |   | -       |                   | 
|Balance                       |  | $               | 347,528 |  |                 | $ | 337,097 |                   | 



Liquidity Risk

The Company
monitors its liquidity position regularly to assess whether it has the funds necessary to fulfill planned exploration commitments
on its oil and gas properties or that viable options are available to fund such commitments from new equity issuances or alternative
sources such as farm-out agreements. However, as an exploration company at an early stage of development and without significant
internally generated cash flow, there are inherent liquidity risks, including the possibility that additional financing may not
be available to the Company, or that actual exploration expenditures may exceed those planned. The current uncertainty in global
markets could have an impact on the Company’s future ability to access capital on terms that are acceptable to the Company.
The Company has so far been able to raise the required financing to meet its obligations however, there can be no assurance that
it will continue to do so in the future.



F-32









Notes to the Consolidated Financial Statements

(Expressed In Canadian Dollars)

For The Years Ended August 31, 2012 and 2011








The following table illustrates the contractual
maturities of financial liabilities:



|                          |  | Payments Due by Period |          
|------------------------- |  | ---------------------- | ---------
|                          |  |                        |          
|August 31, 2012           |  | Total                  |          
|Trade and others payables |  | $                      | 1,039,959
|Secured note payable (1)  |  |                        | 946,848  
|Shareholders loans (1)    |  |                        | 2,179,778
|Total                     |  | $                      | 4,166,585



|                          |  | Payments Due by Period |          
|------------------------- |  | ---------------------- | ---------
|                          |  |                        |          
|August 31, 2011           |  | Total                  |          
|Trade and others payables |  | $                      | 1,197,695
|Secured notes payable (1) |  |                        | 1,012,644
|Shareholders loans (1)    |  |                        | 2,936,236
|Total                     |  | $                      | 5,146,575



|                          |  | Payments Due by Period |          
|------------------------- |  | ---------------------- | ---------
|                          |  |                        |          
|September 1, 2010         |  | Total                  |          
|Trade and others payables |  | $                      | 421,928  
|Secured notes payable (1) |  |                        | 1,207,527
|Shareholders loans        |  |                        | 57,500   
|Loan payable              |  |                        | 110,000  
|Total                     |  | $                      | 1,796,955



| | (1) | Translated at current exchange rate.
| | --- | ------------------------------------



Market Risk

Market risk represents
the risk of loss that may impact the Company’s financial position, results of operations, or cash flows due to adverse changes
in financial market prices, including interest rate risk, foreign currency exchange rate risk, commodity price risk, and other
relevant market or price risks. The Company does not use derivative financial instruments or derivative commodity instruments
to mitigate this risk.



The oil and gas industry
is exposed to a variety of risks including the uncertainty of finding and recovering new economic reserves, the performance of
hydrocarbon reservoirs, securing markets for production, commodity prices, interest rate fluctuations, potential damage to or
malfunction of equipment and changes to income tax, royalty, environmental or other governmental regulations.



Market events and conditions
in recent years including disruptions in the international credit markets and other financial systems and the deterioration of
global economic conditions have caused significant volatility to commodity prices. These conditions caused a loss of confidence
in the broader U.S. and global credit and financial markets. Notwithstanding various actions by governments, concerns about the
general condition of the capital markets, financial instruments, banks, investment banks, insurers and other financial institutions
caused the broader credit markets to further deteriorate and stock markets to decline. These factors have negatively impacted
company valuations and may impact the performance of the global economy going forward. Although economic conditions improved towards
the latter portion of 2009, the recovery has been slow in various jurisdictions including in Europe and the United States and
has been impacted by various ongoing factors including sovereign debt levels and high levels of unemployment which continue to
impact commodity prices and to result in volatility in the stock market.



F-33









Notes to the Consolidated Financial Statements

(Expressed In Canadian Dollars)

For The Years Ended August 31, 2012 and 2011








The Company mitigates
these risks by:



| | • | utilizing competent, professional
                                                              consultants as support to company staff.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------

| | • | performing geophysical, geological
                                                              or engineering analyses of prospects.
| | - | --------------------------------------------------------------------------------------------------------------------------------------

| | • | focusing on a limited number of
                                                              core properties.
| | - | --------------------------------------------------------------------------------------------------------------



| | (i) | Commodity Price
                                                                              Risk
| | --- | --------------------------------------------------------------------------------------------------



Commodity price risk
is the risk that the fair value or future cash flows will fluctuate as a result of changes in commodity prices. Commodity prices
for petroleum and natural gas are impacted by world economic events that dictate the levels of supply and demand.



The Company believes
that movement in commodity prices that are reasonably possible over the next twelve month period will not have a significant impact
on the Company.



Commodity Price Sensitivity



The following table
summarizes the sensitivity of the fair value of the Company’s risk management position for the year ended August 31, 2012
and 2011 to fluctuations in natural gas prices, with all other variables held constant. When assessing the potential impact of
these price changes, the Company believes that 10 percent volatility is a reasonable measure. Fluctuations in natural gas prices
potentially could have resulted in unrealized gains (losses) impacting net income as follows:



|            |  | 2012         |            |   | 2011         |  
|----------- |  | ------------ | ---------- | - | ------------ | -
|            |  | Increase 10% |            |   | Decrease 10% |  
|Net revenue |  | $            | 43,764     |   |              | $
|Net loss    |  | $            | (2,804,642 | ) |              | $



| | (ii) | Currency Risk
| | ---- | -------------



The Company is exposed
to the fluctuations in foreign exchange rates. The prices received by the Company for the production of natural gas and natural
gas liquids are primarily determined in reference to United States dollars but are settled with the Company in Canadian dollars.
The Company’s cash flow for commodity sales will therefore be impacted by fluctuations in foreign exchange rates.



The Company operates
in Canada and a portion of its expenses are incurred in U.S. dollars. A significant change in the currency exchange rates between
the Canadian dollar relative to US dollar could have an effect on the Company’s financial instruments. The Company does
not hedge its foreign currency exposure.



The following assets
and liabilities are denominated in US dollars at August 31, 2012, August 31, 2011 and September 1, 2010:



|                                                      |  | August 31, |            |   | August 31, |   |            | September 1, | 
|----------------------------------------------------- |  | ---------- | ---------- | - | ---------- | - | ---------- | ------------ | 
|Financial Instruments                                 |  | 2012       |            |   | 2011       |   |            | 2010         | 
|Cash and cash equivalents                             |  | $          | 311,318    |   |            | $ | 117,383    |              | 
|Trade and other receivables                           |  |            | -          |   |            |   | 72,487     |              | 
|Exploration and evaluation assets                     |  |            | 5,083,874  |   |            |   | 3,758,168  |              | 
|Due from related party                                |  |            | -          |   |            |   | -          |              | 
|Trade and other  payables                             |  |            | (402,633   | ) |            |   | (754,696   | )            | 
|Provisions                                            |  |            | (226,494   | ) |            |   | (116,924   | )            | 
|Derivative warrant liabilities                        |  |            | (1,614,996 | ) |            |   | (1,613,584 | )            | 
|Shareholders’ loans                                   |  |            | (1,883,740 | ) |            |   | (2,790,000 | )            | 
|Secured notes payable                                 |  |            | (960,000   | ) |            |   | (1,035,000 | )            | 
|Net assets denominated in US$                         |  | $          | 307,329    |   |            | $ | (2,362,166 | )            | 
|Net
    asset CDN dollar equivalent at period end (1) |  | $          | 303,120    |   |            | $ | (2,311,143 | )            | 



| | (1) | Translated at the exchange rate in effect at August 31, 2012 $0.9863
                                                           (August 31, 2011 $0.9784, September 1, 2010 $1.0639)
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-34









Notes to the Consolidated Financial Statements

(Expressed In Canadian Dollars)

For The Years Ended August 31, 2012 and 2011








The following table
shows the estimated sensitivity of the Company’s total comprehensive loss for the periods set out from a change in the U.S
dollar exchange rate in which the Company has exposure with all other variables held constant.



|                               |    |   | August 31, 2012                                                               |  |        | August 31, 2011                                                               |  |  | September 1, 2010                                                             |  
|------------------------------ | -- | - | ----------------------------------------------------------------------------- |  | ------ | ----------------------------------------------------------------------------- |  |  | ----------------------------------------------------------------------------- | -
|                               |    |   | Increase                                                                      |  |        | Decrease                                                                      |  |  | Increase                                                                      |  
|Percentage change in US Dollar |    |   | In total comprehensive loss
    from a change in % in the US Exchange Rate($) |  |        | In total comprehensive loss
    from a change in % in the US Exchange Rate($) |  |  | In total comprehensive loss
    from a change in % in the US Exchange Rate($) |  
|                               | 2  | % |                                                                               |  | 6,062  |                                                                               |  |  | (6,062                                                                        | )
|                               | 4  | % |                                                                               |  | 12,125 |                                                                               |  |  | (12,125                                                                       | )
|                               | 6  | % |                                                                               |  | 18,187 |                                                                               |  |  | (18,187                                                                       | )
|                               | 8  | % |                                                                               |  | 24,250 |                                                                               |  |  | (24,250                                                                       | )
|                               | 10 | % |                                                                               |  | 30,312 |                                                                               |  |  | (30,312                                                                       | )



| | (iii) | Interest Rate
                                                                                Risk
| | ----- | --------------------------------------------------------------------------------------------------



Interest rate risk refers
to the risk that the value of a financial instrument or cash flows associated with the instrument will fluctuate due to changes
in market interest rates. The majority of the Company’s debt is short-term in nature with fixed rates.



Based on management's
knowledge and experience of the financial markets, the Company believes that the movements in interest rates that are reasonably
possible over the next twelve month period will not have a significant impact on the Company.



| | (iv) | Fair Value of Financial
                                                                               Instruments
| | ---- | ------------------------------------------------------------------------------------------------------------------



The Company’s financial instruments
included on the consolidated statement of financial position as at August 31, 2012 and 2011 and September 1, 2010, are comprised
of cash and cash equivalents, marketable securities, trade and other receivables, due from related party, trade and other payables,
secured notes payable, shareholders’ loans, provisions, loan payable, and derivative warrant liabilities.



The Company classifies the fair value
of financial instruments measured at fair value according to the following hierarchy based on the amount of observable inputs
used to value the instrument.



• Level 1 – Quoted prices are
available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions
occur in sufficient frequency and volume to provide pricing information on an ongoing basis.



• Level 2 – Pricing inputs
are other than quoted prices in active markets included in Level 1. Prices in Level 2 are either directly or indirectly observable
as of the reporting date. Level 2 valuations are based on inputs, including quoted forward prices for commodities, time value
and volatility factors, which can be substantially observed or corroborated in the marketplace.



• Level 3 – Valuations in this
level are those with inputs for the asset or liability that are not based on observable market data.



F-35









Notes to the Consolidated Financial Statements

(Expressed In Canadian Dollars)

For The Years Ended August 31, 2012 and 2011








|                                   |  | August 31, 2012 |           |  | August 31, 2011 |  |           | September 1, 2010 | 
|---------------------------------- |  | --------------- | --------- |  | --------------- |  | --------- | ----------------- | 
|Financial Instrument               |  | Carrying        |           |  | Fair            |  |           | Carrying          | 
|Classification                     |  | Value $         |           |  | Value $         |  |           | Value $           | 
|Fair value through profit or loss: |  |                 |           |  |                 |  |           |                   | 
|Cash and cash equivalents          |  |                 | 330,003   |  |                 |  | 330,003   |                   | 
|Marketable securities              |  |                 | 1         |  |                 |  | 1         |                   | 
|Derivative warrant liabilities     |  |                 | 1,640,406 |  |                 |  | 1,640,406 |                   | 
|Loans and receivables:             |  |                 |           |  |                 |  |           |                   | 
|Trade and other receivables        |  |                 | 17,525    |  |                 |  | 17,525    |                   | 
|Due from related party             |  |                 | -         |  |                 |  | -         |                   | 
|Other financial liabilities:       |  |                 |           |  |                 |  |           |                   | 
|Trade and other payables           |  |                 | 1,039,959 |  |                 |  | 1,039,959 |                   | 
|Secured notes payable              |  |                 | 946,848   |  |                 |  | 946,848   |                   | 
|Shareholders’ loans                |  |                 | 2,179,778 |  |                 |  | 2,179,778 |                   | 
|Loan payable                       |  |                 | -         |  |                 |  | -         |                   | 
|Provisions                         |  |                 | 240,672   |  |                 |  | 240,672   |                   | 



Cash and cash equivalents,
derivative warrant liabilities and marketable securities are stated at fair value (Level 1 measurement). The carrying value of
trade and other receivables, due from related party, trade and other payables, secured notes payable, shareholders’ loans
and loan payable approximate their fair value due to the short-term maturity of these financial instruments (Level 3 measurement).



Capital Management

The Company’s
objectives when managing capital are to ensure the Company will have sufficient financial capacity, liquidity and flexibility
to funds its operations, growth and ongoing exploration and development commitments on its oil and gas interests. The Company
is dependent on funding these activities through debt and equity financings. Due to long lead cycles of the Company’s exploration
activities, the Company’s capital requirements currently exceed its operational cash flow generated. As such the Company
is dependent upon future financings in order to maintain its flexibility and liquidity and may from time to time be required to
issue equity, issue debt, adjust capital spending or seek joint venture partners.



The Company manages
the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of any
underlying assets in order to meet current and upcoming obligations. Current plans for the development commitments of the Company’s
Texas leases include debt or equity financing or seeking and obtaining a joint venture partner.



The board of directors
does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company's
management and favourable market conditions to sustain future development of the business.



As at August 31, 2012,
August 31, 2011 and September 1, 2010 the Company considered its capital structure to comprise of shareholders equity and long-term
debt.



Management reviews its
capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable.



There were no changes
in the Company’s capital management during the period ended August 31, 2012.



The Company is not subject
to any externally imposed restrictions on its capital requirements.



F-36









Notes to the Consolidated Financial Statements

(Expressed In Canadian Dollars)

For The Years Ended August 31, 2012 and 2011








15.	Supplemental cash flow information and Non-Cash Transactions



The following table
summarizes the non-cash transactions for the periods set out:



|                                                                       |  | Year Ended      |           
|---------------------------------------------------------------------- |  | --------------- | ----------
|Non-cash transactions                                                  |  | August 31, 2012 |           
|Warrants expired                                                       |  |                 | (318,552  
|Units issued to settle debt                                            |  |                 | 2,252,715 
|Shares issued for interest on secured note and shareholders’
    loans |  |                 | 440,136   
|Units cancelled                                                        |  |                 | (2,091,616
|Broker warrants issued                                                 |  |                 | 212,001   
|Prepaid portion of shares for services                                 |  |                 | (44,285   
|Warrants cancelled                                                     |  |                 | -         
|Issuance of units as compensation                                      |  |                 | 44,285    
|Compensation expense on re-pricing of units                            |  |                 | 188,625   



The following table
summarizes the changes in non-cash working capital for the periods set out:



|                                    |  | Year Ended      |        
|----------------------------------- |  | --------------- | -------
|Changes in non-cash working capital |  | August 31, 2012 |        
|Trade and other receivables         |  |                 | 110,021
|Trade and other payables            |  |                 | 262,149
|Due from related party              |  |                 | -      
|Net change                          |  |                 | 372,170



| | 16. | Income Taxes
| | --- | ------------



The Company has unused
capital losses in the amount of approximately $195,852 (2011 - $195,852) which may be carried forward indefinitely to offset future
capital gains, and unused non capital losses in the amount of approximately $2,225,622 (2011 -$1,349,189) available to reduce
income in future years expiring as follows:



| | 2014 |  |  | $ | 46,501    | 
| | ---- |  |  | - | --------- | 
| | 2015 |  |  |   | 47,434    | 
| | 2026 |  |  |   | 55,415    | 
| | 2027 |  |  |   | 42,337    | 
| | 2028 |  |  |   | 49,166    | 
| | 2029 |  |  |   | 268,782   | 
| | 2030 |  |  |   | 286,991   | 
| | 2031 |  |  |   | 648,310   | 
| | 2032 |  |  |   | 780,686   | 
| |      |  |  | $ | 2,225,622 | 



A reconciliation between
income taxes provided at actual rates and at the basic rate ranging from 28% to 31% (2011 - 28% to 31%) for federal and provincial
taxes is as follows:



|                                          |  | 2012 |          |   | 2011 |  
|----------------------------------------- |  | ---- | -------- | - | ---- | -
|Taxes at statutory rates                  |  | $    | (786,573 | ) |      | $
|Non-taxable items and others              |  |      | 491,099  |   |      |  
|Change in unrecognized deferred tax asset |  |      | 295,474  |   |      |  
|                                          |  | $    | -        |   |      | $



F-37









Notes to the Consolidated Financial Statements

(Expressed In Canadian Dollars)

For The Years Ended August 31, 2012 and 2011








The significant components
of the Company's unrecognized deferred income tax asset are summarized as follows:



|                                |  | 2012 |         |  | 2011 |  
|------------------------------- |  | ---- | ------- |  | ---- | -
|Operating loss carry forwards   |  | $    | 599,202 |  |      | $
|Share issue costs               |  |      | 31,611  |  |      |  
|Marketable securities           |  |      | 792     |  |      |  
|Capital losses carry forwards   |  |      | 28,600  |  |      |  
|Oil and gas interests           |  |      | 33,603  |  |      |  
|Cumulative eligible capital     |  |      | 1,366   |  |      |  
|Unrecognized deferred tax asset |  | $    | 695,174 |  |      | $



| | 17. | Commitments and Contingencies
| | --- | -----------------------------



The Company has drilling commitments on
its Leases located in Zavala County, Texas, USA (see Note 7).



Matthews Lease
Litigation

The lessors of the Matthews
lease expressed their belief that the Lease has terminated and filed a petition in the District Court, Zavala County, Texas, seeking
a declaration that the lease has terminated. The Company disagrees and believes that it is in full compliance with the terms of
the lease. The Company is defending the allegation and countersuing the lessor for repudiation of the lease and seeking damages
(see Note 7).



As at August 31, 2012,
no amounts of contingent loss due to the impairment of the above mentioned lease have been recorded in these consolidated financial
statements. According to the Company's legal council, there are no dispositive motions pending, a trial date has not been set
and in their opinion it is not possible to evaluate the likelihood of an unfavourable outcome or the amount or range of potential
loss.



The Company carries
its investment in the Matthews lease at approximately $4,645,534. If the final outcome of such claim differs adversely from that
expected, it would result in an impairment loss equal to the carrying value of the Matthews lease, when determined.



| | 18. | Transition to IFRS
| | --- | ------------------



As disclosed in Note 2, these audited
consolidated financial statements represent the Company’s financial results of operations and financial position under IFRS
for the year ended August 31, 2012. The consolidated financial statements have been prepared in accordance with IFRS 1, “First-time
Adoption of International Financial Reporting Standards” as issued by the IASB. Previously, the Company prepared its consolidated
financial statements in accordance with Canadian GAAP.



IFRS 1 requires the presentation of comparative
information as at the September 1, 2010 (the “Transition Date”) and subsequent comparative periods as well as the
consistent and retrospective application of IFRS accounting policies. To assist with the transition, the provisions of IFRS 1
allow for certain mandatory and optional exemptions for first-time adopters to alleviate the retrospective application of all
IFRSs.



The following reconciliations
present the adjustments made to the Company’s previous Canadian GAAP results of operations and financial position to comply
with IFRS 1. A summary of the significant accounting policy changes and applicable exemptions are discussed following the reconciliations.
Reconciliations include the Company’s consolidated statements of financial position as at the Transition Date and August
31, 2011, consolidated statements of operations and comprehensive income for the year ended August 31, 2011 and shareholder’s
equity reconciliations as at the Transition Date and August 31, 2011.



F-38









Notes to the Consolidated Financial Statements

(Expressed In Canadian Dollars)

For The Years Ended August 31, 2012 and 2011








| | (a) | First-time adoption exemptions and exception applied
                                                                    by the Company:
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------



| | (i) | Business combinations
| | --- | ---------------------



IFRS 1 allows the Corporation to adopt
IFRS 3, Business Combinations, on a prospective basis rather than retrospectively restating all prior business combinations. The
Company elected not to retrospectively apply IFRS 3 to business combinations that occurred prior to the Transition Date and such
business combinations have not been restated.



| | (ii) | Provisions, Contingent
                                                                                Liabilities and Contingent Assets
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------

The Company has elected to apply the exemption
from full retrospective application of decommissioning liabilities as allowed under IFRS 1. As such, the Company has:



| | (a) | measured the liability as at September 1, 2010 in accordance with
                                                           IAS 37;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------

| | (b) | estimated the amount that would have
                                                           been included in the cost of the related asset when the liability first
                                                           arose, by discounting the liability to that date using its best estimate
                                                           of the historical risk-adjusted discount rate that would have applied
                                                           for that liability over the intervening period; and
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | calculated the accumulated depreciation
                                                           on that amount, as at September 1, 2010, on the basis of the current
                                                           estimate of the useful life of the asset, using the depreciation policy
                                                           adopted by the Company.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | Arrangements containing a lease
| | ----- | -------------------------------

The Company has not reassessed any arrangements
to determine whether they contain a lease if they have already been assessed under Canadian GAAP. Additionally, any arrangements
that have not been assessed under Canadian GAAP have been assessed under IFRIC 4 Determining Whether an Arrangement Contains a
Lease based on terms and conditions existing at September 1, 2010.



| | (iv) | Borrowing Costs
| | ---- | ---------------

Under IAS 23 Borrowing costs requires
an entity to capitalize borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset
as part of the cost of that asset. The Company applied the IFRS transitional exemption to prospectively capitalize borrowing costs
from the Transition Date.



| | (b) | Significant
                                                                                      Accounting Policy Differences
| | --- | -------------------------------------------------------------------------------------------------------------------------------



The following outlines
significant accounting policy differences between IFRS and previous Canadian GAAP applicable from the date of transition to IFRS
on September 1, 2010.



| | (i) | Share Purchase
                                                                               Warrants
| | --- | ------------------------------------------------------------------------------------------------------

Under Canadian GAAP the share purchase
warrants issued with an exercise price in US dollars, rather than Canadian dollars were classified as a component of equity. Under
IFRS, because the specified exercise price is denominated in United States dollars (a currency other than the functional currency
of the Company), the warrants are considered derivative liabilities. The warrants are required to be fair valued at each reporting
period, with changes in that fair value being recorded in profit or loss.



| | (ii) | Borrowing
                                                                                                                                                Costs
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

Under Canadian GAAP the Company expensed
all of its borrowing costs attributed to acquisitions, construction or production of assets. Under IFRS the Company is required
to capitalize borrowing costs directly attributed to acquisitions, construction or production of qualifying assets as part of
the cost of the asset.



| | (iii) | Decommissioning Obligations
| | ----- | ---------------------------

Under Canadian GAAP, future cash flows relating to the funding
of asset retirement obligations were discounted at a credit adjusted risk free rate. Under IFRS the future cash flows are discounted
using a pre-tax risk free rate that reflects current market assessments of the time value of money and the risks specific to the
obligation.



F-39









Notes to the Consolidated Financial Statements

(Expressed In Canadian Dollars)

For The Years Ended August 31, 2012 and 2011








In preparing its opening IFRS consolidated
statement of financial position and comparative information for 2011, the Company adjusted amounts previously reported under Canadian
GAAP and prepared the following reconciliations:



|a) | A reconciliation of the consolidated
                                                          statement of financial position as at the date of transition to IFRS
                                                          of September 1, 2010.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | A reconciliation of the consolidated
                                                          statement of financial position as at August 31, 2011.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------

| | c) | A reconciliation of the statement of
                                                          operations and comprehensive loss for the year ended August 31, 2011.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d) | A reconciliation of Equity as of August
                                                          31, 2011 and September 1, 2010.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------



Reconciliation of Statement
of Financial Position from Canadian GAAP to IFRS

(Expressed in Canadian
Dollars)





|                                               |  |                                     |            |   | Effect
    of Transition to IFRS             | 
|---------------------------------------------- |  | ----------------------------------- | ---------- | - | -------------------------------------------- | 
|                                               |  | September
    1, 2010 Canadian GAAP |            |   | Derivative Warrant
    Liabilities  (Note a) | 
|                                               |  |                                     |            |   |                                              | 
|Assets                                         |  |                                     |            |   |                                              | 
|Current assets                                 |  |                                     |            |   |                                              | 
|Cash and cash equivalents                      |  | $                                   | 43,776     |   |                                              | 
|Marketable securities                          |  |                                     | 1          |   |                                              | 
|Accounts receivable                            |  |                                     | 53,060     |   |                                              | 
|Due from related party                         |  |                                     | 1,325      |   |                                              | 
|Total current assets                           |  |                                     | 98,162     |   |                                              | 
|Oil and gas interests                          |  |                                     |            |   |                                              | 
|Developed                                      |  |                                     | 314,000    |   |                                              | 
|Undeveloped                                    |  |                                     | 5,695,290  |   |                                              | 
|Non –current
    assets                        |  |                                     |            |   |                                              | 
|Property and equipment                         |  |                                     | -          |   |                                              | 
|Exploration and evaluation
    assets          |  |                                     | -          |   |                                              | 
|Total non-current assets                       |  |                                     | 6,009,290  |   |                                              | 
|                                               |  |                                     |            |   |                                              | 
|Total
    Assets                               |  | $                                   | 6,107,452  |   |                                              | 
|                                               |  |                                     |            |   |                                              | 
|Liabilities and Shareholders’
    Equity       |  |                                     |            |   |                                              | 
|Current liabilities                            |  |                                     |            |   |                                              | 
|Accounts payable and accrued liabilities       |  | $                                   | 488,741    |   |                                              | 
|Secured notes payable                          |  |                                     | 186,183    |   |                                              | 
|Shareholders’ loans                            |  |                                     | 57,500     |   |                                              | 
|Loan payable                                   |  |                                     | 110,000    |   |                                              | 
|Total current liabilities                      |  |                                     | 842,424    |   |                                              | 
|Non-current liabilities                        |  |                                     |            |   |                                              | 
|Secured note payable                           |  |                                     | 1,021,344  |   |                                              | 
|Derivative warrant liabilities                 |  |                                     | -          |   |                                              | 
|Provisions                                     |  |                                     | -          |   |                                              | 
|Asset retirement obligations                   |  |                                     | 3,907      |   |                                              | 
|Decommissioning obligations                    |  |                                     | -          |   |                                              | 
|Total non-current liabilities                  |  |                                     | 1,025,251  |   |                                              | 
|                                               |  |                                     |            |   |                                              | 
|Total
    Liabilities                          |  |                                     | 1,867,675  |   |                                              | 
|                                               |  |                                     |            |   |                                              | 
|Shareholders’ Equity                           |  |                                     |            |   |                                              | 
|Share capital                                  |  |                                     | 3,817,184  |   |                                              | 
|Share purchase warrants                        |  |                                     | 2,096,078  |   |                                              | 
|Contributed surplus                            |  |                                     | 43,750     |   |                                              | 
|Deficit                                        |  |                                     | (1,717,235 | ) |                                              | 
|Total
    shareholders’ equity                 |  |                                     | 4,239,777  |   |                                              | 
|                                               |  |                                     |            |   |                                              | 
|Total
    Liabilities and Shareholders’ Equity |  | $                                   | 6,107,452  |   |                                              | 





F-40









Notes to the Consolidated Financial Statements

(Expressed In Canadian Dollars)

For The Years Ended August 31, 2012 and 2011






Reconciliation of Statement
of Financial Position from Canadian GAAP to IFRS

(Expressed in Canadian
Dollars)





|                                               |  |                                   |            |   | Effect of Transition to IFRS                 |  |            |                                           | 
|---------------------------------------------- |  | --------------------------------- | ---------- | - | -------------------------------------------- |  | ---------- | ----------------------------------------- | 
|                                               |  | August 31,
    2011 Canadian GAAP |            |   | Derivative
    Warrant Liabilities  (Note a) |  |            | Decommissioning      Obligations (Note b) | 
|                                               |  |                                   |            |   |                                              |  |            |                                           | 
|Assets                                         |  |                                   |            |   |                                              |  |            |                                           | 
|Current assets                                 |  |                                   |            |   |                                              |  |            |                                           | 
|Cash and cash equivalents                      |  | $                                 | 165,266    |   |                                              |  |            |                                           | 
|Marketable securities                          |  |                                   | 1          |   |                                              |  |            |                                           | 
|Trade and other receivables                    |  |                                   | 127,546    |   |                                              |  |            |                                           | 
|Prepaid expenses and deposits                  |  |                                   | 44,285     |   |                                              |  |            |                                           | 
|Total current assets                           |  |                                   | 337,098    |   |                                              |  |            |                                           | 
|Oil and gas interests                          |  |                                   |            |   |                                              |  |            |                                           | 
|Developed                                      |  |                                   | 243,000    |   |                                              |  |            |                                           | 
|Undeveloped                                    |  |                                   | 8,898,128  |   |                                              |  |            |                                           | 
|Non-current assets                             |  |                                   |            |   |                                              |  |            |                                           | 
|Property and equipment                         |  |                                   | -          |   |                                              |  |            |                                           | 
|Exploration and evaluation
    assets          |  |                                   | -          |   |                                              |  |            |                                           | 
|Total non-current assets                       |  |                                   | 9,141,128  |   |                                              |  |            |                                           | 
|                                               |  |                                   |            |   |                                              |  |            |                                           | 
|Total
    Assets                               |  | $                                 | 9,478,226  |   |                                              |  |            |                                           | 
|                                               |  |                                   |            |   |                                              |  |            |                                           | 
|Liabilities and Shareholders’
    Equity       |  |                                   |            |   |                                              |  |            |                                           | 
|Current liabilities                            |  |                                   |            |   |                                              |  |            |                                           | 
|Trade and other liabilities                    |  | $                                 | 1,258,839  |   |                                              |  |            |                                           | 
|Secured note payable                           |  |                                   | 1,012,644  |   |                                              |  |            |                                           | 
|Shareholders’ loans                            |  |                                   | 2,936,236  |   |                                              |  |            |                                           | 
|Derivative warrant liabilities                 |  |                                   | -          |   |                                              |  | 299.049    |                                           | 
|Total current liabilities                      |  |                                   | 5,207,719  |   |                                              |  | 299,049    |                                           | 
|Non-current liabilities                        |  |                                   |            |   |                                              |  |            |                                           | 
|Derivative warrant liabilities                 |  |                                   | -          |   |                                              |  | 1,277,220  |                                           | 
|Asset Retirement Obligation                    |  |                                   | 50,208     |   |                                              |  |            |                                           | 
|Decommissioning Obligations                    |  |                                   | -          |   |                                              |  |            |                                           | 
|Provisions                                     |  |                                   | -          |   |                                              |  |            |                                           | 
|Total non-current liabilities                  |  |                                   | 50,208     |   |                                              |  | 1,277,220  |                                           | 
|Total
    Liabilities                          |  |                                   | 5,257,927  |   |                                              |  | 1,576,269  |                                           | 
|                                               |  |                                   |            |   |                                              |  |            |                                           | 
|Shareholders’ Equity                           |  |                                   |            |   |                                              |  |            |                                           | 
|Share capital                                  |  |                                   | 4,635,556  |   |                                              |  |            |                                           | 
|Share purchase warrants                        |  |                                   | 1,969,516  |   |                                              |  | (1,716,879 | )                                         | 
|Contributed Surplus                            |  |                                   | 85,019     |   |                                              |  | 718        |                                           | 
|Foreign currency translation reserve           |  |                                   | -          |   |                                              |  |            |                                           | 
|Deficit                                        |  |                                   | (2,469,792 | ) |                                              |  | 139,893    |                                           | 
|Total
    shareholders’ equity                 |  |                                   | 4,220,299  |   |                                              |  | (1,576,268 | )                                         | 
|                                               |  |                                   |            |   |                                              |  |            |                                           | 
|Total
    Liabilities and Shareholders’ Equity |  | $                                 | 9,478,226  |   |                                              |  |            |                                           | 













F-41









Notes to the Consolidated Financial Statements

(Expressed In Canadian Dollars)

For The Years Ended August 31, 2012 and 2011








Reconciliation of Consolidated
Statement of Operations and Comprehensive Loss from Canadian GAAP to IFRS

(Expressed in Canadian
Dollars)



|                                                  |  | Effect of Transition to IFRS           |         
|------------------------------------------------- |  | -------------------------------------- | --------
|                                                  |  | YearEndedAugust  31,
 2011CanadianGAAP |         
|                                                  |  |                                        |         
|Revenue                                           |  |                                        |         
|Natural gas
    sales                             |  | $                                      | 71,786  
|                                                  |  |                                        | 71,786  
|Expenses                                          |  |                                        |         
|Operating costs                                   |  |                                        | 67,611  
|Depletion and accretion                           |  |                                        | 23,136  
|Management fees                                   |  |                                        | 56,250  
|Office and general                                |  |                                        | 16,142  
|Professional fees                                 |  |                                        | 210,633 
|Transfer and registrar costs                      |  |                                        | 61,560  
|Head office services                              |  |                                        | 113,828 
|Salaries and wages                                |  |                                        | 44,061  
|General and administrative                        |  |                                        | -       
|Marketing and public relations                    |  |                                        | 88,569  
|Impairment loss on property and equipment         |  |                                        | 49,464  
|Gain on disposal of marketable securities         |  |                                        | (8,000  
|Interest expense                                  |  |                                        | 265,889 
|Foreign exchange gain                             |  |                                        | (164,800
|Unrealized gain
on derivative warrant liabilities |  |                                        | -       
|                                                  |  |                                        | 824,343 
|Net loss                                          |  |                                        | (752,557
|                                                  |  |                                        |         
|Foreign currency translation                      |  |                                        | -       
|Comprehensive
    loss                            |  | $                                      | (752,557



Reconciliation of Shareholders’ Equity as at August
31, 2011 and September 1, 2010



From Canadian GAAP to IFRS



|                                                                  |  |      |   |  |                 |   |            |                   | 
|----------------------------------------------------------------- |  | ---- | - |  | --------------- | - | ---------- | ----------------- | 
|Total Shareholders’ Equity under Canadian GAAP                    |  | Note |   |  | August 31, 2011 |   |            | September 1, 2010 | 
|                                                                  |  |      |   |  |                 |   |            |                   | 
|                                                                  |  |      |   |  |                 | $ | 4,220,299  |                   | 
|Reclassify warrants from equity to derivative warrant liabilities |  |      | a |  |                 |   | (1,716,879 | )                 | 
|Effect of on fair value of derivative warrant liabilities         |  |      | a |  |                 |   | 140,610    |                   | 
|Effect of changes in decommissioning provisions                   |  |      | c |  |                 |   | (2,955     | )                 | 
|Effect of changes in depletion                                    |  |      | c |  |                 |   | 1,298      |                   | 
|Effect of changes in foreign exchange rates                       |  |      | e |  |                 |   | (112,763   | )                 | 
|Effect of reclassification of borrowing costs                     |  |      | f |  |                 |   | 197,690    |                   | 
|Total adjustments to shareholders' equity                         |  |      |   |  |                 |   | (1,492,999 | )                 | 
|Total Shareholders’ Equity under
    IFRS                         |  |      |   |  |                 | $ | 2,727,300  |                   | 



F-42









Notes to the Consolidated Financial Statements

(Expressed In Canadian Dollars)

For The Years Ended August 31, 2012 and 2011








Notes to Reconciliation of Canadian GAAP to IFRS



| | (a) | Warrants
| | --- | --------

Under Canadian GAAP the warrants were
classified as a component of equity. Under IFRS, because the specified exercise price for certain warrants is denominated in United
States dollars (a currency other than the functional currency of the Company), these warrants are considered derivative liabilities.
These warrants are required to be fair valued at each reporting period, with changes in that fair value being recorded in profit
or loss.



The impact on the consolidated statements
of financial position is as follows:



|                                             |  | August 31, 2011 |            |   | September 1, 2010 | 
|-------------------------------------------- |  | --------------- | ---------- | - | ----------------- | 
|Adjustment to warrants                       |  |                 | (1,716,879 | ) |                   | 
|Adjustment to derivative warrant liabilities |  |                 | 1,576,269  |   |                   | 
|Adjustment to deficit                        |  |                 | 139,892    |   |                   | 
|Adjustment to contributed surplus            |  |                 | 718        |   |                   | 



The impact on the consolidated statement
of statement of operations and comprehensive loss is as follows:



|                                                  |  | August 31, 2011 |         
|------------------------------------------------- |  | --------------- | --------
|Unrealized gain on derivative warrant liabilities |  |                 | (126,410



| | (b) | Decommissioning
                                                                                                                                             Obligations
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Under Canadian GAAP, future cash flows
relating to the funding of asset retirement obligations were discounted at a credit adjusted risk free rate of 7% and an annual
inflation rate of 3.9% was applied (September 1, 2010 7% and 5%, respectively). Under IFRS the future cash flows are discounted
using a pre-tax risk free rate that reflects current markets assessments of the time value of money and the risks specific to
the obligation and excludes a credit adjusted risk free rate. The discount factor used under IFRS for August 31, 2011 was 3.10%
and September 1, 2010 3.33%).This has resulted in an increase in the decommissioning obligation at the Transition Date with a
corresponding increase in deficit.



The impact on the consolidated statements
of financial position is as follows:



|                                  |  | August 31, 2011 |        |  | September 1, 2010 | 
|--------------------------------- |  | --------------- | ------ |  | ----------------- | 
|Property and equipment            |  | (1,298)         |        |  |                   | 
|Exploration and evaluation assets |  |                 | 12,823 |  |                   | 
|Decommissioning obligations       |  |                 | 14,480 |  |                   | 
|Deficit                           |  |                 | 2,955  |  |                   | 



The impact on the consolidated statement
of operations and comprehensive loss is as follows:



|                        |  | August 31, 2011 |    
|----------------------- |  | --------------- | ---
|Depletion and accretion |  |                 | 308



| | (c) | Depletion
| | --- | ---------

The Company depletes its Property and Equipment assets using
a unit of production under both IFRS and Canadian GAAP. However, due to the adjustments in decommissioning obligations, the carrying
value of Property Plant and Equipment has changed resulting in adjustments to depletion.



The impact on the consolidated statements
of financial position is as follows:



|                       |  | August 31, 2011 |       |  | September 1, 2010 | 
|---------------------- |  | --------------- | ----- |  | ----------------- | 
|Property and equipment |  |                 | 1,298 |  |                   | 



F-43













Notes to the Consolidated Financial Statements

(Expressed In Canadian Dollars)

For The Years Ended August 31, 2012 and 2011








The impact on the consolidated statement
of operations and comprehensive loss is as follows:



|                                     |  | August 31, 2011 |      
|------------------------------------ |  | --------------- | -----
|Depletion and accretion              |  |                 | (83  
|Impairment on property and equipment |  |                 | (1215



| | (d) | Reclassification
| | --- | ----------------

| | (i) | The Company
                                                                                  has reclassified a provision under IFRS which
                                                                                  was previously included in trade and other payables
                                                                                  under Canadian GAAP.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (ii) | Decommissioning obligations have
                                                                 been reclassified to provisions.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------

| | (iii) | Oil and gas interests being
                                                                  ‘Developed’ and ‘Undeveloped’ have been
                                                                  reclassified to ‘Property and equipment’ and ‘Exploration
                                                                  and evaluation assets’ respectively.
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (iv) | ‘Management fees’,
                                                                 ‘Office and general’, ‘Professional fees’,
                                                                 ‘Transfer and registrar costs’, ‘Head office
                                                                 services’ and ‘Salaries and wages’ have been
                                                                 reclassified into ‘General and administrative’.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (v) | Oil and gas revenue has been netted
                                                                against royalty costs and accretion has been reclassified from
                                                                operating costs to depletion and accretion.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (e) | Foreign Currency Translation
                                                                   Reserve
| | --- | -------------------------------------------------------------------------------------------------------

Assets and liabilities of entities with
functional currencies other than Canadian dollars are translated at the period end rates of exchange, and the results of their
operations are translated at average rates of exchange for the period. The resulting translation adjustments are included in foreign
currency translation reserve in shareholders' equity. Additionally, foreign exchange gains and losses related to certain intercompany
loans that are permanent in nature are included in foreign currency translation reserve.



The impact on the consolidated statement
of financial position is as follows:



|                                     |  | August 31, 2011 |          |   | September 1, 2010 | 
|------------------------------------ |  | --------------- | -------- | - | ----------------- | 
|Exploration and evaluation assets    |  |                 | (112,763 | ) |                   | 
|Deficit                              |  |                 | (3,460   | ) |                   | 
|Accumulated other comprehensive loss |  |                 | (109,303 | ) |                   | 



The impact on the consolidated statement
of operations and comprehensive loss is as follows:



|                         |  | August 31, 2011 |        
|------------------------ |  | --------------- | -------
|Gain on foreign exchange |  |                 | (3,460 
|Other comprehensive loss |  |                 | 109,303



(f)          Borrowing
Costs

Under Canadian GAAP the Company expensed
all of its borrowing costs attributed to acquisitions, construction or production of assets. Under IFRS the Company is required
to capitalize borrowing costs directly attributed to acquisitions, construction or production of qualifying assets as part of
the cost of the asset.



The impact on the consolidated statement
of financial position is as follows:



|                                  |  | August 31, 2011 |         |  | September 1, 2010 | 
|--------------------------------- |  | --------------- | ------- |  | ----------------- | 
|Exploration and evaluation assets |  |                 | 197,690 |  |                   | 
|Deficit                           |  |                 | 197,690 |  |                   | 



The impact on the consolidated statement
of operations and comprehensive loss is as follows:



|                 |  | August 31, 2011 |         
|---------------- |  | --------------- | --------
|Interest expense |  |                 | (197,690



F-44









Notes to the Consolidated Financial Statements

(Expressed In Canadian Dollars)

For The Years Ended August 31, 2012 and 2011








Statement of consolidated cash flows



Upon transition to IFRS, no material adjustment
was required to the statement of cash flows.



Presentation changes to the financial
statements



The transition to IFRS has resulted in
changes to the statement of operations and comprehensive loss. The Company has a choice to report to report the expense by significant
function or significant nature. The Company has now reclassified under IFRS elements previously described under Canadian GAAP
as ‘Management fees’, ‘Office and general’, ‘Professional fees’, ‘Transfer and registrar
costs’, ‘Head office services’ and ‘Salaries and wages’ into ‘General and administrative’
to present these expenses by function. In addition, the Company presented revenues net of royalties upon transition to IFRS.



| | 19. | Comparative Figures
| | --- | -------------------



Certain comparative
figures have been reclassified to conform to current period presentation under IFRS.



| | 20. | Subsequent Event
| | --- | ----------------



On September 25, 2012, the Company completed
private placements for net proceeds of $405,650 of equity capital from arm’s length private placement funding through the
issuance of 2,249,790 units at a price of US$0.20 per unit. Each unit is comprised of one common share and one-half a common share
purchase warrant, with each whole warrant entitling the holder to acquire one common share of the Company at US$0.50 for a period
of three years from the date of issuance. The amount allocated to derivative warrant liabilities for warrants based on fair value
using the Black Scholes model was $182,830.





F-45







INDEX TO EXHIBITS



|Exhibit # |  | Description                                                                                                                                                             
|--------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.1       |  | Certificate of Incorporation of Bonanza Red Lake Explorations Inc. (presently known as Eagleford Energy Inc.) dated September 22, 1978 (1)                              
|1.2       |  | Articles of Amendment dated January 14, 1985 (1)                                                                                                                        
|1.3       |  | Articles of Amendment dated August 16, 2000 (1)                                                                                                                         
|1.4       |  | Bylaw No 1 of Bonanza Red Lake Explorations Inc. (presently known as Eagleford Energy Inc.) (1)                                                                         
|1.5       |  | Special By-Law No 1 – Respecting the borrowing of money and the issue of securities of Bonanza Red Lake Explorations Inc. (presently known as Eagleford Energy Inc.) (1)
|1.6       |  | Articles of Amalgamation dated November 30, 2009 (3)                                                                                                                    
|4.1       |  | 2000 Stock Option Plan (1)                                                                                                                                              
|4.2       |  | Code of Business Conduct and Ethics (1)                                                                                                                                 
|4.3       |  | Audit Committee Charter (1)                                                                                                                                             
|4.4       |  | Petroleum and Natural Gas Committee Charter (1)                                                                                                                         
|4.5       |  | Compensation Committee Charter (1)                                                                                                                                      
|4.6       |  | Purchase and Sale Agreement dated February 5, 2008 among Eugenic Corp., 1354166 Alberta Ltd., and the Vendors of 1354166 Alberta Ltd. (1)                               
|4.7       |  | Amended Audit Committee Charter (3)                                                                                                                                     
|4.8       |  | Amended Stock Option Plan (4)                                                                                                                                           
|4.9       |  | Asset Purchase Agreement between Eagleford Energy Inc., and Source Re-Work Program Inc., dated May 12, 2010 (6)                                                         
|4.10      |  | Addendum dated June 10, 2010 to the Asset Purchase Agreement between Eagleford Energy Inc. and Source Re-Work Program Inc., dated May 12, 2010 (6)                      
|4.11      |  | Addendum 2 dated June 30, 2010 to the Asset Purchase Agreement between Eagleford Energy Inc. and Source Re-Work Program Inc., dated May 12, 2010 (6)                    
|4.12      |  | Acquisition Agreement among Eagleford Energy Inc., Dyami Energy LLC and the Members of Dyami Energy LLC dated August 10, 2010 (5)                                       
|4.13      |  | Financial Advisory Services Agreement between Eagleford Energy Inc. and GarWood Securities, LLC dated June 10, 2010 (6)                                                 
|4.14      |  | Amended Stock Option Plan, February 24, 2011 (7)                                                                                                                        
|4.15      |  | Amendment dated December 31, 2011 to Secured Promissory Note between Eagleford Energy Inc. and Benchmark Enterprises LLC (8)                                            
|4.16      |  | Consent of Sproule Associates Limited dated February 16, 2012 (9)                                                                                                       
|4.17      |  | Evaluation of P&NG Reserves of Eagleford Energy Inc., at August 31, 2011 (11)                                                                                           
|4.18      |  | Amended Stock Option Plan, February 24, 2012 (8)                                                                                                                        
|4.19      |  | By-Law No. 1, February 24, 2012 (8)                                                                                                                                     
|4.20      |  | Articles of Amendment, effective March 16, 2012 (10)                                                                                                                    
|4.21      |  | 2nd Amendment dated June 30, 2012 to Secured Promissory Note between Eagleford Energy Inc. and Benchmark Enterprises LLC (12)                                           
|4.22      |  | Evaluation of P&NG Reserves of Eagleford Energy Inc., at August 31, 2012 (12)                                                                                           
|4.23      |  | Consent of Sproule Associates Limited dated (12)                                                                                                                        
|4.24      |  | Financial Advisory Agreement between Eagleford Energy Inc. and The PrinceRidge Group LLC dated June 1, 2012 (12)                                                        
|4.25      |  | Amendment dated April 13, 2012 to Placement Agency Agreement dated March 12, 2012 between Eagleford Energy Inc. and Gottbetter Capital Markets, LLC (12)                
|4.26      |  | Amendment No. 2 dated July 17, 2012 to Placement Agency Agreement dated March 12, 2012 between Eagleford Energy Inc. and Gottbetter Capital Markets, LLC (12)           
|4.27      |  | Amendment No. 3 dated August 14, 2012 to Placement Agency Agreement dated March 12, 2012 between Eagleford Energy Inc. and Gottbetter Capital Markets, LLC (12)         
|4.28      |  | Amendment No. 4 dated August 31, 2012 to Placement Agency Agreement dated March 12, 2012 between Eagleford Energy Inc. and Gottbetter Capital Markets, LLC (12)         
|4.29      |  | 3rd Amendment dated November 23, 2012 to Secured Promissory Note between Eagleford Energy Inc. and Benchmark Enterprises LLC (12)                                       
|8.1       |  | Subsidiaries of Eagleford Energy Inc. (12)                                                                                                                              



89







|12.1/12.2 |  | Section 302 Certification of Chief Executive and Financial Officer (12)
|--------- |  | -----------------------------------------------------------------------
|13.1/13.2 |  | Section 906 Certification of Chief Executive and Financial Officer (12)
|          |  |                                                                        

|Reference # |  | Incorporated by Reference                                                                                             
|----------- |  | ----------------------------------------------------------------------------------------------------------------------
|(1)         |  | Previously filed on April 29, 2009 by Registrant as part of Registration Statement on Form 20-F (SEC File No. 0-53646)
|(2)         |  | Previously Filed by Registrant as part of Amendment #2 to Registration Statement on Form 20F/A on July 14, 2009       
|(3)         |  | Previously Filed by Registrant on Form 6 K on December 1, 2009                                                        
|(4)         |  | Previously filed by Registrant on Form 20F/A on March 12, 2010                                                        
|(5)         |  | Previously filed by Registrant on Form 6-K on September 16, 2010                                                      
|(6)         |  | Previously Filed by Registrant on Form 20F on February 11, 2011                                                       
|(7)         |  | Previously filed by Registrant on Form 6-K on January 27, 2011                                                        
|(8)         |  | Previously filed by Registrant on Form 6-K on February 1, 2012                                                        
|(9)         |  | Previously filed by Registrant on Form 20F on February 16, 2012                                                       
|(10)        |  | Previously filed by Registrant on Form 6-K on March 9, 2012                                                           
|(11)        |  | Previously filed by Registrant on Form 20F/A on April 26, 2012                                                        
|(12)        |  | Filed as an Exhibit hereto                                                                                            





90