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|---------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | -------------- | ----------------------------------------- |  |  |  |  |  |  |  |  |  | 
|United States
Securities and Exchange Commission
Washington, DC 20549                                                                                           
|Form 20-F
2005 Annual Report                                                                                                                                    
|(Mark One)                                                                                                                                                      
|                                                                                                                                                                 | 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                                                                      | April 30, 2005
|Or                                                                                                                                                              
|                                                                                                                                                                 | For the Transition Period From                                                                 |                | To                                        | 
|Commission File Number:                                                                                                                                          | 0-30072                                                                                       
|                                                                                                                                                                 |                                                                                                |               
|Derek Oil & Gas Corporation
(formerly Derek Resources Corporation)                                                                                              
|(Exact Name of Registrant As Specified In Its Charter)                                                                                                          
|Not Applicable                                                                                                                                                  
|(Translation of Registrants Name Into English)                                                                                                                 
|British Columbia, Canada                                                                                                                                        
|(Jurisdiction of Incorporation or Organization)                                                                                                                 
|#1201 - 1111 West Hastings Street, Vancouver, British Columbia, Canada, V6E 2J3                                                                                 
|(Address of Principal Executive Offices)                                                                                                                        
|                                                                                                                                                                
|Securities Registered or to be Registered Pursuant to Section 12 (b) of the Act.                                                                                
|                                                                                                                                                                 | Title of Each Class                                                                            |                | Name on Each Exchange On Which Registered
|                                                                                                                                                                 | None                                                                                           |                | N/A                                      
|                                                                                                                                                                 |                                                                                                |                |                                          
|Securities Registered or to be Registered Pursuant to Section 12(g) of the Act.                                                                                 
|Common Shares Without Par Value                                                                                                                                 
|(Title of Class)                                                                                                                                                
|Securities For Which There is a Reporting Obligation Pursuant to Section 15(d) of the Act.                                                                      
|None                                                                                                                                                            
|(Title of Class)                                                                                                                                                
|Indicate the Number of Outstanding Shares of Each of the Issuers Classes of Capital or Common Stock as of the close of the Period Covered by the Annual Report.
|35,261,630 Common Shares                                                                                                                                        





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|                                                                                                                                                                                                                                                                                                                                                         |         |   |         |  |                |   | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------- | - | ------- |  | -------------- | - | 
|Indicate by Check Mark Whether the Registrant (1) has Filed All Reports Required To be Filed by Section 12 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 Which Financial Statement Item the Registrant Has Elected to Follow.                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                         | Item 17 | X | Item 18 |  |               
|(Applicable Only to Issuers Involved in Bankruptcy Proceedings During the Past Five Years)                                                                                                                                                                                                                                                              
|Indicate by Check Mark Whether the Registrant Has Filed All Documents and Reports Required to be Filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 Subsequent to the Distribution of Securities Under a Plan Confirmed by a Court.                                                                                               
|                                                                                                                                                                                                                                                                                                                                                         | Yes     |   | No      |  | Not Applicable | X
|                                                                                                                                                                                                                                                                                                                                                        









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Table of Contents

Glossary of Terms

PART I

Item 1  Identity of Directors, Senior Management and Advisers

Item 2  Offer Statistics and Expected Timetable

Item 3  Key Information

Item 4  Information on the Company

Item 5  Operating and Financial Review and Prospects

Item 6  Directors, Senior Management and Employees

Item 7  Major Shareholders and Related Party Transactions

Item 8  Financial Information

Item 9  The Offer and Listing

Item 10  Additional Information

Item 11  Quantitative and Qualitative Disclosures About Market Risk

Item 12  Description of Securities Other than Equity Securities

PART II

Item 13  Defaults, Dividend Arrearages and Delinquencies

Item 14  Material Modifications to the Rights of Security Holders and Use of Proceeds

Item 15 - Controls and Procedures

Item 16A - Audit Committee Financial Expert

Item 16B - Code of Ethics

Item 16C - Principal Accountant Fees and Services

Item 16D - Exemptions from the Listing Standards for Audit Committees

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

PART III

Item 17  Financial Statements

Item 18  Financial Statements

Item 19  Exhibits

SIGNATURE PAGE







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2







The information contained in this Annual Report is current at September 23, 2005 except where a different date is specified.



Unless otherwise specified, all monetary amounts are expressed in Canadian dollars.



Financial information is presented in accordance with accounting principles generally accepted in Canada.  Differences between accounting principles generally accepted in Canada and in the United States, as applicable to the Company are set forth in Note 9 to the accompanying Consolidated Financial Statements of Derek Oil & Gas Corporation.



The following table sets forth certain standard conversions from the International System of Units (metric units) to the Standard Imperial Units:



|                 |              |             
|---------------- | ------------ | ------------
|Conversion Table
|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 oil     | 6.290       
|Feet             | Metres       | 0.305       
|Metres           | Feet         | 3.281       
|Miles            | Kilometres   | 1.609       
|Kilometres       | Miles        | 0.621       
|Acres            | Hectares     | 0.405       
|Hectares         | Acres        | 2.471       



Forward-Looking Statements



Certain of the information contained in this Form 20-F Annual Report constitutes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included or incorporated by reference in this Form 20-F Annual Report, including, without limitation, statements regarding the Companys future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements.  In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as may, will, expect, intend, project, estimate, anticipate, believe, or continue or the negative thereof or variations thereon or similar terminology.  Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct.  Important factors that could cause actual results to differ materially from the Companys expectations (Cautionary Statements) are disclosed under Item 3  Key Information, Risk Factors and elsewhere in this Form 20-F Annual Report as well as those factors disclosed in the Companys documents filed from time to time with the British Columbia Securities Commission, the Alberta Securities Commission and the United States Securities and Exchange Commission.  All subsequent written and oral forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements. The Company assumes no duty to update or revise its forward-looking statements based on changes in internal estimates or expectations or otherwise.









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3







Glossary of Terms



Except as otherwise identified, the following terms, when used herein, shall have the following meanings:



APIrefers to the American Petroleum Institute measure of the specific gravity of oil; the higher the number, the lighter the oil.



bbls refers to barrels of oil.



bitumen or heavy oil refers to the tar-like form of oil that cannot be produced by conventional means.  When extracted from oil sands, it can be upgraded into light sweet crude and other oil products.



centipoises is a unit of measure of viscosity, which is the resistance of a substance to flow under stress; 1 centipoise  = 0.01 poise.



Common Shares means common shares in the capital of the Company.



Company refers to Derek Oil & Gas Corporation.



Derek USA refers to the Companys wholly owned subsidiary, Derek Resources (U.S.A.) Inc., a Delaware corporation.



Exchange refers to the TSX Venture Exchange.



GAGD refers to the Gas Assisted Gravity Drainage process of recovering oil.  The GAGD process uses a lower level horizontal production well and an upper level horizontal gas injection well and recovers oil by gravity drainage.  See Item 4  Information on the Company, The LAK Ranch Project, Wyoming, USA.



gravityrefers the specific weight of oil measured on a scale based on the weight of water.



kParefers to kilopascal, a unit of measurement of pressure.



McF refers to thousand cubic feet.



md refers to millidarcy, which is a unit of measure of permeability.



MMBTU refers to million British Thermal Units.



MMCF refers to million cubic feet.



permeability is a measure of the ease with which a fluid such as water or oil moves through a rock when the pores are connected.



porosityis the percentage of the bulk volume of a rock or soil that is occupied by interstices, or pores, whether isolated or connected.



psi means pounds per square inch, which is a unit of measure of pressure.



Registrant refers to Derek Oil & Gas Corporation.



SAGD refers to the Steam Assisted Gravity Drainage approach to the thermal recovery of heavy oil.  The SAGD process uses a lower level horizontal production well and an upper level horizontal and/or vertical steam injection well and recovers oil by gravity drainage.  See Item 4  Information on the Company, The LAK Ranch Project, Wyoming, USA.



shale outrefers to the change in a porous sandstone or limestone when the clay content increases until porosity and permeability disappear and the rock grades into claystone or shale; also known as pinch out.



synclinal foldis a fold of which the core contains the stratigraphically younger rocks; it is generally concave upward.



WTIrefers to West Texas Intermediate, a reference point for U.S. oil pricing.







---

4







Part I





Item 1  Identity of Directors, Senior Management and Advisers



See Item 6  Directors, Senior Management and Employees.





Item 2  Offer Statistics and Expected Timetable



Not applicable.





Item 3  Key Information

Selected Financial Data



Selected financial data of the Company for the five fiscal years ending April 30, 2005 are derived from the financial statements of the Company of which the three years ending April 30, 2005 have been audited by PricewaterhouseCoopers LLP as indicated in their independent auditors reports which are included elsewhere in this Annual Report.  The selected financial data set forth for Fiscal 2002 and 2001 are derived from the Companys audited financial statements, also audited by PricewaterhouseCoopers LLP, not included herein.



The selected financial data should be read in conjunction with the financial statements and other financial information included elsewhere in the Annual Report.



The Company has not declared any dividends since incorporation in 1981 and does not anticipate that it will do so in the foreseeable future.  The present policy of the Company is to retain future earnings for use in its operations and the expansion of its business.



Summary of Financial Data



The following tables set forth selected financial data with respect to the Company on a consolidated basis for the periods indicated.  The information appearing below has been derived from and should be read in conjunction with the consolidated financial statements of the Company and notes thereto as well as the information appearing under the heading Item 5  Operating and Financial Review and Prospects.



The financial statements of the Company and the table set forth below have been prepared in accordance with accounting principles generally accepted in Canada (Canadian GAAP), which differ in certain respects from those principles that the Company would have followed had its consolidated financial statements been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP).  The significant measurement differences between Canadian GAAP and U.S. GAAP and their effect on the Consolidated Financial Statements of the Company are set forth in Note 9 to the accompanying Consolidated Financial Statements.









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5









SELECTED FINANCIAL DATA

(CDN$ except Per Share Data)



|                                                          |                      |              |                |              |             
|--------------------------------------------------------- | -------------------- | ------------ | -------------- | ------------ | ------------
|                                                          | Years Ended April 30
|                                                          | 2005                 | 2004         | 2003           | 2002         | 2001        
|Interest and Other Income                                 | 9,312                | 11,324       | 23,299         | 1,024        | 131,435     
|Loss for the Year                                         | (1,375,553)          | (1,569,893)  | (522,877)      | (1,062,580)  | (826,342)   
|Loss Per Share                                            | (0.04)               | (0.06)       | (0.04)         | (0.09)       | (0.11)      
|Dividends per Share                                       | 0.00                 | 0.00         | 0.00           | 0.00         | 0.00        
|Total Assets                                              | 15,285,700           | 14,654,434   | 14,324,348     | 14,012,260   | 12,503,031  
|Long Term Liabilities                                     | 0                    | 0            | 0              | 506,000      | 0           
|Oil and Natural Gas Properties (included in Total Assets) | 14,194,246           | 13,814,938   | 14,217,018     | 13,910,104   | 12,249,321  
|Deficit at End of Period                                  | (15,066,049)         | (13,690,496) | (12,120,603)   | (11,597,726) | (10,535,146)
|                                                          |                      |              |                |              |             
|Share Capital                                             |                      |              |                |              |             
|($)                                                       | 28,854,814           | 27,080,110   | 24,360,559     | 22,464,255   | 20,357,250  
|Number of Securities (1)                                  | 35,261,630           | 30,165,795   | 19,036,019 (2) | 38,145,022   | 31,447,621  
|                                                          |                      |              |                |              |             
|US GAAP Shareholders Equity (3)                          | 15,113,523           | 14,290,820   | 12,672,206     | 10,866,529   | 9,919,604   
|US GAAP Net Loss (2) (3)                                  | (1,375,553)          | (1,563,371)  | (310,627)      | (1,062,580)  | (859,859)   
|US GAAP Loss Per Share (3)                                | (0.04)               | (0.06)       | (0.02)         | (0.09)       | (0.11)      



Notes:

(1)

There are 35,436,630 Common Shares issued and outstanding as of the date of this Form 20-F Annual Report.

(2)

During Fiscal 2003, the Company consolidated its share capital on a 3 for 1 basis.  Loss per share has been presented to give retroactive effect to the share capital consolidation.

(3)

Refer to discussion in Item 5 - Operating and Financial Review and Prospects.



In this Annual Report, unless otherwise specified, all monetary amounts are expressed in Canadian dollars.  The noon buying rates in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York for the conversion of Canadian dollars into United States dollars on September 23, 2005 was US $0.8538.



The following table sets out the average exchange rates for the five most recent financial years, calculated using the average of the exchange rates on the last day of each month in such periods:



|                     |            |            |            |           
|-------------------- | ---------- | ---------- | ---------- | ----------
|Years Ended April 30
|2005                 | 2004       | 2003       | 2002       | 2001      
|US $0.7911           | US $0.7441 | US $0.6454 | US $0.6379 | US $0.6616



The high and low exchange rates for each month during the previous six months are as follows:



|            |            |           
|----------- | ---------- | ----------
|Month       | High       | Low       
|March 2005  | US $0.8322 | US $0.8024
|April 2005  | US $0.8233 | US $0.7957
|May 2005    | US $0.8082 | US $0.7872
|June 2005   | US $0.8159 | US $0.7950
|July 2005   | US $0.8300 | US $0.8041
|August 2005 | US $0.8412 | US $0.8207









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6







Capitalization and Indebtedness



Not applicable.



Reasons for the Offer and Use of Proceeds



Not applicable.



Risk Factors



The following is a brief discussion of those distinctive or special characteristics of the Companys operations and industry which may have a material impact on, or constitute risk factors in respect of, the Companys future financial performance.  Due to the nature of the Companys business and the present stage of development on the LAK Ranch Project, the following risk factors apply:



We are an oil and gas exploration company without operating history.



The pilot plant at the LAK Ranch Project utilizes the SAGD recovery process which falls under the category of improved recovery pursuant to the definition found in Rule 4-10(a)(4) of Regulation S-X.  As a result, the Company has not attributed any proved reserves to the LAK Ranch Project.  Technical and economic information derived from the pilot study will be used to estimate the amount of recoverable oil for the development of a commercial scale operation.  There is a risk that the Company may not be able to economically recover the oil in place.



The Company has never brought any property in which it had an interest into commercial production.  As such, the Companys ability to meet production, timing and cost estimates for properties cannot be assured.  This risk has been mitigated by the farm-out of the operator of the LAK Ranch Project to Ivanhoe Energy (USA) Inc., a company with a management team with an extensive history of placing properties into commercial production.  Technical considerations, delays in obtaining government approvals, the inability to obtain financing or other factors could cause delays in developing properties.  Such delays could materially adversely affect the financial performance of the Company.



Our potential profitability is subject in part to matters over which we have no control.



The Companys principal business risks arise from the nature of crude oil and natural gas markets, uncertain results of capital expenditure programs and volatility of interest and exchange rate.



Factors beyond the control of the Company may affect the marketability of any oil and gas discovered.  The prices of crude oil and natural gas have experienced volatile and significant price movements over short periods of time, and are affected by numerous factors beyond the control of the Company, including international economic and political trends, expectations of inflation, currency exchange fluctuations (specifically, the U.S. dollar relative to other currencies), interest rates and global or regional consumption patterns, speculative activities and increased production due to improved production methods.  The prices which will be available to the Company for sales of its production will be established by market forces which can be affected by various factors, including political events, economic conditions and production costs in major producing regions and governmental policies with respect to holdings by a nation or its citizens.  The market for crude oil is influenced by global supply and demand considerations and by the supply management practices of the worlds dominant producers concentrated in the Organization of Petroleum Exporting Countries (OPEC).  The natural gas market is primarily influenced by North American supply and demand profile and by competing fuels.  There can be no assurance that the price of oil or gas will be such that the Companys leases can be produced at a profit.



Our properties are subject to title risks.



While the Company has diligently investigated title to all its property interests, this should not be construed as a guarantee of title.  The properties may be subject to prior unregistered agreements or transfers or native land claims and title may be affected by undetected defects.







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7







Judgments based upon the civil liability provisions of the United States federal securities laws may be difficult to enforce.



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



We are a Passive Foreign Investment Company for United State Federal Income Tax Purposes which may have consequences for U.S. investors.



The Company believes that it is a passive foreign investment company (PFIC) for United States Federal income tax purposes because it earns 75% or more of its gross income from passive sources.  As a result, a United States holder of Common Shares could be subject to increased tax liability, possibly including an interest charge, upon the sale or other disposition of the United States holders Common Shares or upon receipt of excess distributions, unless such holder of common shares elect to be taxed currently on his or her pro rata portion of the Companys income, whether or not the income was distributed in the form of dividends or otherwise.  The election requires certain conditions be met such as filing on or before the due date, as extended, for filing the shareholders income tax return for the first taxable year to which the election will apply.  Otherwise, the election may only partially apply.  Further, the elections will increase the administrative and regulatory burden on the Company.  See Passive Foreign Investment Company on page 53.



Our Common Shares may be subject to the U.S. Penny Stock rules.



The Common Shares are penny stock as defined by the Securities and Exchange Commission.  Penny stocks are generally equity securities with a price of less than US $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ National Market, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system).  The Securities and Exchange Commission has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks.  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 prepared by the Securities and Exchange Commission that 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 compensation information must be given to the customer orally or 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 such 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 a stock that is subject to the penny stock rules and therefore make it more difficult to sell those shares.



We may not remain in business without obtaining additional financing.



The Company has limited financial resources, and there is no assurance that additional funding will be available to it for further development of its properties or to fulfill its obligations under any applicable agreements.  The Company has relied on external financing, including the issuance of equity securities, to fund its activities to date and will continue to require external financing for the foreseeable future.  The exploration and development of the Companys properties depends upon the Companys ability to obtain financing through any or all of the joint venturing of projects, debt financing, equity financing or other means.







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8









At September 23, 2005, the Company had working capital of approximately $850,000.  The LAK Ranch Project does not presently generate revenue and the Company is dependent on its shareholders to support it as a going concern.  While the Company has been successful in obtaining financing from shareholders and directors in the past, there is no assurance the Company will continue to be successful in raising necessary financing.  Accordingly, there is substantial doubt about the ability of the Company to continue as a going concern.



Our operations are subject to environmental and government regulation.



The current or future operations of the Company, including development activities and commencement of commercial production on its properties, requires permits from various governmental authorities and such operations are and will be subject to laws and regulations governing prospecting, development, production, exports, taxes, labour standards, occupational health, waste disposal, toxic substances, land use, environmental protection, restrictions and prohibitions on releases or emissions of various substances produced in association with certain oil and gas operations, safety and other matters.  Companies engaged in the development and operation of oil and gas properties and related facilities generally experience increased costs and delays in production and other schedules as a result of the need to comply with applicable laws, regulations and permits, the extent of which cannot be predicted.  There can be no assurance that approvals and permits required to commence commercial production on its properties will be obtained.  Additional permits and studies, which may include the environmental impact studies conducted before permits can be obtained, may be necessary prior to operation of the properties in which the Company has interests and there can be no assurance that the Company will be able to obtain or maintain all necessary permits that may be required to commence construction, development or operation or production facilities at these properties on terms which enable operations to be conducted at economically justifiable costs.



Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment or remedial actions.  Parties engaged in oil and gas operations may be required to compensate those suffering loss or damage by reason of the production activities and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations.



Amendments to current laws, regulations and permits governing operations and activities of oil and gas companies, or more stringent implementation thereof, could have a material adverse impact on the Company and cause increases in capital expenditures or production costs or reduction in levels of production at producing properties or abandonment or delays in development of new oil and gas properties.



The Company, its consultants and project operators maintain a corporate insurance program consistent with industry practice to protect against losses due to accidental destruction of assets, well blowouts, pollution and other operating accidents or disruptions.  The Company also has operational and emergency response procedure and safety and environmental programs in place to reduce potential loss exposure.  To the best of the Companys knowledge, the Company is currently operating in compliance with all applicable environmental regulations.



The Company has insurance in amounts that it considers to be adequate to protect itself against certain risks of mining and processing.  However, the Company may become subject to liability for hazards against which it cannot insure itself or which it may elect not to insure against because of premium costs or other reasons.  In particular, the Company is not insured for environmental liability or earthquake damage.



We have incurred net losses to date and may not operate profitably in the future.



The Company has experienced, on a consolidated basis, losses in all years of its operations.  There can be no assurance that the Company will operate profitably in the future, if at all.  At April 30, 2005, the Companys deficit totalled $15,066,049.



We depend on a key management employee.



The Company depends on a key employee:  Barry C.J. Ehrl, President and Chief Executive Officer of the Company.  The loss of the named employee could have an adverse effect on the Company.  See Item 6  Directors, Senior Management and Employees and Item 7  Major Shareholders and Related Party Transactions for the details of Mr. Ehrls management contract.  The Company does not maintain key man insurance on its management.







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9









Our directors may be associated with other reporting companies.



Certain of the Companys directors and officers serve as directors or officers of other reporting companies or have significant shareholdings in other reporting companies and, to the extent that such other companies may participate in ventures in which the Company may participate, the directors of the Company may have a conflict of interest in negotiating and concluding terms respecting the extent of such participation.  See Item 6  Directors, Senior Management and Employees and Item 7  Major Shareholders and Related Party Transactions.



We are subject to the risk of fluctuations in the relative values of the Canadian dollar as compared to U.S. dollar.



The Companys operations at the LAK Ranch Project are in the United States and the expenses of such operations are payable in U.S. dollars while the Companys functional currency is the Canadian dollar.  The majority of the Companys financings to date have been in Canadian dollars and will continue to be in Canadian dollars for the foreseeable future.  Accordingly, the Company is subject to the risk of fluctuations in the relative values of the Canadian and U.S. dollars.  Although this has not had a materially adverse affect on the Companys results of operations to date, this may have a materially adverse affect on the Companys results of operations in the future.  The Company is required to recognize foreign currency translation gains or losses in the determination of net earnings and losses, except for exchange gains or losses relating to non-current monetary assets or liability, which are deferred and amortized over the remaining life of the asset or liability.



Our share price has been volatile in recent years.



In recent years, the securities markets in the United States and Canada have experienced a high level of price and volume volatility, and the market price of securities of many petroleum companies have experienced wide fluctuations in price which have not necessarily been related to the operating performance, underlying asset values or prospects of such companies.  In particular, the share price of Common Shares on the Exchange fluctuated from a high of $0.69 to a low of $0.31 and on the NASD OTC Bulletin Board Service from a high of US $0.56 to a low of US $0.0394 within the twelve month period preceding the date of this Form 20-F Annual Report.  There can be no assurance that continual fluctuations in price will not occur.



We have outstanding options and warrants which, if exercised, could cause dilution to existing shareholders.



As at September 23, 2005, there were 3,285,000 stock options and 1,099,500 share purchase warrants outstanding pursuant to which Common Shares may be issued in the future, which will result in further dilution to the Companys shareholders.



We do not expect to pay dividends.



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



Item 4  Information on the Company

Introduction



The Company was incorporated under the Company Act (British Columbia) on April 6, 1981 under the name Cove Energy Corporation.  The Company changed its name to Cove Resources Corporation on May 13, 1988 and to Consolidated Cove Resources Corporation (Consolidated Cove) on August 11, 1992.  On May 5, 1995, the Company consolidated its issued and outstanding share capital on a 4.6 for 1 basis and changed its name from Consolidated Cove to Derek Resources Corporation.  On March 3, 2003, the Company further consolidated its issued and outstanding share capital on a 3 for 1 basis and changed its name to its current name, Derek Oil & Gas Corporation.



The Company is a reporting issuer in British Columbia and Alberta.  The Common Shares trade on the Exchange under the symbol DRK and on the NASD OTC Bulletin Board Service under the symbol DRKOF.







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10









The address of the head office of the Company is #1201 - 1111 West Hastings Street, Vancouver, British Columbia, Canada, V6E 2J3.  The telephone number of the head office is (604) 331-1757 or toll free (888) 756-0066.  The address for service and the registered and records office of the Company is Tupper Jonsson & Yeadon, Suite 1710  1177 West Hastings Street, Vancouver, British Columbia, Canada, V6E 2L3.  The Companys website is www.derekoilandgas.com.



The Company is a natural resource company engaged in the acquisition, exploration and development of oil and gas properties.  It has an interest in one principal property, the LAK Ranch Project in Wyoming, USA.  The pilot plant at the LAK Ranch Project utilizes the SAGD recovery process which falls under the category of improved recovery and pursuant to the definition found in Rule 4-10(a)(4) of Regulation S-X.  As a result, the Company has not attributed any proved reserves to the LAK Ranch Project.  Technical and economic information derived from the pilot study will be used to estimate the amount of recoverable oil for the development of a commercial scale operation.  There can be no assurance that the identified oil deposit at the LAK Ranch Project will ever qualify as a commercially viable operation.

General Development of the Business of the Registrant



The four fiscal years ending April 30, 1997 were a period of re-organization and the Company, although not technically inactive, did not acquire any new properties or carry on any active business.  During the year ended April 30, 1994, Consolidated Cove suspended exploration activities on its existing properties and wrote off all mineral property interests totalling $2,255,264.  During the years ended April 30, 1994, 1995, 1996, and 1997, Consolidated Cove or the Company raised $125,000, $104,000, $250,000 and $645,000, respectively, by way of private placements, and used these funds to meet its ongoing expenses.  Creditors and shareholder lenders were issued shares to settle debt totalling $337,657, $52,672, $174,500 and nil during the years ended April 30, 1994, 1995, 1996 and 1997, respectively.



On May 11, 1995, the Company consolidated its issued and outstanding share capital on a 4.6 for 1 basis and changed its name from Consolidated Cove to Derek Resources Corporation.



In its fiscal year ended April 30, 1998, the Company began and continues to actively pursue a program of acquisition, exploration and development of oil and gas properties.



Pursuant to an option agreement dated September 24, 1997, as amended April 21, 1998 and December 11, 1998 (the LAK Agreement) between the Company and Rising Phoenix Development Group Ltd. (Rising Phoenix), the Company was granted an option to purchase from Rising Phoenix up to a 75% working interest in two tracts of land (the Original LAK Property) and up to a 37.5% interest in two other tracts of land (the Adjoining Property) in Weston County, Wyoming.  See Item 4  Information on the Company, The LAK Ranch Project, Wyoming, USA.



During the year ended April 30, 1998 (Fiscal 1998), the Company issued an aggregate of 1,290,000 special warrants at a price of $0.50 per special warrant for gross proceeds of $645,000.  The proceeds of the private placement were used for acquisition and exploration costs at the LAK Ranch Project and for general working capital.  During Fiscal 1999, all 1,290,000 special warrants were converted into 1,290,000 units, each unit comprising of one Common Share and one share purchase warrant.  During Fiscal 1998, the Company also issued 607,499 Common Shares on the exercise of 607,499 previously issued warrants resulting in net proceeds to the Company of $179,450.  During the same period, the issuance of 375,000 performance escrow shares at $0.01 per share to Barry Ehrl, President, C.E.O. and director of the Company resulted in gross proceeds to the Company of $3,750.



During the year ended April 30, 1999 (Fiscal 1999), the Company issued an aggregate of 1,940,300 special warrants at prices ranging from $0.40 to $0.50 per special warrant for gross proceeds of $817,310.  297,500 of the special warrants were converted into Common Shares while 1,642,500 special warrants were converted into 1,642,500 units, each unit comprising of one Common Share and one share purchase warrant.  Another 142,000 Common Shares were issued by private placements at $0.50 per share for gross proceeds of $71,000.  The proceeds of the private placements were used for acquisition and exploration costs at the LAK Ranch Project and for general working capital.  Debt in the amount of $6,300 was settled by the issuance of 15,000 Common Shares at a deemed price of $0.42 per share.  Revenues from oil and gas royalties totalled $3,471 and the Company sold certain of its oil and gas leases in Canada, realizing a gain of $36,609.







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11









In December 1999, the Company acquired federal oil leases totalling 1,028 acres adjacent to the LAK Ranch Project.  The new ground, which increased the acreage at the LAK Ranch Project to 7,388 acres, is west and south of the existing property.  The new ground was acquired by application for an annual rental payment of $1,543.50and is subject to a Federal Overriding Royalty of 12.5%.



During the year ended April 30, 2000 (Fiscal 2000), the Company issued 2,300,000 special warrants at a price of $0.50 per special warrant for gross proceeds of $1,150,000.  In connection thereof, an aggregate of 74,250 special warrants were issued by the Company in payment of finders fees.  The Company also completed another private placement of 64,000 special warrants at a price of $0.75 per special warrant for gross proceeds of $48,000.  Also during the same period, the Company issued 267,500 Common Shares on the exercise of 267,500 previously issued warrants resulting in gross proceeds to the Company $145,040.  Another 30,000 Common Shares were issued on the exercise of 30,000 stock options for gross proceeds to the Company of $14,900.



The Company entered into an agreement dated June 9, 2000 (the Agency Agreement) with Yorkton Securities Inc. (Yorkton) pursuant to which Yorkton was appointed to act as Agent for a best efforts brokered private placement of 7,050,000 units at a price of $0.42 per unit for gross proceeds of $2,961,000.  Each unit comprised of one Common Share and one share purchase warrant entitling the holder thereof to purchase one additional Common Share at an exercise price of $0.53 per share for two years.  The Company agreed to pay the Agent a commission of 7.5% of the gross proceeds of the offering and to issue Agents warrants equal to 10% of the total offering exercisable for two years at $0.53 per share.  The proceeds from this private placement were used for working capital purposes and for the development of the LAK Ranch Project.



During the year ended April 30, 2001 (Fiscal 2001), the Company issued 19,137,865 units at $0.42 per unit for gross proceeds of $8,037,903, which included the Yorkton brokered private placement.  In connection thereof, an additional aggregate of 410,377 units, 705,000 share purchase warrants and $308,656 was paid by the Company as finders fees and other costs.  The proceeds of the private placements in Fiscal 2001 were used for the construction of the pilot plant facility at the LAK Ranch Project and for general working capital.  The Company also issued 1,811,500 Common Shares on the exercise of 1,811,500 previously issued share purchase warrants resulting in gross proceeds to the Company of $973,470.  Another 72,000 Common Shares were issued on the exercise of stock options for gross proceeds to the Company of $35,380.



During Fiscal 2001, the Company completed the construction of a pilot plant to test the production potential on the LAK Ranch Project using SAGD technology.  By December 19, 2000, the Company had spent US $3,868,144 on construction of the pilot plant facility to meet the earn-in requirements of the LAK Agreement.



Rising Phoenixs remaining interest in the LAK Ranch Project was eventually assigned to Asdar Group (Asdar) on October 13, 2000 and Asdar became the Companys joint venture partner in the LAK Ranch Project.  Asdar made no payments to the Company with respect to their share of operating costs for the LAK Ranch Project and on April 13, 2001 the Company foreclosed on all of Asdars rights and interests in the LAK Ranch Project.  To effect foreclosure, the Company bid an amount of US $852,571.11 to purchase all of Asdars rights and interests.  Asdar responded by filing a lis pendens notice of claim, thereby providing public notice that a lawsuit involving title was being brought against the LAK Ranch Project.



Prior to the court hearing, Asdar agreed to a settlement.  Pursuant to the terms of the Settlement Agreement dated November 21, 2001 between the Company and Asdar, Asdar agreed to relinquish any claim to any right or interest in the LAK Ranch Project.  In return it received a proportionate reducible gross overriding royalty on the property of 0.70%.  Payment of the royalty is retroactive to the commencement of production.  Asdar was also granted certain participation rights in the event that the Company should sell some or all of its rights and interests in the property.  From any net sales proceeds, Asdar will receive a 7.5% interest in the first US $7.5 million of net proceeds and 1% of any proceeds thereafter, subject to certain adjustments.



Through an Assignment of a Federal Lease dated July 6, 2001 from Edel P. Smith and Accidental Oil Company, the Company acquired an additional 80 acres for US $7,500 upon execution of the Assignment and an additional payment of US $7,875 on January 1, 2002.  This new ground was subject to a Federal Overriding Royalty of 12.5% and a 5% overriding royalty.







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12







The Company produced and sold oil at the LAK Ranch Project for the months of April, May and June 2001 but suspended pilot production operations in mid-June 2001 in order to install an additional wastewater disposal system which would allow the plant to operate at 100% of its steaming capacity.  The Company restarted pilot plant operations in October 2001 and produced and sold oil for the months of October, November and December 2001 and the first part of January 2002.



Pilot plant operations were suspended in January of 2002 pending the grant of a surface water discharge permit from the State of Wyoming.  This permit was granted on January 31, 2002 but pilot plant operations were not restarted subsequent to January, 2002 as the Company decided to seek further funding for the project before recommencing pilot plant operations.



During the year ended April 30, 2002 (Fiscal 2002), the Company issued 5,653,051 units at an average price of $0.316 per unit for net proceeds of $1,790,115.  In connection thereof, 183,050 units were issued as finders fees.  The proceeds of the private placements in Fiscal 2002 were used to settle short-terms notes and accounts payable and for general working capital.



Notes payable issued during Fiscal 2002 totalled US $1,217,521 (Cdn $1,923,570).  Proceeds from these issuances were used primarily to cover outstanding construction and operating expenses at the Companys LAK Ranch Project.  During Fiscal 2002, the Company repaid some of the principal and accrued interest on these notes payable; US $138,000 in exchange for 731,300 common shares and US $78,600 for cash.  At April 30, 2002, the principal outstanding on notes payable totalled US $1,009,605 ($1,585,080) and interest accrued on notes payable totalled US $75,860 ($119,100).



During the year ended April 30, 2003 (Fiscal 2003), the Company issued 4,217,500 units at $0.10 per unit for net proceeds of $421,750 pursuant to two private placements.  Proceeds were used for general and administrative expenses and working capital related to the LAK Ranch Project.  An additional 10,375,200 Common Shares were issued at $0.10 per share for net proceeds of $1,037,520 for settlement of notes payable and 928,830 Common Shares were issued at $0.10 per share for net proceeds of $92,883 to settle interest on notes payable.  A further 3,441,506 Common Shares were issued at $0.10 per share for net proceeds of $344,151 pursuant to the settlement of debt.



On March 3, 2003, the Company consolidated its share capital on a 3 for 1 basis, resulting in a reduction of issued shares from 57,108,058 to 19,036,019.



During Fiscal 2003, management was actively pursuing partnerships with outside sources to develop the LAK Ranch Project. During the year ended April 30, 2004 (Fiscal 2004), the Company was successful in advancing the LAK Ranch Project by bringing in two partners.  The Company entered into an agreement with SEC Oil and Gas Partnership (SEC), whereby, in consideration of SEC funding US $700,000 of capital and operating expenditures on the LAK Ranch Project, SEC would receive a 49% revenue interest in the initial well, until 1.2 times payback, when the SEC interest in that initial well would revert to a 33% working interest. On October 30, 2003, the terms of this agreement were amended such that SEC would earn a 5% working interest in the LAK Ranch Project by advancing to the Company the sum of US $600,000. SEC will under this amended agreement receive a 10% revenue share until 1.2 times payback (US $720,000) at which time their revenue interest will revert to 5%.



In January 2004, the Company concluded an agreement with Ivanhoe Energy (USA) Inc. (Ivanhoe), whereby Ivanhoe can earn up to a 60% interest in the LAK Ranch Project by expending US $5,000,000 on capital development of the Project. The parties to this agreement are responsible for their respective share of the operating costs and receive a revenue share proportional to their interest at the time. Ivanhoe will earn an initial interest of 30% and will earn an additional 6% for each US $1,000,000 expended. Their interest will be adjusted quarterly based on expenditures made.



A number of financings were completed during Fiscal 2004.The Company completed two private placements raising $700,000 consisting of 4,666,667 units. Each unit consisted of one share and one half-share purchase warrant. Each whole warrant entitles the holder to purchase another share for $0.20 until August 14, 2004 or in the case of one placee, September 29, 2004.  The Company completed a placement of 1,666,667 units at a price of $0.30 per unit, raising $500,000. Each unit consisted of one share and one share purchase warrant. Each warrant entitles the holder to purchase an additional share for $0.40 until November 5, 2004.  The Company also completed a placement of 729,000 units at a price of $0.75 per unit, raising $546,750. Each unit consisted of one share and one half-share purchase warrant. Each full share purchase warrant entitles the holder to purchase an additional share for $0.90 until February 5, 2006.







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13







Also during Fiscal 2004, the Company settled an outstanding note in the principal amount of US $100,000 together with accrued interest of US $11,628 for 495,744 units in the Company. Each unit consists of one Common Share and one share purchase warrant. Each warrant allows the holder to purchase another Common Share at a price of $0.40 until November 5, 2004.  In addition, a total of 2,196,668 warrants and 275,000 stock options were exercised raising an additional $622,249.



During the year ended April 30, 2005 (Fiscal 2005), the Company completed a private placement raising $404,250 consisting of 735,000 units. Each unit consisted of one Common Share and one share purchase warrant. Each warrant entitles the holder to purchase another Common Share for $0.75 until January 24, 2006 or thereafter for $1.15 until January 24, 2007. A 0.42% gross overriding royalty on the LAK Ranch Project, which had an estimated fair value of $29,904, was granted as a finders fee in connected with this placement.



During Fiscal 2005, the Company and its joint venture partners advanced the LAK Ranch Project by conducting pilot operations including the completion of three cyclic steam cycles and the shooting and interpreting of a 3D seismic survey over a portion of the property.  The results of the steam cycles and the 3D seismic survey provided encouragement and led to the decision to commence continuous steaming operations as early as possible. Some prospective deeper horizon targets have also been identified and are being evaluated.



On August 31, 2005, the Company reported that the drilling of the first of three vertical steam-injection wells at the LAK Ranch Project had commenced. The three vertical wells should be completed, connected to steam production and fully operational by January 31, 2006. The completion of these wells will allow continuous steaming of the reservoir located in the Powder River Basin.



Business Overview



The Company is a natural resource company engaged in the acquisition, exploration and development of oil and gas properties.  It has an interest, indirectly, in one principal property:  the LAK Ranch Project.  The pilot plant at the LAK Ranch Project utilizes the SAGD recovery process which falls under the category of improved recovery and pursuant to the definition found in Rule 4-10(a)(4) of Regulation S-X.  As a result, the Company has not attributed any proved reserves to the LAK Ranch Project.  Technical and economic information derived from the pilot study will be used to estimate the amount of recoverable oil for the development of a commercial scale operation.  There is a risk that the Company may not be able to economically recover the oil in place.



Exploration on the Companys LAK Ranch Project is not affected by seasonal changes.  To conduct its exploration, the Company is dependent on sub-contractors for equipment and supplies.  These are generally available but vary in price and immediacy of availability subject to demand.  The LAK Ranch Project area is on a cattle ranch and farm so the timing of work may be affected with the operation of the cattle ranch and farm.



Revenue being generated from the LAK Ranch Project is not currently sufficient to meet its cash requirements and the Company is dependent on external financing to support it as a going concern.  Its ability to continue operations is dependent on the ability of the Company to obtain additional financing.  See Item 3 - Key Information  Risk Factors.



For the three years ended April 30, 2005, the Companys income was as follows:



|                                  |                           |                           |                          
|--------------------------------- | ------------------------- | ------------------------- | -------------------------
|                                  | Year Ended
April 30, 2005 | Year Ended
April 30, 2004 | Year Ended
April 30, 2003
|Gain on settlement of liabilities | -                         | 25,398                    | 37,750                   
|Interest and other income         | 9,312                     | 11,324                    | 23,299                   
|Totals                            | $9,312                    | $36,722                   | $61,049                  









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14







Organizational Structure



The Company has a wholly owned subsidiary, Derek Resources (U.S.A.) Inc. incorporated by the Company under the laws of the State of Delaware on August 18, 1981 under the name Cove Energy Inc.  On December 18, 2000, Cove Energy Inc. changed its name to Derek Resources (U.S.A.) Inc.  The registered and records office of Derek USA is located at No. 100 West Tenth Street, Wilmington, Delaware.  The principal business address of Derek USA is #1201  1111 West Hastings Street, Vancouver, British Columbia, Canada, V6E 2J3.  The authorized share capital of Derek USA consists of 2,000 common shares without par value of which one common share issued and outstanding is registered in the name of the Company.

Property, Plants and Equipment



The Companys executive offices are located in rented premises of approximately 2,371 square feet at #1201  1111 West Hastings Street, Vancouver, British Columbia, Canada, V6E 2J3, telephone (604) 331-1757.  The Company began occupying this facility in May 2004 on a three-year lease at an approximate cost of $4,530 per month.  It is considered adequate for current needs.



The LAK Ranch Project, Wyoming, USA



Location, Description and Acquisition



The LAK Ranch Project is comprised of the Original LAK Property and the Adjoining Property, both of which were acquired from Rising Phoenix Development Group Ltd. (Rising Phoenix) pursuant to an option agreement, as well as property leased directly from the federal government and property leased directly from Edel P. Smith and Accidental Oil Company.



The LAK Ranch Project is located in the northeast corner of the Powder River Basin, Weston County, Wyoming in a relatively flat terrain at an elevation of 4,400 feet.  Geographically, the LAK Ranch Project is located four miles east of Newcastle, Wyoming adjacent to a paved road (Route 16).  See Figure 1 on the following page.  Supplies and oilfield services are readily available from Newcastle.



The LAK Ranch Project area is on a cattle ranch and farm so the timing of work may be affected with the operation of the cattle ranch and farm.  Terrain is flat and consists of grasses and shrubs.  Water can be easily accessed through either a purchase option or by the development of the existing groundwater sources (the Madison Formation).  The area is not within 50 miles of any national parks, wilderness areas or national monuments.



During Fiscal 2004, the Company brought two partners in on the LAK Ranch Project.  See SEC Oil and Gas Partnership and Ivanhoe Energy (USA) Inc..  Ivanhoe is the current operator and is responsible for the operation of all programs on the LAK Ranch Project.  As at September 23, 2005, the ownership of the LAK Ranch Project was Ivanhoe 40%, SEC 5% and the Company 55%.  See Ivanhoe Energy (USA) Inc. on page 27.





Original LAK Property and Adjoining Property



Pursuant to an option agreement dated September 24, 1997, as amended April 21, 1998 and December 11, 1998 (the LAK Agreement) between Rising Phoenix and the Company, the Company was granted an option to purchase from Rising Phoenix up to a 75% working interest in two tracts of land (the Original LAK Property) and up to a 37.5% working interest in two other tracts of land (the Adjoining Property).  A working interest is a right which requires proportional participation in both the costs and profits related to a project like the LAK Ranch Project.



The Company acquired its interest in the Original LAK Property and the Adjoining Property by making payments totaling US $500,000 by December 15, 1998 (US $150,000 to Rising Phoenix and US $350,000 to Petrospec), incurring expenditures of US $100,000 by December 15, 1997 and incurring not less than US $3.5 million (CDN $5.25 million) in expenditures by December 31, 2000 to install a pilot plant facility.  By December 19, 2000, the Company had spent US $3,868,144 on the LAK Ranch Project to meet the earn-in requirements of the LAK Agreement.







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Figure 1  LAK Ranch Project



[form20f2005annualreportfi002.gif]









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16







Rising Phoenixs remaining interest in the LAK Ranch Project was eventually assigned to Asdar Group (Asdar) on October 13, 2000 and Asdar became the Companys joint venture partner in the LAK Ranch Project.  Asdar made no payments to the Company with respect to their share of operating costs for the LAK Ranch Project and on April 13, 2001 the Company foreclosed on all of Asdars rights and interests in the LAK Ranch Project.  To effect foreclosure, the Company bid an amount of US $852,571.11 to purchase all of Asdars rights and interests.  Asdar responded by filing a lis pendens notice of claim, thereby providing public notice that a lawsuit involving title was being brought against the LAK Ranch Project.



Prior to the court hearing, Asdar agreed to a settlement.  Pursuant to the terms of the Settlement Agreement dated November 21, 2001 between the Company and Asdar, Asdar agreed to relinquish any claim to any right or interest in the LAK Ranch Project.  In return it received a proportionate reducible gross overriding royalty on the property of 0.70%.  Payment of the royalty is retroactive to the commencement of production.  Asdar was also granted certain participation rights in the event that the Company should sell some or all of its rights and interests in the property.  From any net sales proceeds, Asdar will receive a 7.5% interest in the first US $7.5 million of net proceeds and 1% of any proceeds thereafter, subject to certain adjustments.



The following table sets forth details of the leases for the Original LAK Property and the Adjoining Property.



|                                                                   |                                             
|------------------------------------------------------------------ | --------------------------------------------
|Description of Property                                           
|Tract A                                                           
|Township 44 North, Range 60 West, 6th P.M., Weston County, Wyoming
|Section 6:                                                         | SW1⁄4, NE1⁄4, E1⁄2NW1⁄4, W1⁄2SE1⁄4                      
|Section 7:                                                         | W1⁄2, W1⁄2E1⁄2                                    
|Section 18:                                                        | S1⁄2SW1⁄4, NW1⁄4                                  
|Section 19:                                                        | W1⁄2W1⁄2, NE1⁄4NW1⁄4                                
|Section 30                                                         | W1⁄2NW1⁄4                                       
|Township 44 North, Range 61 West, 6th P.M., Weston County, Wyoming
|Section 1:                                                         | SE1⁄4                                         
|Section 11:                                                        | SE1⁄4, E1⁄2NE1⁄4, S1⁄2SW1⁄4                           
|Section 12:                                                        | All                                         
|Section 13:                                                        | W1⁄2, S1⁄2SE1⁄4                                   
|Section 14:                                                        | All                                         
|Section 22                                                         | NE1⁄4                                         
|Section 23                                                         | N1⁄2, SE, E1⁄2SW1⁄4                               
|Section 24                                                         | N1⁄2, SE1⁄4, E1⁄2SW1⁄4                              
|Section 25                                                         | NW1⁄4NE1⁄4, N1⁄2NW1⁄4, SW1⁄4NW1⁄4, NW1⁄4SW1⁄4               
|Section 26                                                         | E1⁄2NE1⁄4, NE1⁄4SE1⁄4                               
|Tract B                                                           
|Township 44 North, Range 61 West, 6th P.M., Weston County, Wyoming
|Section 24:                                                        | NE1⁄4SE1⁄4                                      
|Section 25:                                                        | S1⁄2SW1⁄4, NE1⁄4SW1⁄4, NW1⁄4SE1⁄4, E1⁄2NE1⁄4, SW1⁄4NE1⁄4, SE1⁄4NW1⁄4
|Tract C                                                           
|Township 44 North, Range 60 West, 6th P.M., Weston County, Wyoming
|Section 18:                                                        | N1⁄2SW1⁄4                                       
|Township 44 North, Range 61 West, 6th P.M., Weston County, Wyoming
|Section 13:                                                        | NE1⁄4, N1⁄2SE1⁄4                                  
|Tract D                                                           
|Township 44 North, Range 61 West, 6th P.M., Weston County, Wyoming
|Section 22:                                                        | SE1⁄4                                         
|Section 27:                                                        | W1⁄2E1⁄2                                        
|Tract E                                                           
|Township 44 North, Range 61 West, 6th P.M., Weston County, Wyoming
|Section 24:                                                        | SE1⁄4SE1⁄4                                      









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Additional Property Leased from the Federal Government



In December 1999, the Company acquired federal oil leases totaling 1,028 acres adjacent to the Original LAK Property and the Adjoining Property.  The new ground, which increased the acreage at the LAK Ranch Project to 7,388 acres, is west and south of the existing property.  The new ground was acquired by application for an annual rental payment of US $1,543.50and was subject to a Federal Overriding Royalty of 12.5%.  The following table sets forth details of the federal oil leases:



|                                                                   |                                                                           
|------------------------------------------------------------------ | --------------------------------------------------------------------------
|Description of Property                                           
|Township 44 North, Range 61 West, 6th P.M., Weston County, Wyoming
|Section 10:                                                        | SW1⁄4NE1⁄4                                                                    
|Section 10:                                                        | W1⁄2SE1⁄4, SE1⁄4SE1⁄4, (Excluding 13.77 acres in railroad right-of-way WyW0119068)
|Section 15:                                                        | W1⁄2E1⁄2, E1⁄2 W1⁄2, NW1⁄4NW1⁄4, SW1⁄4SW1⁄4                                               
|Section 15:                                                        | E1⁄2E1⁄2 (Excluding 23.87 acres in railroad right-of-way WyW0119068)          
|Section 25                                                         | NE1⁄4SE1⁄4, S1⁄2S1⁄4                                                              
|Section 26:                                                        | NW1⁄4NE1⁄4, E1⁄2SW1⁄4                                                             
|Section 26:                                                        | E1⁄2NW1⁄4, SE1⁄4SE1⁄4 (Excluding 14.23 acres in railroad right-of-way WyW0119068) 



Additional Property Leased from Edel P. Smith and Accidental Oil Company



Through an Assignment of a Federal Lease dated July 6, 2001, as amended July 10, 2001, (the Assignment) from Edel P. Smith and Accidental Oil Company, the Company acquired an additional 80 acres for US $7,500 upon execution of the Assignment and an additional payment of US $7,875 on January 1, 2002.  This new ground was subject to a Federal Overriding Royalty of 12.5% and a 5% overriding royalty.  The following table sets forth the details of the additional lease:



|                                                                   |       
|------------------------------------------------------------------ | ------
|Description of Property                                           
|Township 44 North, Range 61 West, 6th P.M., Weston County, Wyoming
|Section 1:                                                         | SW1⁄2SW1⁄4



Royalties and Lease Payments



Prior to entering into the LAK Agreement with the Company, Rising Phoenix had entered into an option agreement dated November 12, 1996 (the Petrospec Agreement) with Petrospec to acquire a 100% interest in the Original LAK Property and the Adjoining Property in consideration for the payment of US $370,000, the payment of gross over-riding royalty interests of 1.625% to Paul B. Trost and 2% to Petrospec, respectively, as well as the completion of a pilot project estimated to cost US $80,000.  Rising Phoenix made payments totaling US $20,000 and the balance of the payments totaling US $350,000 were made by the Company to Petrospec pursuant to the terms of the LAK Agreement.



Pursuant to an agreement dated May 3, 1999 (the First Royalties Agreement) among the Company, Petrospec, Paul Trost and Rising Phoenix, the Company has agreed to issue 100,000 Common Shares to each of Petrospec and Paul Trost in ten annual tranches of 10,000 Common Shares each to acquire varying portions of the overriding royalty interests held by Petrospec and Paul Trost totaling 1.05% pursuant to the terms of the Petrospec Agreement.



Pursuant to an agreement dated November 9, 1999 (the Second Royalties Agreement) among the Company, Sheri Tietjen and Donald B. Roberts, the Company has agreed to acquire (a) 1.6875% of the overriding royalty interests from Sheri Tietjen by paying US $25,000 and issuing 50,000 Common Shares; and (b) 1.6875% of the overriding royalty interests from Donald B. Roberts by paying US $25,000 and issuing 50,000 Common Shares.  In order to vest its acquisitions pursuant to the Second Royalty Agreement, the Company will be required to produce a minimum of 600 barrels per day for at least six continuous months before the seventh anniversary of the closing of this purchase.  During September 2005, this obligation was extended from the seventh anniversary to April 9, 2009 for the sum of US $25,000 and 150,000 Common Shares.  The Company has also agreed to return the 1.6875% royalty to Sheri Tietjen and the 1.6875% royalty Donald B. Roberts upon the earlier of completion of the LAK Ranch Project or the twentieth anniversary of the closing of the Second Royalties Agreement.



Pursuant to an agreement dated October 21, 2004 (the Wilson Agreement) between the Company and Allen Wilson, the Company agreed to transfer a 0.42% gross overriding royalty, which had an estimated fair value of $29,904, as a finders fee for a private placement.







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Pursuant to the terms of the LAK Agreement, the Settlement Agreement with Asdar and the Wilson Agreement, the Original LAK Property and the Adjoining Property are, as of the date of this Form 20-F Annual Report, subject to gross overriding royalty interests as indicated below:



|                               |                                      |           |           |           |          
|------------------------------ | ------------------------------------ | --------- | --------- | --------- | ---------
|Name of Recorded Royalty Owner | (Royalty Data as of September, 2005) |           |          
|                               | Tract A                            | Tract B | Tract C | Tract D | Tract E
|Lisa Stewart-deSnoo            | 6.25000%                             | 6.25000%  | 3.12500%  | 3.12500%  | 3.12500% 
|Sheri Tietjen                  | 0.00000%                             | 3.0000%   | 1.74995%  | 1.74995%  | 0.65625% 
|Toby Vineyard Trust            | 1.50000%                             | 0.00000%  | 0.00000%  | 0.00000%  | 0.00000% 
|Tyler Vineyard Trust           | 1.50000%                             | 0.00000%  | 0.00000%  | 0.00000%  | 0.00000% 
|Donald B. Roberts              | 3.00000%                             | 3.00000%  | 1.74995%  | 1.74995%  | 0.65625% 
|Paul B. Trost                  | 1.15370%                             | 1.15370%  | 0.40730%  | 0.40730%  | 0.99120% 
|The Company                    | 4.72630%                             | 4.72630%  | 3.55700%  | 3.55700%  | 4.94800% 
|Asdar Group                    | 0.70000%                             | 0.70000%  | 0.70000%  | 0.70000%  | 0.70000% 
|Allen Wilson                   | 0.42000%                             | 0.42000%  | 0.14830%  | 0.14830%  | 0.36080% 
|Total                          | 19.25000%                            | 19.25000% | 11.43750% | 11.43750% | 11.43750%
|Third Party Royalties          | 14.52370%                            | 14.52370% | 7.88050%  | 7.88050%  | 6.48950% 



Between May 3 and October 30, 2001, the Company granted additional royalties totalling US $0.1360838 per barrel of oil produced to certain lenders and debt holders.  The Company repurchased royalties previously held by various parties, resulting in the Company holding net royalties of 4.72630% on Tracts A and B, 3.55700% on Tracts C and D and 4.94800% on Tract E, after the Company assigned royalties to Asdar Group and Allen Wilson. These repurchased royalties include an October 18, 2004 repurchase of a 1.42% royalty from Petrospec for sum of US $81,586.  The current recorded third party royalties are 14.52370% on Tracts A and B, 7.88050% on Tracts C and D and 6.48950% on Tract E.  In addition, there is a 1% unrecorded royalty payable as a finders fee to Rick Jeffs with regard to a private placement.  See Legal Proceedings.



In order to maintain the Original LAK Property and the Adjoining Property leases in an active state, minimum shut-in royalties for the 2003 calendar year totaling US$12,544 were paid to Rev. Lisa Stewart-deSnoo (as to US $6,400), Donald B. Roberts (as to US $3,072), Toby Vineyard Trust (as to US $1,536) and Tyler Vineyard Trust (as to US $1,536).  Shut-in royalties are monies paid to mineral interest owners (lessors) by the mineral interest lessee(s) during those time periods when no production of oil is occurring.  Alternatively, when production of oil is minimal and the income to the lessors falls below a predetermined base level, shut-in royalties of a certain minimum dollar amount must be paid annually to the mineral interest owners in order to maintain the lease in good standing.  A surface lease fee of US $600 per year is payable to True Ranches, a cattle ranch which operates on the property covering the LAK Ranch Project.  The Company is required to post a US $25,000 operator bond with the State of Wyoming for liability or damage to the leases.  An annual rental payment of US $1.50 per acre is payable for the first five years of the federal oil leases.  Thereafter, the annual rental payment is US $2.00 per acre.  The minimum annual rental on federal lease W-149512 applies to 1,014.81 acres.



History of the LAK Ranch Project



Approximately 26 holes were drilled by other companies on the LAK Ranch Project to define the location of the oil and in previous attempts to produce it.  Companies such as Texaco and Conoco have previously explored the LAK Ranch Project.  Conoco conducted a steam pilot flood and found the oil responded favorably to steam recovery.  Parrent Engineering conducted a four-well solvent flood and was also successful in mobilizing the oil, however solvent costs rendered this approach marginally economic.  In the 1980s, Surtek, an enhanced oil recovery specialist firm, conducted extensive laboratory core floods and installed a five-well pilot test for its alkaline polymer-surfactant chemical flood.  Again the initial results were favourable but a drop in the oil price precluded continued operation.



Geology



Oil has been produced from at least four geological formations in the Powder River Basin. On the LAK Ranch Project, the Newcastle sandstone formation hosts the oil reservoir of interest.  Oil is already being produced from the Newcastle sandstone formation at a location 10 miles southwest of the LAK Ranch Project.







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19







On the northern and eastern margins of the LAK Ranch Project, the Newcastle sandstone formation outcrops on surface and forms almost a right angle bend near the LAK Ranch Project headquarters.  On the east flank of the LAK Ranch Project, the Newcastle sandstone formation dips (forms an angle with the horizontal) 25 to 45 degrees to the west.  On the northern edge of the LAK Ranch Project, the Newcastle sandstone formation dips to the south at 20 to 45 degrees.  The change in dip of the Newcastle sandstone formation at various locations on the LAK Ranch Project indicates that the Newcastle sandstone formation forms a geological structure known as a syncline or synclinal fold.  This synclinal fold structure and related dipping (not horizontal) oil reservoir would aid oil recovery on the LAK Ranch Property in that heated oil will flow more readily under the force of gravity down into the collection well if the reservoir is dipping rather than horizontal.



Oil has migrated upward from the center of the Powder River Basin and can be observed as oil staining in Newcastle sandstone outcrops on surface.



At the LAK Ranch Project area, the Newcastle sandstone formation averages 45 feet in thickness and consists of a 12 to 16 foot thick upper layer and a 20 to 50+ foot thick lower layer.  These two sandstone layers are separated by a 6 to 20 foot thick shale layer.  Based on Surteks previous drilling and coring operations, both the upper and lower sandstone layers average 22% porosity, have an average permeability of 780 md and average oil saturations of 65%.



In December 1997, the Company drilled four wells along the projected horizontal well path to verify the presence of the sands, their thickness, porosities and permeabilities as well as the presence of oil in the sands at the LAK Ranch Project.  During the drilling of these four wells, the sand intervals were core drilled and a solid piece of sandstone three inches in diameter was extracted from the sand intervals.  This core sample was then utilized to determine the reservoir characteristics. The log data on the four wells is summarized below:



|             |                      |                   |                      |    |     
|------------ | -------------------- | ----------------- | -------------------- | -- | ----
|Well         | Location             | Upper Marine Sand | Lower Alluvial Sand 
|Net Pay
(Ft) | Average
Porosity
(%) | Net Pay
(Ft)      | Average
Porosity
(%)
|LAK 1-1      | 1-1-44N-61W          | 14                | 17                   | 29 | 15  
|LAK 12-9     | 9-12-44N-61W         | 13                | 14                   | 46 | 17  
|LAK 12-10    | 10-12-44N-61W        | 15                | 14                   | 22 | 16.5
|LAK 12-11    | 11-12-44N-61W        | 0                 | Shale Out            | 26 | 14.8



The core analysis on the four wells is summarized below:



|          |                         |                    |                         
|--------- | ----------------------- | ------------------ | ------------------------
|Well      | Permeability
Range
(md) | Porosity
Range
(%) | Oil Saturation
Range
(%)
|LAK 1-1   | 2 to 350                | 8.2 to 29.6        | 40 to 58                
|LAK 12-9  | 148 to 1,122            | 24.6 to 29.0       | 35 to 53                
|LAK 12-10 | 945 to 2,196            | 18.0 to 22.9       | 31 to 68                
|LAK 12-11 | (1)                     | (1)                | (1)                     



Notes:

(1)

Core not analyzed.



Core porosities as measured by an independent third party laboratory consistently showed higher porosities than did the density gamma logs as measured downhole.  The core porosities typically exceeded downhole porosities by 4 - 7 porosity units.  No explanation was given by the laboratory, however the Company recognizes that if the downhole log porosities are correct, less oil may be available for recovery.  One of the purposes of the pilot project is to conduct a volumetric balance and further define this problem.



Reservoir permeabilities of 10 to 100 millidarcies are considered good and reservoir permeabilities of 100 to 1,000 millidarcies are considered very good.  The four wells were drilled with fresh water which flushed oil from the core samples.  Therefore an oil saturation of 72% was used for an original saturation figure.







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20





Figure 2  SAGD Process

[form20f2005annualreportfi004.gif]







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21







The Company conducted investigations designed to examine the viability of utilizing thermal recovery methods to exploit the Newcastle Formation on the LAK Ranch Property.  Data from drilling carried out by the Company on the LAK Ranch Property, combined with information gathered from numerous other wells in the area of the LAK Ranch Property, led the Company to the conclusion that the potential oil reservoir underlying the LAK Property was dipping (not horizontal).  A dipping (not horizontal) reservoir would allow heated oil to flow under the force of gravity down into the collection well, where the oil would be pumped to the surface.



A computer simulation assumed a horizontal well approximately 500 metres long and located in the sand and used to inject steam.  A second horizontal well, also 500 metres long and located in the same sand but below the first well by approximately 20 feet was also simulated and used as the oil producer.  Results of the simulation model showed the LAK Ranch oil could be economically recovered by these horizontal wells and with the injection of steam.  Based on the computer model and other companies professional experience with this type of oil recovery employing horizontal wells and steam injection, his computer simulation showed each well pair would theoretically recover potentially economic quantities of oil over an 11-year operating period.  Since each well pair would produce the oil from a 20-acre area, numerous well pairs would be required to produce the oil from the entire field.  The accepted industry terminology for this type of steam/horizontal well recovery method is Steam Assisted Gravity Drainage or SAGD.



Crude at the LAK Ranch Project is a napthenic-based crude oil, contains no sulfur and flows readily when heated to 70o F and above.  On May 17, 2001 the Company entered into a Lease Purchase Agreement with Equiva Trading Company (Equiva) to sell the Companys crude oil production to Equiva.  This Agreement may be cancelled by either party following thirty days advance written notice.  Equiva agreed to purchase all of the Companys crude oil production at the Equiva posted price for Wyoming Sweet (other) in effect on the date of delivery, adjusted for gravity delivered, plus an additional US $1.00 per barrel.  This price is the equivalent of West Texas Intermediate (WTI) plus US $0.50.  On September 1, 2002, Equiva assigned this agreement to Shell Trading (US) Company.  On June 1, 2004, the current project operator, Ivanhoe Energy (USA) Inc. entered into a new crude oil purchase contract with Link Marketing (Plains Marketing, L.P. dba Link Energy).  Under the terms of this contract, the price received for the crude oil produced at LAK Ranch is Plains Marketings Wyoming Sweet (Other) posted price for the month of delivery, at a deemed 40.0 degrees API gravity plus the arithmetic average of the mid-points of Platts spot crude price assessments for posting-plus WTI as reported in Platts Oilgram Price Report when the month of delivery is the prompt trading month assessed by Platts (Trade Month is defined as the 26th of the month two (2) months prior to delivery through the 25th of the month prior to delivery), less the applicable deduct as listed on the lease attachment.  The price is to be based on equal daily quantities.  The applicable deduct is US$0.75/Barrel.



The Steam Assisted Gravity Drainage Process



Due to the gravity of the oil at the LAK Ranch Project and its relatively high in-place viscosity (at the reservoir temperature of 48o F), production of oil by conventional means has historically been uneconomic due to the adverse mobility ratio between the viscous oil and water.  Recent Canadian development of the SAGD process for recovery of heavy oils appears to be suited for economic recovery of oil at the LAK Ranch Project.



SAGD is a technique developed by the Alberta Department of Energy, formerly AOSTRA, in connection with nine industry partners: Amoco Canada, Chevron Canada, Chinese National Petroleum Corporation (CNPC Canada), Gibson Petroleum Company Limited, Imperial Oil, Japex Oil Sands Ltd., Petro Canada, Shell Canada and Suncor Inc.  SAGD was developed in the Underground Test Facility (the UTF) near Fort McMurray, Alberta.  The UTF was an experimental bitumen production facility initiated by the Alberta Department of Energy more than a decade ago to pioneer a unique oil sands recovery technology to unlock a large portion of Albertas oil sands buried too deep for surface mining.  Sperry-Sun pioneered the development of technologies for drilling SAGD wells to improve recovery and reduce field development costs for heavy oil projects.  SAGD is not a patented process and no licensing fees are applicable.



The SAGD approach to the thermal recovery of heavy oil depends on long horizontal wells placed at the base of the reservoir.  Steam is introduced into the base of the reservoir.  Because of the low density of gaseous steam, it rises in the reservoir and heats the formation.  The heated oil and water (both condensed steam and heated formation water) in the formation drain down to the horizontal well from which they are produced to surface.  The mechanism by which the process proceeds within the reservoir is illustrated in Figure 2 on the previous page.







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22







The steam is injected into the reservoir from either another horizontal well or alternatively a series of vertical wells.  As the oil and water is withdrawn from the reservoir, the steam chamber expands both upwards and sideways.  The upward growth proceeds in a random but rapid manner until it is limited by the top of the reservoir.  In contrast, the steam chamber expands sideways and downwards in a very stable manner.



At a later stage in the process, when the chamber has reached the top of the reservoir, the rate of oil production is controlled by the lateral expansion of the steam chamber.  This is illustrated in Figure 2.  The similarity between the situation shown in the lower diagram in Figure 2 and the coning of gas in conventional operations is apparent.  If the oil and water are removed too quickly from the horizontal production well, then the steam chamber will be drawn down into the well and bypassing will occur.  Essentially the only drive mechanism to move the oil to the well is gravity.  The process is ineffective with vertical producing well because of the relatively low flows that can be achieved under these conditions.  However, with long horizontal wells, economic production rates can be achieved.



The SAGD process has been successfully employed by Canadian Natural Resources Ltd. at Tangleflags, Burnt Lake and Wolf Lake in Alberta, by BlackRock Ventures at Hilda Lake, Alberta and by EnCana Corp. at Foster Creek, Alberta and Senlac, Saskatchewan.



The Gas Assisted Gravity Drainage Process



The Upper Marine Sand is separated from the Lower Alluvial Sand by a shale/siltstone barrier.  This upper sand will be heated during SAGD oil recovery from the main (lower) sand.  This pre-heating of the upper sand will supplement the performance of a GAGD oil recovery system which will be used to recover oil from the upper sand.



The GAGD process involves using a lower horizontal production well and an upper horizontal injection well, with a gravity drainage recovery system.  The GAGD process is similar to the SAGD process except for the following:



1.

A non-condensable gas such as natural gas, flue gas or carbon dioxide is injected instead of steam;



2.

The injection well will be placed up-structure, as far as the region heated by the underlying SAGD injection extends at the time recovery operations will commence in the upper sand;



3.

GAGD recovery operations will commence after thermal recovery of the lower sand has heated a sufficient volume of the upper sand; for the LAK Ranch Project this is expected to take approximately three years;



4.

Instead of using steam trap control to control the production rate from the production well (as in the case of the SAGD process), the production rate will be controlled as follows:



(a)

The fluid production rate is fixed initially at a level which is expected to result in sufficiently delayed gas coming down to the production well; the optimum delay is determined by site-specific economic sensitivity tests;



(b)

Once gas coning results in gas production rates reaching a predetermined value, the withdrawal rate is controlled based on maintaining this predetermined gas production rate approximately constant; the predetermined value should be a low rate, less than the rate required to replace the voidage as oil is produced; and



(c)

The fluids produced using the GAGD process will contain very little water (unless the reservoir has a mobile water saturation), and the gas production rate will be low; hence processing costs for the produced fluids are expected to be comparable to primary production costs.



Bateman Agreements



On March 20, 2000, a Memorandum of Understanding dated March 20, 2000 (the MOU) was executed between the Company and Bateman International BV of the Netherlands (BIBV).  Pursuant to the terms of the MOU, BIBV agreed to provide professional project management, engineering, design, procurement and construction management services to the Company for a fee of 5% of the total cost of the pilot plant as it relates to the surface facility, subject to a minimum of US $150,000 and reimbursement of costs.  BIBV also agreed to purchase 892,857 special warrants at $0.42 per special warrant for US $250,000, the proceeds of which the Company advanced to BIBV as prepayment for its services pursuant to the MOU.  The MOU was formalized by an Engineering, Procurement and Construction Management Agreement dated August 21, 2000 between the Company and Bateman Engineering Inc. (Bateman) of Denver, CO.



On June 21, 2001, a letter agreement was executed between the Company and Bateman Project Holdings Limited (BPHL) of Johannesburg, South Africa pursuant to which Bateman agreed to defer US $471,183 of debt payable by the Company until May 31, 2002.  Any amounts incurred in excess of US $471,183 would be due and payable in the normal course of business.  In consideration, Bateman would receive interest of 10% per annum commencing June 15, 2001 with both principal and interest due on May 31, 2002.  In addition, the Company granted a permanent gross over-riding royalty in the amount of US $0.0471 per barrel of oil produced net to the Companys interest.  As security for the amount deferred, the Company granted a lien in favour of Bateman, first on the surface equipment owned by the Company and located on the LAK Ranch Project and secondly, if required to satisfy amounts outstanding on the repayment date, on the LAK Ranch Project itself.  The Company was not able to repay the principal and interest on May 31, 2002.  On August 21, 2002, BPHL agreed to settle one half of the total debt outstanding in exchange for common shares of the Company at a price of $0.10 per share with the remaining amount payable to be secured by way of a new note issued by the Company bearing interest at 10% per annum and maturing on September 30, 2003.  By an agreement dated October 3, 2003, the Company extended the due date on this note payable to March 31, 2004.  To gain this extension, the Company agreed to pay to Bateman the new sum of US $30,000 for arrears interest in order to bring the note current.  The new amount of the principal debt was US $285,757.54 but the debt was repaid by the Company in February 2004.



Development Program



Management of the Company reviewed engineering reports prepared by other companies who have previously attempted to put the LAK Ranch Project into production.  A known reservoir of oil exists in the Newcastle sand under the LAK Ranch Project, however a pilot test was necessary to determine the economic viability of using SAGD technology on this reservoir.



During the year ended April 30, 2001, the Company completed the construction of a pilot plant to test the production potential on the LAK Ranch Project using SAGD technology.  The pilot plant described below was designed and computer simulation models were run on the reservoir.  The Companys pilot plant is a field demonstrated successful design as evidenced by the ongoing Blackrock heavy oil recovery project near Cold Lake, Alberta.



The total cost of constructing and starting up the SAGD pilot plant was budgeted at approximately $6.0 million (US $4.0 million).  The pilot project required the drilling of two horizontal wells in the sand and injecting steam in the upper well and collecting and producing the oil from the lower well from the lower sand.  Surface facilities were required to produce the steam and separate the produced oil, steam and water, together with water supply wells and water disposal wells.  Two additional horizontal wells will also be drilled in an overlying sand, located approximately 14 feet above the lower sand.  Oil from this sand will experience a decrease in its viscosity due to the fugitive heat loss from the steamflooding of the underlying sand located approximately 14 feet lower.  Oil recovery from the upper or overlying sand will be augmented by the injection of exhaust gases from the steam boiler to provide an energy source and push the oil to the lower horizontal recovery well.  This recovery method for the upper sand is called the Gas Assisted Gravity Drainage process, or GAGD.  Under full field development, each 20-acre area would contain four horizontal wells, two in the lower sand where steam is injected and two in the upper sand where the fugitive heat loss from the lower sand will decrease the viscosity of the oil sufficiently to allow recovery.  Both of these recovery methods are highly dependent on the influence of the gravity drainage of the oil due to the tilted nature of the reservoirs.



On June 14, 2000, Company officials appeared before the Wyoming Oil and Gas Commission and approval to commence drilling on the LAK Ranch Project was granted.  Effective June 13, 2000, the Company, through its U.S. subsidiary, Derek USA, entered into a drilling contract with CAZA Drilling Inc. of Denver, CO (CAZA) for the first injector/producer well pair on the LAK Ranch Project.  An escrowed deposit of US $315,000 was established by the Company on CAZAs behalf.  A rig was mobilized on the LAK Ranch Project on June 19, 2000 and drilling of Well Derek #1 commenced.



By July 10, 2000, Well Derek #1 was completed at a total measured length of 3,213 feet.  The horizontal section of the well extended a total of 1,810 feet and encountered 1,639 gross feet of Newcastle sandstone reservoir rock.  The Company estimated that 1,200 net feet of this gross footage was of good to excellent quality reservoir sand and that 400 net feet was of fair quality reservoir sand.  A slotted liner was successfully installed in the horizontal section of Well Derek #1.  On July 15, 2000, the second (injector) well of the horizontal well pair, Well Derek 2-I, was spudded.  Well Derek 2-I was completed on July 29, 2000 at a total measured length of 3,210 feet.  The horizontal section of the well was emplaced an average of 24 feet vertically above Well Derek #1.







---

23







By October 17, 2000 all major pieces of equipment for the surface facility were sourced, minor site preparation was underway and the route for the natural gas pipeline was being laid out.  By November 14, 2000, grading and survey work at the LAK Ranch Project site was nearly complete.  Construction and installation of concrete footings was being carried out.  Installation of a 4-inch natural gas pipeline, which will be about 30,000 feet in length had commenced.  This pipeline was capable of supplying up to 1.5 MMCF of natural gas to the project on a daily basis.  The Company estimated that this pipeline would provide sufficient fuel to operate steam generation equipment able to supply steam to approximately 4 to 6 well pairs.  By the end of November 2000, an oil treatment plant, or heater-treater and a 22 MMBTU leased steam generator, complete with water treatment plant, pre-fabricated steel building and ancillary equipment, arrived at the LAK Ranch site.



On December 15, 2000, the Company executed a Gas Sales Agreement with Western Gas Resources, Inc. of Denver, CO to supply 100% of the first 1,500 MMBtu per day of the Companys natural gas requirements at the LAK Ranch Project for a period of five years from the first delivery.



On January 9, 2001, 33,000-foot long 4-inch natural gas pipeline had been installed to the site and completed sections of the pipeline had been pressure tested.  By February 12, 2001, the LAK Ranch plant was essentially complete and acid treatment had been initiated on the steam blow-down wells.  Steam generation and injection to the SAGD well pair had commenced at the beginning of March 2001 and breakthrough communication between the two wells was achieved on March 18, 2001.  SAGD operations began on March 19, 2001, permitting steam to be injected through the upper well and condensed steam and oil to be collected through the lower, producing well.



The Company produced and sold oil at the LAK Ranch Project for the months of April, May and June 2001 but suspended pilot production operations in mid-June 2001 in order to install additional wastewater disposal system which would allow the plant to operate at 100% of its steaming capacity.  The Company restarted pilot plant operations in October 2001 and produced and sold oil for the months of October, November and December 2001 and the first part of January 2002.  The current project operator, Ivanhoe Energy (USA) Inc., began producing oil from the LAK Ranch property from July, 2004 and continues to produce oil from cyclic steaming operations to July, 2005.



The following summarizes all oil production and sales by the Company:



|              |                    |                       |                          |                  
|------------- | ------------------ | --------------------- | ------------------------ | -----------------
|Month/Year    | Oil Sold
(Barrels) | Average
Gravity (API) | Average
Price/Bbl.
(US$) | Gross
Value
(US$)
|April 2001    | 1096.61            | 21.4                  | $25.0001                 | $27,415.32       
|May 2001      | 1586.50            | 20.8                  | $25.3986                 | $40,294.80       
|June 2001     | 473.04             | 19.6                  | $25.2197                 | $11,929.91       
|October 2001  | 484.41             | 20.4                  | $18.4675                 | $8,945.82        
|November 2001 | 698.31             | 20.8                  | $17.1111                 | $11,948.85       
|December 2001 | 693.23             | 19.9                  | $16.5214                 | $11,453.13       
|January 2002  | 331.17             | 20.1                  | $15.8500                 | $5,249.04        
|July 2004     | 248.00             | n.a.                  | $28.4557                 | $7,057.01        
|November 2004 | 440.68             | n.a.                  | $51.8933                 | $22,868.32       
|January 2005  | 238.86             | n.a.                  | $40.8880                 | $9,766.51        
|February 2005 | 420.83             | n.a.                  | $42.1490                 | $17,737.57       
|March 2005    | 243.33             | n.a.                  | $49.1210                 | $11,952.61       
|May 2005      | 230.65             | n.a.                  | $40.1020                 | $9,249.53        
|June 2005 **  | 988.00             |                       |                          |                  
|July 2005 **  | 496.00             |                       |                          |                  

** Preliminary data only



Pilot plant operations were suspended in January of 2002 pending the grant of a surface water discharge permit from the State of Wyoming.  This permit was granted on January 31, 2002 but pilot plant operations were not restarted subsequent to January, 2002 as the Company decided to seek further funding for the project before recommencing pilot plant operations.



All of the oil produced on the LAK Ranch Project prior to 2004 was sold to one customer, Equiva Trading Company of Denver, CO pursuant to a Lease Purchase Agreement executed between the parties on May 17, 2001.  Effective September 1, 2002, Equiva assigned this agreement to Shell Trading (US) Company.    When Ivanhoe Energy (USA) Inc. took over as operator of the LAK Ranch property in 2004, they entered into a crude oil purchase contract with Link Energy (Plains Marketing, L.P. dba Link Energy).  This contract is still in force as of September, 2005.



During Fiscal 2003, management was actively pursuing partnerships with outside sources to develop the LAK Ranch Project.  See SEC Oil and Gas Partnership and Ivanhoe Energy (USA) Inc. below.  During Fiscal 2005, the Company and its joint venture partners advanced the LAK Ranch Project by conducting pilot operations including the completion of three cyclic steam cycles and the shooting and interpreting of a 3D seismic survey over a portion of the property.  The results of the steam cycles and the 3D seismic survey provided encouragement and led to the decision to commence continuous steaming operations as early as possible. Some prospective deeper horizon targets have also been identified and are being evaluated.



SEC Oil and Gas Partnership



On April 15, 2003, the Company entered into an agreement with SEC Oil and Gas Partnership (SEC), whereby, in consideration of SEC funding US $700,000 of capital and operating expenditures on the LAK Ranch Project, SEC would receive a 49% revenue interest in the initial well, until 1.2 times payback, when the SEC interest in that initial well would revert to a 33% working interest. On October 30, 2003, the terms of this agreement were amended such that SEC would earn a 5% working interest in the LAK Ranch Project by advancing to the Company the sum of US $600,000.  At April 30, 2005, these funds were expended in their entirety.  Under this amended agreement, SEC will receive a 10% revenue share until 1.2 times payback (US $720,000) at which time their revenue interest will revert to 5%.  The additional net revenues paid to SEC will be funded from the Companys interest in the LAK Ranch Project and will reduce the Companys revenue until 1.2 times payback is achieved by SEC.



Ivanhoe Energy (USA) Inc.



The Company entered into a farm-in and joint operating agreement with Ivanhoe Energy (USA) Inc. (Ivanhoe) of Bakersfield, California dated January 20, 2004. Under the terms of this agreement, Ivanhoe will initially earn a 30% working interest by financing the re-activation of the LAK Ranch enhanced oil recovery (EOR) project and continuing study of the geology, reservoir and production methods necessary to implement a commercial EOR heavy oil project. Ivanhoe will have the option to increase interest in the project on an incremental basis; for each US $1,000,000 invested in the project, Ivanhoe will earn an additional 6% working interest to a maximum 60% working interest upon a total capital investment of US $5,000,000.Their interest will be adjusted quarterly based on expenditures made.At April 30, 2005, Ivanhoe had incurred capital expenditures of approximately US $1.7 million.



Ivanhoe is the current operator of the LAK Ranch Project.  At September 23, 2005, the ownership of the LAK Ranch Project was 40% Ivanhoe, 5% SEC and the Company 55%.



Proposed Exploration Program



The current pilot phase is schedule to continue until June 2006. During this phase, Ivanhoe will conduct continuous steam injection tests utilizing the new vertical steam injection wells and producing from the existing horizontal producing well (LAK 1-P).



During the fourth quarter of Fiscal 2005, the Company was successful in interpreting the 3-D seismic and deciding on the location of the three vertical steam injection wells to allow for the commencement of continuous steaming and production.  After this pilot phase, Ivanhoe may elect to continue by funding a Stage One development phase.  This stage is now scheduled to last from July 1, 2006 to June 30, 2008. The delay encountered thus far related to timing our development work with the operation of a cattle ranch and farm.  Future delays may be possible due to this working relationship and also the lack of oil field service equipment, such as drilling equipment.



The Stage One development phase will consist of the drilling of three new horizontal producing wells, about 15 vertical slim hole steam injection wells, six observation wells, and 12 delineation wells to test the 3-D seismic geologic model. The cost of this stage and the pilot stage is budgeted at US $5.8 million with Ivanhoe responsible for the first monies until their overall contribution to LAK reaches US $5 million and then all participating parties will be responsible for their working interest share of the development.  Should Ivanhoe elect not to proceed with the Stage One, their working interest dilutes to 15% and the Company would become operator.



In addition to the capital expenditures denoted above, each participant in the LAK Ranch Project is responsible for its share of the ongoing operating costs. The Companys budgeted operating costs for the balance of the pilot phase are US $480,000 and are budgeted to be paid from project cash flow generated from the sale of oil.







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24







On August 31, 2005, the Company reported that the drilling of the first of three vertical steam-injection wells at the LAK Ranch Project had commenced. The three vertical wells should be completed, connected to steam production and fully operational by the end of the third quarter of 2005. The completion of these wells will allow continuous steaming of the reservoir located in the Powder River Basin.





Item 5  Operating and Financial Review and Prospects



The following discussion of the financial condition, results of operations and cash flows of the Company for the years ended April 30, 2005, 2004 and 2003 should be read in conjunction with the consolidated financial statements of the Company and related notes included therein.  The Companys financial statements are presented in Canadian dollars have been prepared in accordance with Canadian GAAP.  Differences between accounting principles generally accepted in Canadian GAAP and U.S. GAAP, as applicable to the Company, are set forth in Note 9 to the accompanying Consolidated Financial Statements of the Company.

Overview



The Company is a natural resource company engaged in the acquisition, exploration and development of oil and gas properties.  Since Fiscal 1998, the Company has primarily been focused on financing the acquisition of the LAK Ranch Project and the construction of the pilot plant facility.  The pilot plant utilizes the SAGD recovery process which falls under the category of improved recovery pursuant to the definition found in Rule 4-10(a)(4) of Regulation S-X.  As a result, the Company has not attributed any proved reserves to the LAK Ranch Project.  Technical and economic information derived from the pilot study will be used to estimate the amount of recoverable oil for the development of a commercial scale operation.  There is a risk that the Company may not be able to economically recover the oil in place.



The Company has total and deferred exploration expenditures of $14,194,246 at April 30, 2005, $13,814,938 at April 30, 2004 and $14,217,018 at April 30, 2003, all of which related to the LAK Ranch Project.  The recoverability of these amounts is dependent upon the existence of economically recoverable reserves, securing and maintaining title and beneficial interest in the LAK Ranch Project, the ability of the Company to obtain the necessary financing to complete of the development of the property, any future profitable production, or alternatively, upon the Companys ability to dispose of its interests on an advantageous basis.  Accordingly, there is substantial doubt about the ability of the Company to continue as a going concern.



The Company follows the full-cost method of accounting for oil and natural gas properties whereby all costs relating to exploration and development of oil and natural gas reserves are capitalized.  Such costs include land acquisition costs, geological and geophysical expense, engineering fees, related direct administrative expenses and costs of drilling both productive and non-productive wells, including the cost of production equipment.



Once in commercial production, capitalized costs of proven reserves and equipment will be depleted using a unit-of-production method based upon estimated proven reserves (energy content) net of royalties. Unless a significant amount of reserves is involved, proceeds received from the disposition of oil and gas properties are credited to the capitalized costs. In the event of a significant sale of reserves, a proportionate amount of cost and accumulated depletion, based upon the ratio of reserves sold to total reserves, is removed from the capitalized costs and the resultant profit or loss is taken into income. To-date, there has been no commercial production from the LAK Ranch Project and as a result no depletion has been recorded.



Future write-downs are dependent on many factors, including general and specific assessments of oil and gas resources, the likelihood of increasing or decreasing resources, land costs, estimates of future oil and gas prices, potential extraction methods and costs, the likelihood of positive or negative changes to the environment, taxation, labor and capital costs.  The Company cannot assess the monetary impact of these factors at the current stage of the LAK Ranch Project.



The Companys ability to continue as a going concern is dependent on continued financial support from its shareholders, the ability of the Company to raise equity and debt financing, and the attainment of profitable operations, external financings and further share issuances to meet the Companys liabilities as they become payable. While management has been successful in obtaining such additional sources of finance in the past, there can be no assurance that it will be able to do so in the future.







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25





The Company has a history of operating losses. In the year ended April 30, 2005, the Company incurred a loss of $1,375,553 and cash outflows from operating activities of $1,004,977. The Companys deficit at April 30, 2005 totalled $15,066,049. Because of this uncertainty, there is substantial doubt about the Companys ability to continue as a going concern.



The Company has not been required to make any material expenditure for environmental compliance to date.  The operations of the Company may in the future be affected from time to time in varying degrees by changes in the environmental regulations.  Both the likelihood of new regulations and their overall affect upon the Company vary greatly from state to state and are not predictable.  See Item 3  Key Information, Risk Factors.



The Companys operations at the LAK Ranch Project are in the United States and the expenses of such operations are payable in U.S. dollars while the Companys functional currency is the Canadian dollar.  Most of the Companys financings to April 30, 2005 were in Canadian dollars and the majority will continue to be in Canadian dollars for the foreseeable future.  Accordingly, the Company is subject to the risk of fluctuations in the relative values of the Canadian and U.S. dollars.  Although this has not had a materially adverse affect on the Companys results of operations to date, this may have a materially adverse affect on the Companys results of operations in the future.  The Company is required to recognize foreign currency translation gains or losses in the determination of net earnings and losses.  For Fiscal 2005, there was a net loss of $25,634 from foreign exchange, compared to a gain of $17,863 in Fiscal 2004 and a gain of $74,293 in Fiscal 2003.  The Company is not aware of any government currency policies or regulations which may affect the Companys operations.

Operating Results



Year ended April 30, 2005 Compared to the Year ended April 30, 2004



The Company incurred a net loss of $1,375,553 or $0.04 per share for Fiscal 2005 compared to a net loss of $1,569,893 or $0.06 per share for Fiscal 2004.  The decrease in the loss per share reflects the share issuances during the year as well as a modest decline in administrative expenses, mainly stock option expense. Legal, accounting, and filing fees also declined in Fiscal 2005 as in the prior fiscal year, the Company had major costs related to the agreements with Ivanhoe and SEC. Interest expense also decreased in Fiscal 2005 due to the settlement of notes payable.  Office administration and other costs increased as additional staff was employed and some management personnel were returned to full wages after being reduced in 2003 and part of 2004.  In 2005, the Company contracted directors and officers liability insurance for the first time which led to increased insurance costs over 2004.  Shareholders information charges were lower as the Company attended more shareholder investment conferences and advertised more in 2004 than in 2005.



Oil and natural gas property costs deferred during Fiscal 2005 totaled $379,308 compared to ($402,080) in Fiscal 2004.  The Companys expenditures have decreased on the LAK Ranch Project since its joint venture partners have incurred the majority of costs.  2005 costs related primarily to field operating costs not covered by the agreement with Ivanhoe.  At April 30, 2005, Ivanhoe had incurred capital expenditures of approximately US $1.7 million while US $600,000 had been incurred by SEC.



Year ended April 30, 2004 Compared to the Year ended April 30, 2003



During Fiscal 2004, the Company was successful in advancing the LAK Ranch Project by bringing in two partners.  Attracting two quality partners has enhanced the potential of the LAK Ranch Project as a prospective producing asset. Additionally, having these partners enabled the Company to raise sufficient funds to retire all existing notes payable and put the Company on stable financial footing. For example, working capital as at April 30, 2004 was in excess of $400,000 versus a working capital deficit of about $1,500,000 in the prior year.



A significant change in accounting policy occurred in Fiscal 2004, the expensing of stock options.  This generates a larger Net Loss per Share figure in 2004 than would have been recorded under the preceding years accounting policies.  Almost 40% of the overall loss in the current year was from the recognition of a stock option compensation expense of $631,956 (2003  $ Nil), a non-cash item, under the new accounting policy.



Other major variances from Fiscal 2003 are:



·

a law suit brought by Pacific Capital Markets resulted in the expensing of an additional $50,540 of shareholder communications expense in the quarter ended April 30, 2004,

·

the year ended April 30, 2004 had increased shareholder communications expense as the Company increased its marketing efforts,







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26







·

legal expenses were higher for all quarters in fiscal 2004 as the Company successfully negotiated the farm-out agreements with SEC and Ivanhoe, and completed numerous private placements,

·

the retirement of the debt owed pursuant to promissory notes resulted in lower interest costs the fiscal 2004 quarters as well as a reduction of the accretion of notes payable expense,

·

consulting and management fees were higher in the quarters ending January 31 and April 30, 2004 as the management contract was reinstated to its full $10,000 month versus the reduced $5,000 per month that was paid in the prior quarters due to the financial condition of the Company, and

·

office administration costs increased as staff was increased during the fiscal 2004 year.



Year ended April 30, 2003 Compared to the Year Ended April 30, 2002



The Company incurred a net loss of $522,877 or $0.04 per share for Fiscal 2003 as compared to a net loss of $1,062,580 for Fiscal 2002.  Revenues from oil and gas sales (net of royalties) totaled $21,702 for Fiscal 2003.  In comparison, revenue from oil and gas sales (net of royalties) totaled $1,024 for Fiscal 2002.  Interest earned on cash balances was $1,597 in Fiscal 2003 versus nil in Fiscal 2002.



General and administrative expenses were $583,926 in Fiscal 2003 versus $1,063,604 in Fiscal 2002.  Costs generally decreased in most categories, particularly legal and accounting, as the litigation with Asdar reached a conclusion during the year.  Foreign exchange gains were posted in Fiscal 2003 versus foreign exchange losses in other years as the Canadian dollar rose in value in US dollar terms.



Oil and natural gas property costs deferred during Fiscal 2003 totaled $306,914 compared to $1,660,783 in Fiscal 2002.  All amounts deferred were spent on the LAK Ranch Project.  The decrease was due to the financial condition of the Company and the uncertainty created by the Asdar litigation.



US vs. Canadian GAAP



The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in Canada (Canadian GAAP), which differ in certain respects from those principles that the Company would have followed had its consolidated financial statements been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The significant measurement differences between Canadian and U.S. GAAP and their effect on the consolidated financial statements are described below:



|                                         |             |             |           
|---------------------------------------- | ----------- | ----------- | ----------
|                                         | April 30   
|                                         | 2005        | 2004        | 2003      
|                                         | $           | $           | $         
|Consolidated Statements of Loss:         |             |             |           
|Loss for the year under Canadian GAAP    | (1,375,553) | (1,569,893) | (522,877) 
|Accretion on notes payable (a)           | -           | 6,522       | 250,000   
|Gain on settlement of notes payable (a)  | -           | -           | (37,750)  
|Loss for the year under U.S. GAAP        | (1,375,553) | (1,563,371) | (310,627) 
|Loss per share under U.S. GAAP           | (0.04)      | (0.06)      | (0.02)    
|                                         |             |             |           
|Consolidated Balance Sheets              |             |             |           
|Liabilities                              |             |             |           
|Liabilities under Canadian GAAP          | 172,177     | 363,614     | 1,595,142 
|Equity component of notes payable (a)    | -           | -           | 203,300   
|Liabilities under U.S. GAAP              | 172,177     | 363,614     | 1,798,442 
|                                         |             |             |           
|Shareholders Equity                     |             |             |           
|Shareholders equity under Canadian GAAP | 15,113,523  | 14,290,820  | 12,729,206
|Notes payable (a)                        | -           | -           | (57,000)  
|Shareholders equity under U.S. GAAP     | 15,113,523  | 14,290,820  | 12,672,206



(a)

Certain of the notes payable, with options to convert principal and interest into Common Shares, were split between debt and equity. Under U.S. GAAP, the conversion option would not be attributed any value and accordingly, the entire carrying amount of the notes payable would be classified as debt.



(b)

For U.S. GAAP purposes, the Company has prospectively adopted the fair value based method of accounting for stock-based compensation in accordance with Financial Accounting Standards (FAS) No. 148 and therefore there is no difference between Canadian and U.S. GAAP in this regard.



(c)

U.S. GAAP requires that a comprehensive income statement be prepared. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. The comprehensive income statement reconciles the reported net income to the comprehensive income amount.



For U.S. GAAP purposes, there is no difference between the Companys net income and comprehensive income.



(d)

Effective May 1, 2003, the Company adopted FAS No. 143, Accounting for Asset Retirement Obligations. The Company adopted, effective May 1, 2004, the equivalent Canadian standard. The adoption of these standards did not have any impact on the results or financial position of the Company.



Liquidity and Capital Resources



The working capital of the Company is a direct result of funds raised from the sale of equity shares over the outflow into acquisition, exploration and development costs as well as administrative expenses.  The working capital balance (deficit) at the end of the following periods were:  April 30, 2005 - $874,214; April 30, 2004 - $440,749; and April 30, 2003 - $(1,579,173).  The fluctuations stem from timing differences between when money is raised from equity issues and when expenditures are committed on exploration and development.



The Companys cash and cash equivalents at April 30, 2005 totaled $1,008,208 compared to $632,700 at April 30, 2004 and $8,857 at April 30, 2003.  The cash and cash equivalents are attributable primarily to the issue of share capital.  At April 30, 2004, the Company also held $146,962 in trust to expend on the LAK Ranch Project.  Aside from such cash and cash equivalents and funds held in trust, the Company had no material unused sources of liquid assets.



During Fiscal 2005, the Company completed a private placement raising $404,250 consisting of 735,000 units. Each unit consisted of one share and one share purchase warrant. Each warrant entitles the holder to purchase another share for $0.75 until January 24, 2006 or for $1.15 until January 24, 2007. A finders fee of 0.42% royalty on LAK Ranch, which had an estimated fair value of $29,904, was granted in connected with this placement.  In addition, the exercise of 3,835,835 warrants and 525,000 stock options provided additional proceeds of $1,400,458



A number of financings were completed during Fiscal 2004.The Company completed two private placements raising $700,000 consisting of 4,666,667 units. Each unit consisted of one share and one half-share purchase warrant. Each whole warrant entitles the holder to purchase another share for $0.20 until August 14, 2004 or in the case of one placee, September 29, 2004.  The Company completed a placement of 1,666,667 units at a price of $0.30 per unit, raising $500,000. Each unit consisted of one share and one share purchase warrant. Each warrant entitles the holder to purchase an additional share for $0.40 until November 5, 2004.  The Company also completed a placement of 729,000 units at a price of $0.75 per unit, raising $546,750. Each unit consisted of one share and one half-share purchase warrant. Each full share purchase warrant entitles the holder to purchase an additional share for $0.90 until February 5, 2006.



Also during Fiscal 2004, the Company settled an outstanding note in the principal amount of US$100,000 together with accrued interest of US$11,628 for 495,744 units in the Company. Each unit consists of one common share and one share purchase warrant. Each warrant allows the holder to purchase another common share in the Company at a price of $0.40 until November 5, 2004.  In addition, a total of 2,196,668 warrants and 275,000 stock options were exercised raising an additional $622,249.



During Fiscal 2003, the Company issued 4,217,500 pre-consolidation units at $0.10 per unit for net proceeds of $421,750 pursuant to two private placements.  Proceeds were used for general and administrative expenses and working capital related to the LAK Ranch Project.  An additional 10,375,200 pre-consolidation shares were issued at $0.10 per share for net proceeds of $1,037,520 for settlement of notes payable and 928,830 pre-consolidation shares were issued at $0.10 per share for net proceeds of $92,883 to settle interest on notes payable.  A further 3,441,506 pre-consolidation Common Shares were issued at $0.10 per share for net proceeds of 344,151 pursuant to the settlement of debt.  On March 3, 2003, the Company consolidated its share capital on a 3 for 1 basis, resulting in a reduction of issued shares from 57,108,058 to 19,036,019.



As of the date of this Form 20-F Annual Report, the Company had working capital of approximately $850,000. As additional sources of capital, the Company also has 3,285,000 options and 1,099,500 warrants outstanding at exercise prices ranging from $0.15 to $1.05 per share.



The current working capital commitments include $4,500 per month for rent, $15,000 per month for management and consulting fees and $20,000 per month for administrative support. Total general and administrative costs, including the commitments listed, for the year is budgeted to be about $900,000.



The Companys current property payments and budgeted work commitments for the remainder of the current financial year ended April 30, 2006 are summarized as follows:



|                                      |                                              |                  
|------------------------------------- | -------------------------------------------- | -----------------
|                                      | LAK Ranch                                    | The Company - US$
|Revenue projected                     | 35  55% the Company
10% SEC
Balance Ivanhoe | $nil to $784,000 
|Property payment                      | None required                                | Nil              
|Required development costs            | 100% Ivanhoe                                 | Nil              
|Required operating costs              | 35  55% the Company
5% SEC
Balance Ivanhoe  | ($568,000)       
|Total net budgeted positive cash flow | $nil                                         | $216,000         



The total of all budgeted amounts for property development and required operating cost commitments is $681,600 (US $568,000). When added to budgeted administrative costs for fiscal 2006 of $900,000 this gives total budgeted costs for the fiscal year of approximately $1,581,600 and budgeted revenue from the LAK Ranch Project is approximately $940,800 (US $784,000), giving the Company a negative net budgeted cash flow of about $600,800 to April 30, 2006. This shortfall remains less than the working capital on hand ($850,000), however management believes it may prove prudent to raise new capital in the next 12 months.



The budgeted revenues and costs are based on modeling and projections done by Ivanhoe, the project operator, and assume that a daily production level from the existing horizontal well of 130 Bpd in 2005 and 290 Bpd in 2006. These levels are the same as previous forecast, moved out one year due to the delays encountered in executing the Pilot Phase. As LAK Ranch remains in a pilot phase of development no assurance can be given that these production levels will be achieved. All operating and capital expenditures at LAK Ranch are results driven. Operating activities and expenditures may increase or decrease depending on the rate of success during the pilot phase.



The Company has no debt instruments at this time and all the Companys funds are unencumbered and available for use as working capital.



Research and Development, Patents and Licences, etc.



The Company does not engage in research and development activities.

Trend Information



Factors which may have a material effect on the Companys future financial condition are set forth in Item 3  Key Information, Risk Factors and in Liquidity above.

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 the Companys financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Tabular Disclosure of Contractual Obligations



|                        |                        |             |             |           |     
|----------------------- | ---------------------- | ----------- | ----------- | --------- | ----
|Contractual Obligations | Payments due by period
|Total                   | < 1 Year               | 1  3 Years | 3  5 Years | > 5 Years
|Office lease            | $108,720               | $31,710     | $77,010     | $nil      | $nil
|Totals                  | $108,720               | $31,710     | $77,010     | $nil      | $nil





Item 6  Directors, Senior Management and Employees

Directors and Senior Management



The following table sets out certain information concerning the directors and senior management of the Company.  Each director holds office until the next annual general meeting of the Company or until his successor is elected or appointed, unless his office is earlier vacated in accordance with the Articles of the Company, or with the provisions of the Company Act.  The officers are appointed at the pleasure of the board of directors.



|                                                                                               |                                                                                                                                                                                |                
|---------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------
|Name, Position, Age and
Country of Residence                                                   | Principal Occupation or Employment                                                                                                                                             | Date Appointed 
|BARRY C.J. EHRL
President, CEO and Director
Age:  66
Resident of Canada                        | President of the Company; Director of Sydney Resource Corporation, a public company involved in mineral exploration in British Columbia, Ontario and Mexico (non-competitive). | April, 1982    
|EDWARD G. BYRD(1)
Chief Financial Officer and Director
Age:  68
Resident of Canada             | Director of Century Pacific Greenhouses, a private agricultural business (non-competitive).                                                                                    | October, 1994  
|W. PATRICK BOSWELL(1)
Director
Age:  51
Resident of Canada                                     | President and CEO of International Frontier Resources Corporation, a junior oil and gas exploration and production enhancement technology company (competitive).               | December, 2002 
|JOHN LUSH(1)
Director
Age:  61
Resident of Canada                                              | President, Petroval Pte Ltd.., an oil-trading company specializing in marketing and sales of crude oil and refined oil products (potential competitor)                         | January, 2003  
|ALAN H. STEVENS
Vice-President, Operations and Director
Age:  63
Resident of the United States | Vice-President, Operations of the Company.                                                                                                                                     | August, 2004   
|GEORGE EYNON
Director
Age:  57
Resident of Canada                                              | Vice President, Business Development & External Relations for the Canadian Energy Research Institute (non-competitive).                                                        | September, 2005
|BRENT C. EHRL
Corporate Secretary
Age:  46
Resident of Canada                                  | President of Pacific Supply Company, a private wholesale dry goods business (non-competitive).                                                                                 | September, 1997
|DOUG SYMONDS
General Manager
Age:  58
Resident of Canada                                       | General Manager of the Company.                                                                                                                                                | January, 2000  
|ERICA BEARSS
Vice President, Corporate Communications
Age:  27
Resident of Canada              | Vice President, Corporate Communications of the Company                                                                                                                        | June 30, 2004  
|Notes:
(1)
Member of the Audit Committee                                                      



No Director and/or Executive Officer has been the subject of any order, judgment, or decree of any governmental agency or administrator or of any court or competent jurisdiction, revoking or suspending for cause any license, permit or other authority of such person or of any corporation of which he is a Director and/or Executive Officer, to engage in the securities business or in the sale of a particular security or temporarily or permanently restraining or enjoining any such person or any corporation of which he is an officer or director from engaging in or continuing any conduct, practice, or employment in connection with the purchase or sale of securities, or convicting such person of any felony or misdemeanor involving a security or any aspect of the securities business or of theft or of any felony.



Certain of the Companys directors and officers serve as directors or officers of other reporting companies or have significant shareholdings in other reporting companies and, to the extent that such other companies may participate in ventures in which the Company may participate, the directors of the Company may have a conflict of interest in negotiating and concluding terms respecting the extent of such participation.  In the event that such a conflict of interest arises at a meeting of the Companys directors, a director who has such a conflict will abstain from voting for or against the approval of such participation or such terms.  From time to time several companies may participate in the acquisition, exploration and development of natural resource properties thereby allowing for their participation in larger programs, permitting involvement in a greater number of programs and reducing financial exposure in respect of any one program.  It may also occur that a particular company will assign all or a portion of its interest in a particular program to another of these companies due to the financial position of the company making the assignment.  Under the laws of British Columbia, the directors of the Company are required to act honestly, in good faith and in the best interests of the Company.  In determining whether or not the Company will participate in a particular program and the interest therein to be acquired by it, the directors will primarily consider the degree of risk to which the Company may be exposed and its financial position at the time.



The Companys plan currently in place to resolve actual and potential conflicts of interest requires (1) full disclosure from directors, officers and key employees with respect to any potentially competitive interests; and (2) the Board of Directors to assess each actual or potential conflict of interest on a case-by-case basis.  If the Board of Directors determines that an actual or potential conflict of interest exists, it will act to mitigate or remove the conflict.  There have been no actual conflicts of interest issues to date.



While the Directors of the Company are involved in other business ventures and do not spend full time on the affairs of the Company, the Company believes that each devotes as much time to the affairs of the Company as is required to satisfactorily carry out his duty.



Brent C. Ehrl, Corporate Secretary, is the son of Barry C.J. Ehrl, President, Chief Executive Officer and Director.  Other than discussed above, there are no family relationships between any two or more Directors or Executive Officers.  There are no arrangements or understandings between any two or more Directors or Executive Officers pursuant to which he was selected as a Director or Officer.







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Barry C.J. Ehrl, President, Chief Executive Officer and Director



Mr. Ehrl has served as President, Chief Executive Officer and Director of the Company since 1981, raising several million dollars for the acquisition of the LAK Ranch Project and the development of the pilot plant facility.  Between 1990 and 1994, he was President and Chief Financial Officer of Star Valley Resources, Inc., which at that time was involved in oil recovery projects with Gulf Canada and British Gas.  Between 1986 and 1991, Mr. Ehrl was President and C.E.O. of Sun Mask Petroleum in which he raised $17 million for proposed takeovers of Inland Natural Gas and Trans-Mountain Pipeline.  Between 1986 and 1990, Mr. Ehrl was Vice-President, Finance and Director of Dawn Development Canada Corporation, a private catering firm where he was directly responsible for raising over $10 million for restaurant acquisitions in London and Vancouver.  Between 1983 and 1995, Mr. Ehrl was Chief Financial Officer of Anvil Resources Ltd. where he was directly responsible for raising in excess of $5 million for exploration and development of mineral properties in British Columbia and the Maritime provinces.  Mr. Ehrl also serves as Director of Sydney Resource Corporation, a public company involved in mineral exploration in British Columbia, Ontario and Mexico.  Mr. Ehrl currently devotes 80% of his time on the affairs of the Company.



Edward G. Byrd, CA, Chief Financial Officer and Director



Edward Byrd, Chartered Accountant, is currently a Director of Century Pacific Greenhouses, a private agricultural business.  Mr. Byrd was formerly a Senior Partner with Coopers & Lybrand (now PricewaterhouseCoopers) as well as a director of Atomic Energy Canada Limited.  He has many years of experience dealing with public and private sector companies and has served on the boards of several public resource companies.  Mr. Byrd currently devotes 15% of his time on the affairs of the Company.



W. Patrick Boswell, Director



Patrick Boswell is currently President and CEO of International Frontier Resources Corporation, a junior oil and gas exploration and production enhancement technology company listed on the TSX Venture Exchange.  He has 27 years experience in the oil and gas industry.  Previously, he was Executive Vice President of Hardy Oil & Gas Canada Ltd., a wholly-owned subsidiary of Hardy Oil & Gas PLC, President of Stateside Energy Corporation and President of Crozet Oil & Gas Ltd.  Mr. Boswell currently devotes 5% of his time on the affairs of the Company.



John Lush, Director



Mr. Lush is currently President of Petroval Pte Ltd., an oil-trading company specializing in marketing and sales of crude oil and refined oil products.  He has 36 years experience in the oil industry initially working for British Petroleum and subsequently trading crude oil and refined products for BP, Phibro Energy, Neste (Fortum) and Major Oil Services.  He has held several senior management positions and directorships in the industry and has first hand experience working many years in the Far East and US as well as Europe.  Mr. Lush currently devotes 5% of his time on the affairs of the Company.



Alan H. Stevens, Vice-President, Operations and Director



Mr. Stevens is the former President of Southwestern Energy Exploration and Production Company and a Senior Vice President of Worldwide Exploration for Occidental Petroleum.  Mr. Stevens has over 35 years experience in technical and managerial positions involving all phases of hydrocarbon exploration, production, operations, and contract negotiations for both domestic and international operations. While in his senior positions with Southwestern and Occidental, Mr. Stevens managed staffs of 85-100 people and annual capital budgets of US$150 MM. He also has held a management position with Tenneco Oil Company.  Mr. Stevens currently devotes 15% of his time on the affairs of the Company.







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28







George Eynon, Director



Mr. Eynon is currently the Vice President, Business Development & External Relations for the Canadian Energy Research Institute (CERI). Until recently he was responsible for CERIs natural gas research program. In his new position George handles CERIs research marketing, business development, client and media relations, and publications, as well as its conferences and training programs.  His experience includes over 20 years in the upstream, exploration and production sector of the oil and gas industry world-wide (with Amoco, Paramount Resources, Superior Oil, Suncor Energy, and Bow Valley Energy), and 10 years of energy and management consulting (with GEOS Energy Consulting, Ziff Energy Group, and Cambridge Energy Research Associates).  Mr. Eynon is a former President of the Canadian Society of Petroleum Geologists, and a past-Chair of the House of Delegates, American Association of Petroleum Geologists. He has made numerous presentations and chaired technical sessions at industry and professional association conferences, and authored numerous publicly-available, in-house and client-confidential reports and papers; and has conducted numerous short courses, board briefings, and corporate consulting sessions. Mr. Eynon is a native of London, England and a naturalized Canadian citizen. He holds a BSc (London), an MSc (McMaster), and attended MITs Sloan School of Management Senior Executive Program.  Mr. Eynon currently devotes 5% of his time on the affairs of the Company.



Brent C. Ehrl, Corporate Secretary



Brent Ehrl is currently President of Pacific Supply Company, a private wholesale dry goods business.  Brent Ehrl currently devotes 75% of his time on the affairs of the Company.



Doug Symonds, P. Geo., General Manager



Mr. Symonds is a graduate of the University of British Columbia (B.Sc. in Geology - 1972) and a Professional Geoscientist (Association of Professional Engineers and Geoscientists of the Province of British Columbia - Membership #19200).  He has 30 years experience in base and precious metals mining exploration in North and South America.  He was previously self-employed as a geological consultant and a partner in Montgomery Consultants Limited.  Mr. Symonds currently devotes 67% of his time on the affairs of the Company.



Erica Bearss, Vice-President, Corporate Communications



Erica Bearss has a BA with Honors in Modern Language and Literature from the University of Ottawa and has completed the Public Company Course Certificate from Simon Fraser University and the Getting on Target Investor Relations Seminar from the Toronto Stock Exchange.  She is currently Vice-President, Corporate Communications for the Company and is the former Investor Relations Manager with International Sovereign Energy Corp. Erica Bearss currently devotes 100% of her time on the affairs of the Company.

Compensation



The following table sets forth all compensation paid or accrued by the Company to its current directors, officers and members of its administrative, supervisory or management bodies for the financial year ended April 30, 2005.



The Company has no pension plan and no other arrangement for non-cash compensation to the directors of the Company except stock options.



|                                            |           |                                |                                            |                                       |                                  |      |      |     
|------------------------------------------- | --------- | ------------------------------ | ------------------------------------------ | ------------------------------------- | -------------------------------- | ---- | ---- | ----
|Name and Principal Position                 | Year      | Annual Compensation            | Long Term Compensation                     | All Other Compen-
sation
($)         
|Awards                                      | Payouts  
|Salary ($)                                  | Bonus
($) | Other Annual Compen-sation
($) | Securities Under Options/ SARs Granted
(#) | Restricted Shares / Units Awarded
($) | LTIP Payouts
($)                
|Barry C.J. Ehrl
President, CEO and Director | 2005      | $120,000                       | $Nil                                       | $Nil                                  | 200,000 (1)
160,000 (2)          | $Nil | $Nil | $Nil
|Edward G. Byrd
CFO and Director             | 2005      | $Nil                           | $Nil                                       | $Nil                                  | 65,000 (3)                       | $Nil | Nil  | $Nil
|W. Patrick Boswell
Director                 | 2005      | $Nil                           | $Nil                                       | $Nil                                  | Nil                              | $Nil | Nil  | $Nil
|John Lush
Director                          | 2005      | $Nil                           | $Nil                                       | $Nil                                  | Nil                              | $Nil | Nil  | $Nil
|Alan H. Stevens
VP, Operations and Director | 2005      | $Nil                           | $Nil                                       | $Nil                                  | 75,000 (1)
100,000 (4)           | $Nil | Nil  | $Nil
|George Eynon(5)
Director                    | 2005      | $Nil                           | $Nil                                       | $Nil                                  | Nil                              | $Nil | Nil  | $Nil
|Brent C. Ehrl
Corporate Secretary           | 2005      | $42,000                        | $Nil                                       | $Nil                                  | 30,000 (1)                       | $Nil | $Nil | $Nil
|Doug Symonds
General Manager                | 2005      | $67,500                        | $Nil                                       | $Nil                                  | 30,000 (1)
30,000 (6)            | $Nil | $Nil | $Nil
|Erica Bearss
VP, Corporate Communications   | 2005      | $45,750                        | $Nil                                       | $Nil                                  | 50,000 (1)
25,000 (7)
25,000 (8) | $Nil | Nil  | $Nil



Notes:

(1)

Options granted on November 18, 2004 are exercisable at a price of $0.55 per share and expire on November 17, 2009.

(2)

Options granted on January 25, 2005 are exercisable at a price of $0.55 per share and expire on January 24, 2010.

(3)

Options granted on June 8, 2004 are exercisable at a price of $0.61 per share and expire on June 7, 2009.

(4)

Options granted on May 28, 2004 are exercisable at a price of $0.65 per share and expire on May 27, 2009.

(5)

George Eynon was appointed a director in September 2005.

(6)

Options granted on April 22, 2005 are exercisable at a price of $0.55 per share and expire on April 21, 2010.

(7)

Options granted on July 26, 2004 are exercisable at a price of $0.48 per share and expire on July 25, 2009.

(8)

Options granted on August 6, 2004 are exercisable at a price of $0.48 per share and expire on August 5, 2009.



With the exceptions of Barry Ehrl, Brent Ehrl, Alan Stevens, Doug Symonds and Erica Bearss, the Company does not have any written consulting or employment agreements with any of its directors, officers or senior management.



Pursuant to a management agreement dated September 30, 2000 between the Company and Barry Ehrl, Mr. Ehrl was engaged as President and Chief Executive Officer of the Company for an unspecified term.  Pursuant to the management agreement, Mr. Ehrl received compensation in the amount of $8,500 per month for the period October 1, 2000 through January 1, 2001 and $10,000 per month for the period subsequent to February 1, 2001 as well as the reimbursement of out-of-pocket expenses.  The management agreement may be terminated by Mr. Ehrl at any time by providing 90 days notice to the Company.  The management agreement with Mr. Ehrl may be terminated by the Company at any time with cause or, without cause, by providing 36 months notice or payment in lieu of notice of not less than $360,000.



Pursuant to a consulting agreement dated October 15, 2003 between the Company and Brent Ehrl, Mr. Ehrl was engaged as a shareholder communications consultant on a month-to-month basis for a fee of $3,500 per month.



Pursuant to a consulting agreement dated May 31, 2004 between the Company and Alan Stevens, Mr. Stevens was engaged to provide consulting services of identifying, evaluation and introducing the Company to new projects and/or new sources of capital on a month-to-month basis for the granting of 100,000 stock options.  Such stock options were granted on May 28, 2004, are exercisable at a price of $0.65 per share and expire on May 28, 2009.



Pursuant to an employment agreement dated January 1, 2000 between the Company and Doug Symonds, Mr. Symonds was employed as General Manager for an unspecified term, currently at a salary of $5,625 per month.



Pursuant to an employment agreement dated June 30, 2004 between the Company and Erica Bearss, Ms. Bearss was employed as VP Corporate Communications for an unspecified term, currently at a salary of $4,500 per month.





Board Practices



The Board of Directors presently consists of six Directors.  Each Director was elected at the annual general meeting of the shareholders of the Company, held on September 23, 2005.  Each Director holds office until the next annual general meeting of the Company or until his successor is elected or appointed, unless his office is earlier vacated in accordance with the Articles of the Company, or with the provisions of the British Columbia Business Corporations Act(BCA).  See page 33 for the dates on which the current Directors of the Company were first elected or appointed.



With the exception of Barry Ehrl, the Company has not entered into contracts providing for benefits to the directors upon termination of employment.  Mr. Ehrl is entitled to receive an amount not less than $360,000 upon termination of employment pursuant to his respective management agreement with the Company.  See Compensation above.



Board Committees



Audit Committee



Pursuant to Section 224 of the BCA, the Company is required to have an Audit Committee (the Committee).



The purpose of the Committee is to provide an open avenue of communication between management, the Companys independent auditor and the Board and to assist the Board in its oversight of:



·

the integrity, adequacy and timeliness of the Companys financial reporting and disclosure practices;

·

the Companys compliance with legal and regulatory requirements related to financial reporting; and

·

the independence and performance of the Companys independent auditor.



The Committee shall also perform any other activities consistent with this Charter, the Companys articles and governing laws as the Committee or Board deems necessary or appropriate.



The Committee shall consist of at least three directors. Members of the Committee shall be appointed by the Board and may be removed by the Board in its discretion. The members of the Committee shall elect a Chairman from among their number. A majority of the members of the Committee must not be officers or employees of the Company or of an affiliate of the Company. The quorum for a meeting of the Committee is a majority of the members who are not officers or employees of the Company or of an affiliate of the Company. With the exception of the foregoing quorum requirement, the Committee may determine its own procedures.



The Committees role is one of oversight. Management is responsible for preparing the Companys financial statements and other financial information and for the fair presentation of the information set forth in the financial statements in accordance with generally accepted accounting principles (GAAP). Management is also responsible for establishing internal controls and procedures and for maintaining the appropriate accounting and financial reporting principles and policies designed to assure compliance with accounting standards and all applicable laws and regulations.



The independent auditors responsibility is to audit the Companys financial statements and provide their opinion, based on their audit conducted in accordance with generally accepted auditing standards, that the financial statements present fairly, in all material respects, the financial position, results of operations and cash flows of the Company in accordance with GAAP.



The Committee is responsible for recommending to the Board the independent auditor to be nominated for the purpose of auditing the Companys financial statements, preparing or issuing an auditors report or performing other audit, review or attest services for the Company, and for reviewing and recommending the compensation of the independent auditor. The Committee is also directly responsible for the evaluation of and oversight of the work of the independent auditor. The independent auditor shall report directly to the Committee.



In addition to the foregoing, in performing its oversight responsibilities the Committee shall:



1.

Monitor the adequacy of this Charter and recommend any proposed changes to the Board.



2.

Review the appointments of the Companys Chief Financial Officer and any other key financial executives involved in the financial reporting process.



3.

Review with management and the independent auditor the adequacy and effectiveness of the Companys accounting and financial controls and the adequacy and timeliness of its financial reporting processes.



4.

Review with management and the independent auditor the annual financial statements and related documents and review with management the unaudited quarterly financial statements and related documents, prior to filing or distribution, including matters required to be reviewed under applicable legal or regulatory requirements.



5.

Where appropriate and prior to release, review with management any news releases that disclose annual or interim financial results or contain other significant financial information that has not previously been released to the public.



6.

Review the Companys financial reporting and accounting standards and principles and significant changes in such standards or principles or in their application, including key accounting decisions affecting the financial statements, alternatives thereto and the rationale for decisions made.



7.

Review the quality and appropriateness of the accounting policies and the clarity of financial information and disclosure practices adopted by the Company, including consideration of the independent auditors judgment about the quality and appropriateness of the Companys accounting policies. This review may include discussions with the independent auditor without the presence of management.



8.

Review with management and the independent auditor significant related party transactions and potential conflicts of interest.



9.

Pre-approve all non-audit services to be provided to the Company by the independent auditor.



10.

Monitor the independence of the independent auditor by reviewing all relationships between the independent auditor and the Company and all non-audit work performed for the Company by the independent auditor.



11.

Establish and review the Companys procedures for the:



·

receipt, retention and treatment of complaints regarding accounting, financial disclosure, internal controls or auditing matters; and



·

confidential, anonymous submission by employees regarding questionable accounting, auditing and financial reporting and disclosure matters.



12.

Conduct or authorize investigations into any matters that the Committee believes is within the scope of its responsibilities. The Committee has the authority to retain independent counsel, accountants or other advisors to assist it, as it considers necessary, to carry out its duties, and to set and pay the compensation of such advisors at the expense of the Company.



13.

Perform such other functions and exercise such other powers as are prescribed from time to time for the audit committee of a reporting company in Parts 2 and 4 of Multilateral Instrument 52-110 of the Canadian Securities Administrators, the BCA and the articles of the Company.



On June 7, 2005, the Audit Committee adopted a Whistle Blowing Policy which applies to all employees and those contractors working for the Company.  It is also intended to provide a method for other stakeholders (suppliers, customers, shareholders etc.) to voice their concerns regarding the Companys business conduct.  A Whistleblowing or reporting mechanism invites all employees and other stakeholders to act responsibly to uphold the reputation of their organization and maintain public confidence. Encouraging a culture of openness within the organization will also help this process.  The Whistle Blowing Policy aims to ensure that serious concerns are properly raised and addressed within the Company and are recognized as a key tool in enabling the delivery of good governance practices.  A copy of the Whistle Blowing Policy may be obtained from the Secretary of the Company at no charge upon request.







---

29







Employees



At April 30, 2005, the Company had four full time employees and no part-time employees.  In comparison, the Company had six full-time employees and no part-time employees at April 30, 2004 and three full-time employees and no part-time employees at April 30, 2003.



The Company engages directors, officers and independent contractors from time to time to supply work on specific corporate business and project exploration programs.

Share Ownership



With respect to the persons listed in Compensation, above, the following table discloses the number of Common Shares and percent of the Common Shares outstanding held by those persons, as of September 23, 2005.  The Common Shares possess identical voting rights.



|                                            |                      |                                              
|------------------------------------------- | -------------------- | ---------------------------------------------
|Name and Title                              | No. of Shares(1) (2) | Percent of Shares Outstanding of the Class(3)
|Barry C.J. Ehrl
President, CEO and Director | 437,322              | Less than 1%                                 
|Edward G. Byrd
CFO and Director             | 18,205               | Less than 1%                                 
|W. Patrick Boswell
Director                 | 36,500               | Less than 1%                                 
|John Lush
Director                          | 353,656              | Less than 1%                                 
|Alan H. Stevens
VP, Operations and Director | 0                    | 0%                                           
|George Eynon
Director                       | 0                    | 0%                                           
|Brent C. Ehrl
Corporate Secretary           | 93,471               | Less than 1%                                 
|Doug Symonds
General Manager                | 144,866              | Less than 1%                                 
|Erica Bearss
VP, Corporate Communications   | 0                    | 0%                                           



Notes:

(1)

Includes beneficial, direct and indirect shareholdings.

(2)

Does not include stock options and other rights to purchase or acquire shares.

(3)

There are 35,436,630 Common Shares issued and outstanding as of the date of this Form 20-F Annual Report.



The following table discloses the incentive stock options outstanding to the aforementioned persons as of September 23, 2005:







---

30







|                                            |                           |                                     |                            |              
|------------------------------------------- | ------------------------- | ----------------------------------- | -------------------------- | -------------
|Name of Person(s)                           | Date of Grant or Issuance | # Common Shares Subject to Issuance | Exercise Price (Per Share) | Expiry Date  
|Barry C.J. Ehrl
President, CEO and Director | Aug. 1, 2003              | 750,000                             | $0.15                      | July 3, 2008 
|Dec. 1, 2003                                | 160,000                   | $0.80                               | Nov. 30, 2008             
|Nov. 18, 2004                               | 200,000                   | $0.55                               | Nov. 17, 2009             
|Jan. 25, 2005                               | 160,000                   | $0.55                               | Jan. 24, 2010             
|Edward G. Byrd
CFO and Director             | Dec. 1, 2003              | 20,000                              | $0.80                      | Nov. 30, 2008
|June 8, 2004                                | 65,000                    | $0.61                               | June 7. 2009              
|W. Patrick Boswell
Director                 | Dec. 1, 2003              | 20,000                              | $0.80                      | Nov. 30, 2008
|John Lush
Director                          | Aug. 1, 2003              | 175,000                             | $0.15                      | July 3, 2008 
|Dec. 1, 2003                                | 20,000                    | $0.80                               | Nov. 30, 2008             
|Alan H. Stevens
VP, Operations and Director | May 28, 2004              | 100,000                             | $0.65                      | May 27, 2009 
|Nov. 18, 2004                               | 75,000                    | $0.55                               | Nov. 17, 2009             
|Aug. 12, 2005                               | 75,000                    | $0.47                               | Aug. 11, 2010             
|George Eynon
Director                       | Aug. 12, 2005             | 175,000                             | $0.47                      | Aug. 11, 2010
|Brent C. Ehrl
Corporate Secretary           | Aug. 1, 2003              | 150,000                             | $0.15                      | July 3, 2008 
|Dec. 1, 2003                                | 40,000                    | $0.80                               | Nov. 30, 2008             
|Nov. 18, 2004                               | 30,000                    | $0.55                               | Nov. 17, 2009             
|Doug Symonds
General Manager                | Dec. 1, 2003              | 40,000                              | $0.80                      | Nov. 30, 2008
|Apr. 22, 2005                               | 50,000                    | $0.55                               | Apr. 21, 2010             
|Erica Bearss
VP, Corporate Communications   | July 26, 2004             | 25,000                              | $0.48                      | July 25, 2009
|Aug. 6, 2004                                | 25,000                    | $0.48                               | Aug. 5, 2009              
|Nov. 18, 2004                               | 50,000                    | $0.55                               | Nov. 17, 2009             



The Company does not have a share purchase plan or dividend reinvestment plan, however it does have a Stock Option Plan pursuant to which the Company will, from time to time, grant individual stock options to its directors, officers or employees.



The purpose of the Companys Stock Option Plan (the Plan) is to assist the Company in attracting, retaining and motivating directors, officers and employees of the Company and to closely align the personal interests of such directors, officers and employees with the interests of the Company and its shareholders.  Options granted under the Plan are non-assignable and may be granted for a term not exceeding that permitted by the Exchange (currently five years).  A summary of the material aspects of the Plan are as follows:



1.

the Plan will be administered by the Companys Board of Directors or, if the Board so designates, a Committee of the Board appointed in accordance with the Plan to administer the Plan;



2.

the maximum number of shares in respect of which options may be outstanding under the Plan at any given time is equivalent to 10% of the issued and outstanding shares of the Company at that time, less the number of shares, if any, subject to Prior Options;



3.

following termination of an optionees employment, directorship, consulting agreement or other qualified position, the optionees option shall terminate upon the expiry of such period of time following termination, not to exceed 90 days (30 days if the optionee is engaged in providing investor relations services), as has been determined by the directors;



4.

an option granted under the Plan will terminate one year following the death of the optionee. These provisions do not have the effect of extending the term of an option which would have expired earlier in accordance with its terms, and do not apply to any portion of an option which had not vested at the time of death or other termination;



5.

as long as required by Exchange policy, no one individual may receive options on more than 5% of the issued and outstanding shares of the Company (the Outstanding Shares) in any 12 month period, no one consultant may receive options on more than 2% of the Outstanding Shares in any 12 moth period, and options granted to persons employed to provide investor relations services may not exceed, in the aggregate, 2% of the Outstanding Shares in any 12 month period;







---

31







6.

options may not be granted at prices that are less than the Discounted Market Price as defined in Exchange policy which, subject to certain exceptions, generally means the most recent closing price of the Companys shares on the Exchange, less a discount of from 15% to 25%, depending on the trading value of the Companys shares;



7.

any amendment of the terms of an option shall be subject to any required regulatory and shareholder approvals; and



8.

in the event of a reorganization of the Company or the amalgamation, merger or consolidation of the shares of the Company, the Board of Directors shall make such appropriate provisions for the protection of the rights of the optionee as it may deem advisable.



The Plan was re-affirmed by the shareholders at the Companys Annual General Meeting held on September 23, 2005.  It is a condition of Exchange approval that shareholder approval for the Plan be obtained annually.





Item 7  Major Shareholders and Related Party Transactions

Major Shareholders



To the best of the Companys knowledge, it is not directly or indirectly owned or controlled by another corporation(s) or by any foreign government.



There are presently no arrangements known to the Company, the operation of which may at a subsequent date result in a change in control of the Company.



There have been no significant changes in the percentage ownership held by any major shareholders during the past three years except for the following:



1.

The acquisition of 1,166,667 Common Shares by Charles Haegelin in Fiscal 2003 and 3,829,000 Common Shares by Curb Inc., a controlled corporation, in Fiscal 2002.  The shares were acquired primarily through private placements.



2.

The acquisition of 1,498,363 Common Shares by Bateman Engineering Inc. in Fiscal 2003.  The shares were acquired pursuant to a debt settlement.



As at September 23, 2005, the persons or groups known to the Company to own more than 5% of the Companys issued and outstanding Common Shares are:



|                                                                                  |               |                    
|--------------------------------------------------------------------------------- | ------------- | -------------------
|Identity of Person or Group                                                       | Amount Owned  | Percent of Class(1)
|Mr. Charles Haegelin
6301 Indian School NE, Suite 208
Albuquerque, NM, USA  87110 | 3,891,333 (2) | 11.0%              



Notes:

(1)

There are 35,436,630 Common Shares issued and outstanding as of the date of this Form 20-F Annual Report.

(2)

Of the 3,891,333 Common Shares beneficially owned by Charles Haegelin, 1,000,000 Common Shares are held directly, 1,000,000 Common Shares are held indirectly in Individual Retirement Accounts and 1,891,333 Common Shares are held by Curb Inc., a controlled corporation.



Holders of Record in the United States



Based on the Companys knowledge, after reasonable inquiry as of September 23, 2005, the most recent practicable date for conducting such search in the light of the time required for responses, the total number of Common Shares held of record by 227 residents in the United States is 17,487,926 Common Shares representing approximately 49.3% of the 35,436,630 Common Shares issued and outstanding at that time.  The foregoing is comprised of the following:



1.

According to the records of the Companys registrar and transfer agent, Computershare Trust Company of Canada, there are 11,043,922 Common Shares held of record by 181 residents of the United States, two of which were Cede & Co. with a total of 4,259,102 Common Shares.



2.

Through a search conducted by the Company, the Company has ascertained that there are 6,417,671 Common Shares held by one resident of the United States through CDS & Co. in Canada.



3.

A search conducted through Cede & Co. in the United States by the Company revealed there are 47 holders of record resident in the United States owning 4,259,102 Common Shares of record.



The Common Shares commenced trading on the NASD OTC Bulletin Board Service on January 4, 2001, making the Companys shares available to U.S. residents on the open market.



Related Party Transactions



Certain of the Companys directors and officers serve as directors or officers of other reporting companies or have significant shareholdings in other reporting companies and, to the extent that such other companies may participate in ventures in which the Company may participate, the directors of the Company may have a conflict of interest in negotiating and concluding terms respecting the extent of such participation.  In the event that such a conflict of interest arises at a meeting of the Companys directors, a director who has such a conflict will abstain from voting for or against the approval of such participation or such terms.  From time to time several companies may participate in the acquisition, exploration and development of natural resource properties thereby allowing for their participation in larger programs, permitting involvement in a greater number of programs and reducing financial exposure in respect of any one program.  It may also occur that a particular company will assign all or a portion of its interest in a particular program to another of these companies due to the financial position of the company making the assignment.  Under the laws of British Columbia, the directors of the Company are required to act honestly, in good faith and in the best interests of the Company.  In determining whether or not the Company will participate in a particular program and the interest therein to be acquired by it, the directors will primarily consider the degree of risk to which the Company may be exposed and its financial position at the time.



Other than disclosed elsewhere in this Annual Report, none of the Companys directors, senior officers, principal shareholders named in Item 7  Major Shareholders and Related Party Transactions, or any relative or spouse of the foregoing, have had an interest, direct or indirect, in any transaction, during the current financial year ending April 30, 2005, or in any proposed transaction which has materially affected or will materially affect the Company or any of its subsidiaries except for the following:



1.

Barry C.J. Ehrl, President, C.E.O. and Director of the Company provided management services to the Company as President and C.E.O.  During Fiscal 2005, Mr. Ehrl was paid or accrued $120,000 pursuant to a management agreement with the Company.  See Item 6  Directors, Senior Management and Employees.



2.

Brent C. Ehrl, Corporate Secretary of the Company, provided shareholder communications services to the Company.  During Fiscal 2005, Brent Ehrl was paid or accrued$42,000 for shareholder communications services rendered pursuant to a consulting agreement.  See Item 6  Directors, Senior Management and Employees.



3.

Doug Symonds is the General Manager of the Company.  During Fiscal 2005, Mr. Symonds was paid or accrued$67,500 for services rendered.  Mr. Symonds has an employment agreement with the Company.  See Item 6  Directors, Senior Management and Employees.



4.

In April 2003, the Company entered into an agreement with SEC Oil and Gas Partnership (SEC), whereby, in consideration of SEC funding US $700,000 of capital and operating expenditures on the LAK Ranch Project, SEC would receive a 49% revenue interest in the initial well, until 1.2 times payback, when the SEC interest in that initial well would revert to a 33% working interest. On October 30, 2003, the terms of this agreement were amended such that SEC would earn a 5% working interest in the LAK Ranch Project by advancing to the Company the sum of US $600,000. SEC will under this amended agreement receive a 10% revenue share until 1.2 times payback (US $720,000) at which time their revenue interest will revert to 5%.  Charles Haegelin, a significant shareholder of the Company, is General Partner of SEC.



5.

Alan Stevens is the VP, Operations and Director of the Company.  Pursuant to a consulting agreement dated May 31, 2004 between the Company and Mr. Stevens, he was engaged to provide consulting services of identifying, evaluation and introducing the Company to new projects and/or new sources of capital on a month-to-month basis for the granting of 100,000 stock options.  Such stock options were granted on May 28, 2004, are exercisable at a price of $0.65 per share and expire on May 28, 2009.



6.

Erica Bearss is the VP, Corporate Communications of the Company.  During Fiscal 2005, Erica Bearss was paid or accrued$45,750 for services rendered.  Ms. Bearrss has an employment agreement with the Company.  See Item 6  Directors, Senior Management and Employees.



No director, senior officer, relative or associate of such persons was indebted to the Company during the current financial year ending April 30, 2005.

Interests of Experts and Counsel



Not applicable.





Item 8  Financial Information

Consolidated Financial Statements and Other Financial Information



See the audited consolidated financial statements listed in Item 17 hereof and filed as part of this Form 20-F Annual Report.  These financial statements include the consolidated balance sheets as at April 30, 2005 and 2004 and statements of operations, shareholders equity and cash flows for each of the three years ended April 30, 2005.



These financial statements were prepared in accordance with accounting principles generally accepted in Canada.  Differences between accounting principles generally accepted in Canada and in the United States, as applicable to the Company, are set forth in Note 9 to the accompanying consolidated financial statements of the Company.

Legal Proceedings



There are no other actual or pending material legal proceedings to which the Company is or is likely to be a party or of which any of its properties is or is likely to be the subject, except for the following:



The Company is being sued for a 1% gross overriding royalty on the LAK Ranch Project pursuant to an agreement to raise funds for the Company.  No amount has been set aside for this suit as the amount and outcome are undeterminable at this time.

Dividend Policy



The Company has not declared any dividends since incorporation in 1981 and does not anticipate that it will do so in the foreseeable future.  The present policy of the Company is to retain future earnings for use in its operations and the expansion of its business.

Significant Changes



There have been no significant changes since the date of the most recent audited financial statements of the Company.





Item 9  The Offer and Listing

Offer and Listings Details



There is no offer associated with this Annual Report.







---

32







Trading History



The following table sets forth the high and low market prices for the Common Shares on the Exchange for each full quarterly period within the within the two most recent fiscal years:



|               |                |               |                   |                 
|-------------- | -------------- | ------------- | ----------------- | ----------------
|PERIOD         | TSX HIGH
CDN $ | TSX LOW
CDN $ | OTC-BB HIGH
USD $ | OTC-BB LOW
USD $
|2005           |                |               |                   |                 
|Fourth Quarter | $0.59          | $0.45         | $0.51             | $0.351          
|Third Quarter  | $0.69          | $0.41         | $0.56             | $0.33           
|Second Quarter | $0.58          | $0.42         | $0.44             | $0.314          
|First Quarter  | $0.79          | $0.45         | $0.57             | $0.32           
|2004           |                |               |                   |                 
|Fourth Quarter | $0.81          | $0.57         | $0.61             | $0.41           
|Third Quarter  | $1.75          | $0.66         | $2.20             | $0.48           
|Second Quarter | $1.25          | $0.19         | $0.87             | $0.105          
|First Quarter  | $0.28          | $0.11         | $0.20             | $0.07           



The following table sets forth the annual high and low market prices for the five fiscal years ending April 30, 2004:



|                      |                |               |                   |                 
|--------------------- | -------------- | ------------- | ----------------- | ----------------
|YEARS ENDING APRIL 30 | TSX HIGH
CDN $ | TSX LOW
CDN $ | OTC-BB HIGH
USD $ | OTC-BB LOW
USD $
|2005                  | $0.79          | $0.41         | $0.57             | $0.314          
|2004                  | $1.75          | $0.11         | $2.20             | $0.07           
|2003 (1)              | $0.30          | $0.05         | $0.23             | $0.03           
|2002                  | $0.60          | $0.15         | $0.40             | $0.1167         
|2001                  | $1.18          | $0.41         | $0.505            | $0.28           



Notes:

(1)

The Common Shares were consolidated on a 3 for 1 basis on March 3, 2003.



The following table sets forth the high and low market prices for the most recent six months:



|            |                |               |                   |                 
|----------- | -------------- | ------------- | ----------------- | ----------------
|MONTH       | TSX HIGH
CDN $ | TSX LOW
CDN $ | OTC-BB HIGH
USD $ | OTC-BB LOW
USD $
|August 2005 | $0.56          | $0.36         | $0.51             | $0.0394         
|July 2005   | $0.40          | $0.36         | $0.366            | $0.252          
|June 2005   | $0.42          | $0.36         | $0.375            | $0.28           
|May 2005    | $0.475         | $0.31         | $0.375            | $0.241          
|April 2005  | $0.54          | $0.45         | $0.44             | $0.351          
|March 2005  | $0.57          | $0.465        | $0.50             | $0.37           



The closing price of the Companys shares on September 23, 2005 was $0.49 on the Exchange and US $0.429 on the NASD OTC Bulletin Board Service.



There have been no trading suspensions in the prior three years.



Plan of Distribution



Not applicable.

Markets



The Common Shares trade on the Exchange under the symbol DRK and on the NASD OTC Bulletin Board Service under the symbol DRKOF.







---

33







Selling Shareholders



Not applicable.

Dilution



Not applicable.

Expenses of the Issue



Not applicable.



Item 10  Additional Information

Share Capital



Not applicable.

Memorandum of Articles of Association



Objects and Purposes of the Company



The Companys Notice of Articles does not prescribe any extraordinary limits on the businesses or purposes of the Company.



Directors



Part 17 of the Companys Articles deals with the directors involvement in transactions in which they have an interest. Article 17.2 provides that a director who holds a disclosable interest in a contract or transaction into which the Company has entered or proposes to enter is not entitled to vote on any directors resolution to approve that contract or transaction, unless all the directors have a disclosable interest in that contract or transaction, in which case any or all of those directors may vote on such resolution.



Pursuant to the BCA, a director does not have a disclosable interest in a contract or transaction merely because the contract or transaction relates to the remuneration of the director in that persons capacity as a director of the Company.



Part 8 of the Companys Articles deals with borrowing powers. The Company, if authorized by the directors, may: (i) borrow money in the manner and amount, on the security, from the sources and on the terms and conditions that they consider appropriate; (ii) issue bonds, debentures and other debt obligations either outright or as security for any liability or obligation of the Company or any other person and at such discounts or premiums and on such other terms as they consider appropriate; (iii) guarantee the repayment of money by any other person or the performance of any obligation of any other person; and (iv) mortgage, charge, whether by way of specific or floating charge, grant a security interest in, or give other security on, the whole or any part of the present and future assets and undertaking of the Company.



Qualifications of Directors



The Articles do not specify a retirement age for directors.



Directors are not required to own any shares of the Company.



Section 124 of the BCAprovides that no person is qualified to act as a director if that person is:



(a)

under the age of 18 years,



(b)

found by a court, in Canada or elsewhere, to be incapable of managing the individuals own affairs,







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(c)

an undischarged bankrupt, or



(d)

convicted in or out of British Columbia of an offence in connection with the promotion, formation or management of a corporation or unincorporated business, or of an offence involving fraud, unless



(i)

the court orders otherwise,



(ii)

5 years have elapsed since the last to occur of



(A)

the expiration of the period set for suspension of the passing of sentence without a sentence having been passed,



(B)

the imposition of a fine,



(C)

the conclusion of the term of any imprisonment, and



(D)

the conclusion of the term of any probation imposed, or



(iii)

a pardon was granted or issued under the Criminal Records Act (Canada).



A director who ceases to be qualified to act as a director of a company must promptly resign.



Section 120 of the BCA provides that every company must have at least one director, and a reporting company must have at least three directors.



Rights, Preference and Restrictions



All of the authorized shares of common stock of the Company are of the same class and, once issued, rank equally as to dividends, voting powers, and participation in assets and in all other respects, on liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, or any other distribution of the assets of the Company among its shareholders for the purpose of winding up its affairs after the Company has paid out its liabilities.  The issued Common Shares are not subject to call or assessment rights or any pre-emptive or conversion rights.  The holders of Common Shares are entitled to one vote for each Share on all matters to be voted on by the shareholders.  There are no provisions for redemption, purchase for cancellation, surrender or purchase funds.



The rights of holders of issued shares of the Company may be altered only with the approval of the holders of 2/3 or more of the shares of the Company voted at a meeting of the shareholders of the Company called and held in accordance with applicable law.



Annual General Meetings and Extraordinary General Meetings



Annual General Meetings are called and scheduled upon decision by the Board of Directors. Pursuant to the BCA, the Company is required to hold an annual meeting in each year, not more than 15 months after the date of the most recent annual meeting.



The directors may convene an extraordinary general meeting of the shareholders. All meetings of the shareholders may be attended by registered shareholders or persons who hold powers of attorney or proxies given to them by registered shareholders.



Limitations on Ownership of Securities



There are no limitations on the right to own securities, imposed by foreign law or by the charter or other constituent document of the Company.







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Change in Control of Company



There are no provisions in the Companys Articles or charter documents that would have the effect of delaying, deferring or preventing a change in the control of the Company, or that would operate with respect to any proposed merger, acquisition or corporate restructuring involving the Company or any of its subsidiaries.



Ownership Threshold



There are no provisions in the Companys Articles requiring share ownership to be disclosed. Securities legislation in Canada requires that shareholder ownership must be disclosed once a person owns beneficially or has control or direction over greater than 10% of the issued shares of the Company. This threshold is higher than the 5% threshold under U.S. securities legislation at which shareholders must report their share ownership.



Changes to Capital



There are no conditions imposed by the Companys Articles governing changes in the capital where such conditions are more stringent than is required by the law of British Columbia.



Material Contracts



The following material contracts have been entered into by the Company within the past two years, copies of which may be inspected between the hours of 10:00 am and 5:00 p.m. at the head office of the Company located at #1201  1111 W. Hastings Street, Vancouver, British Columbia, V6E 2J3.



(a)

Amending Agreement dated October 30, 2003 between the Company and SEC Oil and Gas Partnership with respect to financing for the LAK Ranch Project.  See Item 4  Information on the Company, The LAK Ranch Project, Wyoming, USA.



(b)

Letter Agreement dated October 3, 2003 between the Company and Bateman Engineering Inc. pursuant to which the parties agreed to extend the due date of a note to March 31, 2004. See Item 4  Information on the Company, The LAK Ranch Project, Wyoming, USA.



(c)

Farm-in and joint operating agreement dated January 20, 2004 between Derek USA and Ivanhoe Energy (USA) Inc. with respect to earning up to a 60% interest in the LAK Ranch Project.See Item 4  Information on the Company, The LAK Ranch Project, Wyoming, USA.



(d)

Office lease dated February 25, 2004 between the Company and Golden Properties Ltd.



(e)

Consulting agreement dated October 15, 2003 between the Company and Brent Ehrl.  See Item 6  Directors, Senior Management and Employees and Item 7  Major Shareholders and Related Party Transactions.



(f)

Consulting agreement dated May 31, 2004 between the Company and Alan Stevens.  See Item 6  Directors, Senior Management and Employees and Item 7  Major Shareholders and Related Party Transactions.



(g)

Agreement dated October 21, 2004 between the Company and Allen Wilson, pursuant to which the Company agreed to transfer a 0.42% gross overriding royalty on the LAK Ranch Project as a finders fee for a private placement.  See Item 4  Information on the Company, The LAK Ranch Project, Wyoming, USA.



(h)

Employment agreement dated June 30, 2004 between the Company and Erica Bearss, VP Corporate Communications.  See Item 6  Directors, Senior Management and Employees and Item 7  Major Shareholders and Related Party Transactions.









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Exchange Controls



There are no governmental laws, decrees or regulations in Canada relating to restrictions on the export or import of capital, or affecting the remittance of interest, dividends or other payments to non-resident holders of Common Shares.  Any remittances of dividends to United States residents are, however, subject to a 15% withholding tax (5% if the shareholder is a corporation owning at least 10% of the outstanding Common Shares) pursuant to Article X of the reciprocal tax treaty between Canada and the United States.  See Taxation.



Except as provided in the Investment Canada Act (the Act), which has provisions which govern the acquisition of a control block of voting shares by non-Canadians of a corporation carrying on a Canadian business, there are no limitations specific to the rights of non-Canadians to hold or vote the Common Shares under the laws of Canada or the Province of British Columbia or in the charter documents of the Company.



The following describes those provisions of the Act pertinent to an investment in the Company by a person who is not a Canadian resident (a non-Canadian).



The Act requires a non-Canadian making an investment which would result in the acquisition of control of the Canadian business to notify the Investment Review Division of Industry Canada, the federal agency created by the Act; or in the case of an acquisition of a Canadian business, the gross value of the assets of which exceeds certain threshold levels of the business activity of which is related to Canadas cultural heritage or national identity, to file an application for review with the Investment Review Division.



The notification procedure involves a brief statement of information about the investment on a prescribed form, which is required to be filed with Investment Canada by the investor at any time up to 30 days following implementation of the investment. It is intended that investments requiring only notification will proceed without government intervention unless the investment is in a specific type of business activity related to Canadas cultural heritage and national identity.



If an investment is reviewable under the Act, an application for review in the form prescribed is required to be filed with Investment Canada prior to the investment taking place and the investment may not be implemented until the review has been completed and the Minister responsible for the Investment Canada Act is satisfied that the investment is likely to be of net benefit to Canada. If the Minister is not satisfied that the investment is likely to be of net benefit to Canada, the non-Canadian must not implement the investment or, if the investment has been implemented, may be required to divest himself of control of the business that is the subject of the investment.



The following investments by non-Canadians are subject to notification under the Act:



1.

an investment to establish a new Canadian business; and



2.

an investment to acquire control of a Canadian business that is not reviewable pursuant to the Act.



The following investments by a non-Canadian are subject to review under the Act:



1.

direct acquisitions of control of Canadian businesses with assets of $5 million or more, unless the acquisition is being made by a World Trade Organization (WTO) member country investor (the United States being a member of the WTO);



2.

direct acquisitions of control of Canadian businesses with assets of $172,000,000 or more by a WTO investor;



3.

indirect acquisitions of control of Canadian businesses with assets of $5 million or more is such assets represent more than 50% of the total value of the assets of the entities, the control of which is being acquired, unless the  acquisition is being made by a WTO investor, in which case there is no review;



4.

indirect acquisitions of control of Canadian businesses with assets of $50 million or more even if such assets represent less than 50% or the total value of the assets of the entities, the control of which being acquired, unless the acquisition is being made by a WTO investor, in which case there is no review; and







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5.

an investment subject to notification that would not otherwise be reviewable if the Canadian business engages in the activity of publication, distribution or sale for books, magazines, periodicals, newspapers, film or video recordings, audio or video music recordings, or music in print or machine-readable form.



An acquisition is direct if it involves the acquisition of control of the Canadian business or of its Canadian parent or grandparent and an acquisition is indirect if it involves the acquisition of control of a non-Canadian parent or grandparent of an entity carrying on the Canadian business. Control may be acquired through the acquisition of actual voting control by the acquisition of voting shares of a Canadian corporation or through the acquisition of substantially all of the assets of the Canadian business.  No change of voting control will be deemed to have occurred if less than one-third of the voting control of a Canadian corporation is acquired by an investor.



A WTO investor, as defined in the Act, includes an individual who is a national of a member country of the World Trade Organization or who has the right of permanent residence in relation to that WTO member, a government or government agency of a WTO investor-controlled corporation, limited partnership, trust or joint venture and a corporation, limited partnership, trust or joint venture that is neither WTO-investor controlled or Canadian controlled of which two-thirds of its board of directors, general partners or trustees, as the case may be, are any combination of Canadians and WTO investors.



The higher thresholds for WTO investors do not apply if the Canadian business engages in activities in certain sectors such as uranium, financial services, transportation services or communications.



The Act specifically exempts certain transactions from either notification or review.  Included among this category of transactions is the acquisition of voting shares or other voting interests by any person in the ordinary course of that persons business as a trader or dealer in securities.



The Regulations under the Act specifies the remedies, offences and punishment applicable.  Section 39 states that "When the Minister believes that a non-Canadian, contrary to this act (a) has failed to give notice; or (b) has implemented an investment which is prohibited", then the Minister may send a demand requiring the default to be remedied and if this demand is not complied with, the Minister may apply for a Court Order require divestiture or other remedies, as the circumstances require.  Civil penalties apply for non-compliance with any provision, and criminal penalties may also apply.

Taxation



Canadian Federal Income Tax Consequences



The following is a discussion of the material Canadian federal income tax consequences applicable to a holder of Common Shares who is a resident of the United States and who is not a resident of Canada and who does not use or hold, and is not deemed to use or hold, his Common Shares in connection with carrying on a business in Canada (a non-resident holder).  Accordingly, shareholders and prospective investors should consult their own tax advisors for advice regarding their individual tax consequences.



This summary is based upon the current provisions of the Income Tax Act (Canada) (the ITA), the regulations thereunder (the Regulations), the current publicly announced administrative and assessing policies of Revenue Canada, Taxation, 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 summary assumes that the Tax Proposals will be enacted in their form as of the date of this Annual Report.



Dividends



Under the ITA, dividends paid or deemed to have been paid by a corporation resident in Canada to a non-resident holder will generally be subject to withholding tax at a rate of 25%.  The Canada-U.S. Income Tax Convention (1980) (the Treaty) provides that the normal 25% withholding tax rate under the ITA is reduced to 15% on dividends paid on shares of a corporation resident in Canada (such as the Company) to beneficial owners of the dividends who are residents of the United States, and also provides for a further reduction of this rate to 5% where the beneficial owner of the dividends is also a corporation that is a resident of the United States which owns at least 10% of the voting shares of the corporation paying the dividend or 15% otherwise.  However, if the U.S. resident shareholder is an LLC, the withholding rate is 25%.







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Capital Gains



Under the ITA, a taxpayers capital gain or capital loss from a disposition of a Common Share is the amount, if any, by which his proceeds of disposition exceed (or are exceeded by) the aggregate of his adjusted cost base of the share and reasonable expenses of disposition.  Currently, regulations specify that one-half of a capital gain (the taxable capital gain) is included in income, and one-half of a capital loss in a year (the allowable capital loss) is deductible from taxable capital gains realized in the same year.  The amount by which a shareholders allowable capital loss exceeds his taxable capital gains in a year may be deducted from a taxable capital gain realized by the shareholder in the three previous or any subsequent year, subject to certain restrictions in the case of a corporate shareholder and subject to adjustment when the capital gains inclusion rate in the year of disposition differs from the inclusion rate in the year the deduction is claimed.



A non-resident of Canada is not subject to tax under the ITA in respect of a capital gain realized upon the disposition of a share of a public corporation unless the share represents taxable Canadian property to the holder thereof.  The Company is a public corporation for purposes of the ITA and a Common Share will be taxable Canadian property to a non-resident holder if, at any time during the period of five years immediately preceding the disposition, the non-resident holder, persons with whom the non-resident holder did not deal at arms length, or the non-resident holder and persons with whom he did not deal at arms length together owned not less than 25% of the issued shares of any class of shares of the Company.



Where a non-resident holder who is an individual ceased to be resident in Canada, and at the time he ceased to be a Canadian resident elected to have his Common Shares treated as taxable Canadian property, he will be subject to Canadian tax on any capital gain realized on disposition of the Common Shares, subject to the relieving provisions of the Treaty described below.  The Common Shares may also be taxable Canadian property to a holder if the holder acquired them pursuant to certain rollover transactions.  This would include transactions under Sections 85 and 87 of the ITA, which apply to share for share and amalgamation transactions.



Where a U.S. resident holder realizes a capital gain on a disposition of Common Shares that constitute taxable Canadian property, the Treaty relieves the non-resident shareholder from liability for Canadian tax on such capital gains unless:



(a)

the value of the shares is derived principally from real property in Canada, including the right to explore for or exploit natural resources and rights to amounts computed by reference to production from natural resources. It is a question of fact as to whether the value of the Common Shares results principally from real property in Canada.  Although a tax opinion on this matter has not been obtained, given the nature of the Companys business and its stage of development, we have concluded that the value of our shares would likely fall into this category;



(b)

the non-resident holder is an individual who was resident in Canada for not less than 120 months during any period of 20 consecutive years preceding, and at any time during the 10 years immediately preceding, the disposition and the shares were owned by him when he ceased to be resident in Canada or are property substituted for property that was owned at that time; or



(c)

the shares formed part of the business property of a permanent establishment or pertained to a fixed base used for the purpose of performing independent personal services that the shareholder has or had in Canada within the 12 months preceding the disposition.



Notwithstanding the potential exemption from Canadian tax provided under the Treaty, where a non-resident of Canada disposes of Common Share that are taxable Canadian property, the non-resident is required to file a Canadian income tax return in respect of such dispositions.  If the U.S. resident shareholder is an LLC, this potential exemption does not apply.



United States Federal Income Tax Consequences



The following is a discussion of all material United States Federal income tax consequences, under current law, that may be applicable to a U.S. Holder (as defined below) of Common Shares of the Registrant.  This discussion does not address all potentially relevant Federal income tax matters and it 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 U.S. Holder.  In addition, this discussion does not cover any state, local or foreign tax consequences.  (See "Canadian Federal Income Tax Consequences" above.)







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The following discussion is based upon the sections of the Internal Revenue Code of 1986, as amended to the date hereof (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 any future legislation, which, if enacted, could be applied, possibly on a retroactive basis, at any time.  Shareholders and prospective investors should consult their own tax advisors for advice regarding their individual tax consequences.



Under current U.S. Treasury Regulations, reporting requirements may apply with respect to the payment of dividends to U.S. Holders of the Companys shares.  Under Treasury regulations currently in effect, non-corporate holders or holders not exempt from reporting requirements may be subject to backup withholding at a 28% rate with respect to dividends when such holder (1) fails to furnish or certify a correct taxpayer identification number to the payor by furnishing a duly completed and signed Form W-9 in the required manner; (2) is notified by the IRS that it has failed to report payments of interest or dividends properly; or (3) fails, under certain circumstances, to certify that it has been notified by the IRS that it is subject to backup withholding for failure to report interest and dividend payments.



U.S. Holders



As used herein, a "U.S. Holder" is a holder of Common Shares of the Registrant who or which is a citizen or individual resident (or is treated as a citizen or individual resident) of the United States for federal income tax purposes, a corporation or partnership created or organized (or treated as created or organized for federal income tax purposes) in or under the laws of the United States or any political subdivision thereof, or a trust or estate the income of which is includable in its gross income for federal income tax purposes without regard to its source, if, (i) a court within the United States is able to exercise primary supervision over the administration of the trust and (ii) one or more United States trustees have the authority to control all substantial decisions of the trust.  For purposes of this discussion, a U.S. Holder does not include persons subject to special provisions of Federal income tax law, such as tax-exempt organizations, qualified retirement plans, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers and Holders who acquired their stock through the exercise of employee stock options or otherwise as compensation.



Distributions on Common Shares of the Registrant



U.S. Holders receiving dividend distributions (including constructive dividends) with respect to Common Shares of the Registrant are required to include in gross income for United States Federal income tax purposes the gross amount of such distributions to the extent that the Registrant has current or accumulated earnings and profits, without reduction for any Canadian income tax withheld from such distributions.  Such Canadian tax withheld may be credited, subject to certain limitations, against the U.S. Holders United States Federal income tax liability or, alternatively, may be deducted in computing the U.S. Holders United States Federal taxable income by those who itemize deductions.  (See more detailed discussion at "Foreign Tax Credit" below).  To the extent that distributions exceed current or accumulated earnings and profits of the Registrant, they will be treated first as a return of capital up to the U.S. Holders adjusted basis in the Common Shares and thereafter as gain from the sale or exchange of the Common Shares.  Preferential tax rates for long-term capital gains are applicable to a U.S. Holder that is an individual, estate or trust.  There are currently no preferential tax rates for long-term capital gains for a U.S. Holder that is a corporation.



Dividends paid on the Common Shares of the Registrant will not be eligible for the dividends received deduction provided to corporations receiving dividends from certain United States corporations.  A U.S. Holder which is a corporation may, under certain circumstances, be entitled to a 70% deduction of the United States source portion of dividends received from the Registrant (unless the Registrant qualifies as a "foreign personal holding company" or a "passive foreign investment company", as defined below) if such U.S. Holder owns shares representing at least 10% of the voting power and value of the Registrant.  Similarly, a U.S. Holder which is a corporation may, under certain circumstances, be entitled to a 80% deduction of the United States source portion of dividends received from the Registrant (unless the Registrant qualifies as a foreign personal holding company or a passive foreign investment company, as defined below) if such U.S. Holder owns shares representing at least 20% of the voting power and value of the Registrant.  The availability of these deductions is subject to several complex limitations, which are beyond the scope of this discussion.  The directors of the Registrant believe that the Company is not a qualified foreign corporation for U.S. tax purposes and that the Company has and does qualify as a Passive Foreign Investment Company for U.S. shareholders, as defined below.







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Dividends paid by qualified foreign corporations may be eligible for a preferred long-term capital gains tax rate provided certain criteria is met.  To the extent that the Registrant is a Passive Foreign Investment Company in the current or prior year, as discussed below, the Registrant will not be a qualified foreign corporation as defined in Section 1(h)(11)(C) of the Code.  Accordingly, distributions from the Registrant received by U.S. Holders who are subject to tax under Section 1 of the Code would not be eligible for the preferred long-term capital gains tax rate.



Foreign Tax Credit



A U.S. Holder who pays (or has withheld from distributions) Canadian income tax with respect to the ownership of Common Shares of the Registrant may be entitled, at the option of the U.S. Holder, to either a deduction or a tax credit for such foreign tax paid or withheld.  It will be more advantageous to claim a credit because a credit reduces United States Federal income taxes on a dollar-for-dollar basis, while a deduction merely reduces the taxpayers income subject to tax.  This election is made on a year-by-year basis and applies to all foreign taxes paid by (or withheld from) the U.S. Holder during that year.  There are significant and complex limitations that apply to the credit, among which is the general limitation that the credit cannot exceed the proportionate shares of the U.S. Holders United States income tax liability that the U.S. Holders foreign source income bears to his or its worldwide taxable income.  In the determination of the application of this limitation, the various items of income and deduction must be classified into foreign and domestic sources.  Complex rules govern this classification process.  There are further limitations on the foreign tax credit for certain types of income such as "passive income", "high withholding tax interest", "financial services income", "shipping income", and certain other classifications of income.  Legislative amendments enacted in 2004 amend the foreign tax credit provisions.  These amendments include reducing the limitations on certain classifications of income.  These amendments are effective for tax years beginning after 2006.  The availability of the foreign tax credit and the application of the limitations on the credit are fact specific and holders and prospective holders of Common Shares of the Registrant should consult their own tax advisors regarding their individual circumstances.



Disposition of Common Shares of the Registrant



A U.S. Holder will recognize gain or loss upon the sale of Common Shares of the Registrant equal to the difference, if any, between the amount of cash plus the fair market value of any property received, and the Holders tax basis in the Common Shares of the Registrant.  This gain or loss will be capital gain or loss if the Common Shares are a capital asset in the hands of the U.S. Holder unless the Registrant were to become a controlled foreign corporation.  For the effect on the Registrant of becoming a controlled corporation, see "Controlled Foreign Corporation Status" below.  Any capital gain will be a short-term or long-term capital gain or loss depending upon the holding period of the U.S. Holder.  Gains and losses are netted and combined according to special rules in arriving at the overall capital gain or loss for a particular tax year.  Deductions for net capital losses are subject to significant limitations.  For U.S. Holders which are individuals, any unused portion of such net capital loss may be carried over to be used in later tax years until such net capital loss is thereby exhausted.  For U.S. Holders that are corporations (other than corporations subject to Subchapter S of the Code), an unused net capital loss may be carried back three years from the loss year and carried forward five years from the loss year to be offset against capital gains until such net capital loss is thereby exhausted.



Other Considerations for U.S. Holders



In the following circumstances, the above sections of this discussion may not describe the United States Federal income tax consequences resulting from the holding and disposition of Common Shares of the Registrant:



Foreign Personal Holding Company



If at any time during a taxable year more than 50% of the total combined voting power or the total value of the Registrants outstanding shares is owned, actually or constructively, by five or fewer individuals who are citizens or residents of the United States and 60% or more of the Registrants gross income for such year was derived from certain passive sources (e.g., from dividends received from its subsidiaries), the Registrant would be treated as a "foreign personal holding company." In that event, U.S. Holders that hold Common Shares of the Registrant would be required to include in income for such year their allocable portion of the Registrants passive income which would have been treated as a dividend had that passive income actually been distributed.  To the best knowledge of the Registrant, it is not and has never been a Foreign Personal Holding Company.



Legislation enacted in 2004 repeals the foreign personal holding company rules.  This repeal is effective after 2004.







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Foreign Investment Company



If 50% or more of the combined voting power or total value of the Registrants outstanding shares are held, actually or constructively, by citizens or residents of the United States, United States domestic partnerships or corporations, or estates or trusts other than foreign estates or trusts (as defined by the Code Section 7701(a)(31)), and the Registrant is found to be engaged primarily in the business of investing, reinvesting, or trading in securities, commodities, or any interest therein, it is possible that the Registrant might be treated as a "foreign investment company" as defined in Section 1246 of the Code, causing all or part of any gain realized by a U.S. Holder selling or exchanging Common Shares of the Registrant to be treated as ordinary income rather than capital gains.  To the best knowledge of the Registrant, it is not and has never been a Foreign Investment Company.



Legislation enacted in 2004 repeals the foreign investment company rules.  This repeal is effective after 2004.



Passive Foreign Investment Company



A U.S. Holder who holds stock in a foreign corporation during any year in which such corporation qualifies as a passive foreign investment company ("PFIC") is subject to U.S. federal income taxation of that foreign corporation under one of three alternative tax methods at the election of each such U.S. Holder.  The directors of the Registrant believe that the Company has and does qualify as a PFIC for U.S. shareholders.  There can be no assurance that the Registrant will be able to satisfy record keeping requirements that will be imposed on a qualifying electing fund (QEF), as discussed below.



Section 1297 of the Code defines a PFIC as a corporation that is not formed in the United States and, for any taxable year, either (i) 75% or more of its gross income is "passive income," which includes interest, dividends and certain rents and royalties or (ii) the average percentage, by value of its assets that produce or are held for the production of "passive income" is 50% or more.



As a PFIC, each U. S. Holder must determine under which of the alternative tax methods it wishes to be taxed.  Under one method, a U.S. Holder who elects in a timely manner to treat the Registrant as a Qualified Electing Fund ("QEF"), as defined in the Code, (an "Electing U.S. Holder") will be subject, under Section 1293 of the Code, to current federal income tax for any taxable year in which the Registrants qualifies as a PFIC on his pro-rata share of the Registrants (i) "net capital gain" (the excess of net long-term capital gain over net short-term capital loss), which will be taxed as long-term capital gain to the Electing U.S. Holder and (ii) "ordinary earnings" (the excess of earnings and profits over net capital gain), which will be taxed as ordinary income to the Electing U.S. Holder, in each case, for the U.S. Holders taxable year in which (or with which) the Registrant taxable year ends, regardless of whether such amounts are actually distributed.



A QEF election also allows the Electing U.S. Holder to (i) treat any gain realized on the disposition of his Common Shares (or deemed to be realized on the pledge of his Common Shares) as capital gain; (ii) treat his share of the Registrants net capital gain, if any, as long-term capital gain instead of ordinary income, and (iii) either avoid interest charges resulting from PFIC status altogether (see discussion of interest charge below), or make an annual election, subject to certain limitations, to defer payment of current taxes on his share of the Registrants annual realized net capital gain and ordinary earnings subject, however, to an interest charge.  If the Electing U.S. Holder is not a corporation, such an interest charge would be treated as "personal interest" that is not deductible at all in taxable years beginning after 1990.



The procedure a U.S. Holder must comply with in making a timely QEF election will depend on whether the year of the election is the first year in the U.S. Holders holding period in which the Registrant is a PFIC.  If the U.S. Holder makes a QEF election in such first year, (sometimes referred to as a "Pedigreed QEF Election"), then the U.S. Holder may make the QEF election by simply filing the appropriate documents at the time the U.S. Holder files its tax return for such first year.  If, however, the Registrant qualified as a PFIC in a prior year, then in addition to filing documents, the U.S. Holder must also elect to recognize as an "excess distribution" (i) under the rules of Section 1291 (discussed below), any gain that he would otherwise recognize if the U.S. Holder sold his stock on the application date or (ii) if the Registrant is a controlled foreign corporation ("CFC"), the Holders pro rata share of the corporations earnings and profits. (But see "Elimination of Overlap Between Subpart F Rules and PFIC Provisions").  Either the deemed sale election or the deemed dividend election will result in the U.S. Holder being deemed to have made a timely QEF election.



With respect to a situation in which a Pedigreed QEF election is made, if the Registrant no longer qualifies as a PFIC in a subsequent year, normal Code rules and not the PFIC rules will apply.



If a U.S. Holder has not made a QEF Election at any time (a "Non-electing U.S. Holder"), then special taxation rules under Section 1291 of the Code will apply to (i) gains realized on the disposition (or deemed to be realized by reason of a pledge) of his Common Shares and (ii) certain "excess distributions", as specially defined, by the Registrant.



A Non-electing U.S. Holder would be required to pro-rate all gains realized on the disposition of his Common Shares and all excess distributions over the entire holding period for the Common Shares.  All gains or excess distributions allocated to prior years of the U.S. Holder (other than years prior to the first taxable year of the Registrant during such U.S. Holders holding period and beginning after January 1, 1987 for which it was a PFIC) would be taxed at the highest tax rate for each such prior year applicable to ordinary income.  The Non-electing U.S. Holder also would be liable for interest on the foregoing tax liability for each such prior year calculated as if such liability had been due with respect to each such prior year.  A Non-electing U.S. Holder that is not a corporation must treat this interest charge as "personal interest" which, as discussed above, is wholly non-deductible.  The balance of the gain or the excess distribution will be treated as ordinary income in the year of the disposition or distribution, and no interest charge will be incurred with respect to such balance.



If the Registrant is a PFIC for any taxable year during which a Non-electing U.S. Holder holds Common Shares, then the Registrant will continue to be treated as a PFIC with respect to such Common Shares, even if it is no longer by definition a PFIC.  A Non-electing U.S. Holder may terminate this deemed PFIC status by electing to recognize gain (which will be taxed under the rules discussed above for Non-Electing U.S. Holders) as if such Common Shares had been sold on the last day of the last taxable year for which it was a PFIC.



Under Section 1291(f) of the Code, the Department of the Treasury has issued proposed regulations that would treat as taxable certain transfers of PFIC stock by Non-electing U.S. Holders that are not otherwise taxed, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death.



If a U.S. Holder makes a QEF Election that is not a Pedigreed Election (i.e., it is made after the first year during which the Registrant is a PFIC and the U.S. Holder holds shares of the Registrant) (a "Non-Pedigreed Election"), the QEF rules apply prospectively but do not apply to years prior to the year in which the QEF first becomes effective.  U.S. Holders should consult their tax advisors regarding the specific consequences of making a Non-Pedigreed QEF Election.



Certain special adverse rules will apply with respect to the Common Shares while the Registrant is a PFIC whether or not it is treated as a QEF.  For example under Section 1297(b)(6) of the Code (as in effect prior to the Taxpayer Relief Act of 1997), a U.S. Holder who uses PFIC stock as security for a loan (including a margin loan) will, except as may be provided in regulations, be treated as having made a taxable disposition of such stock.



The foregoing discussion is based on currently effective provisions of the Code, existing and proposed regulations thereunder, and current administrative rulings and court decisions, all of which are subject to change.  Any such change could affect the validity of this discussion.  In addition, the implementation of certain aspects of the PFIC rules requires the issuance of regulations which in many instances have not been promulgated and which may have retroactive effect.  There can be no assurance that any of these proposals will be enacted or promulgated, and if so, the form they will take or the effect that they may have on this discussion.  Accordingly, and due to the complexity of the PFIC rules, U.S. Holders of the Registrant are strongly urged to consult their own tax advisors concerning the impact of these rules on their investment in the Registrant.  See "Mark-to-Market Election For PFIC Stock" and "Elimination of Overlap Between Subpart F Rules and PFIC Provisions" below.



Mark-to-Market Election for PFIC Stock



A U.S. Holder of a PFIC may make a mark-to-market election with respect to the stock of the PFIC if such stock is marketable as defined below.  This provision is designed to provide a current inclusion provision for persons that are Non-Electing Holders.  Under the election, any excess of the fair market value of the PFIC stock at the close of the tax year over the Holders adjusted basis in the stock is included in the Holders income.  The Holder may deduct any excess of the adjusted basis of the PFIC stock over its fair market value at the close of the tax year.  However, deductions are limited to the net mark-to-market gains on the stock that the Holder included in income in prior tax years, or so called "unreversed inclusions."



For purposes of the election, PFIC stock is marketable if it is regularly traded on (1) a national securities exchange that is registered with the SEC, (2) the national market system established under Section 11A of the Securities Exchange Act of 1934, or (3) an exchange or market that the IRS determines has rules sufficient to ensure that the market price represents legitimate and sound fair market value.



A Holders adjusted basis of PFIC stock is increased by the income recognized under the mark-to-market election and decreased by the deductions allowed under the election.  If a U.S. Holder owns PFIC stock indirectly through a foreign entity, the basis adjustments apply to the basis of the PFIC stock in the hands of the foreign entity for the purpose of applying the PFIC rules to the tax treatment of the U.S. owner.  Similar basis adjustments are made to the basis of the property through which the U.S. persons hold the PFIC stock.



Income recognized under the mark-to-market election and gain on the sale of PFIC stock with respect to which an election is made is treated as ordinary income.  Deductions allowed under the election and loss on the sale of PFIC with respect to which an election is made, to the extent that the amount of loss does not exceed the net mark-to-market gains previously included, are treated as ordinary losses.  The U.S. or foreign source of any income or losses is determined as if the amount were a gain or loss from the sale of stock in the PFIC.



If PFIC stock is owned by a CFC (discussed below), the CFC is treated as a U.S. person that may make the mark-to-market election.  Amounts includable in the CFCs income under the election are treated as foreign personal holding company income, and deductions are allocable to foreign personal holding company income.



The above provisions apply to tax years of U.S. persons beginning after December 31, 1997, and to tax years of foreign corporations ending with or within such tax years of U.S. persons.



The rules of Code Section 1291 applicable to nonqualified funds do not apply to a U.S. Holder for tax years for which a mark-to-market election is in effect.  If Code Section 1291 is applied and a mark-to-market election was in effect for any prior tax year, the U.S. Holders holding period for the PFIC stock is treated as beginning immediately after the last tax year of the election.  However, if a taxpayer makes a mark-to-market election for PFIC stock that is a nonqualified fund after the beginning of a taxpayers holding period for such stock, a coordination rule applies to ensure that the taxpayer does not avoid the interest charge with respect to amounts attributable to periods before the election.



A mark-to-market election applies to the taxable year in which the election is made and to each subsequent taxable year, unless the Registrant common shares cease to be marketable, as specifically defined, or the IRS consents to revocation of the election.  Consequently, U.S. Holders should consult their tax advisor prior to making such an election.



Controlled Foreign Corporation Status



If more than 50% of the voting power of all classes of stock or the total value of the stock of the Registrant is owned, directly or indirectly, by U.S. Holders, each of whom own 10% or more of the total combined voting power of all classes of stock of the Registrant, the Registrant would be treated as a "controlled foreign corporation" or "CFC" under Subpart F of the Code.  This classification would bring into effect many complex results including the required inclusion by such 10% U.S. Holders in income of their pro rata shares of "Subpart F income" (as defined by the Code) of the Registrant and the Registrants earnings invested in "U.S. property" (as defined by the Code).  In addition, under Section 1248 of the Code, gain from the sale or exchange of Common Shares of the Registrant by such a 10% U.S. Holder of Registrant at any time during the five year period ending with the sale or exchange is treated as ordinary dividend income to the extent of earnings and profits of the Registrant attributable to the stock sold or exchanged.  Because of the complexity of Subpart F, and because the Registrant may never be a CFC, a more detailed review of these rules is beyond of the scope of this discussion.



Elimination of Overlap Between Subpart F Rules and PFIC Provisions



A PFIC that is also a CFC will not be treated as a PFIC with respect to certain 10% U.S. Holders.  For the exception to apply, (i) the corporation must be a CFC within the meaning of section 957(a) of the Code and (ii) the U.S. Holder must be subject to the current inclusion rules of Subpart F with respect to such corporation (i.e., the U.S. Holder is a "United States Shareholder," see "Controlled Foreign Corporation," above).  The exception only applies to that portion of a U.S. Holders holding period beginning after December 31, 1997.  For that portion of a United States Holder before January 1, 1998, the ordinary PFIC and QEF rules continue to apply.



As a result, if the Registrant were ever to become a CFC, U.S. Holders who are currently taxed on their pro rata shares of Subpart F income of a PFIC which is also a CFC will not be subject to the PFIC provisions with respect to the same stock if they have previously made a Pedigreed QEF Election.  The PFIC provisions will however continue to apply to PFIC/CFC U.S. Holders for any periods in which they are not subject to Subpart F and to U.S. Holders that did not make a Pedigreed QEF Election unless the U.S. Holder elects to recognize gain on the PFIC shares held in the Registrant as if those shares had been sold.

Dividends and Paying Agents



Not applicable.

Statement by Experts



Not applicable.

Documents on Display



The material contracts listed herein may be inspected between the hours of 10:00 a.m. and 5:00 p.m. at the head office of the Company located at #1201  1111 W. Hastings Street, Vancouver, British Columbia, Canada, V6E 2J3.

Subsidiary Information



The Company has a wholly owned subsidiary, Derek Resources (U.S.A.) Inc. incorporated by the Company under the laws of the State of Delaware on August 18, 1981 under the name Cove Energy Inc.  On December 18, 2000, Cove Energy Inc. changed its name to Derek Resources (U.S.A.) Inc.  The registered and records offices of Derek USA are located at No. 100 West Tenth Street, Wilmington, Delaware.  The principal business address of Derek USA is #1201  1111 W. Hastings Street, Vancouver, British Columbia, Canada.  The authorized capital of Derek USA consists of 2,000 common shares without par value of which one common share issued and outstanding is registered in the name of the Company.





Item 11  Quantitative and Qualitative Disclosures About Market Risk



Not applicable.



Item 12  Description of Securities Other than Equity Securities



Not applicable.



Part II



Item 13  Defaults, Dividend Arrearages and Delinquencies



Not applicable.



Item 14  Material Modifications to the Rights of Security Holders and Use of Proceeds



Not applicable.



Item 15 - Controls and Procedures



The Audit Committee, comprised of Edward Byrd, Patrick Boswell and John Lush, has the responsibility of reviewing with the Companys Auditor all financial statements to be submitted to an annual general meeting of the shareholders of the Company, prior to their consideration by the Board of Directors.  Mr. Byrd is not independent.



On April 30, 2005, management concluded its evaluation of the effectiveness of its  disclosure controls and procedures. As of that date, the Companys Chief Executive Officer and Chief Financial Officer concluded that the Company maintains effective disclosure controls and procedures relating to transactions, assets, liabilities, accounting and other records and public reporting and disclosure that ensure information required to be disclosed in the Companys reports under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms.  Specifically, the disclosure controls and procedures assure that information is accumulated and communicated to the Companys management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.  There have been no significant changes in the Companys internal controls or in other factors that could significantly affect these controls subsequent to the date of managements evaluation.



Item 16A - Audit Committee Financial Expert



The Board of Directors has determined that Edward Byrd meets the requirements of an audit committee financial expert as such term is defined under currently applicable rules of the SEC subject to the following.  The applicable SEC rules require an audit committee financial expert to have an understanding of the body of generally accepted accounting principles used by the Company in its primary financial statements filed with the SEC.  In the Companys case, that is US GAAP. The Board of Directors has determined that, while Mr. Byrd has an extensive understanding of generally accepted accounting principles in Canada, his direct experience with US GAAP is limited.  Mr. Byrd is not independent.



Item 16B - Code of Ethics



The Company has not adopted a Code of Ethics but intends to do so in the current fiscal year.



Item 16C - Principal Accountant Fees and Services



(a)

Audit Fees



The aggregate fees billed for professional services rendered by the Companys principal accountant for the audit of the Companys annual financial statements in the fiscal years ended April 30, 2005 and 2004 were $29,000 and $25,500, respectively.



(b)

Audit Related Fees



The Company incurred $nil fees during the last two fiscal years for assurance and related services by the Companys principal accountant that were reasonably related to the performance of the audit or review of the Companys financial statements.



(c)

Tax Fees



The Company incurred fees of $4,750 during the last two fiscal years for professional services rendered by the Companys principal accountant for tax compliance, tax advice and tax planning.



(d)

All Other Fees



The Company incurred other fees of $nil during the last two fiscal years for products and services rendered by the Companys principal accountant.



(e)

Pre-approval Policies and Procedures



The Board of Directors has adopted a pre approval policy requiring that the Audit Committee pre-approve the audit and non-audit services performed by the independent auditor in order to assure that the provision of such services do not impair the auditors independence.





Item 16D - Exemptions from the Listing Standards for Audit Committees



Not applicable.



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



There were no purchases made by or on behalf of the Company or any affiliated purchaser of the Companys equity securities.







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42







Part III



Item 17  Financial Statements



See the Consolidated Financial Statements and Exhibits listed in Item 19 hereof and filed as part of this Annual Report.



These financial statements were prepared in accordance with accounting principles generally accepted in Canada.  Differences between accounting principles generally accepted in Canada and in the United States, as applicable to the Company, are set forth in Note 9 to the accompanying Consolidated Financial Statements of the Company.





Item 18  Financial Statements



Not applicable.





Item 19  Exhibits



(a)

Financial Statements



1.

The audited consolidated financial statements which include the consolidated balance sheets as at April 30, 2005 and 2004 and statements of operations, cash flows and shareholders equity for each of the years in the three years ended April 30, 2005 together with the notes thereto.



(b)

Exhibits



1.

Certificate of Incorporation and Name Changes of the Company

-- Incorporated by Reference to Form 20-F 2000 Annual Report --



1.1

New Articles of the Company effective October 15, 2004.

-- Incorporated by Reference to Form 20-F 2004 Annual Report 



2.

Instruments defining the rights of holders of equity or debt securities being registered.  Not applicable.



3.

Voting Trust Agreements:  Not Applicable



4.

Material Contracts Entered Into Not Two Years Before the Filing Date:



4.1

Stock Option Plan.

-- Incorporated by Reference to Form 20-F 2003 Annual Report --



4.2

Amending Agreement dated October 30, 2003, between the Company and SEC Oil and Gas Partnership with respect to financing for the LAK Ranch Project.  See Item 4  Information on the Company, The LAK Ranch Project, Wyoming, USA.

-- Incorporated by Reference to Form 20-F 2004 Annual Report --



4.3

Letter Agreement dated October 3, 2003 between the Company and Bateman Engineering Inc. pursuant to which the parties agreed to extend the due date of a note to March 31, 2004. See Item 4  Information on the Company, The LAK Ranch Project, Wyoming, USA.

-- Incorporated by Reference to Form 20-F 2003 Annual Report --



4.4

Farm-in and joint operating agreement dated January 20, 2004 between Derek USA and Ivanhoe Energy (USA) Inc. with respect to earning up to a 60% interest in the LAK Ranch Project.See Item 4  Information on the Company, The LAK Ranch Project, Wyoming, USA.

-- Incorporated by Reference to Form 20-F 2004 Annual Report --



4.5

Office lease dated February 25, 2004 between the Company and Golden Properties Ltd.

-- Incorporated by Reference to Form 20-F 2004 Annual Report --



4.6

Consulting agreement dated October 15, 2003 between the Company and Brent Ehrl.  See Item 6  Directors, Senior Management and Employees and Item 7  Major Shareholders and Related Party Transactions.

-- Incorporated by Reference to Form 20-F 2004 Annual Report --



4.7

Consulting agreement dated May 31, 2004 between the Company and Alan Stevens, Vice-President, Operations and Director.  See Item 6  Directors, Senior Management and Employees and Item 7  Major Shareholders and Related Party Transactions.



4.8

Agreement dated October 21, 2004 between the Company and Allen Wilson, pursuant to which the Company agreed to transfer a 0.42% gross overriding royalty on the LAK Ranch Project as a finders fee for a private placement.  See Item 4  Information on the Company, The LAK Ranch Project, Wyoming, USA.



4.9

Employment agreement dated June 30, 2004 between the Company and Erica Bearss, VP Corporate Communications.  See Item 6  Directors, Senior Management and Employees and Item 7  Major Shareholders and Related Party Transactions.



4.10

Employment agreement dated January 1, 2000 between the Company and Doug Symonds, General Manager.  See Item 6  Directors, Senior Management and Employees and Item 7  Major Shareholders and Related Party Transactions.



5.

Foreign Patents: Not Applicable.



6.

Statement Explaining Calculation of Earnings Per Share Information:  Not Included



7.

Statement Explaining Calculation of Ratio of Earning to Fixed Charges, Ratio of Combined Fixed Charges and Preferred Stock Dividends or any other Ratios:  Not Included



8.

Diagram of Parent and Subsidiaries: Not Included.



9.

Statement Regarding Financial Statements Filed in Registration Statements for Initial Public Offering of Securities:  Not Applicable



10.

Blackout Period Notices:  None.



11.

Code of Ethics:  None.



31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended



31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended



32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002









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43











Signature Page





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.





|                   |  |                                             
|------------------ |  | --------------------------------------------
|                   |  | DEREK OIL & GAS CORPORATION                 
|                   |  | (Registrant)                                
|September 30, 2005 |  | /s/ Barry C.J. Ehrl                         
|Date               |  | Barry C.J. Ehrl, President, CEO and Director