##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-QSB
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended July 31, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
.
 COMMISSION FILE NUMBER 0-27659
 CANWEST PETROLEUM CORPORATION
  Colorado
    
    98-0461154(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 205,
707 - 7th Avenue SW, Calgary, Alberta, Canada T2P 3H6
 (Issuers telephone number)
 Suite 1005,
550 - 11thAvenue S.W., Calgary, Alberta CANADA T2R 1M7
  þ o
 o þ
  o þ




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##### 



CANWEST PETROLEUM CORPORATION
(An Exploration Stage Company)
Three Months Ended July 31, 2006 and 2005
(Stated in U.S. Dollars unless otherwise noted)
(Unaudited  Prepared by Management)
 INDEX TO INTERIM FINANCIAL STATEMENTS
 Consolidated Balance Sheets
    
    F-1Consolidated Statements of Operations
    
    F-2Consolidated Statements of Stockholders Equity
    
    F-3Consolidated Statements of Cash Flows
    
    F-4Notes to Consolidated Financial Statements
    
    F-5 to F-20Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906




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##### Table of Contents



CANWEST PETROLEUM CORPORATION
(An Exploration Stage Company)
 
 Consolidated Balance Sheets
 (U.S. Dollars)
 July 31,
    
    
    April 30,2006
    
    
    2006(Unaudited)
    
    
    (Note 16)ASSETSCurrentCash (note 2 (f))
    
    $
    50,578,956
    
    
    $
    22,127,315Accounts receivable
    
    
    859,662
    
    
    
    675,764Prepaid expenses
    
    
    
    
    
    
    1,013,33351,438,618
    
    
    
    23,816,412Properties(notes 4 and 16)
    
    
    35,062,763
    
    
    
    17,123,098Investment in Energy 51 Inc.(note 5)
    
    
    310,291
    
    
    
    310,291$
    86,811,672
    
    
    $
    41,249,801LIABILITIESCurrentAccounts payable (note 6)
    
    $
    17,826,973
    
    
    $
    19,624,206Convertible debentures (note 7)
    
    
    
    
    
    
    295,928Due to related parties (note 12)
    
    
    58,062
    
    
    
    58,06217,885,035
    
    
    
    19,978,196Future Income taxes
    
    
    861,082
    
    
    
    1,080,821Non controlling shareholder interest(note 8)
    
    
    16,323,010
    
    
    
    4,735,60135,069,127
    
    
    
    25,794,618Commitments and contingencies (notes 3, 4 ,9, 10, 11, 12, 14 and 15)STOCKHOLDERS EQUITYCapital StockAuthorized250,000,000 Common stock with a par value of $0.001 each
(notes 9, 10 and 11)10,000,000 Preferred stock with a par value of $0.001 each
(notes 9 and 15)Issued122,218,808 Common stock
    
    
    122,219115,046,408 Common stock
    
    
    
    
    
    
    115,046Treasury Stock
    
    
    (23
    )
    
    
    (23
    )Additional Paid-in Capital
    
    
    134,705,435
    
    
    
    77,724,943Deficit Accumulated During Exploration Stage
    
    
    (82,586,393
    )
    
    
    (62,640,868
    )Other Comprehensive Income (Loss)
    
    
    (498,693
    )
    
    
    256,08551,742,545
    
    
    
    15,455,183$
    86,811,672
    
    
    $
    41,249,801
  F-1




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##### Table of Contents



CANWEST PETROLEUM CORPORATION
(An Exploration Stage Company)
 
 Consolidated Statements of Operations
 (Unaudited  Prepared by Management)
 (U.S. Dollars)
 FromInception onThree Months Ended
    
    
    April 3, 1998July 31,
    
    
    Through2006
    
    
    2005
    
    
    July 31, 2006ExpendituresNon-cash financing expense
    
    $
    
    
    
    $
    1,814,559
    
    
    $
    36,472,143Stock-based compensation expense
    
    
    22,008,597
    
    
    
    390,375
    
    
    
    23,634,718Consulting
    
    
    1,867,423
    
    
    
    428,901
    
    
    
    12,076,813Exploration costs
    
    
    649,272
    
    
    
    362,415
    
    
    
    10,765,251Advertising and promotion
    
    
    80,585
    
    
    
    268,061
    
    
    
    3,419,327Professional fees
    
    
    573,338
    
    
    
    87,621
    
    
    
    2,350,825Write-off of exploration property
    
    
    
    
    
    
    18,000
    
    
    
    856,359Office
    
    
    284,208
    
    
    
    35,246
    
    
    
    785,126Interest
    
    
    23,005
    
    
    
    16,732
    
    
    
    772,342Management fee
    
    
    
    
    
    
    
    
    
    
    414,602Travel
    
    
    28,352
    
    
    
    12,585
    
    
    
    310,884Transfer agent fee
    
    
    11,390
    
    
    
    11,021
    
    
    
    261,508Rent
    
    
    57,465
    
    
    
    14,405
    
    
    
    221,670Other
    
    
    
    
    
    
    
    
    
    
    126,22025,583,635
    
    
    
    3,459,921
    
    
    
    92,467,788Other ItemsRecovery of exploration costs
    
    
    
    
    
    
    
    
    
    
    (936,469
    )Interest income
    
    
    (290,586
    )
    
    
    
    
    
    
    (563,890
    )Net loss before income tax recovery
and non-controlling shareholder interest
    
    
    25,293,049
    
    
    
    3,459,921
    
    
    
    90,967,429Income tax recovery
    
    
    (196,441
    )
    
    
    (17,481
    )
    
    
    (257,782
    )Net loss
before non-controlling shareholder interest
    
    
    25,096,608
    
    
    
    3,442,440
    
    
    
    90,709,647Non-controlling shareholder interest
    
    
    (5,151,083
    )
    
    
    (238,733
    )
    
    
    (8,123,254
    )Net loss
    
    $
    19,945,525
    
    
    $
    3,203,707
    
    
    $
    82,586,393Net Loss Per Share
    
    $
    0.17
    
    
    $
    0.05Weighted Average Number
of Shares Outstanding
    
    
    117,722,101
    
    
    
    60,353,221
  F-2




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##### Table of Contents



CANWEST PETROLEUM CORPORATION  (An Exploration Stage Company)
 
 Consolidated Statements of Stockholders Equity
 For the Three Months Ended July 31, 2006 and the Year Ended April 30, 2006
 (Unaudited  Prepared by Management)
(U.S. Dollars)
 Other
    
    
    DeficitAdditional
    
    
    Comprehensive
    
    
    Accumulated
    
    
    TotalCommon Stock
    
    
    Treasury Stock
    
    
    Paid-in
    
    
    Income (loss)
    
    
    During the
    
    
    StockholdersShares
    
    
    Par Value
    
    
    Shares
    
    
    Par Value
    
    
    Capital
    
    

(Note 16)
    
    
    Exploration Stage
    
    
    EquityBalance, April 30, 2005
    
    
    58,408,661
    
    
    $
    58,409
    
    
    
    (23,000
    )
    
    $
    (23
    )
    
    $
    13,835,455
    
    
    $
    (165,834
    )
    
    $
    (9,999,965
    )
    
    $
    3,728,042Common stock issued for:Cash
    
    
    24,512,052
    
    
    
    24,512
    
    
    
    
    
    
    
    
    
    
    
    28,888,364
    
    
    
    
    
    
    
    
    
    
    
    28,912,876Cashless exercise of warrants
and options
    
    
    10,971,013
    
    
    
    10,971
    
    
    
    
    
    
    
    
    
    
    
    (10,971
    )
    
    
    
    
    
    
    
    
    
    
    Property
    
    
    385,880
    
    
    
    385
    
    
    
    
    
    
    
    
    
    
    
    500,059
    
    
    
    
    
    
    
    
    
    
    
    500,444Services
    
    
    11,746,945
    
    
    
    11,747
    
    
    
    
    
    
    
    
    
    
    
    9,298,262
    
    
    
    
    
    
    
    
    
    
    
    9,310,009Settlement of debt
    
    
    9,021,857
    
    
    
    9,022
    
    
    
    
    
    
    
    
    
    
    
    5,449,975
    
    
    
    
    
    
    
    
    
    
    
    5,458,997Stock option compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,314,505
    
    
    
    
    
    
    
    
    
    
    
    1,314,505Beneficial
conversion feature of convertible debenture and warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,449,294
    
    
    
    
    
    
    
    
    
    
    
    18,449,294Other
comprehensive income
Exchange gain on translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    421,919
    
    
    
    
    
    
    
    421,919Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (52,640,903
    )
    
    
    (52,640,903
    )Balance, April 30, 2006
    
    
    115,046,408
    
    
    
    115,046
    
    
    
    (23,000
    )
    
    
    (23
    )
    
    
    77,724,943
    
    
    
    256,085
    
    
    
    (62,640,868
    )
    
    
    15,455,183Common stock issued for:Cash
    
    
    6,350,699
    
    
    
    6,351
    
    
    
    
    
    
    
    
    
    
    
    34,382,812
    
    
    
    
    
    
    
    
    
    
    
    34,389,163Settlement of debt
    
    
    821,701
    
    
    
    822
    
    
    
    
    
    
    
    
    
    
    
    2,534,382
    
    
    
    
    
    
    
    
    
    
    
    2,535,204Stock option compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,008,597
    
    
    
    
    
    
    
    
    
    
    
    22,008,597Share issue costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,945,299
    )
    
    
    
    
    
    
    
    
    
    
    (1,945,299
    )Other
comprehensive loss
Exchange loss on translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (754,778
    )
    
    
    
    
    
    
    (754,778
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,945,525
    )
    
    
    (19,945,525
    )Balance, July 31, 2006
    
    
    122,218,808
    
    
    $
    122,219
    
    
    
    (23,000
    )
    
    $
    (23
    )
    
    $
    134,705,435
    
    
    $
    (498,693
    )
    
    $
    (82,586,393
    )
    
    $
    51,742,545
  F-3




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##### Table of Contents



CANWEST PETROLEUM CORPORATION  (An Exploration Stage Company)
 
 Consolidated Statements of Cash Flows
 (Unaudited  Prepared by Management)
 (U.S. Dollars)
 From Inception onFor the Three Months Ended
    
    
    April 3, 1998July 31,
    
    
    Through July 31,2006
    
    
    2005
    
    
    2006Operating ActivitiesNet loss
    
    $
    (19,945,525
    )
    
    $
    (3,203,707
    )
    
    $
    (82,586,393
    )Non cash adjustments to net lossNon-cash financing expense
    
    
    
    
    
    
    1,814,559
    
    
    
    36,472,143Stock-based compensation expense
    
    
    22,008,597
    
    
    
    390,375
    
    
    
    23,634,718Consulting expenses satisfied by shares
    
    
    
    
    
    
    215,000
    
    
    
    8,915,849Exploration costs acquired for shares
    
    
    
    
    
    
    
    
    
    
    578,684Advertising and promotion for shares
    
    
    
    
    
    
    
    
    
    
    1,459,475Write-off of exploration property
    
    
    
    
    
    
    
    
    
    
    856,359Other
    
    
    
    
    
    
    
    
    
    
    126,220Recovery of exploration expenses
    
    
    
    
    
    
    
    
    
    
    (936,469
    )Income tax recovery
    
    
    (196,441
    )
    
    
    (17,481
    )
    
    
    (257,782
    )Non controlling shareholder interest
    
    
    (5,151,083
    )
    
    
    (238,733
    )
    
    
    (8,123,254
    )Changes In Non-Cash Working CapitalAccounts receivable and prepaid expenses
    
    
    820,892
    
    
    
    67,050
    
    
    
    145,128Accounts payable
    
    
    431,837
    
    
    
    115,728
    
    
    
    3,249,451Cash Used in Operating Activities
    
    
    (2,031,723
    )
    
    
    (857,209
    )
    
    
    (16,465,871
    )Investing ActivitiesProperty acquisition
    
    
    (1,187,403
    )
    
    
    (869,345
    )
    
    
    (14,483,972
    )Other investments
    
    
    
    
    
    
    
    
    
    
    (416,799
    )Cash Used in Investing Activities
    
    
    (1,187,403
    )
    
    
    (869,345
    )
    
    
    (14,900,771
    )Financing ActivitiesIssuance of shares for cash
    
    
    32,443,864
    
    
    
    191,644
    
    
    
    63,738,133Common stock returned to treasury
    
    
    
    
    
    
    
    
    
    
    (15,212
    )Convertible debentures
    
    
    
    
    
    
    2,054,009
    
    
    
    8,384,496Advances from related parties
    
    
    
    
    
    
    56,373
    
    
    
    653,062Future income taxes
    
    
    
    
    
    
    (113,864
    )
    
    
    1,120,206Shares issued by subsidiary to
non-controlling interest
    
    
    10,518
    
    
    
    3,777,982
    
    
    
    7,718,290Cash Provided by Financing Activities
    
    
    32,454,382
    
    
    
    5,966,144
    
    
    
    81,598,975Inflow of Cash
    
    
    29,235,256
    
    
    
    4,239,590
    
    
    
    50,232,333Effects of exchange rate changes on cash
    
    
    (783,615
    )
    
    
    
    
    
    
    346,623Cash, Beginning of Period
    
    
    22,127,315
    
    
    
    1,022,175
    
    
    
    Cash, End of Period(note 2f)
    
    $
    50,578,956
    
    
    $
    5,261,765
    
    
    $
    50,578,956Non-Cash Financing ActivitiesCommon stock issued for properties
    
    $
    
    
    
    $
    
    
    
    $
    3,336,998Warrants granted on purchase of properties
    
    $
    
    
    
    $
    
    
    
    $
    50,000Common stock issued for services
    
    $
    
    
    
    $
    
    
    
    $
    1,531,667Common stock issued for debt
    
    $
    2,535,204
    
    
    $
    
    
    
    $
    6,304,103
  F-4




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##### Table of Contents



CANWEST PETROLEUM CORPORATION
(An Exploration Stage Company)
 
 Notes to the Consolidated Financial Statements
 For the Three Months Ended July 31, 2006
 (Unaudited  Prepared by Management)
 (Stated in U.S. Dollars unless otherwise noted)
 1.
    
    DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
  2.
    
    BASIS OF PRESENTATION:
 a)
    
    Unaudited financial informationThese consolidated financial statements have been prepared in accordance with United
States of America Generally Accepted Accounting Principles (US GAAP) and reflect all
adjustments (all of which are normal and recurring in nature) that, in the opinion of
management, are necessary for fair presentation of the interim financial information. The
results of operations for the interim periods presented are not necessarily indicative of
the results to be expected for any subsequent quarter or for the entire year ending April
30, 2007. Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These unaudited consolidated financial statements and
notes included herein have been prepared on a basis consistent with and should be read in
conjunction with the Companys audited consolidated financial statements and notes for the
year ended April 30, 2006 as filed in its annual report on Form 10-KSB.The significant accounting polices used in these consolidated financial statements are
as follows:b)
    
    Principles of consolidationThese consolidated financial statements include the accounts of CanWest and all of its
subsidiaries as follows:
 -
    
    its wholly owned subsidiary, Anhydride Petroleum (USA), Inc. (Anhydride
USA) and Anhydride USAs wholly owned subsidiary Anhydride Petroleum (Canada) Inc.
(Anhydride Canada), both acquired April 30, 2002, until October 31, 2005 when
Anhydride Canada was sold to a third party for nominal cash proceeds;-
    
    Oilsands Quest Inc. (OQI) in which it held a 64.08% interest (April 30,
2006  62.75% (note 4 (a) and 15);-
    
    Western Petrochemicals Corp. (Western Petrochemicals) in which it holds a
100% interest (note 4 (b)); and-
    
    Township Petroleum Corporation (Township), in which it holds a 100%
interest (note 4 (c)).
  F-5




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##### Table of Contents



CANWEST PETROLEUM CORPORATION
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
For the Three Months Ended July 31, 2006
(Unaudited  Prepared by Management)
(Stated in U.S. Dollars unless otherwise noted)
 2.
    
    BASIS OF PRESENTATION:(continued)
 c)
    
    Use of estimatesThe preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amount of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results may differ from those
estimates.d)
    
    Foreign currency translationThe Companys operations and activities are conducted principally in Canada; hence the
Canadian dollar is the functional currency that is translated into U.S. dollars for
reporting purposes as follows:
 (i)
    
    Monetary assets and liabilities at the rate of exchange in effect
as at the balance sheet date;(ii)
    
    Non-monetary assets and liabilities at the exchange rates
prevailing at the time of the acquisition of the assets or assumption of the
liabilities; and,(iii)
    
    Revenues and expenditures at the average rate of exchange for the year.Gains and losses arising from this translation of foreign currency are
included in other comprehensive income (loss) as a separate component of
stockholders equity.
 e)
    
    Properties and exploration stage expendituresProperties represents the capitalized costs of acquisition of natural resource properties
principally, the right to explore for oil sands deposits in the provinces of Alberta and
Saskatchewan, Canada and oil shale deposits in the province of Saskatchewan, Canada.All exploration costs incurred to the date of establishing that a property is
economically recoverable are charged to operations.f)
    
    Restricted CashCash includes $33,055,987 ($37,409,460 CDN) representing proceeds of a flow through
share offering. In accordance with the terms of the offering and pursuant to certain
provisions of the Income Tax Act (Canada) the Company is required to expend these funds
on qualifying resource property expenditures by July 5, 2008.
 F-6




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##### Table of Contents



CANWEST PETROLEUM CORPORATION
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
For the Three Months Ended July 31, 2006
(Unaudited  Prepared by Management)
(Stated in U.S. Dollars unless otherwise noted)
 2.
    
    BASIS OF PRESENTATION:(continued)
 g)
    
    Stock-based compensation:In December 2004, the Financial Accounting Standards Board (the FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 123R. Share Based Payment. SFAS No. 123R
requires companies to estimate the fair value of share-based payment awards on the date of
grant using an option-pricing model. The value of the portion of the award that is
ultimately expected to vest is recognized as expense over the requisite service period in
the Companys financial statements. Stock based compensation expense recognized during the
period is based on the value of the portion of the share based payment award that is
ultimately expected to vest during the period. The Company estimates the fair value of
stock options using the Black-Scholes valuation model, consistent with the provisions of
SFAS No. 123R and the Companys prior period pro-forma disclosures of net earnings. The
Black-Scholes valuation model requires the input of highly subjective assumptions,
including the options expected life and the expected price volatility of the Companys
common stock. The expected stock price volatility assumption was determined using
historical volatility of the Companys common stock. The fair value of each option grant
is estimated on the date of grant using the Black-Scholes option valuation model with the
following weighted average assumptions:
 Three Months EndedJuly 31, 2006
    
    July 31, 2005Expected Life (years)
    
    
    5.21
    
    
    
    2.00Risk free interest rate
    
    
    4.64
    %
    
    
    3.25
    %Expected volatility
    
    
    125
    %
    
    
    183
    %Dividend yield
    
    
    0
    %
    
    
    0
    %
     F-7




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##### Table of Contents



CANWEST PETROLEUM CORPORATION
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
For the Three Months Ended July 31, 2006
(Unaudited  Prepared by Management)
(Stated in U.S. Dollars unless otherwise noted)
 2.
    
    BASIS OF PRESENTATION:(continued)
 g)
    
    Stock-based compensation (continued)
 Net loss for the period, as reported
    
    $
    3,203,707Stock-based employee compensation if fair-value
based method applied
    
    
    212,853Pro-forma net loss as if fair-value method had been applied
    
    $
    3,416,560Basic and diluted loss per shareAs reported
    
    $
    0.05Pro forma
    
    $
    0.06
 The weighted average fair value of stock options granted during the three months ended
July 31, 2005 was $0.36 option.h)
    
    Loss per shareLoss per share calculations are based on the weighted average number of shares outstanding
during the period. Diluted loss per share has not been presented separately as the
outstanding warrants and options are anti-dilutive for each of the periods presented.
 3.
    
    BUSINESS COMBINATIONS, PRO-FORMA INFORMATIONSubsequent to July 31, 2006, CanWest closed a reorganization agreement with OQI whereby
CanWest  acquired all of the minority interest (35.92%) in OQI, see note 15a. The results
of operations of OQI have been included in the consolidated financial statements of CanWest
since the commencement of OQI operations in fiscal 2005. The Company also acquired all of
the shares of Stripper Energy Services Inc., a private Alberta company, whose sole asset is a
2.5% gross overriding royalty on certain lands held by OQI, see notes 4 and 15c.The following pro-forma July 31, 2006 condensed consolidated assets, liabilities and equity
gives effect, at July 31, 2006, to the following transactions that were completed August 14
to 17, 2006:
 a)
    
    The acquisition of the minority interest in OQI through the issuance by OQI of
Exchangeable Shares, which may be converted into up to 76,504,304 common shares of
CanWest, at the holders election, at a deemed value of $319,022,948. The deemed value of
the Exchangeable Shares is based on $4.17 per CanWest common share, being the average
trading price of CanWest common shares for the five days prior to and following August
14, 2006;b)
    
    The payment of $1,943,978 in fees with respect to the transaction in (a);c)
    
    The allocation of non controlling shareholder interest to Properties and share of
net loss;d)
    
    The issuance by CanWest of 4,150,000 shares of common stock for proceeds of
$15,770,000 (see note 15b); ande)
    
    The acquisition of all the shares of Stripper Energy Services Inc. for cash of
$16,701,446, which was net of a deposit of $1,130,927 paid during the three months ended
July 31, 2006 (see note 15c).
 F-8




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##### Table of Contents



CANWEST PETROLEUM CORPORATION
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
For the Three Months Ended July 31, 2006
(Unaudited  Prepared by Management)
(Stated in U.S. Dollars unless otherwise noted)
 3.
    
    BUSINESS COMBINATIONS, PRO-FORMA INFORMATION(continued)The pro-forma condensed consolidated financial information giving effect to the above noted
business combinations are as follows:
 As stated
    
    
    
    
    Pro-forma
    
    
    Pro-formaJuly 31, 2006
    
    
    
    
    adjustments
    
    
    July 31, 2006AssetsCash
    
    $
    50,578,956
    
    
    b
    
    $
    (1,943,978
    )e
    
    $
    (16,701,446
    )d
    
    $
    15,770,000
    
    
    $
    47,703,532Other current assets
    
    
    859,662
    
    
    
    
    
    
    
    
    
    859,662Properties
    
    
    35,062,763
    
    
    a
    
    $
    319,022,948b
    
    $
    1,943,978c
    
    $
    (24,446,264
    )e
    
    $
    16,701,446
    
    
    
    348,284,871Investment
    
    
    310,291
    
    
    
    
    
    
    
    
    
    310,291$
    86,811,672
    
    
    
    
    
    
    
    
    $
    397,158,356LiabilitiesCurrent liabilities
    
    $
    17,885,035
    
    
    
    
    
    
    
    
    $
    17,885,035Future income taxes
    
    
    861,082
    
    
    
    
    
    
    
    
    
    861,082Non controlling shareholder
interest
    
    
    16,323,010
    
    
    c
    
    $
    (16,323,010
    )
    
    
    35,069,127
    
    
    
    
    
    
    
    
    
    18,746,117EquityCapital stock, treasury stock
and additional paid in capital
    
    
    134,827,631
    
    
    a
    
    $
    319,022,948d
    
    $
    15,770,000
    
    
    
    469,620,579DeficitApril 30, 2006
    
    
    (62,640,868
    )
    
    c
    
    $
    (2,972,171
    )
    
    
    (65,613,039
    )Net loss for the three months
ended July 31, 2006
    
    
    (19,945,525
    )
    
    c
    
    $
    (5,151,083
    )
    
    
    (25,096,608
    )Other comprehensive income
    
    
    (498,693
    )
    
    
    
    
    
    
    
    
    (498,693
    )51,742,545
    
    
    
    
    
    
    
    
    
    378,412,239$
    86,811,672
    
    
    
    
    
    
    
    
    $
    397,158,356
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##### Table of Contents



CANWEST PETROLEUM CORPORATION
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
For the Three Months Ended July 31, 2006
(Unaudited  Prepared by Management)
(Stated in U.S. Dollars unless otherwise noted)
 4.
    
    PROPERTIES
 OQI
    
    
    Pasquia Hills,
    
    
    Eagles Nest,Oil Sands
    
    
    Oil Shale
    
    
    Oil SandsExploration Permits
    
    
    Exploration Permits
    
    
    Lease
    
    
    TotalBalance April 30, 2006
    
    $
    12,415,991
    
    
    $
    3,854,648
    
    
    $
    852,459
    
    
    $
    17,123,098Acquisition of property
    
    
    1,158,103
    
    
    
    
    
    
    
    29,300
    
    
    
    1,187,403Excess of OQI share
acquisition cost over book
value
    
    
    16,752,262
    
    
    
    
    
    
    
    
    
    
    
    16,752,262Balance July 31, 2006
    
    $
    30,326,356
    
    
    $
    3,854,648
    
    
    $
    881,759
    
    
    $
    35,062,763
 a)
    
    OQI Oil Sands Exploration PermitsOn September 29, 2004, OQI acquired a 49% interest in certain Oil Shale Exploration
Permits (the Permits) in northwestern Saskatchewan near the Alberta border. The 49%
interest in the permits was acquired from a third party for $769,125, the issuance of
50,000 CanWest common shares, with a deemed value of $19,000, and a 2.5% gross overriding
royalty (the 2.5% GORR). On May 3, 2005, OQI acquired the remaining 51% interest in the
Permits for $1,202,131, 2 million CanWest common shares, with a deemed value of $640,000
and the assumption of $0.11 per barrel in royalties which may be bought down to $0.04 per
barrel at any time by paying $7,000,000.The Permits are granted by the Province of Saskatchewan and provide for the right to
explore and work the permit lands in the Province of Saskatchewan for a term of five years
to May 31, 2009 or until a lease has been granted for their development. In accordance
with the terms of the Permits, OQI relinquished 40% of the total acreage covered by the
Permits on May 31, 2005, and was required to relinquish another 40% of the remaining
acreage by May 31, 2006. OQI has requested an extension of the 2006 relinquishment from
the regulator and will undertake the relinquishment once the regulator makes a decision.
As at July 31, 2006, the Permits comprised an area of approximately 847,000 acres and
following all relinquishments the Permits will comprise an area of approximately 508,000
acres.The Permits are subject to annual rental payments and certain levels of expenditures
annually pursuant to the terms of the Permits and government regulations. The annual
rentals are payable in advance as to $0.018 ($0.02 CDN) per acre for the current year and
escalating to $0.088 ($0.10 CDN) per acre in the fifth year. The required exploration
expenditures to hold the permits for the current year are $0.035 ($0.04 CDN) per acre and
escalate to $0.088 ($0.10 CDN) per acre by the fifth year. As a result of OQIs
exploration activities it is in compliance with its exploration expenditure requirements.During the three months ended July 31, 2006, the Company paid $1,130,927 to the shareholders of a
private Alberta company, whose only asset is the 2.5% GORR, to acquire an option to acquire all of
the issued and outstanding shares of that company for an additional payment of $16,701,446 on or
before August 15, 2006. Subsequent to July 31, 2006 the Company completed this acquisition, see
notes 3 and 15c.
 F-10




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##### Table of Contents



CANWEST PETROLEUM CORPORATION
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
For the Three Months Ended July 31, 2006
(Unaudited  Prepared by Management)
(Stated in U.S. Dollars unless otherwise noted)
 4.
    
    PROPERTIES(continued)
 b)
    
    Pasquia Hills, Oil Shale Exploration PermitsDuring the quarter ended July 31, 2006, a number of the non-core permits expired and have
been returned to the Saskatchewan government. The remaining permits are scheduled to
either expire and or be converted to lease on or before April 30, 2007.c)
    
    Eagles Nest, Oil Sands LeaseOn June 1, 2005, Township entered into an agreement with three third parties (collectively
the Triple 7 Joint Venture) to post, acquire, develop and produce oil sands deposits
located in the Athabasca Region of Alberta, Canada (the Triple 7 Joint Venture Agreement).
As a result of this agreement, Township acquired one lease consisting of approximately
22,800 acres (the Eagles Nest, Oil Sands Lease) at a cost of $727,187. Pursuant to the
terms of this agreement CanWest issued the Triple 7 Joint Venture 114,015 of its common
shares with a deemed value of $127,432. Township has also agreed to pay the Triple 7
Joint Venture partners, as ongoing fees, $132,544 ($150,000 CDN) in cash or common shares
of CanWest (at the discretion of the Company) on the first and second anniversary dates of
the agreement. Shares issued under the agreement are subject to piggyback registration
rights. On the third anniversary date and each subsequent anniversary date of the
agreement Township shall pay to the Triple 7 Joint Venture $397,632 ($450,000 CDN) until
such time as the lease is surrendered or a commercial project has been identified. In the
event that Township receives a feasibility study, conducted by an independent third party,
that indicates that a commercial project is economic and wishes to construct a commercial
project, Township is required to notify the Triple 7 Joint Venture. Upon commencement of
construction of such a commercial project Township shall pay to the Triple 7 Joint Venture
the sum of $5,301,758 ($6,000,000 CDN). In addition to such payments Township has granted
each of the three Triple 7 Joint Venture partners a royalty in the acquired leases of
$0.027 ($0.03 CDN) on each barrel of crude bitumen produced, saved and sold or $397,632
($450,000 CDN) per year, whichever is greater. Such royalty is governed by the royalty
procedure, which stipulates, among other things, that the royalty will be secured by a
lien, first charge or security interest on the royalty lands, and that the royalty is
assignable or transferable subject to a right of first offer to Township.To finance the acquisition of the project CanWest issued convertible debentures pursuant
to which Township also granted royalties as to $0.0051 ($0.0058 CDN), net after a buy
back, on each barrel of crude bitumen produced, saved and sold from the project.Pursuant to the terms of the lease, Townships lease rental payments are $28,502 ($32,256
CDN) per year.
 5.
    
    INVESTMENT IN ENERGY 51 INC.Energy 51 Inc. is a privately held Alberta company engaged in the exploration and
development of oil and gas primarily in Alberta. On April 7, 2004, CanWest entered into an
equity participation and farmout agreement with Energy 51 Inc. (Energy 51). Pursuant to
this agreement CanWest purchased 1,500,000 common shares of Energy 51 for $310,291 and which
represents approximately 1.8% (2005  25%) of Energy 51s issued and outstanding shares.
 F-11




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##### Table of Contents



CANWEST PETROLEUM CORPORATION
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
For the Three Months Ended July 31, 2006
(Unaudited  Prepared by Management)
(Stated in U.S. Dollars unless otherwise noted)
 6.
    
    ACCOUNTS PAYABLEAccounts payable consists of the following:
 July 31,
    
    
    April 30,2006
    
    
    2006Accounts payable and accrued liabilities
    
    $
    1,669,557
    
    
    $
    2,311,583Penalty share accrual (note 9(a))
    
    
    16,157,416
    
    
    
    17,312,623$
    17,826,973
    
    
    $
    19,624,206
 7.
    
    CONVERTIBLE DEBENTURESDuring August 2005, to finance the acquisition of the Eagles Nest Prospect CanWest entered
into a private placement of its securities whereby CanWest issued 8% convertible debentures
with stock purchase warrants for an aggregate principal amount of $5,200,000 (the Original
Offering). Under the terms of the Original Offering, the
debentures were convertible to shares of CanWests common stock at $0.40 per share. However, pursuant to the subscription
agreement, amounts not expended on successful bids, associated costs and first year rentals
were to be refunded on a pro-rata basis. The refund amount totaled $4,472,813, as only
$727,187 was used in connection with the acquisition of the Eagles Nest Oil Sands Lease and
related costs. Under the terms of the Original Offering, the purchasers will also receive
bonus shares equal to 10% of the refunded amount allocable to the respective purchasers,
which bonus shares will be issued at the rate of $0.40 per share. Also, purchasers will
receive warrants based on one warrant per $0.40 invested, after the refunded amount has been
distributed to the purchaser. The warrants are exercisable for two years from the issue date
at an exercise price of $0.55 per share.Effective August 31, 2005, some of the purchasers elected not to receive their pro-rata
portion of the refund amount. Rather, those purchasers elected to be included under amended
terms to the Original Offering (the Amended Offering). Under the terms of the Amended
Offering, a purchaser will receive a new convertible promissory note in the amount of their
principal investment not refunded which is convertible into shares of CanWests common stock
at a per share conversion price of $0.90 per share. The purchaser will also receive one
warrant for each $0.90 of principal invested in the Amended Offering. Each warrant is
exercisable to purchase one share of common stock at an exercise price of $1.30 per share for
one year.Of the total $5,200,000 raised in the Original Offering, $727,187 convertible notes were
issued under the Original Offering along with 1,817,967 warrants to purchase that same number
of common shares at $0.55 until September 19, 2007, $2,339,602 was refunded along with
584,878 common shares at a deemed cost of $233,951 which has been recorded as a non-cash financing expense in the fiscal year 2006, $2,133,186 convertible
notes were issued pursuant to the Amended Offering along with 2,370,206 warrants to purchase
that same number of common shares at $1.30 until September 19, 2006 and 555,670 common shares
were issued to consultants at a deemed cost of $222,268 which were included in consulting
expenses in fiscal year 2006.In conjunction with the Original Offering and Amended Offering CanWest recorded non-cash
financing expense of $1,719,100 in fiscal 2006.
 F-12




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##### Table of Contents



CANWEST PETROLEUM CORPORATION
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
For the Three Months Ended July 31, 2006
(Unaudited  Prepared by Management)
(Stated in U.S. Dollars unless otherwise noted)
 7.
    
    CONVERTIBLE DEBENTURES(continued)
  8.
    
    NON CONTROLLING SHAREHOLDER INTEREST
  CommonShares
    
    
    AmountBalance, April 30, 2006
    
    
    6,962,459
    
    
    $
    4,735,601Shares issued to non controling shareholders
    
    
    5,875
    
    
    
    10,518Share of net loss of OQI
    
    
    
    
    
    
    (5,151,083
    )Non controlling shareholders interest in shares issued
to CanWest
    
    
    
    
    
    
    16,727,974Balance held by non-controlling interest July 31, 2006
(representing 35.92% of total common shares outstanding)
    
    
    6,968,334
    
    
    $
    16,323,010
  Weighted AverageNumber
    
    
    Exercise Price (CDN)Issued and outstanding
April 30, 2006
    
    
    2,216,013
    
    
    $
    6.48Exercised
    
    
    (5,875
    )
    
    $
    2.00Issued and outstanding
July 31, 2006
    
    
    2,210,138
    
    
    $
    6.50
  Weighted AverageNumber
    
    
    Exercise Price (CDN)Issued and outstanding
April 30, 2006
    
    
    700,000
    
    
    $
    4.00Granted
    
    
    1,230,000
    
    
    $
    20.13Issued and outstanding
July 31, 2006
    
    
    1,930,000
    
    
    $
    14.28
 F-13




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##### Table of Contents



CANWEST PETROLEUM CORPORATION
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
For the Three Months Ended July 31, 2006
(Unaudited  Prepared by Management)
(Stated in U.S. Dollars unless otherwise noted)
 8.
    
    NON CONTROLLING SHAREHOLDER INTEREST(continued)In conjunction with the issuance of these stock options the Company has recorded a stock based
compensation expense of $13,623,781 (2005  $28,738), for the three months ended July 31, 2006
and has an unrecorded stock based compensation expense of $15,373,739 which will be recorded
in future periods as options vest.The following table summaries information about OQI stock options outstanding at July 31,
2006:
 Number
    
    
    Number
    
    
    Weighted AverageExercise Price
    
    Outstanding at
    
    
    Exercisable at July
    
    
    Remaining Contractual(CDN)
    
    July 31, 2006
    
    
    31, 2006
    
    
    Life$0.50
    
    
    200,000
    
    
    
    200,000
    
    
    3.29 Years$3.00
    
    
    100,000
    
    
    
    
    
    
    4.01 Years$6.00
    
    
    715,000
    
    
    
    715,000
    
    
    4.54 Years$25.00
    
    
    915,000
    
    
    
    215,000
    
    
    4.75 Years1,930,000
    
    
    
    1,130,000
    
    
    4.48 Years
 9.
    
    CAPITAL STOCK
 a)
    
    Private Placements of Common SharesDuring the three months ended July 31, 2006, CanWest completed a private placement of
5,668,100 flow through common shares for gross proceeds of $33,684,009 ($37,409,460
CDN.).These common shares have been issued on a flow through basis whereby the
proceeds must be used for exploration in Canada and the tax benefits from that
exploration will flow through to the subscribers. In conjunction with this financing
CanWest has paid investment banking fees of $1,852,659 and entered into a subscription
agreement with OQI whereby it purchased 703,054 OQI flow through common shares for
$33,684,048.During the year ended April 30, 2006 CanWest completed a private placement of 15,268,000
units at $1.50 per unit whereby it issued 15,268,000 common shares and 7,634,000
warrants exercisable at $2.00 until December 12, 2007. Pursuant to this placement
CanWest paid consultants $390,870 cash plus 260,580 warrants on similar terms as the
issued warrants. In conjunction with this financing CanWest has also granted the
investors and consultants certain registration rights whereby CanWest has undertaken to
file a resale registration statement covering the shares and shares underlying the
warrants within sixty days of closing, otherwise it shall pay a 2% penalty for each
month and part of month that it is late in doing so. In addition, CanWest must respond
to any queries to that resale registration statement within two weeks of receipt or else
be subject to an additional penalty as to 2% for each two weeks thereafter. The
penalties are payable, at the unit holders election, in either common shares or cash at
$1.75 per penalty share. Any penalty shares will also be qualified for resale by the
same SB2 registration statement. To date CanWest has filed the required SB2 registration
statement and estimates that the total number of penalty shares that will need to be
issued will be 2,889,371 common shares at a deemed cost of $17,312,623. During the
three months ended July 31, 2006 187,345 of the penalty shares were issued at a deemed
cost of $1,155,207.
 F-14




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##### Table of Contents



CANWEST PETROLEUM CORPORATION
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
For the Three Months Ended July 31, 2006
(Unaudited  Prepared by Management)
(Stated in U.S. Dollars unless otherwise noted)
 9.
    
    CAPITAL STOCK(continued)
 b)
    
    Settlement with Anhydride Canada CreditorsDuring the year ended April 30, 2004, in an attempt to settle outstanding liabilities of
Anhydride Canada, CanWest made an offer to creditors to settle outstanding debts for shares
of CanWest at a deemed price of $0.10 per share for every $0.15 CDN of debt held. CanWest
has received acceptances from creditors that represent 2,776,560 CanWest common shares.
During the year ended April 30, 2004 CanWest issued 287,638 shares pursuant to these
agreements and during the year ended April 30, 2005 it issued an additional 493,493 shares.
During the year ended April 30, 2006 CanWest issued 33,529 common shares pursuant to these
agreements. No shares were issued pursuant to these agreements during the three months
ended July 31, 2006.
 c)
    
    Shareholders Rights PlanAs at March 9, 2006 CanWest adopted a shareholders right plan and reserved 250,000 of its
preferred shares for issuance pursuant to the exercise of the rights. The rights are
designed to have certain anti-takeover effects and as such they will cause substantial
dilution to a person or group that attempts to acquire CanWest without conditioning the
offer on a substantial number of rights being acquired, or in a manner or on terms not
approved by the board of directors of CanWest. The rights, however, should not deter any
prospective offer or willingness to negotiate in good faith with the board of directors,
nor should the rights interfere with any merger or other business combination approved by
the board of directors. To effect the shareholders rights plan CanWest declared a
distribution of one right to each outstanding share of common stock, payable to
shareholders of record on March 23, 2006. This right will be attached to the underlying
common share and remain with the common share should the common share be sold or
transferred.
 10.
    
    STOCK OPTIONSAs at July 31, 2006 CanWest had outstanding options to purchase that same number of shares
as follows:
 Stock option
    
    Exercise
    
    Number ofPlan
    
    Expiry Date
    
    Price
    
    OptionsSOP 2005(b)
    
    20-Oct-07
    
    $
    1.50
    
    
    
    400,000SOP 2006
    
    1-Jan-07
    
    $
    1.70
    
    
    
    300,000SOP 2006
    
    1-Jan-08
    
    $
    2.00
    
    
    
    400,000SOP 2006
    
    11-Jan-08
    
    $
    2.58
    
    
    
    600,000SOP 2006
    
    8-Feb-08
    
    $
    4.62
    
    
    
    250,000SOP 2006
    
    17-Feb-09
    
    $
    4.57
    
    
    
    250,000SOP 2006
    
    9-Mar-08
    
    $
    4.60
    
    
    
    250,000SOP 2006
    
    1-May-11
    
    $
    6.75
    
    
    
    1,000,000SOP 2006
    
    14-Aug-11
    
    $
    6.75
    
    
    
    1,000,000SOP 2006
    
    1-May-12
    
    $
    6.75
    
    
    
    1,000,000SOP 2006
    
    1-May-13
    
    $
    6.75
    
    
    
    1,000,000SOP 2006
    
    18-May-08
    
    $
    6.00
    
    
    
    300,000SOP 2006
    
    18-May-09
    
    $
    6.00
    
    
    
    30,0006,780,000
 F-15




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##### Table of Contents



CANWEST PETROLEUM CORPORATION
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
For the Three Months Ended July 31, 2006
(Unaudited  Prepared by Management)
(Stated in U.S. Dollars unless otherwise noted)
 10.
    
    STOCK OPTIONS(continued)Included in the number of options outstanding as at July 31, 2006 are 244,446 options at
$2.00 with an expiry date of January 1, 2008 that vest evenly until June 30, 2007,
1,000,000 options at $6.75 with an expiry date of August 14, 2011 which vest on August 14,
2006, 1,000,000 options at $6.75 with an expiry date of May 1, 2012 which vest on May 1,
2007 and 1,000,000 options at $6.75 with an expiry date of May 1, 2013 which vest on May 1,
2008. All other options are fully vested.A summary of the Companys stock option activity is as follows:
 WeightedNumber
    
    
    Averageof Options
    
    
    Exercise PriceBalance April 30, 2006
    
    
    2,450,000
    
    
    $
    2.82Options granted
    
    
    4,535,334
    
    
    $
    6.62Options exercised
    
    
    (205,334
    )
    
    $
    5.17Balance, July 31, 2006
    
    
    6,780,000
    
    
    $
    5.29
   11.
    
    WARRANTS
  Expiry
    
    Exercise
    
    Number ofDate
    
    Price
    
    Warrants14-Sep-06
    
    $
    0.34
    
    
    
    2,380,00019-Sep-06
    
    $
    1.30
    
    
    
    582,99519-Sep-07
    
    $
    0.55
    
    
    
    325,13712-Dec-07
    
    $
    2.00
    
    
    
    7,894,58015-Dec-07
    
    $
    2.00
    
    
    
    1,500,0006-Feb-08
    
    $
    4.50
    
    
    
    200,00012,882,712
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##### Table of Contents



CANWEST PETROLEUM CORPORATION
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
For the Three Months Ended July 31, 2006
(Unaudited  Prepared by Management)
(Stated in U.S. Dollars unless otherwise noted)
 11.
    
    WARRANTS(continued)A summary of the Companys share purchase warrant activity is as follows:
 WeightedNumber
    
    
    Averageof Shares
    
    
    Exercise PriceBalance April 30, 2006
    
    
    13,565,321
    
    
    $
    1.63Warrants exercised
    
    
    (682,609
    )
    
    $
    1.03Balance July 31, 2006
    
    
    12,882,712
    
    
    $
    1.66
 12.
    
    RELATED PARTY TRANSACTIONSThe following non-arms length transactions occurred with parties who are directors and
stockholders of the Company during the three months ended July 31, 2006:
 (a)
    
    During the three months ended July 31, 2006 CanWest issued 300,000 options at
$6.00 until May 18, 2008 to an officer of the Company. CanWest also issued this
officer 100,000 bonus shares at a deemed cost of $517,000 that was included in accounts
payable at April 30, 2006.(b)
    
    On May 1, 2006, CanWest entered into an executive employment agreement with its
new Chief Executive Officer whereby that officer received options under the 2006 stock
option plan as to 4,000,000 common shares exercisable at $6.75 per share and vesting as
to 1 million immediately, 1 million upon attaining certain reorganization goals of the
Company related to OQI, 1 million on May 1, 2007 and 1 million on May 1, 2008. CanWest
also paid him signing bonuses of $135,123 and agreed to pay him $265,088 ($300,000 CDN)
per year in salary. This agreement also contains termination clauses whereby CanWest
has agreed to pay, subject to certain conditions, an amount equal to one and one half
times his annual salary, benefits and bonuses and an acceleration of the vesting period
of options outstanding should he be terminated for reasons other than cause or CanWest
undergo a change in control. In relation to the issuance of these options the Company
recorded a stock based compensation expense of $8,117,332 which has been included in
consulting expenses and has an unrecognized stock based compensation expense of
$15,831,786 which will be recorded in future periods as the options vest.(c)
    
    During the three months ended July 31, 2006 CanWest also issued 41,667 bonus
shares to an officer  and paid him $26,726 in consulting fees. The deemed
cost of these bonus shares being $215,418 was included in accounts payable as at April
30, 2006.(d)
    
    On May 1, 2006 OQI granted options to its officers and directors to allow them
to acquire up to 1,230,000 OQI common shares for up to five years. Of these options
315,000 have an exercise price of $5.37 ($6.00 CDN) and are immediately vested; 215,000
have an exercise price of $22.37 ($25.00 CDN) and vest immediately; 400,000 have an
exercise price of $22.37 ($25.00 CDN) and vest upon certain performance conditions
being met; and 300,000 have an exercise price of $22.37 ($25.00 CDN) and vest as to one
third on each of the first, second and third anniversaries of the
date of grant. The Company has recorded stock based compensation expense of $13,623,781
in relation to these options and has an unrecognized stock based compensation expense of
$15,373,739 that will be recorded in future periods as the options vest.
 F-17




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CANWEST PETROLEUM CORPORATION
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
For the Three Months Ended July 31, 2006
(Unaudited  Prepared by Management)
(Stated in U.S. Dollars unless otherwise noted)
 12.
    
    RELATED PARTY TRANSACTIONS(continued)
 (e)
    
    Also effective May 1, 2006, the OQI Board of Directors increased the compensation
paid to OQIs President and Chief Executive Officer, Chief Financial Officer and Vice
President of Exploration whereby they are now paid $265,088 ($300,000 CDN), $220,907
($250,000 CDN), and $220,907 ($250,000 CDN) per annum, respectively.
 13.
    
    COMPREHENSIVE LOSS
 July 31,2006
    
    
    2005Net Loss
    
    $
    (19,945,525
    )
    
    $
    (3,203,707
    )Other comprehensive (loss)
    
    
    (754,778
    )
    
    
    (16,651
    )$
    (20,700,303
    )
    
    $
    (3,220,358
    )
 14.
    
    COMMITMENTS
 a)
    
    In support of an expanded drilling program on the OQI Exploration Permits OQI
has committed to the purchase of a $3,534,506 ($4,000,000 CDN) portable residence camp
facility. As at July 31, 2006 OQI has advanced a total of $424,141 in relation to the
camp facility and this amount is included in accounts receivable.b)
    
    OQI has entered into an office lease whereby its lease commitments will be
$156,402 ($177,000 CDN) for the next two years.
 15.
    
    SUBSEQUENT EVENTS
 a)
    
    On August 14, 2006, CanWest closed a reorganization agreement with OQI, which
was initially executed on June 9, 2006, whereby CanWest acquired the minority interest
in OQI, going from a 64.08% ownership interest to a 100% ownership interest (the
Reorganization Agreement). In connection with the Reorganization Agreement, CanWest
also entered into a Voting and Exchange Trust Agreement with OQI and Computershare
Trust Company of Canada (CTC), and a Support Agreement with OQI. Collectively, these
agreements are referred to as the Acquisition Agreements.According to the Acquisition Agreements, all holders of OQI common stock other than
CanWest were exchanged for a new class of OQI shares called Exchangeable Shares pursuant
to a ratio of one OQI common share to 8.23 Exchangeable Shares. The Exchangeable Shares
are exchangeable at any time on a one-for-one basis, at the option of the holder, for
CanWest shares of common stock. An Exchangeable Share provides a holder with economic
terms and voting rights which are, as nearly as practicable, effectively equivalent to
those of a share of CanWest common stock. Holders of Exchangeable Shares have
registration rights with respect to the resale of CanWest common stock to be received
upon exchanging the Exchangeable Shares into CanWest shares. The holders of the
Exchangeable Shares will receive up to an aggregate of 76,504,302
shares of CanWest common stock at each holders election. The Exchangeable Shares are
represented for voting purposes in the aggregate by one share of CanWest Series B
Preferred Stock (the Preferred Share), which Preferred Share is held by CTC. CTC will
in turn vote the one Preferred Share as indicated by the individual holders of
Exchangeable Shares. The one Preferred Share represents a number of votes equal to the
total outstanding Exchangeable Shares on the applicable record date for the vote
submitted to CanWest shareholders.
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CANWEST PETROLEUM CORPORATION
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
For the Three Months Ended July 31, 2006
(Unaudited  Prepared by Management)
(Stated in U.S. Dollars unless otherwise noted)
 15.
    
    SUBSEQUENT EVENTS(continued)
 In connection with the closing of the Reorganization Agreement, CanWest has agreed to pay
its financial advisors a success fee of $1,590,528. In addition OQI has issued its
financial advisors 288,050 Exchangeable Shares and paid them $353,450 as a success fee.b)
    
    CanWest completed a private placement of 4,150,000 shares of its common stock
for gross proceeds of $15,770,000. No commissions were paid in connection with the
Offering. According to the terms of the private placement, the gross proceeds have
been used for the purchase of the shares of Stripper Energy Services, Inc., a private
Alberta company, which holds a 2.5% gross overriding royalty on certain lands held by
OQI.c)
    
    In conjunction with the private placement noted above the Company acquired all
of the issued and outstanding shares of Stripper Energy Services, Inc. for $16,701,446
net of a deposit, paid during the three months ended July 31, 2006 of $1,130,927.d)
    
    CanWest also issued 2,702,026 common shares pursuant to the penalty provision
of the December 2005 private placement. It also issued 358,968 common shares on the
exercise of warrants for cash proceeds of $269,540.e)
    
    In connection with the Reorganization Agreement and the appointment of new
CanWest Directors and Officers, CanWest granted 3,130,000 options to acquire that same
number of common shares to its Directors, Officers and employees. The options are for a
five year term and have an exercise price of $5.05. From the total options granted,
391,250 vested immediately and 391,250 vest on each of August 23, 2007, 2008 and 2009.
The remaining 1,565,000 options vest on or after August 23, 2009 as to 391,250 options
upon achieving a 750 million bitumen in place (BIP) barrel count, defined as the high
resource (P10) estimate of bitumen in place (as determined in accordance with National
Instrument 51-101 Standard of Disclosure for Oil and Gas Activities issued by the
securities regulatory authorities in Canada) and 391,250 options thereafter for each
250 million increase in the BIP barrel count. Accelerated vesting of all options will
occur upon a merger, acquisition, sale or change in control of the Company.f)
    
    CanWest also issued 75,000 options to acquire common shares, exercisable at a
price of $5.05, vesting immediately for a two year term, to retiring directors.
 F-19




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##### Table of Contents



CANWEST PETROLEUM CORPORATION
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
For the Three Months Ended July 31, 2006
(Unaudited  Prepared by Management)
(Stated in U.S. Dollars unless otherwise noted)
 16.
    
    PRIOR PERIOD ADJUSTMENTThe consolidated balance sheet as at April 30, 2006 has been restated to correct an error in the
amounts reported for Properties and Other Comprehensive Income. The error occurred in the
translation from Canadian to US funds of the OQI balance sheet and the effect was as follows:
 OtherComprehensiveProperties
    
    
    income (loss)Amounts previously reported
    
    $
    17,831,417
    
    
    $
    964,404Correction of translation error
    
    
    (708,319
    )
    
    
    (708,319
    )As restated
    
    $
    17,123,098
    
    
    $
    256,085
  17.
    
    DIFFERENCES BETWEEN U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) AND
CANADIAN GAAPAccounting principles generally accepted in the United States of America differ in certain respects
from those generally accepted in Canada. Any differences, which apply to the Company, are
considered to be insignificant and have no material impact on these consolidated financial
statements.
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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Plans of Operations
   Plan of Operations
    Oilsands Quest Inc., Oil Sands Exploration Permits
 Standards of Disclosure for Oil and Gas Activities
 1




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##### Table of Contents



Western Petrochemicals Corporation (Pasquia Hills Oil Shale Prospect)
  2




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Township Petroleum Corporation (Eagles Nest Prospect)
   Other Investments
  Liquidity and Capital Resources
     3




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Income Tax Act
 Changes in Financial Condition
    4




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5




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##### Table of Contents



OtherComprehensiveProperties
    
    
    income (loss)Amounts previously reported
    
    $
    17,831,417
    
    
    $
    964,404Correction of translation error
    
    
    (708,319
    )
    
    
    (708,319
    )As restated
    
    $
    17,123,098
    
    
    $
    256,085
  Critical Accounting Policies
   
    
    Foreign currency translation;
 
    
    Properties and exploration stage expenditures;
 
    
    Income taxes; and
 
    
    Stock based compensation.
 Foreign currency translation
  (i)
    
    Monetary assets and liabilities at the rate of exchange in effect as at the balance sheet
date;(ii)
    
    Non-monetary assets and liabilities at the exchange rates prevailing at the time of the
acquisition of the assets or assumption of the liabilities; and,(iii)
    
    Revenues and expenditures at the average rate of exchange for the year.
  6




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##### Table of Contents



Properties and exploration stage expenditures
   Income taxes
  Stock-based compensation
   Item 3. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control
  7




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##### Table of Contents



Forward-Looking Statements
  PART II  OTHER INFORMATION
 Item 1. Legal Proceedings
  Item 2. Changes in Securities; Recent Sales of Unregistered Securities
     8




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Item 6. Exhibits
 3.1
    
    Articles of Incorporation, as amended.(1), (2)3.2
    
    Bylaws.(2)10.1
    
    Executive Employment Agreement with T. Murray Wilson, dated May 1, 2006.410.2
    
    Reorganization Agreement, dated June 9, 2006.310.3
    
    Subscription Agreement for Flow-Through Shares with Subscribers, dated July 5, 2006.410.4
    
    Subscription Agreement for Flow-Through Shares with Oilsands Quest Inc., dated July 5,
2006.410.5
    
    Employment Agreement with Christopher Hopkins, dated May 1, 2005.410.6
    
    Employment Agreement with Karim Hirji, dated May 1, 2005.431.1
    
    Certification of CEO Pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.31.2
    
    Certification of CFO Pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.32.1
    
    Certification of CEO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.32.2
    
    Certification of CFO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, filed herewith.
 
 (1)
    
    Incorporated by reference from Form 8-K, filed November 29, 2004.(2)
    
    Incorporated by reference from Form 10-SB, filed October 14, 1999.(3)
    
    Incorporated by reference from Form 8-K dated June 14, 2006.(4)
    
    Incorporated by reference from Form 10-KSB dated July 21, 2006.   CANWEST PETROLEUM CORPORATIONDate: September 14, 2006
    By:
    /s/ Christopher H. HopkinsChristopher H. Hopkins, President, Chief Executive Officer and Director 9




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Exhibit Index
 ExhibitNumbers
    
    Description3.1
    
    Articles of Incorporation, as amended.(1), (2)3.2
    
    Bylaws.(2)10.1
    
    Executive Employment Agreement with T. Murray Wilson, dated May 1, 2006.410.2
    
    Reorganization Agreement, dated June 9, 2006.310.3
    
    Subscription Agreement for Flow-Through Shares with Subscribers, dated July 5, 2006.410.4
    
    Subscription Agreement for Flow-Through Shares with Oilsands Quest Inc., dated July 5,
2006.410.5
    
    Employment Agreement with Christopher Hopkins, dated May 1, 2005.410.6
    
    Employment Agreement with Karim Hirji, dated May 1, 2005.431.1
    
    Certification of CEO Pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.31.2
    
    Certification of CFO Pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.32.1
    
    Certification of CEO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.32.2
    
    Certification of CFO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, filed herewith.
 
 (1)
    
    Incorporated by reference from Form 8-K, filed November 29, 2004.(2)
    
    Incorporated by reference from Form 10-SB, filed October 14, 1999.(3)
    
    Incorporated by reference from Form 8-K dated June 14, 2006.(4)
    
    Incorporated by reference from Form 10-KSB dated July 21, 2006.