EXHIBIT 99.2



Management’s Report



TO THE SHAREHOLDERS OF COMPTON PETROLEUM CORPORATION



The
accompanying Consolidated Financial Statements of Compton Petroleum Corporation (the “Corporation”) are the responsibility
of Management and have been prepared by Management in accordance with International Financial Reporting Standards and policies
stated in the notes thereto. Financial information contained throughout the corporate summary to shareholders is consistent with
these financial statements.



The
Corporation’s Board of Directors has approved these Consolidated Financial Statements on the recommendation of the Audit,
Finance and Risk Committee, which has a written mandate that complies with the current requirements of Canadian securities legislation
and the United States Sarbanes-Oxley Act of 2002.



Management
is also responsible for establishing and maintaining adequate internal control over the Corporation’s financial reporting.
Internal control, as more fully described in Management’s Discussion and Analysis, includes policies and procedures designed
to provide reasonable assurance relating to the reliability, completeness and timeliness of financial reporting. Internal control
systems, no matter how well designed, have inherent limitations. Therefore, even those systems while determined to be effective
can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.



Management
has assessed the effectiveness of the design and operation of internal control over financial reporting based on the Internal Control
Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment,
Management has concluded that, as of December 31, 2011, internal control over financial reporting was effective. Grant Thornton
LLP, an independent firm of chartered accountants, appointed by shareholders, has provided independent opinions on both the Consolidated
Financial Statements and the Corporation’s internal control over financial reporting as at December 31, 2011.



|/s/ Edward W.  Bogle, Ph.D., ICD.D, P.Geol. | /s/ C.W. Leigh Cassidy, CA, CFA
|------------------------------------------- | -------------------------------
|President & Chief Executive Officer         | Vice President Finance &       
|                                            | Chief Financial Officer        



March 7, 2012















Independent Auditor’s Report of

Registered Public Accounting Firm





|Grant Thornton LLP
Suite 900
833 - 4th Avenue SW
Calgary, AB
T2P 3T5
T (403) 260-2500
F (403) 260-2571
www.GrantThornton.ca
|---------------------------------------------------------------------------------------------------------------------------



To the Shareholders of Compton Petroleum Corporation



We have audited the accompanying consolidated financial
statements of Compton Petroleum Corporation(the “Company”), which comprise the
consolidated balance sheets as at December 31, 2011, December 31, 2010 and January 1, 2010, and the consolidated statements of
operations and comprehensive earnings (loss), changes in equity and cash flow for each of the years in the two-year period ended
December 31, 2011, and a summary of significant accounting policies and other explanatory information.



Management's responsibility for the financial statements

Management is responsible for the preparation and fair
presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for
such internal control as management determines is necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.



Auditor’s responsibility

Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards
and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements
are free from material misstatement.



An audit involves performing procedures to obtain audit evidence,
on a test basis, about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on
the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company's
preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate
in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness
of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.



We believe that the audit evidence we have obtained in
our audits is sufficient and appropriate to provide a basis for our audit opinion on the consolidated financial statements.



Opinion

In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of Compton Petroleum Corporation as at December 31, 2011, December 31,
2010 and January 1, 2010, and the results of its financial performance and its cash flow for each of the years in the two-year
period ended December 31, 2011 in accordance with International Financial Reporting Standards as issued by the International Accounting
Standards Board.



Other matter

We have also audited, in accordance with the standards of
the Public Company Accounting Oversight Board (United States), Compton Petroleum Corporation's internal control over financial
reporting as of December 31, 2011, based on the criteria established in Internal Control — Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 7, 2012 expressed an unqualified
opinion on Compton Petroleum Corporation’s internal control over financial reporting.





|Calgary, Canada | /s/ ‘Grant Thornton LLP’
|--------------- | ------------------------
|March 7, 2012   | Chartered Accountants   



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 2











Independent Auditor’s Report of

Registered Public Accounting Firm



|Grant Thornton LLP
Suite 900
833 - 4th Avenue SW
Calgary, AB
T2P 3T5
T (403) 260-2500
F (403) 260-2571
www.GrantThornton.ca
|---------------------------------------------------------------------------------------------------------------------------





To the Shareholders of Compton Petroleum
Corporation





We have audited the internal control over financial reporting of
Compton Petroleum Corporation (the “Company”) as of December 31, 2011, based on
criteria established in Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”).



Management's responsibility for internal control over
financial reporting

Management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the
accompanying management’s report.



Auditor’s responsibility

Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit. We conducted our audit ofinternal control over financial
reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects.



An audit of internal control
over financial reporting includes obtaining an understanding of internal control over financial reporting, assessing the risk that
a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed
risk, and performing such other procedures as we considered necessary in the circumstances.



We believe that our audit
provides a reasonable basis for our opinion on the internal control over financial reporting.



Definition of internal control over financial reporting

A company’s internal control over financial reporting is a
process designed by, or under the supervision of, the company’s principal executives and principal financial officers, or
persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors
of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use,
or disposition of the company’s assets that could have a material effect on the financial statements.



Inherent limitations

Because of the inherent limitations of internal control over financial
reporting, including the possibility of collusion or improper management override of controls, material misstatement due to error
or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal
control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



Opinion

In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control—Integrated
Framework issued by COSO.





Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 3









Other matter

We also have audited, in accordance
with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of the Company as at December 31, 2011, December 31, 2010 and January 1, 2010 and the
consolidated statements of operations and comprehensive earnings (loss), changes in equity and cash flow for each of the years
in the two-year period ended December 31, 2011 and our report dated March 7, 2012, expressed an unqualified opinion on those consolidated
financial statements.







|Calgary, Canada | /s/ ‘Grant Thornton LLP’
|--------------- | ------------------------
|March 7, 2012   | Chartered Accountants   



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 4







|Compton Petroleum Corporation
|-----------------------------
|Consolidated Balance Sheets  
|(000’s)                      



|As at                               |  | December 31, 2011 |         |   | December 31,
2010 |   |          | January 1,2010 | 
|----------------------------------- |  | ----------------- | ------- | - | ----------------- | - | -------- | -------------- | 
|                                    |  |                   |         |   | note 23           |   |          | note 23        | 
|Assets                              |  |                   |         |   |                   |   |          |                | 
|Current assets:                     |  |                   |         |   |                   |   |          |                | 
|Trade and other accounts receivable |  | $                 | 19,204  |   |                   | $ | 29,515   |                | 
|Risk management, note 15(a)         |  |                   | 3,498   |   |                   |   | 8,041    |                | 
|Other current assets, note 19       |  |                   | 5,360   |   |                   |   | 4,812    |                | 
|                                    |  |                   | 28,062  |   |                   |   | 42,368   |                | 
|                                    |  |                   |         |   |                   |   |          |                | 
|Non-current assets:                 |  |                   |         |   |                   |   |          |                | 
|Development and production, note 3  |  |                   | 577,776 |   |                   |   | 751,382  |                | 
|Exploration and evaluation, note 4  |  |                   | 65,455  |   |                   |   | 68,550   |                | 
|Other long term assets, note 19     |  |                   | 2,015   |   |                   |   | 2,620    |                | 
|                                    |  |                   |         |   |                   |   |          |                | 
|Total assets                        |  | $                 | 673,308 |   |                   | $ | 864,920  |                | 
|                                    |  |                   |         |   |                   |   |          |                | 
|Liabilities                         |  |                   |         |   |                   |   |          |                | 
|Current liabilities:                |  |                   |         |   |                   |   |          |                | 
|Trade and other accounts payable    |  | $                 | 41,634  |   |                   | $ | 57,755   |                | 
|Credit facility, note 5(a)          |  |                   | -       |   |                   |   | 145,584  |                | 
|Risk management, note 15(a)         |  |                   | 4       |   |                   |   | 116      |                | 
|Senior term notes, note 6           |  |                   | -       |   |                   |   | 44,757   |                | 
|MPP term financing, note 7          |  |                   | 10,841  |   |                   |   | 11,098   |                | 
|                                    |  |                   | 52,479  |   |                   |   | 259,310  |                | 
|                                    |  |                   |         |   |                   |   |          |                | 
|Non-current liabilities:            |  |                   |         |   |                   |   |          |                | 
|Credit facility, note 5(a)          |  |                   | 112,608 |   |                   |   | -        |                | 
|Senior term notes, note 6           |  |                   | -       |   |                   |   | 192,455  |                | 
|Risk management, note 15(a)         |  |                   | 4       |   |                   |   | -        |                | 
|MPP term financing, note 7          |  |                   | 20,528  |   |                   |   | 34,522   |                | 
|Provisions, note 9                  |  |                   | 162,948 |   |                   |   | 184,424  |                | 
|Deferred income taxes, note 18      |  |                   | 2,906   |   |                   |   | 7,011    |                | 
|                                    |  |                   |         |   |                   |   |          |                | 
|Total liabilities                   |  |                   | 351,473 |   |                   |   | 677,722  |                | 
|                                    |  |                   |         |   |                   |   |          |                | 
|Equity                              |  |                   |         |   |                   |   |          |                | 
|Share capital, note 10(b)           |  |                   | 308,131 |   |                   |   | 416,433  |                | 
|Share purchase warrants, note 10(c) |  |                   | 18,455  |   |                   |   | 13,800   |                | 
|Other reserves                      |  |                   | 58      |   |                   |   | 40,112   |                | 
|Retained earnings (deficit)         |  |                   | (5,888  | ) |                   |   | (274,139 | )              | 
|Non-controlling interest, note 7    |  |                   | 1,079   |   |                   |   | (9,008   | )              | 
|                                    |  |                   |         |   |                   |   |          |                | 
|Total equity                        |  |                   | 321,835 |   |                   |   | 187,198  |                | 
|                                    |  |                   |         |   |                   |   |          |                | 
|Total liabilities and equity        |  | $                 | 673,308 |   |                   | $ | 864,920  |                | 

Commitments and contingent liabilities, note 21

see accompanying notes to the consolidated financial statements



|On behalf of the Board |                           
|---------------------- | --------------------------
|/s/ A.  Loader, MA     | /s/ Glen Roane, MBA, ICD.D
|Director               | Director                  



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 5







|Compton Petroleum Corporation                                          
|-----------------------------------------------------------------------
|Consolidated Statements of Operations and Comprehensive Earnings (Loss)
|(000’s, except per share amounts)                                      



|Year ended December 31                                |  | 2011 |         |   | 2010    |  
|----------------------------------------------------- |  | ---- | ------- | - | ------- | -
|                                                      |  |      |         |   | note 23 |  
|                                                      |  |      |         |   |         |  
|Revenue, net of royalties,note 16                     |  | $    | 141,996 |   |         | $
|                                                      |  |      |         |   |         |  
|Expenses                                              |  |      |         |   |         |  
|Operating                                             |  |      | 47,447  |   |         |  
|Transportation                                        |  |      | 5,926   |   |         |  
|Administrative                                        |  |      | 15,365  |   |         |  
|Royalty obligations, note 16                          |  |      | 10,691  |   |         |  
|Depletion and depreciation                            |  |      | 58,076  |   |         |  
|Exploration and evaluation, note 4                    |  |      | 20,975  |   |         |  
|Share based compensation, note 12(e)                  |  |      | 446     |   |         |  
|Foreign exchange and other gain, note 14              |  |      | (71,257 | ) |         |  
|Risk management gain, note 15(c)                      |  |      | (9,151  | ) |         |  
|Impairment expense, note 3                            |  |      | 1,580   |   |         |  
|Other expenses                                        |  |      | -       |   |         |  
|Finance costs, note 13                                |  |      | 34,504  |   |         |  
|                                                      |  |      |         |   |         |  
|Earnings (loss) before taxes                          |  |      | 27,394  |   |         |  
|                                                      |  |      |         |   |         |  
|Income taxes                                          |  |      |         |   |         |  
|Current                                               |  |      | -       |   |         |  
|Deferred, note 18                                     |  |      | 10,115  |   |         |  
|                                                      |  |      |         |   |         |  
|                                                      |  |      | 10,115  |   |         |  
|                                                      |  |      |         |   |         |  
|Net earnings (loss)                                   |  | $    | 17,279  |   |         | $
|                                                      |  |      |         |   |         |  
|Net earnings (loss) attributable to:                  |  |      |         |   |         |  
|Non-controlling interest, note 7                      |  | $    | (4,164  | ) |         | $
|Majority shareholders                                 |  |      | 21,443  |   |         |  
|Net earnings (loss) and comprehensive earnings (loss) |  | $    | 17,279  |   |         | $
|                                                      |  |      |         |   |         |  
|Net earnings (loss) per share, note 11                |  |      |         |   |         |  
|Basic                                                 |  | $    | 1.80    |   |         | $
|Diluted                                               |  | $    | 1.47    |   |         | $



see accompanying notes to the consolidated financial statements



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 6







|Compton Petroleum Corporation               
|--------------------------------------------
|Consolidated Statements of Changes in Equity
|(000’s)                                     



|                                                           |  | Capital stock |          |   | Share purchase
warrants |   |         | Other reserves |  |   | Retained earnings/
    Deficit |   |  | Non- controlling
interest |          |   | Total |  
|---------------------------------------------------------- |  | ------------- | -------- | - | ----------------------- | - | ------- | -------------- |  | - | ------------------------------ | - |  | ------------------------- | -------- | - | ----- | -
|                                                           |  |               |          |   |                         |   |         |                |  |   |                                |   |  |                           |          |   |       |  
|Balance
    at January 1, 2010, note 23                    |  | $             | 416,425  |   |                         | $ | 13,800  |                |  | $ | 37,043                         |   |  | $                         | 267,032  |   |       | $
|Net earnings (loss)                                        |  |               | -        |   |                         |   | -       |                |  |   | -                              |   |  |                           | (535,382 | ) |       |  
|MPP term financing, note 7                                 |  |               | -        |   |                         |   | -       |                |  |   | -                              |   |  |                           | (5,789   | ) |       |  
|Share based payments                                       |  |               | -        |   |                         |   | -       |                |  |   | 3,069                          |   |  |                           | -        |   |       |  
|Options exercised                                          |  |               | 8        |   |                         |   | -       |                |  |   | -                              |   |  |                           | -        |   |       |  
|                                                           |  |               |          |   |                         |   |         |                |  |   |                                |   |  |                           |          |   |       |  
|Balance
    at December 31, 2010, note 23                  |  | $             | 416,433  |   |                         | $ | 13,800  |                |  | $ | 40,112                         |   |  | $                         | (274,139 | ) |       | $
|                                                           |  |               |          |   |                         |   |         |                |  |   |                                |   |  |                           |          |   |       |  
|Net earnings                                               |  |               | -        |   |                         |   | -       |                |  |   | -                              |   |  |                           | 21,443   |   |       |  
|MPP term financing, note 7                                 |  |               | -        |   |                         |   | -       |                |  |   | -                              |   |  |                           | (14,251  | ) |       |  
|Share issuance, net                                        |  |               | 197,062  |   |                         |   | 18,455  |                |  |   | -                              |   |  |                           | -        |   |       |  
|Share based payments                                       |  |               | -        |   |                         |   | -       |                |  |   | (1,201                         | ) |  |                           | -        |   |       |  
|IFRS
    fair value adjustment, net of tax, note 3         |  |               | -        |   |                         |   | -       |                |  |   | -                              |   |  |                           | (96,958  | ) |       |  
|Warrants
    expiry                                        |  |               | 13,800   |   |                         |   | (13,800 | )              |  |   | -                              |   |  |                           | -        |   |       |  
|Reduction
    of stated capital and other reclassification |  |               | (319,164 | ) |                         |   | -       |                |  |   | (38,853                        | ) |  |                           | 358,017  |   |       |  
|Balance at December 31, 2011                               |  | $             | 308,131  |   |                         | $ | 18,455  |                |  | $ | 58                             |   |  | $                         | (5,888   | ) |       | $



see accompanying notes to consolidated financial statements



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 7







|Compton Petroleum Corporation       
|------------------------------------
|Consolidated Statements of Cash Flow
|(000’s)                             



|Year ended December 31                                |  | 2011 |         |   | 2010    |  
|----------------------------------------------------- |  | ---- | ------- | - | ------- | -
|                                                      |  |      |         |   | note 23 |  
|                                                      |  |      |         |   |         |  
|Operating activities                                  |  |      |         |   |         |  
|Net earnings (loss)                                   |  | $    | 17,279  |   |         | $
|Amortization and other                                |  |      | 1,468   |   |         |  
|Depletion and depreciation, note 3                    |  |      | 58,076  |   |         |  
|Unrealized foreign exchange and other (gains) losses  |  |      | (9      | ) |         |  
|Deferred income taxes, note 18                        |  |      | 10,115  |   |         |  
|Share based compensation, note 12(e)                  |  |      | (1,201  | ) |         |  
|Accretion of decommissioning liabilities, note 9      |  |      | 4,818   |   |         |  
|Decommissioning expenditures                          |  |      | (2,024  | ) |         |  
|Unrealized risk management (gain) loss, note 15(c)    |  |      | 4,435   |   |         |  
|Impairment, note 3                                    |  |      | 1,580   |   |         |  
|Exploration and evaluation, note 4                    |  |      | 20,975  |   |         |  
|(Gain) on debt extinguishment                         |  |      | (58,268 | ) |         |  
|(Gain) loss on asset disposition, note 14             |  |      | (14,747 | ) |         |  
|                                                      |  |      | 42,497  |   |         |  
|Change in non-cash working capital, note 22           |  |      | (6,116  | ) |         |  
|                                                      |  |      |         |   |         |  
|                                                      |  |      | 36,381  |   |         |  
|                                                      |  |      |         |   |         |  
|Financing activities                                  |  |      |         |   |         |  
|Issuance of senior term notes                         |  |      | -       |   |         |  
|Extinguishment of senior term notes                   |  |      | -       |   |         |  
|Repayment of credit facility                          |  |      | (33,743 | ) |         |  
|MPP term financing repayment                          |  |      | (14,250 | ) |         |  
|Proceeds from equity financing, net of costs, note 10 |  |      | 36,573  |   |         |  
|                                                      |  |      |         |   |         |  
|                                                      |  |      | (11,420 | ) |         |  
|                                                      |  |      |         |   |         |  
|Investing activities                                  |  |      |         |   |         |  
|Development and production additions                  |  |      | (43,756 | ) |         |  
|Exploration and evaluation additions                  |  |      | (7,524  | ) |         |  
|Development and production dispositions               |  |      | 9,490   |   |         |  
|Exploration and evaluation dispositions               |  |      | 16,829  |   |         |  
|Royalty dispositions                                  |  |      | -       |   |         |  
|                                                      |  |      |         |   |         |  
|                                                      |  |      | (24,961 | ) |         |  
|                                                      |  |      |         |   |         |  
|Change in cash                                        |  |      | -       |   |         |  
|                                                      |  |      |         |   |         |  
|Cash, beginning of year                               |  |      | -       |   |         |  
|                                                      |  |      |         |   |         |  
|Cash, end of year                                     |  | $    | -       |   |         | $



see accompanying notes to the consolidated financial statements



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 8







|Compton Petroleum Corporation                 
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|(000’s, except per share amounts)             



Compton Petroleum Corporation (the “Corporation”
or “Compton”), incorporated under the laws of Alberta and domiciled in Canada. Compton Petroleum Corporation is a public
corporation actively engaged in the exploration, development and production of natural gas, natural gas liquids, and crude oil
in western Canada. The registered office of the Corporation is Suite 500 Bankers Court, 850 2nd Street SW, Calgary,
Alberta, Canada, T2P 0R8.



| | 1. | Basis of presentation
| | -- | ---------------------



| | (a) | Statement of compliance
| | --- | -----------------------



The consolidated financial statements
have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) issued by the International
Accounting Standards Board (“IASB”) and Interpretations of the International Financial Reporting Interpretations Committee
(“IFRIC”).



These consolidated financial statements
present the results of operations and financial position as at and for the years ended December 31, 2011 and 2010 and are the Corporation’s
first IFRS consolidated annual financial statements for the year ending December 31, 2011. These consolidated financial statements
have been prepared in accordance with IFRS 1, “First-time Adoption of International Financial Reporting Standards”,
with retrospective application of accounting standards as required. Previously, the Corporation prepared its annual consolidated
financial statements in accordance with Canadian Generally Accepted Accounting Principles (“Previous GAAP”).



| | (b) | Basis of measurement
| | --- | --------------------



The consolidated
financial statements have been prepared on the historical cost basis except for the revaluation of certain non-current assets
and financial instruments. Historical cost is generally based on the fair value of the consideration given in exchange for assets
recorded on the date of the transaction. These consolidated financial statements have been prepared on a going concern basis.



A summary of the Corporation’s
significant accounting policies under IFRS is presented in Note 2 – “Significant Accounting Policies”. These
policies have been retrospectively and consistently applied except where specific exemptions permitted alternative treatments upon
transition to IFRS in accordance with IFRS 1 as disclosed in Note 23 – “Transition to IFRS”.



These consolidated financial statements
were authorized for issuance on March 7, 2012 by the Board of Directors.



| | (c) | Functional and presentation currency
| | --- | ------------------------------------



The functional and presentation currency of
Compton, and all of its consolidated subsidiaries, is Canadian dollars.



| | 2. | Significant accounting
policies
| | -- | -------------------------------



| | (a) | Basis of consolidation
| | --- | ----------------------



These consolidated financial statements include
the accounts of the Corporation and its wholly owned subsidiaries Compton Petroleum Finance Corporation and WIN Energy (Montana),
Inc.



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 9







The accounts of Mazeppa Processing Partnership
(the “Partnership” or “MPP”) are included in these consolidated financial statements in accordance with
Standing Interpretations Committee Standards 12 (“SIC-12”), Special Purpose Entities, as outlined in Note 7 - “MPP
Term Financing and Non-Controlling Interest”.



Interests in jointly controlled assets are included
in these financial statements using the proportionate consolidation method and included in the accounts is the Corporation’s
proportionate share of revenues, expenses, assets and liabilities.



All inter-company transactions, balances, income
and expenses are eliminated in full on consolidation.



| | (b) | Critical
accounting estimates, judgments and key sources ofmeasurement
uncertainty
| | --- | ----------------------------------------------------------------------------------



The timely preparation of consolidated financial
statements requires that Management make estimates and assumptions and use judgment regarding the measurement of assets, liabilities,
revenues, and expenses. Such estimates relate primarily to transactions and events that have not settled as of the date of the
financial statements. Accordingly, actual results may materially differ from estimated amounts as future confirming events occur.



Amounts recorded for depletion and depreciation,
and amounts used in impairment test calculations are based upon estimates of petroleum and natural gas reserves and future costs
to develop those reserves. By their nature, these estimates of reserves, costs, and related future cash flows are subject to uncertainty,
and the impact on the consolidated financial statements of future periods could be material.



Development and Production (“D&P”)
assets are grouped into cash generating units (“CGU’s”) identified as having largely independent cash flows and
are geographically integrated. The determination of these CGU’s was based on Management’s interpretation and judgment.



The calculation of decommissioning liabilities
includes estimates of the ultimate settlement amounts, inflation factors, risk free rates, and timing of settlement. The impact
of future revisions to these assumptions on the consolidated financial statements of future periods could be material.



The amount of share based compensation expense
recorded reflects the Corporation’s best estimate of inputs used in the Black-Scholes pricing model and whether or not performance
will be achieved and obligations incurred.



The amount ascribed to share purchase warrants
upon issue reflects the Corporation’s best estimate of fair value at the time of issue.



The estimated fair value of risk management
contracts is subject to measurement uncertainty as future commodity prices and exchange rates are used in the valuation.



The values of pension assets and obligations
and the amount of pension costs charged to earnings depend on certain actuarial and economic assumptions which by their nature
are subject to measurement uncertainty.



As tax interpretations, regulations and legislation
in which the Corporation and its subsidiaries operate are subject to change, income taxes are subject to measurement uncertainty.



The estimated probability of provisions and
contingencies recognized in these consolidated financial statements are based on Management’s interpretation and judgment.



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 10







| | (c) | Property and equipment
| | --- | ----------------------



| | (i) | Exploration and evaluation
| | --- | --------------------------



Exploration and evaluation (“E&E”)
assets are measured at cost and include all costs directly associated with exploratory drilling, unproved property acquisition
costs, geological and geophysical activities, license acquisition and technical studies. These assets do not include prospecting
costs incurred prior to obtaining the rights to explore lands, which costs are expensed as incurred.



When E&E assets have identified
reserves that have been determined to be technically feasible and commercially viable, the associated E&E costs incurred are
transferred to D&P assets, subject to a test for impairment. This is generally at the time production commences from the reserve,
but could occur earlier where there are significant delays in the development of production infrastructure. When an E&E effort
is determined not to be technically feasible, commercially viable, or the Corporation decides not to continue with any future E&E,
any remaining associated costs are charged to net earnings as E&E expense.



E&E costs are not subject to depreciation
and depletion.



| | (ii) | Development and production
| | ---- | --------------------------



All costs directly associated with
the development and production of oil and natural gas reserves are capitalized on a CGU basis. D&P costs comprise intangible
drilling costs, production equipment and facilities.



Overhead costs which are directly attributable
to bringing an asset to the location and condition necessary for it to be capable of use in the manner intended by Management are
capitalized. These costs include compensation costs paid to internal personnel dedicated to capital projects.



D&P costs accumulated within each
CGU are depleted using the unit-of-production method; based upon estimated proved plus probable oil and natural gas reserves. D&P
costs subject to depletion include the estimated future costs to be incurred in developing proved plus probable reserves, less
the estimated salvage value of underlying assets.



Depreciation of the MPP facilities
is provided for on a straight line basis over 30 years.



The costs of maintenance
turnarounds of facilities are capitalized and amortized over the period to the next scheduled turnaround; generally three
years. All other maintenance costs are expensed as incurred.



| | (iii) | Corporate assets
| | ----- | ----------------



Corporate assets, which include office
equipment and leasehold improvements, are recorded at cost and depreciated on a straight line basis over the estimated service
life, which range from three to ten years.



| | (iv) | Derecognition
| | ---- | -------------



The Corporation derecognizes assets
at the earlier of disposal, or at the time that no future economic benefit is expected. Any gain or loss on derecognition is included
in net earnings when incurred, presented in foreign exchange and other gains (losses).



| | (d) | Impairments
| | --- | -----------



The carrying values of long-life assets are
reviewed quarterly for indicators that the carrying value of an asset or CGU may not be recoverable. If the carrying value of the
asset or CGU exceeds the estimated recoverable amount, the asset or CGU is written down, with the impairment charged to net earnings.



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 11







The recoverable amount of an asset or CGU is
the greater of its fair value less its estimated costs of disposal and its value in use. Fair value is determined to be the amount
for which the asset could be sold in an arm's length transaction.



Fair value less the estimated costs of disposal
is a measure of third party value, determined using discounted future net cash flows of proved and probable reserves determined
using forecast prices and costs, and other economic factors external to the Corporation.



Value in use is determined by estimating the
present value of the future net cash flows expected to be derived from the Corporation’s continued use of the asset or cash-generating
unit. Cash flows used in determining value in use will not consider all market factors but only those relevant to the Corporation.



Reversals of impairments are recognized, where
applicable, when there has been a subsequent increase in the recoverable amount. In this event, the carrying amount of the asset
or CGU is increased to its revised recoverable amount with an impairment reversal recognized in net earnings. The recoverable amount
is limited to the original carrying amount less depreciation, depletion and amortization as if no impairment had been recognized
for the asset or CGU for prior periods.



| | (e) | Decommissioning liabilities
| | --- | ---------------------------



The Corporation recognizes the present value
of estimated decommissioning liabilities of long-life assets when a legal or constructive liability exists and a reasonable estimate
can be made. These liabilities include obligations where the Corporation will be required to retire tangible long-life assets such
as well sites, pipelines, and facilities. The liabilities, equal to the initial estimated present value of the decommissioning
liabilities, are capitalized as part of the cost of the related long-life asset. Changes in the estimated decommissioning liability
resulting from revisions to the assumptions used are also capitalized. Capitalized decommissioning costs are amortized using the
unit-of-production method except for those of MPP which are amortized over 30 years.



Accretion of the decommissioning liabilities
resulting from the passage of time is charged to net earnings.



Decommissioning expenditures incurred are charged
against the decommissioning liability, to the extent of the liability recorded.



| | (f) | Financial instruments and derivatives
| | --- | -------------------------------------



Financial instruments are measured at fair value
on initial recognition of the instrument. Measurement in subsequent periods depends on whether the financial instrument has been
classified as “fair value through profit or loss”, “available for sale financial assets”, “held to
maturity investments”, “loans and receivables” or “financial liabilities measured at amortized cost”
as defined by the accounting standard.



Financial assets and financial liabilities at
“fair value through profit or loss” are either classified as “held for trading” or “designated at
fair value through profit or loss” and are measured at fair value with changes in those fair values recognized in net earnings.
“Available for sale financial assets” are measured at fair value, with changes in those fair values recognized in other
comprehensive income. Financial instruments classified as “held to maturity investments”, “loans and receivables”
and “financial liabilities measured at amortized cost” are measured at amortized cost using the effective interest
method.



Trade and other accounts receivable are classified
as “loans and receivables” and trade and other accounts payable, credit facility, MPP term financing and senior term
notes are classified as “financial liabilities measured at amortized cost”. Transaction costs, premiums and discounts
associated with the issuance of senior term notes are netted against the notes and amortized to net earnings using the effective
interest method. Transaction costs associated with the extinguishment of debt are expensed when settlement of the debt occurs.



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 12







Derivative financial instruments are classified
as “fair value through profit or loss” and are recorded at fair value based on quoted market prices or third party
market indications and forecasts. Fluctuations are recorded in net earnings as risk management gains and losses during each reporting
period. The Corporation uses derivative financial instruments for non-trading purposes to manage fluctuations in commodity prices,
foreign currency exchange rates, and interest rates as outlined in Note 15 – “Risk Management”. The Corporation
does not designate any of its current risk management activities as accounting hedges.



| | (g) | Per share amounts
| | --- | -----------------



Basic net earnings (loss) per common share are
determined by dividing net earnings by the weighted average number of common shares outstanding during the year. Diluted net earnings
(loss) per share are computed by giving effect to the potential dilution that would occur if stock options, share purchase warrants
and convertible debt at the option of the issuer were exercised. The Corporation uses the treasury stock method to determine the
dilutive effect of issued instruments. This method assumes that proceeds received from the exercise of in-the-money instruments
are used to repurchase common shares at the average market price for the year.



| | (h) | Income taxes
| | --- | ------------



Income taxes are recognized in net earnings
except to the extent that they relate to items recognized directly in equity, in which case the income taxes are recognized directly
in equity. Current income taxes for the current and prior periods are measured at the amount expected to be recoverable from or
payable to the taxation authorities based on the income tax rates enacted or substantively enacted at the end of the reporting
period.



The Corporation follows the liability method
of accounting for income taxes. Under this method, deferred income taxes are recorded for the effect of any temporary difference
between the accounting and income tax basis of an asset or liability.



Deferred income taxes are calculated using the
enacted or substantively enacted income tax rates expected to apply when the assets are realized or liabilities are settled. The
effect of a change in the enacted or substantively enacted tax rates is recognized in net earnings or in equity depending on the
item to which the adjustment relates.



Deferred income tax assets are recognized to
the extent future recovery is probable. Deferred tax assets are reduced to the extent that it is no longer probable that sufficient
future taxable earnings will be available to allow all or part of the asset to be recovered.



| | (i) | Revenue recognition
| | --- | -------------------



Revenue associated with the Corporation’s
production and sale of oil and natural gas are recognized when title passes to the customer and delivery has taken place. The Corporation’s
revenue is reported after deducting royalty payments to governments and other mineral interest owners. Revenue from services provided
to third parties by the Corporation is recognized in the period that the service is provided.



| | (j) | Share based payments
| | --- | --------------------



The Corporation records share based compensation
costs for its directors, officers, and employees as a charge to net earnings using estimated fair values.



The fair value of compensation costs of equity-settled
stock-based compensation plans is determined at the grant date of the compensation using the Black-Scholes option-pricing model.
The fair value is charged to net earnings with a corresponding credit to equity.



The fair value of compensation costs of cash-settled
stock-based compensation plans is determined at the grant date of the compensation using the Black-Scholes option-pricing model.
The fair value is charged to net earnings over the vesting schedule. Subsequently, changes in the fair value are recognized as
a charge or addition to net earnings with a corresponding change to current liabilities.



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 13







Contributions to the Corporation’s stock
savings plan are recorded as compensation expense as incurred.



| | (k) | Foreign currency translation
| | --- | ----------------------------



Monetary assets and liabilities of the Corporation
that are denominated in foreign currencies are translated into Canadian dollars at the period-end exchange rate. Revenue and expenses
are translated at the average exchange rate during the period. Translation gains or losses are recorded in net earnings.



| | (l) | Defined benefit pension plan
| | --- | ----------------------------



The Corporation accrues for obligations under
a defined benefit pension plan and the related costs, net of plan assets for employees of Mazeppa Processing Partnership. The cost
of the pension is actuarially determined using the projected unit credit method based on length of service and reflects Management’s
best estimate of expected plan investment performance, salary escalation, and retirement age of employees.



Actuarial gains and losses on pension fund assets
are deferred on the balance sheet. Any amounts in excess of 10% of the pension plan asset or liability are amortized to pension
expense over the expected remaining service period of active employees.



| | (m) | Cash and cash equivalents
| | --- | -------------------------



Cash and cash equivalents consist of cash in
bank accounts, less outstanding cheques, and short term deposits.



| | (n) | Borrowing costs
| | --- | ---------------



Borrowing costs attributable to the acquisition,
construction or production of qualifying assets are capitalized as part of the cost of those assets until such time as the assets
are substantially available for their intended use. Qualifying assets are comprised of those significant assets that require a
period greater than one year to be available for their intended use. All other borrowing costs are expensed as incurred.



| | (o) | Leases
| | --- | ------



A lease
is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. Finance leases
are recognized as assets at the lower of the fair value of the leased property, or the present value of the minimum lease payments
as determined at the inception of the lease. Any initial direct costs are added to the amount recognized as an asset. Finance leases
are amortizedover the lease term, generally  three to five years.



A lease is classified as an operating
lease if it does not transfer substantially all the risks and rewards incidental to ownership. Operating lease payments are expensed
in net earnings on a straight line-basis over the term of the lease.



| | (p) | Inventory
| | --- | ---------



The
Corporation recognizes significant assets available for sale or redeployment in operations, as inventory presented as long-term
assets measured at the lower of cost and net realizable value.



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 14







| | (q) | Farm-out arrangements
| | --- | ---------------------



The
Corporation does not adjust the recognized cost of exploratory property interests, excluding cash consideration received, for which
farm-out agreements have been made. No exploration costs incurred by the farmee are recorded.



| | (r) | Share purchase warrants
| | --- | -----------------------



Estimated
fair value attributed to share purchase warrants that expire without being exercised are returned to share capital upon expiry.



| | (s) | Recent accounting pronouncements
| | --- | --------------------------------



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



As of January 1, 2015 , the Corporation will
be required to adopt IFRS 9 “Financial Instruments”, which is the result of the first phase of the International Accounting
Standards Board (“IASB”) project to replace IAS 39 “Financial Instruments: Recognition and Measurement”.
The new standard replaces the current multiple classification and measurement models for financial assets and liabilities with
a single model that has only two classification categories: amortized cost and fair value. Portions of the standard remain in development
and the full impact of the standard on the Corporation’s consolidated financial statements will not be known until the project
is complete.



In May 2011, the IASB released the following
new standards: IFRS 10, “Consolidated Financial Statements”, IFRS 11, “Joint Arrangements”, IFRS 12, “Disclosures
of interests in other entities” and IFRS 13, “Fair Value Measurement”. Each of these standards is to be adopted
for fiscal years beginning January 1, 2013 with earlier adoption permitted. A brief description of each new standard follows below:



| | (i) | Consolidated Financial Statements
| | --- | ---------------------------------



IFRS 10, “Consolidated Financial
Statements” supersedes IAS 27 “Consolidation and Separate Financial Statements” and SIC-12 “Consolidation
– Special Purpose Entities”. This standard provides a single model to be applied in control analysis for all investees
including special purpose entities.



| | (ii) | Joint Arrangements
| | ---- | ------------------



IFRS 11, “Joint Arrangements”
divides joint arrangements into two types, joint operations and joint ventures, each with their own accounting model. All joint
arrangements are required to be reassessed on transition to IFRS 11 to determine their type to apply the appropriate accounting.



| | (iii) | Disclosure of Interests in Other Entities
| | ----- | -----------------------------------------



IFRS 12, “Disclosure of Interests
in Other Entities” combines in a single standard the disclosure requirements for subsidiaries, associates and joint arrangements
as well as unconsolidated structured entities.



| | (iv) | Fair Value Measurement
| | ---- | ----------------------



IFRS 13, “Fair Value Measurement”
defines fair value, establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements.
This standard defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 15







The Corporation is currently assessing the impact
of the new standards, but does not anticipate that the adoption of these standards will have a significant impact on the Corporation’s
consolidated financial statements.



| | 3. | Development and Production
| | -- | --------------------------



|                                                           | Development and
                                                                                                                                                                   Production costs
                                                                                                                                                                                      (1) |   | MPP Facility |   | Corporate Assets |   | Total 
|---------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------ | - | ---------------- | - | ------
|Cost or deemed cost:                                       |                                                                                                                                                                                                                                                                                                                                                                                               |   |              |   |                  |   |       
|Balance at January 1, 2010                                 |                                                                                                                                                                                                                                                                                                                                                                                               | $ | 1,545,269    |   |                  | $ | 53,703
|Additions                                                  |                                                                                                                                                                                                                                                                                                                                                                                               |   | 42,430       |   |                  |   | -     
|Transfer from E&E, note 4                                  |                                                                                                                                                                                                                                                                                                                                                                                               |   | 47           |   |                  |   | -     
|Disposals                                                  |                                                                                                                                                                                                                                                                                                                                                                                               |   | (186,490     | ) |                  |   | -     
|Decommissioning adjustment and other                       |                                                                                                                                                                                                                                                                                                                                                                                               |   | 60,972       |   |                  |   | -     
|Balance at December 31, 2010                               |                                                                                                                                                                                                                                                                                                                                                                                               | $ | 1,462,228    |   |                  | $ | 53,703
|Additions                                                  |                                                                                                                                                                                                                                                                                                                                                                                               |   | 42,622       |   |                  |   | -     
|Transfer from E&E, note 4                                  |                                                                                                                                                                                                                                                                                                                                                                                               |   | 3,693        |   |                  |   | -     
|Disposals                                                  |                                                                                                                                                                                                                                                                                                                                                                                               |   | (15,239      | ) |                  |   | -     
|Decommissioning adjustment and other                       |                                                                                                                                                                                                                                                                                                                                                                                               |   | (20,388      | ) |                  |   | -     
|                                                           |                                                                                                                                                                                                                                                                                                                                                                                               |   |              |   |                  |   |       
|Balance at December 31, 2011                               |                                                                                                                                                                                                                                                                                                                                                                                               | $ | 1,472,916    |   |                  | $ | 53,703
|                                                           |                                                                                                                                                                                                                                                                                                                                                                                               |   |              |   |                  |   |       
|Accumulated depletion, depreciation and impairment losses: |                                                                                                                                                                                                                                                                                                                                                                                               |   |              |   |                  |   |       
|Balance at January 1, 2010                                 |                                                                                                                                                                                                                                                                                                                                                                                               | $ | (1,636       | ) |                  | $ | -     
|Depletion and depreciation                                 |                                                                                                                                                                                                                                                                                                                                                                                               |   | (84,148      | ) |                  |   | (2,224
|Impairment loss                                            |                                                                                                                                                                                                                                                                                                                                                                                               |   | (695,395     | ) |                  |   | -     
|Disposals                                                  |                                                                                                                                                                                                                                                                                                                                                                                               |   | 7,529        |   |                  |   | -     
|Other                                                      |                                                                                                                                                                                                                                                                                                                                                                                               |   | 381          |   |                  |   | -     
|Balance at December 31, 2010                               |                                                                                                                                                                                                                                                                                                                                                                                               | $ | (773,269     | ) |                  | $ | (2,224
|Depletion and depreciation                                 |                                                                                                                                                                                                                                                                                                                                                                                               |   | (52,693      | ) |                  |   | (2,224
|Impairment loss, net of reversal                           |                                                                                                                                                                                                                                                                                                                                                                                               |   | (129,117     | ) |                  |   | -     
|Disposals                                                  |                                                                                                                                                                                                                                                                                                                                                                                               |   | 2,506        |   |                  |   | -     
|Other                                                      |                                                                                                                                                                                                                                                                                                                                                                                               |   | 46           |   |                  |   | -     
|                                                           |                                                                                                                                                                                                                                                                                                                                                                                               |   |              |   |                  |   |       
|Balance at December 31, 2011                               |                                                                                                                                                                                                                                                                                                                                                                                               | $ | (952,527     | ) |                  | $ | (4,448
|                                                           |                                                                                                                                                                                                                                                                                                                                                                                               |   |              |   |                  |   |       
|Net book value:                                            |                                                                                                                                                                                                                                                                                                                                                                                               |   |              |   |                  |   |       
|As at January 1, 2010                                      |                                                                                                                                                                                                                                                                                                                                                                                               | $ | 1,543,633    |   |                  | $ | 53,703
|As at December 31, 2010                                    |                                                                                                                                                                                                                                                                                                                                                                                               | $ | 688,959      |   |                  | $ | 51,479
|As at December 31, 2011                                    |                                                                                                                                                                                                                                                                                                                                                                                               | $ | 520,389      |   |                  | $ | 49,255



| | (1) | Included in D&P are finance leases with a cost of $1.6 million (January 1, 2010 – $11.5 million; December 31, 2010
– $8.5 million) and accumulated depletion of $0.3 million (January 1, 2010 – $1.6 million; December 31, 2010 –
$1.6 million)
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



During the year ended December 31, 2011, $2.1
million (2010 - $4.3 million) of compensation, insurance, and other costs were capitalized.



Minor property dispositions at Niton and Centron
during 2011 resulted in total proceeds of $26.2 million, and a net gain on sale of $16.4 million. Net gains include components
of both D&P ($1.5 million), and E&E ($14.9 million); see Note 4 – “Exploration and Evaluation”.



During 2010, the disposition of properties at
Niton and Gilby resulted in gross proceeds of $153.0 million, and a net loss on sale of $5.3 million. Net losses include components
of both development and production ($4.8 million), and E&E ($0.5 million); see Note 4 – “Exploration and Evaluation”.



On transition to IFRS on January 1, 2010, the
value of Compton’s D&P costs were written down by $263.9 million; see Note 23 – “Transition to IFRS”.
The recoverable amount represents the assets value in use applying a 10% discounted rate to the estimated future cash flow for
cash generating units, reflecting the then current forecast for oil and natural gas.



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 16







Following the recapitalization completed in
September 2011 (the “Recapitalization”), the Corporation’s assets were reduced to their underlying fair market
values in accordance with an IFRS election. The election resulted in a write down of D&P assets, across all cash generating
units, of $127.5 million ($97.0 million, net of tax). Following the election, the deemed cost carrying value of D&P assets
was $570.2 million. See Note 6 – “Senior Term Notes” for additional details on the Recapitalization.



At December 31, 2011, a further write down of
$1.6 million (2010 - $695.4 million) was recorded based on the estimated recoverable amount of the D&P assets, representing
the value in use, using 10% discounted cash flow of reserves by cash generating unit, as determined by our external reserve evaluators
and the then current forecast for oil and natural gas.



| | 4. | eXPLORATION AND EVALUATION
| | -- | --------------------------



|                           |  | 2011 |         |   | 2010 |  
|-------------------------- |  | ---- | ------- | - | ---- | -
|Balance, beginning of year |  | $    | 68,550  |   |      | $
|Additions                  |  |      | 7,524   |   |      |  
|Disposals                  |  |      | (2,311  | ) |      |  
|Impairment / land expiries |  |      | (20,975 | ) |      |  
|Transfers to D&P, note 3   |  |      | (3,693  | ) |      |  
|Deemed cost election       |  |      | 16,360  |   |      |  
|Balance, end of year       |  | $    | 65,455  |   |      | $



An impairment test is performed on the capitalized
cost of E&E assets. On transition to IFRS on January 1, 2010, the value of Compton’s E&E assets was tested for impairment
and no write down was required. Throughout 2010, a total of $2.1 million of undeveloped lands expired and were charged to exploration
and evaluation expense. Land expiries and impairment on exploratory well costs charged to exploration and evaluation expense during
the year ended December 31, 2011 totaled $21.0 million.



Following the Recapitalization, the Corporation’s
assets were adjusted to their underlying event driven fair market values, under an optional IFRS 1 election. The election resulted
in a net increase of E&E assets of $16.4 million, resulting in a $62.1 million deemed cost carrying value as at September 30,
2011. See Note 6 – “Senior Term Notes” for additional details on the Recapitalization.



No impairment write down was recorded on E&E
assets based on the estimated recoverable amount of Compton’s undeveloped land, as determined by a third party valuation.



| | 5. | debt
| | -- | ----



| | (a) | Credit facility
| | --- | ---------------

|                                   |  | December 31, 2011 |         |   | December 31, 2010 |   |         | January 1, 2010 | 
|---------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | --------------- | 
|                                   |  |                   |         |   |                   |   |         |                 | 
|Authorized credit facility         |  | $                 | 120,000 |   |                   | $ | 170,000 |                 | 
|                                   |  |                   |         |   |                   |   |         |                 | 
|Prime rate loans                   |  | $                 | -       |   |                   | $ | -       |                 | 
|Bankers’ acceptance term loans     |  |                   | 104,000 |   |                   |   | 144,700 |                 | 
|Bank indebtedness, prime rate      |  |                   | 9,487   |   |                   |   | 2,576   |                 | 
|Discount to maturity               |  |                   | (879    | ) |                   |   | (1,692  | )               | 
|                                   |  |                   |         |   |                   |   |         |                 | 
|Advances under the credit facility |  | $                 | 112,608 |   |                   | $ | 145,584 |                 | 



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 17







Subsequent to the year end, the facility
was revised to a total of $140.0 million including a working capital facility of $15.0 million and a syndicated facility of
$125.0 million. The facility term ends February 8, 2013. The lenders will reassess the amount of the credit facility
semi-annually at March 31 and September 30; the review may change the amount available thereunder. The credit facility is
determined based on, among other things, the Corporation’s current reserve report, results of operations, the lenders
view of current and forecast commodity prices and the current economic environment.



In addition to the drawn portion of the facility
at December 31, 2011, $0.8 million (December 31, 2010 – $4.3 million) of letters of credit were outstanding in favour of
service providers to Compton.



Advances under the syndicated facility bear
interest at margins determined on the ratio of total consolidated debt to consolidated cash flow which are currently as follows:



| | (i) | Prime rate and US Base rate plus 1.75%; and
| | --- | -------------------------------------------



| | (ii) | Bankers’ Acceptances rate and LIBOR rate plus
2.75%.
| | ---- | ----------------------------------------------------



The effective interest rate on the credit facility
at December 31, 2011, was 5.76% (2010 – 6.01%).



The credit facility is secured by a first fixed
and floating charge debenture in the amount of $500.0 million covering all the Corporation’s assets and undertakings.



| | (b) | Finance leases
| | --- | --------------



Finance leases relate to operating
equipment with lease terms ranging from  three to five years. Finance leases have been recognized as assets based on the lower
of the respective fair values and present value of future lease payments and any related buyout costs. The
Corporation’s obligations under finance leases are secured by the lessors’ title to the underlying property. The
fair value of the finance lease liabilities approximates the carrying amount.



|                                                  |  | 2011 |       |   | 2010 |  
|------------------------------------------------- |  | ---- | ----- | - | ---- | -
|Not later than one year                           |  | $    | 1,030 |   |      | $
|Later than one year and not later than five years |  |      | 447   |   |      |  
|Later than five years                             |  |      | -     |   |      |  
|Less future finance charges                       |  |      | (308  | ) |      |  
|                                                  |  |      |       |   |      |  
|Present value of minimum lease payments           |  | $    | 1,169 |   |      | $
|                                                  |  |      |       |   |      |  
|Current finance lease obligations                 |  | $    | 750   |   |      | $
|Long-term finance lease obligations               |  |      | 419   |   |      |  
|                                                  |  |      |       |   |      |  
|Present value of minimum lease payments(1)        |  | $    | 1,169 |   |      | $



| | (1) | Finance leases are included in D&P assets, and trade and other accounts payable
| | --- | -------------------------------------------------------------------------------



| | 6. | Senior term notes
| | -- | -----------------



|                                          |  | December 31, 2011 |   |  | December 31, 2010 |   |         | January 1, 2010 | 
|----------------------------------------- |  | ----------------- | - |  | ----------------- | - | ------- | --------------- | 
|                                          |  |                   |   |  |                   |   |         |                 | 
|US$193.5 million, 10% due Sept. 15, 2017  |  | $                 | - |  |                   | $ | 192,455 |                 | 
|US$45.0 million, 10% due Sept. 15, 2011   |  |                   | - |  |                   |   | 44,757  |                 | 
|US$450.0 million, 7.625% due Dec. 1, 2013 |  |                   | - |  |                   |   | -       |                 | 
|Unamortized transaction costs             |  |                   | - |  |                   |   | -       |                 | 
|                                          |  |                   |   |  |                   |   |         |                 | 
|Carrying value                            |  | $                 | - |  |                   | $ | 237,212 |                 | 
|Current                                   |  | $                 | - |  |                   | $ | 44,757  |                 | 
|Non-current                               |  |                   | - |  |                   |   | 192,455 |                 | 
|                                          |  |                   |   |  |                   |   |         |                 | 
|Senior term notes                         |  | $                 | - |  |                   | $ | 237,212 |                 | 



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 18







In October 2010, the Corporation issued US$193.5
million of senior term notes due September 15, 2017 and US$45.0 million of mandatory convertible notes due September 15, 2011 in
conjunction with the extinguishment of the US$450.0 million senior term notes due December 1, 2013.



During the year, the senior term notes were
fully extinguished as part of the Recapitalization. In the Recapitalization,
the Senior Term Notes and Mandatory Convertible Notes were exchanged for common shares, rights, and cashless warrants. A net gain
of $55.2 million on debt extinguishment was recognized in foreign exchange and other gains. On September 27, 2011, the Recapitalization
was completed with the close of the $36.6 million (gross proceeds of $50.0 million, net of share issuance costs of $13.4 million)
rights offering. See note 10 – “Share Capital” for additional details regarding the Recapitalization.



| | 7. | MPP term financing
and non-controlling interest
| | -- | -----------------------------------------------



MPP is a limited partnership organized under
the laws of the Province of Alberta and owns certain midstream facilities, including natural gas plants and pipelines in southern
Alberta, through which Compton processes a significant portion of its production from the surrounding area. Compton’s interaction
with MPP is governed by agreements (the “MPP Agreements”) which provide for:



| | (a) | Compton’s management of the midstream facility;
| | --- | -----------------------------------------------



| | (b) | the payment by Compton to MPP of a base processing fee and the reimbursement of MPP’s net
out-of-pocket costs;
| | --- | --------------------------------------------------------------------------------------------------------------



| | (c) | the dedication through April 30, 2024 of Compton’s production and reserves from the defined
area through the facilities; and
| | --- | ----------------------------------------------------------------------------------------------------------------------------



| | (d) | an option granted to Compton to purchase the MPP partnership at a predetermined amount on April
30, 2014.
| | --- | ---------------------------------------------------------------------------------------------------------



Compton is considered to be the beneficiary
of MPP’s operations, although it does not have an ownership interest in the midstream facilities. Pursuant to the IASB’s
Standing Interpretation’s Committee (“SIC”) 12, Consolidation – Special Purpose Entities, the assets, liabilities,
and operations of the Partnership are consolidated in these financial statements. The equity in MPP is attributable to its third
party owners and is recorded as a non-controlling interest in these consolidated financial statements, comprised of the following:

|                                                     |  | 2011 |        |   | 2010 |  
|---------------------------------------------------- |  | ---- | ------ | - | ---- | -
|                                                     |  |      |        |   |      |  
|Non-controlling interest, beginning of year          |  | $    | (9,008 | ) |      | $
|MPP term financing(1)                                |  |      | 14,251 |   |      |  
|Earnings attributable to non-controlling interest(2) |  |      | (4,164 | ) |      |  
|                                                     |  |      |        |   |      |  
|Non-controlling interest, end of year                |  | $    | 1,079  |   |      | $

| | (1) | Change in MPP term financing on the balance sheet, including current and long term portion
| | --- | ------------------------------------------------------------------------------------------

| | (2) | Net earnings of MPP, after elimination entries
| | --- | ----------------------------------------------



On April 30, 2009, Compton completed the renegotiation
of the MPP Agreements for a further term of five years resulting in the MPP term financing with an original principal of $55.0
million. The MPP term financing in these consolidated financial statements is comprised of the following:



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 19







|                                         |  | December 31, 2011 |        |   | December 31, 2010 |   |        | January 1, 2010 | 
|---------------------------------------- |  | ----------------- | ------ | - | ----------------- | - | ------ | --------------- | 
|                                         |  |                   |        |   |                   |   |        |                 | 
|Present value of the base processing fee |  | $                 | 14,333 |   |                   | $ | 19,552 |                 | 
|Purchase option                          |  |                   | 17,396 |   |                   |   | 26,588 |                 | 
|Unamortized transaction costs            |  |                   | (360   | ) |                   |   | (520   | )               | 
|                                         |  |                   |        |   |                   |   |        |                 | 
|MPP term financing                       |  | $                 | 31,369 |   |                   | $ | 45,620 |                 | 



The base processing fee component of the MPP
term financing is accounted for as an amortizing obligation paid in full over its term to April 30, 2014, through a monthly principal
and interest payment totaling $0.8 million per month. The effective rate of interest is 12.1% per annum.



In these consolidated financial statements,
the MPP net out-of-pocket costs are included in operating expense, the interest component of the base processing fee is included
in interest and financing charges expense and the principal component of the base processing fee is recorded as a reduction in
the MPP term financing liability.



A revision to the presentation of non-controlling
interest was made on transition to IFRS, see note 23 – “Transition to IFRS”.



The purchase option represents the pre-determined
price at which Compton may, at its discretion, purchase the MPP partnership on April 30, 2014. If Compton does not exercise this
purchase option it may renew the MPP Agreements with terms and conditions to be negotiated at that time, or enter into an arrangement
with the owners of the MPP facilities to process natural gas for the Corporation at a fee to be determined at that time.



The MPP Agreements prescribe minimum throughput
volumes and dedicated reserves which, if not exceeded, may require a buy-down of the purchase option. The minimum throughput volume
of 56.0 mmcf/d is an average of the throughput volume of the preceding two consecutive calendar quarters. The prepayment amount
is $400,000 per 1.0 mmcf/d of shortfall. Each prepayment of the purchase option will cause the minimum throughput volume to be
adjusted downward to the average throughput volume of the preceding two consecutive calendar quarters. In the event that the estimated
dedicated reserves, as projected at April 30, 2014, are less than 200 BCF or have a discounted reserve value of less than $250
million using a 10% discount rate, the prepayment amount is the greater of $108,000 per $1 million of reserve value shortfall and
$135,000 per 1.0 BCF of the reserves shortfall.



As of December 31, 2011, the threshold
throughput volume was reduced to 53.04 mmcf/d. The cumulative prepayment of the purchase option since the renewal of the MPP
Agreements in April 2009 is $10.4 million, including $9.2 million in 2011. The prepayments have reduced the amount of the MPP
term financing liability. Subsequent to year end, a payment of $0.9 million was made for the period ending December 31, 2011.
Internal estimates indicate that dedicated reserves will not exceed the minimum reserve test threshold at December 31, 2011.
The amount of any resulting prepayment, which will be subject to third party verification, may approximate $4.3 million,
which would be due prior to June 30, 2012.



| | 8. | Capital structure
| | -- | -----------------



The Corporation’s capital structure is
comprised of working capital, long-term debt, and equity. The Corporation’s objectives when managing its capital structure
are to:



| | (a) | ensure the Corporation can meet its financial obligations;
| | --- | ----------------------------------------------------------



| | (b) | retain an appropriate level of leverage relative to the risk of Compton’s underlying assets;
and
| | --- | ------------------------------------------------------------------------------------------------



| | (c) | finance internally generated growth and potential acquisitions.
| | --- | ---------------------------------------------------------------



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 20







Compton manages its capital structure based
on changes in economic conditions and the Corporation’s planned capital requirements. Compton has the ability to adjust its
capital structure by making modifications to its capital expenditure program, divesting of assets and by altering debt levels or
issuing equity.



The Corporation monitors its
capital structure and financing requirements using non-GAAP measures consisting of total net debt to adjusted EBITDA and
total net debt to capitalization. The former ratio is considered by Management to be more significant for monitoring
purposes. Adjusted EBITDA is defined as net earnings before interest and finance charges, income taxes, depletion and
depreciation, accretion of decommissioning liabilities, unrealized foreign exchange and other gains (losses), unrealized risk
management gains (losses) and other non-recurring expenses.



Compton targets a maximum total net debt
to capitalization ratio of between 40% and 50% calculated as follows:



|                                        |  | December 31, 2011 |         |   | December 31, 2010 |   |         | January 1, 2010 | 
|--------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | --------------- | 
|                                        |  |                   |         |   |                   |   |         |                 | 
|Working capital (surplus) deficiency(1) |  | $                 | 17,070  |   |                   | $ | 23,428  |                 | 
|Credit facility(2)                      |  |                   | 112,608 |   |                   |   | 145,584 |                 | 
|MPP term financing(3)                   |  |                   | 31,369  |   |                   |   | 45,620  |                 | 
|Senior term notes                       |  |                   | -       |   |                   |   | 237,212 |                 | 
|Total net debt                          |  |                   | 161,047 |   |                   |   | 451,844 |                 | 
|Total equity                            |  |                   | 321,835 |   |                   |   | 187,198 |                 | 
|                                        |  |                   |         |   |                   |   |         |                 | 
|Total capitalization                    |  | $                 | 482,882 |   |                   | $ | 639,042 |                 | 
|                                        |  |                   |         |   |                   |   |         |                 | 
|Total net debt to capitalization ratio  |  |                   | 33.4    | % |                   |   | 70.7    | %               | 



| | (1) | Adjusted working capital excludes risk management, current MPP term financing and the credit facility
| | --- | -----------------------------------------------------------------------------------------------------

| | (2) | Includes unamortized transaction costs of $879 (December 31, 2010 – $1,692; January 1, 2010
– $1,279)
| | --- | -----------------------------------------------------------------------------------------------------

| | (3) | Includes unamortized financing fees of $360 (December 31, 2010 – $520; January 1, 2010 –
$680)
| | --- | ----------------------------------------------------------------------------------------------



As a result of the Recapitalization
reducing the Senior Term Notes by $238.5 million, the Corporation was below the targeted net debt to capitalization ratio as
well as the net debt to adjusted EBITDA target at December 31, 2011. Previously, both metrics had increased outside of
Management’s target ranges.



In the first quarter of 2011, property sales
for gross proceeds of $26.2 million were used to repay a portion of the credit facility with the balance applied to working capital.
In the third quarter of 2011, the extinguishment of the senior term notes and gross share issuance proceeds of $50.0 million significantly
reduced total net debt.



In 2010, the final 1.25% component of an overriding
royalty interest (totaling 5%) was sold for gross proceeds of $23.8 million, which along with sale proceeds of $153.0 million from
property dispositions were applied to reduce the credit facility.



Equity was reduced as part of the transition
to IFRS (Note 23 – “Transition to IFRS”).



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 21







Compton targets a total net debt to adjusted
EBITDA of 2.5 to 3.0 times. At December 31, 2011, total net debt to adjusted EBITDA was 2.0x (December 31, 2010 – 4.0x) calculated
on a trailing 12 month basis as follows:



|                                           |  | 2011 |         |   | 2010 |  
|------------------------------------------ |  | ---- | ------- | - | ---- | -
|                                           |  |      |         |   |      |  
|Total net debt                             |  | $    | 161,047 |   |      | $
|                                           |  |      |         |   |      |  
|Net earnings (loss)                        |  | $    | 21,443  |   |      | $
|Add (deduct)                               |  |      |         |   |      |  
|Finance charges                            |  |      | 34,504  |   |      |  
|Income taxes                               |  |      | 10,115  |   |      |  
|Depletion and depreciation                 |  |      | 58,076  |   |      |  
|Unrealized foreign exchange (gains) losses |  |      | (9      | ) |      |  
|Unrealized risk management (gains) losses  |  |      | 4,435   |   |      |  
|Loss (gain) on sale of assets              |  |      | (14,747 | ) |      |  
|Gain on debt extinguishment                |  |      | (55,175 | ) |      |  
|Other expenses                             |  |      | -       |   |      |  
|Exploration and evaluation                 |  |      | 20,975  |   |      |  
|Impairment                                 |  |      | 1,580   |   |      |  
|                                           |  |      |         |   |      |  
|Adjusted EBITDA                            |  | $    | 81,197  |   |      | $
|                                           |  |      |         |   |      |  
|Total net debt to adjusted EBITDA          |  |      | 2.0     | x |      |  



Declining natural gas prices over the past two
years have affected the Corporation’s adjusted EBITDA. The Corporation has taken significant steps to reduce its overall
debt to achieve its internal targets, including the Recapitalization completed in the third quarter of 2011.



| | 9. | Provisions
| | -- | ----------



| | (a) | Decommissioning liabilities
| | --- | ---------------------------



The following table presents the reconciliation
of the beginning and ending aggregate carrying amount of the liabilities associated with the decommissioning of oil and natural
gas assets:



|                                               |  | 2011 |         |   | 2010 |  
|---------------------------------------------- |  | ---- | ------- | - | ---- | -
|                                               |  |      |         |   |      |  
|Decommissioning liabilities, beginning of year |  | $    | 184,424 |   |      | $
|Liabilities incurred                           |  |      | 544     |   |      |  
|Liabilities settled and disposed               |  |      | (4,916  | ) |      |  
|Accretion expense                              |  |      | 4,818   |   |      |  
|Revision of estimate                           |  |      | (21,922 | ) |      |  
|                                               |  |      |         |   |      |  
|Decommissioning liabilities, end of year       |  | $    | 162,948 |   |      | $



The total undiscounted amount of estimated cash
flows required to settle the liabilities, net of salvage, at December 31, 2011 was $149.4 million (December 31, 2010 - $234.3 million,
January 1, 2010 - $139.0 million). Salvage values included in determining the undiscounted cash flows were $102.3 million at December
31, 2011 (December 31, 2010 - $108.5 million, January 1, 2010 - $135.5 million). The decommissioning liability has been determined
without inclusion of the salvage values, and discounted using a risk free rate ranging from 1.3% to 2.5% (December 31, 2010 –
2.4% to 3.5%, January 1, 2010 – 2.8% to 4.1%) depending on the reserve life. Due to the Corporation’s long reserve
life, the majority of these liabilities are not expected to be settled until well into the future. Settlements are expected to
be funded from Corporation working capital at the time of decommissioning and removal.



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 22







| | (b) | Lease surrender obligations
| | --- | ---------------------------



Included in provisions at the time of transition
to IFRS was $13.9 million related to the surrender of unused office space. The provision included in these consolidated financial
statements reflects the present value of estimated net cash flows to the end of the original lease term. The provision for unused
office space was settled in third quarter of 2010.



| | 10. | Share capital
| | --- | -------------



| | (a) | Authorized
| | --- | ----------



The Corporation is authorized to issue an unlimited
number of common shares and an unlimited number of preferred shares, issuable in series.



| | (b) | Issued, outstanding and fully paid
| | --- | ----------------------------------



|                                                  |  | Number of Shares |          |   | Amount |  
|------------------------------------------------- |  | ---------------- | -------- | - | ------ | -
|                                                  |  |                  |          |   |        |  
|Common shares outstanding,                        |  |                  |          |   |        |  
|January 1, 2010                                   |  |                  | 263,660  |   |        | $
|Shares issued under stock option plan             |  |                  | 6        |   |        |  
|                                                  |  |                  |          |   |        |  
|Common shares outstanding,                        |  |                  |          |   |        |  
|December 31, 2010                                 |  |                  | 263,666  |   |        | $
|Share consolidation(1)                            |  |                  | (262,347 | ) |        |  
|Shares issued under Recapitalization plan, net(2) |  |                  | 25,040   |   |        |  
|Expired warrants reclassified to share capital(4) |  |                  | -        |   |        |  
|Stated capital reduction(3)                       |  |                  | -        |   |        |  
|                                                  |  |                  |          |   |        |  
|Common shares outstanding,                        |  |                  |          |   |        |  
|December 31, 2011                                 |  |                  | 26,359   |   |        | $



| | (1) | Effective August 10, 2011, the Corporation completed a 200:1 consolidation of its common shares. The share consolidation was
affected prior to the issuance of common shares and cashless warrants under the Recapitalization
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | The Recapitalization included the issuance of common shares on the conversion of the senior term notes, and a $50.0 million
rights offering, net of share issuance costs of $13.4 million
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | On July 25, 2011, the shareholders of the Corporation approved a stated capital reduction to transfer balances within Equity.
The adjustments, eliminating other reserves of $38.9 million and deficit of $358.1 million, have been affected as of September
30, 2011 following the Recapitalization
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | On October 5, 2011, 690,000 warrants, adjusted for the share consolidation, issued in October 2009 expired without being exercised.
The carrying value of these warrants was reclassified to share capital ($13.8 million)
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | Cashless warrants
| | --- | -----------------



A total of 3,690,982 cashless warrants, expiring
August 24, 2014, were issued to existing shareholders in conjunction with the Recapitalization. Two cashless warrants were issued
for each common share held post consolidation. Cashless warrants were valued at $5.00 per unit, based on market exchange pricing
at the time of issue. The cashless warrants will be settled with common shares subject to the achievement of share price triggers
and dates noted below:



|Prior to August 23, 2012           |  | $ | 11.92 | 
|---------------------------------- |  | - | ----- | 
|August 24, 2012 to August 23, 2013 |  | $ | 12.52 | 
|August 24, 2013 to August 23, 2014 |  | $ | 13.14 | 



| | (d) | Shareholder rights plan
| | --- | -----------------------



The Corporation has a shareholder rights plan
(the “Plan”) to ensure all shareholders are treated fairly in the event of a take-over offer or other acquisition of
control of the Corporation.



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 23









Pursuant
to the Plan, the Board of Directors authorized and declared the distribution of one Right in respect of each common share outstanding.
In the event that an acquisition of 20% or more of the Corporation’s shares is completed and the acquisition is not a permitted
bid, as defined by the Plan, each Right will permit the holder, other than holders not in compliance with the Plan, to acquire
a common share at a 50% discount to the market price at that time.



| | 11. | Per
                                                                                                                 share amounts
| | --- | ----------------------------------------------------------------------------------------------------------------------------------



The
following table summarizes the common shares used in calculating net loss per common share:



|                                                                |  |  | 2011   |  |  |  | 2010  | 
|--------------------------------------------------------------- |  |  | ------ |  |  |  | ----- | 
|                                                                |  |  |        |  |  |  |       | 
|Weighted
    average common shares outstanding – basic(1)       |  |  | 9,624  |  |  |  | 1,318 | 
|Effect of mandatory convertible notes                           |  |  | 3,555  |  |  |  | 104   | 
|Effect
    of stock options and warrants                        |  |  | -      |  |  |  | -     | 
|                                                                |  |  |        |  |  |  |       | 
|Weighted
    average common shares outstanding - diluted(1) (2) |  |  | 13,179 |  |  |  | 1,422 | 

| | (1) | Effective
August 10, 2011, the Corporation completed a 200:1 consolidation of its common shares. Prior period weighted average shares were
restated for comparative purposes
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | $2.1
million related to interest expense on the mandatory convertible notes for the year ended December 31, 2011, has been added to
net earnings for the determination of dilutive earnings per share (2010 – $0.7 million). The effect of mandatory convertible
notes was anti-dilutive as at December 31, 2011 and 2010
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In
calculating diluted loss per common share for the year ended December 31, 2011, the Corporation excluded 571,600 options (2010
– 75,231) and 3,690,982 share purchase warrants (2010 – 690,000) as the exercise price was greater than the average
price of its common shares in these periods.



| | 12. | Share
                                                                                                                 based compensation
                                                                                                                 plans
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) | Stock
                                                                  option plan and employee long term incentive
| | --- | --------------------------------------------------------------------------------------------------------------------



The
Corporation has a stock option plan for its employees, officers and directors. The exercise price of each option is the  five-day
weighted average market price of the common shares on the date the option was granted.



In
conjunction with the Recapitalization, the employees, officers and directors voluntarily surrendered their stock options.



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 24







The
following tables summarize the information relating to stock options:



|                                   |  |  | 2011                                                      |   |  |   | 2010                                                                                                                    | 
|---------------------------------- |  |  | --------------------------------------------------------- | - |  | - | ----------------------------------------------------------------------------------------------------------------------- | 
|                                   |  |  | Stock
                                            options |   |  |   | Weighted
                                            average exercise
                                            price | 
|                                   |  |  |                                                           |   |  |   |                                                                                                                         | 
|Outstanding, beginning
    of year |  |  | 75                                                        |   |  | $ | 501.14                                                                                                                  | 
|Granted                            |  |  | 572                                                       |   |  | $ | 5.13                                                                                                                    | 
|Exercised                          |  |  | -                                                         |   |  | $ | -                                                                                                                       | 
|Expired                            |  |  | (6                                                        | ) |  | $ | 2,351.23                                                                                                                | 
|Forfeited                          |  |  | (69                                                       | ) |  | $ | 374.89                                                                                                                  | 
|                                   |  |  |                                                           |   |  |   |                                                                                                                         | 
|Outstanding,
    end of year       |  |  | 572                                                       |   |  | $ | 5.13                                                                                                                    | 
|                                   |  |  |                                                           |   |  |   |                                                                                                                         | 
|Exercisable,
    end of year       |  |  | -                                                         |   |  | $ | -                                                                                                                       | 



| | (1) | Effective
August 10, 2011, the Corporation completed a 200:1 consolidation of its common shares. Prior period options were restated for
comparative purposes
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------



The
range of exercise prices of stock options outstanding and exercisable at December 31, 2011 is as follows:



|Range of exercise prices |  | Number of
    options outstanding |     | Weighted
    average remaining contractual life (years) |  | Weighted
    average exercise price |      | Number
    options exercisable |  | Weighted
    average exercise price
|------------------------ |  | --------------------------------- | --- | ------------------------------------------------------- |  | ----------------------------------- | ---- | ------------------------------ |  | -----------------------------------
|                         |  |                                   |     |                                                         |  |                                     |      |                                |  |                                    
|$4.88
    - $5.16        |  |                                   | 572 |                                                         |  |                                     | 4.80 |                                |  | $                                  
|                         |  |                                   | 572 |                                                         |  |                                     | 4.80 |                                |  | $                                  



Compton
estimated the fair value of the stock options granted using the Black-Scholes option pricing model. The grant date fair value
of the stock options granted under the plan was $1.2 million or $2.61 per stock option outstanding at December 31, 2011. The following
assumptions were used to arrive at the estimated fair value at the date of grant:



|Weighted
    average share price   |  | $ | 5.13                                              |  
|---------------------------------- |  | - | ------------------------------------------------- | -
|Weighted average exercise price    |  | $ | 5.13                                              |  
|Expected annual dividends          |  |   | $
                                            nil |  
|Expected volatility                |  |   | 60.00                                             | %
|Expected forfeiture rate           |  |   | 10.00                                             | %
|Risk-free interest rate            |  |   | 1.35                                              | %
|Expected
    life of stock options |  |   | 4.9 years                                         |  



| | (b) | Share
                                                                  purchase plan
| | --- | -------------------------------------------------------------------------------------



The
Corporation offers a share purchase plan to all of its employees. This program enables employees to receive from the Corporation
1.5 times the number of common shares of the employees’ contribution, subject to a contribution limit of the equivalent
of 6 percent of the employees base salary. The corporate contributions vest with the employee immediately.



| | (c) | Restricted
                                                                  share unit plan
| | --- | --------------------------------------------------------------------------------------------



In
2008, the Corporation implemented a Restricted Share Unit Plan (“RSU” or “the RSU Plan”) for employees,
officers and directors. At December 31, 2011, all RSUs issued under the RSU Plan were fully settled, and the program discontinued.



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 25







The
Corporation has proposed an amended and restated restricted share unit plan (“RSU”) for directors that is currently
awaiting shareholder approval. Prior to shareholder approval, proposed amounts have been recorded as a cash liability.



| | (d) | Deferred
                                                                  share unit plan
| | --- | ------------------------------------------------------------------------------------------



In
2011, the Corporation implemented a Deferred Share Unit Plan (“DSU” or “the DSU Plan”) for its directors.
The DSU awards vest immediately, and are expensed in the current year. Awards are payable upon cessation of each directors role
in cash or in common shares at the discretion of Board of Directors. A maximum of 9,375 common shares have been authorized by
the Board of Directors for settlement of DSU awards. The DSU’s have been restated to reflect the share consolidation.



At
December 31, 2011, there were no DSUs outstanding. During the year, 3,644 DSU’s issued at a price of $59.00 per unit were
settled for cash at an average price of $10.55 per unit.



| | (e) | Share
                                                                  based compensation expense
| | --- | --------------------------------------------------------------------------------------------------



The
following table presents amounts charged to share based compensation expense:



|                             |  | 2011 |        | 2010
|---------------------------- |  | ---- | ------ | ----
|                             |  |      |        |     
|Stock option plan(1)         |  | $    | (1,385 | )   
|Employee long term incentive |  |      | 397    |     
|Deferred share unit plan     |  |      | 215    |     
|Retention share plan(1)      |  |      | 325    |     
|Share purchase plan          |  |      | 894    |     
|                             |  |      |        |     
|                             |  | $    | 446    |     



| | (1) | Included
in stock based compensation expense for the year ended December 31, 2011 was a non-cash component of $(1,201) (2010 - $3,069)
| | --- | --------------------------------------------------------------------------------------------------------------------------------------



| | 13. | finance
                                                                                                                 charges
| | --- | --------------------------------------------------------------------------------------------------------------------------------



During
the year, the following financing charges were expensed through net earnings:



|                                             |  | 2011 |        | 2010
|-------------------------------------------- |  | ---- | ------ | ----
|                                             |  |      |        |     
|Interest on senior term notes                |  | $    | 14,910 |     
|Interest on credit facility                  |  |      | 7,482  |     
|Interest on capital lease obligations        |  |      | 94     |     
|Interest on MPP term financing               |  |      | 4,374  |     
|Other interest and finance charges           |  |      | 2,826  |     
|Accretion
    of decommissioning liabilities |  |      | 4,818  |     
|                                             |  | $    | 34,504 |     



During
the year ended December 31, 2011, no borrowing costs were capitalized (2010 - $nil) in respect of capital projects currently in
process.



Other
finance charges include bank service charges and fees as well as other miscellaneous interest revenue and expenses.



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 26







| | 14. | Foreign
                                                                                                                 exchange and
                                                                                                                 other (gains)
                                                                                                                 losses
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



During
the year, the following foreign exchange and other (gains) losses were charged through net earnings:



|                                              |  | 2011 |         | 2010
|--------------------------------------------- |  | ---- | ------- | ----
|                                              |  |      |         |     
|Foreign exchange loss/(gain)
    on US$ debt  |  | $    | (1,326  | )   
|Gain on extinguishment of US$ debt(1)         |  |      | (55,175 | )   
|(Gain)/loss on disposition of assets          |  |      | (14,747 | )   
|Other                                         |  |      | (9      | )   
|                                              |  |      |         |     
|Foreign
    exchange and other (gains) losses |  | $    | (71,257 | )   



| | (1) | On
August 23, 2011 the USD Senior Term Notes were converted to equity and fully extinguished (see Note 6 – “Senior Term
Notes”)
| | --- | -------------------------------------------------------------------------------------------------------------------------------



| | 15. | risk
                                                                                                                 management
| | --- | --------------------------------------------------------------------------------------------------------------------------------



At
December 31, 2011, the Corporation’s financial assets and liabilities consist of trade and other accounts receivable, trade
and other accounts payable, credit facility, risk management assets and liabilities relating to the use of derivative financial
instruments and MPP term financing.



The
following summarizes a) fair value of financial assets and liabilities, b) risk management assets and liabilities, c) risk management
gains and losses and d) risk associated with financial assets and liabilities.



| | (a) | Fair
                                                                  value of financial assets and liabilities
| | --- | ----------------------------------------------------------------------------------------------------------------



The
carrying amount and fair value of financial assets and liabilities were as follows:



|                                                 |  | December 31, 2011 |         |  | December 31, 2010 |   |         | January 1, 2010 | 
|------------------------------------------------ |  | ----------------- | ------- |  | ----------------- | - | ------- | --------------- | 
|                                                 |  | Carrying Amount   |         |  | Fair Value        |   |         | Carrying Amount | 
|Financial assets                                 |  |                   |         |  |                   |   |         |                 | 
|Fair value through profit or loss                |  |                   |         |  |                   |   |         |                 | 
|Risk management(1)                               |  | $                 | 3,498   |  |                   | $ | 3,498   |                 | 
|Loans and receivables                            |  |                   |         |  |                   |   |         |                 | 
|Accounts receivable                              |  |                   | 19,204  |  |                   |   | 19,204  |                 | 
|                                                 |  |                   |         |  |                   |   |         |                 | 
|Financial liabilities                            |  |                   |         |  |                   |   |         |                 | 
|Fair value through profit or loss                |  |                   |         |  |                   |   |         |                 | 
|Risk management(1)                               |  | $                 | 8       |  |                   | $ | 8       |                 | 
|Financial liabilities measured at amortized cost |  |                   |         |  |                   |   |         |                 | 
|Accounts payable                                 |  |                   | 41,634  |  |                   |   | 41,634  |                 | 
|Credit facility(1)                               |  |                   | 112,608 |  |                   |   | 113,487 |                 | 
|MPP term financing(1)                            |  |                   | 31,369  |  |                   |   | 31,729  |                 | 
|Senior term notes                                |  |                   | -       |  |                   |   | -       |                 | 



| | (1) | Includes
                                                           current and long term
| | --- | -----------------------------------------------------------------------------------------



Financial
instruments of the Corporation carried on these consolidated balance sheets are carried at amortized cost with the exception of
financial derivative instruments, which are carried at fair value. The Corporation classifies the fair value of these transactions
according to the following hierarchy.



| | • | Level
                                                                                                               1 – quoted
                                                                                                               prices in active
                                                                                                               markets for identical
                                                                                                               financial instruments.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Level
                                                                                                               2 – quoted
                                                                                                               prices for similar
                                                                                                               instruments in
                                                                                                               active markets;
                                                                                                               quoted prices for
                                                                                                               identical or similar
                                                                                                               instruments in
                                                                                                               markets that are
                                                                                                               not active; and
                                                                                                               model-derived valuations
                                                                                                               in which all significant
                                                                                                               inputs and significant
                                                                                                               and significant
                                                                                                               value drivers are
                                                                                                               observable in active
                                                                                                               markets.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 27







| | • | Level
                                                                                                               3 – valuations
                                                                                                               derived from valuation
                                                                                                               techniques in which
                                                                                                               one or more significant
                                                                                                               inputs or significant
                                                                                                               value drivers are
                                                                                                               unobservable.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
Corporation’s financial derivative instruments have been assessed on the fair value hierarchy described above and classified
as Level 2.



The
carrying amount of trade and other accounts receivable, and trade and other accounts payable approximate fair value due to the
short term nature of these instruments and variable rates of interest. The credit facility and MPP term financing fair values
approximate their carrying value, without the effect of amounts being amortized for accounting purposes. The senior term notes
traded in the US and the estimated fair value was determined using quoted market prices. Risk management assets and liabilities
are recorded at their estimated fair value based on the mark to market method of accounting, using quoted market prices, third-party
indicators and forecasts. Management also considers credit risk exposure on all assets and liabilities, and adjusts fair values
where appropriate.



The
following table reconciles the changes in the fair value of financial instruments outstanding. Changes in fair value are the result
of comparing external counterparty information, which is compared to observable market data.



|                                                 |  | 2011 |        | 2010
|------------------------------------------------ |  | ---- | ------ | ----
|Balance, beginning of year                       |  | $    | 7,925  |     
|Unrealized gain (loss) on financial instruments: |  |      |        |     
|Commodity collars
    and swaps                  |  |      | (4,543 | )   
|Electricity swaps                                |  |      | 55     |     
|Foreign
    exchange forwards                    |  |      | 53     |     
|Fair
    value, end of year                      |  | $    | 3,490  |     
|                                                 |  |      |        |     
|Total
    fair value consists of the following:  |  |      |        |     
|Fair value – current portion, net                |  | $    | 3,494  |     
|Fair
    value – long-term portion, net          |  |      | (4     | )   
|Total
    fair value, end of year                |  | $    | 3,490  |     



| | (b) | Risk
                                                                  management assets and liabilities
| | --- | --------------------------------------------------------------------------------------------------------



| | (i) | Net
                                                               risk management positions
| | --- | --------------------------------------------------------------------------------------------



Risk
management assets and liabilities relate to unrealized gains and losses associated with commodity price risk management and foreign
currency risk management and are classified on the balance sheet as follows:



|                                      |  | December 31,   2011 |       | December 31,   2010 |  | January 1,   2010
|------------------------------------- |  | ------------------- | ----- | ------------------- |  | -----------------
|Risk management asset                 |  |                     |       |                     |  |                  
|Current asset                         |  | $                   | 3,498 |                     |  | $                
|Risk management liability             |  |                     |       |                     |  |                  
|Current liability                     |  |                     | (4    | )                   |  |                  
|Non-current liability                 |  |                     | (4    | )                   |  |                  
|                                      |  |                     |       |                     |  |                  
|Net risk management asset (liability) |  | $                   | 3,490 |                     |  | $                



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 28







| | (ii) | Net
                                                        fair value of commodity positions
| | ---- | ---------------------------------------------------------------------------------------------



On
December 31, 2011, the Corporation had the following commodity contracts in place, expressed in Canadian dollars unless otherwise
noted:



|Commodity                              |  | Term |                   | Volume |  | Strike Price |                | Mark-to- Market Gain (Loss)
|-------------------------------------- |  | ---- | ----------------- | ------ |  | ------------ | -------------- | ---------------------------
|                                       |  |      |                   |        |  |              |                |                            
|Natural Gas                            |  |      |                   |        |  |              |                |                            
|US$ Swap                               |  |      | Jul./11 – Dec./12 |        |  |              | 10,000 MMBtu/d |                            
|                                       |  |      |                   |        |  |              |                |                            
|Oil                                    |  |      |                   |        |  |              |                |                            
|US$ Call Option                        |  |      | Jan./12 – Dec./12 |        |  |              | 1,000 bbls/d   |                            
|                                       |  |      |                   |        |  |              |                |                            
|Electricity                            |  |      |                   |        |  |              |                |                            
|Swap                                   |  |      | Jan./12 – Dec./13 |        |  |              | 72 MWh/d       |                            
|                                       |  |      |                   |        |  |              |                |                            
|                                       |  |      |                   |        |  |              |                |                            
|Total unrealized commodity gain (loss) |  |      |                   |        |  |              |                |                            



| | (c) | Risk
                                                                  management gains and losses
| | --- | --------------------------------------------------------------------------------------------------



Risk
management gains and losses recognized in net earnings during the year relating to commodity prices and foreign currency transactions
are summarized below:



|                                |  | Commodity   Contracts |         | Foreign   Currency |  | 2011   Total |     | 2010   Total
|------------------------------- |  | --------------------- | ------- | ------------------ |  | ------------ | --- | ------------
|                                |  |                       |         |                    |  |              |     |             
|Unrealized change in fair value |  | $                     | 4,488   |                    |  | $            | (53 | )           
|Realized cash settlements       |  |                       | (13,586 | )                  |  |              | -   |             
|                                |  |                       |         |                    |  |              |     |             
|Total (gain) loss               |  | $                     | (9,098  | )                  |  | $            | (53 | )           



The
gains and losses realized during the year on the electricity contract are included in operating expenses.



| | (d) | Risk
                                                                  associated with financial assets and liabilities
| | --- | -----------------------------------------------------------------------------------------------------------------------



The
Corporation is exposed to financial risks arising from its financial assets and liabilities which fluctuate in value due to movements
in market prices and is comprised of the following:



| | (i) | Market
                                                              risk
| | --- | -------------------------------------------------------------------------



Market
risk is the risk that the fair value or future cash flows from financial assets or liabilities will fluctuate due to movements
in market prices and is comprised of the following:



Commodity
price risk



The
Corporation is exposed to commodity price movements as part of its normal oil and natural gas operations. Under guidelines established
and approved by the Board of Directors, Compton enters into economic hedge transactions relating to crude oil, natural gas and
electricity prices to mitigate volatility in commodity prices and the resulting impact on cash flows. The contracts entered into
are forward transactions providing the Corporation with a range of prices on the commodities sold. Prices are marked to industry
benchmarks specifically to AECO and Henry Hub monthly prices for natural gas contracts, WTI NYMEX for crude oil contracts and
AESO for electricity contracts. Prices are valued in Canadian and United States dollars unless otherwise disclosed. The Corporation
does not use derivative contracts for speculative purposes.



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 29







With
respect to AECO settled commodity contracts in place at December 31, 2011, an increase of $0.25/mcf in the price of natural gas,
holding all other variables constant, would have reduced the fair value of the derivative financial instrument and decreased after
tax earnings by approximately $0.7 million (2010 - $4.9 million). A similar decline in commodity prices would have had the opposite
impact.



An
increase of US$1.00/bbl in the price of crude oil, holding all other variables constant, would have reduced the fair value of
the derivative financial instrument and decreased after tax earnings by approximately $0.1 million (2010 – N/A). A similar
decline in commodity prices would have had the opposite impact.



Foreign
exchange rate risk



The
Corporation is exposed to fluctuations in the exchange rate between the Canadian dollar and the US dollar. Crude oil and to a
certain extent natural gas prices are based upon reference prices denominated in US dollars, while the majority of the Corporation’s
expenses are denominated in Canadian dollars. As at December 31, 2011, the Corporation does not have any significant foreign currency
denominated amounts requiring translation.



Interest
rate risk



The
Corporation is exposed to interest rate risk principally associated with borrowings. Floating rates, associated with bank debt,
expose the Corporation to short-term movements in interest rates.



The
Corporation’s cash flows are impacted by changes in interest rates on the floating rate bank debt. At December 31, 2011,
a 100bps change in interest rates would have impacted after tax earnings by $1.0 million (2010 - $0.6 million) assuming the change
in interest rates occurred at the beginning of the year.



| | (ii) | Credit
                                                               risk
| | ---- | --------------------------------------------------------------------------



The
Corporation is exposed to credit risk, which is the risk that a counterparty will fail to perform an obligation or settle a liability,
resulting in a financial loss to the Corporation.



A
significant portion of Compton’s trade and other accounts receivable and other current asset balances are with entities
in the oil and natural gas industry and subject to normal industry credit risks. The allowance for doubtful accounts is less than
2% of total balances and relates to receivables acquired through corporate acquisitions and unresolved differences with partners.
Substantially all of the receivable balances at December 31, 2011 were current.



In-the-money
derivative financial instrument contracts are with investment grade Canadian and US financial institutions that are also members
of the Corporation’s banking syndicate. At December 31, 2011, three financial institutions held all of the outstanding financial
instrument contracts.



The
Corporation regularly assesses the financial strength of its marketing customers and limits the total exposure to individual counterparties
based on management determined criteria. As well, a number of contracts contain provisions that allow Compton to demand the posting
of collateral in the event of a downgrade to a non-investment grade credit rating.



The
maximum credit risk exposure associated with the Corporation’s financial assets is the carrying amount.



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 30







| | (iii) | Liquidity
                                                                risk
| | ----- | ------------------------------------------------------------------------------



Compton
is exposed to liquidity risk, which is the risk that the Corporation will be unable to generate or obtain sufficient cash to
meet its commitments as they come due. Mitigation of this risk is achieved through the active management of cash and debt
requirements over the next 12 months. In managing liquidity risk, in addition to cash flow generated from operating
activities, the Corporation has funds available under its credit facility. The credit facility provides for accommodations by
way of prime loan, bankers’ acceptance, US base rate loan or LIBOR loan. Canadian and US direct advances bear interest
at the bank’s prime lending rate plus applicable margins. Amounts drawn through bankers’ acceptance or libor
loans bear interest at the market rate for these products plus a stamping fee based on the Corporation’s debt to
trailing cash flow ratio. On September 27, 2011, the Corporation entered into a new syndicated credit facility under
conditions outlined in Note 5a – “Debt”. The facility lenders will reassess the amount of the credit
facility semi-annually at March 31 and September 30; the review may change the amount available thereunder.



Compton believes it has the ability to adjust its capital structure by making modifications
to its capital expenditure program, divesting of assets and by issuing new debt or equity to maintain liquidity. See also Note
21 – “Commitments and Contingent Liabilities”.



| | 16. | ROYALTIES
| | --- | ---------



|                       |  | 2011 |        | 2010
|---------------------- |  | ---- | ------ | ----
|                       |  |      |        |     
|Crown                  |  | $    | 17,314 |     
|Freehold               |  |      | 7,369  |     
|                       |  |      | 24,683 |     
|                       |  |      |        |     
|Overriding royalty     |  |      | 7,101  |     
|Other royalties        |  |      | 1,987  |     
|Freehold mineral taxes |  |      | 1,603  |     
|                       |  |      | 10,691 |     
|                       |  |      |        |     
|Total royalties        |  | $    | 35,374 |     



| | 17. | Defined
                                                                                                                 benefit pension
                                                                                                                 plan
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



There
are 34 employees of MPP currently enrolled in a co-sponsored, defined benefit pension plan. Information relating to the MPP retirement
plan is outlined below:



|                                                         |  | 2011 |        | 2010
|-------------------------------------------------------- |  | ---- | ------ | ----
|                                                         |  |      |        |     
|Accrued benefit obligation                               |  |      |        |     
|Accrued benefit obligation – beginning of year           |  | $    | 9,173  |     
|Current service cost                                     |  |      | 314    |     
|Interest cost                                            |  |      | 519    |     
|Benefits paid                                            |  |      | (273   | )   
|Employee contributions                                   |  |      | 86     |     
|Actuarial loss                                           |  |      | 795    |     
|                                                         |  |      |        |     
|Accrued benefit obligation – end of year                 |  | $    | 10,614 |     
|                                                         |  |      |        |     
|Fair value of plan assets                                |  |      |        |     
|Fair value of plan assets – beginning of year            |  | $    | 8,646  |     
|Employee contributions                                   |  |      | 86     |     
|Employer contributions                                   |  |      | 321    |     
|Benefits paid                                            |  |      | (273   | )   
|Actual return on plan assets                             |  |      | 41     |     
|                                                         |  |      |        |     
|Fair value of plan assets – end of year                  |  | $    | 8,821  |     
|                                                         |  |      |        |     
|Accrued benefit asset                                    |  |      |        |     
|Funded status – plan assets less than benefit obligation |  | $    | (1,793 | )   
|Unamortized net actuarial loss                           |  |      | 2,201  |     
|Unamortized past service costs                           |  |      | -      |     
|                                                         |  |      |        |     
|Accrued benefit asset, included in other assets(1)       |  | $    | 408    |     



| | (1) | Included
                                                            as a component of other long term assets
| | --- | -------------------------------------------------------------------------------------------------------------

Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 31







Pension
expense, included in operating expense, is as follows:



|                                               |  | 2011 |      | 2010
|---------------------------------------------- |  | ---- | ---- | ----
|                                               |  |      |      |     
|Current service cost                           |  | $    | 314  |     
|Interest on accrued benefit obligation         |  |      | 519  |     
|Return on assets                               |  |      | (447 | )   
|                                               |  |      |      |     
|Pension expense, included in operating expense |  | $    | 386  |     



Economic
assumptions used to determine benefit obligation and periodic expense were:



|                                                      |  | 2011 |            | 2010
|----------------------------------------------------- |  | ---- | ---------- | ----
|                                                      |  |      |            |     
|Discount rate                                         |  |      | 5.00       | %   
|Expected rate of return on assets                     |  |      | 7.00       | %   
|Rate of compensation increase                         |  |      | 3.00       | %   
|Average remaining service period of covered employees |  |      | 15.8 years |     



The
expected rate of return on plan assets is based on historical and projected rates of return for each asset class in the plan investment
portfolio. The objective of the asset allocation policy is to manage the funded status of the plan at an appropriate level of
risk, giving consideration to the security of the assets and the potential volatility of market returns and the resulting effects
on both contribution requirements and pension expense. The asset allocation structure is subject to diversification requirements
and constraints which reduce risk by limiting exposure to individual equity investments, credit rating categories and foreign
currency exposure.



In
2011, the Partnership made current service contributions of $242 and special payments of $79. The Corporation has engaged its
Actuary to complete an actuarial valuation as of January 1, 2012 and will continue to remit contributions to the plan based on
the January 1, 2010 actuarial valuation report until the new report is complete. Once the January 1, 2012 actuarial valuation
report has been completed, the Corporation will adjust the remainder of the 2012 contributions to ensure that all required contributions
are made to the plan. The expected amount of the 2012 contributions are unknown at this time.



The
pension plan asset allocation is as follows:



|                |  | Target Allocation % |     | % of Plan Assets at
|--------------- |  | ------------------- | --- | -------------------
|                |  | Normal              |     | Range              
|                |  |                     |     |                    
|Domestic equity |  |                     | 40  |                    
|Foreign equity  |  |                     | 20  |                    
|Fixed income    |  |                     | 40  |                    
|Short term      |  |                     | -   |                    
|Total           |  |                     | 100 |                    



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 32







| | 18. | Income
taxes
| | --- | ------------



| | (a) | The
                                                                 following table reconciles income taxes calculated at the Canadian
                                                                 statutory rate with actual income taxes:
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                              |  | 2011 |        | 2010
|----------------------------------------------------------------------------- |  | ---- | ------ | ----
|                                                                              |  |      |        |     
|Earnings (loss) before taxes                                                  |  | $    | 27,394 |     
|                                                                              |  |      |        |     
|Canadian statutory rates                                                      |  |      | 26.5   | %   
|Expected income taxes                                                         |  | $    | 7,259  |     
|Effect on taxes resulting from:                                               |  |      |        |     
|Non-deductible share based compensation                                       |  |      | (114   | )   
|Effect of tax rate changes and temporary differences recorded at future rates |  |      | (1,014 | )   
|Taxable capital gain on expired warrants                                      |  |      | 1,829  |     
|Non-taxable capital (gains) losses                                            |  |      | -      |     
|Other                                                                         |  |      | 2,155  |     
|                                                                              |  |      |        |     
|Provision for income taxes                                                    |  | $    | 10,115 |     
|                                                                              |  |      |        |     
|Current                                                                       |  | $    | -      |     
|Deferred                                                                      |  |      | 10,115 |     
|                                                                              |  |      |        |     
|                                                                              |  | $    | 10,115 |     



The
statutory rate consists of the combined statutory tax rate for the Corporation for the years ended December 31, 2011 and 2010.
The general combined Federal/ Provincial tax rate lowered to 26.5% in 2011 from 28% in 2010 due to the Federal rate dropping from
18% (2010) to 16.5% in 2011.



| | (b) | The
                                                                  net deferred income tax liability is comprised of:
| | --- | ------------------------------------------------------------------------------------------------------------------------



|                                           |  | 2011 |         | 2010
|------------------------------------------ |  | ---- | ------- | ----
|                                           |  |      |         |     
|Deferred income tax liabilities            |  |      |         |     
|D&P and E&E assets in excess of tax values |  | $    | 36,668  |     
|Foreign exchange gain on long-term debt    |  |      | -       |     
|Other                                      |  |      | 1,197   |     
|Deferred income tax assets                 |  |      |         |     
|Non-capital losses carried forward         |  |      | -       |     
|Attributed Canadian royalty income         |  |      | -       |     
|Decommissioning liabilities                |  |      | (40,737 | )   
|Other                                      |  |      | (7,222  | )   
|                                           |  |      |         |     
|Deferred income tax liability (asset)      |  |      | (10,094 | )   
|Deferred tax asset not recognized          |  |      | 13,000  |     
|Net deferred income tax liability          |  | $    | 2,906   |     



The
Corporation has income tax pools of approximately $498.7 million available to reduce future years taxable income. At December
31, 2011, the Corporation had available future income tax assets of $13.0 million that were not recognized in the financial statements
due to the uncertainties associated with historical earnings performance, and its ability to utilize these balances in the future.



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 33







| | (c) | A
                                                                  continuity of the net deferred income tax liability is detailed
                                                                  in the following table.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Asset (liability)              |  | D&P and
    E&E assets |          | Income
    items |  | Non-
capital
    losses |         | Foreign
    exchange on long term debt |  | Decommi-
ssioning
    liabilities |         | Other |  | Asset not
    recognized |        | Net asset
    (liability)
|------------------------------ |  | ---------------------- | -------- | ---------------- |  | ----------------------- | ------- | -------------------------------------- |  | --------------------------------- | ------- | ----- |  | ------------------------ | ------ | -------------------------
|                               |  |                        |          |                  |  |                         |         |                                        |  |                                   |         |       |  |                          |        |                          
|January 1, 2010                |  | $                      | (191,274 | )                |  | $                       | (44,183 | )                                      |  | $                                 | 12,481  |       |  | $                        | (5,298 | )                        
|Recognized in net earnings     |  |                        | 116,803  |                  |  |                         | 44,183  |                                        |  |                                   | 4,864   |       |  |                          | 4,693  |                          
|Recognized in equity           |  |                        | -        |                  |  |                         | -       |                                        |  |                                   | -       |       |  |                          | -      |                          
|Unrecognized asset             |  |                        | (83      | )                |  |                         | -       |                                        |  |                                   | -       |       |  |                          | -      |                          
|                               |  |                        |          |                  |  |                         |         |                                        |  |                                   |         |       |  |                          |        |                          
|December
    31, 2010          |  | $                      | (74,554  | )                |  | $                       | -       |                                        |  | $                                 | 17,345  |       |  | $                        | (605   | )                        
|                               |  |                        |          |                  |  |                         |         |                                        |  |                                   |         |       |  |                          |        |                          
|Recognized
    in net earnings |  |                        | 10,666   |                  |  |                         | -       |                                        |  |                                   | (17,345 | )     |  |                          | 605    |                          
|Recognized in
    equity       |  |                        | 27,220   |                  |  |                         | -       |                                        |  |                                   | -       |       |  |                          | -      |                          
|                               |  |                        |          |                  |  |                         |         |                                        |  |                                   |         |       |  |                          |        |                          
|December 31, 2011              |  | $                      | (36,668  | )                |  | $                       | -       |                                        |  | $                                 | -       |       |  | $                        | -      |                          



| | 19. | OTHER
                                                                                                                 ASSETS
| | --- | -----------------------------------------------------------------------------------------------------------------------------



|                       |  | December 31,   2011 |       | December 31,   2010 |  | January 1,   2010
|---------------------- |  | ------------------- | ----- | ------------------- |  | -----------------
|                       |  |                     |       |                     |  |                  
|Prepaid expenses       |  | $                   | 2,897 |                     |  | $                
|Marketable securities  |  |                     | -     |                     |  |                  
|Deposits               |  |                     | 2,463 |                     |  |                  
|Other current assets   |  | $                   | 5,360 |                     |  | $                
|                       |  |                     |       |                     |  |                  
|Inventory(1)           |  | $                   | 1,526 |                     |  | $                
|Pension asset          |  |                     | 408   |                     |  |                  
|Other                  |  |                     | 81    |                     |  |                  
|Other long term assets |  | $                   | 2,015 |                     |  | $                



| | (1) | Presented
                                                           net of allowance of $1.5 million (December 31, 2010 - $1.5 million,
                                                           January 1, 2010 - $1.5 million), to adjust to realizable value
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 20. | KEY
                                                                                                                 MANAGEMENT PERSONNEL
                                                                                                                 COMPENSATION
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Compton
has determined that the key management personnel of the Corporation consists of its executive management and its Board of Directors.
In addition to the salaries and fees paid to key management, the Corporation also provides compensation to both groups under its
share based compensation plans. Compensation expenses paid to key management personnel were as follows:



|                                      |  | 2011 |        | 2010
|------------------------------------- |  | ---- | ------ | ----
|                                      |  |      |        |     
|Short term benefits                   |  | $    | 2,516  |     
|Long term benefits                    |  |      | 6,860  |     
|Termination benefits                  |  |      | 2,021  |     
|Share based payments                  |  |      | 329    |     
|Key management personnel compensation |  | $    | 11,726 |     



Included
in long term benefits for 2011 are payments associated with the change of control affected upon completion of the Recapitalization;
see Note 6 – “Senior Term Notes”.



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 34







| | 21. | Commitments
                                                                                                                 and contingent
                                                                                                                 liabilities
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) | Commitments
| | --- | -----------



The
Corporation has committed to certain payments over the next five years, as follows:



|                      |  | 2012 |        | 2013 |  | 2014 |         | 2015 |  | 2016 |        | Thereafter
|--------------------- |  | ---- | ------ | ---- |  | ---- | ------- | ---- |  | ---- | ------ | ----------
|                      |  |      |        |      |  |      |         |      |  |      |        |           
|Credit facility       |  | $    | -      |      |  | $    | 113,487 |      |  | $    | -      |           
|MPP term financing(1) |  |      | 14,756 |      |  |      | 9,592   |      |  |      | 15,430 |           
|Accounts payable      |  |      | 40,156 |      |  |      | -       |      |  |      | -      |           
|Finance leases        |  |      | 1,030  |      |  |      | 224     |      |  |      | 224    |           
|Office facilities     |  |      | 1,581  |      |  |      | 1,631   |      |  |      | 1,609  |           
|                      |  |      |        |      |  |      |         |      |  |      |        |           
|                      |  | $    | 57,523 |      |  | $    | 124,934 |      |  | $    | 17,263 |           



| | (1) | Represents
monthly fixed base fee payments. The 2012 amount includes purchase option prepayment of $5.2 million
| | --- | ---------------------------------------------------------------------------------------------------------------



Payments
to MPP relate to payments made pursuant to a processing agreement between the Corporation and MPP which, together with associated
management and option agreements, expire on April 30, 2014.



Commitments
on finance leases relate to arrangements on certain production facilities (see Note 5b – “Finance Leases”),
and include monthly rental payments as well as the buyout option at the end of the lease term. It is the Corporation’s intention
to purchase these assets as they come due.



The
Corporation has an overriding royalty (“ORR”) obligation of 5.0% to a third party. The ORR represents a commitment
of the Corporation’s future gross production revenue, less certain transportation costs and marketing fees, on the existing
land base as at September 26, 2009.



| | (b) | Legal
                                                                  proceedings
| | --- | -----------------------------------------------------------------------------------



The
Corporation is involved in various legal claims associated with normal operations. In Management’s opinion, it has accrued
adequate amounts based on its assessment of probability for these claims, and although unresolved at the current time, are not
significant and are not expected to have a material impact on the financial position or results of operations of the Corporation.



| | 22. | SUPPLEMENTAL
                                                                                                                 DISCLOSURES
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------



The following
table provides a detailed breakdown of certain line items contained within cash flow from operating activities:



|                                    |  | 2011 |         | 2010
|----------------------------------- |  | ---- | ------- | ----
|                                    |  |      |         |     
|Trade and other accounts receivable |  | $    | 10,311  |     
|Other current assets                |  |      | (548    | )   
|Trade and other accounts payable    |  |      | (15,879 | )   
|                                    |  |      |         |     
|Change in non-cash working capital  |  | $    | (6,116  | )   



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 35







The following
table details the amount of cash payments relating to taxes and interest:



|                   |  | 2011 |        | 2010
|------------------ |  | ---- | ------ | ----
|                   |  |      |        |     
|Cash taxes paid    |  | $    | 10     |     
|Cash interest paid |  | $    | 18,626 |     



| | 23. | Transition
                                                                                                                 to IFRS
| | --- | -----------------------------------------------------------------------------------------------------------------------------------



The
Corporation’s consolidated financial statements for the year ended December 31, 2011 are the first consolidated financial
statements under IFRS and prepared in accordance with IFRS 1, and as such include the application of IFRS 1 “First-Time
Adoption of International Financial Reporting Standards” (“IFRS 1”). IFRS 1 requires all first-time adopters
to retrospectively apply all effective IFRS standards as of the transition date of January 1, 2010. However, it also provides
certain optional exemptions and certain mandatory exceptions for first time IFRS adopters.



The
Corporation has taken the following optional exemptions upon transition to IFRS:



| | (a) | Deemed
                                                              cost election for oil and natural gas assets
| | --- | -----------------------------------------------------------------------------------------------------------------



The
Corporation has development and production assets recognized in the opening IFRS balance sheet. Under IFRS 1, the Corporation
was allowed and elected to deem the value of its oil and natural gas assets, at the date of transition, based on the historical
cost under Previous GAAP. Assets subject to the allocation include exploration and development costs and production equipment
and processing facilities, excluding undeveloped properties and land.



As
a result of electing this optional exemption, oil and natural gas assets were allocated to appropriate components within each
CGU based on a proration factor using discounted cash flows from total proved plus probable reserves at January 1, 2010. Additionally,
assets were tested for impairment on January 1, 2010, in accordance with IAS 36 “Impairment of Assets”. The result
of the impairment test was a write-down of the Corporation’s oil and natural gas assets of $263.9 million.



E&E
costs, representing undeveloped land and exploratory well costs were recognized on transition at January 1, 2010, based on previously
recognized costs.



Corporate
assets were allocated to individual CGU’s of the Corporation’s operations. On the transition date, Compton has elected
to use the historical cost basis for their corporate assets; therefore the amounts allocated will be based on historical cost
under Previous GAAP.



| | (b) | Decommissioning
                                                              liabilities included in the cost of D&P
| | --- | ---------------------------------------------------------------------------------------------------------------------



Under
Previous GAAP, decommissioning liabilities were discounted at a credit adjusted risk free rate. Under IFRS the estimated cash
flow to abandon and remediate the wells and fields has been risk adjusted; therefore the provision is discounted at a risk free
rate, which resulted in an $83.2 million increase to the discounted obligation recognized on the balance sheet. Using the deemed
cost election discussed above, the Corporation measured its decommissioning liability as at the date of transition in accordance
with IAS 37 “Provisions, Contingent Liabilities and Contingent Assets”, and recognize in retained earnings the difference
between the re-measured amount and the carrying amount of the liability at the date of transition to IFRS determined under Previous
GAAP.



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 36







| | (c) | Business
                                                              combinations
| | --- | -----------------------------------------------------------------------------------



Compton
has entered into business combinations before the date of transition of January 1, 2010. Compton has not elected to adopt IFRS
3 “Business Combinations” retrospectively. As a result, the classification of previous acquisitions under Previous
GAAP will remain the same with no change in the recognition of assets and liabilities, excluding goodwill. There was no goodwill
outstanding at January 1, 2010 on transition to IFRS.



| | (d) | Share
                                                                        based payment transactions
| | --- | --------------------------------------------------------------------------------------------------------



IFRS
2 “Share-based Payments” encourages application of its provisions to equity instruments granted on or before November
7, 2002, but permits, by exemption under IFRS 1, the application only to equity instruments granted after November 7, 2002 that
had not vested by the transition date. The Corporation has both equity and cash settled share based payment transactions and has
elected to take this exemption. For equity settled instruments that were granted and fully vested by January 1, 2010, IFRS 2 does
not need to be applied retrospectively or for cash settled transactions that were settled before January 1, 2010.



| | (e) | Recognition
                                                              of all cumulative actuarial gains and losses for defined benefit
                                                              pension plans
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



This
exemption allows the Corporation to recognize all cumulative actuarial gains and losses for all defined benefit plans at January
1, 2010 thus resetting any corridor amount recognized under Previous GAAP to zero. This exemption applies to unamortized actuarial
gains and losses only. The Corporation, through its consolidation of the MPP, has an applicable defined benefit plan to which
the exemption relates. The result of the adjustment was a reduction of the Corporation’s other assets by $0.2 million.



| | (f) | Determining
                                                              whether an arrangement contains a lease
| | --- | -----------------------------------------------------------------------------------------------------------------



This
exemption permits the Corporation to avoid retrospective application of IFRIC 4 "Determining whether an arrangement contains
a lease". This exemption allows a first-time adopter to determine whether an arrangement existing at the date of transition
to IFRS contains a lease on the basis of facts and circumstances existing at that date, rather than at the inception of the arrangement.
Therefore, any change in the determination of whether an arrangement contains a lease can be applied prospectively.



| | (g) | Capitalization
                                                              of borrowing costs
| | --- | -----------------------------------------------------------------------------------------------



The
Corporation, by taking this election, can limit capitalization of borrowing costs relating to qualifying assets for which the
commencement date for capitalization is on or after January 1, 2009 (effective date) or the date of transition, whichever is later.
As the Corporation did not capitalize borrowing costs under Previous GAAP, this exemption enabled Compton to generate a specific
policy to apply prospectively.



| | (h) | Reconciliations
                                                              of Previous GAAP to IFRS
| | --- | ------------------------------------------------------------------------------------------------------



IFRS
1 requires an entity to reconcile balance sheets, equity, net earnings, comprehensive income and cash flows for prior periods.
The following reconciliations present the adjustments made to the Corporation’s previously reported financial results in
compliance with IFRS 1. Reconciliations include the consolidated balance sheets as at January 1, 2010 and December 31, 2010, and
consolidated statements of operations and comprehensive earnings (loss), changes in equity and cash flows for the year ended December
31, 2010.



The
Corporation’s first time adoption of IFRS did not have a significant impact on the total operating, investing or financing
cash flows.



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 37







|Balance Sheet
    As at January 1, 2010 |  |                   
|--------------------------------------- |  | ------------------
|                                        |  | Notes             
|                                        |  |                   
|CURRENT ASSETS                          |  |                   
|Trade and other accounts receivable     |  |                   
|Risk management                         |  |                   
|Other assets                            |  |                   
|Deferred income taxes                   |  | [A]               
|                                        |  |                   
|                                        |  |                   
|Development and production              |  | [B, C, D, E, H, J]
|Exploration and evaluation              |  | [C]               
|Risk management                         |  |                   
|Other assets                            |  | [D]               
|                                        |  |                   
|TOTAL ASSETS                            |  |                   
|                                        |  |                   
|CURRENT LIABILITIES                     |  |                   
|Trade and other accounts payable        |  | [H]               
|Risk management                         |  |                   
|Credit facility                         |  |                   
|Senior term notes                       |  |                   
|MPP term financing                      |  |                   
|Deferred income taxes                   |  | [A]               
|                                        |  |                   
|                                        |  |                   
|Risk management                         |  |                   
|Senior term notes                       |  |                   
|MPP term financing                      |  |                   
|Provisions                              |  | [E]               
|Deferred income taxes                   |  | [A]               
|                                        |  |                   
|TOTAL LIABILITIES                       |  |                   
|                                        |  |                   
|NON-CONTROLLING INTEREST                |  | [F]               
|                                        |  |                   
|EQUITY                                  |  |                   
|Share capital                           |  | [K]               
|Share purchase warrants                 |  |                   
|Other reserves                          |  | [I]               
|Non-controlling interest                |  | [F]               
|Retained earnings                       |  | [A, B, D, H, I, K]
|TOTAL EQUITY                            |  |                   
|                                        |  |                   
|TOTAL LIABILITIES and EQUITY            |  |                   



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 38







|Balance Sheet As at December 31, 2010 |  |                   
|------------------------------------- |  | ------------------
|                                      |  | Notes             
|CURRENT ASSETS                        |  |                   
|Trade and other accounts receivable   |  |                   
|Risk management                       |  |                   
|Other assets                          |  |                   
|Deferred income taxes                 |  | [A]               
|                                      |  |                   
|                                      |  |                   
|Development and production            |  | [B, C, D, E, H, J]
|Exploration and evaluation            |  | [C]               
|Risk management                       |  |                   
|Other assets                          |  | [D]               
|                                      |  |                   
|TOTAL ASSETS                          |  |                   
|                                      |  |                   
|CURRENT LIABILITIES                   |  |                   
|Trade and other accounts payable      |  | [H]               
|Risk management                       |  |                   
|Credit facility                       |  |                   
|Senior term notes                     |  |                   
|MPP term financing                    |  |                   
|Deferred income taxes                 |  | [A]               
|                                      |  |                   
|                                      |  |                   
|Risk management                       |  |                   
|Senior term notes                     |  |                   
|MPP term financing                    |  |                   
|Provisions                            |  | [E]               
|Deferred income taxes                 |  | [A]               
|                                      |  |                   
|TOTAL LIABILITIES                     |  |                   
|                                      |  |                   
|NON-CONTROLLING INTEREST              |  | [F]               
|                                      |  |                   
|EQUITY                                |  |                   
|Share capital                         |  | [K]               
|Share purchase warrants               |  |                   
|Other reserves                        |  | [I]               
|Non-controlling interest              |  | [F]               
|Retained earnings                     |  | [A, B, D, H, I, K]
|TOTAL EQUITY                          |  |                   
|                                      |  |                   
|TOTAL LIABILITIES and EQUITY          |  |                   



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 39







|Reconciliation of Equity                                     |  |           |  |                       |          |                        
|------------------------------------------------------------ |  | --------- |  | --------------------- | -------- | -----------------------
|                                                             |  | Notes     |  | As at January 1, 2010 |          | As at December 31, 2010
|TOTAL EQUITY UNDER PREVIOUS GAAP                             |  |           |  | $                     | 992,237  |                        
|                                                             |  |           |  |                       |          |                        
|Recognition of impairment write-downs, depletion adjustments |  | [B, C, J] |  |                       | (265,210 | )                      
|Revaluation of decommissioning liabilities                   |  | [E]       |  |                       | (83,293  | )                      
|Recognition of inventory                                     |  | [D]       |  |                       | (3,508   | )                      
|Elimination of unamortized pension assets                    |  | [D]       |  |                       | (360     | )                      
|Recognition of leases                                        |  | [H]       |  |                       | 951      |                        
|Recognition of provisions                                    |  | [E]       |  |                       | (14,834  | )                      
|Adjustment to non-controlling interest                       |  | [F]       |  |                       | 16,753   |                        
|                                                             |  |           |  |                       |          |                        
|                                                             |  |           |  |                       | (349,501 | )                      
|Tax effect of above                                          |  | [A]       |  |                       | 91,564   |                        
|TOTAL ADJUSTMENT TO EQUITY                                   |  |           |  |                       | (257,937 | )                      
|                                                             |  |           |  |                       |          |                        
|                                                             |  |           |  |                       | 734,300  |                        
|                                                             |  |           |  |                       |          |                        
|Reclassification of non-controlling interest                 |  | [F]       |  |                       | (12,554  | )                      
|                                                             |  |           |  |                       |          |                        
|TOTAL EQUITY UNDER IFRS                                      |  |           |  | $                     | 721,746  |                        



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 40







|Consolidated Statement of Operations and Comprehensive Earnings (loss)
|----------------------------------------------------------------------
|                                                                      
|For the Year Ended December 31, 2010                                  
|                                                                      
|REVENUE                                                               
|Oil and natural gas revenues                                          
|Royalties                                                             
|TOTAL NET REVENUE                                                     
|                                                                      
|EXPENSES                                                              
|Operating                                                             
|Transportation                                                        
|Administrative                                                        
|Share based payments                                                  
|Foreign exchange and other gains                                      
|Risk management                                                       
|Other royalty obligations                                             
|Depletion, depreciation and amortization                              
|Exploration and evaluation                                            
|Impairment write-downs                                                
|Other expenses                                                        
|TOTAL EXPENSES                                                        
|                                                                      
|FINANCE COSTS                                                         
|Interest and finance charges                                          
|Accretion of decommissioning liabilities                              
|TOTAL FINANCE COSTS                                                   
|EARNINGS (LOSS) BEFORE TAXES AND NON-CONTROLLING INTEREST             
|                                                                      
|INCOME TAXES                                                          
|Current                                                               
|Deferred                                                              
|TOTAL INCOME TAXES                                                    
|                                                                      
|EARNINGS (LOSS) BEFORE NON-CONTROLLING INTEREST                       
|                                                                      
|NON-CONTROLLING INTEREST                                              
|NET LOSS AND COMPREHENSIVE INCOME                                     
|                                                                      
|NET EARNINGS (LOSS) PER SHARE                                         
|Basic                                                                 
|Diluted                                                               



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 41







Consolidated Statement of Cash Flows



|                                         |  |       |  |               |          |                              |  |     
|---------------------------------------- |  | ----- |  | ------------- | -------- | ---------------------------- |  | ----
|                                         |  |       |  |               |          |                              |  |     
|For the Year Ended December 31, 2010     |  | Notes |  | Previous GAAP |          | Effect of transition to IFRS |  | IFRS
|                                         |  |       |  |               |          |                              |  |     
|Net cash flows from operating activities |  | [H]   |  | $             | 41,104   |                              |  | $   
|Net cash flows from investing activities |  | [H]   |  |               | 131,927  |                              |  |     
|                                         |  |       |  |               | 173,031  |                              |  |     
|                                         |  |       |  |               |          |                              |  |     
|Net cash flows from financing activities |  |       |  |               | (173,031 | )                            |  |     
|                                         |  |       |  |               |          |                              |  |     
|Net increase (decrease) in cash          |  |       |  |               | -        |                              |  |     
|                                         |  |       |  |               |          |                              |  |     
|Cash, beginning of year                  |  |       |  |               | -        |                              |  |     
|                                         |  |       |  |               |          |                              |  |     
|Cash, end of year                        |  |       |  | $             | -        |                              |  | $   



Notes
to reconciliation



| | (a) | Deferred
                                                                 taxes
| | --- | -------------------------------------------------------------------------------



Under
Previous GAAP, the Corporation has recognized deferred tax assets and liabilities, primarily associated with its E&E, D&P,
and risk management activities. Under IFRS, current deferred tax balances have been re-classed for presentation entirely as long
term assets/liabilities.



In
addition, each of the balances adjusted through equity on transition to IFRS have been tax effected based on the Corporation’s
estimated rate of reversal, which approximates 25%. At January 1, 2010, the impact to deferred taxes was a decrease in the deferred
tax liability of $91.5 million. For the year ended December 31, 2010, the cumulative impact on the deferred tax liability was
a decrease of $160.7 million. See the reconciliation of equity for adjustments that required a tax effect.



| | (b) | Development
                                                                 and production
| | --- | -------------------------------------------------------------------------------------------



Under
Previous GAAP, the Corporation followed full cost accounting for its oil and natural gas assets. This methodology enabled the
capitalization of amounts exceeding those acceptable for IFRS. Under IFRS 1 on transition, the Corporation elected to allocate
its full cost pool to its identified CGU’s and then performed an impairment test.



Under
the transitional election, an impairment test of the Corporation’s assets was required at a CGU level subsequent to the
allocation. The Corporation recognized an impairment write-down of $263.9 million on its oil and natural gas assets at January
1, 2010. The write-downs were recognized in two Southern Alberta CGU’s with long reserve lives.



For
the year ended December 31, 2010, an impairment write-down of $695.4 million was recognized across all CGU’s. The impairments
reflect the historically low natural gas pricing environment and outlook. Under Previous GAAP a $367.0 million ceiling test impairment
was recognized on oil and natural gas assets at December 31, 2010.



The
restated IFRS balances also reflect gains and losses on the derecognition of assets disposed of during 2010 at Niton and Gilby.
The combined net losses of $5.3 million have been included in the foreign exchange and other gains and losses presentation in
net earnings. Under Previous GAAP, proceeds on sales were deducted from the full cost pool without gain or loss recognition unless
the disposition changed the depletion rate by more than 20%.



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 42







| | (c) | Exploration
                                                                 and evaluation
| | --- | -------------------------------------------------------------------------------------------



IFRS
6 “Exploration and Evaluation of Mineral Resources” requires the separate recognition of exploration assets that have
not yet established a determinable future value in the form of technically feasible and commercially viable reserves. The $72.4
million of E&E costs recognized under IFRS on transition at January 1, 2010 represent the Corporation’s interest in
undeveloped lands and mineral rights, and exploratory wells under evaluation.



For
the year ended December 31, 2010, the expiry of undeveloped mineral rights resulted in the derecognition of $2.1 million of E&E
assets, and have been presented as exploration expense in net earnings.



| | (d) | Other
                                                                 assets
| | --- | -----------------------------------------------------------------------------



Under
a transitional election contained in IFRS 1, the Corporation eliminated unamortized actuarial gains of $0.2 million associated
with the Mazeppa Processing Partnership defined benefit pension plan. In addition, vested past service costs of the pension plan
totaling $0.6 million were also adjusted through equity on transition. The net result of both entries was a reduction in other
assets of $0.4 million. There were no additional adjustments at December 31, 2010.



Also
on transition, the Corporation adopted an accounting policy to recognize identifiable inventory items that are currently being
marketed for sale or redeployment. Identifiable inventory of $2.2 million was initially recognized on transition at January 1,
2010 and is included for presentation purposes in other assets at the lower of cost and recoverable amounts. The recognition of
inventory reduced D&P by $5.7 million, and a valuation allowance of $3.5 million was reflected in equity.



| | (e) | Provisions
| | --- | ----------



The
estimated provision for decommissioning liabilities associated with the Corporation’s oil and natural gas assets has been
adjusted on transition to IFRS. The adjustment reflects the application of a risk free rate for the discounting of the liability
(based on the underlying assets), where under Previous GAAP this was measured using a credit risk adjusted rate. The adjustment
to the discounted decommissioning liability recognized at January 1, 2010 was $83.2 million. Under an IFRS 1 election, this adjustment
has been offset directly to equity on transition. The adjustment to the discounted decommissioning liability recognized at December
31, 2010 was $123.9 million.



In
addition, a provision of $13.9 million was recognized at January 1, 2010 for lease surrender costs payable, and a reduction of
other corporate assets of $0.9 million in related leasehold improvements. The provision reflects the lower estimated cost of surrender
for a portion of the corporate office space under lease, compared to the cost of fulfilling the contract. The undeveloped and
unutilized space was determined by Management to be an onerous contract. The entire adjustment of $14.8 million was reflected
in equity on transition.



At
December 31, 2010, the revision of decommissioning liability cost estimates increased the provisional liability by $59.0 million.
The revisions related primarily to well abandonment costs based on the historical costs of the Corporation. These assumptions
were adjusted downward in 2011 to better align with inflation adjusted regulatory guidance and updated information. See Note 9
– “Provisions”.



| | (f) | Non-controlling
                                                                 interest
| | --- | -----------------------------------------------------------------------------------------



The
presentation of non-controlling interest has been changed on transition from Previous GAAP to IFRS. Under IFRS, non-controlling
interest is considered a component of equity and presentation reclassification was made. In 2010, adjustments were made relating
to the recognition and depletion of MPP facility assets, pension and decommissioning liabilities.



In
the course of preparing these consolidated financial statements, Management identified that adjustments to
previous disclosures for the consolidation of MPP were required pertaining to the transition to IFRS. As a result,
non-controlling interest has been revised on the balance sheet and statement of operations and comprehensive earnings (loss).
The revision resulted in a decrease in the non-controlling interest and a corresponding increase to majority
shareholder’s equity.



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 43







At
January 1, 2010, the impact of transitional IFRS adjustments to the balance sheet non-controlling interest was $16.8 million,
previously presented as $nil. At December 31, 2010, the cumulative impact of transitional IFRS adjustments to the balance sheet
non-controlling interest was $15.2 million, previously presented as $0.3 million.



| | (g) | Royalties
| | --- | ---------



The
presentation of royalties under IFRS has changed from disclosures under Previous GAAP. Previously, royalties were aggregated in
a single line and shown as a reduction of total revenue in net earnings. Under IFRS, crown and freehold royalties have been netted
from revenues, all other royalties have been presented as “Other royalty obligations” in net earnings. In addition,
natural gas cost allowances have been presented as a recovery of related processing fees included in operating expense.



| | (h) | Leases
| | --- | ------



On
transition to IFRS at January 1, 2010, the classification of certain leases were changed to be recognized as finance
leases under IFRS. These leases have been included in trade and other accounts payable for financial statement purposes as
they are not individually material. As a result of the reclassification, D&P was increased by $9.9 million (net), capital
lease obligations increased $8.9 million, and the cumulative impact of interest and depreciation expense of $1.0 million
related to the assets, was offset to equity at January 1, 2010.



At
December 31, 2010, D&P was increased by $2.1 million (net), capital lease obligations increased $2.2 million, and the cumulative
impact of interest and depreciation expense of $1.6 million and $0.6 million respectively, was recorded through net earnings.



| | (i) | Share
                                                                 based payments
| | --- | -------------------------------------------------------------------------------------



Under
Previous GAAP, share based payments were recognized as an expense on a straight-line basis through the date of full vesting. Under
IFRS, the expense is required to be recognized over the individual vesting periods for graded vesting awards. At January 1, 2010,
this change in valuation resulted in a $0.9 million increase in “Other reserves”, and was offset directly to equity.



For
the year ended December 31, 2010, an increase in share based compensation expense of $0.4 million resulted from the revised valuation
methodology.



| | (j) | Depletion
| | --- | ---------



Upon
transition to IFRS, the Corporation adopted a policy of depleting its oil and natural gas assets on a unit of production basis
over proved plus probable reserves, by depletable component. The depletion policy under Previous GAAP was a unit of production
over proved reserves in a single pool. There was no impact on adoption of IFRS at January 1, 2010, as provided by the IFRS 1 deemed
cost allocation election.



For
the year ended December 31, 2010, a decrease in depletion of $52.8 million resulted from the reduction of the Corporation’s
oil and natural gas asset base and the revised depletion methodology. Ceiling test impairments recognized under Previous GAAP
were previously disclosed in depletion and depreciation.



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 44







| | (k) | Flow-through
                                                                 shares
| | --- | ------------------------------------------------------------------------------------



Under
Previous GAAP, the aggregate tax effect of all flow-through share renouncements in excess of the premium liability associated
with flow-through share issuances were recognized as a reduction of share capital. No specific guidance is provided regarding
this issue under IFRS; however, it has been interpreted that guidance applied under US GAAP is acceptable under IFRS. Under US
GAAP, issuance proceeds were disaggregated between the fair market value of the shares issued and the premium paid for the renounced
expenditures. A deferred tax liability was accrued upon effective date of the renouncement and the deferred tax expense was charged
to net earnings rather than to share capital. On transition to IFRS at January 1, 2010, deferred tax expense of $30.0 million
was reclassified from share capital to retained earnings.



Consolidated Financial StatementsCompton Petroleum - December 31, 2011Page 45