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U.S. SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES 
EXCHANGE
ACT OF 1934
 FOR THE FISCAL YEAR ENDED APRIL 30, 2008.
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD OF  TO.
 Commission File Number: 001-32994
 OILSANDS QUEST INC.
 (Exact Name of Registrant as Specified in its charter)
 Colorado
    
    98-0461154State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization
    
    Identification No.)
 205, 707-7thAVENUE SW, CALGARY, ALBERTA, CANADA T2P 3H6
  (403) 263-1623
  Title of each class
    
    Name of each exchange on which registeredCommon Stock, $.001 Par Value 
Two Year Warrants Issued 2007
    
    The American Stock Exchange
The American Stock Exchange
 None
  þ o
  o þ
  þ o
  o þ
 Large accelerated filer: þ
    
    Accelerated filer: o
    
    Non-accelerated filer: o
    
    Smaller reporting company: o(Do not check if a smaller reporting company)
 o þ




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##### Table of Contents



Table of Contents
 PageForward-Looking Statements
    
    
    4Currency
    
    
    5Part I
    
    
    5Item 1. Description of Business
    
    
    5Item 1A. Risk Factors
    
    
    23Item 2.
Properties and Statement of Oil and Gas Information
    
    
    31
 2




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PageTable of Contents  ContinuedItem 3. Legal Proceedings
    
    
    41Item 4. Submission of Matters To A Vote of Security Holders
    
    
    41Part II
    
    
    41Item 5. Market for Common Equity and Related Stockholder Matters
    
    
    41Item 6. Selected Financial Data
    
    
    48Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operation
    
    
    49Item 7A. Quantitative and Qualitative Disclosure About Market Risk
    
    
    59Item 8. Financial Statements and Supplementary Data
    
    
    59Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    59Item 9A. Controls and Procedures
    
    
    60Item 9B. Other Information
    
    
    60Part III
    
    
    61Item 10. Directors, Executive Officers, Promoters and Control Persons; Compliance With Sections 16(A) of the Exchange Act
    
    
    61Item 11. Executive Compensation
    
    
    67Item 12. Security Ownership of Beneficial Owners and Management
    
    
    79Item 13. Certain Relationships and Related Transactions
    
    
    83Part IV
    
    
    84Item 14. Principal Accountant Fees and Services
    
    
    84Item 15. Exhibits
    
    
    85BylawsConsent of Pannell Kerr ForsterConsent of KPMG LLPConsent of McDaniel & AssociatesCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906Report of Management and Directors on Oil and Gas DisclosureReport on Resource Estimates by Independent Qualified Resource Evaluator
  3




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Cautionary Statement about Forward-Looking Statements
  
    
    the amount and nature of future capital, development and exploration expenditures;
    
    the timing of exploration activities;
    
    business strategies and development of our business plan and drilling programs;
    
    potential estimates as to the volume and nature of petroleum deposits that are
expected to be found present when lands are developed in a project; and
    
    potential reservoir recovery optimization processes.
  Canadian
Resource Disclosure
 Investors are cautioned not to assume that all or any part of a resource, whether
Discovered or Undiscovered is economically or legally extractable.
 4




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##### Table of Contents



Currency
  
 PART I
  
 Item 1. DESCRIPTION OF BUSINESS
 
 Background and Corporate Structure
 th
   
    
    We own 100% of Township Petroleum Corporation (Township), an Alberta corporation.
Township owns an oil sands lease in the Province of Alberta acquired in 2005, (referred
to as the Eagles Nest Prospect), and is currently developing plans for exploring the oil
sands potential on the lease.
    
    We own 100% of Western Petrochemicals Corp. (WPC), an Alberta corporation. WPC
formerly owned certain rights relating to exploration for oil shale, referred to as the
Pasquia Hills Oil Shale Prospect, and is currently inactive.
    
    We own 100% of Stripper Energy Services Inc. (Stripper), acquired in 2007 and
currently a wholly- owned subsidiary of OQI Sask.
    
    We own 100% of 1291329 Alberta Ltd., incorporated in 2007 to own assets related to
camp facilities and equipment.
 5




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
    
    We own 100% of Oilsands Quest Technology Inc., incorporated in 2007 to assess
technologies related to bitumen and shale oil extraction and to ensure any proprietary
information created from the development of our prospects can be commercially exploited.
Since incorporation, this subsidiary has been focused on assessing technologies related
to the extraction of bitumen and planning research for the development technologies
applicable for the extraction of resources from its lands.
    
    We owned 100% of Anhydride Petroleum (USA) Inc. (Anhydride USA) and Anhydride
USAs wholly owned subsidiary, Anhydride Petroleum (Canada) Inc. (Anhydride Canada),
both acquired April 30, 2002. On October 31, 2005 Anhydride Canada was sold to a third
party for nominal cash proceeds, and on October 12, 2007 Anhydride Petroleum (USA) Inc.
was dissolved.
 
 Strategy
  
    
    Selectively identifying and acquiring key targets in the oil sands and oil shale
sectors.We have amassed one of the largest contiguous land positions in the oil sands
industry in Canada along with a significant oil shale land position in Saskatchewan. We
have an undivided, 100% interest in each of the permits, licenses and leases held.
    
    Exploring and delineating resources on our lands.Our operating teams have conducted
extensive exploration programs, consisting of drilling 349 exploration and delineation
wells, conducting 1,847 kilometres of 2-D and 3-D seismic surveys, and other exploration
activities resulting in the Axe Lake and Raven Ridge Discoveries and the identification of
multiple other oil sands prospects. We manage and operate all of our activities.
    
    Exploiting the oil sands resources identified.We are focused on the development of the
Axe Lake Discovery and are in the process of conducting a comprehensive reservoir test
program to select the optimal recovery processes that will be utilized to produce bitumen
from the Axe Lake Discovery. Our development strategy includes considering partners on a
joint venture basis on specific projects to accelerate the development of such projects in
a timely and responsible manner.
  
 General Development of the Business
   
 Acquisition of Oil Sands Exploration Rights
 Oil sands permits and licenses in Saskatchewan
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Oil Shale Regulations, 1964
 7




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Oil Shale Regulations, 1964
 Petroleum and Natural Gas Regulations, 1969 (Saskatchewan),
 
 Gross Overriding Royalties on original Saskatchewan oil sands permit lands
     Oil sands permits and lease in Alberta
 
 - Raven Ridge Prospect and Raven Ridge Discovery
 Mines and Minerals Act, Alberta
 8




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- Wallace Creek Prospect
 Mines and Minerals Act, Alberta.
  
 - Eagles Nest Prospect
 Mines and Minerals Act, Alberta
  9




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Acquisition of Oil Shale Rights in Saskatchewan
 
 - Pasquia Hills Oil Shale Prospect
 Oil Shale Regulations,
 Oil Shale Regulations,
1964
  Petroleum and Natural Gas Regulations, 1969 (Saskatchewan)
 10




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Activities to Date
 
 Oil sands permits and licenses
 Standards of Disclosure for Oil
and Gas Activities (NI 51-101)
       11




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12




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Table1: Results of drilling programs
 Winter 2007 / 2008
    
    Drilled to Date(Sept.14/07 to Mar.26/08)
    
    (Nov.22/05 to Mar.26/08)WellsWells
    
    
    
    
    
    Sections
    
    perDrilled
    
    Wells Drilled
    
    Drilled
    
    SectionAxe Lake Discovery
    
    
    125
    
    
    
    264
    
    
    
    65
    
    
    
    4.06Saskatchewan Exploration
(outside Axe Lake)
    
    
    5
    
    
    
    40
    
    
    
    30
    
    
    
    1.33Reservoir Test (Axe Lake)
    
    
    4
    
    
    
    4
    
    
    
    n/a
    
    
    
    n/aEnvironmental Monitoring
(Axe Lake)
    
    
    16
    
    
    
    16
    
    
    
    n/a
    
    
    
    n/aRaven Ridge Discovery
    
    
    25
    
    
    
    25
    
    
    
    12
    
    
    
    1.04Total
    
    
    175
    
    
    
    349
    
    
    
    107
    
    
    
    2.93
  Table 2: Seismic Surveys
 Saskatchewan
    
    AlbertaKm
    
    Miles
    
    Km
    
    Miles2-D
    
    
    48
    
    
    
    30
    
    
    
    106
    
    
    
    663-D
    
    
    1,192
    
    
    
    741
    
    
    
    501
    
    
    
    312Total
    
    
    1,240
    
    
    
    771
    
    
    
    607
    
    
    
    378
     13




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Axe Lake Discovery
   
 Axe Lake Discovery  Reservoir Development Activities
    14




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Raven Ridge Discovery Activities
   
 Reservoir Recovery Optimization for Axe Lake and Raven Ridge Discoveries
  15




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Wallace Creek Prospect Activities
  
 Eagles Nest Prospect Activities
   
 Other
 
 Apex Joint Ventures
  
 Pearl Exploration and Production Ltd. (formerly known as Watch Resources Ltd. and Energy 51 Inc.)
    16




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Forum Uranium Corp.
   
 Outlook
  
    
    continue exploration and delineation activities to further define the location, extent
and quality of the Discovered Resources at Axe Lake and Raven Ridge (for a complete
description of our independent resource estimates, see Part 1,
Item 2, Properties and Statement of Oil
and Gas Information);
    
    continue to evaluate drilling data and perform advanced laboratory studies of bitumen
characterization and recovery methods;
    
    continue to undertake computer reservoir modeling and simulation studies to aid in the
selection of the optimal recovery technologies at Axe Lake and Raven Ridge;
    
    continue to engineer and procure surface and down-hole equipment for reservoir field
tests;
    
    conduct injection tests with steam and other mobilization agents in vertical and
horizontal wells to confirm laboratory and simulation studies;
    
    continue to conduct environmental programs to establish base-line data and facilitate
regulatory approvals;
    
    continue to conduct advanced economic feasibility and risk assessment studies for full
commercial project development;
    
    continue to accelerate scoping and engineering designs for our initial commercial
development at the Axe Lake Discovery, including initiating engineering plans for the first
30,000 barrels per day commercial project at the Axe Lake Discovery;
    
    initiate joint venture partnership and capital market negotiations for the development
of the Axe Lake Discovery; and
    
    evaluate market alternatives for bitumen sales from one or more commercial projects at
Axe Lake.
   17




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Employees
  
 Available Information
   The Oil Sands Industry in Canada
 The following information quotes liberally from the Canadian Association of Petroleum Producers,
the Energy Resources Conservation Board of Alberta, the National Energy Board of Canada and a
variety of technical reports and publications.
    18




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19




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Government Regulation
 Energy and Mines Act Oil and Gas Conservation Act Oil
Shale Regulations, Crown Minerals Act. Petroleum and Natural
Gas Amendment Regulations 2007 Oil Shale Regulations, 1964 Oil Shale Regulations, 1964,
 Mines and Minerals Act Oil Sands Conservation Act Oil Sands Tenure
Regulation Oil Sands Royalty Regulation 1984 Oil Sands Royalty Regulation 1997 Experimental Oil
Sands Royalty Regulation Oil Sands Conservation Regulation Mines and Minerals Administration
Regulation
  20




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Glossary of Common Terms
  Bbl
    
    BarrelBitumen or crude bitumen
    
    A highly viscous oil which is too thick to flow in its native state, and which cannot
be produced without altering its viscosity; a naturally occurring mixture, mainly
consisting of viscous hydrocarbons heavier than pentane, that may contain sulphur
compounds and that in its naturally occurring viscous state does not usually flow to
a well. The density of bitumen is generally less than 10 degrees API (as that term is
defined by the American Petroleum Institute).Core
    
    Cylindrical sample of rock taken from a formation for the purpose of examination and
analysis.Core hole,
Stratigraphic
test well, or
Exploration
Stratigraphic test well
    
    A drilling effort, geologically directed, to obtain information pertaining to a
specific geologic condition. Ordinarily, such wells are drilled without the intention
of being completed for hydrocarbon production. They include wells for the purpose of
core tests and all types of expendable holes related to hydrocarbon exploration.Stratigraphic test wells are classified as(a) exploratory type if not drilled into a proved property; or(b) development type, if drilled into a proved property.Development type stratigraphic wells are also referred to as evaluation wells.Crude oil (conventional)
    
    A mixture that consists mainly of pentanes and heavier hydrocarbons, which may
contain sulphur and other non-hydrocarbon compounds, that is recoverable at a well
from an underground reservoir and that is liquid at the conditions under which its
volume is measured or estimated. It does not include solution gas or natural gas
liquids.Discovered
Resources
    
    See Part I, Item 2
Properties and Statement of Oil and Gas Information.Degrees API
    
    A measure of hydrocarbon density; the lower the number, the higher the viscosity (see
viscosity).Exploration costs
    
    Costs incurred in identifying areas that may warrant examination and in examining
specific areas that are considered to have prospects that may contain oil and gas
reserves, including costs of drilling exploratory wells and exploratory type
stratigraphic test wells.Formation
    
    A bed or deposit composed throughout of substantially the same kind of rock. Each
different formation is given a name, often as a result of the study of the formation
outcrop at the surface and sometimes based on fossils found in the formation.In-situ
    
    In its original place; in position. When referring to oil sands, in-situ recovery
refers to various methods used to recover deeply buried bitumen deposits, including
steam injection, solvent injection and firefloods.Steam assisted gravity drainage (SAGD) is an example of an in-situ process used to
 21




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recover bitumen from oil sand located too deep to be profitably mined.Kerogen
    
    The hydrocarbon content of oil shale. Kerogen is also known as shale oil.Lease
    
    An agreement granting to the lessee rights to explore, develop and exploit a property.Oil sands
    
    Sand and other rock materials containing bitumen; the crude bitumen contained in
those sands and other rock materials. Each particle of sand is coated with a layer of
water and a thin film of bitumen.Oil sands deposit
    
    A natural reservoir containing or appearing to contain an accumulation of oil sands
separated or appearing to be separated from any other accumulation.Oil shale
    
    A geologic formation consisting of shale which contains hydrocarbons.Overburden
    
    Thickness of material above an occurrence of bitumen. The thickness of the overburden
determines the method of bitumen recovery (mining or in-situ techniques). Overburden
could consist of layers of sand, gravel and shale; in many places overburden
underlies muskeg which is a water-soaked layer of decaying plant material one to
three metres (three to ten feet) thick. Muskeg supports the growth of shallow-root
trees.Permeability
    
    Ability of a porous rock to transmit fluid through its pore spaces. A rock may be
highly porous and yet impermeable if it has no interconnecting pore network
(communication).Porosity
    
    Volume of a rock available to contain fluids. Volume of pore spaces between mineral
grains expressed as a percentage of the total rock volume.Reserves
    
    As
defined in COGEH, estimated remaining quantities of oil and natural gas and related substances
anticipated to be recoverable from known accumulations, as of a given date, based on:(a) analysis of drilling, geological, geophysical and engineering data;(b) the use of established technology; and(c) specified economic conditions,
which are generally accepted as being reasonable,
and shall be disclosed.The term reserves has a
different meaning in SEC Industry Guide 7. Oilsands Quest currently
has no reserves within either meaning of the term.Reservoir
    
    Porous, permeable sedimentary rock structure or trap containing oil and/or gas. A
reservoir can contain more than one pool (accumulation of oil or gas).Resources
    
    As defined in COGEH, a
general term that may refer to all or a portion
of total resources or total petroleum
initially-in-place, which refers to that quantity of petroleum that is estimated to exist originally in naturally
occurring accumulations. It includes that quantity of petroleum that is estimated, as
of a given date, to be contained in known accumulations, prior to production, plus
those estimated quantities in accumulations yet to be discovered. Resources are
divided into two categories: Discovered Resources and Undiscovered
Resources. For a complete description of resource definitions, see
Part 1, Item 2, Properties and Statement of
Oil and Gas Information.Undiscovered
Resources
    
    See Part I, Item 2,
Properties and Statement of Oil and Gas Information.Unproved property
    
    A property or part of a property to which no reserves have been specifically
attributed.
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Viscosity
    
    A measure of the resistance of a liquid to flow. The viscosity of petroleum products
is commonly expressed in terms of the time required for a specific volume of the
liquid to flow through an orifice of a specific size.Working interest
    
    The operating interest that gives the owner the right to drill, produce and conduct
operating activities on the property and to share in the production.
 
 Item 1A. RISK FACTORS
   Due to Our History of Operating Losses, We are Uncertain That We Will Be Able to Maintain
Sufficient Cash to Accomplish Our Business Objectives
   Our Business Plan is Highly Speculative and its Success Depends, In Part, On Exploration Success on
the Permit, License and Lease Lands and the Development of Identified Discoveries.
   23




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Status and Stage of Reservoir Test Program
  Access to Infrastructure
  Access to Markets
  Location of Discovery Areas; Classification of Resources
  Independent Reviews
  Personnel
  24




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Nature of Oil Sands Exploration and Development
  
 Reserves and Resources
 For
a complete discussion of our independent evaluators review and our resources, see Part 1, Item 2,
Properties and Statement of Oil and Gas Information.
  25




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Government Regulations, Permits, Leases and Licenses
   
 Third Party Liability and Environmental Liability
  26




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Emissions Regulations
      27




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Abandonment and Reclamation Costs
  
 Fiscal Regime
    28




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Title Risks
   29




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Operational Hazards
  
 Competitive Risks
      
  We Have Numerous Outstanding Options, Warrants and Commitments to Issue Shares, Which May Adversely
Affect The Price of Our Common Stock
  Future Sales of our Common Stock May Cause our Stock Price to Decline
  30




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Dividend Policy
  Our Stock Price Can Be Extremely Volatile
  Issuance of Preferred Stock and Our Anti-Takeover Provisions Could Delay or Prevent a Change in
Control and May Adversely Affect our Common Stock.
  
 Item 2. PROPERTIES AND STATEMENT OF OIL AND GAS INFORMATION
   31




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Oil and Gas Properties and Wells
  
 32




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Saskatchewan, Canada Oil Sands Rights
 
 Oil Sands Permits and Licenses
 OQIWorking
    
    Gross/Net
    
    PermitBlock
    
    Description
    
    Interest
    
    Acres
    
    Date
    
    TermOil Sands PermitsPS00205
    
    Township 92, Ranges 22, 23, 24, 25 (partial), West of the
3rd Meridian
    
    
    100
    %
    
    
    84,942
    
    
    Jun 1/04
    
    5 yrsPS00206
    
    Township 93, Ranges 22, 23, 24, 25 (partial), West of the
3rd Meridian
    
    
    100
    %
    
    
    81,108
    
    
    Jun 1/04
    
    5 yrsPS00208(1)

    Township 94, Ranges 22, 23, 24, 25 (partial), West of the
3rd Meridian
    
    
    100
    %
    
    
    81,012
    
    
    Jun 1/04
    
    5 yrsPS00210(1)

    Township 95, Ranges 22, 23, 24, 25 (partial), West of the
3rd Meridian
    
    
    100
    %
    
    
    79,620
    
    
    Jun 1/04
    
    5 yrsPS00212
    
    Township 96, Ranges 22, 23, 24, 25 (partial), West of the
3rd Meridian
    
    
    100
    %
    
    
    79,592
    
    
    Jun 1/04
    
    5 yrsPS00213
    
    Township 97, Ranges 22, 23, 24, 25 (partial), West of the
3rd Meridian
    
    
    100
    %
    
    
    79,520
    
    
    Jun 1/04
    
    5 yrsPS00215
    
    Township 98, Ranges 22, 23, 24, 25 (partial), West of the
3rd Meridian
    
    
    100
    %
    
    
    22,286
    
    
    Jun 1/04
    
    5 yrsOil Sands LicensesOSL00001
    
    Township 91, Ranges 21 (partial), 22 (partial), West of the
3rd Meridian
    
    
    100
    %
    
    
    23,040
    
    
    Aug 13/07
    
    5 yrsOSL00002
    
    Township 90, Ranges 23 (partial), 24 (partial), 25 (partial), West
of the 3rd Meridian
    
    
    100
    %
    
    
    23,040
    
    
    Aug 13/07
    
    5 yrsOSL00003
    
    Township 91, Range 23, West of the 3rd Meridian
    
    
    100
    %
    
    
    23,040
    
    
    Aug 13/07
    
    5 yrsOSL00005
    
    Township 90, Range 26 (partial), West of the 3rd Meridian
    
    
    100
    %
    
    
    21,120
    
    
    Aug 13/07
    
    5 yrsOSL00006
    
    Township 91, Range 25 (partial), West of the 3rd Meridian
    
    
    100
    %
    
    
    19,680
    
    
    Aug 13/07
    
    5 yrsTotal
    
    
    
    
    
    
    
    
    618,000
 
 1
    
    The Axe Lake Discovery covers a portion of these permits
 see details below under Axe
Lake Discovery Oil Sands Permits
 Oil Shale Regulations,
1964
 Oil Shale Regulations, 1964
 Axe Lake Discovery
  33




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Oil Sands Licenses
 Petroleum and Natural Gas Regulations, 1969,
 Alberta, Canada Oil Sands Rights
 OQIWorking
    
    Gross/Net
    
    GrantBlock
    
    Description
    
    Interest
    
    Acres
    
    Date
    
    TermOil Sands PermitsRaven Ridge Prospect7007030939
    
    North half of the Township 92, Range 1, West of the 4th Meridian
    
    
    100
    %
    
    
    11,386
    
    
    Mar 22/07
    
    5 yrs7007030940
    
    East half of Township 93 and 94, Range 1, West of the 4th Meridian
    
    
    100
    %
    
    
    22,773
    
    
    Mar 22/07
    
    5 yrs7007030941
    
    West half of Township 93 and 94, excluding sections 33 and 34, Range 1, West of the 4th Meridian
    
    
    100
    %
    
    
    21,508
    
    
    Mar 22/07
    
    5 yrs7006080098
    
    South half of the Township 92, Range 1, West of the 4th Meridian
    
    
    100
    %
    
    
    11,386
    
    
    Aug 10/06
    
    5yrsWallace Creek Prospect7008010298
    
    Township 96, Range 1, West of the 4th Meridian
    
    
    100
    %
    
    
    22,773
    
    
    Jan 24/08
    
    5 yrs7008010299
    
    Township 96, Range 2, West of the 4th Meridian
    
    
    100
    %
    
    
    22,773
    
    
    Jan 24/08
    
    5 yrsOil Sands LeaseEagles Nest Prospect7405080355
    
    Township 101, Range 13, West of the 4th Meridian
    
    
    100
    %
    
    
    22,773
    
    
    Aug 25/05
    
    15 yrsTotal
    
    
    
    
    
    
    
    
    135,372
 Oil Sands Permits
 Raven Ridge Prospect and Raven Ridge Discovery
 Mines and Minerals Act, Alberta
 Wallace Creek Prospect
 Mines and Minerals Act, Alberta.
 34




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Oil Sands Lease
 Eagles Nest Prospect
 Mines and
Minerals Act, Alberta Mines and Minerals Act,
Alberta
 Saskatchewan, Canada Oil Shale Rights
 OQIWorking
    
    Total /
    
    GrantBlock
    
    Description
    
    Interest
    
    Net Acres
    
    Date
    
    TermPasquia Hills Oil
Shale Prospect areaPS00222
    
    Township 45, Ranges 1-2 (partial), West of the 3rd Meridian
    
    
    100
    %
    
    
    21,120
    
    
    Sep 7/06
    
    5 yrsPS00223
    
    Townships 47-48 (partial), Ranges 3-5 (partial), West of the 3rd
Meridian
    
    
    100
    %
    
    
    82,560
    
    
    Sep 7/06
    
    5 yrsPS00224
    
    Townships 47-49 (partial), Ranges 3-5 (partial), West of the 3rd
Meridian
    
    
    100
    %
    
    
    19,840
    
    
    Sep 7/06
    
    5 yrsPS00225
    
    Townships 46-47 (partial), Ranges 5-7 (partial), West of the 3rd
Meridian
    
    
    100
    %
    
    
    80,000
    
    
    Sep 7/06
    
    5 yrsPS00226
    
    Townships 45-46 (partial), Ranges 5-7 (partial), West of the 3rd
Meridian
    
    
    100
    %
    
    
    61,436
    
    
    Sep 7/06
    
    5 yrsPS00237
    
    Township 43 (partial), Ranges 1-4 (partial), West of the 3rd Meridian
    
    
    100
    %
    
    
    82,709
    
    
    Oct 16/06
    
    5 yrsPS00238
    
    Township 43 (partial), Ranges 5-6 (partial), West of the 3rd Meridian
    
    
    100
    %
    
    
    58,296
    
    
    Oct 16/06
    
    5 yrsSHP0001
    
    Townships 44-45 (partial), Ranges 1-3 (partial), West of the 3rd
Meridian
    
    
    100
    %
    
    
    83,769
    
    
    Aug 13/07
    
    5 yrsTotal
    
    
    
    
    
    
    
    
    489,730
 Oil Shale PermitsPasquia Hills Oil Shale Prospect
 Oil Shale Regulations,
1964,
 Petroleum and Natural Gas Regulations, 1969 (Saskatchewan)
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Oil and Gas Wells
  Resource Delineation WellsGross
    
    NetSaskatchewanProducing
    
    
    
    
    
    
    Non-producing
    
    
    324
    
    
    
    324AlbertaProducing
    
    
    
    
    
    
    Non-producing
    
    
    25
    
    
    
    25
 
 Properties with No Attributed Reserves
  
 Forward Contracts
  
 Information Concerning Abandonment and Reclamation Costs
  36




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##### Table of Contents



Tax Horizon
  
 Costs Incurred
  Property acquisition costs
    
    $
    15,999,517Exploration costs
    
    $
    96,419,694Development costs
    
    
    Total
    
    $
    112,419,211
 
 Exploration and Development Activities
  Exploratory WellsGross
    
    NetDelineation Wells
    
    
    155
    
    
    
    155Reservoir Test Wells
    
    
    4
    
    
    
    4Environmental Wells
    
    
    16
    
    
    
    16Gas Wells
    
    
    
    
    
    
    Service Wells
    
    
    
    
    
    
    Dry Wells
    
    
    
    
    
    
    Total Completed Drill Holes
    
    
    175
    
    
    
    175
  
 Production
  
 Independent Resource Evaluation
  37




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##### Table of Contents



Summary of Discovered and Undiscovered Bitumen Resources
McDaniel  October 2007 and June 2008
(Billions of barrels)
 Axe Lake
    
    Raven Ridge
    
    Total2007
    
    2008
    
    2007
    
    2008
    
    2007
    
    2008Estimated Discovered
Bitumen Resources(Discovered Bitumen
Initially-in-Place)Low Estimate (P90)
    
    
    1.117
    
    
    
    1.241
    
    
    
    n/a
    
    
    
    0.337
    
    
    
    1.117
    
    
    
    1.578Best Estimate (P50)
    
    
    1.344
    
    
    
    1.723
    
    
    
    n/a
    
    
    
    0.566
    
    
    
    1.344
    
    
    
    2.289High Estimate (P10)
    
    
    1.547
    
    
    
    2.334
    
    
    
    n/a
    
    
    
    0.727
    
    
    
    1.547
    
    
    
    3.061Estimated Undiscovered
Bitumen Resources(Undiscovered Bitumen
Initially-in-Place)Low Estimate (P90)
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    0.493
    
    
    
    n/a
    
    
    
    0.493Best Estimate (P50)
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    1.949
    
    
    
    n/a
    
    
    
    1.949High Estimate (P10)
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    3.523
    
    
    
    n/a
    
    
    
    3.523Estimated Discovered
plus Undiscovered
Bitumen Resources(Discovered and
Undiscovered Bitumen
Initially-in-Place)Low Estimate (P90)
    
    
    1.117
    
    
    
    1.241
    
    
    
    n/a
    
    
    
    0.830
    
    
    
    1.117
    
    
    
    2.071Best Estimate (P50)
    
    
    1.344
    
    
    
    1.723
    
    
    
    n/a
    
    
    
    2.515
    
    
    
    1.344
    
    
    
    4.238High Estimate (P10)
    
    
    1.547
    
    
    
    2.334
    
    
    
    n/a
    
    
    
    4.250
    
    
    
    1.547
    
    
    
    6.584
    38




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##### Table of Contents



39




---



##### Table of Contents



Canadian
Resource Definitions
 Discovered Resources
 Undiscovered Resources
 Contingent Resources
 40




---



##### Table of Contents



Prospective Resources
 Discovered Unrecoverable Resources
  
    
    Low Estimate: This is considered to be a conservative estimate of the quantity of
bitumen that exists within the accumulation, which under probabilistic methodology reflects
a P90 confidence level.
    
    Best Estimate: This is considered to be the best estimate of the quantity of bitumen
that exists within the accumulation. Under probabilistic methodology, this term is a
measure
of the central tendency of the uncertainty distribution (most likely/mode, P50/median, or
arithmetic average/mean).
    
    High Estimate: This is considered to be an optimistic estimate of the quantity of
bitumen that exists within the accumulation, which under probabilistic methodology reflects
a P10 confidence level.
 
 Item 3. LEGAL PROCEEDINGS
  
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 Market Information
 (http://finance.yahoo.com)
 Fiscal Quarter
    
    High Sales Price
    
    Low Sales PriceFiscal Year End April 30, 2008
    
    4th Quarter (2/1/08  4/30/08)
    
    $
    5.01
    
    
    $
    3.183rd Quarter (11/1/07  1/31/07)
    
    $
    6.38
    
    
    $
    3.002nd Quarter (8/1/07  10/31/07)
    
    $
    5.53
    
    
    $
    3.811st Quarter (5/1/07  7/31/07)
    
    $
    4.44
    
    
    $
    2.40Fiscal Year End April 30, 2007
    
    4th Quarter (2/1/07  4/30/07)
    
    $
    5.00
    
    
    $
    2.753rd Quarter (11/1/06  1/31/07)
    
    $
    5.49
    
    
    $
    4.032nd Quarter (8/1/06  10/31/06)
    
    $
    5.95
    
    
    $
    3.311st Quarter (5/1/06  7/31/06)
    
    $
    8.90
    
    
    $
    3.34
  Holders
  41




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Dividends
  Equity Compensation Plan Information
   Administration of the Plan
   Eligibility
   42




---



##### Table of Contents



Adjustment
  U.S. Income Tax Consequences of the Plan
    Canadian Federal Income Tax Consequences
 Income Tax Act
  43




---



##### Table of Contents



Other Provisions
  44




---



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45




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##### Table of Contents



Number of SecuritiesRemaining Available forFuture IssuanceNumber of Securities to
    
    
    Weighted Average
    
    
    Under Equitybe Issued Upon Exercise of
    
    
    Exercise Price of
    
    
    Compensation PlansOutstanding Options,
    
    
    Outstanding Options,
    
    
    (Excluding SecuritiesPlan Category
    
    Warrants and Rights
    
    
    Warrants and Rights
    
    
    Reflected in Column (a))Equity Compensation
Plans Approved by
Stockholders
    
    
    13,272,000
    (1)
    
    $
    5.22
    
    
    
    15,171,750
    (3)Equity Compensation
Plans Not Approved
by Stockholders
    
    
    0
    (2)
    
    $
    0.0
    
    
    
    1,200,000TOTAL
    
    
    13,272,000
    (1)(2)
    
    $
    5.22
    
    
    
    16,371,750
 
 (1)
    
    Includes: options to acquire 13,272,000 shares of common stock under the Companys
2006 Stock Option Plan.(2)
    
    All outstanding options to acquire shares of common stock under the Companys 2005b
Stock Option Plan were exercised during the year ended April 30, 2008. The Company does not
intend to issue any more securities under this plan.(3)
    
    The aggregate number of securities issuable under the 2006 Stock Option Plan is the
lesser of: (A) 15% of the total outstanding shares of the Companys common stock, or (B)
30,000,000. As of June 16, 2008, the number of securities available for issuance under the
2006 Stock Option Plan is 15,171,750 (calculated as 30,000,000 maximum less 15,737,000 granted
plus 908,750 cancelled/forfeit). Performance
Graphs
  
 46




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Recent Sales of Unregistered Securities
      47




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Item 6. SELECTED FINANCIAL DATA
  Year EndedApril 30,
    
    April 30,
    
    April 30,
    
    April 30,
    
    April 30,(in thousands, except per share amounts)
    
    2008
    
    2007
    
    2006
    
    2005
    
    2004Summary of OperationsOperating loss(1)
    
    $
    122,382
    
    
    $
    76,253
    
    
    $
    55,540
    
    
    $
    5,244
    
    
    $
    1,581Loss from operations
    
    $
    98,871
    
    
    $
    68,795
    
    
    $
    52,641
    
    
    $
    5,109
    
    
    $
    1,581Loss from operations per common share
    
    $
    0.44
    
    
    $
    0.40
    
    
    $
    0.64
    
    
    $
    0.16
    
    
    $
    0.09Total Assets
    
    $
    646,238
    
    
    $
    556,416
    
    
    $
    41,958
    
    
    $
    7,294
    
    
    $
    748Long Term Obligations
    
    $
    8,183
    
    
    $
    3,075
    
    
    $
    
    
    
    $
    163
    
    

    $
    Balance Sheet DataCash and cash equivalents
    
    $
    26,498
    
    
    $
    32,394
    
    
    $
    16,127
    
    
    $
    1,022
    
    
    $
    349Short-term investments
    
    $
    19,812
    
    
    $
    2,000
    
    
    $
    6,000
    
    
    $
    
    
    
    $
    Working capital
    
    $
    34,226
    
    
    $
    5,819
    
    
    $
    21,980
    
    
    $
    4,319
    
    
    $
    (2,406
    )Stockholders equity
    
    $
    492,260
    
    
    $
    386,834
    
    
    $
    16,164
    
    
    $
    3,728
    
    
    $
    (2,027
    )
 
 (1)
    
    Defined as loss before income taxes and minority interest 48




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##### Table of Contents



Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Introduction
  
    
    Overview of Business
    
    Overview of 2008 Results and Outlook
    
    Liquidity and Capital Resources
    
    Changes in Financial Condition and Results of Operations
    
    Share Capital
    
    Critical Accounting Policies
    
    Contractual Cash Obligations
 Overview of Business
   Overview of 2008 Results and Outlook
    Exploration Program
  49




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Axe Lake Discovery
  Axe Lake Discovery  Reservoir Development Activities
      50




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##### Table of Contents



Abandonment and Reclamation Costs
  Outlook
  
    
    continue exploration and delineation activities to further define the location, extent
and quality of the Discovered Resources at Axe Lake and Raven Ridge (for a complete
description of our independent resource estimates, see Part I,
Item 2 Properties and Statement of Oil and
Gas Information);
    
    continue to evaluate drilling data and perform advanced laboratory studies of bitumen
characterization and recovery methods;
    
    continue to undertake computer reservoir modeling and simulation studies to aid in the
selection of the optimal recovery technologies at Axe Lake and Raven Ridge;
    
    continue to engineer and procure surface and down-hole equipment for reservoir field
tests;
    
    conduct injection tests with steam and other mobilization agents in vertical and
horizontal wells to confirm laboratory and simulation studies;
    
    continue to conduct environmental programs to establish base-line data and facilitate
regulatory approvals;
    
    continue to conduct advanced economic feasibility and risk assessment studies for full
commercial project development;
    
    continue to accelerate scoping and engineering designs for our initial commercial
development at the Axe Lake Discovery, including initiating engineering plans for the first
30,000 barrel per day commercial project at the Axe Lake Discovery;
    
    initiate joint venture partnership and capital market negotiations for the development
of the Axe Lake Discovery; and
    
    evaluate market alternatives for bitumen sales from one or more commercial projects at
Axe Lake.
  51




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##### Table of Contents



Liquidity and Capital Resources
       52




---



##### Table of Contents



Changes in Financial Condition and Results of Operations
 During the year ended April 30, 2008
 During the year ended April 30, 2007
 During the year ended April 30, 2006
  Year ended April 30, 2008 as compared to year ended April 30, 2007.
 53




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##### Table of Contents



Year ended April 30, 2007 as compared to year ended April 30, 2006
  Year ended April 30, 2008 as compared to year ended April 30, 2007.
 Year ended April 30, 2007 as compared to year ended April 30, 2006.
  Cash consideration
 Year ended April 30, 2008 as compared to year ended April 30, 2007.
 Year ended April 30, 2007 as compared to Year ended April 30, 2006
 54




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##### Table of Contents



Stock-based consideration
 Year ended April 30, 2008 as compared to year ended April 30, 2007
 Year ended April 30, 2007 as compared to year ended April 30, 2006
  Year ended April 30, 2008 as compared to year ended April 30, 2007.
 Year ended April 30, 2007 as compared to year ended April 30, 2006
  Year ended April 30, 2008 as compared to year ended April 30, 2007.
 Year ended April 30, 2007 as compared to year ended April 30, 2006
  Year ended April 30, 2008 as compared to year ended April 30, 2007
 Year ended April 30, 2007 as compared to year ended April 30, 2006
 55




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##### Table of Contents



Year ended April 30, 2008 as compared to year ended April 30, 2007
 Year ended April 30, 2007 as compared to year ended April 30, 2006
  Year ended April 30, 2008 as compared to year ended April 30, 2007
 Year ended April 30, 2007 as compared to year ended April 30, 2006
 Share Capital
    56




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##### Table of Contents



Critical Accounting Policies
   
    
    Properties and equipment;
    
    Income taxes;
    
    Stock-based compensation; and
    
    Foreign currency translation.
 Properties and equipment
       57




---



##### Table of Contents



Income taxes
    Stock-based compensation
  58




---



##### Table of Contents



Foreign currency translation
  Contractual Cash Obligations
  Payments Due by PeriodLess thanTotal
    
    1 Year
    
    2-3 Years
    
    4-5 Years
    
    After 5 YearsOperating lease
obligations (a)
    
    $
    8,182,835
    
    
    $
    2,192,750
    
    
    $
    1,863,963
    
    
    $
    1,669,044
    
    
    $
    2,457,078
  
 (a)
    
    See Note 19 to the Consolidated Financial Statements, Commitments. 
 Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  
 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  59




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##### Table of Contents



Item 9A. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Managements Report on Internal Control over Financial Reporting
  Internal Control  Integrated Framework
  Changes in Internal Controls
  
 Item 9B. Other Information
  60




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##### Table of Contents



PART III
 
 Item 10.
    
    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION
16(A) OF THE EXCHANGE ACT
 MANAGEMENT
  Officer orName of Director or Officer
    
    Director
    
    
    
    
    
    Office(s) Held and Otherand Position in the Company
    
    Since
    
    Age
    
    Business ExperienceT. Murray Wilson,
Executive Chairman and
Chairman of the Board of
Directors, Class B Director
    
    May 2006
    
    
    56
    
    
    Former President, former Chief Executive
Officer, former Chief Financial Officer
from May 1, 2006 until August 14, 2006.
Chairman of the Board since May 1, 2006,
and Executive Chairman from August 14,
2006 to present. Mr. Wilson is also a
member of the Companys Resources and
Reserves Committee. Served as Chairman and
Managing Partner of Stanway Capital
Partners from 2001 to present: From 1997
to 2001, worked for TD Securities, Inc. as
Managing Director and Global Head of Oil &
Gas, Head of Investment Banking and
Corporate Banking for Alberta, and Vice
Chairman of TD Securities International,
London. Prior to that Mr. Wilson was VP &
Director of RBC Dominion Securities London
responsible for the firms international
and Canadian-transborder practice in
energy and mining. Mr. Wilson held
numerous senior positions with Royal Bank
of Canada Group over a 17-year period from
1980. Prior to his investment banking
career Mr. Wilson was an executive
professional in technical and economic
areas with Imperial Oil Limited
(Esso/Exxon). Mr. Wilson has been involved
in various oil sands projects, both
in-situ and mining, from either a
technical or financial perspective over
the past 30 years. Mr. Wilson holds a
Masters Degree in Business from the Sloan
School, M.I.T., a Masters in Engineering
from the University of Manitoba (National
Research Council Scholar), and a B.Sc. in
Chemical Engineering (1st Class Honours 
B.E.C. Joyce Medal) from Queens
University. Mr. Wilson is on several
boards, including the Alberta Childrens
Hospital Foundation and chairs its
Corporate Governance Committee.
 61




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##### Table of Contents



Officer orName of Director or Officer
    
    Director
    
    
    
    
    
    Office(s) Held and Otherand Position in the Company
    
    Since
    
    Age
    
    Business ExperienceChristopher H. Hopkins
President and Chief
Executive Officer and Class
A Director
    
    August 2006
    
    
    54
    
    
    President, Chief Executive Officer and a
director since August 14, 2006 and
President, Chief Executive Officer and a
director of Oilsands Quest Sask Inc., a
subsidiary of the Company since November
10, 2004. Executive Vice President of
Synenco Energy Inc. (Synenco), an oil
sands exploration company, from October
1999 to September 2004 and a director of
Synenco from October 1999 until August
2003. Founder, director and Vice
President, Finance of Thunder Road
Resources Ltd., a private oil and gas
production company, from June 1996 to June
2000. Mr. Hopkins is a management
professional and businessman with 30 years
of Canadian and international energy and
mining experience. He has held executive
positions in corporate planning and
business development with Suncor Inc.s
Oil Sands Group, Pembina Corporation and
Amoco Canada and has additional management
experience in environmental control and
regulatory affairs in the resource
industry. Mr. Hopkins holds a B.Sc.
(Chemistry and Biology) from Carleton
University and an MBA from Queens
University. Mr. Hopkins also served as a
director of Added Capital Corp., a capital
pool company, until November 2007.Karim Hirji
Chief Financial Officer
    
    August 2006
    
    
    45
    
    
    Chief Financial Officer of the Company
since August 14, 2006 and Chief Financial
Officer of Oilsands Quest Sask Inc., since
November 10, 2004. Vice President Finance
and Chief Financial Officer of Synenco
from November 2001 to June 2004. Vice
President Finance and Chief Financial
Officer of Anadime Corporation, a public
oilfield services company, from September
2000 to October 2001. Manager of Financial
Reporting at Enbridge Inc. from January
2000 to April 2000. Corporate Controller
from 1999 to January 2000 and Assistant
Corporate Controller from 1997 to 1999 of
AGRA Inc., a public engineering company.
Mr. Hirji brings to the Company over 20
years of experience in financial
management, including significant
treasury, project management and corporate
finance skills. Mr. Hirji received his
B.Comm from the University of Calgary and
CA while articling with Deloitte & Touche
LLP. Mr. Hirji also served as a director
of Added Capital Corp, until November
2007.
 62




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##### Table of Contents



Officer orName of Director or Officer
    
    Director
    
    
    
    
    
    Office(s) Held and Otherand Position in the Company
    
    Since
    
    Age
    
    Business ExperienceErrin Kimball Vice
President, Exploration
    
    August 2006
    
    
    39
    
    
    Vice President, Exploration of the Company
since August 14, 2006 and Vice President,
Exploration of Oilsands Quest Sask Inc.
since July 2005. From January 2002 until
June 2005, Mr. Kimball was Chief Geologist
at Synenco. He was also a geological
consultant for Synenco from 2000 until he
assumed his staff position in 2002.Erdal Yildirim
Executive Vice President, 
Project Development
    
    October 2006
    
    
    71
    
    
    Executive Vice President, Project
Development since October 2, 2006. From
1998 to 2006 Dr. Yildirim was the
President and CEO of S&T International,
Inc., a private company engaged in the oil
sands exploration and development
business. From 2002 through 2005 Dr.
Yildirim was employed as a Senior Vice
President Engineering and Technology with
Synenco. From 1983 to 1998 he served as
Division Vice President for Nexen, Inc.
Dr. Yildirim is also the former Chairman
of the National Task Force on Oil Sands
Strategies. Dr. Yildirim received his
Doctor of Engineering Science degree at
Columbia University School of Engineering
in 1971 and holds more than a dozen
patents on oil sands processes.Claes T.S. Palmgren, P.
Eng.Vice President,
Reservoir Engineering
    
    February 2008
    
    
    47
    
    
    Vice President, Reservoir Engineering
since February 1, 2008. Dr. Palmgren has
over 20 years experience with applied
research, technology pilot program
development and field applications of
in-situ heavy oil and bitumen recovery
technologies. Prior to joining Oilsands
Quest Inc. Dr. Palmgren was Manager,
Reservoir Process Technology at
StatoilHydro Canada Ltd. From 2000 to
2006 Dr. Palmgren worked at Petro-Canada.
Dr. Palmgren is a graduate of Delft
University of Technology in The
Netherlands, Faculty of Mining and
Petroleum Engineering, and received his
Masters of Science in 1987 and his
Doctorate in 1992.Paul K. ODonoghue
Vice President, Investor
Relations & Corporate
Planning
    
    March 2008
    
    
    47
    
    
    Vice President, Investor Relations &
Corporate Planning since March 17, 2008.
Prior to joining Oilsands Quest Inc. Mr.
ODonoghue served as the Vice President,
Corporate & Strategic Development of
Trident Resources Corp. and Trident
Exploration Corp. At Trident, Mr.
ODonoghue led a team that had overall
responsibility for all corporate
development matters, including financings,
acquisitions/divestures, investor
relations, risk management, marketing and
legal affairs. Prior to joining Trident,
Mr. ODonoghue held senior positions in
oil, gas and power businesses in Canada
with Alberta Energy Company, Natural Gas
Clearinghouse and PrimeWest Energy. Mr.
 63




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Officer orName of Director or Officer
    
    Director
    
    
    
    
    
    Office(s) Held and Otherand Position in the Company
    
    Since
    
    Age
    
    Business ExperienceODonoghue holds an MBA in Finance from
the Rotman School of Business, University
of Toronto (1990), and a BSc in Economics
from Oklahoma City University (1984).Ronald Phillips
Class C Director
    
    February 2006
    
    
    42
    
    
    Director of the Company since February
2006, Chair of the Companys Compensation
Committee and a member of the Audit
Committee. Former director of Oilsands
Quest Sask Inc. from May 2006 to August
2006. A managing member of Saturn Capital
Management LLC and the Portfolio Manager
for the DKR Saturn Event Driven Program
from July 2002 to present. DKR Saturn
Event Driven is an $80 million hedge fund
affiliated with DKR Capital Inc., a $4.5
billion asset manager located in Stamford,
Connecticut.Thomas Milne
Class B Director
    
    August 2006
    
    
    61
    
    
    Director of the Company since August 14,
2006 and a director of Oilsands Quest Sask
Inc. since November 2004. Mr. Milne is
Chair of the Companys Audit Committee and
a member of the Compensation and
Governance Committees. Mr. Milne is a
principal of NEX Industries, a boutique
merchant banking partnership specializing
in advisory and transaction services,
governance, succession, strategic planning
and financing. He has had an extensive
career in international finance as
director, chief financial officer and
treasurer of major public corporations in
the energy and technology sectors and as
an investment banker and foreign exchange
trader in a major Canadian bank. From
April 2000 to April 2005 Mr. Milne was the
Chief Financial Officer and Director of
Big Sky Energy Corp., and from September
2002 to February 2004 Mr. Milne was a
Senior Partner of Meyers, Norris, Penney
LLP. Mr. Milne has also served as a
director for the following public
companies: Big Sky Energy Corp., Calcite
Inc., Go Sports Entertainment, Inc.,
Newton Energy Inc.., Added Capital Corp.,
Land End Resources Inc and Longview
Petroleum Corp.Gordon Tallman
Class A Director
    
    August 2006
    
    
    65
    
    
    Director of the Company since August 14,
2006 and a member of the Companys Audit
and Reserves and Resources Committees and
Chair of the Governance and Nominating
Committee. Mr. Tallman retired as the
Senior Vice-President, Royal Bank of
Canada, and head of the Prairies Region of
Canada (Alberta, Saskatchewan and
Manitoba) after a banking career spanning
42 years. Mr. Tallman is a member of the
Board of Directors/Trustees of Big Rock
Brewery Income Trust, ECL Group of
Companies Ltd., and PFB Corporation. He is
Chairman of the Board of CV Technologies,
Inc. and Chairman of the Board of Trustees
of Enbridge Income Fund. He has also
served on the boards of Canadian Utilities
Ltd.,
 64




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##### Table of Contents



Officer orName of Director or Officer
    
    Director
    
    
    
    
    
    Office(s) Held and Otherand Position in the Company
    
    Since
    
    Age
    
    Business ExperienceCalgary, Investment Saskatchewan
Inc. and Gwichn Development Corporation,
Inuvik, NWT. Mr. Tallman is a graduate of
the Institute of Corporate Directors 
Corporate Governance College.William Scott Thompson
Class C Director
    
    August 2006
    
    
    59
    
    
    Director of the Company from August 14,
2006 to April 30, 2007 and from June 28,
2007 to present. Mr. Thompson is Chair of
the Companys Reserves and Resources
Committee and a member of the Compensation
Committee. Former director of Oilsands
Quest Sask Inc. from June 2005 to August
2006. Mr. Thompson has over 25 years of
experience in the oil and gas industry. He
has been President and a director of Clear
Creek Oil & Gas, Inc., a natural gas
exploration company, since November 2000.
Secretary/Treasurer and director of
Forster Drilling Corporation, which builds
land drilling rigs and provides contract
drilling services to oil and gas
exploration and production companies, from
March 2005 to present. President and
director of Harris-Forbes, Inc., an
investment banking company to the energy
sector from May 2005 to present. President
and a director of Process Technology
Systems, Inc. from 1998 to present.
President and a director of Eurotrade
Financial, Inc., an investment banking
company, from June 1993 to May 2005.Pamela Wallin, OC
Class A Director
    
    June 2007
    
    
    55
    
    
    Director of the Company since June 28,
2007 and a member of the Companys
Reserves and Resources and Governance and
Nominating Committees. Since August 2006
Ms. Wallin has served as the Senior
Advisor to the President of the Americas
Society and the Council of the Americas in
New York. In Canada, she serves on several
corporate boards, including CTV
globemedia, Canadas premier multimedia
company with ownership in CTV and the
Globe and Mail, and on the board of
Gluskin Sheff + Associates, an investment
and wealth management firm. Ms. Wallin is
a member of a special Advisory Board for
BMO Harris Bank. Ms. Wallin is the
Chancellor of the University of Guelph in
Ontario. In July 2006 Ms. Wallin completed
her four-year term as Consul General of
Canada in New York; she was appointed to
the prestigious post in 2002. From 1995 to
2002, Ms. Wallin served as President and
CEO of PWP, Inc., a privately held media
production company.
 65




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##### Table of Contents



Officer orName of Director or Officer
    
    Director
    
    
    
    
    
    Office(s) Held and Otherand Position in the Company
    
    Since
    
    Age
    
    Business ExperienceJohn Read
Class A Director
    
    October 2007
    
    
    60
    
    
    Director of the Company since October 11,
2007 and a member of the Companys
Compensation and Reserves and Resources
Committees. In 1970 Mr. Read began his
career in the oil and gas industry with
Shell Canada and then Texaco Exploration
Canada. In 1974, he joined Colt
Engineering Ltd., a private, start-up
engineering organization where he held
engineering and management positions. In
1983 he became president and chief
executive officer of the organization. He
was chief executive officer from 1999
until his retirement in early 2006. Mr.
Read remained a partner and director of
The Colt Companies until March 2007, when
Colt was acquired by Worley Parsons
Limited, a worldwide engineering and
project management organization. Mr. Read
is a member of the World Presidents
Organization and the Association of
Professional Engineers, Geologists and
Geophysicists of Alberta. Mr. Read serves
as a director on the boards of Axia
Netmedia Corporation and PFB Corporation,
both listed on the Toronto Stock Exchange.
    Audit Committee
  66




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##### Table of Contents



Nominating Committee
  Section 16(a) Beneficial Ownership Reporting Compliance
   Code of Ethics
  Whistleblower Policy
  Related Person Transaction Policy
  
 Item 11. EXECUTIVE COMPENSATION
  67




---



##### Table of Contents



Oversight of Executive Compensation Program
  Compensation Program Philosophy and Objectives
  
    
    support Oilsands Quests overall business strategy;
    
    align total compensation with shareholder interests;
    
    minimize turnover related to compensation issues;
    
    reward key executives and key employees for demonstrated performance through
pre-determined and quantifiable short- and long-term incentive plans; and
    
    balance the proportion of fixed (i.e., base salary) versus
variable (i.e. short- and
long-term incentives) compensation to be competitive with typical practice among peers.
  Elements of Compensation
  
    
    base salary;
    
    short-term incentives which are determined annually using informed discretion (i.e., not
a formula) and approved by the Board;
    
    long-incentives to be considered annually at the discretion of the Board; and
other benefits that, in most cases, are available to all salaried employees.
 How Elements of Our Compensation Program are Related to Each Other
  68




---



##### Table of Contents



Base Salary.
  Annual Discretionary Cash Bonuses .
    69




---



##### Table of Contents



Long-Term Equity-Based Incentives .
     Other Employee Benefits.
  70




---



##### Table of Contents



Employment Contracts, Change-In-Control Arrangements and Certain Other Matters.
 T. Murray Wilson
    Christopher H. Hopkins
   Karim Hirji
  71




---



##### Table of Contents



Errin Kimball
  Erdal Yildirim
  Compensation Committee Interlocks and Insider Participation
  REPORT OF THE COMPENSATION COMMITTEE
 The following Compensation Committee Report does not constitute soliciting material and should not
be deemed filed or incorporated by reference into any other Company filing under the Securities Act
of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically
incorporates this Report.
   
 72




---



##### Table of Contents



Compensation and other Benefits of Executive Officers
  SUMMARY COMPENSATION TABLE
 NonqualifiedNon-Equity
    
    DeferredStock
    
    Option
    
    Incentive Plan
    
    Compensation
    
    All OtherName and
    
    
    
    
    
    Salary
    
    Bonus
    
    Awards
    
    Awards(5) (6)
    
    Compensation
    
    Earnings
    
    Compensation(3)
    
    Total(4)Principal Position
    
    Year
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)T. Murray Wilson,
    
    
    2008
    
    
    $
    366,712
    
    
    $
    195,580
    
    
    Nil
    
    $
    5,399,940
    
    
    Nil
    
    Nil
    
    $
    6,176
    
    
    $
    5,968,408Executive Chairman,
    
    
    2007
    
    
    $
    263,667
    
    
    $
    132,712
    
    
    Nil
    
    $
    21,427,791
    
    
    Nil
    
    Nil
    
    $
    800
    
    
    $
    21,824,970Principal Executive
    
    
    2006
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    N/A
    
    
    N/A
    
    
    
    N/AOfficer(1)Christopher H. Hopkins
    
    
    2008
    
    
    $
    366,712
    
    
    $
    195,580
    
    
    Nil
    
    $
    2,339,437
    
    
    Nil
    
    Nil
    
    $
    794
    
    
    $
    2,902,523President and Chief
    
    
    2007
    
    
    $
    263,667
    
    
    Nil
    
    Nil
    
    $
    5,773,028
    
    
    Nil
    
    Nil
    
    $
    820
    
    
    $
    6,037,515Executive Officer
    
    
    2006
    
    
    $
    148,091
    
    
    Nil
    
    Nil
    
    Nil
    
    Nil
    
    Nil
    
    $
    1,736
    
    
    $
    149,827Karim Hirji, Chief
    
    
    2008
    
    
    $
    336,153
    
    
    $
    171,132
    
    
    Nil
    
    $
    1,777,762
    
    
    Nil
    
    Nil
    
    $
    23,060
    
    
    $
    2,308,107Financial Officer(2)
    
    
    2007
    
    
    $
    219,722
    
    
    Nil
    
    Nil
    
    $
    3,092,715
    
    
    Nil
    
    Nil
    
    $
    18,103
    
    
    $
    3,330,5402006
    
    
    $
    148,091
    
    
    Nil
    
    Nil
    
    Nil
    
    Nil
    
    Nil
    
    $
    1,736
    
    
    $
    149,827Errin Kimball, Vice
    
    
    2008
    
    
    $
    262,810
    
    
    $
    97,790
    
    
    Nil
    
    $
    1,224,253
    
    
    Nil
    
    Nil
    
    $
    1,877
    
    
    $
    1,586,730President
    
    
    2007
    
    
    $
    219,722
    
    
    Nil
    
    Nil
    
    $
    2,975,099
    
    
    Nil
    
    Nil
    
    $
    2,071
    
    
    $
    3,196,892Exploration(2)
    
    
    2006
    
    
    $
    189,526
    
    
    Nil
    
    Nil
    
    Nil
    
    Nil
    
    Nil
    
    $
    1,985
    
    
    $
    191,511Erdal Yildirim,
    
    
    2008
    
    
    $
    273,812
    
    
    $
    57,044
    
    
    Nil
    
    $
    1,194,091
    
    
    Nil
    
    Nil
    
    $
    19,820
    
    
    $
    1,544,767Executive Vice
    
    
    2007
    
    
    $
    126,514
    
    
    Nil
    
    Nil
    
    $
    265,247
    
    
    Nil
    
    Nil
    
    $
    10,442
    
    
    $
    402,203President Project
    
    
    2006
    
    
    Nil
    
    Nil
    
    Nil
    
    Nil
    
    Nil
    
    Nil
    
    Nil
    
    NilDevelopment(2)
 
 1)
    
    Mr. Wilson became an Officer of the Company on May 1, 2006.2)
    
    Messrs. Hopkins and Hirji became Officers of OQI on August 14, 2006. Prior thereto,
they were employees of OQI Sask from May 1, 2005 to August 14, 2006. Prior thereto, they were
consultants to OQI Sask. Mr. Kimball became an officer of OQI on August 14, 2006. Prior
thereto, he was an employee of OQI Sask from July 1, 2005 to August 14, 2006. Mr. Yildirim
became an officer of OQI on October 2, 2006. All compensation paid to them during the
disclosed periods has been included.3)
    
    Premiums paid on an extended health benefits program, automobile allowances or
personal use benefits of automobiles are included herein.4)
    
    All compensation is paid in Canadian Dollars and shown in United States Dollars
converted at the average exchange rate for the year indicated ($1.00 US = $1.0225 CDN (2008)) 73




---



##### Table of Contents



5)
    
    The dollar amount reported in this column is the compensation cost recognized in our
2008 financial statements pursuant to SFAS No.123(R). The Company estimates the fair value of
stock options using the Black-Scholes valuation model, consistent with the provisions of SFAS
No. 123R. The Black-Scholes valuation model requires the input of highly subjective
assumptions, including the
options expected life and the expected price volatility of the Companys common stock. The
expected stock price volatility assumption was determined using historical volatility of the
Companys common stock.6)
    
    Amounts include the estimated fair value of options to acquire OQI Sask common shares
granted prior to the reorganization of August 14, 2006 that were included in Stock-based
compensation expense in the 2007 consolidated financial statements as to $5,067,331 for Mr.
Hopkins, $2,622,251 for Mr. Hirji and $2,622,251 for Mr. Kimball. Grant of Plan Based Awards Table
 GRANTS OF PLAN-BASED AWARD
 AllOther
    
    All otherStock
    
    OptionAwards:
    
    Awards:
    
    ExerciseEstimated Future Payouts
    
    Estimated Future
    
    Number
    
    Number of
    
    or Base
    
    Grant DateUnder Non-Equity
    
    Payouts Under Equity
    
    of Shares
    
    Securities
    
    Price of
    
    Fair ValueIncentive Plan Awards
    
    Incentive Plan Awards
    
    of Stock
    
    Underlying
    
    Option
    
    of StockGrant
    
    Threshold
    
    Target
    
    Maximum
    
    Threshold
    
    Target
    
    Maximum
    
    or Units
    
    Options
    
    Awards
    
    and OptionName
    
    Date
    
    ($)
    
    ($)
    
    ($)
    
    (#)
    
    (#)
    
    (#)
    
    (#)
    
    (#) (1)
    
    ($/Sh) (2)
    
    Awards (3)T. Murray Wilson,
    
    August 1, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    750,000
    
    
    $
    4.27
    
    
    $
    2,835,000Christopher Hopkins
    
    August 1, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    750,000
    
    
    $
    4.27
    
    
    $
    2,835,000Karim Hirji
    
    August 1, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    600,000
    
    
    $
    4.27
    
    
    $
    2,268,000Errin Kimball
    
    August 1, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    400,000
    
    
    $
    4.27
    
    
    $
    1,512,000Erdal Yildirim
    
    August 1, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    400,000
    
    
    $
    4.27
    
    
    $
    1,512,000
 
 1)
    
    Stock options vest at the rate of 25% on the date of grant and 25% on each of the
first three anniversary dates of the grant date unless otherwise stated in the Employment
Agreement.2)
    
    The exercise price for stock options is equal to the closing price of our common
stock on the date of grant.3)
    
    The Company estimates the fair value of stock options using the Black-Scholes
valuation model, consistent with the provisions of SFAS No. 123R. The Black-Scholes valuation
model requires the input of highly subjective assumptions, including the options expected
life and the expected price volatility of the Companys common stock. The expected stock price
volatility assumption was determined using historical volatility of the Companys common
stock. This amount disregards any estimate of forfeitures. 74




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##### Table of Contents



Outstanding Equity Awards at Fiscal Year-End Table
  OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
 Option Awards
    
    Stock AwardsEquityIncentiveEquity
    
    PlanIncentive
    
    Awards:Plan
    
    Market orEquity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Awards:
    
    PayoutIncentive Plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Number of
    
    Value ofAwards:
    
    
    
    
    
    
    
    
    
    
    
    
    
    Market
    
    Unearned
    
    UnearnedNumber of
    
    
    
    
    
    
    
    
    
    Number of
    
    Value of
    
    Shares,
    
    Shares,Number of
    
    Number of
    
    Securities
    
    
    
    
    
    
    
    
    
    Shares or
    
    Shares or
    
    Units or
    
    Units orSecurities
    
    Securities
    
    Underlying
    
    
    
    
    
    
    
    
    
    Units of
    
    Units of
    
    Other
    
    OtherUnderlying
    
    Underlying
    
    Unexercised
    
    Option
    
    
    
    
    
    Stock That
    
    Stock That
    
    Rights That
    
    Rights ThatUnexercised
    
    Unexercised
    
    Unearned
    
    Exercise
    
    Option
    
    Have Not
    
    Have Not
    
    Have Not
    
    Have NotOptions (#)
    
    Options (#)
    
    Options
    
    Price
    
    Expiration
    
    Vested
    
    Vested
    
    Vested
    
    VestedName
    

Exercisable
(1)
    

Unexercisable
(1)
    
    (#)
    
    ($)
    
    Date
    
    (#)
    
    ($)
    
    (#)
    
    ($)T. Murray
Wilson (2)
    
    
    1,000,000
    
    
    
    
    
    
    
    
    
    
    $
    6.75
    
    
    May 1/11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000,000
    
    
    
    
    
    
    
    
    
    
    $
    6.75
    
    
    Aug. 14/11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000,000
    
    
    
    
    
    
    
    
    
    
    $
    6.75
    
    
    May 1/12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000,000
    
    
    
    1,000,000
    
    
    $
    6.75
    
    
    May 1/13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    137,500
    
    
    
    412,500
    
    
    
    412,500
    
    
    $
    5.05
    
    
    Aug. 23/11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    187,500
    
    
    
    562,500
    
    
    
    562,500
    
    
    $
    4.27
    
    
    Aug. 1/12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Christopher
H. Hopkins (3)
    
    
    150,000
    
    
    
    450,000
    
    
    
    450,000
    
    
    $
    5.05
    
    
    Aug. 23/11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    187,500
    
    
    
    562,500
    
    
    
    562,500
    
    
    $
    4.27
    
    
    Aug. 1/12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Karim Hirji
(4)
    
    
    100,000
    
    
    
    300,000
    
    
    
    300,000
    
    
    $
    5.05
    
    
    Aug. 23/11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150,000
    
    
    
    450,000
    
    
    
    450,000
    
    
    $
    4.27
    
    
    Aug. 1/12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Errin
Kimball (5)
    
    
    75,000
    
    
    
    225,000
    
    
    
    225,000
    
    
    $
    5.05
    
    
    Aug. 23/11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    300,000
    
    
    
    300,000
    
    
    $
    4.27
    
    
    Aug. 1/12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Erdal
Yildirim (6)
    
    
    75,000
    
    
    
    225,000
    
    
    
    225,000
    
    
    $
    3.89
    
    
    Oct. 2/11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    300,000
    
    
    
    300,000
    
    
    $
    4.27
    
    
    Aug. 1/12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  
   75




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##### Table of Contents



76




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##### Table of Contents



Option Exercises and stock vested table
  OPTIONS EXERCISED AND STOCK VESTED
 Option Awards
    
    Stock AwardsValueNumber of
    
    Realized
    
    Number of
    
    ValueShares
    
    On
    
    Shares Acquired
    
    RealizedAcquired on Exercise
    
    Exercise
    
    on Vesting
    
    on VestingName
    
    (#)
    
    ($)
    
    ($)
    
    ($)T. Murray Wilson
    
    Nil
    
    Nil
    
    Nil
    
    NilChristopher Hopkins
    
    Nil
    
    Nil
    
    Nil
    
    NilKarim Hirji
    
    Nil
    
    Nil
    
    Nil
    
    NilErrin Kimball
    
    Nil
    
    Nil
    
    Nil
    
    NilErdal Yildirim
    
    Nil
    
    Nil
    
    Nil
    
    Nil
 77




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##### Table of Contents



Potential Payments Upon Termination or Change in Control
  Compensation of Directors.
  .
 DIRECTOR COMPENSATION
 NonqualifiedFees Earned
    
    
    
    
    
    
    
    
    
    Non-Equity
    
    Deferredor Paid in
    
    Stock
    
    Option
    
    Incentive Plan
    
    Compensation
    
    All OtherCash
    
    Awards
    
    Awards
    
    Compensation
    
    Earnings
    
    Compensation
    
    TotalName
    
    ($)
    
    ($)
    
    ($)(1)
    
    ($)
    
    ($)
    
    ($)
    
    ($)Thomas Milne
    
    $
    55,000
    
    
    
    
    
    
    $
    561,675
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    616,675Ronald Phillips
    
    $
    55,000
    
    
    
    
    
    
    $
    561,675
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    616,675Gordon Tallman
    
    $
    60,000
    
    
    
    
    
    
    $
    561,675
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    621,675W. Scott Thompson
    
    $
    50,000
    
    
    
    
    
    
    $
    561,675
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    611,675Pamela Wallin
    
    $
    41,000
    
    
    
    
    
    
    $
    243,953
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    284,953John Read
    
    $
    22,370
    
    
    
    
    
    
    $
    295,848
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    318,218
 
 1)
    
    The dollar amount reported in this column is the compensation cost recognized in our
2008 financial statements pursuant to SFAS No.123(R). The Company estimates the fair value of
stock options using the Black-Scholes valuation model, consistent with the provisions of SFAS
No. 123R. The Black-Scholes valuation model requires the input of highly subjective
assumptions, including the options expected
life and the expected price volatility of the Companys common stock. The expected stock price
volatility assumption was determined using historical volatility of the Companys common stock. 78




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##### Table of Contents



Item 12. SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
  Name and Address of
    
    
    
    Amount and Nature of
    
    Percent ofBeneficial Owner
    
    Position
    
    Beneficial Ownership
    
    Common StockT. Murray Wilson
Suite 205,707-7th Avenue
S.W., Calgary, Alberta
CANADA T2P 3H6
    
    Executive Chairman and Chairman
of the Board
    

4,598,050
    (2)(17)
    
    
    2
    %Ronald Phillips
Suite 205,707-7th Avenue
S.W., Calgary,
Alberta CANADA T2P 3H6
    
    Director
    

1,255,750
    (3)(17)
    
    
    *Christopher H. Hopkins
Suite 205, 707-7th Avenue
S.W., Calgary, Alberta
CANADA T2P 3H6
    
    Chief Executive Officer,
President and Director
    

21,922,798
    (4)(17)
    
    
    8.8
    %Karim Hirji
Suite 205, 707-7th Avenue
S.W., Calgary, Alberta
CANADA T2P 3H6
    
    Chief Financial Officer
    

6,679,166
    (5)(17)
    
    
    2.9
    %Thomas Milne
Suite 205, 707-7th Avenue
S.W., Calgary, Alberta
CANADA T2P 3H6
    
    Director
    

2,619,000
    (6)(7)(17)
    
    
    1.1
    %William Scott Thompson
Suite 205, 707-7th Avenue
S.W., Calgary, Alberta
CANADA T2P 3H6
    
    Director
    

2,653,464
    (8)(17)
    
    
    1.2
    %Gordon Tallman
Suite 205, 707-7th Avenue
S.W., Calgary, Alberta
CANADA T2P 3H6
    
    Director
    

260,000
    (9)(17)
    
    
    *
 79




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##### Table of Contents



Name and Address of
    
    
    
    Amount and Nature of
    
    Percent ofBeneficial Owner
    
    Position
    
    Beneficial Ownership
    
    Common StockErrin Kimball
Suite 205, 707-7th Avenue
S.W., Calgary, Alberta
CANADA T2P 3H6
    
    Vice President, Exploration
    

4,160,566
    (10)(17)
    
    
    1.8
    %Pamela Wallin
Suite 205, 707-7th Avenue
S.W., Calgary, Alberta
CANADA T2P 3H6
    
    Director
    

83,300
    (11)(17)
    
    
    *John Read
Suite 205, 707-7th Avenue
S.W., Calgary, Alberta
CANADA T2P 3H6
    
    Director
    

45,600
    (12)
    
    
    *Claes Palmgren
Suite 205, 707-7th Avenue
S.W., Calgary, Alberta
CANADA T2P 3H6
    
    Vice President, Reservoir Engineer
    
    50,000
    (13)
    
    
    *Paul ODonoghue
Suite 205, 707-7th Avenue
S.W., Calgary, Alberta
CANADA T2P 3H6
    
    Vice President, Investor
Relations & Corporate Planning
    
    50,000
    (14)
    
    
    *Erdal Yildirim
Suite 205, 707-7th Avenue
S.W., Calgary, Alberta
CANADA T2P 3H6
    
    Executive Vice President, Project
Development
    

375,875
    (15)(17)
    
    
    *All directors, executive officers
and Named Executive Officers named
as a group (13 persons)
    
    
    
    44,753,569
    (16)
    
    
    16.7
    %
 
 *
    
    Indicates less than one percent.(1)
    
    The amounts and percentages in these columns reference Exchangeable Shares and
options to purchase Exchangeable Shares (discussed further below) that were issued by OQI Sask
in exchange for OQI Sask common stock and stock options pursuant to that certain
Reorganization Agreement dated June 9, 2006 (the transactions contemplated in the
Reorganization Agreement were consummated on August 14, 2006 and the closing under that
Agreement is referred to as the Reorganization). Each Exchangeable Share (or exercised
option) is convertible into one share of the Companys common stock and the expiration date of
each Exchangeable Share is August 14, 2013 (unless stock options to purchase Exchangeable
Shares have an earlier expiration date). The information related to stock options to purchase
Exchangeable Shares owned by each director, executive officer and each named executive
officer, if any, is disclosed in the respective footnotes to the table on Amount and Nature
of Beneficial Ownership below.(2)
    
    Includes: (i) 16,800 shares of the Companys common stock (ii) vested options to
purchase 4,581,250 shares of common stock. This number does not include unvested options to
purchase 718,750 shares of the Companys common stock.(3)
    
    Includes: (i) vested options to purchase 650,000 shares of common stock; (ii)
400,000 shares of common stock owned by DKR Saturn Event Holding Fund, Ltd., of which Mr.
Phillips is the manager; and (iii) options to 80




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##### Table of Contents



acquire 205,750 Exchangeable Shares. This number
does not include unvested options to purchase 200,000 shares of common stock.(4)
    
    Includes: (i) 21,082,516 Exchangeable Shares and options to acquire Exchangeable
Shares acquired under the Reorganization Agreement; (ii) 600,000 vested options to acquire the
Companys common stock; (iii) 34,532 shares of the Companys common stock of which 17,266 is
owned by Mr. Hopkins spouse; and (iv) 205,750 Exchangeable Shares owned by Mr. Hopkins
spouse. The number of shares beneficially owned by Mr. Hopkins does not include (i) unvested
options to acquire 274,334 Exchangeable Shares; and (ii) unvested options to purchase 750,000
shares of the Companys common stock.(5)
    
    Includes: (i) 5,898,166 Exchangeable Shares and vested options to acquire
Exchangeable Shares; (ii) vested options to purchase 450,000 shares of the Companys common
stock; and (iii) 331,000 shares of the Companys common stock. This number does not include
(i) unvested options to acquire 274,334 Exchangeable Shares; and (ii) unvested options to
purchase 550,000 shares of the Companys common stock.(6)
    
    Excludes: (i) 16,800 shares of the Companys common stock owned by Mr. Milnes
affiliate Precise Details, Inc.; and (ii) 188,050 Exchangeable Shares acquired by Mr. Milnes
spouse pursuant to the Reorganization Agreement. Mr. Milne disclaims investment and voting
control of these securities.(7)
    
    Includes: (i) 2,469,000 Exchangeable Shares and options to acquire Exchangeable
Shares acquired pursuant to the Reorganization Agreement; and (ii) vested options to purchase
150,000 shares of the Companys common stock. This number does not include unvested options to
purchase 200,000 shares of the Companys common stock.(8)
    
    Includes: (i) 445,964 shares of the Companys common stock held by the WLT
Reification Trust for the Benefit of William Scott Thompson; (ii) vested options to acquire
2,057,500 Exchangeable Shares; and (iii) vested options to purchase 150,000 shares of the
Companys common stock. This number does not include unvested options to purchase 200,000
shares of the Companys common stock.(9)
    
    Includes: (i) 110,000 shares of the Companys common stock of which 10,000 is by
Mr. Tallmans spouse; and (ii) vested options to purchase 150,000 shares of the Companys
common stock. This number does not include unvested options to purchase 200,000 shares of the
Companys common stock.(10)
    
    Includes: (i) 2,476,400 shares of the Companys common stock; (ii) 1,371,666
Exchangeable Shares and options to acquire Exchangeable Shares acquired pursuant to the
Reorganization Agreement; and (iii) vested options to purchase 312,500 shares of the Companys
common stock. The number of shares beneficially owned by Mr. Kimball does not include (i)
unvested options to acquire 274,334 Exchangeable Shares; and (ii) unvested options to purchase
387,500 shares of the Companys common stock.(11)
    
    Includes: (i) 8,300 shares of the Companys common stock; and (ii) vested
options to purchase 75,000 shares of the Companys common stock. This number does not include
unvested options to purchase 75,000 shares of the Companys common stock.(12)
    
    Includes: (i) 8,100 shares of the Companys common stock; and (ii) vested options
to purchase 37,500 shares of the Companys common stock. This number does not include
unvested options to purchase 112,500 shares of the Companys common stock.(13)
    
    Includes vested options to purchase 50,000 shares of the Companys common stock.
This number does not include unvested options to purchase 150,000 shares of the Companys
common stock.(14)
    
    Includes vested options to purchase 50,000 shares of the Companys common stock.
This number does not include unvested options to purchase 150,000 shares of the Companys
common stock.(15)
    

    Includes: (i) 100,875 Exchangeable Shares acquired pursuant to the Reorganization
Agreement; and (ii) vested options to purchase 275,000 shares of the Companys common stock.
This number does not include unvested options to purchase 425,000 shares of the Companys
common stock.(16)
    
    Includes: (i) securities reflected in footnotes 2 to 15. 81




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##### Table of Contents



(17)
    
    The amounts and percentages in these columns include options to purchase shares of
the Companys stock that vest on August 1, 2008 and August 23, 2008. Security Ownership of Certain Beneficial Owners
  Name and Address of
    
    Amount and Nature of
    
    Percent ofBeneficial Owner
    
    Beneficial Ownership
    
    Common stockSprott Asset Management Inc.
Suite 2700, South Tower
Royal Bank Plaza
Toronto, ON M5J 2J1
    
    11,904,761
    
    
    5.2
    %Aletheia Research and Management, Inc.
100 Wilshire Boulevard, Suite 1960
Santa Monica, CA 90401
    
    
    26,685,922
    
    
    
    11.8
    %Goodman & Company, Investment Counsel Ltd.,
One Adelaide Street East, 29th Floor
Toronto, Ontario, Canada, M5C 2V9
    
    13,060,490(1)
    
    
    5.7
    %
 
 (1)
    
    Includes warrants to acquire 500,000 shares of common stock. Securities Authorized for Issuance Under Equity Plans
 Number of SecuritiesRemaining Available forFuture IssuanceNumber of Securities to
    
    
    Weighted Average
    
    
    Under Equitybe Issued Upon Exercise of
    
    
    Exercise Price of
    
    
    Compensation PlansOutstanding Options,
    
    
    Outstanding Options,
    
    
    (Excluding SecuritiesPlan Category
    
    Warrants and Rights
    
    
    Warrants and Rights
    
    
    Reflected in Column (a))Equity Compensation
Plans Approved by
Stockholders
    
    
    13,272,000
    (1)
    
    $
    5.22
    
    
    
    15,171,750
    (3)Equity Compensation
Plans Not Approved
by Stockholders
    
    
    0
    (2)
    
    $
    0
    
    
    
    1,200,000TOTAL
    
    
    13,272,000
    (1)(2)
    
    $
    5.22
    
    
    
    16,371,750
 
 (1)
    
    Includes: options to acquire 13,272,000 shares of common stock under the Companys
2006 Stock Option Plan.(2)
    
    All outstanding options to acquire shares of common stock under the Companys 2005b
Stock Option Plan were exercised during the year ended April 30, 2008. The Company does not
intend to issue any more securities under this plan.(3)
    
    The aggregate number of securities issuable under the 2006 Stock Option Plan is the
lesser of: (A) 15% of the total outstanding shares of the Companys common stock, or (B)
30,000,000. As of June 16, 2008, the number of securities available for issuance under the
2006 Stock Option Plan is 15,171,750 (calculated as 30,000,000 maximum less 15,737,000 granted
plus 908,750 cancelled/forfeit). 82




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##### Table of Contents



Changes in Control
  
 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
      83




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##### Table of Contents



PART IV
 
 Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
  Audit Fees
   Audit-Related Fees
   Tax Fees
  All Other Fees
   Audit Committees Pre-Approval Practice
 de minimis
 
    
    Preapprove all audit services that the auditor may provide to us or any subsidiary
(including, without limitation, providing comfort letters in connection with securities
underwritings or statutory audits) as required by §10A(i)(1)(A) of the Exchange Act (as
amended by the Sarbanes-Oxley Act of 2002).
 84




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##### Table of Contents




    
    Preapprove all non-audit services (other than certain de minimis services described
in §10A(i)(1)(B) of the Exchange Act (as amended by the Sarbanes-Oxley Act of 2002)) that
the auditors propose to provide to us or any of our subsidiaries.
  
 Item 15. EXHIBITS
 3.1
    
    Articles of Incorporation.(1),(4),(6),(11)3.2
    
    Bylaws, filed herewith.4.1
    
    2005b Stock Option Plan.(2)4.2
    
    2006 Stock Option Plan.(13)4.3
    
    Rights Agreement, dated as of March 9, 2006, between the Company and Computershare Investor Services,
Inc., as Rights 
Agent.(5)4.4
    
    Warrant indenture between Oilsands Quest Inc. and Computershare Trust Company of Canada dated
December 5, 2007.(14)10.6
    
    Form of Warrant, dated December 12, 2005. (3)10.7
    
    Financing Agreement with Oilsands Quest Sask, Inc., November 25, 2005.(3)10.8
    
    Subscription Agreement with Dynamic Power Hedge Fund, dated December 12, 2005.(3)10.9
    
    Executive Employment Agreement (Amended and Restated) with T. Murray Wilson, dated September 22, 2006
and as amended effective August 1, 2007.(13)10.10
    
    Reorganization Agreement, dated June 9, 2006.(7)10.13
    
    Voting Exchange and Trust Agreement dated August 14, 2006.(8)10.14
    
    Exchangeable Share Provisions.(8)10.15
    
    Support Agreement dated August 14, 2006.(8)10.16
    
    Executive Employment Agreement with Christopher Hopkins dated August 14, 2006.(8)10.17
    
    Executive Employment Agreement with Karim Hirji dated August 14, 2006.(8)10.18
    
    Executive Employment Agreement with Errin Kimball dated August 14, 2006.(8)10.20
    
    Share Purchase Agreement, effective May 31, 2006.(12)10.21
    
    Assignment Agreement, effective May 31, 2006.(12)10.22
    
    Executive Employment Agreement with Erdal Yildirim, dated October 10, 2006.(10)10.23
    
    Form of Indemnity Agreement.(9)10.24
    
    Subscription Agreement for Flow-Through Shares, dated March 6, 2007.(13)10.25
    
    Amending Agreement to Subscription Agreement for Flow-Through Shares, dated May 3, 2007.(13)10.26
    
    Subscription Agreement between the Company and Subscribers, dated May 3, 2007.(13)10.27
    
    Underwriting Agreement.(15)
 85




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##### Table of Contents



21.1
    
    Subsidiaries of the Registrant.(13)23.1
    
    Consent of Pannell Kerr Forster, filed herewith.23.2
    
    Consent of KPMG LLP, filed herewith.23.3
    
    Consent of McDaniel & Associates, filed herewith.31.1
    
    Certification of CEO Pursuant to Exchange Act Rules 13a-14
and 15d-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, filed herewith.31.2
    
    Certification of CFO Pursuant to Exchange Act Rules 13a-14
and 15d-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, filed herewith.32.1
    
    Certification of CEO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith.32.2
    
    Certification of CFO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith.99.1
    
    Report of Management and Directors on Oil and Gas Disclosure,
filed herewith99.2
    
    Report on Resource Estimates by Independent Qualified
Resource Evaluator, filed herewith
 
 (1)
    
    Incorporated by reference from Form 10-SB, filed October 14, 1999; and Form 8-K,
filed November 29, 2004.(2)
    
    Incorporated by reference from Form SB-2 dated December 29, 2005.(3)
    
    Incorporated by reference from Form 10-QSB dated March 22, 2006.(4)
    
    Incorporated by reference from Form 10-QSB dated December 14, 2005.(5)
    
    Incorporated by reference from Form 8-A dated March 13, 2006.(6)
    
    Incorporated by reference from Form 8-K dated March 13, 2006.(7)
    
    Incorporated by reference from Form 8-K dated June 14, 2006.(8)
    
    Incorporated by reference from Form 8-K dated August 17, 2006.(9)
    
    Incorporated by reference herein from Form 10-QSB filed March 15, 2007(10)
    
    Incorporated by reference herein from Form 8-K dated October 12, 2006.(11)
    
    Incorporated by reference herein from Form 10-QSB filed December 15, 2006.(12)
    
    Incorporated by reference herein from Form 8-K filed August 21, 2006.(13)
    
    Incorporated by reference herein from Form 10-KSB filed July 30, 2007.(14)
    
    Incorporated by reference herein from Form 8-K filed December 5, 2007.(15)
    
    Incorporated by reference herein from Form 10-K filed November 23, 2007. 
 86




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##### Table of Contents



SIGNATURES
  OILSANDS QUEST INC.Date: June 27, 2008
    By:
    /s/ Christopher H. HopkinsChristopher H. Hopkins,President, Chief Executive Officer and Director
(Principal Executive Officer) Date: June 27, 2008
    By:

/s/ Karim HirjiKarim Hirji,Chief Financial Officer
(Principal Accounting Officer and Controller)  /s/ T. Murray Wilson
    
    Executive Chairman and Director
    
    June 27, 2008T. Murray Wilson/s/ Christopher H. Hopkins
    
    President and Chief Executive Officer and Director
    
    June 27, 2008Christopher H. Hopkins/s/ Ronald Phillips
    
    Director
    
    June 27, 2008Ronald Phillips/s/ Thomas Milne
    
    Director
    
    June 27, 2008Thomas Milne/s/ Gordon Tallman
    
    Director
    
    June 27, 2008Gordon Tallman/s/ W. Scott Thompson
    
    Director
    
    June 27, 2008W. Scott Thompson/s/ Pamela Wallin
    
    Director
    
    June 27, 2008Pamela Wallin/s/ John Read
    
    Director
    
    June 27, 2008John Read
 87




---



##### 



Item 8. Financial Statements and Supplementary Data
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Report of Independent Registered Public Accounting Firm as of April 30, 2008
    
    
    F-1Report of Independent Registered Public Accounting Firm as of April 30, 2007
    
    
    F-2Consolidated Financial Statements
    
    
    F-3Consolidated Balance Sheets as of April 30, 2008 and April 30, 2007
    
    
    F-3Consolidated Statements of Operations for the Years Ended April 30, 2008, 2007 and 2006
and for the period from Inception on April 3, 1998 to April 30, 2008
    
    
    F-4Consolidated Statements of Stockholders Equity and Comprehensive Income from Inception
on April 3, 1998 to April 20, 2008
    
    
    F-5Consolidated Statements of Cash Flows for the Years Ended April 30, 2008, 2007 and 2006
and for the period from Inception on April 3, 1998 to April 30, 2008
    
    
    F-9Notes to Consolidated Financial Statements
    
    
    F-10




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
 Internal Control  Integrated Framework
    Internal Control  Integrated Framework
 
 F-1




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 TO THE STOCKHOLDERS AND DIRECTORS OF OILSANDS QUEST INC.
(Formerly Canwest Petroleum Corporation) (An Exploration Stage Company)
    /s/ Pannell Kerr Forster
   
 F-2




---



##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Consolidated Balance Sheets
 April 30,
    
    
    April 30,2008
    
    
    2007ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    26,498,038
    
    
    $
    32,393,871Accounts receivable
    
    
    3,363,642
    
    
    
    1,283,415Short-term investments
    
    
    19,811,788
    
    
    
    2,000,000Prepaid expenses
    
    
    562,593
    
    
    
    152,481Available for sale securities (note 5)
    
    
    390,733
    
    
    
    284,630Total Current Assets
    
    
    50,626,794
    
    
    
    36,114,397Property and Equipment(note 4)
    
    
    595,611,114
    
    
    
    520,301,141Total Assets
    
    $
    646,237,908
    
    
    $
    556,415,538LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    16,400,508
    
    
    $
    5,170,063Loan payable (note 7)
    
    
    
    
    
    
    22,589,681Flow-through share premium liability (note 12(d))
    
    
    
    
    
    
    2,535,187Total Current Liabilities
    
    
    16,400,508
    
    
    
    30,294,931Deferred Taxes(note 9)
    
    
    137,577,448
    
    
    
    139,287,062153,977,956
    
    
    
    169,581,993STOCKHOLDERS EQUITYCapital StockPreferred stock, par value of $0.001 each, 10,000,000 shares authorized
1 Series B Preferred share outstanding (notes 3(a) and 11)
    
    
    1
    
    
    
    1Common stock, par value of $0.001 each, 500,000,000 shares authorized
213,861,958 and 164,624,278 shares outstanding at April 30, 2008
and April 30, 2007 respectively (notes 11, 12, 13 and 14)
    
    
    213,862
    
    
    
    164,624Additional Paid-in Capital
    
    
    678,774,284
    
    
    
    519,265,628Deficit Accumulated During Exploration Stage
    
    
    (230,306,540
    )
    
    
    (131,435,609
    )Other Comprehensive Income (Loss)
    
    
    43,578,345
    
    
    
    (1,161,099
    )Total Stockholders Equity
    
    
    492,259,952
    
    
    
    386,833,545Total Liabilities and Stockholders Equity
    
    $
    646,237,908
    
    
    $
    556,415,538
 Commitments (note 19)
Subsequent events (notes 4(d) and 20)
 F-3




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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Consolidated Statements of Operations
 FromInception onFor The Years Ended April 30,
    
    
    April 3, 1998through to2008
    
    
    2007
    
    
    2006
    
    
    April 30, 2008ExpendituresExploration costs
    
    $
    96,419,694
    
    
    $
    26,877,906
    
    
    $
    8,291,018
    
    
    $
    134,269,939General and administrativeCash consideration
    
    
    11,170,499
    
    
    
    10,782,651
    
    
    
    4,138,482
    
    
    
    29,507,806Stock-based consideration
(notes 2(h), 12, 13 and 15)
    
    
    16,187,715
    
    
    
    39,755,592
    
    
    
    44,319,817
    
    
    
    104,300,464Depreciation
    
    
    1,072,565
    
    
    
    367,827
    
    
    
    
    
    
    
    1,440,392124,850,473
    
    
    
    77,783,976
    
    
    
    56,749,317
    
    
    
    269,518,601Other ItemsInterest income
    
    
    (2,468,694
    )
    
    
    (1,530,720
    )
    
    
    (273,304
    )
    
    
    (4,272,718
    )Gain on extinguishment of certain
liabilities (note 16)
    
    
    
    
    
    
    
    
    
    
    (936,469
    )
    
    
    (936,469
    )Net loss before income tax recovery and
non-controlling shareholder interest
    
    
    122,381,779
    
    
    
    76,253,256
    
    
    
    55,539,544
    
    
    
    264,309,414Income tax recovery(note 9)
    
    
    (23,510,848
    )
    
    
    (2,307,432
    )
    
    
    (21,956
    )
    
    
    (25,879,620
    )Net loss before non-controlling
shareholder interest
    
    
    98,870,931
    
    
    
    73,945,824
    
    
    
    55,517,588
    
    
    
    238,429,794Non-controlling shareholder interest(note 10)
    
    
    
    
    
    
    (5,151,083
    )
    
    
    (2,876,685
    )
    
    
    (8,123,254
    )Net loss
    
    $
    98,870,931
    
    
    $
    68,794,741
    
    
    $
    52,640,903
    
    
    $
    230,306,540Net Loss Per Share
    
    $
    (0.44
    )
    
    $
    (0.40
    )
    
    $
    (0.64
    )Weighted Average Number of
Common Shares Outstanding
    
    
    227,054,265
    
    
    
    173,197,834
    
    
    
    81,989,009
  F-4




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##### Table of Contents



OILSANDS QUEST INC.
 (An Exploration Stage Company)
Consolidated Statements of Stockholders Equity and Comprehensive Income
 DeficitAccumulated
    
    
    TotalAdditional
    
    
    Other
    
    
    During the
    
    
    StockholdersCommon Stock
    
    
    Preferred Stock
    
    
    paid-in
    
    
    Comprehensive
    
    
    Exploration
    
    
    EquityShares
    
    
    Par Value
    
    
    Shares
    
    
    Par Value
    
    
    Capital
    
    
    Income (Loss)
    
    
    Stage
    
    
    (Deficiency)Common stock issued on
inception for assets
    
    
    6,000,000
    
    
    $
    6,000
    
    
    
    
    
    
    $
    
    
    
    $
    91,834
    
    
    $
    
    
    
    $
    
    
    
    $
    97,834Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (700
    )
    
    
    (700
    )Balance, April 30, 1998
    
    
    6,000,000
    
    
    
    6,000
    
    
    
    
    
    
    
    
    
    
    
    91,834
    
    
    
    
    
    
    
    (700
    )
    
    
    97,134For the period of
April 30, 1998 to April 30, 2005Common stock issued for:Subscriptions
    
    
    77,500
    
    
    
    78
    
    
    
    
    
    
    
    
    
    
    
    36,093
    
    
    
    
    
    
    
    
    
    
    
    36,171Property
    
    
    17,020,724
    
    
    
    17,021
    
    
    
    
    
    
    
    
    
    
    
    3,222,143
    
    
    
    
    
    
    
    
    
    
    
    3,239,164Cash
    
    
    9,138,972
    
    
    
    9,139
    
    
    
    
    
    
    
    
    
    
    
    2,048,018
    
    
    
    
    
    
    
    
    
    
    
    2,057,157Services
    
    
    6,226,666
    
    
    
    6,227
    
    
    
    
    
    
    
    
    
    
    
    1,537,440
    
    
    
    
    
    
    
    
    
    
    
    1,543,667Settlement of debt
    
    
    19,944,799
    
    
    
    19,944
    
    
    
    
    
    
    
    
    
    
    
    4,154,719
    
    
    
    
    
    
    
    
    
    
    
    4,174,663Share issue costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40,586
    )
    
    
    
    
    
    
    
    
    
    
    (40,586
    )Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    311,616
    
    
    
    
    
    
    
    
    
    
    
    311,616Beneficial conversion feature of convertible
debentures and warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,474,155
    
    
    
    
    
    
    
    
    
    
    
    2,474,155Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (165,834
    )
    
    
    
    
    
    
    (165,834
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,999,265
    )
    
    
    (9,999,265
    )Balance April 30, 2005
    
    
    58,408,661
    
    
    $
    58,409
    
    
    
    
    
    
    $
    
    
    
    $
    13,835,432
    
    
    $
    (165,834
    )
    
    $
    (9,999,965
    )
    
    $
    3,728,042
  F-5




---



##### Table of Contents



OILSANDS QUEST INC.
 (An Exploration Stage Company)
Consolidated Statements of Stockholders Equity and Comprehensive Income
 DeficitAccumulated
    
    
    TotalAdditional
    
    
    Other
    
    
    During the
    
    
    StockholdersCommon Stock
    
    
    Preferred Stock
    
    
    paid-in
    
    
    Comprehensive
    
    
    Exploration
    
    
    EquityShares
    
    
    Par Value
    
    
    Shares
    
    
    Par Value
    
    
    Capital
    
    
    Income (Loss)
    
    
    Stage
    
    
    (Deficiency)Balance, April 30, 2005
    
    
    58,408,661
    
    
    $
    58,409
    
    
    
    
    
    
    $
    
    
    
    $
    13,835,432
    
    
    $
    (165,834
    )
    
    $
    (9,999,965
    )
    
    $
    3,728,042Common stock issued for:Cash
    
    
    24,512,052
    
    
    
    24,512
    
    
    
    
    
    
    
    
    
    
    
    28,888,364
    
    
    
    
    
    
    
    
    
    
    
    28,912,876Cashless exercise of warrants
and options
    
    
    10,971,013
    
    
    
    10,971
    
    
    
    
    
    
    
    
    
    
    
    (10,971
    )
    
    
    
    
    
    
    
    
    
    
    Property
    
    
    385,880
    
    
    
    385
    
    
    
    
    
    
    
    
    
    
    
    500,059
    
    
    
    
    
    
    
    
    
    
    
    500,444Services
    
    
    11,746,945
    
    
    
    11,747
    
    
    
    
    
    
    
    
    
    
    
    9,298,262
    
    
    
    
    
    
    
    
    
    
    
    9,310,009Settlement of debt
    
    
    9,021,857
    
    
    
    9,022
    
    
    
    
    
    
    
    
    
    
    
    5,449,975
    
    
    
    
    
    
    
    
    
    
    
    5,458,997Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,314,505
    
    
    
    
    
    
    
    
    
    
    
    1,314,505Beneficial conversion feature of
convertible debentures and warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,449,294
    
    
    
    
    
    
    
    
    
    
    
    18,449,294Other comprehensive income
Exchange gain on translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    421,919
    
    
    
    
    
    
    
    421,919Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (52,640,903
    )
    
    
    (52,640,903
    )Balance, April 30, 2006
    
    
    115,046,408
    
    
    $
    115,046
    
    
    
    
    
    
    $
    
    
    
    $
    77,724,920
    
    
    $
    256,085
    
    
    $
    (62,640,868
    )
    
    $
    15,455,183
  F-6




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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Consolidated Statements of Stockholders Equity and Comprehensive Income
 DeficitAccumulated
    
    
    TotalAdditional
    
    
    Other
    
    
    During the
    
    
    StockholdersCommon Stock
    
    
    Preferred Stock
    
    
    paid-in
    
    
    Comprehensive
    
    
    Exploration
    
    
    EquityShares
    
    
    Par Value
    
    
    Shares
    
    
    Par Value
    
    
    Capital
    
    
    Income (Loss)
    
    
    Stage
    
    
    (Deficiency)Balance, April 30, 2006
    
    
    115,046,408
    
    
    $
    115,046
    
    
    
    
    
    
    $
    
    
    
    $
    77,724,920
    
    
    $
    256,085
    
    
    $
    (62,640,868
    )
    
    $
    15,455,183Common stock issued for:Cash
    
    
    15,603,175
    
    
    
    15,603
    
    
    
    
    
    
    
    
    
    
    
    68,306,693
    
    
    
    
    
    
    
    
    
    
    
    68,322,296Premium on flow-through shares
allocated to liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,535,187
    )
    
    
    
    
    
    
    
    
    
    
    (2,535,187
    )Settlement of debt
    
    
    3,523,727
    
    
    
    3,524
    
    
    
    
    
    
    
    
    
    
    
    18,689,096
    
    
    
    
    
    
    
    
    
    
    
    18,692,620Cashless exercise of warrants
    
    
    2,213,953
    
    
    
    2,214
    
    
    
    
    
    
    
    
    
    
    
    (2,214
    )
    
    
    
    
    
    
    
    
    
    
    Preferred shares issued:On reorganization (Note 11)
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    319,022,948
    
    
    
    
    
    
    
    
    
    
    
    319,022,949Exchange of exchangeable shares
    
    
    28,237,015
    
    
    
    28,237
    
    
    
    
    
    
    
    
    
    
    
    (28,237
    )
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,755,592
    
    
    
    
    
    
    
    
    
    
    
    39,755,592Share issue costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,723,568
    )
    
    
    
    
    
    
    
    
    
    
    (2,723,568
    )Proceeds
from exercise of subsidiary options and warrants (post reorganization)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,055,585
    
    
    
    
    
    
    
    
    
    
    
    1,055,585Other comprehensive incomeUnrealized loss on available for sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,661
    )
    
    
    
    
    
    
    (25,661
    )Exchange loss on translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,391,523
    )
    
    
    
    
    
    
    (1,391,523
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (68,794,741
    )
    
    
    (68,794,741
    )Balance, April 30, 2007
    
    
    164,624,278
    
    
    $
    164,624
    
    
    
    1
    
    
    $
    1
    
    
    $
    519,265,628
    
    
    $
    (1,161,099
    )
    
    $
    (131,435,609
    )
    
    $
    386,833,545
  F-7




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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Consolidated Statements of Stockholders Equity and Comprehensive Income
 DeficitAccumulatedAdditional
    
    
    Other
    
    
    During the
    
    
    TotalCommon Stock
    
    
    Preferred Stock
    
    
    paid-in
    
    
    Comprehensive
    
    
    Exploration
    
    
    StockholdersShares
    
    
    Par Value
    
    
    Shares
    
    
    Par Value
    
    
    Capital
    
    
    Income (Loss)
    
    
    Stage
    
    
    EquityBalance, April 30, 2007
    
    
164,624,278
    

    
    $
    164,624
    
    

    
    1
    

    

    $
    1
    

    
    $
    519,265,628
    
    
    $
    (1,161,099
    )
    
    $
    (131,435,609
    )
    
    $
    386,833,545Common stock issued for:Cash
    
    
    41,626,431
    
    
    
    41,626
    
    
    
    
    
    
    
    
    
    
    
    149,555,186
    
    
    
    
    
    
    
    
    
    
    
    149,596,812Premium on flow-through shares
allocated to liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,379,276
    )
    
    
    
    
    
    
    
    
    
    
    (4,379,276
    )Property (note 4a) and d))
    
    
    750,000
    
    
    
    750
    
    
    
    
    
    
    
    
    
    
    
    3,291,750
    
    
    
    
    
    
    
    
    
    
    
    3,292,500Services
    
    
    44,000
    
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    116,387
    
    
    
    
    
    
    
    
    
    
    
    116,431Exchange of exchangeable shares
    
    
    6,817,249
    
    
    
    6,818
    
    
    
    
    
    
    
    
    
    
    
    (6,818
    )
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,071,284
    
    
    
    
    
    
    
    
    
    
    
    16,071,284Share issue costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,737,683
    )
    
    
    
    
    
    
    
    
    
    
    (6,737,683
    )Proceeds from exercise of subsidiary options
and warrants (post reorganization)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,597,826
    
    
    
    
    
    
    
    
    
    
    
    1,597,826Other comprehensive incomeUnrealized loss on available for sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (141,970
    )
    
    
    
    
    
    
    (141,970
    )Exchange gain on translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,881,414
    
    
    
    
    
    
    
    44,881,414Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (98,870,931
    )
    
    
    (98,870,931
    )Balance, April 30, 2008
    
    
    213,861,958
    
    
    $
    213,862
    
    
    
    1
    
    
    $
    1
    
    
    $
    678,774,284
    
    
    $
    43,578,345
    
    
    $
    (230,306,540
    )
    
    $
    492,259,952
  F-8




---



##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Consolidated Statements of Cash Flows
 From Inception onFor the years ended April 30,
    
    
    April 3, 1998Through to2008
    
    
    2007
    
    
    2006
    
    
    April 30, 2008Operating ActivitiesNet loss
    
    $
    (98,870,931
    )
    
    $
    (68,794,741
    )
    
    $
    (52,640,903
    )
    
    $
    (230,306,540
    )Non-cash adjustments to net lossStock-based compensation expense
    
    
    16,071,284
    
    
    
    39,755,592
    
    
    
    1,314,505
    
    
    
    57,452,997Deferred income tax (recovery)
    
    
    (23,709,669
    )
    
    
    (2,307,644
    )
    
    
    916,271
    
    
    
    (24,958,448
    )Depreciation
    
    
    1,072,565
    
    
    
    367,827
    
    
    
    
    
    
    
    1,440,392Operating expenses paid with shares
    
    
    116,431
    
    
    
    
    
    
    
    9,310,010
    
    
    
    11,070,439Non-controlling shareholder interest
    
    
    
    
    
    
    (5,151,083
    )
    
    
    (2,876,685
    )
    
    
    (8,123,254
    )Non-cash financing expense
    
    
    
    
    
    
    
    
    
    
    34,047,988
    
    
    
    36,472,143Gain on extinguishment of certain
liabilities (note 16)
    
    
    
    
    
    
    
    
    
    
    (936,469
    )
    
    
    (936,469
    )Write off of exploration property
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    856,359Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    126,220Changes in Non-Cash Working CapitalAccounts receivable and prepaid expenses
    
    
    (2,340,545
    )
    
    
    278,371
    
    
    
    (488,154
    )
    
    
    (2,737,938
    )Accounts payable
    
    
    10,915,217
    
    
    
    3,774,527
    
    
    
    261,608
    
    
    
    18,160,420Cash Used in Operating Activities
    
    
    (96,745,648
    )
    
    
    (32,077,151
    )
    
    
    (11,091,829
    )
    
    
    (141,483,679
    )Investing ActivitiesCapital expenditures
    
    
    (14,621,108
    )
    
    
    (44,077,556
    )
    
    
    (9,843,580
    )
    
    
    (71,995,232
    )Short-term investment (note 2)
    
    
    (17,811,788
    )
    
    
    4,000,000
    
    
    
    (6,000,000
    )
    
    
    (19,811,788
    )Other investments
    
    
    (248,073
    )
    
    
    
    
    
    
    
    
    
    
    (664,872
    )Cash Used in Investing Activities
    
    
    (32,680,969
    )
    
    
    (40,077,556
    )
    
    
    (15,843,580
    )
    
    
    (92,471,892
    )Financing ActivitiesIssuance of shares for cash
    
    
    142,859,131
    
    
    
    65,598,728
    
    
    
    28,885,876
    
    
    
    239,736,916Bank loan
    
    
    (21,207,500
    )
    
    
    21,207,500
    
    
    
    
    
    
    
    Shares issued on exercise of subsidiary options
and warrants post reorganization
    
    
    1,597,826
    
    
    
    
    
    
    
    
    
    
    
    2,653,411Shares issued by subsidiary to non-controlling
interest (note 3(a))
    
    
    
    
    
    
    1,011,479
    
    
    
    7,164,062
    
    
    
    7,663,666Convertible debentures
    
    
    
    
    
    
    
    
    
    
    4,860,373
    
    
    
    8,384,496Cash Provided by Financing Activities
    
    
    123,249,457
    
    
    
    87,817,707
    
    
    
    40,910,311
    
    
    
    258,438,489Inflow of Cash
    
    
    (6,177,160
    )
    
    
    15,663,000
    
    
    
    13,974,902
    
    
    
    24,482,918Effects of exchange rate changes on cash
    
    
    281,327
    
    
    
    603,556
    
    
    
    1,130,238
    
    
    
    2,015,120Cash and cash equivalents, Beginning of Period
    
    
    32,393,871
    
    
    
    16,127,315
    
    
    
    1,022,175
    
    
    
    Cash and cash equivalents, End of Period
    
    $
    26,498,038
    
    
    $
    32,393,871
    
    
    $
    16,127,315
    
    
    $
    26,498,038Non-Cash Financing ActivitiesCommon stock issued for properties
    
    $
    3,292,500
    
    
    $
    
    
    
    $
    500,444
    
    
    $
    7,129,942Warrants granted on purchase of properties
    
    $
    
    
    
    $
    
    
    
    $
    1,713,929
    
    
    $
    1,763,929Common stock issued for services
    
    $
    116,431
    
    
    $
    
    
    
    $
    8,856,496
    
    
    $
    10,504,594Common stock issued for debt settlement
    
    $
    
    
    
    $
    18,692,620
    
    
    $
    5,939,510
    
    
    $
    28,401,029
  F-9




---



##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
 1.
    
    DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONSOn October 31, 2006, CanWest Petroleum Corporation changed its name to Oilsands Quest Inc.
(OQI). At the same time the name of the Companys main operating subsidiary was changed from
Oilsands Quest Inc. to Oilsands Quest Sask Inc. (OQI
Sask).OQI together with its subsidiaries (collectively referred to as the Company) is in the
exploration stage and follows the guidance for a development stage company as defined in
Statement No. 7 of the Financial Accounting Standards Board. The principal business activity
is the exploration and development of natural resource properties in Canada. To date, the
Company has not earned revenue from these activities. The recoverability of costs incurred to
date is uncertain and dependent upon the ability of the Company to obtain sufficient financing
to complete its exploration and development plans and upon future
profitable operations.2.
    
    BASIS OF PRESENTATIONThese consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (US GAAP) and reflect all
adjustments (all of which are normal and recurring in nature) that, in the opinion of
management, are necessary for fair presentation of the annual financial information. Certain
comparative figures have been reclassified to conform to current financial statement
presentation. The significant accounting policies used in these consolidated financial
statements are as follows:
 a)
    
    Principles of consolidationThese consolidated financial statements include the accounts of OQI and all of its
subsidiaries including the following operating subsidiaries:
 
    
    Oilsands Quest Sask Inc. (OQI Sask) in which it holds a 100% interest
(2007  100%; 2006  62.75% (note 3(a) and 4(a));
    
    Township Petroleum Corporation (Township) in which it holds a 100%
interest (note 3(c)); and
    
    Oilsands Quest Technology Inc. in which it holds a 100% interest
(incorporated on December 20, 2007).
  b)
    
    Use of estimatesThe preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting period. Significant items
subject to such estimates include income taxes, the carrying value of properties and
stock-based compensation expense. While management believes the estimates used are
reasonable, actual results could differ from those estimates. Changes in estimates are
recorded when known.c)
    
    Foreign currency translationThe U.S. dollar is the functional currency for OQI (the parent company). The Canadian
dollar (CDN) is the functional currency for OQIs Canadian subsidiaries. The assets and
liabilities of OQIs Canadian subsidiaries are translated into U.S. dollars based on the
current exchange rate in effect at the balance sheet dates. Canadian income and expenses
are translated at average rates for the periods presented. Translation adjustments have
no effect on net income and are included in other comprehensive income in stockholders
equity. Gains and losses arising from transactions denominated in currencies other than
the functional currency, which were not material for all periods presented, are included
in the results of operations of the period in which they occur. Deferred taxes are not
provided on translation gains and losses where OQI expects earnings of a foreign operation
to be permanently reinvested.
 F-10




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OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
 2.
    
    BASIS OF PRESENTATION  (continued)
 d)
    
    Cash and cash equivalentsCash and cash equivalents include cash and term deposits that carry terms less than 91
days at the date of investment. As at April 30, 2008, cash and cash equivalents was
comprised of $9,425,230 in cash and $17,072,808 in term deposits.e)
    
    Short-term investmentsShort-term investments consist of Guaranteed Investment Certificates with a term to
maturity of greater than 90 days. These investments are valued at cost being the lower of
cost or market.f)
    
    Property and equipmentProperty represents the capitalized costs of acquisition of natural resource properties,
principally the rights to explore for oil sands deposits in the provinces of Alberta and
Saskatchewan, Canada and oil shale deposits in the province of Saskatchewan, Canada.The Company follows the successful efforts method of accounting for its exploration and
in-situ oil sands operations. Under the successful efforts method, acquisition costs of
proved and unproved properties are capitalized. Costs of unproved properties are
transferred to proved properties when proved reserves are confirmed. Exploration costs,
including geological and geophysical costs, are expensed as incurred. Exploratory drilling
costs are initially capitalized. If it is determined that a specific well does not contain
proved reserves, the related capitalized exploratory drilling costs are charged to
expense. To date all exploration costs have been charged to operations.Development costs, which include the costs of wellhead equipment, development drilling
costs and handling facilities, applicable geological and geophysical costs and the costs
of acquiring or constructing support facilities and equipment, are capitalized. Costs
incurred to operate and maintain wells and equipment and to lift oil and gas to the
surface will be expensed as operating costs.If and when the Company achieves production, acquisition costs of proved properties will
be depleted using the unit-of-production method based on proved reserves. Capitalized
exploratory drilling costs and development costs will be depleted on the basis of proved
developed reserves by area. Support facilities and equipment will be depreciated on a
straight-line basis over their useful lives.In prior periods while the Company was assessing the nature of the assets and the expected
recovery methods, it followed a policy of capitalizing all of its acquisition costs, and
charged to operations the exploration costs. During the year ended April 30, 2008 the
Company determined that the successful efforts method of accounting is the most
appropriate in these circumstances. The method of accounting in the previous periods is
consistent with successful efforts method of accounting as all exploration costs to date
have been charged to operations.Property costs by area are reviewed for impairment at least annually to consider whether
there are conditions that may indicate impairment. The carrying value of each property is
compared to its net recoverable amount as estimated by quantifiable evidence of the market
value of similar land or geological resources. If the carrying value is found to exceed
the estimated net recoverable amount a write down will be recorded.The Company has not yet converted any of its exploration permits or licenses in
Saskatchewan and Alberta to development leases. In the event that the Company does not
meet the regulated requirement or development conditions to convert its permits to leases
or obtain an extension of such development requirements, its right to
explore for bitumen or oil shale, as applicable, may be lost resulting in an impairment being recorded. The
Company is satisfied that it has good and proper right, title and interest in and to the
permits and licenses.
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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
 2.
    
    BASIS OF PRESENTATION (continued)
 f)
    
    Property and equipment  (continued)Equipment additions are recorded at cost less accumulated depreciation and include
corporate assets, camp facilities and field equipment. Depreciation of these assets is
provided using the straight-line method based on estimated useful lives ranging from two
to five years.g)
    
    Income TaxesDeferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the book basis and tax basis of assets and
liabilities. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. If future utilization of deferred tax assets is
uncertain, the Company may record a valuation allowance against certain deferred tax
assets.Effective May 1, 2007, the Company adopted the Financial Accounting Standards Boards
(FASB) Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes. FIN
48 is an interpretation of FASB Statement 109, Accounting for Income Taxes, and
prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in
the financial statements uncertain tax positions that the Company has taken or expects to
take in its income tax returns. FIN 48 requires the recognition of uncertain tax positions
only where the positions are determined to be more likely than not, defined as greater
than 50%, to be sustained upon examination by the taxing authorities. No changes to
reported tax balances were required on adoption of FIN 48.Significant management judgment is required in determining the Companys provision for
income taxes, deferred tax assets and liabilities and the valuation recorded against the
Companys net deferred tax assets, if any. In assessing the likelihood of realization of
deferred tax assets, management considers estimates of the amount and character of future
taxable income. Actual income taxes could vary from estimated amounts due to the future
impacts of various items, including changes in income tax laws, the Companys forecast
financial condition and results of operations in future periods, as well as results of
audits and examinations of filed tax returns by taxing authorities. Although management
believes current estimates are reasonable, actual results could differ from these
estimates.h)
    
    Stock-based compensationThe Company follows the requirements as set out in Statement of Financial Accounting
Standards (SFAS) No. 123R Share-Based Payment. SFAS No. 123R requires companies to
estimate the fair value of share-based payment awards on the date of grant using an
option-pricing model. The value of the portion of the award that is ultimately expected to
vest is recognized as expense in the Companys financial statements over the requisite
service period. The Company estimates the fair value of stock options using the
Black-Scholes valuation model. The Black-Scholes valuation model requires the input of
highly subjective assumptions, including the options expected life and the expected price
volatility of the Companys common stock. The expected stock price volatility assumption
was determined using historical volatility of the Companys common stock. The fair value
of each option grant is estimated on the date of grant using the Black-Scholes option
valuation model with the following weighted average assumptions:
 Year Ended April 30,2008
    
    2007
    
    2006Expected life (years)
    
    
    5
    
    
    
    5
    
    
    
    2Risk free interest rate
    
    
    4.41
    %
    
    
    4.41
    %
    
    
    4.28
    %Expected volatility
    
    
    124
    %
    
    
    118
    %
    
    
    108
    %Dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
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OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
 2.
    
    BASIS OF PRESENTATION (continued)
 h)
    
    Stock-based compensation  (continued)The Company adopted SFAS 123R effective May 1, 2006 using the Modified Prospective Method.
This method requires that awards granted, modified, repurchased or cancelled in the
quarter beginning after the adoption date use the fair value method to recognize
stock-based compensation.In applying the Modified Prospective Application method for the year ended April 30, 2007,
the Company recorded stock-based compensation cost totalling the amount that would have
been recognized had the fair-value method been applied since the effective date of SFAS
No.123. Previous amounts have not been restated.Prior to the May 1, 2006, adoption of SFAS No. 123R, the Company applied Accounting
Principles Board Opinion No 25. Accounting for Stock Issued to Employees (APB No. 25),
and related interpretations and provided the required pro-forma disclosures of Financial
Accounting Standards 123 Accounting for Stock-based Compensation (SFAS 123). Under APB
25, compensation expenses are recorded only to the extent that the exercise price is less
than fair value on the measurement date. Non-employee options were recognized at the fair
value of the options as determined by an option-pricing model as the services were
performed and the options earned. The pro-forma information for the year ended April 30,
2006 was as follows:
 Net loss for the period, as reported
    
    $
    52,640,903Stock-based employee compensation if fair value
based method applied
    
    
    3,072,214Pro-forma net loss as if fair-value method had been applied
    
    $
    55,713,117Basic and diluted loss per shareAs reported
    
    $
    0.64Pro forma
    
    $
    0.68
 The weighted average fair value of stock options granted during the year ended April 30,
2008 was $3.69 per option (2007  $4.94, 2006  $1.07).i)
    
    Financial Instruments
 (i)
    
    Fair valueThe carrying values of cash, accounts receivable, short-term investments, available
for sale securities, accounts payable and loan payable approximate their fair value
because of the short-term nature of these financial instruments.(ii)
    
    Interest rate riskThe Company is not exposed to significant interest rate risk due to the short-term
maturity of its monetary current assets and current liabilities.(iii)
    
    Market riskThe Company is exposed to equity security market risk because of investments held and
classified on the balance sheet as available for sale securities.(iv)
    
    Credit riskThe Company has no significant concentrations of credit risk.
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OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
 2.
    
    BASIS OF PRESENTATION (continued)
 i)
    
    Financial Instruments  (continued)
 (v)
    
    Translation riskThe Company is exposed to foreign currency fluctuations to the extent that funds held
or expenditures incurred by the Company are not denominated in U.S. dollars.
 j)
    
    Comprehensive lossComprehensive loss is comprised of net loss and other comprehensive income (loss) arising
from foreign currency translation and fluctuations in the valuation of available for sale
securities.k)
    
    Loss per shareLoss per share calculations are based on the weighted average number of shares (including
Exchangeable Shares) outstanding during the period. Diluted loss per share has not been
presented separately as the outstanding warrants and options are anti-dilutive for each of
the periods presented.l)
    
    Asset retirement obligationsThe Company recognizes asset retirement obligations in the period in which they are
incurred if a reasonable estimate of fair value can be determined. Fair value is
determined using the present value of the estimated future cash outflows to abandon the
asset at the Companys credit-adjusted risk-free interest rate. The discounted obligation
is initially capitalized as part of property and equipment and is amortized on the same
basis as the remaining property and equipment, while the liability is increased as an
accretion expense until it is settled or sold.The Company has not yet incurred any significant asset retirement obligations and, as
such, no asset retirement obligations have been recorded to April 30, 2008.m)
    
    Recent accounting pronouncementsThe following new accounting standards have been issued, but have not yet been adopted by
the Company as of April 30, 2008.In September 2006 the FASB issued Statement of Financial Accounting Standard No. 157,
Fair Value Measures (SFAS No. 157). SFAS No. 157 does not require any new fair value
measurements but establishes a framework for measuring fair value when required and
expands required disclosures about fair value measurements. The application of SFAS
No. 157 will not change the Companys current practice for measuring fair values under
other accounting pronouncements that require fair value measurements. For the Company,
SFAS No. 157 is effective as of May 1, 2008. In February 2008, FASB issued FASB Staff
Position (FSP) No. 157-2, which delays the effective date of SFAS No. 157 for one year for
non-financial assets and liabilities, except for items that are recognized or disclosed at
fair value in the financial statements on a recurring basis. The Company does not expect
the adoption of SFAS No. 157 to have a material impact on the Companys financial
statements.In February 2007 the FASB issued Statement of Financial Accounting Standards No. 159 (SFAS
No. 159), which permits entities to choose to measure many financial instruments and
certain other items at fair value. For the Company, SFAS No. 159 is effective as of May 1,
2008. The Company currently holds available for sale securities which are being valued at
their fair value. If SFAS No. 159 is applied, cumulative unrealized gains and losses shall
be included in cumulative-effect adjustment to opening retained earning. The amount of
unrealized gains and losses reclassified from accumulated other comprehensive income shall
be separately disclosed. If the Company elects the fair value option for
available-for-sale security in conjunction with the adoption of this Statement, those
assets shall be reported as a trading security which will result in any changes in the
value of the asset being brought into income. The Company has determined that the effects
of these changes will not be material.
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OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
 2.
    
    BASIS OF PRESENTATION (continued)
 m)
    
    Recent accounting pronouncements  (continued)In December 2007 the FASB issued Statement of Financial Accounting Standards No. 141R
(SFAS 141R), which replaces SFAS No. 141, Business Combinations. SFAS No. 141R retains
the fundamental requirements in SFAS No. 141 that the acquisition method of accounting be
used for all business combinations and that an acquirer be identified for each business
combination. This statement also establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any non-controlling (minority) interests in an acquiree
and any goodwill acquired in a business combination or gain recognized from a bargain
purchase. For the Company, SFAS No. 141R must be applied prospectively to business
combinations for which the acquisition date occurs on or after May 1, 2009. The impact to
the Company of applying SFAS No. 141(R) for periods subsequent to implementation will be
dependent upon the nature of any transactions within the scope of SFAS No. 141(R).In December 2007 the FASB issued SFAS No. 160, which amends ARB No. 51, Consolidated
Financial Statements, to establish accounting and reporting standards for the
non-controlling (minority) interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS No. 160 clarifies that a non-controlling interest in a subsidiary is an
ownership interest in a consolidated entity that should be reported as equity in the
consolidated financial statements. This statement also changes the way the consolidated
income statement is presented by requiring consolidated net income to be reported at
amounts that include the amounts attributable to both the parent and the non-controlling
interest. In addition, SFAS No. 160 establishes a single method of accounting for changes
in a parents ownership interest in a subsidiary that do not result in deconsolidation.
For the Company, SFAS No. 160 is effective as of May 1, 2009, and must be applied
prospectively, except for certain presentation and disclosure requirements which must be
applied retrospectively. We do not expect the adoption of SFAS No. 160 to have a material
impact on our financial statements and related disclosures.In March 2008 the FASB issued SFAS No. 161, which amends and expands the disclosure
requirements for derivative instruments and hedging activities prescribed by SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 161 requires
qualitative disclosures about objectives and strategies for using derivatives,
quantitative disclosures about fair value amounts of and gains and losses on derivative
instruments, and disclosures about credit-risk-related contingent features in derivative
agreements. SFAS No. 161 is effective for fiscal years and interim periods beginning after
November 15, 2008 and encourages, but does not require, comparative disclosure for earlier
periods at initial adoption. The adoption of SFAS No. 161 will not have any impact on the
Companys consolidated results of operations, cash flows or financial position.
 3.
    
    ACQUISITIONSAs detailed below OQI acquired certain businesses for cash, shares and liabilities assumed.
These acquisitions were accounted for by the purchase method and, accordingly, results of
operations have been included in the financial statements from their respective dates of
acquisition.
 a)
    
    Oilsands Quest Sask Inc.During the year ended April 30, 2005, OQI acquired all of the issued and outstanding
shares of OQI Sask, a previously inactive Alberta company. OQI and OQI Sask also entered
into an agreement whereby OQI Sask acquired a 49% interest in the Saskatchewan Oil Sands
Permits (note 4(a)) from a third party for $769,125, the issuance of 50,000 common shares
of OQI and a 2.5% gross overriding royalty (2.5% GORR). OQI had another agreement to
purchase the remaining 51% interest in the Saskatchewan Oil Sands Permits through the
indirect purchase of 100% of the issued and outstanding shares of a private Alberta
company for $1,202,131, plus 2 million common shares of OQI and the assumption of $0.11
per barrel in royalties. Pursuant to this agreement OQI agreed to the issuance of 2
million of its shares and assigned the agreement to OQI Sask.
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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
 
 3.
    
    ACQUISITIONS
 a)
    
    Oilsands Quest Sask Inc.  (continued)During the year ended April 30, 2006, the acquisition of the remaining 51% interest in the
Saskatchewan Oil Sands Permits was completed and the private Alberta, Canada company was
merged with OQI Sask. OQI Sask then held a 100% interest in the Saskatchewan Oil Sands
Permits, subject to overriding royalties (note 3(d)).In order to secure management and financing for the Saskatchewan Oil Sands Permits, OQI
Sask issued a number of its own securities, so that on April 30, 2006 OQI held 62.75%
(2005  64.89%) of the outstanding OQI Sask common shares (note 10). Included in OQIs
interest in OQI Sask as at April 30, 2006 were 571,428 OQI Sask common shares that were
acquired as part of the purchase of 571,428 units from a third party. Each unit consisted
of one OQI Sask common share and one OQI Sask share purchase warrant to purchase another
common share. OQI paid $4,932,482 for these units and 1,500,000 OQI share purchase
warrants. Each OQI warrant allowed the holder to acquire an additional OQI common share
for $2.00 until December 15, 2007. The purchase price was allocated to underlying assets
based on their fair values with the net effect that the $4,069,297 difference between the
OQI cost and the original issue price of these units by OQI Sask and $1,713,929 in non
cash financing expense related to the issuance of the warrants was allocated to property
costs.On August 14, 2006, pursuant to the terms of a reorganization agreement, OQI acquired the
non-controlling interest (35.92%) in OQI Sask, going from a 64.08% ownership interest to a
100% voting interest (note 11(b)) (the Reorganization).In connection with the Reorganization, OQI also entered into a Voting and Exchange Trust
Agreement with OQI Sask and Computershare Trust Company of Canada (CTC), and a Support
Agreement with OQI Sask. Collectively, these agreements are referred to as the
Acquisition Agreements. According to the Acquisition Agreements, all common shares of
OQI Sask, other than those held by OQI, were exchanged for a new class of OQI Sask shares
called Exchangeable Shares on the basis of 8.23 Exchangeable Shares for each one OQI Sask
common share. The Acquisition Agreements also allowed for all OQI Sask options and
warrants providing the right to acquire common shares of OQI Sask to have Exchangeable
Shares issued on the same basis when such OQI Sask options and warrants were exercised.
The Exchangeable Shares are exchangeable at any time on a one-for-one basis, at the option
of the holder, for shares of OQI common stock. OQI Sask can redeem the outstanding
Exchangeable Shares on the same terms at any time after August 14, 2013 and only under
certain limited circumstances prior to August 14, 2013 in accordance with the Acquisition
Agreements. An Exchangeable Share provides the holder with economic terms and voting
rights which are, as nearly as practicable, equivalent to those of a share of OQI common
stock. The Exchangeable Shares are entitled to a preference over the OQI Sask common
shares in the event of a liquidation, dissolution or wind-up of OQI Sask, whether
voluntary or involuntary, or any other distribution of the assets of OQI Sask among its
shareholders for the purpose of winding-up its affairs. The Exchangeable Shares are
represented for voting purposes in the aggregate by one share of OQIs Series B Preferred
Stock (note 11(b)).In connection with the closing of the Acquisition Agreements, OQIs financial advisor was
paid a success fee of $1,590,528. In addition, OQI Sask issued 288,050 Exchangeable
Shares with a fair value of $1,204,383 and paid $353,450 as success fees to its financial
advisors. The fair value of the Exchangeable Shares was based on $4.17 per share, being
the average trading price of the Companys common shares for the five days prior to and
following August 14, 2006. These amounts have been included in Consulting Expense.The Company has consolidated the operating results of OQI Sask from its commencement of
operations on September 24, 2004. The total purchase price of acquiring the
non-controlling interest in OQI Sask on August 14, 2006 was $319,022,948, calculated at
76,504,304 Exchangeable Shares to be issued multiplied by $4.17 per share. The fair value
of the Exchangeable Shares was based on the average trading price of the Companys common
shares for the five days prior to and following August 14, 2006. The total purchase price
of $319,022,948 has been allocated as follows:
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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
 3.
    
    ACQUISITIONS (continued)
 a)
    
    Oilsands Quest Sask Inc.  (continued)
 Consideration comprised of:Fair value of Exchangeable Shares
    
    $
    319,022,948Purchase price allocation:Property
    
    
    451,525,810Deferred income taxes
    
    
    (132,502,862
    )Net assets acquired
    
    $
    319,022,948
 This purchase price allocation was based on the fair value of the underlying assets and
recognizes that all other assets and liabilities of OQI Sask were carried at fair value.As a part of the Reorganization, OQI may issue up to an aggregate of 76,504,304 shares of
OQI common stock of which 35,054,264 have been issued, 27,952,840 may be issued on the
exchange of Exchangeable Shares and the balance to be issued on the exercise of OQI Sask
options into Exchangeable Shares and their subsequent exchange. The fair value of the
Exchangeable Shares to be issued on the exercise of outstanding OQI Sask stock options was
included in the purchase price of the acquisition. Any future proceeds received from the
exercise of OQI Sask options or warrants will be credited to Additional Paid-in Capital.b)
    
    Western Petrochemicals Corp. (Western Petrochemicals)On April 21, 2005, OQI issued 10,728,124 common shares for a 97.53% interest in Western
Petrochemicals, which held the permits to the Pasquia Hills, Oil Shale Prospect (note
4(e)). At the time the shares were issued Western Petrochemicals liabilities exceeded its
assets by $926,200 and this along with $2,209,219 for the common shares issued has been
recorded as Pasquia Hills property acquisition costs. On April 6, 2006 OQI completed the
purchase of the remaining 2.47% of Western Petrochemicals through the issuance of 271,865
common shares and recorded a Pasquia Hills property acquisition cost of $375,174.c)
    
    Township Petroleum Corporation (Township)During the year ended April 30, 2006, OQI acquired all of the issued and outstanding shares
of Township Petroleum Corporation, a previously inactive Alberta company. Subsequently,
Township acquired the lease to the Eagles Nest prospect (note 4(d)).d)
    
    Acquisition of Stripper Energy Services Inc.On August 15, 2006, the Company acquired all of the issued and outstanding shares of
Stripper Energy Services Inc (Stripper) for $17,948,722, which amount includes $116,349
in interest and working capital adjustments. Stripper is a private inactive Alberta
company, whose sole asset is a 2.5% GORR on certain Saskatchewan permit lands held by OQI
Sask. The total purchase price of $17,948,722 has been allocated as follows:
 Consideration comprised of:Cash Paid
    
    $
    17,948,722Purchase price allocation:Property
    
    
    25,406,544Deferred income taxes
    
    
    (7,457,822
    )Net assets acquired
    
    $
    17,948,722
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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
 3.
    
    ACQUISITIONS (continued)
 d)
    
    Acquisition of Stripper Energy Services Inc.  (continued)To partially fund the acquisition, OQI completed a private placement of 4,150,000 shares
of its common stock for gross proceeds of $15,770,000 which, according to the terms of the
private placement, were used for the purchase of Stripper. No commissions were paid in
connection with this private placement (note 12(d)).
 4.
    
    PROPERTY AND EQUIPMENT
 Canadian DollarsApril 30,
    
    
    April 30,
    
    
    April 30,
    
    
    April 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Saskatchewan Oil Sands RightsPermits
    
    $
    546,074,183
    
    
    $
    489,777,597
    
    
    $
    553,464,258
    
    
    $
    551,057,171Licences
    
    
    2,306,274
    
    
    
    
    
    
    
    2,328,184
    
    
    
    Alberta Oil Sands RightsPermits
    
    
    35,394,800
    
    
    
    22,221,968
    
    
    
    35,731,051
    
    
    
    25,651,985Leases
    
    
    2,426,940
    
    
    
    1,016,934
    
    
    
    2,449,996
    
    
    
    1,200,721Oil Shale Rights (Permits)
    
    
    4,621,245
    
    
    
    3,854,648
    
    
    
    4,766,815
    
    
    
    4,766,815Equipment
    
    
    6,297,687
    
    
    
    3,797,821
    
    
    
    6,357,630
    
    
    
    4,427,415Less: Accumulated Depreciation
    
    
    (1,510,015
    )
    
    
    (367,827
    )
    
    
    (1,524,360
    )
    
    
    (427,662
    )Net Book Value
    
    $
    595,611,114
    
    
    $
    520,301,141
    
    
    $
    603,573,574
    
    
    $
    586,676,445
 The Companys Property and Equipment is recorded in Canadian subsidiaries which use the CDN
dollar as their functional currency. As a result, Property and Equipment includes a foreign
exchange translation adjustment of $58,468,976 that is due to the increase in the value of the
CDN dollar as compared to the U.S. dollar at April 30, 2007 and April 30, 2008. The translation
adjustment arises in the translation of the financial statements of Canadian subsidiaries from
their CDN dollar functional currency to the U.S. dollar reporting currency. As the value of the
CDN dollar continues to fluctuate as compared to the U.S. dollar it is expected that
significant exchange translation adjustments will continue to occur in subsequent reporting
periods.
 a)
    
    Saskatchewan Oil Sands PermitsAs at April 30, 2006, the Saskatchewan permits comprised an area of approximately 846,680
acres. The permits were granted by the Province of Saskatchewan in 2004 under The Oil
Shale Regulations, 1964as amended, revised or substituted from time to time, for a term
of five years. The permits provide for the right to explore and work the permit lands but
not to remove, produce or recover, except for test purposes, oil products until a lease,
pursuant to these regulations has been granted. The term of the permits may be extended
for up to three one-year extensions subject to regulatory approvals, as required. The
permits, when granted, were subject to annual rental payments and certain levels of
expenditures annually pursuant to the terms of the permits and government regulations. The
annual rentals were payable in advance as to $0.02 ($0.02 CDN) per acre for the first year
and escalating to $0.10 ($0.10 CDN) per acre in the fifth year. The permits were also
subject to a 2.5% gross overriding royalty (the 2.5% GORR), a $0.07 per barrel royalty
which may be bought at any time by paying $7,000,000 and a $0.04 per barrel royalty.During the year ended April 30, 2007, the Company purchased the 2.5% GORR for $25,406,544
through the acquisition of Stripper (note 3(d)). As at April 30, 2007, the permits
comprised an area of approximately 846,680 acres.On May 7, 2007, the province updated the Oil Shale Regulations, 1964requiring an increase
to annual rentals of $0.10 ($0.10 CDN) per acre for the remaining term of the permits.
The required exploration expenditures to hold the permits were also increased to $0.80
($0.81 CDN) per acre for each of the remaining years of the permits and $1.20 ($1.21 CDN)
per acre for each year that the permits are extended.
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OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
 
 4.
    
    PROPERTY AND EQUIPMENT (continued)
 a)
    
    Saskatchewan Oil Sands Permits  (continued)On July 9, 2007, in accordance with the terms of the Saskatchewan permits, the Company
completed the second and final relinquishment of its Saskatchewan permit lands. Following
all relinquishments the Saskatchewan permit lands comprised an area
totaling 508,080 acres.On September 21, 2007, in conjunction with the acquisition of the interests of an external
joint venture partner to the Triple 7 Joint Venture (note 4(d)), the Company acquired the
$0.07 per barrel royalty obligation for consideration of $99,980 ($100,000 CDN) cash plus
the issuance of 500,000 shares of its common stock valued at $2,195,000 based on the
September 20, 2007 closing market price of the shares. The Saskatchewan permits are now
only subject to a $0.04 per barrel royalty.The Saskatchewan permit lands constitute a single asset for accounting purposes and the
carrying value of the Saskatchewan permit lands is supported by the estimated fair value
of the 508,080 acres. The Company has paid all required annual rental payments and has
complied with the annual exploration expenditure requirements to April 30, 2008 to
maintain the permits in good standing.b)
    
    Saskatchewan Oil Sands LicensesOn August 13, 2007, the Company acquired five oil sands licenses totaling 109,920 acres
granted under The Petroleum and Natural Gas Regulations, 1969, as amended revised or
substituted from time to time, for a term of five years for an aggregate cost of $2,140,233
($2,249,089 CDN). The licenses provide for the exclusive right to search for oil sands on
the lands granted and to win, recover, extract, carry off, dispose of and sell the oils
sands products found on the license lands. The oil sands licenses were acquired in a
public offering of Crown Oil Sands Rights and provide the opportunity to convert up to 100%
of the licenses to a production lease on the basis of one section of land (640 acres) for
every well that intersects an oil sands zone. Licenses require annual rental payments of
$0.70 ($0.71 CDN) per acre. The Company has paid all required rental payments for the
licenses granted.c)
    
    Alberta Oil Sands PermitsDuring the year end April 30, 2007, the Company acquired four oil sands permits totaling
67,053 acres (Raven Ridge Prospect) in a public offering of crown Oil Sands Rights for an
aggregate cost of $22,221,968 ($25,651,985 CDN). The permits were granted by the Province
of Alberta under the terms of the Mines and Minerals Act, Alberta. The permits provide the
opportunity to convert up to 100% of the permits to a production lease following the
completion of specified work requirements. Permits are granted for a five year primary
term and require annual rental payments of $1.41 ($1.42 CDN) per acre.On January 23, 2008, the Company acquired two oil sands permits totaling 45,546 acres
(Wallace Creek Prospect) in a public offering of Crown
Oil Sands Rights (permits were officially granted on June 24, 2008). The total
consideration paid for these permits was $9,732,500 ($10,010,880 CDN). The permits were
granted by the Province of Alberta under the terms of the Mines and Minerals Act, Alberta.
The permits provide the opportunity to convert up to 100% of the permits to a production
lease following the completion of specified work requirements. Permits are granted for a
five year primary term and require annual rental payments of $1.41 ($1.42 CDN) per acre.
Following the acquisition, the Alberta permit lands comprised an area
totaling 112,599
acres.The Alberta permit lands constitute two assets (Raven Ridge Prospect and Wallace Creek
Prospect) for accounting purposes and the carrying value of each of the Alberta permit
lands are supported by the estimated fair value of the each prospect. The Company has paid
all required annual rental payments and met all annual exploration expenditure requirements
to April 30, 2008 to maintain the permits in good standing.
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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
 4.
    
    PROPERTY AND EQUIPMENT (continued)
 d)
    
    Alberta Oil Sands LeaseOn June 1, 2005, Township entered into an agreement with three third parties (collectively
the Triple 7 Joint Venture) to post, acquire, develop and produce oil sands deposits
located in the Athabasca Region of Alberta, Canada (the Triple 7 Joint Venture Agreement).
As a result of this agreement, Township acquired one lease consisting of approximately
22,773 acres (the Eagles Nest Prospect) at a cost of $727,187. Pursuant to the terms of
this agreement OQI issued the Triple 7 Joint Venture 114,015 shares of its common stock
with a fair value of $127,432, which was determined using the market price at the date of
the transaction.Township has also agreed to pay the Triple 7 Joint Venture partners, as ongoing fees,
$148,588 ($150,000 CDN) in cash or common shares of OQI (at the discretion of the Company)
on the first and second anniversary dates of the agreement. Any shares issued under the
agreement are subject to piggyback registration rights. On the third anniversary date
and each subsequent anniversary date of the agreement, Township agreed to pay the Triple 7
Joint Venture $445,765 ($450,000 CDN) until such time as the lease is surrendered or a
commercial project has been identified.In the event that Township receives a feasibility study, conducted by an independent third
party, that indicates that a commercial project is economic and wishes to construct a
commercial project, Township is required to notify the Triple 7 Joint Venture. Upon
commencement of construction of such a commercial project Township agreed to pay the Triple
7 Joint Venture the sum of $5,943,536 ($6,000,000 CDN). In addition to such payments
Township has granted each of the three Triple 7 Joint Venture partners a royalty in the
acquired leases of $0.03 ($0.03 CDN) on each barrel of crude bitumen produced, saved and
sold or $148,588 ($150,000 CDN) per Joint Venture Partner, per year, whichever is greater.
Such royalty is governed by the royalty procedure, which stipulates, among other things,
that the royalty will be secured by a lien, first charge or security interest on the
royalty lands, and that the royalty is assignable or transferable subject to a right of
first offer to Township.On September 21, 2007, in conjunction with the acquisition of the royalty described in note
4(a), the Company acquired all of the rights of one of the three external joint venture
partners for consideration of $49,939 ($50,000 CDN) plus the issuance of 250,000 shares of
the Companys common stock valued at $1,097,500 based on the September 20, 2007 closing
market price of the shares. The Companys obligations under the Triple 7 Joint Venture
Agreement have therefore been reduced by one third. Subsequent to the end of the year the
Company acquired the interests of the remaining two partners (note 20(c)).To finance the acquisition of the prospect, OQI issued convertible debentures pursuant to
which Township also granted royalties as to $0.0057 ($0.0058 CDN) net after a buy back on
each barrel of crude bitumen produced, saved and sold from the Eagles Nest Prospect.The annual lease rental payable to the Province of Alberta for the Eagles Nest Prospect is
$31,952 ($32,256 CDN) per year. The Company has paid the required lease rentals to maintain
the lease in good standing.e)
    
    Oil Shale RightsAs at April 30, 2006, the Company held 11 oil shale permits near Hudson Bay, Saskatchewan
covering approximately 850,000 acres. During the year ended April 30, 2007, all of the
original permits held expired and were returned to the Saskatchewan government. The Company
then applied to the Province of Saskatchewan to reacquire the permits and was granted seven
permits which currently cover approximately 406,000 acres located near Hudson Bay,
Saskatchewan. The new permits were granted by the Province of
Saskatchewan during September and October 2006 under the Oil Shale Regulations, 1964,as amended, revised or substituted from time to
time for a term of five years. The permits provide for the right to explore and work the
permit lands but not to remove, produce or recover, except for test purposes, oil products
until a lease, pursuant to these regulations has been granted. The term of the permits may
be extended for up to three one-year extensions subject to regulatory approvals, as
required.
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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
 4.
    
    PROPERTY AND EQUIPMENT (continued)
 e)
    
    Oil Shale Rights  (continued)The annual rentals are payable in advance as to $0.05 ($0.05 CDN) per acre for the current
(first) year. On May 7, 2007, the Province updated the regulations requiring annual
rentals of $0.10 ($0.10 CDN) per acre during the term of the permit. The required
exploration expenditures to hold the permits were also increased to $0.40 ($0.40 CDN) per
acre for the second year of the permits, $0.80 ($0.81 CDN) per acre for the last three
years of the permits and $1.20 ($1.21 CDN) per acre for each year that the permit is
extended, as required.On August 13, 2007, the Company acquired one additional oil shale exploration permit
granted under The Petroleum and Natural Gas Regulations, 1969 (Saskatchewan)as amended,
revised or substituted from time to time for a term of five years totaling 83,769 acres in
the same area near Hudson Bay, Saskatchewan. The permit provides for the right, license,
privilege and authority to explore for oil shale within the permit lands.The term of the permits may be extended for up to three one-year extensions subject to
regulatory approvals, if required. This oil shale permit was acquired under a land sale
work commitment bid for the first two years of the permit. The Company bid a total work
commitment of $298,730 ($301,568 CDN) to be incurred during the first two years of the
permit and the permit requires a further work commitment of $0.80 ($0.81 CDN) per acre for
the last three years and $1.20 ($1.21 CDN) for each extension year plus annual rental
payments of $0.10 ($0.10 CDN) per acre.The Company has paid the required annual rental payments to maintain the permits in good
standing.f)
    
    During the year ended April 30, 2008 the Company had
$1,914,091 ($1,930,215 CDN) in additions to
equipment.
 5.
    
    AVAILABLE FOR SALE SECURITIESAt April 30, 2008 the Company held 69,000 common shares of Pearl Exploration and Production
Ltd. (Pearl) and 600,072 common shares of Forum Uranium Corp. (Forum). During the year
ended April 30, 2008 the Company received 600,072 common shares of Forum in exchange for an
interest in a uranium prospect written off in 2003. As costs associated with the property had
previously been written off the value of the shares received was credited to exploration costs.
The Company accounts for its interests in Pearl and Forum as securities available for sale and
carries the investment on its balance sheet as a current asset valued at the trading value of
the securities on the balance sheet date.6.
    
    OTHER INVESTMENTSJoint VenturesDuring the years ended April 30, 2005 and 2006, OQI entered into four joint venture agreements
to fund research and development relating to the improvement of bitumen recovery. On February
28, 2007, OQI sold its interests in these joint ventures to one of the remaining partners for
consideration of $419,384 which was credited to exploration costs. OQIs rights and
obligations under the agreements were assigned to and assumed by the purchasing partner and OQI
was released from any further obligations and liabilities under the agreements. During the year
ended April 30, 2007 OQI incurred $175,944 (2006  $234,433) related to these activities, which
has been included in exploration costs.7.
    
    LOAN PAYABLEOn March 21, 2007, the Company funded the acquisition of certain permit lands in Alberta (note
4(c)) pursuant to a line of credit from a Canadian bank under a Credit Agreement dated March
19, 2007. OQI Sask was the borrower with OQI providing a secured guarantee. OQI Sask borrowed
$22,589,681 ($25,000,000 CDN) under the Credit Agreement. The loan was repaid on May 4, 2007
and all security has been released.
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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
 8.
    
    CONVERTIBLE DEBENTURESDuring August 2005, to finance the acquisition of the Eagles Nest Prospect and other oil sands
prospects, OQI entered into a private placement of its securities whereby OQI issued 8%
convertible debentures with stock purchase warrants for an aggregate principal amount of
$5,200,000 (the Original Offering). Under the terms of the Original Offering, the
debentures were convertible to shares of OQIs common stock at $0.40 per share. However,
pursuant to the subscription agreement, amounts not expended on successful bids and associated
costs were to be refunded on a pro-rata basis. The refunded amount totaled $4,472,813, as only
$727,187 was used in connection with the acquisition of the Eagles Nest oil sands lease and
related costs.Under the terms of the Original Offering, the purchasers were to also receive bonus shares
equal to 10% of the refunded amount allocable to the respective purchasers, which bonus shares
were to be issued at the rate of $0.40 per share. Also, purchasers were to receive warrants
based on one warrant per $0.40 invested, after the refunded amount had been distributed to the
purchaser. The warrants were exercisable for two years from the issue date at an exercise
price of $0.55 per share.Effective August 31, 2005, some of the purchasers elected not to receive their pro-rata
portion of the refund amount. Rather, those purchasers elected to be included under amended
terms to the Original Offering (the Amended Offering). Under the terms of the Amended
Offering, the purchaser receives a new convertible promissory note in the amount of their
principal investment not refunded which is convertible into shares of OQIs common stock at a
per share conversion price of $0.90 per share plus one warrant for each $0.90 of principal
invested in the Amended Offering. Each warrant was exercisable to purchase one share of
common stock at an exercise price of $1.30 per share for one year.Of the total $5,200,000 raised in the Original Offering, $727,187 convertible notes were
issued under the Original Offering along with 1,817,967 warrants to purchase that same number
of common shares at $0.55 per share until September 19, 2007; $2,339,602 was refunded and, in
accordance with the original terms of the financing, 584,878 common shares with a value of
10% of the amount refunded were issued with a fair value of $233,951 based on the market
trading price at the time of the transaction of $0.40 per share (recorded as a non-cash
financing expense in 2006); $2,133,186 convertible notes were issued pursuant to the Amended
Offering along with 2,370,206 warrants to purchase that same number of common shares at $1.30
per share until September 19, 2006; and 555,670 common shares based on a market trading price
at the time of the transaction of $0.40 per share were issued to consultants with a fair value
of $222,268 and included in consulting expenses in 2006.In conjunction with the Original Offering and Amended Offering OQI recorded a non-cash
financing expense of $1,719,100 in 2006.The subscription agreements relating to the Original Offering and Amended Offering contained
certain registration rights for the shares of common stock issuable upon conversion of the
notes, the exercise of the underlying warrants, bonus shares issued and shares issued to
consultants. OQI failed to meet its registration right commitments on a timely basis and had
accrued $315,151 in penalties in 2006. During the year ended April 30, 2006 OQI issued
1,758,253 common shares pursuant to the Original Offering and 2,319,200 common shares pursuant
to the Amended Offering. As at April 30, 2006 $55,929, including accrued penalties, remained
outstanding under the Original Offering which was satisfied by the issuance of 179,961 common
shares during 2007 and $239,999, including accrued penalties, remained outstanding under the
Amended Offering which was satisfied by the issuance of 249,051 common shares during 2007.
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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
 9.
    
    DEFERRED INCOME TAX
 a)
    
    Deferred tax liabilityThe following summarizes the temporary differences that give rise to the deferred
income tax liability at April 30, 2008:
 April 30,
    
    
    April 30,
    
    
    April 30,2008
    
    
    2007
    
    
    2006Book value of property and equipment
in excess of tax values
    
    $
    (161,540,984
    )
    
    $
    (161,036,504
    )
    
    $
    (1,080,821
    )Non-capital loss carry-forwards tax benefit
    
    
    23,963,536
    
    
    
    21,749,442
    
    
    
    $
    (137,577,448
    )
    
    $
    (139,287,062
    )
    
    $
    (1,080,821
    )
 b)
    
    Deferred income tax recovery differs from that which would be expected from
applying the combined effective U.S. federal and state income tax rates of 34% (2007 -
34%, 2006 - 34%) to loss before income taxes. The difference results from the following:
 April 30,
    
    
    April 30,
    
    
    April 30,2008
    
    
    2007
    
    
    2006Expected current income tax recovery
    
    $
    (41,596,224
    )
    
    $
    (25,926,107
    )
    
    $
    (18,883,445
    )Stock-based compensation
    
    
    5,457,828
    
    
    
    13,516,901
    
    
    
    Tax impact of flow-through expenditures
    
    
    6,189,768
    
    
    
    8,087,292
    
    
    
    Valuation allowance
    
    
    
    
    
    
    
    
    
    
    18,861,489Other
    
    
    (855,447
    )
    
    
    478,702
    
    
    
    Impact of change in Canadian tax rate
    
    
    612,230
    
    
    
    
    
    
    
    Impact of lower Canadian tax rate
    
    
    6,482,176
    
    
    
    1,535,780
    
    
    
    $
    (23,709,669
    )
    
    $
    (2,307,432
    )
    
    $
    (21,956
    )
 10.
    
    NON-CONTROLLING SHAREHOLDER INTERESTThe non-controlling shareholder interest related to OQI Sask, as calculated to the date of
acquisition by OQI was transferred to the OQI Sask property account.
 CommonShares
    
    
    AmountBalance, April 30, 2005
    
    
    3,787,500
    
    
    $
    448,224Share of net loss of OQI Sask
    
    
    
    
    
    
    (2,876,685
    )Increase in interest arising from share issuances by OQI SaskPrivate placement including 1,524,875 flow-through share
    
    
    1,721,075Warrants exercised
    
    
    549,450Conversion of convertible note
    
    
    904,434
    
    
    
    7,164,062Balance, April 30, 2006
    
    
    6,962,459
    
    
    
    4,735,601Shares issued to non-controlling shareholders
    
    
    5,875
    
    
    
    10,518Share of net loss of OQI Sask to date of acquisition
    
    
    
    
    
    
    (5,151,083
    )Non-controlling shareholders interest in shares issued
to OQI
    
    
    
    
    
    
    16,727,974Balance held by non-controlling interest at date of acquisition
(representing 35.92% of total common shares outstanding)
    
    
    6,968,334
    
    
    
    16,323,010Transferred to the OQI Sask property account on acquisition
of the minority interest (see note 3(a) and 4)
    
    
    (6,968,334
    )
    
    
    (16,323,010
    )Balance, April 30, 2007
    
    
    
    
    
    $
    
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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
 10.
    
    NON-CONTROLLING SHAREHOLDER INTEREST (continued)OQI acquired the non-controlling shareholder interest in OQI Sask on August 14, 2006. Certain
options and warrants issued by OQI Sask remained outstanding after the Reorganization. On
exercise, each OQI Sask option and warrant may be exchanged into 8.23 OQI Sask Exchangeable
Shares which are exchangeable into OQI common shares. Transactions in OQI Sask options and
warrants during the three years ended April 30, 2008  and OQI Sask options outstanding at April 30,
2008 are detailed below.The following table summarizes information about transactions
in OQI Sask warrants:
 Weighted AverageNumber
    
    Exercise Price (CDN)Issued and outstanding, April 30, 2005
    
    
    5,875
    
    
    $
    2.00Issued
    
    
    3,331,016
    
    
    $
    4.95Exercised
    
    
    (1,120,878
    )
    
    $
    1.90Issued and outstanding, April 30, 2006
    
    
    2,216,013
    
    
    $
    6.48Issued
    
    
    Exercised
    
    
    (2,200,013
    )
    
    $
    6.52Issued and outstanding, April 30, 2007
    
    
    16,000
    
    
    $
    2.00Exercised
    
    
    (16,000
    )
    
    $
    2.00Issued and outstanding, April 30, 2008
    
    
    
 The following table summarizes information about transactions
in OQI Sask stock options:
 Weighted AverageNumber
    
    Exercise Price (CDN)Issued and outstanding, April 30, 2005
    
    
    300,000
    
    
    $
    0.50Granted
    
    
    500,000
    
    
    $
    5.40Cancelled
    
    
    (100,000
    )
    
    $
    0.50Issued and outstanding, April 30, 2006
    
    
    700,000
    
    
    $
    4.00Granted
    
    
    1,280,000
    
    
    $
    21.40Exercised
    
    
    (205,000
    )
    
    $
    3.32Issued and outstanding, April 30, 2007
    
    
    1,775,000
    
    
    $
    16.55Exercised
    
    
    (135,000
    )
    
    $
    11.63Issued and outstanding, April 30, 2008
    
    
    1,640,000
    
    
    $
    16.96
 The following table provides details of OQI Sask options
outstanding at April 30, 2008:
 Number
    
    Number
    
    Weighted AverageExercise
    
    
    
    Outstanding at
    
    Exercisable at
    
    Remaining ContractualPrice (CDN)
    
    
    
    April 30, 2008
    
    April 30, 2008
    
    Life$
    0.50
    
    
    
    
    
    100,000
    
    
    
    100,000
    
    
    1.54 years$
    3.00
    
    
    
    
    
    100,000
    
    
    
    100,000
    
    
    2.25 years$
    6.00
    
    
    
    
    
    515,000
    
    
    
    515,000
    
    
    2.78 years$
    25.00
    
    
    
    
    
    875,000
    
    
    
    675,000
    
    
    3.00 years$
    50.00
    
    
    
    
    
    50,000
    
    
    
    25,000
    
    
    3.25 years1,640,000
    
    
    
    1,415,000
    
    
    2.81 years
 The 1,640,000 OQI Sask options outstanding at April 30, 2008 represent 13,497,200 OQI Sask
Exchangeable Shares that would be issued on exercise of the OQI Sask options as a result of the
completion of the acquisition of the non-controlling interest in OQI Sask.
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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
 
 11.
    
    PREFERRED SHARES
 a)
    
    Series A Preferred SharesAs at March 9, 2006, OQI adopted a shareholders right plan and reserved 250,000 of its
preferred shares for issuance pursuant to the exercise of the rights. The rights are
designed to have certain anti-takeover effects and as such they will cause substantial
dilution to a person or group that attempts to acquire OQI in a manner or on terms not
approved by the Board of Directors of OQI. The rights, however, should not deter any
prospective offer or willingness to negotiate in good faith with the Board of Directors,
nor should the rights interfere with any merger or other business combination approved by
the Board of Directors. To effect the shareholders rights plan OQI declared a
distribution of one right to each outstanding share of common stock, payable to
shareholders of record on March 23, 2006. After the record date, one right is issued with
each share of common stock issued until the earlier of the distribution date (as defined
in the plan), the redemption of the right by the Company or termination of the right.
This right will be attached to the underlying common share and remain with the common
share should the common share be sold or transferred.b)
    
    Series B Preferred StockAs noted in note 3(a) in connection with the Reorganization, OQI also entered into a
Voting and Exchange Trust Agreement with OQI Sask and Computershare Trust Company of
Canada (CTC) and a Support Agreement with OQI Sask. Collectively, these agreements are
referred to as the Acquisition Agreements.According to the Acquisition Agreements, OQI Sask common shares not held by OQI were
exchanged for a new class of OQI Sask shares called Exchangeable Shares on the basis of
8.23 Exchangeable Shares for each OQI Sask common share. The Exchangeable Shares are
exchangeable at any time on a one-for-one basis, at the option of the holder, for shares
of OQI common stock. An Exchangeable Share provides the holder with economic terms and
voting rights which are, as nearly as practicable, effectively equivalent to those of a
share of OQI common stock. Holders of Exchangeable Shares have registration rights with
respect to the resale of OQI common stock to be received upon exchanging the Exchangeable
Shares into OQI shares. The holders of the Exchangeable Shares may receive up to an
aggregate of 76,504,304 shares of OQI common stock (on a fully diluted basis) at each
holders election. The Exchangeable Shares are represented for voting purposes in the
aggregate by one share of OQI Series B Preferred Stock (the Preferred Share), which
Preferred Share is held by CTC. In turn, CTC will vote the one Series B Preferred Share as
indicated by the individual holders of Exchangeable Shares. The one Preferred Share
represents a number of votes equal to the total outstanding Exchangeable Shares on the
applicable record date for the vote submitted to OQI shareholders.Exchangeable shares issuable as a result of the Acquisition Agreements (note 3(a)):
 OQI SaskExchangeableShares issuableOQI Sask
    
    on exercise of
    
    TotalExchangeable
    
    OQI Sask options
    
    ExchangeableShares
    
    and warrants
    
    SharesAcquisition date, August 14, 2006
    
    
    57,349,388
    
    
    
    19,154,916
    
    
    
    76,504,304OQI Sask options and warrants exercised
    
    
    4,414,986
    
    
    
    (4,414,986
    )
    
    
    Exchangeable Shares exchanged into
OQI common shares
    
    
    (28,237,015
    )
    
    
    
    
    
    
    (28,237,015
    )Balance, April 30, 2007
    
    
    33,527,359
    
    
    
    14,739,930
    
    
    
    48,267,289OQI Sask options and warrants exercised
    
    
    1,242,730
    
    
    
    (1,242,730
    )
    
    
    Exchangeable shares exchanged into
OQI common shares
    
    
    (6,817,249
    )
    
    
    
    
    
    
    (6,817,249
    )Balance, April 30, 2008
    
    
    27,952,840
    
    
    
    13,497,200
    
    
    
    41,450,040
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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
 12.
    
    COMMON STOCK
 a)
    
    Authorized shares of common stockThe Company has authorized the issuance of 500,000,000 shares of common stock.b)
    
    Shares issued for servicesDuring the year ended April 30, 2006, OQI issued 2,000,000 shares of common stock pursuant
to an agreement for advertising and promotion, with a fair value of $860,000 paid to a
private company with a director in common. OQI also issued 3,200,000 shares of common
stock pursuant to consulting agreements, with a fair value of
$6,080,000, whereby the
shares were earned evenly over a six-month period ending May 2006. The Company also issued
584,878 bonus shares of common stock, with a fair value of $233,951, pursuant to a
convertible debt agreement that has been included in non-cash financing expenses. The
fair value of the shares issued was based on the market trading prices at the date of the
transactions. The Company issued 5,962,067 shares of common stock pursuant to agreements
with employees and consultants and has recorded related expenses as to $2,016,706 in
general and administrative and $352,686 in exploration. These transactions were recorded
at the fair value of the shares issued based on market trading prices at the date of the
transaction.During the year ended April 30, 2008 the Board of Directors granted 44,000 bonus shares of
common stock to employees under the Companys 2006 Stock Option Plan (SOP 2006). These
bonus shares were valued at the closing share price on the date of grant, July 3, 2007.c)
    
    Settlement with Subsidiary CreditorsDuring the year ended April 30, 2004, in an attempt to settle outstanding liabilities of a
subsidiary, OQI made an offer to creditors to settle outstanding debts for shares of OQI
with a fair value of $0.10 per share for every $0.15 CDN of debt held. The offer was
based on the market trading price for the Companys stock at the time of the original
proposal to creditors. In May 2003 when the proposal was made the price fluctuated in the
range of $0.09 to $0.12 per share. OQI received acceptances from creditors that
represented 2,203,227 OQI common shares. OQI has issued 814,660 shares of common stock
pursuant to these agreements since May 2003 and has reserved 1,388,567 shares of common
stock for further issuances. No shares of common stock were issued during year ended
April 30, 2008 pursuant to these agreements. The subsidiary was sold to a third party on
October 31, 2005.d)
    
    Private Placements and Public Offerings of Shares of Common StockDuring the year ended April 30, 2006 OQI completed a private placement of 15,268,000 units
at $1.50 per unit whereby it issued 15,268,000 shares of common stock and 7,634,000
warrants exercisable at $2.00 per share of common stock until December 12, 2007. Pursuant
to this placement OQI paid consultants $390,870 cash plus 260,580 warrants exercisable at
$2.00 on similar terms as the issued warrants. In conjunction with this financing OQI also
granted the investors and consultants certain registration rights whereby OQI undertook to
file a resale registration statement covering the shares and shares underlying the warrants
within sixty days of closing, otherwise a 2% penalty for each month or part month was
payable. In addition, OQI had to respond to any queries on that resale registration
statement within two weeks of receipt or else be subject to an additional penalty as to 2%
for each two weeks thereafter. The penalties were payable, at the unit-holders election,
in either shares of common stock or cash at $1.75 per penalty share. Any penalty shares
would also be qualified for resale by the same registration statement. OQI filed the
required registration statement on August 3, 2006 and issued 2,889,371 penalty shares of
common stock with a fair value of $17,312,623. The penalty shares issued were valued at
the closing market share price at the time they became due. The share prices used in
calculating the fair value ranged from $4.92 to $8.30 per share.
 F-26




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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
 12.
    
    COMMON STOCK(continued)
 d)
    
    Private Placements and Public Offerings of Shares of Common Stock  (continued)On July 6, 2006, OQI completed a private placement of 5,668,100 shares of common stock
issued on a flow-through basis for gross proceeds of $33,684,009 ($37,409,460 CDN).
Because these shares were issued on a flow-through basis, the proceeds must be used for
exploration in Canada and the tax benefits from that exploration will flow through to the
subscribers. In conjunction with this financing OQI paid investment banking fees of
$1,852,659 and entered into a subscription agreement with OQI Sask whereby it purchased
703,054 OQI Sask flow-through shares of common stock for $33,684,048. Under the terms of
the flow-through shares, the Company renounced the tax benefits of the related expenditures
to the subscribers effective December 31, 2006.In August 2006 OQI completed a private placement of 4,150,000 shares of common stock for
gross proceeds of $15,770,000. No commissions were paid in connection with the Offering.
According to the terms of the private placement, the gross proceeds were used for the
purchase of the shares of Stripper (see Notes 3(d) and 4(a)).On March 6, 2007, the Company entered into an underwriting agreement for a private
placement with a syndicate of underwriters to issue up to 5,320,000 shares of the Companys
common stock issued on a flow-through basis at a price of $4.82 ($5.64 CDN) per share for
an aggregate gross proceeds of $25,642,400 ($30,004,800 CDN). Under the terms and
conditions of the underwriting agreement, in the event that less than 5,320,000
flow-through shares are sold to investors, the underwriters agreed to purchase the
flow-through shares not purchased by investors. In consideration for the services of the
underwriters, the Company agreed to pay a fee equal to $0.241($0.282 CDN) (or 5%) for each
flow-through share issued by the Company. The Company agreed to reduce the price per share
to $5.13 CDN if the Company did not file a resale registration statement with the U.S.
Securities and Exchange Commission within 60 days from the date of closing.Such reduction in price was to be satisfied by issuing to the subscribers 0.1 of a
flow-through share for each flow-through share subscribed.On March 6, 2007 and March 9, 2007, under the terms and conditions of the underwriting
agreement, the Company issued 3,155,834 shares of common stock on a flow-through basis for
gross proceeds of $15,211,120 ($17,798,904 CDN). These shares of common stock were issued
on a flow-through basis whereby the proceeds must be used for exploration in Canada and the
tax benefits from that exploration will flow through to the subscribers. The Company
fulfilled its obligation to file a resale registration statement under the terms of the
private placement on May 4, 2007 and as such no reduction in price was required.On May 3, 2007, the Company issued 13,900,000 shares of common stock at a price of $2.75
per share for gross proceeds of $38,225,000 pursuant to a private placement. In connection
with the private placement, the Company paid an aggregate of $2,197,938 in fees to the
agents pursuant to an agency agreement.On May 3, 2007, the Company issued 2,164,166 shares of common stock on a flow-through basis
at a price of $3.44 ($3.85 CDN) per share for gross proceeds of $7,444,731 ($8,332,039 CDN)
in a private placement pursuant to an amended underwriting agreement originally entered
into on March 6, 2007. These shares have been issued on a flow-through basis whereby the
proceeds must be used for exploration in Canada and the tax benefits from that exploration
will flow through to the subscribers. In connection with this private placement, the
Company received an additional payment of $3,499,419 ($3,873,857 CDN) from the underwriters
pursuant to their obligations under the underwriting agreement, as amended. The Company
paid an aggregate of $551,305 ($610,295 CDN) in fees to the underwriters.On September 21, 2007, the Company issued 750,000 shares of common stock as part of the
consideration provided for the purchase of a royalty which encumbered the Saskatchewan
permit lands and the interests of one of the joint venture partners to the Triple 7 Joint
Venture Agreement in the Eagles Nest Prospect (Notes 4 a) and d)).
 F-27




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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
 12.
    
    COMMON STOCK(continued)
 d)
    
    Private Placements and Public Offerings of Shares of Common Stock  (continued)On December 5, 2007, the Company issued 11,000,000 units at a price of $5.00 per unit for
gross proceeds of $55,000,000 pursuant to a marketed public offering. Each unit was
comprised of one share of common stock and one-half of a share of common stock purchase
warrant with each whole warrant entitling the holder to purchase one share of common stock
of the Company for $6.75 per share until December 5, 2009.On December 5, 2007, as part of the marketed public offering, the Company issued 2,600,000
shares of common stock of a
 flow-through basis at a price of $6.11 ($6.17 CDN) per share
for gross proceeds of $15,886,000 ($16,042,000 CDN).On December 20, 2007, an over-allotment option granted to the underwriters as part of the
agreement under the marketed public offering was exercised. As a result the Company issued
an additional 1,650,000 units at a price of $5.00 per unit for gross proceeds of
$8,250,000. Each unit is comprised of one share of common stock and one-half of a share of
common stock purchase warrant with each whole warrant entitling the holder to purchase one
share of common stock of the Company for $6.75 per share until December 5, 2009.Under the terms of the flow-through shares issued on March 6, 2007, March 9, 2007, May 3,
2007 and December 5, 2007, the Company renounced the tax benefits of the related
expenditures to the subscribers effective December 31, 2007. As at April 30, 2008 all
amounts have been expended on exploration in Canada.The March 6, 2007, March 9, 2007, May 3, 2007 and December 5, 2007 flow-through shares were
issued at a premium to the then market price in recognition of the tax benefits accruing to
subscribers. In accordance with US GAAP the premium was originally recorded as a current
liability and then it was drawn down as a reduction of deferred tax expense as the
exploration expenditures were incurred.
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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
 13.
    
    STOCK OPTIONSAt April 30, 2008, OQI had outstanding options under the Companys 2006 Stock Option Plan (SOP
2006) to purchase that same number of shares as follows:
 Stock option
    
    Exercise
    
    
    
    
    
    Number of OptionsPlan
    
    Expiry Date
    
    Price
    
    2008
    
    2007
    
    2006SOP  2005(b)
    
    20-Oct-07
    
    $
    1.50
    
    
    
    
    
    
    
    200,000
    
    
    
    400,000SOP  2006
    
    1-Jan-07
    
    $
    1.70
    
    
    
    
    
    
    
    
    
    
    
    300,000SOP  2006
    
    1-Jan-08
    
    $
    2.00
    
    
    
    
    
    
    
    400,000
    
    
    
    400,000SOP  2006
    
    1-Nov-08
    
    $
    2.58
    
    
    
    
    
    
    
    600,000
    
    
    
    600,000SOP 2006
    
    8-Feb-08
    
    $
    4.62
    
    
    
    
    
    
    
    250,000
    
    
    
    250,000SOP 2006
    
    17-Feb-09
    
    $
    4.57
    
    
    
    250,000
    
    
    
    250,000
    
    
    
    250,000SOP 2006
    
    9-Mar-08
    
    $
    4.60
    
    
    
    
    
    
    
    250,000
    
    
    
    250,000SOP 2006
    
    1-May-11
    
    $
    6.75
    
    
    
    1,000,000
    
    
    
    1,000,000
    
    
    
    SOP 2006
    
    14-Aug-11
    
    $
    6.75
    
    
    
    1,000,000
    
    
    
    1,000,000
    
    
    
    SOP 2006
    
    1-May-12
    
    $
    6.75
    
    
    
    1,000,000
    
    
    
    1,000,000
    
    
    
    SOP 2006
    
    1-May-13
    
    $
    6.75
    
    
    
    1,000,000
    
    
    
    1,000,000
    
    
    
    SOP 2006
    
    18-May-08
    
    $
    6.00
    
    
    
    300,000
    
    
    
    300,000
    
    
    
    SOP 2006
    
    18-May-09
    
    $
    6.00
    
    
    
    30,000
    
    
    
    30,000
    
    
    
    SOP 2006
    
    23-Aug-09
    
    $
    5.05
    
    
    
    75,000
    
    
    
    75,000
    
    
    
    SOP 2006
    
    23-Aug-11
    
    $
    5.05
    
    
    
    2,860,000
    
    
    
    2,970,000
    
    
    
    SOP 2006
    
    5-Sep-11
    
    $
    5.10
    
    
    
    
    
    
    
    300,000
    
    
    
    SOP 2006
    
    27-Sep-11
    
    $
    3.90
    
    
    
    
    
    
    
    50,000
    
    
    
    SOP 2006
    
    2-Oct-11
    
    $
    3.89
    
    
    
    400,000
    
    
    
    400,000
    
    
    
    SOP 2006
    
    1-Dec-11
    
    $
    5.25
    
    
    
    50,000
    
    
    
    50,000
    
    
    
    SOP 2006
    
    29-Jun-12
    
    $
    2.47
    
    
    
    100,000
    
    
    
    
    
    
    
    SOP 2006
    
    1-Aug-12
    
    $
    4.27
    
    
    
    4,097,000
    
    
    
    
    
    
    
    SOP 2006
    
    31-Aug-12
    
    $
    5.04
    
    
    
    30,000
    
    
    
    
    
    
    
    SOP 2006
    
    11-Oct-12
    
    $
    4.60
    
    
    
    150,000
    
    
    
    
    
    
    
    SOP 2006
    
    11-Jan-13
    
    $
    4.59
    
    
    
    115,000
    
    
    
    
    
    
    
    SOP 2006
    
    01-Feb-13
    
    $
    3.37
    
    
    
    200,000
    
    
    
    
    
    
    
    SOP 2006
    
    14-Mar-13
    
    $
    4.00
    
    
    
    320,000
    
    
    
    
    
    
    
    SOP 2006
    
    1-Apr-13
    
    $
    3.97
    
    
    
    10,000
    
    
    
    
    
    
    
    SOP 2006
    
    16-Apr-13
    
    $
    4.25
    
    
    
    40,000
    
    
    
    
    
    
    
    13,027,000
    
    
    
    10,125,000
    
    
    
    2,450,000
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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
 13.
    
    STOCK OPTIONS (continued)Included in the number of options outstanding at April 30, 2008 are 7,271,500 options that have
not yet vested:
 1,000,000
    
    options at $6.75 with an expiry date of May 1, 2013 which vest on May 1, 2008;715,000
    
    options at $5.05 which vest as to 357,500 in each of 2008 and 2009 on August 23;100,000
    
    options at $3.89 which vest as to 50,000 in each of 2008 and 2009 on October 2;12,500
    
    options at $5.25 which vest as to 6,250 in each of 2008 and 2009 on December 1;75,000
    
    options at $2.47 which vest as to 25,000 in each of 2008, 2009, and 2010 on June 29;3,072,750
    
    options at $4.27 which vest as to 1,024,250 in each of 2008, 2009 and 2010 on August 1;15,000
    
    options at $5.04 which vest as to 7,500 on February 28, 2008 and 15,000 on August 31, 2008;112,500
    
    options at $4.60 which vest as to 37,500 in each of 2008, 2009, and 2010 on October 11;86,250
    
    options at $4.59 which vest as to 28,750 in each of 2009, 2010, and 2011 on January 11;150,000
    
    options at $3.37 which vest as to 50,000 in each of 2009, 2010, and 2011 on February 1;240,000
    
    options at $4.00 which vest as to 80,000 in each of 2009, 2010, and 2011 on March 14;7,500
    
    options at $3.97 which vest as to 2,500 in each of 2009, 2010, and 2011 on April 1;30,000
    
    options at $4.25 which vest as to 5,000 in each of 2009, 2010, and 2011 on April 16;1,655,000
    
    options which vest on or after dates between August 23 and December 1, 2009 as to
413,750 upon achieving a 750 million bitumen in place (BIP) barrel count defined as the
high resource (P10) estimate of bitumen in place (as determined in accordance with
National Instrument 51-101 Standard of Disclosure for Oil and Gas Activities issued by the securities
regulatory authorities in Canada) and 413,750 options thereafter for each 250 million increase in the BIP barrel count.7,271,500
 A summary of the OQIs stock option activity is as follows:
 WeightedNumber of
    
    AverageOptions
    
    Exercise PriceBalance, April 30, 2005
    
    
    1,175,000
    
    
    $
    0.27Granted during year
    
    
    4,875,000
    
    
    $
    1.76Exercised
    
    
    (3,375,000
    )
    
    $
    0.58Expired
    
    
    (225,000
    )
    
    $
    0.25Balance, April 30, 2006
    
    
    2,450,000
    
    
    $
    2.82Granted during year
    
    
    8,540,344
    
    
    $
    5.83Exercised
    
    
    (705,344
    )
    
    $
    2.65Expired
    
    
    (160,000
    )
    
    $
    5.05Balance, April 30, 2007
    
    
    10,125,000
    
    
    $
    5.33Granted during year
    
    
    5,077,000
    
    
    $
    4.19Exercised
    
    
    (1,456,250
    )
    
    $
    2.62Expired
    
    
    (718,750
    )
    
    $
    4.84Balance, April 30, 2008
    
    
    13,027,000
    
    
    $
    5.22
 In addition to the above, OQI Sask has 1,640,000 outstanding options which may be exercised and
exchanged into Exchangeable Shares whereby up to an additional 13,497,200 OQI common shares may
be issued (note 11).During the year ended April 30, 2008, 5,077,000 options were granted and were accounted for
using the Black-Scholes option-pricing model.As at April 30, 2008, the Company had unrecognized stock option compensation expense of
$12,607,254 which will be recorded in future periods as options vest. The expense is expected
to be recognized over a weighted-average period of 0.89 years. The intrinsic value of options
exercised during the years ended April 30, 2008, 2007 and 2006 was $3 million, $1.7 million and
$6.9 million respectively.
 F-30




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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
 14.
    
    WARRANTSOQI had the following warrants outstanding to purchase that same number of common shares as at
April 30:
 Expiry
    
    ExerciseDate
    
    Price
    
    2008
    
    2007
    
    200614-Sept-06
    
    $
    0.34
    
    
    
    
    
    
    
    
    
    
    
    2,380,00019-Sep-06
    
    $
    1.30
    
    
    
    
    
    
    
    
    
    
    
    1,022,63019-Sept-07
    
    $
    0.55
    
    
    
    
    
    
    
    104,883
    
    
    
    568,11112-Dec-07
    
    $
    2.00
    
    
    
    
    
    
    
    7,085,834
    
    
    
    7,634,00015-Dec-07
    
    $
    2.00
    
    
    
    
    
    
    
    1,500,000
    
    
    
    1,500,0006-Feb-08
    
    $
    4.50
    
    
    
    
    
    
    
    
    
    
    
    200,00015-Dec-07
    
    $
    1.75
    
    
    
    
    
    
    
    165,350
    
    
    
    260,5805-Dec-09
    
    $
    6.75
    
    
    
    6,325,000
    
    
    
    
    
    
    
    6,325,000
    
    
    
    8,856,067
    
    
    
    13,565,321
 A summary of OQIs share purchase warrant activity is as follows:
 WeightedNumber
    
    Averageof Warrants
    
    Exercise PriceBalance, April 30, 2005
    
    
    10,819,590
    
    
    $
    0.35Issued during year
    
    
    23,728,503
    
    
    $
    1.31Exercised  cash
    
    
    (10,650,095
    )
    
    $
    0.60Exercised  cashless
    
    
    (10,332,122
    )
    
    $
    0.62Expired/Cancelled
    
    
    (555
    )
    
    $
    0.35Balance, April 30, 2006
    
    
    13,565,321
    
    
    $
    1.63Exercised  cash
    
    
    (2,129,241
    )
    
    $
    1.34Exercised  cashless
    
    
    (2,380,000
    )
    
    $
    0.34Expired/Cancelled
    
    
    (200,013
    )
    
    $
    4.50Balance, April 30, 2007
    
    
    8,856,067
    
    
    $
    1.98Issued during year
    
    
    6,325,000
    
    
    $
    6.75Exercised
    
    
    (8,856,067
    )
    
    $
    1.98Balance, April 30, 2008
    
    
    6,325,000
    
    
    $
    6.75
 15.
    
    NON-CASH FINANCING EXPENSEDuring the year ended April 30, 2008, OQI reported nil (2007  nil, 2006  $34,047,998)
non-cash financing expense. During the year ended April 30, 2006, as a result of OQIs
contractual commitment to file a re-sale registration statement with respect to a private
placement done in December, 2005, OQI issued 2,889,371 common shares as a penalty for delays
and recorded a non-cash financing expense of $17,312,623 (note 12(d)). In addition, OQI
recorded non-cash financing costs of $16,735,365 related to warrants issued in conjunction with
the private placement completed in December 2005 and the convertible debentures issued during
2006. The fair value of the warrants was calculated using the Black-Scholes pricing model.16.
    
    GAIN ON EXTINGUISHMENT OF CERTAIN LIABILITIESDuring the year ended April 30, 2006, the Company sold its interest in a subsidiary to a third
party for nominal cash proceeds which resulted in the Company recording a gain on
extinguishment of a liability of $736,782 and also settled certain of its accounts with
creditors of another subsidiary resulting in a gain of $199,687 which was also recorded as a
gain on extinguishment of a liability.
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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
 17.
    
    COMPREHENSIVE LOSSComprehensive loss includes net loss and all other non-owner changes in equity. Components of
other comprehensive loss and accumulated other comprehensive income
for the years ended April
30, 2008, 2007 and 2006 are presented in the Consolidated Statements of Common Stockholders
Equity and Comprehensive Income.
 Year Ended April 30,2008
    
    
    2007
    
    
    2006Net loss
    
    $
    98,870,931
    
    
    $
    68,794,741
    
    
    $
    52,640,903Unrealized loss on available for
sale securities
    
    
    141,970
    
    
    
    25,661
    
    
    
    Exchange (gain) loss on translation
    
    
    (44,881,414
    )
    
    
    1,391,523
    
    
    
    (421,919
    )$
    54,131,487
    
    
    $
    70,211,925
    
    
    $
    52,218,984
 18.
    
    RELATED PARTY TRANSACTIONSThe step-mother of an executive of the Company is the sole shareholder of a company that
facilitates local on-site labour and equipment rentals to the Company for field operations.
For the year ended April 30, 2008, $6,118,444 (2007  $885,649, 2006  nil) has been included
in Exploration costs. These transactions are in the normal course of operations and have been
carried out on the same terms as would apply with unrelated parties.As at April 30, 2008, the Company had a $160,295 (April 30, 2007  $133,249) payable to the
above mentioned company.The son of an executive of the Company is a 50% shareholder of a company that facilitates local
on-site kitchen labour and catering functions to the Company for field operations. For the
year ended April 30, 2008, $1,559,060 (2007  nil, 2006  nil) has been included in Exploration
costs. These transactions are in the normal course of operations and have been carried out on
the same terms as would apply with unrelated parties.As at April 30, 2008, the Company had nil (April 30, 2007  nil) payable to the above mentioned
company.19.
    
    COMMITMENTSThe following table sets out OQIs expected future payment commitments as at April 30, 2008 and
the estimated timing of such payments relating to corporate office and operations facility
leases:
 Office, warehouse and equipment lease commitments
    
    As at April 30, 2008Year 1
    
    $
    2,192,750Year 2
    
    
    976,749Year 3
    
    
    887,214Year 4
    
    
    853,574Year 5
    
    
    815,470>5 Years
    
    
    2,457,078$
    8,182,835
 The Company is subject to annual lease rentals, minimum exploration expenditures and work
commitments related to its exploration permits, licenses and lease assets. These required
expenditures have not been included in the above schedule. For details of these required
expenditures refer to note 4.
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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
 
 20.
    
    SUBSEQUENT EVENTS
 a)
    
    Subsequent to April 30, 2008, the Board of Directors granted 275,000 stock options
to employees. The exercise price of the options granted ranged from $4.57 to $4.79 and
was based on the closing price of the Companys stock on the day immediately prior to the
grant.b)
    
    On May 23, 2008, the Company issued 12,976,761 shares of common stock at a price of
$4.20 per share for gross proceeds of $54,502,396 pursuant to a private placement. The
Company paid an aggregate of $1,225,120 in fees to the underwriters.c)
    
    On June 17, 2008, the Company acquired the rights of the remaining external joint
venture partners for aggregate consideration of $1,632,000 CDN and 640,000 shares of the
Companys common stock valued at $2,860,800 based on the May 29, 2008, closing market
price of the shares. The Companys obligations under the Triple 7 Joint Venture
Agreement have therefore been eliminated.
 F-33




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description3.1
    
    Articles of Incorporation.
(1),(4),(6),(11)3.2
    
    Bylaws, filed herewith.4.1
    
    2005b Stock Option Plan. (2)4.2
    
    2006 Stock Option
Plan. (13)4.3
    
    Rights Agreement, dated as of March 9, 2006, between the Company and Computershare Investor Services,
Inc., as Rights 
Agent. (5)4.4
    
    Warrant indenture between Oilsands Quest Inc. and Computershare Trust Company of Canada dated
December 5, 2007. (14)10.6
    
    Form of Warrant, dated December 12, 2005.
(3)10.7
    
    Financing Agreement with Oilsands Quest Sask, Inc.,
November 25, 2005.
(3)10.8
    
    Subscription Agreement with Dynamic Power Hedge Fund, dated
December 12, 2005.
(3)10.9
    
    Executive Employment Agreement (Amended and Restated) with T. Murray Wilson, dated September 22, 2006
and as amended effective August 1, 2007.
(13)10.10
    
    Reorganization Agreement, dated June 9, 2006.
(7)10.13
    
    Voting Exchange and Trust Agreement dated August 14,
2006.(8)10.14
    
    Exchangeable Share
Provisions. (8)10.15
    
    Support Agreement dated August 14,
2006.(8)10.16
    
    Executive Employment Agreement with Christopher Hopkins dated
August 14, 2006.
(8)10.17
    
    Executive Employment Agreement with Karim Hirji dated
August 14, 2006.
(8)10.18
    
    Executive Employment Agreement with Errin Kimball dated
August 14, 2006.
(8)10.20
    
    Share Purchase Agreement, effective May 31, 2006.
(12)10.21
    
    Assignment Agreement, effective May 31, 2006.
(12)10.22
    
    Executive Employment Agreement with Erdal Yildirim, dated
October 10, 2006.
(10)10.23
    
    Form of Indemnity Agreement.
(9)10.24
    
    Subscription Agreement for Flow-Through Shares, dated
March 6, 2007.
(13)10.25
    
    Amending Agreement to Subscription Agreement for Flow-Through
Shares, dated May 3, 2007.
(13)10.26
    
    Subscription Agreement between the Company and Subscribers,
dated May 3, 2007.
(13)10.27
    
    Underwriting Agreement.
(15)




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##### Table of Contents



Exhibit No.
    
    Description21.1
    
    Subsidiaries of the Registrant.
(13)23.1
    
    Consent of Pannell Kerr Forster, filed herewith.23.2
    
    Consent of KPMG LLP, filed herewith.23.3
    
    Consent of McDaniel & Associates, filed herewith.31.1
    
    Certification of CEO Pursuant to Exchange Act Rules 13a-14
and 15d-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, filed herewith.31.2
    
    Certification of CFO Pursuant to Exchange Act Rules 13a-14
and 15d-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, filed herewith.32.1
    
    Certification of CEO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith.32.2
    
    Certification of CFO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith.99.1
    
    Report of Management and Directors on Oil and Gas Disclosure,
filed herewith99.2
    
    Report on Resource Estimates by Independent Qualified
Resource Evaluator, filed herewith
 
 (1)
    
    Incorporated by reference from Form 10-SB, filed October 14, 1999; and Form 8-K,
filed November 29, 2004.(2)
    
    Incorporated by reference from Form SB-2 dated December 29, 2005.(3)
    
    Incorporated by reference from Form 10-QSB dated March 22, 2006.(4)
    
    Incorporated by reference from Form 10-QSB dated December 14, 2005.(5)
    
    Incorporated by reference from Form 8-A dated March 13, 2006.(6)
    
    Incorporated by reference from Form 8-K dated March 13, 2006.(7)
    
    Incorporated by reference from Form 8-K dated June 14, 2006.(8)
    
    Incorporated by reference from Form 8-K dated August 17, 2006.(9)
    
    Incorporated by reference herein from Form 10-QSB filed March 15, 2007(10)
    
    Incorporated by reference herein from Form 8-K dated October 12, 2006.(11)
    
    Incorporated by reference herein from Form 10-QSB filed December 15, 2006.(12)
    
    Incorporated by reference herein from Form 8-K filed August 21, 2006.(13)
    
    Incorporated by reference herein from Form 10-KSB filed July 30, 2007.(14)
    
    Incorporated by reference herein from Form 8-K filed December 5, 2007.(15)
    
    Incorporated by reference herein from Form 10-K filed November 23, 2007. 
 85