UNITED STATES
  SECURITIES AND EXCHANGE COMMISSION
  Washington, D.C. 20549

FORM 20-F

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

For the Year ended December 31, 2002

Commission File No.: 0-29344

**INDO-PACIFIC ENERGY LTD.**(Exact name of Registrant as specified in its charter)

Yukon Territory, Canada(Jurisdiction of incorporation or organization)

284 Karori Road, Karori Wellington
  New Zealand, 6003(Address of principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

(Title of class)Common Shares

Securities for which there is a reporting obligation pursuant
  to Section 15(d) of the Act.

None

Indicate the number of outstanding shares of each of the Registrants
  classes of capital or common stock as of close of the period covered by the
  annual report:

7,739,324 Common Shares

Indicate by check mark whether the Registrant: (1) has filed
  all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
  Act of 1934 during the preceding 12 months (or for such shorter period that
  the Registrant was required to file such reports), and (2) has been subject
  to such filing requirements for the past 90 days:

Yes x    No
   ̈

Indicate by check mark which financial statement item the registrant
  has elected to follow.

Item 17 x
       Item 18  ̈

The Index to the Exhibits is found at Page 88

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TABLE OF CONTENTS

|         |         |                                                                                   | Page | 
|-------- | ------- | --------------------------------------------------------------------------------- | ---- | 
|         |         |                                                                                   |      | 
|         |         | Glossary of Terms                                                                 | 3    | 
|Part I   |         |                                                                                   |      | 
|         | Item 1  | Identity of Directors, Senior Management and Advisers                             | 7    | 
|         | Item 2  | Offer Statistics and Expected Timetable                                           | 7    | 
|         | Item 3  | Key Information                                                                   | 7    | 
|         | Item 4  | Information on the Company                                                        | 13   | 
|         | Item 5  | Operating and Financial Review and Prospects                                      | 26   | 
|         | Item 6  | Directors, Senior Management and Employees                                        | 34   | 
|         | Item 7  | Major Shareholders and Related Party Transactions                                 | 40   | 
|         | Item 8  | Financial Information                                                             | 41   | 
|         | Item 9  | The Offer and Listing                                                             | 42   | 
|         | Item 10 | Additional Information                                                            | 44   | 
|         | Item 11 | Quantitative and Qualitative Disclosures About Market Risk-                       | 48   | 
|         | Item 12 | Description of Securities other than Equity Securities                            | 48   | 
|Part II  |         |                                                                                   |      | 
|         | Item 13 | Defaults, Dividend Arrearages and Delinquencies                                   | 49   | 
|         | Item 14 | Material Modification to the Rights of Security Holders and
      Use of Proceeds | 49   | 
|         | Item 15 | Controls and Procedures                                                           | 49   | 
|         | Item 16 | Reserved                                                                          | 49   | 
|Part III |         |                                                                                   |      | 
|         | Item 17 | Financial Statements                                                              | 50   | 
|         | Item 18 | Financial Statements (Not Used)                                                   | 50   | 
|         | Item 19 | Exhibits                                                                          | 50   | 
|         |         |                                                                                   |      | 
|         |         | Signatures                                                                        | 51   | 
|         |         | Section 302(a) Certifications                                                     | 52   | 
|         |         | Financial Statements                                                              | 54   | 
|         |         | Index to Exhibits                                                                 | 88   | 

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GLOSSARY OF TERMS

The following terms as defined here are used throughout this
  filing:

INDOorCompanyorRegistrantrefers
  toIndo-Pacific Energy Ltd., a corporation organized and registered under
  the laws of Yukon, Canada, and includes its subsidiaries.

$or dollarrefers to the currency of the United
  States of America, unless otherwise noted in relation to a particular reference.

Basinis a segment of the crust of the Earth in which
  thick layers of sediments have accumulated over a long period of time.

Bblor Barrel is one stock tank barrel, of 42
  U.S. gallons liquid volume, used herein in reference to crude oil or other liquid
  hydrocarbons.

Bopdis one barrel of oil per day.

Condensate refers to hydrocarbons associated with natural
  gas which are liquid under surface conditions but gaseous in the reservoir before
  extraction.

Depletion is the reduction in petroleum reserves due
  to production.

Development refers to the phase in which an oil or
  gas field is brought into production, usually by drilling and completing production
  wells, and the wells, in most cases, are connected to the petroleum gathering
  system.

Discovery is the location by drilling of a well of
  an accumulation of gas, condensate or oil reserves, the size of which may be
  estimated but not precisely quantified and which may or may not be commercially
  economic, depending on a number of factors.

Entrapment is the geological structure in which hydrocarbons
  build up to form an oil, condensate or gas field.

Exploration Well is a well drilled in a prospect without
  knowledge of the underlying sedimentary rock or the contents of the underlying
  rock.

Farm In or Farm Out refers to a common form
  of agreement between or among petroleum companies where the holder of the petroleum
  interest agrees to assign all or part of an interest in the ownership to another
  party that is willing to fund agreed exploration activities which is usually
  equivalent to more than the proportionate interest assigned to such other party.

Fault is a fracture in a rock or rock formation along
  which there has been an observable amount of displacement.

Field is an area that is producing, or has been proven
  to be capable of producing, hydrocarbons.

Formation is a reference to a group of rocks of the
  same age extending over a substantial area of a basin.

GAAPGenerally accepted accounting principles.

Geology is the science relating to the history and
  development of the Earth, and is also used to refer to the make-up of the rocks
  in a particular area.

Hydrocarbon is the general term for oil, gas, condensate
  and other petroleum products.

MbblsOne thousand barrels of crude oil or other liquid
  hydrocarbons.

McfOne thousand cubic feet of natural gas.

MMcf One million cubic feet of natural gas.

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Participating Interest or Working Interest is
  an equity interest, as compared to a royalty interest, in an oil and gas property
  whereby the participating interest holder pays its proportionate or agreed percentage
  share of development and operating costs and receives its proportionate share
  of the proceeds of hydrocarbon sales after deduction of royalties due on gross
  income.

Permit or Licence is an area that is granted
  for a prescribed period of time for exploration, development or production under
  specific contractual or legislative conditions.

Pipeline is a system of interconnected pipes that gather
  and transport hydrocarbons from a well or field to a processing plant or to
  a facility that is built to take the hydrocarbons for further transport, such
  as a gas liquefaction plant.

Preemptionis the right granted to a party in a Joint
  Venture Operating Agreement to require another party, which party is proposing
  to assign its interest in a permit or licence, to assign that interest to the
  first party on the terms of the proposed assignment.

Pressure survey is a geological survey to test the
  pressure at which hydrocarbons are being held in the relevant formation.

Prospect is a potential hydrocarbon trap which has
  been confirmed by geological and geophysical studies to warrant the drilling
  of an exploration well.

Proved Developed Reserves are Proved Reserves that
  can be expected to be recovered through existing wells with existing equipment
  and operating methods.

Proved Reserves are the estimated quantities of crude
  oil, natural gas and natural gas liquids which geological and engineering data
  demonstrate with reasonable certainty to be recoverable in future years from
  known reservoirs under existing economic and operating conditions.

Proved Undeveloped Reserves are Proved Reserves that
  are expected to be recovered from new wells on undrilled acreage or from existing
  wells where a relatively major expenditure is required for recompletion.

Reservoir is a porous and permeable sedimentary rock
  formation containing adequate pore space in the rock to provide storage space
  for oil, gas or water.

Royalty is the entitlement to a stated or determinable
  percentage of the proceeds received from the sale of hydrocarbons calculated
  as prescribed in applicable legislation or in the agreement reserving the royalty
  to the owner of the royalty.

Seismic refers to a geophysical technique using low
  frequency sound waves to determine the subsurface structure of sedimentary rocks.

Show is the detectable presence of hydrocarbons during
  the drilling of a well.

Shut-inrefers to a well which is suspended from production,
  usually for operational reasons, such as in order to build up pressure in the
  reservoir.

Sole Riskrefers to a permit holder undertaking a project
  within a permit, with which the other permit holders do not join, but giving
  such other parties the right to election to join in the project at a later date,
  on payment of their pro rata share of costs already incurred and a substantial
  premium (based on a multiple of the incurred costs). The premium is usually
  paid incrementally by the original sole risk party taking all production from
  the project, and setting off the value of the other partys share against
  the premium due, until the premium is fully paid.

Sole Risk Notice is the notice that one permit holder
  sends to the other permit holders, proposing to enter into a sole risk operation
  within the permit, and giving the other permit holders the right to join in
  the project immediately.

Topfile Application is the procedure available in Papua
  New Guinea, whereby the current permit holders in a permit apply for a new permit
  over the same (or part of the same) area in their current permit, which if granted
  automatically cancels the current permit.

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Other Expressions

Metric and Imperial Units - Conversion from metric units into
  imperial equivalents is as follows:

|Metric Units             | Imperial Units          
|------------------------ | ------------------------
|                         |                         
|hectare (ha)             | 2.471 acres             
|                         |                         
|meter (m)                | 3.281 feet              
|                         |                         
|kilometer (km)           | 0.621 miles (3,281 feet)
|                         |                         
|square kilometer (sq km) | 247.106 acres           

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PRESENTATION OF INFORMATION

Indo-Pacific Energy Ltd. (the "Company") conducts its operations
  directly and through subsidiaries. The term "INDO" as used herein refers, unless
  the context otherwise requires, to the Company and its consolidated subsidiaries.
  Unless otherwise specified, all dollar amounts described herein are in United
  States currency. All references to daily production are before royalty, unless
  stated otherwise.

FORWARD LOOKING STATEMENTS

This Report contains forward looking statements within the
  meaning of the Private Securities Litigation Reform Act of 1995. These forward
  looking statements are not guarantees of INDO's future operational or financial
  performance and are subject to risks and uncertainties. Certain statements in
  this Report constitute forward looking statements. When used in this Annual
  Report, the words estimate, intend, expect,
  anticipate and similar expressions are intended to identify forward-looking
  statements. Readers are cautioned not to place undue reliance on these statements,
  which speak only as of the date of this Annual Report. These statements are
  subject to risks and uncertainties that could cause results to differ materially
  from those contemplated in such forward-looking statements. Such risks and uncertainties
  include, but are not limited to, those identified under the subheading Risk
  Factors in Item 3 hereof.

Actual operational and financial results may differ materially
  from INDO's expectations contained in the forward looking statements as a result
  of various factors, many of which are beyond the control of the Company. These
  factors include, but are not limited to, unforeseen changes in the rate of production
  from INDO's oil and gas fields, changes in the price of crude oil and natural
  gas, adverse technical factors associated with exploration, development, product
  or transportation of INDO's crude oil and natural gas reserves, changes or disruptions
  in the political or fiscal regimes in INDO's areas of activity, changes in tax
  regimes, energy or other laws or regulations within the jurisdictions in which
  the Company operates, changes in significant capital expenditures, delays in
  production starting up due to an industry shortage of skilled manpower, equipment
  or materials, and cost of inflation.

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PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable

ITEM 3. KEY INFORMATION

A. Selected financial data

The selected historical financial information presented in
  the table below for each of the years ended December 31, 2002, 2001, 2000, 1999,
  and 1998, is derived from the audited consolidated financial statements of INDO.
  The audited financial statements of INDO for the years ended December 31, 2002,
  2001, and 2000 are included in this Filing. The selected historical financial
  information for the years ended December 31, 1999 and 1998 presented in the
  table below are derived from audited financial statements of INDO that are not
  included in this Filing. The selected financial information presented below
  should be read in conjunction with INDO's consolidated financial statements
  and the notes thereto (Item 17) and the Operating and Financial Review and Prospects
  (Item 5) elsewhere in this Filing.

The selected consolidated financial data has been prepared
  in accordance with Canadian Generally Accepted Accounting Principles ("Canadian
  GAAP"). Selected financial data has also been provided under US GAAP to the
  extent that amounts are different. The consolidated financial statements included
  in Item 17 in this filing are also prepared under Canadian GAAP. Included within
  these consolidated financial statements in Note 13 is a reconciliation between
  Canadian and US GAAP.

INDO-PACIFIC ENERGY LTD. AND SUBSIDIARY COMPANIESSELECTED FINANCIAL DATA AS OF AND FOR THE YEARS ENDED AS SHOWN(IN $000'S EXCEPT PER SHARE DATA)

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Selected Income Statement Data Amounts in accordance with Canadian GAAP


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|                              | Year     |        | Year     |   | Year     |   | Year     |        | Year     |  
|----------------------------- | -------- | ------ | -------- | - | -------- | - | -------- | ------ | -------- | -
|                              | Ended    |        | Ended    |   | Ended    |   | Ended    |        | Ended    |  
|                              | December |        | December |   | December |   | December |        | December |  
|                              | 31       |        | 31       |   | 31       |   | 31       |        | 31       |  
|                              | 2002     |        | 2001     |   | 2000     |   | 1999     |        | 1998     |  
|                              |          |        |          |   |          |   |          |        |          |  
|Oil and gas revenue           |          | 1,846  |          |   | 3,744    |   |          | 476    |          |  
|Other income                  |          | 29     |          |   | 94       |   |          | 224    |          |  
|Royalty expense               |          | (184   | )        |   | (370     | ) |          | (24    | )        |  
|Operating expenses            |          | (773   | )        |   | (652     | ) |          | (35    | )        |  
|General and                   |          | (581   | )        |   | (736     | ) |          | (744   | )        |  
|administrative expenses       |          |        |          |   |          |   |          |        |          |  
|Depletion and depreciation    |          | (106   | )        |   | (266     | ) |          | (112   | )        |  
|Property write-downs          |          | (2,784 | )        |   | (706     | ) |          | (2,726 | )        |  
|Stock option compensation     |          | (274   | )        |   | -        |   |          | -      |          |  
|expense [1]                   |          |        |          |   |          |   |          |        |          |  
|Income (loss) from Operations |          | (2,827 | )        |   | 1,108    |   |          | (2,941 | )        |  
|Other Items                   |          | -      |          |   | -        |   |          | 70     |          |  
|Income (loss) before income   |          | (2,827 | )        |   | 1,108    |   |          | (2,871 | )        |  
|taxes                         |          |        |          |   |          |   |          |        |          |  
|Income taxes                  |          | -      |          |   | -        |   |          | -      |          |  
|Income (loss) for the year    |          | (2,827 | )        |   | 1,108    |   |          | (2,871 | )        |  
|                              |          |        |          |   |          |   |          |        |          |  
|Income (loss) per share       |          | (0.41  | )        |   | 0.17     |   |          | (0.47  | )        |  
|                              |          |        |          |   |          |   |          |        |          |  
|Dividends declared per share  | $        | 0.00   |          | $ | 0.00     |   | $        | 0.00   |          | $
|                              |          |        |          |   |          |   |          |        |          |  

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[1] During the year the company adopted the
  new recommendations of CICA handbook section 3870, stock option based compensation
  for the recognition, measurement and disclosure of stock option based compensation
  and other stock based payments made in exchange for goods and services.

|Amounts in accordance with US GAAP    |        |   |        |   |        |   |       |  
|------------------------------------- | ------ | - | ------ | - | ------ | - | ----- | -
|General and administrative (1,325)    | (1,640 | ) | (1,059 | ) | (533   | ) | (563  | )
|expenses                              |        |   |        |   |        |   |       |  
|Income (loss) from Operations (3,297) | 204    |   | (3,256 | ) | (1,012 | ) | (880  | )
|Income (loss) for the year (3,297)    | 204    |   | (3,186 | ) | (1,173 | ) | (880  | )
|Comprehensive income / (loss) (3,297) | 204    |   | (3,186 | ) | (1,173 | ) | (880  | )
|                                      |        |   |        |   |        |   |       |  
|Income (loss) per share (0.48)        | 0.03   |   | (0.52  | ) | (0.21  | ) | (0.15 | )
|                                      |        |   |        |   |        |   |       |  

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Selected Balance Sheet Information
  Amounts in accordance with Canadian GAAP


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|                                   | As at    |   | As at    |   | As at    |   | As at    |   | As at    |  
|---------------------------------- | -------- | - | -------- | - | -------- | - | -------- | - | -------- | -
|                                   | December |   | December |   | December |   | December |   | December |  
|                                   | 31       |   | 31       |   | 31       |   | 31       |   | 31       |  
|                                   | 2002     |   | 2001     |   | 2000     |   | 1999     |   | 1998     |  
|                                   |          |   |          |   |          |   |          |   |          |  
|Working capital                    | 1,775    |   | 2,739    |   | 2,981    |   | 6,131    |   | 8,578    |  
|                                   |          |   |          |   |          |   |          |   |          |  
|Current Assets                     | 2,158    |   | 3,699    |   | 3,146    |   | 6,409    |   | 8,735    |  
|Due from Related Parties           | 52       |   | 28       |   | 80       |   | -        |   | -        |  
|Investments                        | -        |   | -        |   | -        |   | 670      |   | 250      |  
|Oil and gas properties             | 7,523    |   | 8,094    |   | 6,636    |   | 3,656    |   | 2,820    |  
|Property & Equipment               | 29       |   | 70       |   | 125      |   | 144      |   | 134      |  
|Total assets                       | 9,762    |   | 11,891   |   | 9,987    |   | 10,879   |   | 11,939   |  
|                                   |          |   |          |   |          |   |          |   |          |  
|Long-term debt                     | -        |   | -        |   | -        |   | -        |   | -        |  
|Share Capital                      | 20,478   |   | 19,478   |   | 19,478   |   | 17,386   |   | 17,386   |  
|Contributed surplus                | 274      |   | -        |   | -        |   | -        |   | -        |  
|Accumulated deficit                | (11,374  | ) | (8,547   | ) | (9,656   | ) | (6,785   | ) | (5,604   | )
|                                   |          |   |          |   |          |   |          |   |          |  
|Shareholders' equity               | 9,378    |   | 10,931   |   | 9,822    |   | 10,601   |   | 11,782   |  
|                                   |          |   |          |   |          |   |          |   |          |  
|                                   |          |   |          |   |          |   |          |   |          |  
|Amounts in accordance with US GAAP |          |   |          |   |          |   |          |   |          |  
|                                   |          |   |          |   |          |   |          |   |          |  
|Current Assets                     | 2,158    |   | 3,699    |   | 3,146    |   | 6,409    |   | 9,047    |  
|                                   |          |   |          |   |          |   |          |   |          |  
|Total assets                       | 9,762    |   | 11,891   |   | 9,987    |   | 10,949   |   | 13,501   |  
|                                   |          |   |          |   |          |   |          |   |          |  
|Share Capital                      | 23,301   |   | 21,557   |   | 20,653   |   | 18,246   |   | 18,254   |  
|Accumulated deficit                | (13,923  | ) | (10,626  | ) | (10,831  | ) | (7,645   | ) | (6,472   | )
|Comprehensive Income               | -        |   | -        |   | -        |   | 70       |   | 1,562    |  
|Adjustment                         |          |   |          |   |          |   |          |   |          |  
|                                   |          |   |          |   |          |   |          |   |          |  
|Shareholders equity               | 9,378    |   | 10,391   |   | 9,822    |   | 10,671   |   | 13,344   |  
|                                   |          |   |          |   |          |   |          |   |          |  

B. Capitalisation and indebtedness

Not applicable

C. Reasons for the offer and use of proceeds

Not applicable

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D. Risk Factors

Industry Risks

The Company is subject to normal industry risks arising from
  its low level of cash flow and lack of earnings to date, and the nature of the
  Companys involvement in the exploration for, and the acquisition, development
  and production of, oil and natural gas. Exploration for oil and natural gas
  involves many risks, which even a combination of experience, knowledge and careful
  evaluation may not be able to overcome. There is no assurance that further commercial
  quantities of oil and natural gas will be discovered by the Company.

The Companys operations are subject to the risks normally
  incident upon the operation and development of oil and natural gas properties
  and the drilling of oil and natural gas wells, including encountering unexpected
  formations or pressures, premature decline of reservoirs, invasion of water
  into producing formations, blow-outs, cratering, fires and oil spills, all of
  which could result in personal injuries, loss of life and damage to the property
  of the Company and others. Although the Company maintains insurance, in amounts
  and coverages which it considers adequate, in accordance with customary industry
  practice, the Company is not fully insured against all of these risks, nor are
  all such risks insurable, and, as a result, liability of the Company arising
  from these risks could have material adverse effect upon its financial condition.

The marketability and price of oil and natural gas that may
  be acquired or discovered by the Company may be affected by numerous factors
  beyond the control of the Company. The Company may be affected by the differential
  between the price paid by refiners for light, quality oil and various grades
  of oil produced by the Company. The Company is subject to market fluctuations
  in the prices of oil and natural gas, deliverability uncertainties related to
  the proximity of its reserves to pipeline and processing facilities and government
  regulation relating to prices, taxes, royalties, land tenure, allowable production,
  the export of oil and natural gas and many other aspects of the oil and natural
  gas business. The Companys operations will be further affected by the
  remoteness of, and restrictions on access to, certain properties as well as
  climatic conditions.

The Company is also subject to compliance with laws and regulations
  controlling the discharge of materials into the environment or otherwise relating
  to the protection of the environment. The Company is not aware of present material
  liability related to environmental matters. However, it may, in the future,
  be subject to liability for environmental offences of which it is presently
  unaware.

The operations and earnings of the Company and its subsidiaries
  are also affected by local, regional and global events or conditions that affect
  supply and demand for oil and natural gas. These events or conditions are generally
  not predictable and include, among other things, the development of new supply
  sources; supply disruptions; weather; international political events; technological
  advances; and the competitiveness of alternative energy sources or product substitutes.

There is no assurance that commercial quantities of hydrocarbons
  will be discovered. Geological conditions are variable and of limited predictability.
  Even if production is commenced from a well or field, production will inevitably
  decline over the course of time, reducing the operating profitability of the
  enterprise and eventually causing its termination.

The Company focuses its efforts mainly in the Taranaki region
  of New Zealand where large tracts of acreage can be accumulated, there is a
  positive history of oil exploration success but the acreage is relatively under
  explored, geological conditions are favorable for hydrocarbon accumulation,
  and where its limited manpower and technical resources are already deployed.

Oil exploration involves a high degree of technical and commercial
  risk and is characterized by a continuous need for fresh capital. The Company
  seeks to minimize and spread this risk by joint-venturing oil exploration projects
  with other companies and participating in properties exhibiting a range of risk
  profiles to reduce its cost exposure. The Company faces competition from other
  oil companies for oil and gas properties and investor dollars. The Company seeks
  to minimize these effects by not attempting to compete with the major oil companies
  but focuses on the market niches of exploration and small development stage
  properties where its technical competence and experience give it a credible
  advantage.

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The Companys principal long term objective is to grow
  the Company into a oil and gas exploration, development and production company
  with internally generated oil and gas sales revenues sufficient to maintain
  a selective grass roots exploration program to replace produced reserves. Additional
  reserves and production growth are sought through carefully considered acquisitions
  of additional oil and gas properties by the purchase of existing properties
  from other companies. The Company intends to retain its focus in the Austral-Pacific
  area - primarily in the Taranaki region of New Zealand, and plans to expand
  as available cash flow and meritorious opportunities permit. Its long term goal
  is maximum capital appreciation of the Company's securities to reflect the true
  value of both its reserves base and of its potential resources not yet discovered.

Risks Relating to Papua New Guinea

Beyond the risks inherent in the oil and gas industry, the
  Company is subject to additional risks resulting from doing business in Papua
  New Guinea. While the Company has attempted to reduce many of these risks through
  agreements with the Government of Papua New Guinea and others, no assurance
  can be given that such risks have been mitigated. These risks can involve matters
  arising out of the evolving laws and policies of Papua New Guinea, the imposition
  of special taxes or similar charges, oil export or pipeline restrictions, foreign
  exchange fluctuations and currency controls, the unenforceability of contractual
  rights, restrictions on the use of expatriates in the operations and other matters.
  Operations in Papua New Guinea are subject to risks due to the harsh climate,
  difficult topography and the potential for social, political, economic, legal
  and financial instability.

Oil and Gas Prices are Volatile

The Companys revenues, operating results, profitability,
  future rate of growth and the carrying value of its oil and gas properties depend
  heavily on prevailing market prices for oil and gas. Management of the Company
  expects the markets for oil and gas to continue to be volatile. Any substantial
  or extended decline in the price of oil or gas would have a material adverse
  effect on the Companys financial condition and results of operations.
  It could reduce the Companys cash flow as well as the value of its reserves.
  Various factors beyond the Companys control will affect prices of oil
  and gas, including, worldwide and Australasian supplies of oil and gas, political
  instability or armed conflict in oil or gas producing regions, worldwide economic
  conditions, and marketability of production and other factors mentioned in Industry
  Risks above.

Uncertainty of Reserves Figures

There are numerous uncertainties inherent in estimating quantities
  of proved oil and gas reserves and their values, including many factors beyond
  the control of the Company. Although management believes the estimates provided
  in Item 4D.  Property, Plants and Equipment are reasonable, estimates
  of production, revenues and reserve expenditures will likely vary from actual,
  and these variances may be material. Estimates of oil and gas reserves are projected
  from geological interpretation of data. Such interpretations are inherently
  uncertain, as are the projections of future rates of production and timing of
  development expenditure, from such interpretations. The accuracy of the reserves
  estimates is a function of the quality of available data, engineering and geological
  interpretation and judgment. Factors such as historical production from the
  area compared with production from other producing areas, assumed effects of
  governmental regulations, assumptions of future oil and gas prices, future operating
  costs, development costs and remedial and workover costs, will affect the estimates
  of economically recoverable quantities and of future net cash flow. Any significant
  variance in the assumptions could materially affect the estimated quantity and
  value of reserves.

Reliance on Expertise of Certain Persons

The Registrant is dependent on the management by its president,
  David Bennett, and, in the acquisition, exploration and development of petroleum
  properties, on the advice and project management skills of various consulting
  geologists, geophysicists and engineers retained by the Registrant from time
  to time. The current president of the Registrant is experienced in the acquisition,
  exploration and development of petroleum properties in New Zealand and other
  Austral-Pacific countries, particularly Papua New Guinea and Australia. If the
  current president leaves the Registrant, the Registrant may have difficulty
  in immediately finding a person of comparable experience to manage the business
  of the Registrant. The Registrant does not currently maintain key person insurance
  on its president or any other employee.

- 10 -

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Limited Financial Resources and Lack of Sufficient Capital

The Registrants auditors for the 2002 fiscal year have
  expressed substantial doubt as to the Registrants ability to continue
  to meet future commitments.In order to satisfy the required capital
  expenditures for the upcoming fiscal year to maintain the Registrants
  interests in its permits, the Registrant will either have to raise additional
  capital through the issuance of common shares, or enter into agreements with
  third parties to fund permit obligations, or renegotiate such obligations. There
  is no assurance that market conditions will continue to permit the Registrant
  to raise funds if required, or that the Registrant will be able to enter into
  agreements with third parties to fund permit obligations, or be able to renegotiate
  such obligations. If the Registrant is unable to fund the obligations by share
  issues or farmout agreements or renegotiate them, the Registrant may be unable
  to carry out its plan of operations and may be forced to abandon some of its
  permit interests (See Title to Propertiesbelow).

Title to Properties

In all cases, the terms and conditions of the permit or licence
  granting the right to the Registrant, or the party from which the Registrant
  acquired, the right to explore for, and develop, hydrocarbons prescribe a work
  program and the date or dates before which such work program must be done. Varying
  circumstances, including the financial resources available to the Registrant
  and reliance on third party operators of permits and licenses, or circumstances
  beyond the control or influence of the Registrant may result in the failure
  to satisfy the terms and conditions of a permit or license and result in the
  complete loss of the interest in the permit or license without compensation
  to the Registrant.

Such terms and conditions may be renegotiated with applicable
  regulatory authorities, but there is no assurance that if a term or condition
  of a license or permit that is required to be satisfied has not been met, that
  such term or condition will be renegotiated with the applicable authority.

The Company participates in its permits or licences with industry
  partners with access to greater resources from which to meet their joint venture
  capital commitments. If the Company is unable to meet its commitments, the other
  joint venture participants may assume some or all of the Companys deficiency
  and thereby assume a pro-rata portion of the Companys interest in any
  production from the joint venture area. The Company is not a majority interest
  owner in all of its properties and does not have sole control over the future
  course of development in those properties. Property interests may be subject
  to joint venture and other like agreements which can give rise to interpretive
  disputes with other parties who are financially interested in the property.

The Registrant does not maintain title insurance over its
  properties.

Competition

The Company encounters strong competition from other independent
  operators and from major oil companies in acquiring properties suitable for
  development, in contracting for drilling equipment and in securing trained personnel.
  Many of these competitors have financial resources and staffs substantially
  larger than those available to the Company. The availability of a ready market
  for oil and gas discovered by the Company depends on numerous factors beyond
  its control, including the proximity and capacity of natural gas pipelines and
  the effect of regional or national regulations.

Governmental Laws and Local Conditions

In the areas where the Company conducts activities there are
  statutory laws and regulations governing the activities of oil and gas companies.
  These laws and regulations allow administrative agencies to govern the activities
  of oil companies in the exploration for, and development, production and sale
  of both oil and gas, including regulations relating to prices, royalties, allowable
  production, environmental matters, import and export of hydrocarbons, restriction
  on the withdrawal of capital from a country in which the Registrant is operating
  and protection of water resources and agricultural lands. Changes in these laws
  and regulations may substantially increase the costs of conducting any exploration
  or development project.

There is no assurance that these laws and regulations will
  not change in a manner that may materially and adversely affect the business
  of the Registrant. The Company believes that its operations comply with all
  applicable legislation and regulations and that the existence of such regulations
  have no more restrictive effect on the Companys method of operations than
  on similar companies in the industry.

Claims of aboriginal peoples in Australia, New Zealand and
  Papua New Guinea may adversely affect the rights or operations of the Registrant.

- 11 -

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No Assurance of Earnings

The Registrant currently has one oil and gas producing property,
  with two separate producing pools, which, until December 31, 2000, did not generate
  enough revenue to meet the Registrants expenses. During the 2001 fiscal
  year, such revenues did meet expenses, but did not do so in the 2002 fiscal
  year. The Registrant has a limited history of earnings and there is no assurance
  that the business of the Registrant will continue to be profitable. As at the
  end of the Registrants last fiscal year ended December 31, 2002, the Registrant
  had an accumulated deficit of $11,374,077. The Registrant cannot guarantee that
  it will continue generating revenues in the future. A failure to generate revenues
  will likely cause the Registrant to eventually go out of business. The Registrant
  has not paid dividends at any time in its history to date and there is no assurance
  that the Registrant will pay a dividend at any time in the future.

Effect of Different Currencies for Revenue and Expenses

The Registrant currently holds the majority of its cash reserves
  in New Zealand dollars and receives the majority of its revenues in US dollars,
  but incurs the majority of its expenses and its petroleum property expenditures
  in Australian and New Zealand dollars. An increase in value of either or both
  the New Zealand and Australian dollar versus the US dollar has a detrimental
  effect to the Registrant as the Registrants expenses incurred would, in
  turn, increase in US dollars. The Registrant does not currently hedge its exposure
  to currency rate changes, although it may choose to selectively hedge exposure
  to foreign currency exchange rate risk. The Registrant, however, has no policies
  relating to the foregoing. See also Item 5.A.3  Foreign Currency Fluctuations.

Inadequacy of Public Market

There can be no assurance that a stable market for the Registrant's
  common shares will be achieved. If the Registrant fails to remain current in
  its filings with the SEC, the Registrant may be de-listed and the Registrants
  shareholders may not be able to sell their shares in the public market within
  the United States.

Dilution

The Registrant's Articles of Incorporation authorize the issuance
  of an unlimited number of shares of common stock. The Company and one subsidiary
  have several types of dilutive securities outstanding. The Registrant's Board
  of Directors has the power to issue any further shares without stockholder approval.
  The Registrant's Board of Directors is likely to issue some of such shares to
  acquire further capital in order to carry out its intended operations or expand
  its current operations, or to provide additional financing in the future. The
  issuance of any such shares may result in a reduction of the book value or market
  price of the outstanding shares of the Registrant's common shares. If the Registrant
  does issue any such additional shares, such issuance will also cause a reduction
  in the proportionate ownership and voting power of all other shareholders. Further,
  any such issuance may result in a change of control of the Registrant.

Conflict of Interest

The Registrant has acquired interests in some petroleum properties
  with, or from, or transferred interests to, other companies or their respective
  subsidiaries, being Trans-Orient Petroleum Ltd., TAG Oil Ltd. (previously called
  Durum Cons. Energy Corp.), Gondwana Energy Ltd. and AMG Oil Ltd., which have
  common or connected management, and certain common principal shareholders. Certain
  of the directors of the Company are or were directors and/or officers of these
  other corporations, or of other corporations engaged in the petroleum exploration
  and development industry. Currently, only one director serves on the board of
  other resource companies. It is possible that a conflict of interest may arise
  between their duties as director of the Company, and as director or officer
  of other corporations. Under the Companys ByLaws and the relevant legislation,
  any such conflict of interest is required to be disclosed, any contract in which
  a director has a material interest must be referred to the board of directors
  for approval and the interested director will not vote on any resolution given
  such approval.

The percentage participation of the Registrant and any other
  associated company in a property is determined by each board of directors of
  each such company independently, using the best business judgment of the board.

- 12 -

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Legal Proceedings Against Foreign Directors

The Company is incorporated under the laws of the Yukon Territory,
  Canada, and all of the Companys directors and officers are residents of
  Canada or New Zealand. Consequently, it may be difficult for United States investors
  to effect service of process within the United States upon the Company or upon
  its directors or officers, or to realize in the United States upon judgements
  of United States courts predicated upon civil liabiliites under the United States
  Securities Exchange Act of 1934, as amended. Furthermore, it may be difficult
  for investors to enforce judgements of the U.S. courts based on civil liability
  provisions of the U.S. federal securities laws in a foreign court against the
  Company or any of the Companys non-U.S. resident officers or directors.

ITEM 4. INFORMATION ON THE COMPANY

A. History and Development of the Company

|1. | The Registrants legal and commercial name is:
        Indo-Pacific Energy Ltd.                                                                                                                                                                                                                                                                                                                                                                                                
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|2. | The Registrant was incorporated on July 31, 1979
        under the name Pryme Energy Resources Ltd. under the Company Act (British
        Columbia, Canada), and has operated continuously since that time.                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|3. | The Registrant is now domiciled in the Yukon in Canada,
        and operates as a corporation under the Business Corporations Act (Yukon).
      Its registered office is:Suite 200 Financial Plaza 
          204 Lambert Street 
          Whitehorse, YT 
          Y1A 3T2 
          CANADA
      Its principal offices are:Indo-Pacific House 
          284 Karori Road 
          Karori, Wellington 
          NEW ZEALAND 
          Telephone Number: (644) 476-2717
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4. | Important Events / Company History                                                                                                                                                                                                                                                                                                                                                                                                                                             

The Company announced on June 30, 2003 (New Zealand time)
  that it had entered into an agreement with an Australian company, Horizon Oil
  NL, to purchase its equity interests in several onshore Taranaki (New Zealand)
  permits. The Company intends to purchase PEP 38716, PEP 38728 and PEP 38718
  directly and to purchase all of the shares in Bligh Oil & Minerals NZ Limited,
  which company owns the interest in PEP 38738. The total price of approximately
  $575,000 is agreed to be paid as to 20% on upon completion and the remainder
  ninety days later. Two permit interests are new to the Company  10% of
  PEP 38718 and 48% of PEP 38728. Two others consolidate interests already held
  by the Company  a further 28.34% of PEP 38716 and a net revenue interest
  in PEP 38738. The transactions are all subject to governmental consent. Each
  of the interests in PEP 38718 and PEP 38728 are subject to the relevant co-venturers
  rights to pre-empt the purchase.

On June 16, 2003, the Company entered into an arrangement
  with Krystal Corporation Pte Ltd (Krystal), in relation to New Zealand permit
  PEP 38753 with effect from May 30, 2003, whereby Krystal will fund a portion
  of past costs, 26.4% of the Wawiri-1 well, and is obligated to fund 26.4% of
  the Akama deep gas test, when drilled, in order to earn a 20% interest in PEP
  38753. The Companys present interest in PEP 38753 is 50%, so over half
  of the Companys capital commitment for the proposed wells is to be met
  by Krystal, and the Companys interest will reduce to 30% as a result of
  the transaction. The transaction is still subject to documentation with co-venturers
  and then subject to governmental consent. No pre-emption rights apply in PEP
  38753.

- 13 -

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On June 18, 2003, a private placement in one of the Registrants
  New Zealand subsidiaries, Indo-Pacific Energy (NZ) Limited (IPENZ), was made
  by certain private investors for the issue of 1,500,000 Special Class shares
  in that company, for a total of NZ$1,500,000 (approx. US$877,650). Such shares
  confer no voting rights, but do confer the right to convert such shares to common
  shares of IPENZ in the event of a listing of and issue of other common shares
  in IPENZ on the New Zealand Stock Exchange and at a 40% discount to the offering
  price of other shares then sold to the public in conjunction with the listing.
  If the listing does not proceed, the subscription agreement provides the right
  to either (i) receive twice their paid up value in redemption dividends paid
  out of 20% of IPENZs production income or (ii) exchange such Special Class
  shares for common shares in the Company at the higher of 80% of prevailing market
  and $0.75 per common share of the Registrant.

On September 12, 2002, 1,250,000 shares and the same number
  of two-year warrants were issued, under a private financing arrangement, agreed
  with a group of investors led by Mr. Alex Guidi, a current shareholder of the
  Company and the controlling shareholder of Trans-Orient. The financing consisted
  of a placement of 1,250,000 units at $0.80 per unit, comprising a common share
  and a two-year share purchase warrant exercisable at $0.90 in the first year
  and $1.15 in the second, to raise a total of $1million.

In the Registrants New Zealand Permit PEP 38736, the
  Kahili-1B sidetrack well, drilled in November 2002, encountered a 115 feet gross
  hydrocarbon column in the Tariki sandstone. Analysis of pressure data from flow
  testing carried out on the uppermost 50 feet of this zone indicates sufficient
  gas-condensate reserves to justify development. A review of the development
  options available is being completed, with a development decision to be made
  by mid-2003. There are various funding options and development options available,
  however it is considered that the level of capital commitment for these options
  can be estimated to be $998,000, which may be funded by the gas purchaser.

A gas prepayment agreement was entered into with a New Zealand
  company, NGC New Zealand Limited (NGC), whereby NGC provided $1,050,400 towards
  the Companys ongoing exploration programs. This money was received on
  April 3, 2003. In return NGC are able to receive a prepurchase of the first
  $1,050,400 of gas supplied by the Company to NGC, under contracts to be negotiated
  at then prevailing market rates. The Company will negotiate in the first instance
  with NGC, and if no contract is entered into within a certain time period after
  notification, the Company is free to seek other markets for the gas. If the
  amount is not discharged through gas sales to NGC over a ten year period, it
  must either be repaid by the Company or may be converted into share equity in
  one of the Companys New Zealand subsidiaries, Indo-Pacific Energy (NZ)
  Limited.

In the Registrants New Zealand permit PMP38148, the
  Goldie-1 well was drilled by a subsidiary of the Company, Ngatoro Energy Limited
  (NEL), in February-March 2001, as a sole risk operation (whereby the Company
  funded the entire cost of the well and is entitled to 100% of production from
  this well until the sole risk premium is reached). The well was a successful
  oil discovery, with approximately 217,000 barrels produced and sold up to August
  2002.

On 16 April 2002, Greymouth Petroleum Acquisition Company
  Ltd. (GPAC) completed the acquisition of Shells 59.56% interest
  in PMP 38148, including Shells rights to a share of the Goldie sole risk
  field. On July 25, 2002, GPAC lodged a Statement of Claim in the High Court
  of New Zealand against NEL regarding GPACs entitlements with respect to
  the Goldie sole risk field. The GPAC claim was primarily to the effect that
  NEL had underestimated the interest of GPAC in the wells revenue and was
  also in breach of contract and in breach of certain duties to its co-venturer
  in respect of the Goldie sole risk discovery. Goldie-1 was shut-in due to non-approval
  of flaring consents by the Ministry of Economic Development. In summary, GPACs
  principal claims were:

| | (i)   | That it was entitled to a 92.26% share
        of production revenues from Goldie;                                                                                                                                                    
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                       
| | (ii)  | That Goldie-1 had not been developed
        for production and that consequently the sole risk premium was effectively
        zero and that GPAC was, therefore, entitled to 92.26% percent of all past
        and future revenues;
| |       |                                                                                                                                                                                                                                       
| | (iii) | That NEL was in breach of the Joint
        Venture Operating Agreement, and that GPAC was, therefore, entitled to
        remove NEL as Goldie operator and assume that position;                                                    
| |       |                                                                                                                                                                                                                                       
| | (iv)  | That the field was being produced in
        a sub optimal manner with the consequence that GPAC is entitled to recompense
        for loss of potential production and for gas flared; and                                           
| |       |                                                                                                                                                                                                                                       
| | (v)   | That GPAC was entitled to purchase the
        gas produced.                                                                                                                                                                          

- 14 -

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The Company disputed these claims, and NEL lodged a Statement
  of Defence with the Court on August 26, 2002. The case was heard in the High
  Court, Wellington New Zealand and concluded on April 4, 2003. Judgment was delivered
  on May 30, 2003. The judge held in favour of NEL on 8 causes of action, ruling
  that NEL is entitled to the full $NZ18.6 million by way of sole risk premium
  before GPAC receives its 40.43% of subsequent revenue, and NEL is entitled to
  a further premium of NZ$9.7million from the share attributable to New Zealand
  Oil and Gas Limited. Thereafter NEL will be entitled to its 5% interest. NEL
  is not required to sell the gas to GPAC. The judge ruled in favour of GPAC on
  three causes of action, including that the Goldie operation should have been
  conducted as a sub joint venture after the GPAC post discovery funding had been
  contributed, before recovery of the Sole Risk premium. He further found that
  NEL, as operator, had wilfully or recklessly disregarded the rights of GPAC
  in that sub-joint venture and therefore, under the joint venture contract, is
  susceptible to removal as operator. Three matters were left undecided, for further
  argument and in some cases evidence, if required. Those matters relate two claims
  by GPAC, for compensatory and exemplary damages, and the question of costs.
  As at June 29, 2003, the Goldie-1 well remains shut in, Greymouth
  Petroleum Limited has been appointed as the new operator and the handover of
  operatorship is in progress. The judgment is still subject to any appeal that
  either party wishes to take. The Company is continuing to assess the effect
  of the judgment and (with the new operator and sub joint venture participants)
  the prospects for the Goldie field as at the date of this report.

5 & 6. Principal Capital Expenditures

During the last 3 fiscal years the Registrant has made several
  significant expenditures on its oil and gas properties in the normal course
  of operations, having participated in the drilling of a number of wells in that
  time. The significant expenditures on the properties are detailed in Item 4.D
  Property, Plants and Equipment.

In addition to these expenditures in the normal course of
  operations, in fiscal 2000 the Registrant purchased all the properties held
  by Trans-Orient Petroleum Ltd. (Trans-Orient) (a non-arms-length party). The
  terms of the Agreement between the Registrant and Trans-Orient provided that
  the Registrant:

|**•** | received a range of non-producing
        exploration assets (the Assets), from Trans-Orient. The value
        placed upon the Assets by the Registrant and Trans-Orient was $4,097,360.
        The Registrant assumed the rights and obligations attached to those Assets
        as at December 31, 1999.
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                                                                                
|**•** | in return for the above
        assets, Trans-Orient received:                                                                                                                                                                                                                                                 
|      | 1)                                                                                                                                                                                                                                                                                                             
|      | 2)                                                                                                                                                                                                                                                                                                             
|      |                                                                                                                                                                                                                                                                                                                
|      |                                                                                                                                                                                                                                                                                                                
|      |                                                                                                                                                                                                                                                                                                                
|      | 3)                                                                                                                                                                                                                                                                                                             
|      | 4)                                                                                                                                                                                                                                                                                                             
|      | 5)                                                                                                                                                                                                                                                                                                             

The acquisition of the Assets means that the Registrant now
  has the right to produce petroleum in the relevant permit areas (once a discovery
  has been made) and it must comply with the work commitments attached to the
  permits.

The Registrant had, prior to the acquisition, already owned
  a partial interest in a majority of the permits

- 15 -

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acquired, and was, therefore, familiar from a technical and
  operational point of view, with the exploration merits of these interests.

In January 2002, the parties agreed to vary that agreement
  to assign the gross overriding royalties from Trans-Orient to the Company in
  exchange for the terms of the warrants issued to Trans-Orient being amended
  to extend the availability of the first year price to 31 December 2002 and the
  second year price to 31 December 2003, and to reprice these A warrants
  to $1.25 and $1.40 respectively. As well, the additional B warrants
  to be acquired in the event of a discovery, equal in number to the original
  number of warrants exercised, were repriced to $2.50 and will expire on the
  later of 31 December 2003 or one year after issuance. The fair value of the
  royalties is nominal. From the properties originally transferred, only PEP 38256,
  PRL 4 & 5, PPL 192 & 215 and AC/P 26 remain prospective and liable to
  be affected by the B Warrant requirements.

7. Public Takeovers

The Registrant is not aware of any planned takeover of its
  shares by third parties, nor is the Registrant planning any takeover of another
  company.

B. Business Overview

1. Nature of Operations

The Registrant is an oil and gas exploration and production
  company incorporated in Canada, and based in Wellington, New Zealand. The Registrant
  is involved in the exploration for commercial quantities of hydrocarbons and,
  to a lesser extent, the development and production of hydrocarbons. The Registrant's
  focus is on the acquisition, exploration and development of properties in the
  Austral- Pacific region. The Company currently holds varying interests in approximately
  1.5 million acres of exploration permits in New Zealand, 0.5 million acres of
  exploration permits in Australia, and 1.8 million acres of exploration interests
  in Papua New Guinea. The Companys primary focus is the acquisition and
  exploration of oil and gas properties; and the majority of the Companys
  permits are in the exploration stage. The Companys policy is to acquire
  interests, and, where possible, to minimize its risk exposure by farming out
  or joint venturing property interests to other industry participants.

The Registrant sells oil and gas from producing properties
  in which it holds an interest. The Registrants only producing property
  is in Taranaki, New Zealand - the PMP 38148 Ngatoro Mining Permit,
  with production from two production fields within the property, the Ngatoro
  oil field (comprising several separate pools) and the Goldie pool,
  (currently shut in, since August 30, 2002). Options are currently being formulated
  for a development program for the discovery in PEP 38736 Kahili
  Exploration Permit, also located in the Taranaki region. The Kahili discovery
  is not yet in production.

2. Principal Markets

The Registrant sells all of its oil production to Energy Exploration
  NZ Limited (a subsidiary of Shell Petroleum NZ Ltd) and its gas production to
  Greymouth Petroleum Acquisition Company Ltd. The oil is sold into the Australasian
  market. The gas is sold via the Kaimiro treatment station into the New Zealand
  reticulation system. Details of revenues, by geographic region and by category,
  are included in Item 4D.  Property, Plants and Equipment.

3. Seasonality of Companys business

The Registrants business is generally not seasonal,
  being solely reliant on international oil prices and local gas prices in New
  Zealand. Gas prices do not vary under the current sales contracts, whilst oil
  prices vary in line with international prices, for which there have been, in
  past years, seasonal highs in the summer months (for the US driving season)
  and in the winter months (for the northern hemisphere heating oil season).

4. Raw materials

The Registrant does not have a reliance on raw materials,
  as it operates in an extractive industry.

5. Marketing channels

As the Registrants oil and gas are sold under single
  contracts, different marketing channels are not currently required.

- 16 -

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6. Patents or licences

The Registrant does not have a reliance on any significant
  patents or licences, apart from the use of certain software programs.

7. Companys competitive position

The Registrant competes with other companies in bidding for
  the acquisition of petroleum interests from various state authorities, and in
  exploring and producing oil and gas in the Australasian region. However, the
  Company does have a competitive position in being the holder of the largest
  acreage in onshore licences in New Zealand and in the position of several of
  its key properties in New Zealand, Australia and Papua New Guinea.

8. Material effects of government regulations

The Registrant is subject to government regulation of the
  oil and gas properties it holds and in the operations it conducts on those properties.
  The effects of those regulations are detailed in Item 3.D  Risk Factors,
  and in Item 4.D  Property, Plants and Equipment.

C. Organizational Structure

The Registrant (a Canadian company listed on the OTCBB in
  the USA) is the parent company of and conducts all its operations through several
  wholly owned subsidiaries, as follows:

|Subsidiary:                                | Country of Incorporation | Ownership & Voting Power
|------------------------------------------ | ------------------------ | ------------------------
|                                           |                          |                         
|Source Rock Holdings Limited               | New Zealand              | 100%                    
|Millennium Oil & Gas Limited               | New Zealand              | 100%                    
|Indo-Pacific Energy (NZ) Limited [4]       | New Zealand              | 100%                    
|Ngatoro Energy Limited                     | New Zealand              | 100%                    
|Rata Energy Limited [1]                    | New Zealand              | 100%                    
|Indo-Pacific Energy (PNG) Ltd.             | Papua New Guinea         | 100%                    
|Odyssey International Pty Ltd [2]          | Australia                | 100%                    
|Indo-Pacific Energy Australia Pty Ltd. [3] | Australia                | 100%                    
|Trans-Orient Petroleum (Aust) Pty Ltd      | Australia                | 100%                    
|ZOCA 96-16 Pty Ltd                         | Australia                | 100%                    
|Trans-Orient Petroleum (PNG) Ltd           | Papua New Guinea         | 100%                    

[1] Rata Energy Limited changed its name from PEP 38716 Limited
  on February 7, 2003.

[2] During the reporting period, Odyssey International Ltd
  changed its name to Odyssey International Pty Ltd, on its conversion from a
  public company to a proprietary company.

[3] During the reporting period, Indo-Pacific Energy Australia
  Ltd changed its name to Indo-Pacific Energy Australia Pty Ltd, on its conversion
  from a public company to a proprietary company.

[4] After the end of the reporting period, Indo-Pacific Energy
  (NZ) Limited issued 1,500,000 Special Class shares, as reported in Item 4.A.4
   Important Events/Company History.

D. Property, Plants and Equipment

The Registrants major operations and principal activities
  are in the oil and gas exploration and production business. The Company has
  operated in three countries in the past three years: New Zealand, Australia
  (including the Zone of Cooperation Area A between Australia and East Timor),
  and Papua New Guinea. Apart from Petroleum Properties, the Registrant has only
  minor office assets held for the purpose of operating the business and some
  oilfield equipment and materials.

Petroleum Properties in New Zealand, Australia and Papua
  New Guinea

The Registrant holds a number of government issued permits
  in the jurisdictions of Australia, New Zealand and Papua New Guinea, which authorize
  prospecting and exploration for hydrocarbons.

- 17 -

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|Property Location                           | Working Interest
|------------------------------------------- | ----------------
|Developed                                   |                 
|PMP 38148 (Ngatoro)                         | 5.00%           
|PMP 38148 (Goldie Sole Risk Area)
      [1] | 40.43%          
|                                            |                 
|Undeveloped                                 |                 
|New Zealand                                 |                 
|PEP 38256 (Canterbury)                      | 20.00%          
|PEP 38328 (East Coast) [2]                  | 0.00%           
|PEP 38330 (East Coast)                      | 34.28%          
|PEP 38332 (East Coast) [2]                  | 0.00%           
|PEP 38335 (East Coast) [4]                  | 0.00%           
|PEP 38480 (Offshore Taranaki) [3]           | 75.00%          
|PEP 38716 (Taranaki) [8] [9]                | 14.05%          
|PEP 38723 (Taranaki) [4]                    | 0.00%           
|PEP 38736 (Taranaki)                        | 45.00%          
|PEP 38738 (Taranaki) [5]                    | 33.50%          
|PEP 38741 (Taranaki) [3]                    | 30.00%          
|PEP 38746 (Taranaki) [3]                    | 25.00%          
|PEP 38748 (Taranaki) [5]                    | 25.00%          
|PEP 38753 (Taranaki) [3]                    | 50.00%          
|PPP 38761 (Taranaki) [6]                    | 27.50%          
|Australia                                   |                 
|AC/P19                                      | 100.00%         
|AC/P31                                      | 100.00%         
|AC/P26                                      | 50.00%          
|ZOCA 96-16 [4]                              | 0.00%           
|Papua New Guinea                            |                 
|PPL 192                                     | 60.00%          
|PPL 215                                     | 80.00%          
|PRLs 4&5                                    | 7.50%           
|APPL 235                                    | 90.00%          
|PPL 228 [7]                                 | 10.00%          

[1] Goldie revenue interest is 100% until premium earned,
  40.43% thereafter.
  [2] Surrendered after the end of the reporting period. 
  [3] Acquired during the reporting period. 
  [4] Expired or surrendered during the reporting period. 
  [5] Acquired during the reporting period, interest changed after the end of
  the reporting period. 
  [6] Acquired after the end of the reporting period. 
  [7] In the process of being relinquished during 2003. 
  [8] Interest increased after the end of the reporting period. 
  [9] Agreement to increase interest to 52.39%, entered into June 30, 2003, subject
  to governmental consent.

General

Except for PMP 38148, which is a Production Mining Permit
  in New Zealand, and the Kahili discovery in PEP38736 in New Zealand, the properties
  of the Registrant are Exploration Permits or Licences and have no proven hydrocarbon
  reserves.

Interests are quoted as at June 19, 2003.

- 18 -

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Exploration Permits or Licenses have work obligations as described
  below.

At June 19, 2003, the Registrant has no encumbrances, liens
  or mortgages on the properties, except as follows:

a right of participation in favor of Lonman Pty Ltd (Lonman),
      which applies over the Registrant's interest in AC/P 19 and AC/P 26. Lonman
      may, prior to the first well or farm-in to the first well, exercise an option
      to acquire 5% of the Registrant's interest by repayment of past costs and
      contribution pro-rata to ongoing costs. Alternatively, if a farmout at a
      premium is made to a third party prior to the first well, Lonman shall be
      granted a Carried to Production equity amounting to 5% of the free carried
      equity of the Original Parties in such farmout. Lonman will be required
      to repay all past costs associated with this equity out of its share of
      production revenue. Following the drilling of the Anson North-1 well in
      AC/P 26, the Registrants 50% interest in this permit is encumbered
      by a 0.625% Carried to Production equity in favour of Lonman;
    a security interest granted by Millennium Oil & Gas Limited to NGC
      New Zealand Limited over Millenniums 25% interest in PEP38736, to
      secure performance of the Registrant under the gas prepayment agreement
      referred to at Item 4.A.4  Important Events/Company History.
    PEP 38738 was acquired in return for the grant of a 25% net profits royalty.
      The burden of this royalty is now shared by all the JV participants in their
      participating interest shares, except that in relation to production from
      the Cheal prospect, the Company and Cheal Petroleum Limited will each receive
      a 3.5% ad valorem royalty from IRM while each retaining a 50% burden of
      the 25% accounting profits royalty. The Company has entered into an agreement
      to acquire the shares in the company owning a significant percentage of
      the net revenue interest from Horizon Oil NL, which agreement is subject
      to governmental consent at report date  see Item 4.A.4  Important
      Events/Company History.


For details of work planned to be done before December 31,
  2003 on each property and estimated cost thereof, see Item 5.B  Liquidity
  and Capital Resources. For further detail on each property and previous work
  done, refer to the Companys Financial Statements (Item 17).

For definitions of technical terms used in the description
  of properties, see the Glossary of Terms on page 3.

New Zealand

Unless otherwise indicated, petroleum exploration permits
  granted in New Zealand provide for the exclusive right to explore for petroleum
  for an initial term of five years, renewable for a further five years over one-half
  of the original area. The participants are allowed to exceed the committed work
  programs for the permits or apply for extensions or reductions of such work
  programs for any particular year. Any production permits granted will be for
  a term of up to 40 years from the date of issue. The New Zealand government
  has reserved a royalty of the greater of 5% of net sales revenue or 20% of accounting
  profits in any one year from the sale of petroleum products. No performance
  bond is required, but if the permit holder(s) do not satisfy the regulatory
  agency that they have met the performance obligations of the committed work
  program (or such variation as may have been agreed with the regulatory agency),
  the government has the power to cancel the permit.

Developed New Zealand, Onshore Taranaki Basin, North Island

The Taranaki Basin is located on the west coast of the North
  Island. The sediments in the Taranaki Basin encompass a depth of some 25,000
  feet with complex structure and geology. Compression across the eastern portion
  of the Basin created a thrusted fold belt up to ten miles wide, which contains
  the McKee, Tariki, Ahuroa and Waihapa-Ngaere fields. Further west in the onshore
  region are the fault bounded Kapuni, Ngatoro and Kaimiro fields. All these fields
  are currently in production.

New Zealand Permit PMP 38148; Taranaki Basin (5%) 
  The Companys subsidiary, Ngatoro Energy Limited, owns a five percent participating
  interest and revenue interest in Petroleum Mining Permit 38148 (PMP 38148).

The permit area is 9,442 acres. The permit expires on December
  23, 2010. Production is from turbidite sandstones of the Mount Messenger Formation
  at depths of 1,500 metres to 2,000 metres. The other participants are New Zealand
  Oil & Gas Ltd (35.43%) and Greymouth Petroleum Acquisition Company Ltd (59.57%).
  New Zealand Oil & Gas Ltd is the operator.

By end of May 2003, the Ngatoro wells (excluding Goldie-1)
  had produced over 3.5 million barrels of oil and

- 19 -

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7.3 billion cubic foot of gas. Gas continued to be sold under
  long-term contract, and oil sold on a monthly basis at world market reference
  prices. At the end of May 2003, production from the Ngatoro field was averaging
  617 barrels of oil per day (Company share 31 barrels per day) compared to 900
  bopd (Company share 45 bopd) at March 2002, and 1.9 million cubic foot of gas
  per day (Company share 0.095 million cubic feet), compared to 2.4 million cubic
  foot of gas as at March 2002. The reduction in gas production is due to normal
  depletion levels. Remaining recoverable oil reserves under primary recovery
  are estimated at 0.52 million barrels. However, independent reviews recognise
  that approximately two million barrels of additional oil could be recovered
  from the N1 pool of the Ngatoro Field through a water flood project, as is successfully
  employed at the adjacent Kaimiro oil field. It is planned that a water flood
  project will be initiated during the 2003 year.

The Company funded its 5% share of the cost of the Tabla-1
  well in 2002. This well remains to be tested, with further estimated expenditures
  required of $95,000 during fiscal 2003.

New Zealand Permit PMP 38148; Taranaki Basin, Goldie Oil
  Field (40.43% sole risk) 
  The Goldie-1 well was placed in long-term production in March 2001. By end August
  2002, the well had produced 217,856 barrels of oil. Oil production had stabilised
  at around 255 barrels per day by August 2002, when the well was required to
  be shut-in, due to non-approval of flaring consents by the Ministry of Economic
  Development.

The Goldie-2 well is planned to test the southern part of
  the Goldie pool, but has yet to be drilled, (estimated cost $850,000) and a
  water injection recovery enhancement project also awaits the drilling of the
  Goldie-2 well.

On 16 April 2002, Greymouth Petroleum Acquisition Company
  Ltd. (GPAC) completed the acquisition of Shells 59.56% interest
  in PMP 38148. On July 25, 2002, GPAC commenced a lawsuit in the High Court of
  New Zealand regarding its entitlements with respect to the Goldie sole risk
  field. See Item 4.A.4  Important Events/Company History. Pending resolution
  of the final aspects of the case, the transition to the new operator and a market
  for Goldie gas being established, the Goldie-1 well remains shut-in and no action
  to drill Goldie-2 is being undertaken.

Oil and gas information for the Registrants last three fiscal years:

Summary of Oil and Gas Sales, Net of Royalties, by Country

|                       | Year Ended
      December 31, 2002 | Year Ended
      December 31, 2001 | Year Ended
      December 31, 2000
|---------------------- | ---------------------------------- | ---------------------------------- | ----------------------------------
|Revenues:              |                                    |                                    |                                   
|New Zealand            | $                                  | $                                  | $                                 
|Sales revenue  Oil    | 1,823,142                          | 3,733,298                          | 462,381                           
|Sales revenue  Gas    | 22,783                             | 10,738                             | 13,265                            
|Less Royalties         | (184,207)                          | (369,536)                          | (23,962)                          
|Sales net of royalty   | 1,661,718                          | 3,374,500                          | 451,684                           
|Australia              | -                                  | -                                  | -                                 
|Papua New Guinea       | -                                  | -                                  | -                                 
|Revenue net of royalty | 1,661,718                          | 3,374,500                          | 451,684                           

|                 | Year Ended
      December 31, 2002 | Year Ended
      December 31, 2001 | Year Ended
      December 31, 2000
|---------------- | ---------------------------------- | ---------------------------------- | ----------------------------------
|                 | Oil &
      Liquids                | Natural
      Gas                  | Oil &
      Liquids               
|                 | (Bbls)                             | (MMcf)                             | (Bbls)                            
|Sales:           |                                    |                                    |                                   
|New Zealand      | 85,358                             | 46.5                               | 163,900                           
|Australia        | -                                  | -                                  | -                                 
|Papua New Guinea | -                                  | -                                  | -                                 

- 20 -

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Reserves

The reserves quoted for the Ngatoro oil field are from the
  field Operators estimated reserves, which are supplied annually to the
  New Zealand Ministry of Economic Development (formerly the Ministry of Commerce).
  The field Operator is an independent company, New Zealand Oil & Gas Limited,
  which employs its own independent petroleum-engineering experts. The Registrant
  also contracted Johnston Consulting of Wellington, New Zealand, independent
  petroleum engineering consultant, to evaluate the Companys New Zealand
  reserves at December 31, 2002 following the Kahili discovery, and December 31,
  2000 and at April 30, 2001, following the Goldie-1 discovery. The main difference
  between the reported Reserves at December 31, 2002, 2001, and 2000, is simply
  due to production from Ngatoro in the intervening interval, with the addition
  of Kahili at end 2002 and Goldie reserves at end 2001.




Apart from the Kahili discovery, which is undeveloped, all
  oil reserves quoted are developed reserves, as they are from producing formations
  in the producing wells.

All reserves for New Zealand permits are quoted before royalties,
  in accordance with reserves figures published by the Ministry for Economic Development
  in New Zealand. Since royalties payable to the New Zealand government are calculated
  on an annual basis as the greater of 5% of net sales revenue or 20% of accounting
  profits from the sale of petroleum products, the amount (and percentage) of
  royalty attributable to the reserves is unable to be precisely calculated, and
  therefore reserves are quoted before royalties.

The undiscounted future net cash flow from proved producing
  oil and natural gas reserves is largely based on information provided by in-house
  reserve calculations. A discount factor of 10% was applied to estimated future
  cash flows to compute the estimated present value of proved oil and natural
  gas reserves. This valuation procedure does not necessarily result in an estimate
  of the fair market value of the Company's oil and natural gas properties. The
  standardized measure of discounted net cash flows from production has been calculated
  on the Registrants 5% interest in the producing Ngatoro oil field and
  40.43% working interest (but currently 100% revenue interest) in the Goldie
  pool, as these are the only interests the Company holds in proven and developed
  oil properties, as at December 31, 2002. The standardized measure calculation
  for the property, at December 31, 2002, was $7,305,000 (US$3,443,990), as compared
  to the Net Book Value of $802,170 (US$374,281).

- 21 -

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Estimates of Stock Tank Oil Originally in Place (STOOIP) in the
  Goldie pool have been made by Johnston Consulting on the basis of four shut-in
  pressure surveys, the most recent in May 2002, together with an estimate of
  recoverable oil from Goldie-1 under primary recovery only, from decline curve
  analysis of the wells production history. Due to Goldie-1 being shut
  in, no further pressure surveys can be completed. Following the intended
  drilling of Goldie-2, and the acquisition of further production history and
  pressure data, a formal re-definition of Proven and Probable reserves in the
  Goldie pool will be made.

Undeveloped

Detailed 2002 expenditure per permit is shown in Note 4 in
  the financial statements. (Item 17.)

New Zealand, Onshore Canterbury Basin, South Island

New Zealand Permit 38256 (20%); CanterburyThe Canterbury Basin is located both onshore and offshore in the area surrounding
  Christchurch, on the east coast of the South Island. The total area of the onshore
  and offshore Canterbury Basin is about twelve million acres. The original area
  of PEP 38256 (some 2.76 million acres) covered approximately half of the onshore
  area. One-half of the original area was relinquished in 2000, and a further
  one-half of the then-current area was relinquished during 2002. At that time,
  the duration of the permit was also extended to 2007.

The permit work program requires the Company to incur minimum
  exploration expenditures for the 2003 fiscal year. It is currently planned to
  undertake some geological and geophysical work on prospects associated with
  the Rakaia Trough, within the permit area. One party is withdrawing from this
  permit and another has served notice that it wishes to do so at the end of the
  relevant permit year. The Company has agreed to take up a further 10% from the
  party currently withdrawing. This transaction is still subject to governmental
  consent as at report date. The Company is considering the amount of interest
  it will take up from the party who wishes to withdraw.

New Zealand, East Coast Basin, North Island

New Zealand Permit 38330 (34.28%); East CoastThe Waingaromia-2 well commenced in late April 2002. Despite the proximity
  of the spectacular Waitangi oil seeps, and of oil in several old well bores,
  this well was unsuccessful and was plugged and abandoned.

New Zealand Permits 38328 & 38332 (62.5%); East CoastThese permits do not require the Company to incur minimum exploration expenditures
  for the 2003 fiscal year. The Company and its joint venture participant agreed,
  after the end of the reporting period, to relinquish these permits as the work
  to date has shown that they have not proven to be prospective.

Petroleum Exploration Permit PEP 38335 (25.0%)The Waitaria-2 well was drilled adjacent to the Waitaria-1 site in February
  2001. An open hole flow test failed to produce any gas and the well was plugged
  and abandoned in early March 2001. The previous operator gave notice to withdraw
  from the permit in early 2002, and the other joint venturers, including the
  Company decided to relinquish the permit. This surrender was completed during
  the reporting period.

New Zealand, Onshore Taranaki Basin, North Island

New Zealand Permit 38480 (75%); Offshore TaranakiThis permit was granted to the Company in August 2002. It requires the Company
  to undertake a 2D seismic programme to detail prospects in the permit area,
  at an estimated cost of $54,000. This programme was acquired in February 2003.
  Data processing continues as at report date.

New Zealand Permit PEP 38716 (14.05%); Taranaki BasinThis permit is situated in the eastern margin of the onshore Taranaki Basin.
  It is located adjacent to the Waihapa-Ngaere oil and gas field, and the gathering
  station for the Waihapa-Ngaere oil and gas field is located within two miles
  of the boundary of PEP 38716. Previous exploration of PEP 38716 has included
  several hundred miles of seismic and several wells, all of which had oil shows.

- 22 -

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The Huinga-1B well was commenced in April 2002, and later
  plugged and suspended. The Company will be required to fund $142,000 of exploration
  expenditures for the 2003 fiscal year. The Companys interest in the permit
  increased during the period, as a consequence of the decision by one JV participant
  to withdraw from the permit. The Company has entered into an agreement to increase
  its interest in this permit to 52.39%, subject to governmental consent 
  see Item 4.A.4 Important Events/Company History.

New Zealand Permit PEP 38723 (0%); Taranaki BasinThe first term of this permit expired on October 29, 2002, with the permit
  not being renewed for a second term. The Company has secured certain areas of
  this permit that are considered prospective under an application to extend the
  areas of the adjacent permits, PEP 38741 and PEP 38748, after the end of the
  reporting period.

New Zealand Permit PEP 38736 (45%); Taranaki Basin
  The Kahili-1 well was drilled during December 2001. The well recovered a minor
  amount of oil during a short term open-hole test. Kahili-1A was directionally
  drilled to test an up-dip location in October 2002, but the target sands were
  found to be faulted out in this well bore.

The Kahili-1B sidetrack well was drilled in November 2002,
  and encountered a 115 feet gross hydrocarbon column in the Tariki sandstone.
  Analysis of pressure data from flow testing carried out on the uppermost 50
  feet of this zone indicates sufficient gas-condensate reserves to justify development.
  Test production sales (during 2002) of condensate (light oil) from this initial
  test totalled $16,253 from approximately 613 barrels. A subsequent test after
  the end of the reporting period (in April/May 2003) recovered an additional
  1236 barrels of condensate over a seven day period.

A review of the development options available is being completed,
  with a development decision to be made by mid-2003. It is anticipated that the
  Companys share of development costs is likely to be in the order of $998,000.
  The permit does not require the Company to incur minimum exploration expenditures
  for the 2003 fiscal year.

New Zealand Permit PEP 38738 (33.5%); Taranaki Basin
  This permit was originally granted on January 15, 2000 and was acquired by the
  Company in October 2002. The Company and its current JV participant agreed after
  balance date to assign 33% to IRM Malaysia Inc., thereby reducing their interests
  to 33.5% each.

PEP 38738 was acquired in return for the grant of a 25% net
  profits royalty. The burden of this royalty is now shared by all the JV participants
  in their participating interest shares, except that in relation to production
  from the Cheal prospect, the Company and Cheal Petroleum Limited will each receive
  a 3.5% ad valorem royalty from IRM while each retaining a 50% burden of the
  25% accounting profits royalty.

The participants are re-entering the Cheal-1 well, drilled
  in 1995 by the then permit holder, and which tested oil and gas from a shallow
  secondary target. They intend to undertake further testing of the Cheal-1 well,
  aimed at establishing the potential for commercial development. This program
  commenced after the end of the reporting period, on May 14, 2003.

New Zealand Permit PEP38741 (30%); Taranaki Basin
  This permit was granted on May 24, 2002, and requires the Company to incur $89,000
  exploration expenditure for the 2003 fiscal year, including a 3D seismic survey,
  which was conducted over PEP 38741 and adjacent permit areas during the period.
  Data processing continues as at report date.

New Zealand Permit PEP 38746 (25%); Taranaki Basin
  
  This permit was granted on August 8, 2002. The permits work commitments
  including permit maintenance require the Company to drill an exploration well
  in the latter part of the 2003 fiscal year, at indicative cost to the Company
  of $327,000.

New Zealand Permit PEP 38748 (25%); Taranaki Basin
  
  This permit was granted on August 8, 2002, with an interest to the Company of
  37.5%. The Company transferred 12.5% to one of the current JV participants after
  the end of the reporting period. An application to extend the area of this permit
  to encompass adjoining areas previously covered by PEP 38723 was approved by
  the Government, on February 13, 2003.

The permits work commitments require the Company to
  incur $49,000 exploration expenditure for the 2003 fiscal year, including a
  3D seismic survey which was conducted over PEP 38748 and adjacent permit areas

- 23 -

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during the period. Data processing continues as at report date.

New Zealand Permit PEP 38753 (50%); Taranaki Basin
  
  This permit was granted on August 8, 2002. Seismic reprocessing and interpretation
  continued during late 2002 and early 2003, as precursor work to the drilling
  of an exploration well in third quarter, 2003 at indicative cost to the Company
  of $650,000. The Company has reached agreement with Krystal Corporation Pte
  Ltd to farm-in to this permit, as reported in Item 4.A.4  Important Events/Company
  History.

- 24 -

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New Zealand Permit PPP 38761 (27.5%); Taranaki BasinThis permit was granted to the Company and other JV participants in February
  2003. The term was set as the earlier of one year after grant or the closing
  of bids for acreage which includes the area covered by this permit. Such bids
  have now been invited, the closing date for which is October 31, 2003, so PPP
  38761 expires on that date.

The Company has completed a 3D seismic survey over PPP 38761
  and adjacent permit areas, and continues to process the resultant data.

Australia

Offshore exploration permits granted in Australia provide
  for the exclusive right to explore for petroleum for an initial term of six
  years, renewable for an unlimited number of five-year terms over one-half of
  the remaining area at each renewal. The participants are allowed to exceed the
  committed work programs for the permits and to apply for extensions or reductions
  of such work programs for any particular year. Any production permits granted
  will be for a term of 21 years from the date of issue, renewable for a further
  21 years. In addition to general Australian taxation provisions, most offshore
  permits, including all of the Company's Australian permits, are subject to Petroleum
  Resource Rent Taxation at the rate of 40% on a project's net income after deduction
  of allowable project and exploration expenditures, with undeducted exploration
  expenditures compounded forward at the Long-Term Bank Rate ("LTBR") plus 15%
  and project expenditures at LTBR plus 5%. No performance bond is required, but
  in the event that the permit holder(s) do not satisfy the regulatory agency
  that they have met the performance obligations of the committed work program
  (or such variation as may have been agreed with the regulatory agency), the
  government has the power to cancel the permit.

Offshore Permits AC/P 19 and AC/P 31 (100%); Timor Sea
  
  These adjacent permits are operated by the Company in conjunction with each
  other. The Company has completed the work program required for the first five
  years, including acquiring, during January 2002, a further 90km of seismic data
  to firm up the Ursa prospect for drilling. Processing of this data continues.
  Suspension of the permit obligations until end 2002 was sought and granted in
  June 2002, allowing time to complete technical evaluations. Year 6 of the permit
  is now calendar 2003.

The Company is required to complete a further program including
  drilling one exploration well by December 2003. This expenditure will be significantly
  reduced by farmout or sale to a third party; otherwise the permit will be surrendered.

AC/P 31 also requires acquisition of a minimum of 40 kms of
  new 2D seismic in year 3 and 4 and the integration and interpretation of this
  into the existing database. Pending availability of a seismic vessel this is
  to be completed by September 11, 2003 (the end of permit year 4).

Offshore Permit AC/P 26 (50%); Timor Sea 
  Anadarko Petroleum Ltd funded the entire costs of an obligation well in 2002,
  drilling the Anson North-1 well in February 2002. Subsequently, Anadarko decided
  not to exercise its option to take up an interest in the permit. Rossini and
  Anson West remain the preferred prospects in this permit and the results of
  Anson North do not degrade these prospects.

The Company's share of the committed work program for the
  2003 fiscal year does not require any expenditures to be incurred.

Timor Gap  Zone of Cooperation

Zone of Cooperation Area A Block 96-16 (ZOCA 96-16) (0%);
  Timor Sea 
  The Company and all its co-participants except Phillips elected to withdraw
  from this permit in 2002 as it was not deemed prospective. The documentation
  for this withdrawal was approved and registered on December 13, 2002.

Papua New Guinea 
  Petroleum Prospecting Licenses in Papua New Guinea are granted for a standard
  6-year term, on the basis of an acceptable program of work. If the permit holder(s)
  do not satisfy the regulatory agency that they have met

- 25 -

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the performance obligations of the committed work program
  (or such variation as may have been agreed with the regulatory agency), the
  government has the power to cancel the permit, and to require forfeiture of
  a license bond of Kina 100,000 (3.89 Kina = approx $1). A Petroleum Prospecting
  License awards the exclusive right to explore for petroleum for an initial six
  year term, extendable for a further five year term over 50% of the original
  area, and the exclusive right to enter into a production agreement upon a discovery.
  A production agreement provides the right to produce any oil and gas discovered
  for a period of up to 25 years from discovery, extendable for a further period
  of not more than 20 years, subject to a maximum 22.5% participating interest
  that can be acquired by the Government of Papua New Guinea, which includes a
  two per cent participating interest that can be acquired by local landowners.

Papua New Guinea Licence PPL 192 (60%) and 215 (80%); Onshore
  Papuan Basin 
  An application has been made to replace these two licences with a single permit
  covering the most prospective part of the acreage. This application has been
  registered as APPL 235, and has been offered to the Company by the PNG Department
  of Petroleum and Energy. The Company currently holds 90% of the APPL 235 application,
  and will be operator of the new licence. The Companys co-venturer, an
  affiliate, Durum Energy (PNG) Ltd, wishes to withdraw from PPL 192 and the new
  licence application. The initial work stage of APPL 235, when granted and accepted,
  will be to drill an exploration well within the first two years of the licence,
  at a cost of approximately US$10m. This cost will be farmed out. The Licence
  offer has not yet been accepted.

Papua New Guinea Licences PRLs 4 & 5 (7.5%) 
  A review of hydrocarbon entrapment within these permit areas was completed during
  2001. Apart from the known fields, as established by the Elevala-1, Ketu-1 and
  Stanley-1 gas-condensate discovery wells, the review established several other
  large targets in the areas. The joint venture is considering a condensate stripping
  and gas re-injection project at Elevala.

Papua New Guinea Licence PPL 228 (10%) 
  This licence includes part of the area originally held as PPL 213, and was granted
  on June 26, 2001 for an initial six year term. The Amdi structure has been mapped
  as having major oil trapping potential. The PPL 228 joint venture is currently
  withdrawing from this permit, in conjunction with a top file application for
  a further permit over a similar area.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis is managements
  opinion of the Companys historical financial and operating results and
  should be read in conjunction with the audited consolidated financial statements
  of the Company (see Item 17) for the years ended December 31, 2002, 2001, and
  2000, together with the notes related thereto. The financial statements have
  been prepared in accordance with Canadian GAAP, and a reconciliation to US GAAP
  is provided in Note 13 to the financial statements, under Item 17. All dollar
  values are expressed in U.S. dollars, unless otherwise stated. All references
  to daily production are before royalty, unless stated otherwise.

A. Operating Results

Summary

The Registrant is in the exploration and evaluation stage
  on nearly all of its oil and gas properties. The Registrant has experienced
  losses in each fiscal period to December 2000, (2000; loss of $2,871,035) but
  reported a net profit for the 2001 year of $1,108,799. The 2002 fiscal period
  reported a loss of $2,826,770. Total losses incurred from incorporation to December
  31, 2002 were $11,374,077.

Discussion of Material Changes

Production revenues and costs

Gross oil production revenue from the Companys 5% interest
  in New Zealand production permit PMP 38148 was $1,811,929 for the year ended
  December 31, 2002 compared to $3,733,298 for the year ended December 31, 2001(2000;
  462,381). The decreased revenue is due to normal levels of reduced production
  in the Goldie-1 well (drilled in February - March 2001), and also due to the
  well being shut in from August 30, 2002. Additionally, the Company
  received revenue from a 45% share of PEP 38736 oil sales. The companys
  share being $11,213 from 428 barrels of test production as at 31
  December 2002.

- 26 -

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The average crude oil selling price decreased from an average
  of US$23.00 per barrel of oil (2001) to US$21.00 per barrel (2002) over the
  comparable period, and a decrease in production volume from 163,900 barrels
  to 85,358 barrels (2000; 17,090). Natural gas production revenues were $22,783
  compared to $10,738 for 2001 (2000; 13,265).

Direct production costs and royalties were $957,012 in 2002
  versus $1,021,776 in 2001 (2000; 59,373) and the Company realized net production
  revenues of $782,422 in 2002 compared to $2,455,931 in 2001(2000; 303,941),
  subsequent to recording $106,491 (2001; $266,329, 2000; $112,332) of depletion.

The reduction in comparative revenues from 2002 to 2001 is
  mainly due to Goldie-1 being shut in from August 30, 2002. Production costs
  during 2002 include additional legal and consulting fees relating to the legal
  claim made against the Goldie sole risk field (see Item 4.A.4  Important
  Events/Company History).

The Companys gross profits are likely to be materially
  affected by any changes in exchange rates between (in particular) the US, Canadian
  and New Zealand dollars, in oil prices and in gas prices. See Item 3.D 
  Risk Factors  Oil and Gas Prices, Item 5.A.3  Foreign Currency
  Fluctuations and Item 5.D  Trend Information.

Costs and Expenses

General and administrative expenses were $580,896 compared
  to $735,624 for 2001 (2000; $743,600). The 2002 reduction was mainly due to
  year-end foreign exchange gains and the part sale of licenses to joint venture
  parties. The main 2002 administrative expenses included accounting & audit
  $122,276, and wages of $322,283. Additionally, due to the adoption of a new
  accounting principle, a stock option compensation expense of $274,080 was brought
  to account as at December 2002. The Registrant has adopted the fair value method
  for Accounting for Stock Based Compensation. Further commentary on Stock Based
  Compensation can be found within Item 17, Note 2 (l) and Note 7. Also included
  in the general and administrative expenses was a credit being a net gain of
  $53,457 in relation to the part sale of New Zealand permits PEPs 38480, 38736
  and 38741.

The 2002 results included Oil and Gas Properties write offs
  of $2,783,734 compared to write-offs in 2001 of $706,462 (2000 write off; $2,725,925).
  The write-offs on Oil and Gas Properties for the 2002 year were mainly due to
  various permits being relinquished as at December 31, 2002 or being in the process
  of being relinquished. Details of these permits are:

|1. | PPL 228 is in the process of being relinquished
        during 2003. PEP 38328 & PEP 38332 were relinquished on May 6, 2003
        and PEP 38335 was relinquished on September 10, 2002. All capital in relation
        to these permits was written off as at December 31, 2002.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                    
|2. | PEP 38720 was relinquished in favour
        of PEP 38741, and accordingly the expenditure held for PEP 38720 has been
        allocated to PEP 38741.                                                                                                                             
|   |                                                                                                                                                                                                                                                                                    
|3. | PEP 38723 and ZOCA 96-16 have been relinquished.
        All capital costs in relation to these permits have been written off as
        at December 31, 2002.                                                                                                                     

Interest Income

These results included interest income earned on surplus cash
  balances of $29,518 (2001 - $94,954; 2000 - $224,549). Interest earned has reduced
  in line with the reducing balance of cash on deposit.

Interest expense

The Registrant finances its business primarily from the issuance
  of common shares and to a lesser extent from the receipt of petroleum revenues
  from its interest in the Ngatoro oil field, New Zealand. The Registrant has
  not effected any borrowing and has consequently not incurred any interest expense.

Capital Expenditure

Oil and Gas Property expenditure for the 2002 fiscal period
  amounted to $2,470,865 (2001; $3,346,950, 2000; $5,842,555). Detailed 2002 expenditure
  per permit may be obtained from Note 4 in the financial statements.

- 27 -

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2. Inflation

The Registrant operates in New Zealand, Australia and Papua
  New Guinea, where inflation for the Registrants operational costs has
  been at low levels in recent times  i.e. in the 2-5% range.

3. Foreign Currency Fluctuations

The Registrant currently holds the majority of its cash reserves
  in NZ dollars and receives the majority of its revenues from its Ngatoro field
  in US dollars, but incurs the majority of its expenses and its petroleum property
  expenditures in Australian and New Zealand dollars. During 2002 and subsequent
  to the reporting date, the value of both the Australian and New Zealand currencies
  has increased against the value of the US currency to the detriment of the Registrant
  during that period. NZD to US$ foreign exchange rates have changed by approximately
  30% from January 01, 2002 to June 19, 2003 from 0.4160 to 0.5851. The Registrant
  does not currently hedge its exposure to currency rate changes, although it
  may choose to selectively hedge exposure to foreign currency exchange rate risk.
  Additionally, the Registrant has some expenses payable in US dollars and has
  a natural hedge by using its US dollar account. The Registrant, however, has
  no formal policy relating to the foregoing.

4. Government regimes

The Registrant is subject to foreign governmental regulations
  that relate directly and indirectly to its operations including title to the
  petroleum interests acquired by the Registrant, production, marketing and sale
  of hydrocarbons, taxation, environmental matters, restriction on the withdrawal
  of capital from a country in which the Registrant is operating and other factors.
  There is no assurance that the laws relating to the ownership of petroleum interests
  and the operation of the business of the Registrant in the jurisdictions in
  which it currently operates will not change in a manner that may materially
  and adversely affect the business of the Registrant. There is no assurance that
  the laws of any jurisdiction in which the Registrant carries on business may
  not change in a manner that materially and adversely affects the business of
  the Registrant.

5. Other

The Registrant is subject to changes in accounting standards.
  These financial statements have been prepared in accordance with Canadian generally
  accepted accounting principles (Canadian GAAP) which conform in
  all material respects with United States generally accepted accounting principles
  (U.S. GAAP) However there are some exceptions and these are detailed
  below.

|a) | Assets
      Marketable Securities and Investments. Under Canadian
        GAAP the Companys marketable securities and investments are reported
        at cost, or, for other than a temporary decline in value from cost, at
        market value. Under US GAAP the Companys marketable securities and
        investments are classified as available-for-sale securities and reported
        at market value, with unrealized gains and losses included as a component
        of comprehensive income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|b) | Stockholders Equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Contributed Surplus
      Under Canadian GAAP, CICA issued a new accounting pronouncement
        that applies to the Company with respect to the 2002 and subsequent years.
        The general effect of the pronouncement is to:
      (1) require the cost of stock options issued, or repriced
        in the 2002 or subsequent years, to both employees and non-employees to
        be booked as an expense, and
      (2) require disclosure in its financial statements of
        various details relating to options issued.
      The Company has adopted a fair value based method for
        determining the cost of all options for Canadian reporting purposes. This
        has resulted in a stock option compensation cost of $274,080 being recorded
        in these financial statements for the 2002 year.
      The Company, for purposes of US GAAP, follows Accounting
        Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
        (APB 25) to account for all stock options granted to employees. Under
        APB 25, the intrinsic value model is followed and compensation cost is
        recognized if the market price of the companys common shares exceeds
        the exercise price on the

- 28 -

---

| | date of grant. During 2001 the Company repriced all
        outstanding options. The repriced options are accounted for under variable
        accounting and compensation cost is recognized for the difference between
        the exercise price and the market price of the common shares until such
        options are exercised, expired or forfeited. During 2002 the Company granted
        300,000 performance options to employees. No compensation cost has been
        recognized for these options as the performance criteria have not yet
        been met. Compensation cost will be recognized if and when the performance
        criteria are met, based on the excess of market price over exercise price
        at that date.
      For non-employees, the Company uses the fair value model
        for determining stock option compensation cost of options granted. Although
        similar to the fair value based method adopted for Canadian reporting
        purposes, US GAAP requires that the options be revalued each period (and
        cumulative compensation cost adjusted accordingly) until earned.
      The Common Stock and Warrant issuance expense comprises
        a discount on shares issued to insiders on September 12, 2002 and the
        fair value of warrants issued on the same date. The discount on the 1,250,000
        common shares was calculated as the difference between the market value
        at the date of issue ($1.10) and the discounted share price ($0.80) and
        applied to the total number of shares issued. The fair value of each warrant
        is estimated using the Black-Scholes pricing model with the following
        assumptions:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Expected dividend yield   | 0.00%     
| | ------------------------- | ----------
| | Expected price volatility | 96.00%    
| | Risk-free interest rate   | 4.50%     
| | Expected life of option   | 1.67 years

|   | For the 2002 year the effect on net profit/(loss) is
        to add back the 2002 stock option compensation expense of $274,080 under
        Canadian GAAP (2001; nil) and to calculate and adjust for the net stock
        option compensation of $744,353 (2001; $904,525) under US GAAP. Net loss
        for the year is $2,826,770 (2001; Net profit $1,108,799) under Canadian
        GAAP compared to a net loss of $3,297,043 (2001; Net profit $204,274)
        under US GAAP. Further details can be found in Item 17, Note 13.
      For the 2002 year the effect on accumulated deficit
        is to add back the 2002 stock option compensation of $274,080 (under Canadian
        GAAP) (2001; nil) and to calculate and adjust for a net stock option compensation
        of $744,353 under US GAAP. Accumulated deficit as at 2002 is $11,374,077
        (2001; $8,547,307) under Canadian GAAP, compared to an accumulated deficit
        of $13,923,489 (2001; $10,923,489) under US GAAP. Further details can
        be found in Item 17, Note 13.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|c) | New Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | In December 2002, the FASB issued SFAS No. 148, an
        amendment of SFAS 123, Accounting for Stock-Based Compensation,
        which provides alternatives for companies electing to account for stock-based
        compensation using the fair value criteria established by SFAS 123. The
        Company intends to continue to account for stock-based compensation under
        the provisions of APB No. 25.
      In August 2001, the FASB issued Statement of Financial
        Accounting Standards No. 143 ("SFAS 143"), Accounting for Asset Retirement
        Obligations, effective for the fiscal years beginning after June 8, 2002.
        This statement provides the accounting for the cost of legal obligations
        associated with the retirement of long-lived assets. SFAS 143 requires
        that companies recognize the fair value of a liability for asset retirement
        obligations in the period in which the obligations are incurred and capitalize
        that amount as a part of the book value of the long-lived asset. That
        cost is then depreciated over the remaining life of the underlying long-lived
        asset. The Company does not expect that the adoption of SFAS 143 will
        have a material impact on its results of operations or its financial position.
      During 2002, the Company early adopted FASB statement
        No 145, rescission of FASB Statements No 4, 44 and 64, amendment of FSAB
        No 13 and Technical Corrections (SFAS No. 145). SFAS No. 145
        requires any gain or loss on early extinguishment of debt to be included
        in income from continuing operations instead of being classified as an
        extraordinary item.

- 29 -

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| | In January 2003, the FASB issued FASB
        Interpretation No. 46, Consolidation of Variable Interest Entities.
        The objective of this interpretation is to provide guidance on how to
        identify a variable interest entity (VIE) and determine when the assets,
        liabilities, non-controlling interests, and results of operations of a
        VIE need to be included in a company's consolidated financial statements.
        A company that holds variable interests in an entity will need to consolidate
        the entity if the company's interest in the VIE is such that the company
        will absorb a majority of the VIE's expected losses and/or receive a majority
        of the entity's expected residual returns, if they occur. Interpretation
        No. 46 also requires additional disclosures by primary beneficiaries and
        other significant variable interest holders. The provisions of this interpretation
        became effective upon issuance. The Company does not expect this interpretation
        to have a material effect on its consolidated financial statements.
      In November 2002, the FASB issued FSAB Interpretation
        No. 45, Guarantors Accounting and Disclosure requirements
        guarantees, including indirect guarantees of indebtedness of others,
        which addresses the accounting for and disclosure of guarantees. Interpretation
        45 requires a guarantor to recognize a liability for the fair value of
        the guarantee at inception. The recognition of the liability is required
        even if it is not probable that payments will be required under the guarantee.
        The disclosure requirements are effective for interim and annual financial
        statements ending December 15, 2002. The initial recognition and measurement
        provisions are effective for all guarantees within the scope of interpretation
        45 issued or modified after December 31, 2002. The adoption of Interpretation
        No. 45 is not expected to have a material effect on the Companys
        financial statements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6. Critical Accounting Estimates

The application of GAAP involves the exercise of varying degrees
  of judgment. While the resulting accounting estimates will, by definition, not
  always precisely equal the related actual results, these estimates involve more
  judgment than others.

Oil and Gas Properties

The Company uses the full cost method of accounting for oil
  and gas properties. The Company's oil and gas expenditures on its properties
  are capitalized within the subsidiary that has ownership of the permit. Under
  the full cost method, all costs related to the acquisition, exploration or development
  of oil and gas properties are capitalized into the "full cost pool" as Capitalized
  Petroleum Expenditure (CPE). Such costs may include those related to lease acquisitions,
  drilling and equipping of productive and non-productive wells, delay rentals,
  geological and geophysical work and certain internal costs directly associated
  with the acquisition, exploration or development of oil and gas properties.

Unproved properties, which are not subject to depletion, are
  assessed periodically for possible write downs to the Statement of Operations
  and Deficit. Under the full cost method of accounting, a "full cost ceiling
  test" is determined at least annually or when determined significant by management
  wherein net capitalized costs of oil and gas properties cannot exceed the present
  value of estimated future net revenues from unproved properties not subject
  to depletion.

Depletion of proved oil and gas properties is computed using
  the unit-of-production method based on estimated proved oil and gas reserves
  wherein net capitalized costs of oil and gas properties cannot exceed the present
  value of estimated future net revenues from proved oil and gas reserves, The
  Company had $106,491 of depletion relating to its proven properties and $2,783,734
  of write downs relating to its unproven properties as of December 31, 2002.

Stock Options

Under Canadian GAAP, CICA issued a new accounting pronouncement
  that applies to the Company with respect to the 2002 and subsequent years. The
  general effect of the pronouncement is to:

| | 1. | require the cost of stock options issued, or repriced
        in the 2002 or subsequent years, to both employees and non-employees to
        be booked as an expense, and
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | require disclosure in its financial statements of
        various details relating to options issued.                                                                     

The Company has adopted a fair value based method for determining
  the cost of all options for Canadian reporting purposes. This has resulted in
  a stock option compensation cost of $274,080 being recorded in these financial
  statements for the 2002 year. Further details are discussed in A. 5. b). above.

- 30 -

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B. Liquidity and Capital Resources


1. Liquidity

In order to satisfy the required capital expenditures for
  the upcoming fiscal year, the Registrant will need to raise additional capital
  from outside sources, or to farm-out capital expenditures, or to reschedule
  and defer commitments. The Registrant relies on its ability to raise additional
  capital through the issuance of common shares, which has a dilutive effect on
  the Registrant's shareholders. It is uncertain whether the Registrant will be
  able to secure outside sources of capital in an amount that is sufficient for
  it to continue with its current operations on its permits. The Registrant has
  not borrowed any loan funding and does not intend to do so.

The Company had cash and short-term deposits of $1,292,827
  at December 31, 2002 compared to $3,282,007 as of December 31, 2001 (2000; $2,887,771).
  Working capital as at December 31, 2002 was $1,774,680 versus $2,738,719 for
  December 31, 2001 (2000; $2,981,169).

The Company used cash of $688,056 in operating activities
  during the year ended December 31, 2002 compared to cash provided of $2,274,574
  in 2001 (2000; cash used $215,055). Purchases of property and equipment were
  $11,259 compared to $12,710 in 2001 (2000; $41,449). The Companys exploration
  activities expended $2,464,494 during 2002 versus $1,919,071 for the year ended
  December 31, 2001 (2000; $1,701,808).

The increase in the 2002 accounts receivable total of $394,587
  (2001; $95,471, 2000; $$71,418) is a result of TAG Oil Ltd, a related party,
  owing the Company $308,000 as a result of a buy-in into permit 38741. (The $308,000
  has subsequently been received.)

The 2002 inventory amount of $5,423 is due to stock on hand
  consisting of 778 barrels of Ngatoro crude oil. There were no stocks on hand
  as at December 31, 2001 and 2000. The change between 2002 and 2001 accounts
  payable and accrued liabilities is mainly due to cash calls accrued of approximately
  $494,111 as at December 31, 2001 for permit 38736.

The net effect of the above noted transactions was a decrease
  in cash of $1,989,180 for the year ended December 31, 2002 compared to an increase
  of $394,236 for the 2001 year and a decrease of $1,975,483 during 2000.

The audit report on the Registrants December 31, 2002
  financial statements recorded that there is substantial doubt regarding the
  ability of the Registrant to continue to meet all its future commitments in
  relation to the properties it holds.

For fiscal 2003, the Registrant originally estimated that
  it would require cash of $7.085 million to carry on its operations. Due to farmout
  and other arrangements already made and work already completed as at June 19,
  2003, that total has been revised for the remainder of fiscal 2003, to $1.260
  million of required work obligations and $1 million of planned other work. Of
  this total of $2.260 million, it estimates that $0.5 million will be generated
  from existing cash available and revenue from operations, and it plans to raise
  the balance of $1.760 million by seeking farmout agreements with third parties
  or raising investment funds.

Subsequent to the end of the reporting period, the Registrant
  has met all permit commitments, either by direct funding or by farm-out of parts
  of its permit interests to third parties, except in relation to PPL 192 in Papua
  New Guinea, where it has offered to relinquish that permit in return for PPL
  235 being awarded. PPL 235 has been offered but the Registrant has not yet accepted
  at June 19, 2003.The Registrants working capital had been reduced to approximately
  $923,946 at the end of March 2003.

2. Capital Resources The Registrant's capital resources have been comprised primarily of private
    investors, including members of management, who are either existing contacts
    of the Registrant's management or who come to the attention of the Registrant
    through personal and business contacts, financial institutions and other intermediaries.
    Conventional bank financing of exploration projects is generally unavailable
    to resource companies, which are in the exploration stage, in the absence
    of significant producing properties that can be used as collateral. The Registrants
    producing property (PMP 38148) has been of too small a scale to be used for
    such purpose, and the Registrant does not intend that it be used for such
    purpose. The Registrant's access to capital is always


- 31 -

---

dependent upon general financial market conditions, especially
  those that pertain to venture capital situations such as oil and gas exploration
  companies.

At the end of the reporting period, the Registrant had no
  binding agreements with management, investors, shareholders or anyone else respecting
  additional financing. After the end of the reporting period, the Registrant
  entered into the following agreements:

the gas prepayment agreement with NGC New Zealand Limited (see Item 4.A.4
       Important Events/Company History);
    a private placement in one of the Registrants New Zealand subsidiaries,
      Indo-Pacific Energy (NZ) Limited (see Item 4.A.4  Important Events/Company
      History)
    a farm-out agreement with Krystal Corporation Pte Ltd (see Item 4.A.4
       Important Events/Company History).


Due to the speculative nature of the Registrants business
  and its limited revenue generating assets, potential investors are generally
  limited to those willing to accept a high degree of risk. Therefore the numbers
  of outside sources of capital for the Registrant are somewhat limited. Other
  than the foregoing, there are no other trends in the nature of its capital resources
  that could be considered predictable.

3. Capital Commitments

Plan of Operations

The Registrant is required to carry out the following significant
  work obligation projects by the following date(s):

Anticipated Total Work Obligation Before December 31, 2003
  (As at 31 December 2002)

|Property                          | Description of Work       | (US$)     | Source of funds    
|--------------------------------- | ------------------------- | --------- | -------------------
|                                  |                           |           |                    
|Developed                         |                           |           |                    
|PMP 38148                         | Maintenance & Well        | 95,000    | Production revenues
|                                  |                           |           | and working capital
|Undeveloped                       |                           |           |                    
|PEP 38256                         | Permit Maintenance        | 4,000     | Working capital    
|PEP 38330                         | Permit Maintenance        | 14,000    | Working capital    
|PEP 38480                         | Seismic                   | 54,000    | Working capital    
|PEP 38716                         | Permit Maintenance        | 142,000   | Working capital    
|PEP 38736                         | Frac/Pipeline             | 1003,000  | Working capital    
|                                  |                           |           | and Gas Purchaser  
|PEP 38738                         | Well                      | 216,000   | Working capital    
|PEP 38741                         | Seismic                   | 89,000    | Working capital    
|PEP 38746                         | Well & Permit maintenance | 676,000   | Working capital    
|PEP 38748                         | 3D Seismic                | 49,000    | Working capital    
|PEP 38753                         | Well & Permit maintenance | 341,000   | Working capital    
|PPP 38761                         | Seismic                   | 142,000   | Working capital    
|PRL 4&5                           | Permit Maintenance        | 5,000     | Working capital    
|AC/P 19                           | Well & Permit maintenance | 4,231,000 | Working capital    
|                                  |                           |           | and farm-out       
|AC/P 31                           | Seismic                   | 24,000    | Working capital    
|                                  |                           |          
|Total Work Obligation Commitments | $7,085,000                |          

These estimates have been revised as at June 19, 2003, and the amendments
  are as follows:

- 32 -

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|Property                          | Description of Work                    | (US$)   | Source of Funds
|--------------------------------- | -------------------------------------- | ------- | ---------------
|                                  |                                        |         |                
|Developed                         |                                        |         |                
|PMP 38148                         | Maintenance                            | 5,000   | Working capital
|                                  |                                        |         |                
|Undeveloped                       |                                        |         |                
|PEP 38256                         | Permit Maintenance                     | 8,000   | Working capital
|PEP 38330                         | Permit Maintenance                     | 12,000  | Working capital
|PEP 38480                         | Permit Maintenance                     | 45,000  | Working capital
|PEP 38716                         | Permit Maintenance                     | 9,000   | Working capital
|PEP 38736                         | Permit Maintenance                     | 23,000  | Working capital
|PEP 38738                         | Production Testing                     | 91,000  | Working capital
|PEP 38741                         | Permit Maintenance                     | 40,000  | Working capital
|PEP 38746                         | Well & Permit maintenance              | 327,000 | Working capital
|                                  |                                        |         | and farm-out   
|PEP 38748                         | Permit Maintenance                     | 31,000  | Working capital
|PEP 38753                         | Well & Permit maintenance              | 650,000 | Working capital
|                                  |                                        |         | and farm-out   
|PPP 38761                         | Permit Maintenance (expires 30 Oct 03) | 4,000   | Working capital
|PRL 4&5                           | Permit Maintenance                     | 5,000   | Working capital
|AC/P 19                           | Permit maintenance                     | 5,000   | Working capital
|AC/P 31                           | Permit Maintenance                     | 5,000   | Working capital
|                                  |                                        |         |                
|                                  |                                        |         |                
|Total Work Obligation Commitments | $1,260,000                             |        

In addition to the above required work programs, the Registrant
  is planning to carry out the following significant projects during fiscal 2003:

Anticipated Planned Work Before December 31, 2003 
  (As at June 19, 2003)

|Property              | Description of Work               | (US$)       | Source of funds
|--------------------- | --------------------------------- | ----------- | ---------------
|                      |                                   |             |                
|Developed             |                                   |             |                
|PMP 38148             | Goldie-2 Drill, Complete and Test | 850,000     | Working Capital
|                      | Tabla-1 Flow testing              | 50,000      | Working Capital
|                      | Ngatoro water flood               | 50,000      | Working Capital
|                      |                                   |             |                
|Undeveloped           |                                   |             |                
|PEP 38736             | Kahili-1B - Development           | 50,000      | Gas Purchaser  
|                      |                                   |             |                
|Total Planned Program |                                   | $ 1,000,000 |                

The projects completed to date from the above programs are
  nil. PEP 38738 production testing is in progress as at the date of this report.
  Kahili-1B development will be funded by the gas purchaser and will require approximately
  $50,000 in G & A costs.

In addition to the above significant expenditures planned
  subsequent to June 2003, the Registrant anticipates various minor expenditures
  on geology and geophysics desk and field studies in various permits, which will
  total approximately $200,000 for fiscal 2003, and will be funded from working
  capital and/or farmout.

For the 5 months to May 31, 2003, the Registrant has successfully
  funded its projects from working capital, production revenues and/or farmout.
  The Registrant intends to continue to investigate the possibility of funding
  expenditure through farmouts to other exploration companies and/or by raising
  additional capital by private placement or public investment. If such funding
  does not become available as appropriate, the Registrant intends to seek deferral
  of projects until such time as funding is available. If none of these options
  are possible, the Registrant would then be required to relinquish certain properties.

The ACP/19 estimate has reduced to permit maintenance, as
  the intention is to farm out 100% of any well expenditure.

- 33 -

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C. Research and development, patents and licenses

Not applicable

D. Trend Information

Significant trend information since the latest financial year:

The most important trend for the Registrant is production
  and sales of oil. Trends which are also important are oil prices and exchange
  rates, as the revenue is subject to international prices and the Registrants
  costs are mainly in NZ$, so the NZ$/US$ exchange rate is important.

Ngatoro Oil production and sales, prices and exchange rates
  for the months subsequent to December 31, 2002 are:

|Month       | Production
      (bbl) | Sales
      (bbl) | Oil price
      (US$/bbl) | Revenue
      (US$000) | Exchange
      (NZ$/US$)
|----------- | ---------------------- | ----------------- | ------------------------- | ----------------------- | ------------------------
|January 03  | 981                    | 1,257             | 31.7310                   | 40                      | 0.5468                  
|February 03 | 849                    | 233               | 33.6200                   | 8                       | 0.5623                  
|March 03    | 947                    | 817               | 31.3470                   | 26                      | 0.5512                  
|April 03    | 792                    | 1,009             | 26.8710                   | 27                      | 0.5593                  
|May 03      | 814                    | 727               | 25.5370                   | 19                      | 0.5830                  

|E.  G.
      [RESERVED]
      ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
      A. Directors and senior management
      The names, municipality of residence and position held
        of the directors and senior management of the Registrant are as follows:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Name                   | Residence       | Position Held                                
|---------------------- | --------------- | ---------------------------------------------
|                       |                 |                                              
|Dr. David Bennett      | Wellington,     | President, Chairman of the Board [7],        
|                       | New Zealand     | Chief Executive Officer, Director            
|                       |                 |                                              
|Ronald Bertuzzi [1]    | Vancouver       | Director                                     
|                       | B.C., Canada    |                                              
|                       |                 |                                              
|David McDonald [1] [6] | Vancouver,      | Chairman of the Board, Director              
|                       | B.C., Canada    |                                              
|                       |                 |                                              
|Bernhard Zinkhofer [1] | Richmond,       | Director, (Interim) Chairman of the Board [8]
|                       | B.C., Canada    |                                              
|                       |                 |                                              
|Garth Johnson [1] [2]  | Vancouver,      | Director                                     
|                       | B.C., Canada    |                                              
|                       |                 |                                              
|Brad Holland [3]       | Saudi Arabia    | Director                                     
|                       |                 |                                              
|Peter Loretto [4]      | Vancouver,      | Director                                     
|                       | B.C., Canada    |                                              
|                       |                 |                                              
|Drew Cadenhead [5]     | Calgary         | Director                                     
|                       | Alberta, Canada |                                              

- 34 -

---



|Jeanette Watson | Wellington, | Corporate Secretary
|--------------- | ----------- | -------------------
|                | New Zealand |                    
|                |             |                    
|Jenni Lean      | Wellington, | Corporate Affairs  
|                | New Zealand | Manager            

Dr. David BennettDr. Bennett has been a member of the board of directors and an officer since
  October 1996, being appointed as Chief Executive Officer on October 30, 1996.
  Dr. Bennett received a Bachelor of Arts (Natural Sciences) from Cambridge University
  in 1968 and a Master of Science in Exploration Geophysics from the University
  of Leeds in 1969. In 1973, Dr. Bennett received his doctorate in Geophysics
  from the Australian National University and from 1973 to 1975 conducted post-doctoral
  research at the University of Texas (Dallas). From 1975 to 1977, Dr. Bennett
  was a post-doctoral fellow and lecturer at the Victoria University of Wellington,
  New Zealand. From 1977 to 1982, Dr. Bennett was employed by the Department of
  Scientific and Industrial Research, Government of New Zealand and from 1982
  to 1994 was employed as geophysicist, exploration manager and finally general
  manager by New Zealand Oil and Gas Ltd. Dr. Bennett was an independent consultant
  from 1994 to 1996 when he joined the Registrant and other associated companies.
  From November 1996, Dr. Bennett was a member of the board of directors, and
  from April 1997, the President, of Trans-Orient Petroleum Ltd. In 2000, Dr.
  Bennett resigned the position of President of Trans-Orient Petroleum Ltd, and
  in 2001 resigned as a member of the board of directors of that company. He was
  also, from April 1997 to April 2001, a member of the board of directors of Durum
  Cons. Energy Corp. (since re-named TAG Oil Ltd.), and from June 1998 to January
  2003, a member of the board of directors of AMG Oil Ltd. He was elected Chairman
  of the Board of INDO, on the retirement of Mr. McDonald, in June 2003. Dr. Bennett
  spends approximately 95% of his total work time on behalf of the Registrant.
  Dr. Bennetts spouse, Ms Jenni Lean is also employed by the Company as
  Corporate Affairs Manager.

Mr. Ronald BertuzziMr. Bertuzzi was a member of the board of directors from October 2, 1992
  to October 30, 1996 and was reappointed on March 31, 1998. Mr. Bertuzzi received
  a Bachelor of Economics from the University of British Columbia in 1965 and
  has worked in the medical sales and product development industries since that
  time. For the last ten years, Mr. Bertuzzi was a sales manager with El Rad Services
  of Vancouver, B.C. in Canada. Mr. Bertuzzi is a member of the board of directors
  of several companies, including AMG Oil Ltd., and Gondwana Energy, Ltd., of
  which he is president.

Mr. Bernhard J. ZinkhoferMr. Zinkhofer was appointed to the board of directors in March, 2001. Mr.
  Zinkhofer was educated at the universities of Calgary (B.Comm-1977) and Victoria
  (LL.B-1983) in Canada and is qualified as a Chartered Accountant (1980) and
  as a lawyer (1984). He has practised law as a partner at the Canadian law firm
  of Lang Michener in their Vancouver, British Columbia office since 1992. Mr.
  Zinkhofer also serves as a director of several public and private corporations,
  including (until May, 2003) two which are associated with Indo-Pacific Energy
  Ltd. by virtue of intercompany shareholdings or common shareholders, namely
  Trans-Orient Petroleum Ltd and TAG Oil Ltd. (previously called Durum Cons. Energy
  Corp.).

Mr.Garth JohnsonMr. Johnson was appointed as a director of the Company in May 2003. Mr.
  Johnson has been employed by an affiliate, TAG Oil Ltd, since 1997 as its corporate
  accountant and became its Chief Financial Officer in 2000 and a director in
  2001. Mr. Johnson is responsible for TAG Oil meeting its regulatory compliance
  obligations with the Securities and Exchange Commission and the British Columbia
  Securities Commission and various other regulatory bodies. Mr. Johnson has been
  engaged in the administration of private and public companies since 1995 and
  is a Certified General Accountant. Mr. Johnson also serves as CFO, Corporate
  Secretary and a director of Trans-Orient Petroleum Ltd., and as Corporate Secretary
  of Gondwana Energy, Ltd.

- 35 -

---

Mr. David R. McDonald (former Non-Executive Chairman)Mr. McDonald has been a member of the board of directors and the Non Executive
  Chairman from February 2000 until his retirement from the board at age 71 in
  June, 2003.

Ms Jeanette WatsonMs Watson was appointed as Corporate Secretary on November 16, 2000. Ms
  Watson attended Victoria University of Wellington, New Zealand, gaining a B.Sc.
  (Geology) in 1983 and an LLB in 1986, and is qualified as a lawyer (1987). She
  has practised commercial and corporate law as an associate (from 1986 to 1989)
  and then as a senior associate (from 1992 to 2000) at Rudd Watts & Stone,
  at their Wellington, New Zealand office, and in the United Kingdom, at Slaughter
  and May (from 1989 to 1991). Ms Watson spends approximately 40% of her total
  work time on behalf of the Registrant.

Ms Jenni LeanMs Lean has a BSc and MBA from Victoria University in Wellington, New Zealand.
  She has experience as a computer programmer at the Australian National University
  in Canberra, teaching mathematics and science in Wellington and has worked in
  the strategic planning division at New Zealands government science research
  body (DSIR). She has been Executive Officer for New Zealands rural consultants
  body (NZSFM) and an integral part of a forestry trading group (NZFE) in New
  Zealand. Since 1996, she has been involved with Indo-Pacific Energy Ltd. as
  part of the senior management team and also as Corporate Affairs Manager. Ms
  Leans spouse, Dr. Bennett, is the Companys Chief Executive Officer.
  Ms Lean spends approximately 80% of her total work time on behalf of the Registrant.

Events Subsequent to December 31, 2002

On March 24, 2003, Mr. Cadenhead resigned from the board. 
  On May 28, 2003, Mr. Johnson was appointed to the board. 
  On June 19, 2003, Mr. McDonald resigned from the board.

Indemnification of Directors and Officers

The Registrant has taken out liability insurance to cover
  Directors and Officers in the performance of their duties.

To date, no agreements to contractually provide indemnities
  have been executed or delivered.

- 36 -

---

B. Compensation

The following table sets forth the aggregate compensation
  paid by the Company for services rendered during the last full financial year
  indicated, reported as at December 31, 2002:

SUMMARY COMPENSATION TABLE




|[1]  | David Bennett and Jenni Lean, via the DJ and JM Bennett
        Family Trust, own the building in which the Registrants New Zealand
        office is located. During the year the Registrant paid $24,245 in office
        rental costs for the use of the building.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|[2]  | Stock Options vest over a period of 18 months                                                                                                                                                                                                                          
|[3]  | Stock Options not subject to vesting provisions                                                                                                                                                                                                                        
|[4]  | Common shares and common shares under vested options
        or exercisable warrants held directly or indirectly by directors or officers
        of the Registrant, as at June 19, 2003.                                                                              
|[5]  | Ms Lean and Ms Watson are contractors to the Company,
        not employees, and therefore do not receive salary payments.                                                                                                                                             
|[6]  | Mr. Cadenhead resigned as a director from March 24,
        2003, so his options lapsed from May 8, 2003.                                                                                                                                                              
|[7]  | Vesting of Stock Options subject to performance measurement.                                                                                                                                                                                                           
|[8]  | Mr. Loretto resigned from the board during the reporting
        period but is still a principal shareholder.                                                                                                                                                          
|[9]  | Mr. Johnson was appointed after the end of the reporting
        period and therefore did not receive directors fees during the reporting
        period.                                                                                                             
|[10] | Mr. McDonald resigned as a director from June 19, 2003,
        so his options will lapse, if not exercised prior, on August 3, 2003.                                                                                                                                  

- 37 -

---

|[11] | Common shares and common shares under vested options
        or exercisable warrants beneficially owned is less than one percent of
        total common shares.                          
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|[12] | David Bennett and Jenni Lean are married to each
        other, so each individuals options and shareholdings are aggregated
        with the others in calculating beneficial holdings.

Each Stock Option disclosed gives a right to call for a common
  share. No purchase price was paid for the option.

Compensation of Directors

It has been the past policy of the board of directors not
  to receive an annual salary for their services solely as a director. Rather,
  the directors have been compensated through stock awards and option grants.
  In 2002, the board decided to pay directors fees to the Chairman and the
  non-executive directors (except Mr. Zinkhofer, who invoices time charges in
  lieu). Such fees were payable for the 2002 and subsequent years. The Chairman
  (if non-executive) receives US$10,000 per year and each other non-executive
  director (except Mr. Zinkhofer) receives CAD$200 per meeting attended.

56,000 options lapsed during fiscal 2002, without exercise,
  due to cessation of involvement with the Company. 200,000 options were agreed
  by the optionholder to be cancelled on October 15, 2002.

There were no directors' or senior officers' options exercised
  in the years ended December 31, 2002 and 2001.

Options Granted During the Year

On October 15, 2002, the Registrant issued a further 893,000
  options to various directors, officers, employees and consultants, and varied
  the terms of vesting of outstanding options to align with the new options granted.
  All options are issued without purchase price. The exercise price of options
  (both new and outstanding) granted to Mr. Bennett and Ms Lean was reduced to
  $1.00. The Registrant granted additional options to its directors and officers
  currently holding options, and new options to new directors and officers as
  follows:

|Name               | Shares Underlying the Option |  | Exercise Price |  | Expiry Date     
|------------------ | ---------------------------- |  | -------------- |  | ----------------
|Bernhard Zinkhofer | 15,000                       |  | $1.25          |  | March 26, 2006  
|Jeanette Watson    | 2,000                        |  | $1.25          |  | March 26, 2006  
|David Bennett      | 100,000                      |  | $1.00          |  | July 6, 2005    
|                   | 300,000                      |  | $1.00          |  | October 15, 2007
|Drew Cadenhead [1] | 100,000                      |  | $0.90          |  | October 15, 2007
|Ron Bertuzzi       | 10,000                       |  | $1.25          |  | July 6, 2005    
|Jennifer Lean      | 126,000                      |  | $1.00          |  | July 6, 2005    
|David McDonald [2] | 60,000                       |  | $1.25          |  | July 6, 2005    
|Garth Johnson      | 5,200                        |  | $1.25          |  | July 6, 2005    

|[1] | Mr. Cadenhead resigned as a director from March 24,
        2003, so his options lapsed on May 8, 2003.                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------
|[2] | Mr. McDonald resigned as a director from June 19,
        2003, so his options will lapse if not exercised prior, on August 3, 2003.

- 38 -

---

|C.  Board practices                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|1. Term of office
      All directors have a term of office expiring at the
        next annual general meeting of the Registrant, but are eligible for re-election,
        unless a director's office is earlier vacated in accordance with the by-laws
        of the Registrant or the provisions of the Business Corporations Act (Yukon).
        All officers have a term of office lasting until their resignation or
        their replacement by the board of directors.

| | Name                              | Period served in position
| | --------------------------------- | -------------------------
| |                                   | (as at June 20, 2003)    
| |                                   |                          
| | Dr. David Bennett                 | 7 years                  
| | Ronald Bertuzzi [1]               | 5 years                  
| | Bernhard Zinkhofer [1]            | 2 years                  
| | Garth Johnson [1]                 | 1 month                  
| |                                   |                          
| | Jeanette Watson                   | 3 years                  
| | Jenni Lean                        | 7 years                  
| |                                   |                          
| | [1] Member of the Audit Committee

|2.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | Directors service contracts
      No director has a contract that provides for any benefits
        upon termination of his/her service as a director.
      In January 2002, the Company entered into a management
        agreement with a subsidiary, Indo-Pacific Energy (NZ) Limited, which has
        an employment agreement with Dr. David Bennett, to manage all the Companys
        operations and its affiliates, including providing to the Company the
        services of Dr. Bennett as CEO and President. The severance terms of that
        employment agreement provide that he will be paid two months severance
        for each year of service since October 1997 and six months severance in
        lieu of equivalent notice.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|3.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | Audit and remuneration committees
      List of Audit Committee members as at June 20, 2003:
      Ronald Bertuzzi 
          Bernhard Zinkhofer 
          Garth Johnson
      The Company does not have a remuneration committee.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|D.  Employees
      As of December 31, 2002, the Registrant employed six
        people full time in its Wellington, New Zealand office. The persons employed
        in the Wellington office are the president / chief executive officer and
        four persons occupied with technical support, company and joint venture
        accounting, financial reporting, and office management. In addition another
        one or two persons have been employed in the 2002 year on a part time
        basis to assist in administrative support.
      In addition to the foregoing, the Registrant also receives
        technical and administrative services from a number of contractors and
        consultants.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|E.  Share Ownership
      Share ownership and stock options granted and outstanding
        to officers and directors of the Company are outlined in the table in
        Item 6.B - Compensation.
      The Company has no defined plan for involving employees
        in the capital of the Company. The Company may, at the discretion of the
        board of directors, grant incentive stock options to its officers, directors,
        employees and consultants, for the purchase of shares in the Company.
        Stock options are in consideration for services and
      - 39 -                                                                                                                          

---

|are non-transferable. The
        Board of Directors of the Company determines the exercise price. Options
        have a maximum term of five years and terminate 45 days after the termination
        of employment or other contracting arrangement of the option holder. Vesting
        of options may be made at the time of granting of the options or over
        a period of up to 18 months as set out in each option agreement. Once
        approved and vested, options are exercisable at any time until expiry
        or termination as above.
      ITEM 7. MAJOR SHAREHOLDERS AND RELATED TRANSACTIONS
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|A.Major shareholders                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|1.  Beneficial Holders of More Than
        Five Percent of Outstanding Shares
      To the knowledge of the Company, the only persons holding,
        directly or indirectly, five percent or more of the Registrant's Common
        Stock are listed below (as of June 16, 2003):                                                                                                                                                                                                                                                                                                                                     

|Owner                          | Number of     |  | Percent 
|------------------------------ | ------------- |  | --------
|                               | Shares        |  | of Class
|                               |               |  |         
|Trans-Orient Petroleum Ltd.[1] | 832,945 [2]   |  | 10.76%  
|                               |               |  |         
|Alex Guidi                     | 1,067,516 [3] |  | 13.79%  

|[1] | Trans-Orient Petroleum Ltd (Trans-Orient)
        is a public company traded on the OTC Bulletin Board in the United States.
        Mr. Zinkhofer and Dr. Bennett (directors of the Company) are former directors
        of Trans-Orient.                                                                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|[2] | Trans-Orient also holds 175,000 share purchase warrants
        and 836,845 Series A warrants to purchase common shares of
        the Company, at any time. Upon the exercise of the A Warrants
        by Trans-Orient and subject to a commercial discovery having occurred
        on the permits acquired by the Company from Trans-Orient, the Company
        will issue to Trans-Orient one B Warrant for each A
        Warrant exercised. The B Warrants are exercisable at a price
        of $2.50 for a period of one year from the date of issue of the B
        Warrants.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|[3] | Mr. Guidi is a former director of the Company. Mr.
        Guidi holds, directly, warrants to purchase a further 512,000 common shares
        of the Company, all of which are available for exercise within 60 days.
        Mr. Guidi is a principal shareholder of Trans-Orient and as such is also
        beneficially interested in all holdings disclosed in relation to Trans-Orient.                                                                                                                                                                                                       

To the knowledge of the Company, there have been no significant
  changes in percentage share ownership held by any major shareholders, during
  the last three years. The Companys major shareholders do not have different
  voting rights.

2. Host country shareholders

To the knowledge of the Company, 3,884,658 common shares are
  held by 1,152 registered shareholders in the United States representing 50.19
  per cent of the total common shares outstanding.

3. Controlling shareholders

Mr. Alex Guidi, a resident of Canada, directly and via his
  controlling position in Trans-Orient Petroleum Ltd, controls an undiluted 24.55%
  shareholding in the Company.

To the knowledge of the Company, the Company is not directly
  or indirectly owned or controlled by another corporation, foreign government
  or person.

4. Arrangements affecting shareholdings

To the knowledge of the Company, there have been no transfers
  of common shares which have materially affected control of the Company since
  the last Annual General Meeting of the Members of the Company held on June 17,
  2003, and there are no other arrangements known to the Company the operation
  of which may at a subsequent date result in a change of control of the Company.

- 40 -

---

On June 18, 2003, a New Zealand subsidiary of the Company,
  Indo-Pacific Energy (NZ) Limited, issued 1,500,000 Special Class shares in that
  company to certain private investors (see Item 4.A.4  Important Events/Company
  History). Such shares confer no voting rights, but do confer the right to convert
  such shares to common shares in a proposed listing of and issue of common shares
  in that company on the New Zealand Stock Exchange. If the listing does not proceed,
  the subscription agreements provide the right to exchange such Special Class
  shares for common shares in the Company. The issue of such shares would not
  result in a change in control of the Company.

B. Related party transactions

In fiscal 2002, office rents of $24,245 were paid to a family
  trust controlled by Dr. David Bennett. These amounts were fair market payments.

The Company entered into an agreement with Trans-Orient Petroleum
  Ltd (Trans-Orient) to acquire all of its participating interests
  in 13 oil and gas permits and licenses effective January 1, 2000. See Item 4.A.5
   Principal Capital Expenditures.

In January 2002, the parties agreed to vary that agreement.
  (See Item 4.A.5  Principal Capital Expenditures) The amendment was approved
  although all board members except Mr. McDonald abstained from the vote, as all
  of the directors except Mr. McDonald held office or securities in Trans-Orient.

Certain participants in the Companys oil and gas properties
  have directors, officers and/or principal shareholders in common with the Company.
  These participants are AMG Oil Ltd., TAG Oil Ltd. (formerly called Durum Cons.
  Energy Corp.) and Gondwana Energy, Ltd. In addition, the Company and TAG Oil
  Ltd. (TAG) entered into arrangements for the purchase by TAG from the Company
  of interests in two New Zealand petroleum properties  being a 20% interest
  in PEP 38741 and 25% of PEP 38480  at fair market values.

At December 31, 2002, the Company was owed $52,065 by certain
  public companies with directors, officers and/or principal shareholders in common
  with the Company (being AMG Oil Ltd., TAG Oil Ltd. (formerly called Durum Cons.
  Energy Corp.) and Gondwana Energy, Ltd.). This amount is unsecured, non-interest
  bearing and has no fixed terms of repayment. In addition, TAG Oil Ltd, a related
  party, owed the Company $308,000 as a result of a buy-in into New Zealand permit
  PEP 38741. The $308,000 has been received subsequent to December 31, 2002. As
  at June 19, 2003, the related party amounts outstanding totaled $6,898.

C. Interests of experts and counsel

Not applicable

ITEM 8. FINANCIAL INFORMATION

A. Consolidated Statements and Other Financial Information

Consolidated financial statements are provided under PART
  III. Item 17. Financial Statements.

There are no material legal proceedings to which the Registrant
  is subject or which are anticipated or threatened, except as follows:

As reported in Item 4.A.4  Important Events/Company History, Greymouth
      Petroleum Acquisition Company Ltd (GPAC) asserted that they were entitled
      to a greater equity in the Goldie project and certain other matters as set
      out in that Item. Judgment on those claims has now been delivered 
      as to the equity and revenue claims, in favour of the Companys subsidiary,
      but as to certain continuing contractual rights, in favour of GPAC. The
      payment of costs and certain damages claims remain outstanding. The judgment
      is still subject to any appeal that either party wishes to take.


The Company has never paid dividends to shareholders nor is
  there a policy in place to do so. All cash flow derived by the Company is re-invested
  in oil and gas exploration and development.

- 41 -

---

B. Significant Changes

In April 2003, a gas prepayment agreement was entered into
  with a New Zealand company, NGC New Zealand Limited (NGC), whereby NGC provided
  $1,050,400 towards the Companys ongoing exploration programs, as reported
  in Item 4.A.4  Important Events/Company History.

On May 30, 2003, judgment was delivered on the claims made
  by Greymouth Petroleum Acquisition Company Ltd, as reported in Item 4.A.4 and
  8.A, and in the Companys financial statements. The Company is continuing
  to assess the effect of the judgment and the prospects for the Goldie field
  as at the date of this report, but does not believe they will have a materially
  adverse impact on the Companys financial position except for the continuation
  of the shut-in status of Goldie.

On June 19, 2003, a New Zealand subsidiary of the Company,
  Indo-Pacific Energy (NZ) Limited, issued 1,500,000 Special Class shares in that
  company to certain private investors, in exchange for $NZ1,500,000, as reported
  in Item 4.A.4  Important Events/Company History.

On June 30, 2003 (New Zealand time), the Company announced
  that it had entered into an agreement with an Australian company, Horizon Oil
  NL, to purchase its equity interests in several onshore Taranaki (New Zealand)
  permits, as reported in Item 4.A.4  Important Events/Company History.

On June 16, 2003, the Company entered into an arrangement
  with Krystal Corporation Pte Ltd for Krystal to obtain a 20% interest in PEP
  38753 in exchange paying a contribution to past costs and a greater percentage
  of drilling costs in two proposed wells, as reported in Item 4.A.4  Important
  Events/Company History.

No other significant changes material to the business of the
  Company has occurred since the date of the annual financial statements.

ITEM 9. THE OFFER AND LISTING

A. Offer and Listing Details

1, 2 & 3. Not Applicable

4. Price History of the stock

Summary trading by year, in United States dollars per share,
  for the five most recently completed fiscal periods ending December 31, 2002:

|Year | OTCBB   | OTCBB  | NZSE      | NZSE
|---- | ------- | ------ | --------- | ----
|     | High(1) | Low(2) | High      | Low 
|     |         |        |           |     
|1998 | 17.82   | 2.80   | -         | -   
|1999 | 6.41    | 1.55   | -         | -   
|2000 | 4.75    | 0.63   | 3.75      | 2.45
|2001 | 2.75    | 0.71   | 1.55      | 1.55
|2002 | 1.50    | 0.63   | No trades |     

Summary trading by quarter for the two most recently competed
  fiscal periods ending December 31, 2002:

|Year and Quarter | OTCBB      | OTCBB  | NZSE      | NZSE
|---------------- | ---------- | ------ | --------- | ----
|                 | High(1)    | Low(2) | High      | Low 
|                 |            |        |           |     
|2001             |            |        |           |     
|Quarter 1        | Not traded | -      | No trades | -   
|Quarter 2        | 2.75       | 1.25   | No trades | -   
|Quarter 3        | 2.35       | 1.07   | No trades | -   
|Quarter 4        | 1.57       | 0.71   | 1.55      | 1.55

- 42 -

---

|2002      |      |      |           | 
|--------- | ---- | ---- | --------- | 
|Quarter 1 | 1.16 | 0.91 | No trades | 
|Quarter 2 | 1.23 | 0.88 | No trades | 
|Quarter 3 | 1.50 | 0.80 | No trades | 
|Quarter 4 | 1.50 | 0.63 | No trades | 
|          |      |      |           | 
|2003      |      |      |           | 
|Quarter 1 | 1.02 | 0.80 | No trades | 

Summary trading for the six most recently completed months ending May 31,
  2003

|Month         | OTCBB   | OTCBB  | NZSE      | NZSE
|------------- | ------- | ------ | --------- | ----
|              | High(1) | Low(2) | High      | Low 
|              |         |        |           |     
|December 2002 | 1.50    | 1.00   | No trades |     
|January 2003  | 1.02    | 0.80   | No trades |     
|February 2003 | 0.91    | 0.63   | No trades |     
|March 2003    | 0.75    | 0.35   | No trades |     
|April 2003    | 0.70    | 0.58   | No trades |     
|May 2003      | 0.75    | 0.55   | No trades |     

|(1) | OTCBB quotations may reflect interdealer
        prices, without retail markup, markdown or commission and may not necessarily
        reflect actual transactions.                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                   
|(2) | All OTCBB quotes are from www.investor.stockpoint.com.
        All NZSE Unlisted trades prices are from www.directbroking.co.nz.                                                                                  
|    |                                                                                                                                                                                                                   
|(3) | Quotations are provided from the date
        the Registrants shares were re-listed for trading on the OTCBB,
        on May 23, 2001 (after being de-listed on August 21, 2000), as reported
        in Item 9C.
|    |                                                                                                                                                                                                                   
|(4) | The Registrant implemented a 5 for 1
        share consolidation, with effect from July 23, 2001. The market prices
        quoted above have been restated to reflect this consolidation.                        

B. Plan of Distribution

Not applicable

C. Markets

The authorized capital of the Company consists of an unlimited
  number of Common Shares without par value, of which 7,739,324 Common Shares
  are issued as of June 19, 2003.

The shares of the Registrant traded on the Vancouver Stock
  Exchange ("VSE") in Vancouver, British Columbia, Canada until September 12,
  1996. Beginning in January, 1996, the shares of the Registrant traded on the
  OTC Bulletin Board (OTCBB) under the symbol "INDX". The Registrants
  shares now trade on the OTCBB under the symbol INDOF, and, since
  October 9, 2001, on the New Zealand Unlisted Board under the symbol IPE.

On August 21, 2000, the National Association of Securities
  Dealers (the "NASD") removed the Registrants Common Shares from trading
  on the OTCBB because the Registrant did not meet NASD eligibility rule 6530(b)(1).
  On April 19, 2001, the Registrant regained eligibility under NASD rule 6530(b)(1),
  applied for relisting on the OTCBB and was re-listed on May 23, 2001.

On re-listing, the Company was listed on the OTCBB under symbol
  INDXF. On completion of the Companys share consolidation on
  23 July 2001, the post-consolidation shares in the Company were listed under
  symbol INDOF.

D., E. & F.Not applicable

- 43 -

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ITEM 10. ADDITIONAL INFORMATION

A. Share Capital

Not applicable

B. Memorandum and Articles of association

The Articles of Association have been previously filed with
  Form 10K for the Year Ended December 31, 1997, dated April 8, 1998. The relevant
  provisions have not changed since that time.

C. Material contracts

Other than the Agreements with Trans-Orient Petroleum Ltd,
  Krystal Corporation Pte Ltd, Natural Gas Corporation Holdings Limited, and Horizon
  Oil NL and with subscribers to Indo-Pacific Energy (NZ) Limited (IPENZ) and
  to the Company summarized in Item 4.A  History and Development of the
  Company, and contracts entered into in the ordinary course of business, which
  are summarized in Item 4.D  Property, Plants and Equipment, the Registrant
  has not entered into any material contracts in the two years prior to the date
  hereof which can reasonably be regarded as being out of the ordinary course
  of the Companys business which includes the routine purchase and farmin/farmout
  of oil and gas properties.

The Agreement to purchase petroleum properties from Trans-Orient
  Petroleum Ltd. has been filed under Form 8-K, and its amendment has been filed
  under Form 20-F. The agreements with Horizon Oil NL, Krystal Corporation Pte
  Ltd, Natural Gas Corporation Holdings Limited and the subscription agreements
  entered into by IPENZ and the Company are filed as Exhibits, as noted under
  Item 19.C  List of Exhibits.

D. Exchange controls

There is no law or governmental decree or regulation in Canada
  that restricts the export or import of capital, or affects the remittance of
  dividends, interest or other payments to a non-resident holder of common shares
  of the Company, other than withholding tax requirements. See Item 10.E
  Taxation.

There is no limitation imposed by Canadian law or by the charter
  or other constituent documents of the Company on the right of a non-resident
  to hold or vote common shares of the Company, other than as provided in the
  Investment Canada Act (Canada) (the Investment Act). The following
  discussion summarizes the principal features of the Investment Act for a non-resident
  who proposes to acquire common shares of the Company. It is general only, it
  is not a substitute for independent advice from an investors own advisor,
  and it does not anticipate statutory or regulatory amendments.

The Investment Act generally prohibits implementation of a
  reviewable investment by an individual, government or agency thereof, corporation,
  partnership, trust or joint venture (each an entity) that is not
  a Canadian as defined in the Investment Act (a non-Canadian),
  unless after review the Director of Investments appointed by the minister responsible
  for the Investment Act is satisfied that the investment is likely to be of net
  benefit to Canada. The size and nature of a proposed transaction may give rise
  to an obligation to notify the Director and seek an advance ruling. An investment
  in common shares of the Company by a non-Canadian other than a WTO Investor
  (as defined in the Investment Act and which term includes entities which are
  nationals of or are controlled by nationals of member states of the World Trade
  Organization) when the Company was not controlled by a WTO Investor, would be
  reviewable under the Investment Act if it was an investment to acquire control
  of the Company and the value of the assets of the Company, as determined in
  accordance with the regulations promulgated under the Investment Act, was over
  a certain figure, or if an order for review was made by the federal cabinet
  on the grounds that the investment related to Canadas cultural heritage
  or national identity, regardless of the value of the assets of the Company.
  An investment in common shares of the Company by a WTO Investor, or by a non-Canadian
  when the Company was controlled by a WTO Investor, would be reviewable under
  the Investment Act if it was an investment to acquire control of the Company
  and the value of the assets of the Company, as determined in accordance with
  the regulations promulgated under the Investment Act, exceeds a specified amount,
  which in 2003 was Cdn$223 million. A non-Canadian would acquire control of the
  Company for the purposes of the Investment Act through acquisition of common
  shares if the non-Canadian acquired a majority of the common shares of the Company.
  The acquisition of less than a majority but one third or more of the common
  shares of the Company would be presumed to be an acquisition of control of the
  Company unless it could be established that, on the acquisition, the Company
  was not controlled in fact by the acquirer through the ownership of common shares.

- 44 -

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|Certain transactions relating
        to common shares of the Company would be exempt from the Investment Act,
        including                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|E.  Taxation
      Certain Canadian Federal Income Tax Information for United States
        Residents
      The following summarizes the principal Canadian federal
        income tax considerations generally applicable to the holding and disposition
        of common shares of the Company by a holder (a) who, for the purposes
        of the Income Tax Act (Canada) (the Tax Act), is not resident
        in Canada, deals at arms length with the Company, holds the common
        shares as capital property and does not use or hold the common shares
        in the course of carrying on, or otherwise in connection with, a business
        in Canada, and (b) who, for the purposes of the Canada-United States Income
        Tax Convention (the Treaty), is a resident of the United States,
        has never been a resident of Canada, has not held or used (and does not
        hold or use) common shares in connection with a permanent establishment
        or fixed base in Canada, and who otherwise qualifies for the full benefits
        of the Treaty. Holders who meet all such criteria in clauses (a) and (b)
        are referred to herein as a U.S. Holder or U.S. Holders,
        and this summary only addresses such U.S. Holders. The summary does not
        deal with special situations, such as particular circumstances of traders
        or dealers, limited liability companies, tax-exempt entities, insurers,
        financial institutions (including those to which the mark-to-market provisions
        of the Tax Act apply), or otherwise.
      This summary is based on the current provisions of the
        Tax Act and the regulations thereunder, all proposed amendments to the
        Tax Act and regulations publicly announced by the Minister of Finance
        (Canada) to the date hereof, the current provisions of the Treaty and
        the current administrative practices of the Canada Customs and Revenue
        Agency. It has been assumed that all currently proposed amendments will
        be enacted as proposed and that there will be no other relevant change
        in any governing law, the Treaty or administrative policy, although no
        assurance can be given in these respects. This summary does not take into
        account provincial, U.S. or other foreign income tax considerations, which
        may differ significantly from those discussed herein. The summary also
        assumes that the Company will be treated as a resident of Canada for purposes
        of the Tax Act.
      This summary is not exhaustive of all possible Canadian
        income tax consequences. It is not intended as legal or tax advice to
        any particular holder of common shares and should not be so construed.
        The tax consequences to any particular holder of common shares will vary
        according to the status of that holder as an individual, trust, corporation
        or member of a partnership, the jurisdictions in which that holder is
        subject to taxation and, generally, according to that holders particular
        circumstances. Each holder should consult the holders own tax
        advisor with respect to the income tax consequences applicable to the
        holders own particular circumstances.
      Dividends
        Dividends paid or deemed to be paid or credited by the Company to a U.S.
        Holder are subject to Canadian withholding tax. Under the Treaty, the
        rate of withholding tax on dividends paid to a U.S. Holder is generally
        limited to 15% of the gross dividend (or 5% in the case of corporate shareholders
        owning at least 10% of the Companys voting shares).
      Disposition
        A U.S. Holder is subject to tax under the Tax Act in respect of a capital
        gain realized on the disposition of a common share unless the U.S. Holder
        is entitled to relief under the Treaty. Relief under the Treaty is generally

- 45 -


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available unless the value of the common shares is derived
  principally from real property situated in Canada. Management of the Company
  believes that the value of the Companys common shares is currently not
  derived principally from real property situated in Canada.

Even where a U.S. Holder is not subject to tax under the Tax
  Act by virtue of the Treaty relief referred to above, the Tax Act requires the
  U.S. Holder to file a Canadian income tax return for the taxation year of disposition,
  claiming any applicable Treaty relief in that return. In addition, the Tax Act
  imposes a separate obligation on a purchaser (wherever resident) of common shares
  of the Company who acquires common shares of the Company from a non-resident
  of Canada. Unless an appropriate tax clearance certificate has been obtained
  from the Canadian tax authorities, the purchaser will become liable to pay 25%
  of the purchase price of such common shares to the Canadian tax authorities
  as tax on behalf of the non-resident, and will be entitled to impose appropriate
  withholding. U.S. Holders should consult their own tax advisors in advance of
  a sale or other disposition or deemed disposition of common shares to determine
  the appropriate way of dealing with the Canadian reporting and filing requirements
  under the Tax Act.

U.S. Taxation Effects

The following is a general discussion of the material United
  States Federal income tax laws for U.S. holders that hold common shares in the
  Registrant as a capital asset, as defined under United States Federal income
  tax law and is limited to discussion of U.S. Holders that own less than 10%
  of the common stock. This discussion does not address all potentially relevant
  U.S. Federal income tax matters and it does not address consequences peculiar
  to persons subject to special provisions of U.S. Federal income tax law, such
  as those described below as excluded from the definition of a U.S. Holder. In
  addition, this discussion does not cover any state, local or foreign tax consequences.

The following discussion is based upon the sections of the
  U.S. Internal Revenue Code of 1986, as amended to the date hereof (the "Code"),
  Treasury Regulations, published Internal Revenue Service ("IRS") rulings, published
  administrative positions of the IRS and court decisions that are currently applicable,
  any or all of which could be materially and adversely changed, possibly on a
  retroactive basis, at any time. In addition, this discussion does not consider
  the potential effects, both adverse and beneficial, of any future legislation
  which, if enacted, could be applied, possibly on a retroactive basis, at any
  time. The following discussion is for general information only and it is not
  intended to be, nor should it be construed to be, legal or tax advice to any
  holder or prospective holder of common shares of the Company and no opinion
  or representation with respect to the United States Federal income tax consequences
  to any such holder or prospective holder is made. Accordingly, U.S. holders
  and prospective U.S. holders of common shares of the Company should consult
  their own tax advisors about the U.S. Federal, state, local, and foreign, tax
  consequences of purchasing, owning and disposing of common shares of the Company.

U.S. Holders

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

Distributions on common shares of the Company

U.S. Holders receiving dividend distributions (including constructive
  dividends) with respect to common shares of the Company are required to include
  in gross income for United States Federal income tax purposes the gross amount
  of such distributions to the extent that the Company has current or accumulated
  earnings and profits, without reduction for any Canadian income tax withheld
  from such distributions. Such Canadian tax withheld may be credited, subject
  to certain limitations,

- 46 -

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against the U.S. Holder's United States Federal income tax
  liability or, alternatively, may be deducted in computing the U.S. Holder's
  United States Federal taxable income by those who itemize deductions. (See more
  detailed discussion at "Foreign Tax Credit" below). To the extent that distributions
  exceed current or accumulated earnings and profits of the Company, they will
  be treated first as a return of capital up to the U.S. Holder's adjusted basis
  in the common shares and thereafter as gain from the sale or exchange of the
  common shares. Preferential tax rates for long-term capital gains are applicable
  to a U.S. Holder which is an individual, estate or trust. There are currently
  no preferential tax rates for long-term capital gains for a U.S. Holder which
  is a corporation.

Dividends paid on the common shares of the Company will not
  generally be eligible for the dividends received deduction provided to corporations
  receiving dividends from certain United States corporations. A U.S. Holder which
  is a corporation may, under certain circumstances, be entitled to a 70% deduction
  of the United States source portion of dividends received from the Company if
  such U.S. Holder owns shares representing at least 10% of the voting power and
  value of the Company. The availability of this deduction is subject to several
  complex limitations which are beyond the scope of this discussion.

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

Disposition of common shares of the CompanyA U.S. Holder will recognize gain or loss upon the sale of common shares
  of the Company equal to the difference, if any, between the amount of cash plus
  the fair market value of any property received, and the Holder's tax basis in
  the common shares of the Company. This gain or loss will be capital gain or
  loss if the common shares are a capital asset in the hands of the U.S. Holder.
  Any capital gain will be a short-term or long-term capital gain or loss depending
  upon the holding period of the U.S. Holder. Gains and losses are netted and
  combined according to special rules in arriving at the overall capital gain
  or loss for a particular tax year. Deductions for net capital losses are subject
  to significant limitations. For U.S. Holders which are individuals, any unused
  portion of such net capital loss may be carried over to be used in later tax
  years until such net capital loss is thereby exhausted. For U.S. Holders which
  are corporations (other than corporations subject to Subchapter S of the Code),
  an unused net capital loss may be carried back three years from the loss year
  and carried forward five years from the loss year to be offset against capital
  gains until such net capital loss is thereby exhausted.

F. Dividends and paying agents

Not applicable

G. Statement by experts

Not applicable

- 47 -

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H. Documents on display

Certain documents concerning the Company which are referred
  to in this document may be inspected at the offices of Indo-Pacific Energy Ltd.,
  at Indo-Pacific House, 284 Karori Road, Karori, Wellington, New Zealand or at
  the registered office at Suite 200 Financial Plaza, 204 Lambert Street, White
  Horse, YT, Y1A 3T2, Canada.

Documents referred to in this document are filed with the
  US Securities Commission (SEC), and are available for view on the
  SEC website at: http//www.sec.gov.

I. Subsidiary information

A list of subsidiaries of the Company is identified in Note
  2 in the notes to the consolidated financial statements in Item 17, and in Item
  4.C  Organizational Structure. During the reporting period, the status
  of two of the Companys Australian subsidiaries, Odyssey International
  Ltd and Indo-Pacific Energy Australia Ltd, was converted from a public company
  to a proprietary company (as these companies were intended to be used for a
  public listing but are not now expected to be so used in the near future and
  the change in status brings a reduction in annual filing fees), so the names
  of the respective companies are Odyssey International Pty Ltd and Indo-Pacific
  Energy Australia Pty Ltd with effect from June 14, 2002.

One of the Companys New Zealand subsidiaries, PEP38716
  Limited, changed its name after the end of the reporting period, to Rata Energy
  Limited.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

- 48 -

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PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY
  HOLDERS AND USE OF PROCEEDS

None

ITEM 15. CONTROLS AND PROCEDURES

As required by Section 302(a) of the Sarbanes-Oxley Act of
  2002, the Companys Chief Executive Officer and Chief Financial Officer
  will be making certifications related to the information in our annual report
  on Form 20-F. As part of such certification, the Chief Executive Officer and
  Chief Financial Officer must certify that they are responsible for establishing
  and maintaining disclosure controls and procedures to ensure that material information
  with respect to the Company is made known to them and that they have evaluated
  the effectiveness of the Companys disclosure controls and procedures as
  of a date within 90 days prior to filing the Companys annual report. Disclosure
  controls and procedures are intended to ensure that information required to
  be disclosed by the Company in its annual report is recorded, processed, summarized
  and reported within the time periods required. The Company has adopted or formalized
  such controls and procedures as it believes are necessary and consistent with
  its business and internal management and supervisory practices.

Evaluation of Disclosure Controls and Procedures

The Companys Chief Executive Officer and Chief Financial
  Officer, after evaluating the effectiveness of the Companys disclosure
  controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c))
  as of a date within 90 days prior to the filing date of this report, have concluded
  that, as of such date, the Companys disclosure controls and procedures
  were adequate and effective to ensure that material information relating to
  the Company would be made known to them by others within the Company.

Changes in Internal Controls

There were no significant changes in the Companys internal
  controls or in other factors that could significantly affect the Companys
  internal controls subsequent to the date of their evaluation, nor does the Company
  believe that there are any significant deficiencies or material weaknesses in
  its internal controls. As a result, no corrective actions were required or undertaken.

ITEM 16. [RESERVED]

- 49 -

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PART III

ITEM 17. FINANCIAL STATEMENTS.



INDEX TO FINANCIAL STATEMENTS

|                                                                 | Page
|---------------------------------------------------------------- | ----
|Auditors Report                                                 | 55  
|Consolidated Balance Sheets                                      | 57  
|Consolidated Statements of Operations and Deficit                | 58  
|Consolidated Statements of Changes in Stockholders
      Equity | 59  
|Consolidated Statements of Cash Flows                            | 60  
|Consolidated Schedules of General and Administrative Expenses    | 61  
|Notes to the Consolidated Financial Statements                   | 62  

ITEM 18. FINANCIAL STATEMENTS

Not Applicable

ITEM 19. EXHIBITS

List of Exhibits

|Exhibit Reference | Exhibit Description                                                                                                             
|----------------- | --------------------------------------------------------------------------------------------------------------------------------
|1                 | Articles of Association
        for the Registrant [1]                                                                          
|4.1               | Asset Purchase Agreement
        between the Registrant and Trans-Orient Petroleum Ltd. [2]                                     
|4.2               | Variation to Asset Purchase
        Agreement between the Registrant and Trans-Orient Petroleum Ltd. [3]                        
|4.3               | Form of Stock Option Agreement
        for all vesting options granted to named directors and officers                          
|4.4               | Stock Option Agreement
        with David Bennett for performance vesting options                                               
|4.5               | Farm-out Agreement between
        the Registrant and Krystal Corporation Pte Ltd                                               
|4.6               | Form of Subscription Agreement
        between the Registrant, Indo-Pacific Energy (NZ) Limited and subscribers
        to IPENZ
|4.8               | Gas Pre-purchase and Option
        Agreement between the Registrant and NGC New Zealand Limited                                
|4.8.1             | Form of Asset Purchase
        Agreement  for each of PEP 38716, PEP 38728 and PEP 38716                                       
|4.8.2             | Agreement for Sale &
        Purchase of Data and Shares in Bligh Oil & Minerals NZ Limited                                     
|8                 | List of Subsidiaries of
        the Registrant                                                                                  
|12.1              | Auditors report
        for the fiscal year 2000 [4]                                                                           
|99.1              | Section 906 Certification                                                                                                       

[1] Incorporated by reference as previously included in our
  Form 10-K for the year ended December 31, 1997 filed on April 8, 1998.

[2] Incorporated by reference as previously included in our
  Form 8-K filed on April 13, 2000.

[3] Incorporated by reference as previously included in our
  Form 20-F filed for the year ended December 31, 2001.

[4] Incorporated by reference as previously included in our
  Form 20-F/A filed for the year ended December 31, 2001, on June 20, 2003.

- 50 -

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SIGNATURES

The Registrant certifies that it meets all of the requirements for filing
  on Form 20-F and that it has duly caused and authorized the undersigned to sign
  this Annual Report on its behalf.

|                    | INDO-PACIFIC ENERGY LTD.
|------------------- | ------------------------
|                    |                         
|Date: June 30, 2003 | By:                     
|                    |                         
|                    | Name:                   
|                    | Title:                  

- 51 -

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SECTION 302(a) CERTIFICATION

|I, David John Bennett, certify that:
|------------------------------------
|                                    
|1.                                  
|                                    
|2.                                  
|                                    
|3.                                  
|                                    
|4.                                  
|                                    
|                                    
|                                    
|                                    
|                                    
|5.                                  
|                                    
|                                    
|                                    
|                                    
|6.                                  

|Date: June 30, 2003 |                        
|------------------- | -----------------------
|                    |                        
|                    |                        
|                    | /s/ John Bennett       
|                    |                        
|                    | David John Bennett     
|                    | Chief Executive Officer

- 52 -

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SECTION 302(a) CERTIFICATION

|I, Patrick Knowles, certify that:
|---------------------------------
|                                 
|1.                               
|                                 
|2.                               
|                                 
|3.                               
|                                 
|4.                               
|                                 
|                                 
|                                 
|                                 
|                                 
|5.                               
|                                 
|                                 
|                                 
|                                 
|6.                               

|Date: June 30, 2003 |                            
|------------------- | ---------------------------
|                    |                            
|                    |                            
|                    | /s/ Patrick Knowles        
|                    |                            
|                    | Patrick Knowles            
|                    | Principal Financial Officer

- 53 -

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INDO-PACIFIC ENERGY LTD.

CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States Dollars)

DECEMBER 31, 2002





- 54 -

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AUDITORS' REPORT

To the Shareholders of Indo-Pacific Energy Ltd.

We have audited the consolidated balance sheets of Indo-Pacific
  Energy Ltd. as at December 31, 2002 and 2001 and the consolidated statements
  of operations and deficit, changes in stockholders equity and cash flows
  for the years then ended. These financial statements are the responsibility
  of the Company's management. Our responsibility is to express an opinion on
  these financial statements based on our audits.

We conducted our audits in accordance with Canadian and United
  States generally accepted auditing standards. Those standards require that we
  plan and perform an audit to obtain reasonable assurance whether the financial
  statements are free of material misstatement. An audit includes examining, on
  a test basis, evidence supporting the amounts and disclosures in the financial
  statements. An audit also includes assessing the accounting principles used
  and significant estimates made by management, as well as evaluating the overall
  financial statement presentation.

In our opinion, these consolidated financial statements present
  fairly, in all material respects, the financial position of the company as at
  December 31, 2002 and 2001 and the results of its operations and its cash flows
  for the years then ended, in accordance with Canadian generally accepted accounting
  principles.

The consolidated statements of operations and deficit and
  cash flows for the year ended December 31, 2000 were reported upon by other
  auditors. Their report covered the year ended December 31, 2000 contained no
  reservations and was dated March 23, 2001.

BDO INTERNATIONAL
  CHARTERED ACCOUNTANTS

Wellington,
  New Zealand
  April 16, 2003

- 55 -

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Comments by Auditors for US Readers on Canada-US Reporting Differences

In the United States, reporting standards for auditors require
  the addition of an explanatory paragraph (following the opinion paragraph) when
  the financial statements are affected by conditions and events that cast substantial
  doubt on the Companys ability to continue as a going concern, such as
  those described in Note 1 to the consolidated financial statements. The United
  States reporting standards also require the addition of an explanatory paragraph
  when changes in an accounting policy, such as those involving stock option based
  compensation described in Note 2, has a material effect on the consolidated
  financial statements. Our report to the shareholders dated April 16, 2003 is
  expressed in accordance with Canadian reporting standards which do not permit
  a reference to such events and conditions in the auditors report when these
  are adequately disclosed in the financial statements.

BDO INTERNATIONAL
  CHARTERED ACCOUNTANTS

Wellington, 
  New Zealand 
  April 16, 2003

- 56 -

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INDO-PACIFIC ENERGY LTD. 
  Consolidated Balance Sheets (Expressed in United States Dollars)

|As at December 31,                                    |   | 2002        |   |   | 2001       |  
|----------------------------------------------------- | - | ----------- | - | - | ---------- | -
|                                                      |   |             |   |   |            |  
|                                                      |   |             |   |   |            |  
|Assets                                                |   |             |   |   |            |  
|                                                      |   |             |   |   |            |  
|Current                                               |   |             |   |   |            |  
|Cash and cash equivalents                             |   | 1,292,827   |   |   | 3,282,007  |  
|Accounts receivable                                   |   | 709,895     |   |   | 315,308    |  
|Inventory                                             |   | 5,423       |   |   | -          |  
|Prepaid expenses and deposits                         |   | 150,112     |   |   | 101,524    |  
|                                                      |   |             |   |   |            |  
|                                                      |   |             |   |   |            |  
|                                                      |   | 2,158,257   |   |   | 3,698,839  |  
|                                                      |   |             |   |   |            |  
|Due from related parties (Note 5)                     |   | 52,065      |   |   | 28,395     |  
|Property and equipment (Note 3)                       |   | 28,455      |   |   | 70,203     |  
|Oil and gas properties (Note 4)                       |   | 7,523,168   |   |   | 8,093,741  |  
|                                                      |   |             |   |   |            |  
|                                                      |   |             |   |   |            |  
|Total Assets                                          | $ | 9,761,945   |   | $ | 11,891,178 |  
|                                                      |   |             |   |   |            |  
|                                                      |   |             |   |   |            |  
|Liabilities                                           |   |             |   |   |            |  
|                                                      |   |             |   |   |            |  
|Current                                               |   |             |   |   |            |  
|Accounts payable and accrued liabilities              |   | 383,577     |   |   | 960,120    |  
|                                                      |   |             |   |   |            |  
|                                                      |   |             |   |   |            |  
|Total Liabilities                                     | $ | 383,577     |   | $ | 960,120    |  
|                                                      |   |             |   |   |            |  
|                                                      |   |             |   |   |            |  
|Commitments and Contingencies(Notes 1 and 6)          |   |             |   |   |            |  
|                                                      |   |             |   |   |            |  
|Stockholders Equity                                  |   |             |   |   |            |  
|                                                      |   |             |   |   |            |  
|Common stock without par value (Note 7);              |   |             |   |   |            |  
|unlimited number of shares authorized;                |   |             |   |   |            |  
|Issued and outstanding at December 31, 2002:          |   |             |   |   |            |  
|7,739,324 shares; and at December 31, 2001: 6,489,324 |   | 20,478,365  |   |   | 19,478,365 |  
|Contributed surplus                                   |   | 274,080     |   |   | -          |  
|Accumulated deficit                                   |   | (11,374,077 | ) |   | (8,547,307 | )
|                                                      |   |             |   |   |            |  
|                                                      |   |             |   |   |            |  
|Total Stockholders Equity                            | $ | 9,378,368   |   | $ | 10,931,058 |  
|                                                      |   |             |   |   |            |  
|                                                      |   |             |   |   |            |  
|Total Liabilities and Stockholders Equity            | $ | 9,761,945   |   | $ | 11,891,178 |  
|                                                      |   |             |   |   |            |  

|Approved by the Directors: |  |         
|-------------------------- |  | --------
|                           |  |         
|                           |  |         
|                           |  |         
|Director                   |  | Director

See accompanying notes to the consolidated financial statements

- 57 -

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INDO-PACIFIC ENERGY LTD.
  Consolidated Statements of Operations and Deficit 
  (Expressed in United States Dollars)

|For the Years Ended December 31,          |   | 2002        |   |   | 2001       |   |   | 2000       |  
|----------------------------------------- | - | ----------- | - | - | ---------- | - | - | ---------- | -
|                                          |   |             |   |   |            |   |   |            |  
|                                          |   |             |   |   |            |   |   |            |  
|Production Income:                        |   |             |   |   |            |   |   |            |  
|Oil and gas sales                         |   | 1,845,925   |   |   | 3,744,036  |   |   | 475,646    |  
|Production operating costs                |   | (772,805    | ) |   | (652,240   | ) |   | (35,411    | )
|Royalties                                 |   | (184,207    | ) |   | (369,536   | ) |   | (23,962    | )
|Depletion                                 |   | (106,491    | ) |   | (266,329   | ) |   | (112,332   | )
|                                          |   |             |   |   |            |   |   |            |  
|                                          |   |             |   |   |            |   |   |            |  
|Net Production Income                     | $ | 782,422     |   | $ | 2,455,931  |   | $ | 303,941    |  
|                                          |   |             |   |   |            |   |   |            |  
|                                          |   |             |   |   |            |   |   |            |  
|Other Income                              |   |             |   |   |            |   |   |            |  
|Interest income                           |   | 29,518      |   |   | 94,954     |   |   | 224,549    |  
|                                          |   |             |   |   |            |   |   |            |  
|Expenses                                  |   |             |   |   |            |   |   |            |  
|General and administrative (Schedule)     |   | (580,896    | ) |   | (735,624   | ) |   | (743,600   | )
|Stock option compensation expense (7(b))  |   | (274,080    | ) |   | -          |   |   | -          |  
|Write-off of oil and gas properties       |   | (2,783,734  | ) |   | (706,462   | ) |   | (2,725,925 | )
|                                          |   |             |   |   |            |   |   |            |  
|                                          |   |             |   |   |            |   |   |            |  
|Net income/(loss) for the year            |   |             |   |   |            |   |   |            |  
|before other items                        |   | (2,826,770  | ) |   | 1,108,799  |   |   | (2,941,035 | )
|Other Items                               |   |             |   |   |            |   |   |            |  
|Gain on disposal of investments           |   | -           |   |   | -          |   |   | 70,000     |  
|                                          |   |             |   |   |            |   |   |            |  
|                                          |   |             |   |   |            |   |   |            |  
|Net profit/(loss) for the year before tax |   | (2,826,770  | ) |   | 1,108,799  |   |   | (2,871,035 | )
|                                          |   |             |   |   |            |   |   |            |  
|Income tax expense (Note 9)               |   | -           |   |   | -          |   |   | -          |  
|                                          |   |             |   |   |            |   |   |            |  
|                                          |   |             |   |   |            |   |   |            |  
|Net profit/(loss) for the year after tax  |   | (2,826,770  | ) |   | 1,108,799  |   |   | (2,871,035 | )
|                                          |   |             |   |   |            |   |   |            |  
|Deficit  Beginning of Year               |   | (8,547,307  | ) |   | (9,656,106 | ) |   | (6,785,071 | )
|                                          |   |             |   |   |            |   |   |            |  
|                                          |   |             |   |   |            |   |   |            |  
|Deficit  End of year                     | $ | (11,374,077 | ) | $ | (8,547,307 | ) | $ | (9,656,106 | )
|                                          |   |             |   |   |            |   |   |            |  
|                                          |   |             |   |   |            |   |   |            |  
|Basic earnings/(loss) per share(Note 8)   | $ | (0.41       | ) | $ | 0.17       |   | $ | (0.47      | )
|                                          |   |             |   |   |            |   |   |            |  
|                                          |   |             |   |   |            |   |   |            |  
|Diluted earnings/(loss) per share(Note 8) | $ | (0.41       | ) | $ | 0.17       |   | $ | (0.47      | )
|                                          |   |             |   |   |            |   |   |            |  

See accompanying notes to the consolidated financial statements

- 58 -

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INDO-PACIFIC ENERGY LTD.Consolidated Statements of Changes in Stockholders Equity 
  (Expressed in United States Dollars)

For the Years Ended December 31, 2002, 2001, and 2000

|                                           |              |  |   |             |  |   |             |  |   |               |   |   | Total      |  
|------------------------------------------ | ------------ |  | - | ----------- |  | - | ----------- |  | - | ------------- | - | - | ---------- | -
|                                           | Common Stock |  |   | Contributed |  |   | Accumulated |  |   | Stockholders |  
|                                           |              |  |   |             |  |   |             |  |   |               |  
|                                           | Shares       |  |   | Amount      |  |   | Surplus     |  |   | Deficit       |   |   | Equity     |  
|                                           |              |  |   |             |  |   |             |  |   |               |   |   |            |  
|                                           |              |  |   |             |  |   |             |  |   |               |   |   |            |  
|Balance at December 31, 1999               | 5,652,479    |  | $ | 17,386,253  |  |   | -           |  | $ | (6,785,071    | ) | $ | 10,601,182 |  
|                                           |              |  |   |             |  |   |             |  |   |               |   |   |            |  
|Common stock issued for purchase           |              |  |   |             |  |   |             |  |   |               |   |   |            |  
|from Trans-Orient Petroleum Ltd            | 836,845      |  |   | 2,092,112   |  |   | -           |  |   | -             |   |   | 2,092,112  |  
|(Note 5)                                   |              |  |   |             |  |   |             |  |   |               |   |   |            |  
|Net loss during the year                   | -            |  |   | -           |  |   |             |  |   | (2,871,035    | ) |   | (2,871,035 | )
|                                           |              |  |   |             |  |   |             |  |   |               |   |   |            |  
|                                           |              |  |   |             |  |   |             |  |   |               |   |   |            |  
|Balance at December 31, 2000               | 6,489,324    |  | $ | 19,478,365  |  |   | -           |  | $ | (9,656,106    | ) | $ | 9,822,259  |  
|                                           |              |  |   |             |  |   |             |  |   |               |   |   |            |  
|                                           |              |  |   |             |  |   |             |  |   |               |   |   |            |  
|Net profit during the year                 | -            |  |   | -           |  |   | -           |  |   | 1,108,799     |   |   | 1,108,799  |  
|                                           |              |  |   |             |  |   |             |  |   |               |   |   |            |  
|                                           |              |  |   |             |  |   |             |  |   |               |   |   |            |  
|Balance at December 31, 2001               | 6,489,324    |  | $ | 19,478,365  |  |   | -           |  | $ | (8,547,307    | ) | $ | 10,931,058 |  
|                                           |              |  |   |             |  |   |             |  |   |               |   |   |            |  
|                                           |              |  |   |             |  |   |             |  |   |               |   |   |            |  
|Issued during fiscal year 2002 (note 7(a)) | 1,250,000    |  |   | 1,000,000   |  |   | -           |  |   | -             |   |   | 1,000,000  |  
|Stock Option Compensation                  | -            |  |   | -           |  |   | 274,080     |  |   | -             |   |   | 274,080    |  
|Net loss during the year                   | -            |  |   | -           |  |   | -           |  |   | (2,826,770    | ) |   | (2,826,770 | )
|                                           |              |  |   |             |  |   |             |  |   |               |   |   |            |  
|                                           |              |  |   |             |  |   |             |  |   |               |   |   |            |  
|Balance at December 31, 2002               | 7,739,324    |  | $ | 20,478,365  |  | $ | 274,080     |  | $ | (11,374,077   | ) | $ | 9,378,368  |  
|                                           |              |  |   |             |  |   |             |  |   |               |   |   |            |  

See accompanying notes to the consolidated financial statements

- 59 -

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INDO-PACIFIC ENERGY LTD.
  Consolidated Statements of Cash Flows 
  (Expressed in United States Dollars)

|For the Years Ended December 31,                      |   | 2002       |   |   | 2001       |   |   | 2000       |  
|----------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | -
|                                                      |   |            |   |   |            |   |   |            |  
|                                                      |   |            |   |   |            |   |   |            |  
|Operating Activities                                  |   |            |   |   |            |   |   |            |  
|Net income/(loss) for the year                        |   | (2,826,770 | ) |   | 1,108,799  |   |   | (2,871,035 | )
|Adjustments to reconcile net income/(loss) to         |   |            |   |   |            |   |   |            |  
|cash applied to operating activities:                 |   |            |   |   |            |   |   |            |  
|Depletion                                             |   | 106,491    |   |   | 266,329    |   |   | 112,332    |  
|Write-off of oil and
      gas properties             |   | 2,783,734  |   |   | 706,462    |   |   | 2,725,925  |  
|Amortization                                          |   | 53,007     |   |   | 67,342     |   |   | 60,575     |  
|Stock Option Compensation                             |   | 274,080    |   |   | -          |   |   | -          |  
|Loss (gain) on disposal
      of investments/licences |   | (53,457    | ) |   | -          |   |   | (70,000    | )
|Changes in non-cash working capital:                  |   |            |   |   |            |   |   |            |  
|Accounts receivable                                   |   | (394,587   | ) |   | (95,471    | ) |   | (71,418    | )
|Prepaid expenses and
      deposits                   |   | (48,588    | ) |   | (62,796    | ) |   | 11,382     |  
|Inventory                                             |   | (5,423     | ) |   | -          |   |   | -          |  
|Accounts payable and
      accrued liabilities        |   | (564,470   | ) |   | 235,402    |   |   | (111,207   | )
|GST payable                                           |   | (12,073    | ) |   | 48,507     |   |   | (1,609     | )
|                                                      |   |            |   |   |            |   |   |            |  
|                                                      |   |            |   |   |            |   |   |            |  
|Net cash provided by (used in) operating activities   |   | (688,056   | ) |   | 2,274,574  |   |   | (215,055   | )
|                                                      |   |            |   |   |            |   |   |            |  
|Financing Activities                                  |   |            |   |   |            |   |   |            |  
|Share Issue                                           |   | 1,000,000  |   |   | -          |   |   | -          |  
|                                                      |   |            |   |   |            |   |   |            |  
|                                                      |   |            |   |   |            |   |   |            |  
|Net cash provided by financing activities             |   | 1,000,000  |   |   | -          |   |   | -          |  
|                                                      |   |            |   |   |            |   |   |            |  
|Investing Activities                                  |   |            |   |   |            |   |   |            |  
|Due from related parties                              |   | (23,670    | ) |   | 51,443     |   |   | (17,171    | )
|Purchase of property and equipment                    |   | (11,259    | ) |   | (12,710    | ) |   | (41,449    | )
|Proceeds from Sale of Licences                       |   | 198,299    |   |   | -          |   |   | -          |  
|Oil and gas properties                                |   | (2,464,494 | ) |   | (1,919,071 | ) |   | (1,701,808 | )
|                                                      |   |            |   |   |            |   |   |            |  
|Net cash used in investing activities                 |   | (2,301,124 | ) |   | (1,880,338 | ) |   | (1,760,428 | )
|                                                      |   |            |   |   |            |   |   |            |  
|                                                      |   |            |   |   |            |   |   |            |  
|Net increase (decrease) in cash                       |   | (1,989,180 | ) |   | 394,236    |   |   | (1,975,483 | )
|Cash and cash equivalents -                           |   |            |   |   |            |   |   |            |  
|Beginning of year                                     |   | 3,282,007  |   |   | 2,887,771  |   |   | 4,863,254  |  
|                                                      |   |            |   |   |            |   |   |            |  
|Cash and cash equivalents  Year end                  | $ | 1,292,827  |   | $ | 3,282,007  |   | $ | 2,887,771  |  
|                                                      |   |            |   |   |            |   |   |            |  

See accompanying notes to the consolidated financial statements

- 60 -

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INDO-PACIFIC ENERGY LTD.Consolidated Statements of Cash Flows Supplemental Disclosure of Non-cash Financing and Investing Activities
  (Expressed in United States Dollars)

|For the Years Ended December 31,              |   | 2002    |  | 2001 |  |   | 2000       |  
|--------------------------------------------- | - | ------- |  | ---- |  | - | ---------- | -
|                                              |   |         |  |      |  |   |            |  
|                                              |   |         |  |      |  |   |            |  
|Purchase of Oil and Gas Properties from       |   |         |  |      |  |   |            |  
|Trans-Orient Petroleum Limited                |   |         |  |      |  |   |            |  
|Purchase of oil and gas properties            |   | -       |  | -    |  | $ | (4,097,360 | )
|                                              |   |         |  |      |  |   |            |  
|                                              |   |         |  |      |  |   |            |  
|Gross overriding royalties issued             |   | -       |  | -    |  |   | 1          |  
|Marketable securities transferred             |   | -       |  | -    |  |   | 222,319    |  
|Investments transferred                       |   | -       |  | -    |  |   | 670,000    |  
|Gain on investments transferred               |   | -       |  |      |  |   | 70,000     |  
|Loan balance forgiven                         |   | -       |  | -    |  |   | 1,062,211  |  
|Foreign exchange translation effect           |   | -       |  | -    |  |   | (19,283    | )
|Common stock issued as consideration for the- |   |         |  |      |  |   |            |  
|purchase of oil and gas properties            |   | -       |  | -    |  |   | 2,092,112  |  
|                                              |   |         |  |      |  |   |            |  
|                                              |   |         |  |      |  |   |            |  
|                                              |   | -       |  | -    |  | $ | 4,097,360  |  
|                                              |   |         |  |      |  |   |            |  
|                                              |   |         |  |      |  |   |            |  
|Stock option compensation                     | $ | 274,080 |  | -    |  |   | -          |  
|                                              |   |         |  |      |  |   |            |  

|                                          |   |          |   |   |           |   |   |          |  
|----------------------------------------- | - | -------- | - | - | --------- | - | - | -------- | -
|For the Years Ended December 31,          |   | 2002     |   |   | 2001      |   |   | 2000     |  
|                                          |   |          |   |   |           |   |   |          |  
|                                          |   |          |   |   |           |   |   |          |  
|Accounting and audit                      |   | 122,276  |   |   | 100,943   |   |   | 44,611   |  
|Consulting fees                           |   | 114,542  |   |   | 95,887    |   |   | 41,213   |  
|Corporate relations and development       |   | 112,056  |   |   | 91,672    |   |   | 95,385   |  
|Amortization                              |   | 53,007   |   |   | 67,342    |   |   | 60,575   |  
|Filing and transfer agency fees           |   | 9,431    |   |   | 3,786     |   |   | 16,997   |  
|Foreign exchange loss (gain)              |   | (151,049 | ) |   | 8,128     |   |   | 95,563   |  
|Sale of licences (net)                    |   | (53,457  | ) |   | -         |   |   | -        |  
|Legal                                     |   | 55,397   |   |   | 214,604   |   |   | 159,948  |  
|Office and miscellaneous                  |   | 274,863  |   |   | 117,581   |   |   | 107,047  |  
|Printing                                  |   | 38,835   |   |   | 24,226    |   |   | 40,026   |  
|Rent (Note 5)                             |   | 24,245   |   |   | 35,307    |   |   | 43,481   |  
|Telephone                                 |   | 20,050   |   |   | 25,764    |   |   | 27,931   |  
|Travel and accommodation                  |   | 41,871   |   |   | 46,516    |   |   | 50,588   |  
|Wages and benefits                        |   | 322,283  |   |   | 275,691   |   |   | 169,741  |  
|                                          |   |          |   |   |           |   |   |          |  
|                                          |   |          |   |   |           |   |   |          |  
|Gross general and administrative expenses |   | 984,350  |   |   | 1,107,447 |   |   | 953,106  |  
|                                          |   |          |   |   |           |   |   |          |  
|Recovery of general and administrative    |   | (403,454 | ) |   | (371,823  | ) |   | (209,506 | )
|                                          |   |          |   |   |           |   |   |          |  
|                                          |   |          |   |   |           |   |   |          |  
|Net general and administrative expenses   | $ | 580,896  |   | $ | 735,624   |   | $ | 743,600  |  
|                                          |   |          |   |   |           |   |   |          |  

See accompanying notes to the consolidated financial statements

- 61 -

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NOTE 1 - NATURE OF OPERATIONS AND ABILITY TO CONTINUE AS
  A GOING CONCERN

The Company was incorporated under the Company Act (British
  Columbia) and continued its jurisdiction of incorporation to the Yukon Territory
  under the Business Corporations Act (Yukon).

The accompanying financial statements have been prepared on
  a going concern basis that contemplates the realization of assets and the satisfaction
  of liabilities and commitments in the normal course of business. The Company
  has incurred losses to date of $11,374,077 which includes a net loss for the
  current period of $2,826,770.

The Companys cash balances and working capital are not
  sufficient to fund all of its obligations with respect to its ongoing work program
  requirements related to the exploration permits. The continued operations of
  the Company and recoverability of amounts relating to oil and gas properties
  is dependant upon the existence of economically viable reserves, farming out
  oil and gas interests to other participants and obtaining additional equity
  financing.

The Company is primarily engaged in the acquisition, exploration
  and development of oil and gas properties in New Zealand, Papua New Guinea and
  Australia. With the exception of PMP 38148 and PEP 38736, the Company has yet
  to determine whether its properties contain oil and gas reserves that are economically
  recoverable. The recoverability of the amounts capitalized for oil and gas properties
  is dependent upon the completion of exploration work, the discovery of oil and
  gas reserves in commercial quantities and the subsequent development of such
  reserves.

In PEP 38736, the Kahili-1B sidetrack, drilled in November
  2002, the JV encountered a 115 feet gross hydrocarbon column in the Tariki sandstone.
  Analysis of pressure data from flow testing carried out on the uppermost 50
  feet of this zone indicates sufficient gas-condensate reserves to justify development.
  A review of the development options available is being completed, with a development
  decision to be made by mid-2003. There are various funding options and development
  options available, however it is considered that the level of capital commitment
  for these options can be estimated to be $998,000.

A subsidiary of the Company, Ngatoro Energy Limited (NEL)
  is named as defendant in a claim by Greymouth Petroleum Acquisition Company
  Limited (GPAC) and Southern Petroleum (Ohanga) Limited in relation to its interest
  and operations in respect of the Ngatoro petroleum mining permit (PMP 38148)
  in Taranaki. Due to the legal proceedings, the Goldie-1 sole risk discovery
  within PMP 38148 was shut- in as at 30th August 2002.
  As at December 31, 2002, there was no oil revenue being received from Goldie-1.
  For further details refer to note 6.

During the 2002 year the Company issued 1,250,000 shares at
  $0.80 to assist in funding ongoing exploration and development. Additionally,
  the Company has periodically reduced its exposure in oil and gas properties
  by farming out to other participants. The Company intends to continue relying
  on these measures to finance its exploration and development activities to the
  extent such measures are available and obtainable under terms acceptable to
  the Company, however there can be no assurance that the company will be successful.

While the Company is expending its best efforts to achieve
  the above plans, there is no assurance that any such activity will generate
  sufficient funds for operations. The inability to obtain one or other of the
  aforementioned would have an adverse material effect on the Companys business.
  The above-noted conditions raise substantial doubt about the validity of the
  going concern assumption. If the going concern assumption was not appropriate
  for these consolidated financial statements, then adjustments would be necessary
  to the carrying value of assets and liabilities, the reported net loss and the
  balance sheet classifications used.

- 62 -

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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a) Accounting Principles and Use of Estimates

These financial statements are prepared in conformity with
  Canadian generally accepted accounting principles, which requires management
  to make informed judgments and estimates that affect the reported amounts of
  assets and liabilities and disclosures of contingent assets and liabilities
  at the date of the financial statements and the reported amounts of the revenues
  and expenses for the year reported. Actual results could differ from these estimates.

Material differences between Canadian and United States generally
  accepted accounting principles which affect the company are referred to in Note
  13.

b) Basis of Consolidation

These consolidated financial statements include the accounts
  of Indo-Pacific Energy Ltd. and its wholly-owned subsidiaries: Indo-Pacific
  Energy Australia Pty Limited, Odyssey International Pty Limited, Indo-Pacific
  Energy (PNG) Limited, Source Rock Holdings Limited, Indo-Pacific Energy (NZ)
  Limited, Ngatoro Energy Limited, PEP 38716 Limited (which changed its name after
  balance date to Rata Energy Limited), Millennium Oil & Gas Limited, Trans-Orient
  Petroleum (Aust) Pty Limited, ZOCA 96-16 Pty Limited and Trans-Orient Petroleum
  (PNG) Limited. All significant intercompany balances and transactions have been
  eliminated upon consolidation.

c) Joint Operations

The Company's exploration and development activities are conducted
  through its wholly-owned subsidiaries, jointly with other companies, and accordingly,
  these financial statements reflect only the Company's proportionate interest
  in these activities, and refer to the Company as owning such interests.

d) Translation of Foreign Currencies

The Company's foreign operations through its subsidiaries
  are of an integrated nature and accordingly, the temporal method of foreign
  currency translation is used for conversion into United States dollars. Monetary
  assets and liabilities are translated into United States dollars at the rates
  prevailing on the balance sheet date. Other assets and liabilities are translated
  into United States dollars at the rates prevailing on the transaction dates.
  The majority of revenues are received in US dollars, but revenues and expenses
  arising from foreign currency transactions are translated into United States
  dollars at the average rate for the year. Exchange gains and losses are recorded
  as income or expense in the year in which they occur.

e) Financial Instruments

Cash and cash equivalents, accounts receivable, due from related
  parties, accounts payable and accrued liabilities are carried at cost which
  approximates fair value due to the short-term maturity of these instruments.
  Unless otherwise noted, it is managements opinion that the Company is
  not exposed to significant interest, currency or credit risks arising from these
  financial instruments.

f) Cash and Cash Equivalents

Cash and cash equivalents include government treasury bills
  and bankers' acceptances with original maturities of three months or less, together
  with accrued interest.

- 63 -

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|g) Property and Equipment
      Property and equipment consist of furniture and office
        equipment, which are recorded at cost and amortized over their estimated
        useful lives on a declining-balance basis at annual rates of 10% to 33
        1/3%.
      h) Oil and Gas Properties
      The Company follows the full cost method of accounting
        for oil and gas operations whereby all costs associated with the acquisition,
        exploration and development of oil and gas reserves are capitalized in
        cost centers on a country-by-country basis. Such costs include property
        acquisition costs, geological and geophysical studies, carrying charges
        on non-producing properties, costs of drilling both productive and non-productive
        wells, and overhead expenses directly related to these activities.
      Depletion is calculated for producing properties by
        using the unit-of-production method based on proved reserves, before royalties,
        as determined by management of the Company or independent consultants.
        Sales or dispositions of oil and gas properties are credited to the respective
        cost centers and a gain or loss is recognized when all properties in a
        cost center have been disposed of, unless such sale or disposition significantly
        alters the relationship between capitalized costs and proved reserves
        of oil and gas attributable to the cost center. Costs of abandoned oil
        and gas properties are accounted for as adjustments of capitalized costs
        and written off to expense.
      A ceiling test is applied to each cost center by comparing
        the net capitalized costs to the present value of the estimated future
        net revenues from production of proved reserves discounted by 10%, net
        of the effects of future costs to develop and produce the proved reserves,
        plus the costs of unproved properties net of impairment, and less the
        effects of income taxes. Any excess capitalized costs are written off
        to expense. The calculation of future net revenues is based upon prices,
        costs and regulations in effect at balance date.
      Unproved properties are assessed for impairment on an
        annual basis by applying factors that rely on historical experience. In
        general, the Company may write-off an unproved property under one or more
        of the following conditions:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(iii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(iv)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

i) Income Taxes

The Company accounts for income taxes under the liability
  method. This requires the recognition of future tax assets and liabilities for
  the expected future tax consequences of events that have been recognized in
  the Companys financial statements or tax returns using enacted tax rates
  in effect in the years in which the differences are expected to reverse.

j) Inventory

Inventories of crude oil are valued at the lower of cost and
  net realizable value.

- 64 -

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k) Net Loss per Common Share

Loss per share is calculated based on the weighted average
  number of common shares issued and outstanding during the year. The Company
  has adopted the revised recommendations of the Canadian Institute of Chartered
  Accountants, whereby the new rules are applied on a retroactive basis and did
  not result in any restatement of the Companys financial statements. The
  effect of potential issuances of 1,805,000 (2001: 1,168,000) shares under options
  and 2,286,845 (2001: 1,226,845) common share warrants would be antidilutive
  and therefore basic and diluted losses per share are the same.

l) Change in Accounting Policy  Stock Based Compensation

The Company has adopted the new recommendations of CICA handbook
  section 3870, stock option based compensation. It is applied on a prospective
  basis and applies to all awards granted on or after January 1, 2002. Section
  3870 established standards for the recognition, measurement and disclosure of
  stock option based compensation and other stock based payments made in exchange
  for goods and services.

Consultants

The standard requires that all stock option based awards made
  to consultants be measured and recognized in these consolidated financial statements
  using a fair value based method.

Employees

The standard encourages the use of a fair value based method
  for all awards granted to employees, but only requires the use of a fair value
  based method for direct awards of stock, stock appreciation rights, and awards
  that call for settlement in cash or other assets. Awards that a company has
  the ability to settle in stock options are recorded as equity, whereas awards
  that the entity is required to or has a practice of settling in cash are recorded
  as liabilities. The Company continues to use the fair value method of accounting
  for stock options granted to directors, consultants and employees.

Effective from the date of the modification, the Company regularly
  remeasures compensation expense for the options where there has been a substantive
  change or modification to such options.

For further details refer to Note 7 and 13.

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment are comprised as follows:

|                               | 2002 |         | 2001 |         
|------------------------------ | ---- | ------- | ---- | --------
|                               |      |         |      |         
|                               |      |         |      |         
|Furniture and office equipment |      | 81,462  |      |         
|                               |      |         |      |         
|Accumulated amortization       |      | (53,007 | )    | (247,824
|                               |      |         |      |         
|                               |      |         |      |         
|                               | $    | 28,455  |      | $       
|                               |      |         |      |         

- 65 -

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NOTE 4 - OIL AND GAS PROPERTIES

Oil and gas properties are comprised as follows:

|                                    |   | Net Book     |  |   | Expenditure |   |   |              |   |   | Depletion/  |   |   | Net Book     | 
|----------------------------------- | - | ------------ |  | - | ----------- | - | - | ------------ | - | - | ----------- | - | - | ------------ | 
|                                    |   | Value at     |  |   | Additions   |   |   | (Recoveries) |   |   | Write Downs |   |   | Value at     | 
|                                    |   | December 31, |  |   | During the  |   |   | During the   |   |   | During the  |   |   | December 31, | 
|                                    |   | 2001         |  |   | Year        |   |   | Year         |   |   | Year        |   |   | 2002         | 
|                                    |   |              |  |   |             |   |   |              |   |  
|Proved:                             |   |              |  |   |             |   |   |              |   |   |             |   |   |              | 
|New Zealand                         |   |              |  |   |             |   |   |              |   |   |             |   |   |              | 
|PMP 38148  Ngatoro
      Oil Field |   | 277,684      |  |   | 70,096      |   |   | -            |   |   | (48,171     | ) |   | 299,609      | 
|PMP 38148  Goldie
      Oil Field  |   | 485,163      |  |   | 75,718      |   |   | -            |   |   | (58,320     | ) |   | 502,561      | 
|                                    |   |              |  |   |             |   |   |              |   |   |             |   |   |              | 
|                                    |   |              |  |   |             |   |   |              |   |   |             |   |   |              | 
|Total Proved                        | $ | 762,847      |  | $ | 145,814     |   |   | -            |   | $ | (106,491    | ) | $ | 802,170      | 
|                                    |   |              |  |   |             |   |   |              |   |   |             |   |   |              | 
|Unproved:                           |   |              |  |   |             |   |   |              |   |   |             |   |   |              | 
|New Zealand                         |   |              |  |   |             |   |   |              |   |   |             |   |   |              | 
|PEP 38256  Exploration             |   | 113,894      |  |   | -           |   |   | -            |   |   | -           |   |   | 113,894      | 
|PEP 38328  Exploration1            |   | 496,584      |  |   | 20,050      |   |   | -            |   |   | (516,634    | ) |   | -            | 
|PEP 38330  Exploration             |   | 280,338      |  |   | 119,645     |   |   | -            |   |   | (221,186    | ) |   | 178,797      | 
|PEP 38332  Exploration1            |   | 450,267      |  |   | 26,185      |   |   | -            |   |   | (476,452    | ) |   | -            | 
|PEP 38335  Exploration1            |   | 86,465       |  |   | 1,874       |   |   | -            |   |   | (88,339     | ) |   | -            | 
|PEP 38716  Exploration             |   | 453,795      |  |   | 475,561     |   |   | -            |   |   | (846,318    | ) |   | 83,038       | 
|PEP 38720  Exploration
      2     |   | 1,181,690    |  |   | (934,568    | ) |   | (93,317      | ) |   | (153,805    | ) |   | -            | 
|PEP 38723  Exploration
      3     |   | 134,272      |  |   | 35,554      |   |   | -            |   |   | (169,826    | ) |   | -            | 
|PEP 38736  Exploration             |   | 1,199,598    |  |   | 1,200,097   |   |   | -            |   |   |             |   |   | 2,399,695    | 
|PEP 38738  Exploration             |   | -            |  |   | 601         |   |   | -            |   |   | -           |   |   | 601          | 
|PEP 38480  Exploration             |   | -            |  |   | -           |   |   | -            |   |   | -           |   |   | -            | 
|PEP 38741  Exploration
      2     |   | -            |  |   | 930,343     |   |   | -            |   |   | -           |   |   | 930,343      | 
|PEP 38746  Exploration             |   | -            |  |   | -           |   |   | -            |   |   | -           |   |   | -            | 
|PEP 38748  Exploration             |   | -            |  |   | -           |   |   | -            |   |   | -           |   |   | -            | 
|PEP 38753  Exploration             |   | -            |  |   | -           |   |   | -            |   |   | -           |   |   | -            | 
|New licences/ventures               |   | 7,844        |  |   | 87,642      |   |   | -            |   |   | (39,200     | ) |   | 56,286       | 
|Australia                           |   |              |  |   |             |   |   |              |   |   |             |   |   |              | 
|AC/P 19  Exploration               |   | 446,669      |  |   | 256,678     |   |   | -            |   |   | -           |   |   | 703,347      | 
|AC/P 31  Exploration               |   | 11,014       |  |   | 11,851      |   |   | -            |   |   | -           |   |   | 22,865       | 
|AC/P 26  Exploration               |   | 233,469      |  |   | 20,950      |   |   | (57,896      | ) |   | -           |   |   | 196,523      | 
|ZOCA 96-16  Exploration
      3    |   | 235,727      |  |   | 15,653      |   |   | -            |   |   | (251,380    | ) |   | -            | 
|Papua New Guinea                    |   |              |  |   |             |   |   |              |   |   |             |   |   |              | 
|                                    |   |              |  |   |             |   |   |              |   |   |             |   |   |              | 
|PPL 192  Exploration
      4       |   | 870,232      |  |   | 13,810      |   |   | -            |   |   | -           |   |   | 884,042      | 
|PPL 215  Exploration               |   | 403,377      |  |   | 17,031      |   |   | -            |   |   | -           |   |   | 420,408      | 
|APPL 235  Exploration4             |   | -            |  |   | -           |   |   | -            |   |   | -           |   |   | -            | 
|PPL 228  Exploration               |   | 2,960        |  |   | 17,634      |   |   | -            |   |   | (20,594     | ) |   | -            | 
|PRL 4  Stanley Retention           |   | 73,660       |  |   | 4,313       |   |   | -            |   |   | -           |   |   | 77,973       | 
|PRL 5  Elevala Retention           |   | 649,039      |  |   | 4,147       |   |   | -            |   |   | -           |   |   | 653,186      | 
|                                    |   |              |  |   |             |   |   |              |   |   |             |   |   |              | 
|Total Unproved                      |   | 7,330,894    |  |   | 2,325,051   |   |   | (151,213     | ) |   | (2,783,734  | ) |   | 6,720,998    | 
|                                    |   |              |  |   |             |   |   |              |   |   |             |   |  
|                                    |   |              |  |   |             |   |   |              |   |   |             |   |   |              | 
|Total Proved & Unproved             | $ | 8,093,741    |  | $ | 2,470,865   |   | $ | (151,213     | ) | $ | (2,890,225  | ) | $ | 7,523,168    | 
|                                    |   |              |  |   |             |   |   |              |   |   |             |   |  

- 66 -

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|1. | PEP 38328, PEP 38332, PEP 38335, and
        PPL 228 are currently in the process of being relinquished during early
        2003. All capital in relation to these permits has been written off as
        at 31 December 2002.     
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | PEP 38720 was relinquished in favour
        of PEP 38741, and accordingly the expenditure held for PEP 38720 has been
        allocated to PEP 38741 (due to PEP 38741 mainly replacing the same physical
        area as PEP 38720)
|3. | PEP 38723 and ZOCA 96-16 have been relinquished.
        All capital in relation to these permits has been written off as at 31
        December 2002.                                                                               
|4. | PPL 192 and PPL 215 are in the process
        of being replaced as APPL 235.                                                                                                                                                        

|NEW ZEALAND
      Unless otherwise indicated, petroleum exploration permits granted in
        New Zealand provide for the exclusive right to explore for petroleum for
        an initial term of five years, renewable for a further five years over
        one-half of the original area. The participants can apply for extensions
        or reductions of the committed work programs for the permits under certain
        circumstances. Any production permits granted will be for a term of up
        to 40 years from the date of issue. The New Zealand government has reserved
        a royalty of the greater of 5% of net sales revenue or 20% of accounting
        profits from the sale of petroleum products.
      a) PMP 38148 - Ngatoro and Goldie Oil Fields
      The Company has a 5% participating interest in Petroleum
        Mining Permit 38148, which includes seven producing oil and/or gas wells
        in the Ngatoro Oil Field, and a 100% interest in the Goldie sole risk
        area (reducing to a 40.43% interest upon the sole risk premium being reached).
      Gross production revenue from the Companys 5%
        interest in New Zealand production permit PMP 38148 (and 100% share of
        Goldie production) was $1,834,712 for the year ended December 31, 2002
        (2001: $3,744,036 and 2000: $475,646), from total oil sales of approximately
        84,930 barrels (2001: 163,900 and 2000: 17,090 barrels).
      The Goldie-1 well was drilled by the Company in February-March
        2001 as a sole risk operation and came into production in the second half
        of March 2001. Under the terms of the sole risk operation, the Company
        funded the entire cost of the well and is entitled to 100% of production
        from this well until the sole risk premium is reached.
      The ceiling test was applied to the cash revenues from
        production for Ngatoro and Goldie, discounted by 10%, based on a WTI oil
        price as at December 31, 2002 of $27.00 per barrel (December 31, 2001:
        $20.00/bbl and 2000: $26.00/bbl)
      At December 31, 2002, PMP 38148 is in good standing
        with respect to its work commitments and does not require the Company
        to incur minimum exploration expenditures for the 2003 fiscal year, although
        a waterflood to improve production from the field is envisaged to occur
        in 2ndquarter 2003.
      The Company funded its 5% share of the cost of the Tabla-1
        well  estimated to be approximately $680,000 (Company share: $34,000)
        in 2002. This well remains to be completed and tested with further estimated
        expenditures required of $95,000 during fiscal 2003.
      On 16 April 2002, Greymouth Petroleum Acquisition Company
        Ltd. (GPAC) completed the acquisition of Shells 59.56%
        interest in PMP 38148. On July 25, 2002 GPAC lodged a Statement of Claim
        in the High Court of New Zealand regarding its entitlements with respect
        to the Goldie sole risk field, which lies within PMP 38148. In summary,
        GPACs principal claims are:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

- 67 -

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|      | entitled to 92.26% percent of all past
        and future revenues;                                                                                                                                                   
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(iii) | That Ngatoro Energy Ltd is in breach
        of the Joint Venture Operating Agreement, and that GPAC is, therefore,
        entitled to remove Ngatoro Energy Ltd as Goldie operator and assume that
        position;
|(iv)  | That the field is being produced in
        a sub optimal manner such that GPAC is entitled to recompense for this
        and for gas flared; and                                                                    
|(v)   | That GPAC is entitled to purchase the
        gas produced.                                                                                                                                                           

The Company disputes these claims, and Ngatoro Energy Limited
  lodged a Statement of Defence with the Court on August 26, 2002. A one week
  Court hearing of certain of these claims was scheduled for December 16, but
  at a preliminary (timetabling) hearing on November 21, Justice Wild decided
  that the full hearing should be deferred to allow time for all claims to be
  heard in full. The full hearing commenced on 17 March 2003 and is expected to
  run for three weeks. Pending this litigation and a market for Goldie gas being
  established, the Goldie-1 well remains shut-in and no action to drill Goldie-2
  is being undertaken.

b) PEP 38256

The Company has a 20% participating interest in, and is the
  operator of, Petroleum Exploration Permit 38256 ("PEP 38256"), which was granted
  on August 25, 1997. One-half of the original area was relinquished on October
  25, 2000, and a further one-half of the then-current area was relinquished on
  August 22, 2002. On that date, the duration of the permit was also extended
  to August 25, 2007. The other participants in PEP 38256 are: AMG Oil (NZ) Limited.
  (52.5%), Orion Exploration Limited (10%), Durum Energy (New Zealand) Limited
  (10%) and Magellan Petroleum (NZ) Ltd (7.5%).

At December 31, 2002, PEP 38256 is in good standing with respect
  to its work commitments and requires the Company to incur minimum exploration
  expenditures of $4,000 for the 2003 fiscal year. It is currently planned to
  undertake some geological and geophysical work on prospects associated with
  the Rakaia Trough, within the permit area.

c) PEP 38328

The Company has a 62.5% participating interest in, and is
  the operator of, Petroleum Exploration Permit 38328 ("PEP 38328"), which was
  granted on July 1, 1996. The other participant of PEP 38328 is Origin Energy
  Resources NZ Limited (37.5%). One-half of the original area was relinquished
  and the permit duration was extended to June 30, 2006, on June 29, 2001.

At December 31, 2002, PEP 38328 is in good standing with respect
  to its work commitments and does not require the Company to incur minimum exploration
  expenditures for the 2003 fiscal year. The Company and its joint venture partner
  agreed, after balance date, to relinquish this permit as the work to date has
  shown that it has not proven to be prospective.

d) PEP 38330

The Company has a 34.28% participating interest in, and is
  the operator of, Petroleum Exploration Permit 38330 ("PEP 38330"), which was
  granted on July 1, 1996. The other participants of PEP 38330 are Pancontinental
  Oil and Gas N.L. (33.22%), Origin Energy Resources NZ Limited (22.5%) and Sun
  Resources NL (10%).

The Company and the other participants of PEP 38330 drilled
  the Waingaromia-2 well in 2002. This well proved to be unsuccessful and was
  plugged and abandoned.

At December 31, 2002, PEP 38330 is in good standing with respect
  to its work commitments and the Company will be required to fund $14,000 of
  exploration expenditures for the 2003/04 fiscal year.

e) PEP 38332

The Company has a 62.5% participating interest in, and is
  the operator of, Petroleum

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Exploration Permit 38332 ("PEP 38332"), which was granted
  on June 24, 1997. The other participant of PEP 38332 is Origin Energy Resources
  NZ Ltd (37.5%).

At December 31, 2002, PEP 38332 is in good standing with respect
  to its work commitments and does not require the Company to incur minimum exploration
  expenditures for the 2003 fiscal year. The Company and its joint venture partner
  agreed, after balance date, to relinquish this permit as the work to date has
  shown that it has not proven to be prospective.

f) PEP 38335

The Company had a 25% participating interest in Petroleum
  Exploration Permit 38335 (PEP 38335), which was granted on November
  29, 1998. The other participants of PEP 38335 were Westech Energy New Zealand
  (55%), as the operator, Sun Resources NL (7.5%), Pancontinental Oil and Gas
  NL (7.5%), and Everest Energy Inc. (5%).

The Company and the other participants have completed the
  initial work program, including the drilling of the Waitaria-2 well. The Company
  and its joint venture partners agreed during 2002 to relinquish this permit
  as the work to date had shown that it had not proven to be prospective. At December
  31, 2002, the Government had approved the surrender of PEP 38335.

g) PEP 38716

The Company has a 12.3% participating interest in Petroleum
  Exploration Permit 38716 ("PEP 38716"), which was granted on January 30, 1996.
  The other participants of PEP 38716 are Marabella Enterprises Ltd. (24.8%),
  as the operator, AWE New Zealand Pty Ltd (12.5%), Swift Energy New Zealand Ltd
  (15%), Preussag Energie GmbH (24%), Springfield Oil and Gas Ltd (4.8%) and Euro-Pacific
  Energy Pty Ltd (6.6%).

The participants of PEP 38716 were required, and committed,
  to deepen the Huinga-1A exploration well prior to January 31, 2002. Due to delays
  in rig availability, the New Zealand Government agreed to delay this requirement
  to July 31, 2002. The well was drilled during the second quarter, 2002. Oil
  was recovered on a DST of Kapuni Group sands, but an extensive testing programme
  failed to establish commercial hydrocarbon production and the well was consequently
  plugged and suspended.

At December 31, 2002, PEP 38716 is in good standing with respect
  to its work commitments and the Company will be required to fund $142,000 of
  exploration expenditures for the 2003 fiscal year. The Companys interest
  in the permit will increase to 14.05% after the balance date, as a consequence
  of the decision by AWE to withdraw from the permit.

h) PEP 38720

The Company had a 100% participating interest in, and was
  the operator of, Petroleum Exploration Permit 38720 ("PEP 38720"), which was
  granted on September 2, 1996, and expired on September 1, 2001.

The Company completed the work program required for the first
  five year term that included drilling the Clematis-1 exploration well. An Acceptable
  Frontier Offer (AFO) was submitted and approved by the New
  Zealand government over part of the area of PEP38720. This was subsequently
  awarded as PEP 38741 on May 24, 2002.

i) PEP 38723

The Company had a 30% participating interest in, and was the
  operator of, Petroleum Exploration Permit 38723 ("PEP 38723") which was granted
  on October 30, 1997. The other participants in PEP 38723 were Gondwana Energy
  (NZ) Ltd. (20%) and Tap (New Zealand) Pty Ltd (50%).

The first term of this permit expired on 29 October, 2002,
  with the permit not being renewed for a second term. The Company has secured
  certain areas of this permit that are considered prospective under an application
  to extend the areas of the adjacent permits, PEP 38741 and PEP 38748, after
  balance date.

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j) PEP 38741

The Company has a 30% participating interest in, and is operator
  of, Petroleum Exploration Permit 38741 (PEP 38741), which was granted
  on May 24, 2002. The other participants in PEP 38741 are Durum Energy (New Zealand)
  Limited (20% ) and Tap (New Zealand) Pty Limited (50%).

As at December 31, 2002, PEP 38741 is in good standing with
  respect to its work commitments, and requires the Company to incur $89,000 exploration
  expenditure for the 2003 fiscal year, including a 3D seismic survey which is
  being conducted over PEP 38741 and adjacent permit areas in first quarter 2003.

k) PEP 38746

The Company has a 25% participating interest in, and is operator
  of, Petroleum Exploration Permit 38746 (PEP 38746), which was granted
  on August 8, 2002. The other participants in PEP 38746 are Magellan Petroleum
  (NZ) Ltd (25%), Tap (New Zealand) Pty Limited (25%) and AWE New Zealand Pty
  Ltd (25%).

As at December 31, 2002, PEP 38746 is in good standing with
  respect to its work commitments, and requires the Company to incur $676,000
  of drilling expenditure for the latter part of the 2003 fiscal year, being the
  drilling of an exploration well.

l) PEP 38738

The Company has a 50% participating interest in, and is operator
  of, Petroleum Exploration Permit 38738 (PEP 38738), which was originally
  granted on January 15, 2000 and was acquired by the Company in October 2002.
  The other participant in PEP 38738 is Cheal Petroleum Limited (50%) The current
  participants agreed after the balance date to assign 33% to IRM Malaysia Inc.,
  thereby reducing their interests to 33.5% each.

PEP 38738 was acquired from Marabella Enterprises Ltd. and
  Springfield Oil & Gas Pty Ltd in return for a 25% net profits royalty. The
  burden of this royalty is now shared by Cheal Petroleum, and IRM in their participating
  interest shares, except that in relation to production from the Cheal prospect,
  the Company and Cheal Petroleum will each receive a 3.5% ad valorem royalty
  from IRM while retaining a 50% burden of the 25% accounting profits royalty.

The participants are re-entering the Cheal-1 well, drilled
  in 1995 by the then permit holder, and which tested oil and gas from a shallow
  secondary target. The participants in PEP 38738 will undertake further testing
  of the Cheal 1 well, aimed at establishing the potential for commercial development.

As at December 31, 2002, PEP 38738 is in good standing with
  respect to its work commitments, and requires the Company complete the re-entry
  of the Cheal well in 2003. The Company estimates it will incur a further $216,000
  of expenditure in fiscal 2003.

m) PEP 38736

The Company has a 45% participating interest in, and is operator
  of, Petroleum Exploration Permit 38736 ("PEP 38736"), which was granted on July
  14, 1999. The other parties are Claire Energy Pty Limited (25%) and Tap (New
  Zealand) Pty Limited (30%).

The Company was required to drill a well by July 14, 2002
  and has fulfilled this obligation by drilling the Kahili-1 well during December
  2001 and January 2002. The well successfully recovered oil during an open-hole
  test. Sales of this oil totalled $11,213 from approximately 428 barrels. Kahili-1A
  was directionally drilled to test an up-dip location in October 2002, but the

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target sands were found to be faulted out in this well bore.
  The Kahili-1B sidetrack was drilled in November 2002, and encountered a 115
  feet gross hydrocarbon column in the Tariki sandstone. Analysis of pressure
  data from flow testing carried out on the uppermost 50 feet of this zone indicates
  sufficient gas-condensate reserves to justify development.

A review of the development options available is being completed,
  with a development decision to be made by mid-2003. It is anticipated that the
  Companys share of development costs is likely to be in the order of $998,000

As at December 31, 2002, PEP 38736 is in good standing with
  respect to its work commitments and does not require the Company to incur minimum
  exploration expenditures for the 2003 fiscal year. The Company estimates it
  will incur a further $5,000 of permit maintenance expenditure in fiscal 2003.

n) PEP 38748

The Company has a 25% participating interest in, and is operator
  of, Petroleum Exploration Permit 38748 ("PEP 38748"), which was granted on August
  8, 2002. The other parties are Magellan Petroleum (NZ) Limited (25%) and Tap
  (New Zealand) Pty Limited (50%).

An application to extend the area of this permit to encompass
  adjoining areas previously covered by PEP 38723 was approved by the Government
  after balance date on February 13, 2003.

As at December 31, 2002, PEP 38748 is in good standing with
  respect to its work commitments, and requires the Company to incur $49,000 exploration
  expenditure for the 2003 fiscal year, including a 3D seismic survey which is
  being conducted over PEP 38748 and adjacent permit areas in first quarter 2003.

o) PEP 38480

The Company has a 75% participating interest in, and is operator
  of, Petroleum Exploration Permit 38480 ("PEP 38480"), which was granted on August
  8, 2002. The other participant is Durum Energy (New Zealand) Limited (25%).
  PEP 38480 is situated offshore, in the northern Taranaki Basin.

As at December 31, 2002, PEP 38480 is in good standing with
  respect to its work commitments, and requires the Company to undertake a 2D
  seismic programme to detail prospects in the permit area, at an estimated cost
  of $54,000. This programme was acquired after the balance date, in February
  2003.

p) PEP 38753

The Company has a 50% participating interest in, and is operator
  of, Petroleum Exploration Permit 38753 ("PEP 38753"), which was granted on August
  8, 2002. The other parties are Magellan Petroleum (NZ) Limited (25%) and Tap
  (New Zealand) Pty Limited (25%).

Seismic reprocessing and interpretation is in progress, during
  late 2002 and early 2003, as precursor work to the drilling of an exploration
  well in third quarter, 2003.

As at December 31, 2002, PEP 38753 is in good standing with
  respect to its work commitments, and required the Company to incur $341,000
  exploration expenditure for the 2003 fiscal year.

q) PPP 38761

The Company has a 27.5% participating interest in, and is
  operator of, Petroleum Prospecting Permit 38761 ("PPP 38761"), which was granted
  after balance date, on February 13, 2003. The other parties are Magellan Petroleum
  (NZ) Limited (12.5%), Tap (New Zealand) Pty Limited (50%) and Durum Energy (New
  Zealand) Ltd (10%).

PPP 38761 requires the Company to incur $142,000 exploration
  expenditure for the 2003 fiscal year, including a 3D seismic survey which is
  being conducted over PPP 38761 and adjacent permit areas in first quarter 2003.

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AUSTRALIA

Unless otherwise indicated, offshore exploration permits granted
  in Australia provide for the exclusive right to explore for petroleum for an
  initial term of six years, renewable for an unlimited number of five-year terms
  over one-half of the remaining area at each renewal. The participants can apply
  for extensions or reductions of the committed work programs for the permits
  under certain circumstances. Any production permits granted will be for a term
  of 21 years from the date of issue, renewable for a further 21 years. In addition
  to general Australian taxation provisions, most offshore permits, including
  all of the Company's Australian permits, are subject to Petroleum Resource Rent
  Taxation at the rate of 40% on a project's net income after deduction of allowable
  project and exploration expenditures, with undeducted exploration expenditures
  compounded forward at the Long-term Bank Rate ("LTBR") plus 15% and project
  expenditures at LTBR plus 5%.

r) AC/P19

The Company has a 100% participating interest in, and is the
  operator of, Ashmore-Cartier Permit 19 (AC/P 19) which was granted
  on May 30, 1997, and is now to expire December 31, 2003. AC/P 19 and AC/P 31
  are subject to a maximum 5% carried interest option to Lonman Pty Ltd, convertible,
  if exercised, to an equivalent participating interest upon commencement of production
  through the reimbursement of past costs payable out of 50% of net production
  revenue.

The Company has completed the work program required for the
  first five years, including acquiring, during January 2002, a further 90km of
  seismic data to firm up the Ursa prospect for drilling. Processing of this data
  continues. Suspension of the permit obligations until end 2002 was sought and
  granted in June 2002, allowing time to complete technical evaluations. Year
  6 of the permit is now calendar 2003. The Company is required to complete a
  further program including drilling one exploration well by December 2003.

As at December 31, 2002, AC/P 19 is in good standing with
  respect to its work commitments. The Company's share of work commitments for
  the 2003 fiscal year requires an estimated $4,231,000 of exploration expenditures
  to be incurred. This expenditure will be significantly reduced by farmout or
  sale to a third party; otherwise the permit will be surrendered.

s) AC/P31

The Company has a 100% participating interest in, and is the
  operator of, Ashmore-Cartier Permit 31 (AC/P 31), which was granted
  on September 12, 1999.

The Company is required to complete a further program including
  acquisition of a minimum of 40 kms of new 2D seismic in year 3 and 4 and the
  integration and interpretation of this into the existing database. Pending availability
  of a seismic vessel this is to be completed by September 11, 2003 (the end of
  permit year 4).

At December 31, 2002, AC/P 31 is in good standing with respect
  to its work commitments. The Company's share of work commitments for the 2003
  fiscal year requires an estimated $24,000 of permit maintenance and seismic
  expenditures to be incurred.

t) AC/P26

The Company has a 50% participating interest in Ashmore-Cartier
  Permit 26 (AC/P 26), which commenced on February 26, 1998. The other
  participant in AC/P26 is Ashmore Oil Pty Ltd (50%) as operator (a wholly owned
  subsidiary of West Oil Pty Limited). AC/P 26 is subject to a maximum 5% carried
  interest option to Lonman Pty Ltd which is convertible to an equivalent participating
  interest, if exercised, upon commencement of production through the reimbursement
  of past costs payable out of 50% of net production revenue.

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By an agreement dated December 18 2001, Anadarko Petroleum
  Ltd (Anadarko) agreed to fund the entire cost of the obligation
  well due by May 25, 2002, for an option to take up 75% interest in the permit.
  Anadarko drilled the Anson North-1 well in fulfillment of this obligation in
  February 2002. Subsequently, Anadarko decided not to exercise the option to
  take up an interest in the permit. Rossini and Anson West remain the preferred
  prospects in this permit and the results of Anson North do not degrade these
  prospects.

At December 31, 2002, AC/P26 is in good standing with respect
  to its work commitments. The Company's share of the committed work program for
  the 2003 fiscal year does not require any expenditures to be incurred.

u) ZOCA 96-16

The Company had a 10% participating interest in the Zone of
  Cooperation Area 96-16 ("ZOCA 96-16") which commenced on November 14, 1996.
  The other participants in ZOCA 96-16 were Phillips Petroleum Ltd (66%), as operator,
  Norwest Energy N.L., (14%) and West Oil N.L. (10%).

The Company and all its co-participants except Phillips elected
  to withdraw from this permit in 2002 as it was not deemed prospective. The documentation
  for this withdrawl was approved and registered on December 13, 2002.

PAPUA NEW GUINEA

Petroleum prospecting licences granted in Papua New Guinea
  provide for the exclusive right to explore for petroleum for an initial term
  of six years, renewable for a further five years over one-half of the original
  area, and the right to enter into a Petroleum Development Agreement upon a discovery.
  The Petroleum Development Agreement provides the right to produce any oil and
  gas discovered for a period of up to 25 years and may be extended for a further
  period of up to 20 years from discovery, subject to a maximum 22.5% participating
  interest that can be acquired by the Government of Papua New Guinea which includes
  a 2% participating interest that can be acquired by local landowners. The participants
  can apply for extensions or reductions of the committed work programs for the
  licences under certain circumstances. (by way of an Application for Variation
  of the Work Program)

v) PPL 192 (and APPL 235)

The Company has a 60% participating interest in, and is the
  operator of, Petroleum Prospecting Licence No. 192 ("PPL 192"), which was granted
  on January 28, 1997. The other participants of PPL 192 are Durum Energy (PNG)
  Ltd (20%), Mosaic Oil Niugini Ltd (15%) and Continental Oil (PNG) Ltd (5%).

The Company and the other participants have completed the
  work program required for the first three years to January 28th 2000,
  including acquiring seismic data. The Company and the other participants were
  required to drill one exploration well by January 28, 2002. The Company has
  been negotiating to replace the PPL 192 and PPL 215 licences with one new licence
  over the prospective areas of both licences, which will not require significant
  expenditures in the next 12 months. The application for the permit: APPL 235
  is currently awaiting approval from the Papua New Guinea Department of Mines
  and Energy. Mosaic and Continental have notified that they do not wish to take
  an interest in APPL 235, so the interests in the APPL 235 are 90% to the Company
  (who would be operator of the new licence) and 10% to Durum Energy (PNG) Ltd.

At December 31, 2002, PPL 192 is on hold with respect to its
  work commitments and does not require the Company to incur minimum exploration
  expenditures for the 2003 fiscal year. Any work is awaiting the decision of
  the Papua New Guinea Governments Petroleum Advisory Board on the award
  of APPL 235. The Companys share of work commitments for APPL 235 for the
  2003 fiscal year, if awarded, requires no exploration expenditures to be incurred,
  but in year 2 requires a well to be drilled at an estimated cost of $5,252,000.
  The Company would seek to fund this expenditure by farmout to third parties.

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w) PPL 215 (and APPL 235)

The Company has an 80% participating interest in, and is the
  operator of, Petroleum Prospecting Licence No. 215 ("PPL 215") that was granted
  on May 6, 1999. The other participants of PPL 215 are Mosaic Oil Niugini Ltd
  (15%) and Continental Oil (PNG) Ltd (5%).

The Company and the other participants have completed the
  work program required for the first two years, including acquiring seismic data.
  This licence is being explored in conjunction with PPL 192 and the Company is
  negotiating to replace the PPL 192 and PPL 215 licences with one new licence
  over the prospective areas of both licences, which will not require significant
  expenditures in the next 12 months.

At December 31, 2002, PPL 215 is on hold with respect to its
  work commitments and does not require the Company to incur minimum exploration
  expenditures for the 2003 fiscal year.

x) PPL 228

The Company had a 10% participating interest in Petroleum
  Prospecting Licence No. 228 ("PPL 228"), which was awarded on June 26, 2001.
  The other participants in PPL 228 are Santos Ltd. (40%), as the operator, Victoria
  Petroleum N.L. (15%), First Australian Resources N.L. (12.5%), Highland Petroleum
  Ltd (12.5%) and Bligh Oil & Minerals N.L. (10%), through their respective
  PNG subsidiaries.

The licence includes part of the area of the previously held
  PPL 213 licence, in which the Tumuli-1 exploration well was drilled, and which
  was surrendered on June 18, 2001.

At December 31, 2002, PPL 228 was in good standing with respect
  to its work commitments and would not require the Company to incur minimum exploration
  expenditures for the 2003 fiscal year.

The PPL 228 joint venture is currently seeking to surrender
  this permit, in conjunction with a top file application for a further permit
  over a similar area. The Company agreed (after balance date) to not join in
  this new application and therefore effectively withdrew from the licence.

y) PRL 4 and PRL 5

The Company has a 7.5% participating interest in Petroleum
  Retention Licence No. 4 ("PRL 4") that was awarded on September 1, 2000, over
  the Stanley discovery area, and PRL 5, which was awarded on February 15, 2000,
  over the Elevala and Ketu discoveries. The other participants in PRL 4 and PRL
  5 are Santos Ltd. (35.25%), as the operator, Omega Oil N.L. (15%), Carnarvon
  Petroleum N.L. (15%), Bligh Oil & Minerals N.L. (7.25%) and SPI Ltd. (20%),
  through their respective PNG subsidiaries.

At December 31, 2002, PRL 4 and 5 are in good standing with
  respect to work commitments and require the Company to incur minimum exploration
  expenditures of $5,000 for the 2003 fiscal year.

NOTE 5 - RELATED PARTY TRANSACTIONS

a)The Company entered into an agreement with Trans-Orient
  Petroleum Ltd. (Trans-Orient) to acquire all of its participating
  interests in 13 oil and gas permits and licences effective January 1, 2000.
  The total consideration to Trans-Orient originally included the grant of gross
  overriding royalties over any future production and the issuance of 836,845
  units in the Company, with an agreed value of $2.50 per unit. Each unit consisted
  of one common share and a two year share purchase warrant (an A
  Warrant), exercisable at a price of $2.50 in the first year and $3.75 in the
  second year. The warrant also stipulated that if a commercial petroleum discovery
  is made on any of the permits transferred from Trans-Orient under the agreement,
  the Company was required to issue Trans-Orient additional one year warrants
  (B Warrants) to acquire additional shares at a price of $7.50 per
  share, equal to the number of original A warrants exercised.

In January 2002, the parties agreed to vary that agreement
  to assign the gross overriding

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royalties from Trans-Orient to the Company, in exchange for
  the terms of the warrants issued to Trans-Orient being amended to extend the
  availability of the first year price to 31 December 2002 and the second year
  price to 31 December 2003, and to reprice the A warrants to $1.25
  and $1.40 respectively. In addition, series B warrants to be acquired
  in the event of discovery, equal in number to the number of A warrants
  exercised, were repriced to $2.50 and will expire on the later of 31 December
  2003 or one year after issuance. The fair value of the royalties is nominal.

From the properties originally transferred, only PEP 38256,
  PEP 38328, PEP 38332, PRL 4 & 5, PPL 192 & 215 and AC/P 26 remain prospective
  and liable to be affected by the B Warrant requirements.

b) Due from Related Parties

At December 31, 2002, the Company is owed $52,065 (December
  31, 2001: $28,395) by certain public companies with directors, officers and/or
  principal shareholders in common with the Company. This amount is unsecured,
  non-interest bearing and has no fixed terms of repayment.

In addition, TAG Oil Ltd, a related party, owe the Company
  $308,000 as a result of a buy-in into permit 38741. This amount is included
  within the accounts receivable balance.

c) Oil and Gas Properties

Certain participants of oil and gas properties have directors,
  officers and/or principal shareholders in common with the Company. These participants
  are AMG Oil Ltd., TAG Oil Ltd. (formerly called Durum Cons. Energy Corp.) and
  Gondwana Energy, Ltd.

Refer to Note 4

d) Other

During the 2002 fiscal year, the Company incurred $152,177
  (2001 fiscal year $111,942, 2000 fiscal year - $81,275) in remuneration to the
  president of the company and $24,245 (2001 fiscal year $21,581, 2000 fiscal
  year - $23,439) in rent to a trust in which the President of the Company is
  a trustee.

All other directors received a total remuneration of $12,001
  during fiscal 2002. (2001: $Nil; 2000: $Nil)

The above-noted transactions were in the normal course of
  operations and were measured at the exchange amount, which is the consideration
  established and agreed to by the related parties.

NOTE 6 - COMMITMENTS AND CONTINGENCIES

a) Work Commitments

The Company participates in oil and gas exploration and development
  operations jointly with third and related parties and is contractually committed
  under agreements to complete certain exploration programs. The Companys
  management estimates that the total commitments under various agreements for
  the next fiscal year is approximately $7,085,000, of which, an unrelated third
  party (IRM Malaysia Inc.) has agreed to fund operations in PEP 38738 at a level
  in excess of their working interest.

The Companys commitments under licence obligations are
  summarized as follows:

|Period:                             |   | Commitment | 
|----------------------------------- | - | ---------- | 
|Within 1 year                       | $ | 7,085,000  | 
|More than 1 year and within 2 years |   | 6,283,000  | 
|More than 2 year and within 3 years |   | 6,158,000  | 
|More than 3 year and within 4 years |   | -          | 

|More than 4 years |   | -          | 
|----------------- | - | ---------- | 
|                  |   |            | 
|                  | $ | 19,526,000 | 
|                  |   |            | 

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This is the Companys share of commitments as recorded
  on various licence documents, but the Company intends to Farm-Out
  major expenditures, as explained in Note 1, and will either Farm-out interests
  in those licences, renegotiate terms of the licence or relinquish its interest,
  so that its share of expenditures required to be funded will not necessarily
  be the full amount of the commitment listed above. Alternatively, the Company
  may seek further investor funds to meet the commitments listed.

b) Contingencies

A subsidiary of the Company, Ngatoro Energy Limited (NEL)
  is named as defendant in a claim by Greymouth Petroleum Acquisition Company
  Limited (GPAC) and Southern Petroleum (Ohanga) Limited in relation to its interest
  and operations in respect of the Ngatoro petroleum mining permit (PMP 38148)
  in Taranaki.

The GPAC claim is for between five to ten million dollars
  and is primarily to the effect that NEL is in breach of contract and in breach
  of certain duties to its co-venturer in respect of the Goldie sole risk discovery.
  Counsel has been engaged and NEL has filed statements of defence and counterclaim.

The case was heard in the High Court, Wellington New Zealand
  and concluded on April 4, 2003. The Judge has reserved judgement. Counsel considers
  it unlikely that the claim will succeed. Furthermore the Company will be seeking
  damages.

For further details, see Note 4 - PMP 38148.

c) Political Risks

Papua New Guinea is subject to political uncertainty and instability
  and the Company faces a number of risks and uncertainties, which may adversely
  impact on its ability to pursue its exploration and development activities.

d) Environmental Laws and Regulations

The Company is not aware of any events of noncompliance in
  its operations with any environmental laws or regulations or of any potentially
  material contingencies related to environmental issues. However, the Company
  cannot predict whether any new or amended environmental laws or regulations
  introduced in the future will have a material adverse effect on the future business
  of the Company.

NOTE 7 - COMMON STOCK

a) Authorized and Issued Share Capital

The authorized share capital of the Company is an unlimited
  number of shares of common stock without par value.

|                                   |  | Number    |  |   |            | 
|---------------------------------- |  | --------- |  | - | ---------- | 
|Issued and fully paid:             |  | of Shares |  |   | Amount     | 
|                                   |  |           |  |   |            | 
|                                   |  |           |  |   |            | 
|Balance at December 31, 2000       |  | 6,489,324 |  | $ | 19,478,365 | 
|                                   |  |           |  |   |            | 
|Issued during the 2001 fiscal year |  | -         |  |   | -          | 
|                                   |  |           |  |   |            | 
|Balance at December 31, 2001       |  | 6,489,324 |  | $ | 19,478,365 | 
|                                   |  |           |  |   |            | 
|Issued during the 2002 fiscal year |  | 1,250,000 |  |   | 1,000,000  | 
|                                   |  |           |  |   |            | 
|Balance at December 31, 2002       |  | 7,739,324 |  | $ | 20,478,365 | 
|                                   |  |           |  |   |            | 

- 76 -

---

On September 12, 2002, 1,250,000 shares and the same number
  of two-year warrants were issued, under a private financing arrangement, agreed
  with a group of investors led by Mr.Alex Guidi, a current shareholder of the
  Company and the controlling shareholder of Trans-Orient Petroleum Ltd., an affiliate
  of the Company. The financing consisted of a placement of 1,250,000 units at
  US80c per unit comprising a common share and a two year share purchase warrant
  exercisable at US90c in the first year and US$1.15 in the second, to raise a
  total of US$1 million. The securities have a one-year hold period and there
  were no brokerage fees payable in connection with the financing.

During fiscal 2001 the Company consolidated its shares on
  a 1 for 5 basis, resulting in the issued shares being reduced from 32,446,622
  common shares to 6,489,324 common shares, representing a recorded value of $19,478,365.
  The number of shares shown for the periods prior to 2001 have been adjusted
  as if this consolidation had applied retrospectively to those periods. All references
  and calculations, in these financial statements, involving the Companys
  number of shares (or options or warrants) have been similarly adjusted.

b) Incentive Stock Options

The Company may grant incentive stock options to its officers,
  directors, employees and consultants, for the purchase of shares in the Company.
  Stock options are in consideration for services and are non-transferable. The
  Board of Directors of the Company determines the exercise price. Options have
  a maximum term of five years and terminate 45 days after the termination of
  employment or other contracting arrangement of the option holder. Vesting of
  options may be made at the time of granting of the options or over a period
  of up to 18 months as set out in each option agreement. Once approved and vested,
  options are exercisable at any time until expiry or termination as above.

|            |  |                |                  |               |  |           |                 
|----------- |  | -------------- | ---------------- | ------------- |  | --------- | ----------------
|Number      |  | Type of Option | Date Fully       | Number Vested |  | Exercise  | Expiry          
|of Shares   |  |                | Vested           | December 31,  |  | Price per | Date            
|            |  |                |                  | 2002          |  | Share     |                 
|            |  |                |                  |               |  |           |                 
|300,000     |  | Performance    | -                | -             |  | $1.00     | October 15, 2007
|            |  | shares         |                  |               |  |           |                 
|150,000     |  | Vesting        | April 15, 2004   | 37,500        |  | $1.00     | July 6, 2005    
|200,000     |  | Non Vesting    | -                | 200,000       |  | $1.00     | July 6, 2005    
|400,000     |  | Vesting        | April 15, 2004   | 187,500       |  | $1.00     | July 6, 2005    
|160,000     |  | Vesting        | April 15, 2004   | 60,300        |  | $1.25     | July 6, 2005    
|250,000 (2) |  | Vesting        | October 15, 2003 | 150,000       |  | $1.25     | July 6, 2005    
|100,000 (1) |  | Vesting        | April 15, 2004   | 25,000        |  | $0.90     | October 15, 2007
|100,000     |  | Vesting        | October 15, 2003 | 25,000        |  | $1.25     | October 15, 2007
|50,000      |  | Vesting        | April 15, 2004   | 12,500        |  | $1.25     | October 15, 2007
|95,000      |  | Vesting        | April 15, 2004   | 35,500        |  | $1.25     | March 26, 2006  
|            |  |                |                  |               |  |           |                 
|            |  |                |                  |               |  |           |                 
|1,805,000   |  |                |                  | 733,300       |  |           |                 
|            |  |                |                  |               |  |           |                 

The weighted average exercise price for options outstanding
  at December 31, 2002 is $1.08 
  (December 31, 2001: $1.25). No options were exercised during the year.

The weighted average exercise price for options fully vested
  at December 31, 2002 is $1.09 
  (December 31, 2001: $1.25). No options were exercised during the year.

- 77 -

---

|1. | Drew Cadenhead resigned as director on March 24, 2003. His
      options (100,000) will lapse on May 8, 2003.      
|-- | -------------------------------------------------------------------------------------------------------------------
|2. | Alex Guidi ceased to be a consultant on December 31, 2002.
      His options (200,000) lapsed on February 14, 2003.

A summary of stock option activities for the years presented is as follows:

|Description                         | Number    |   | Exercise Price | 
|----------------------------------- | --------- | - | -------------- | 
|Of Activity                         | Of Shares |   | per Share      | 
|                                    |           |   |                | 
|Outstanding at December 31, 1999    | 200,000   |   | $12.50         | 
|Granted in 2000: non-vesting        | 400,000   |   | $3.00          | 
|Granted in 2000: vesting            | 733,600   |   | $2.50          | 
|Cancelled (lapsed)                  | (200,000  | ) | $12.50         | 
|                                    |           |   |                | 
|Outstanding at December 31, 2000    | 1,133,600 |   | $2.50 - 3.00   | 
|                                    |           |   |                | 
|Granted in 2001: vesting            | 71,200    |   | $2.50          | 
|Cancelled in 2001: vesting          | (36,800   | ) | $2.50          | 
|                                    |           |   |                | 
|                                    |           |   |                | 
|Outstanding at December 31, 2001    | 1,168,000 |   | $1.25          | 
|                                    |           |   |                | 
|Granted in 2002: vesting            | 100,000   |   | $0.90          | 
|Granted in 2002: vesting            | 526,000   |   | $1.00          | 
|Granted in 2002: vesting            | 267,000   |   | $1.25          | 
|Cancelled in 2002: non-vesting      | (200,000  | ) | $1.25          | 
|Cancelled in 2002: vesting (lapsed) | (56,000   | ) | $1.25          | 
|                                    |           |   |                | 
|Outstanding at December 31, 2002    | 1,805,000 |   | $0.90 - 1.25   | 
|                                    |           |   |                | 

In addition to the above movement in options outstanding during
  the year, with effect from October 15, 2002, the vesting terms of existing options
  were varied and some options were repriced.

The stock option compensation cost recognized as an expense
  for the year ended December 31, 2002 is $274,080 (December 31, 2001 and 2000:
  Nil). This cost is based on the estimated fair value of all options that were
  issued during the year, using the Black-Scholes option-pricing model, amortized
  over the vesting period using the following weighted-average assumptions:

Expected dividend yield 
  0.00% 
  Expected price volatility 
  96.00% 
  Risk-free interest rate 
  3.55% 
  Expected life of option 
  1.8 to 2 years

c) Share Purchase Warrants

The following share purchase warrants to purchase shares of
  the Company are outstanding at December 31, 2002:

- 78 -

---

| | Number               |  | Price     |  | Expiry            | 
| | -------------------- |  | --------- |  | ----------------- | 
| | Of Shares            |  | per Share |  | Date              | 
| |                      |  |           |  |                   | 
| | Warrants:            |  |           |  |                   | 
| | 200,000              |  | $2.00     |  | July 3, 2003      | 
| | 1,250,000            |  | $0.90 (1) |  | Sept 12, 2004     | 
| | Series A Warrants(2) |  |           |  |                   | 
| | 836,845              |  | $1.25 (3) |  | December 31, 2003 | 
| |                      |  |           |  |                   | 
| |                      |  |           |  |                   | 
| | 2,286,845            |  |           |  |                   | 
| |                      |  |           |  |                   | 

|(1) | The price per share of the Warrants
        issued on Sept 12, 2002 increases to $1.15 for the period September 12,
        2003 to September 12, 2004.                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Upon a commercial discovery in one of
        the properties purchased from Trans-Orient Petroleum Ltd., for each Series
        A warrant exercised, a Series B warrant will be issued exercisable at
        a price of $2.50 per share for a period of one year from the issuance
        date, but no later than December 31, 2004.
|(3) | The price per share of the Series A
        Warrants increases to $1.40 for the period December 31, 2002 to December
        31, 2003.                                                                                                                                                                                                 

A summary of share purchase warrant activities for the years presented is
  as follows:

|Description                            | Number    |   | Exercise Price |    
|-------------------------------------- | --------- | - | -------------- | ---
|Of Activity                            | of Shares |   | per Share      |    
|                                       |           |   |                |    
|Outstanding at December 31, 2000(1)    | 1,226,845 |   | $2.00  2.50   |    
|                                       |           |   |                |    
|Granted/(cancelled) in 2001            | -         |   | -              |    
|                                       |           |   |                |    
|                                       |           |   |                |    
|Outstanding at December 31, 2001       | 1,226,845 |   | $2.00  3.75   | (2)
|                                       |           |   |                |    
|Granted in 2002                        | 1,250,000 |   | $0.90          |    
|Cancelled in 2002                      | (190,000  | ) | $2.00          |    
|                                       |           |   |                |    
|                                       |           |   |                |    
|Outstanding at December 31, 2002(2)(3) | 2,286,845 |   | $0.90 - 2.00   |    

|(1) | The 836,845 Series A Warrants, granted
        in 2000, were exercisable at a price of $2.50 until March 29, 2001, and
        thereafter at a price of $3.75 per share until March 29, 2002. The Series
        A Warrants also carry the right, after exercise, and upon a commercial
        discovery in certain properties, to call for the issue of a Series B Warrant
        for each A Warrant exercised. As the issue of the B Warrants is conditional,
        they are not included in the number of warrants outstanding.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(2) | In January 2002, the terms of the A
        and B Warrants were amended to extend the availability of
        the first year price to 31 December 2002 and the second year price to
        31 December 2003, and to reprice the A warrants to $1.25 and
        $1.40 respectively. As well, the additional B warrants to
        be available in the event of a discovery, equal in number to the original
        number of warrants exercised, were repriced to $2.50.                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(3) | During the fiscal 2002 year, previously
        granted warrants to purchase 190,000 shares at a price of $2.00 per share
        lapsed without exercise. The expiry date for warrants to purchase 200,000
        shares in the Company at a price of $2.00 was extended for one year, on
        July 3 2002, to July 3 2003. 1,250,000 warrants to purchase shares of
        the Company were issued on Sept 12, 2002, exercisable at a price of $0.90
        to Sept 12, 2003 and $1.15 to Sept 12, 2004.                      

- 79 -

---

NOTE 8  EARNINGS/(LOSS) PER SHARE

The following is a reconciliation of the numerators and denominators
  of the basic and diluted earnings per share calculations for the 2002, 2001
  and 2000 fiscal years:

|                                            | 2002       |   | 2001      |  | 2000       |  
|------------------------------------------- | ---------- | - | --------- |  | ---------- | -
|                                            |            |   |           |  |            |  
|                                            |            |   |           |  |            |  
|Numerator, net profit/ (loss) for the year  | (2,826,770 | ) | 1,108,799 |  | (2,871,035 | )
|                                            |            |   |           |  |            |  
|                                            |            |   |           |  |            |  
|Denominator:                                |            |   |           |  |            |  
|Weighted-average number of shares - basic   | 6,869,461  |   | 6,489,324 |  | 6,160,074  |  
|                                            |            |   |           |  |            |  
|Basic earnings/(loss) per share             | ($0.41     | ) | $0.17     |  | ($0.47     | )
|                                            |            |   |           |  |            |  
|Denominator:                                |            |   |           |  |            |  
|Weighted-average number of shares - diluted | 6,869,461  |   | 6,680,384 |  | 6,160,074  |  
|                                            |            |   |           |  |            |  
|Diluted earnings/(loss) per share           | ($0.41     | ) | $0.17     |  | ($0.47     | )
|                                            |            |   |           |  |            |  

Due to net losses incurred for the 2002 and 2000 fiscal years,
  stock options and share purchase warrants outstanding were not included in the
  computation of diluted loss per share as the inclusion of such securities would
  be antidilutive for those years.

NOTE 9 - INCOME TAXES

No income taxes are currently payable by the Company in any
  of the jurisdictions in which it operates. A reconciliation between the tax
  cost, using the Canadian statutory income tax rate of 39.12% (44.12% for the
  fiscal 2001 and 2000 year) and the provision for income taxes is as follows:

|                                                   |   | 2002       |   |   | 2001      |   |   | 2000       |  
|-------------------------------------------------- | - | ---------- | - | - | --------- | - | - | ---------- | -
|                                                   |   |            |   |   |           |   |   |            |  
|                                                   |   |            |   |   |           |   |   |            |  
|Net profit/ (loss) for the year before tax         | $ | (2,826,770 | ) | $ | 1,108,799 |   | $ | (2,871,035 | )
|                                                   |   |            |   |   |           |   |   |            |  
|                                                   |   |            |   |   |           |   |   |            |  
|Provision for / (benefit of) tax at Canadian       |   |            |   |   |           |   |   |            |  
|statutory rate (39.12%)                            |   | (1,105,832 | ) |   | 489,202   |   |   | (1,266,700 | )
|Effect of varying tax rates in other jurisdictions |   | 118,638    |   |   | (97,059   | ) |   | 285,695    |  
|Permanent differences                              |   | 152,940    |   |   | 40,904    |   |   | (90,430    | )
|Benefit of prior year losses realized              |   | -          |   |   | (573,971  | ) |   | -          |  
|Increase in valuation allowance                    |   | 834,254    |   |   | 140,924   |   |   | 1,071,435  |  
|                                                   |   |            |   |   |           |   |   |            |  
|                                                   |   |            |   |   |           |   |   |            |  
|Income Tax Provision                               | $ | -          |   | $ | -         |   | $ | -          |  
|                                                   |   |            |   |   |           |   |   |            |  

In Canada the Company has non-capital losses of approximately
  Cdn$2.02 million (December 31, 2001 - Cdn$1.87 million) available for future
  deduction from taxable income derived in Canada, which expire as follows:

- 80 -

---

|2003 | 662,559        | 
|---- | -------------- | 
|2004 | -              | 
|2005 | 153,875        | 
|2006 | 131,714        | 
|2007 | 286,535        | 
|2008 | 382,213        | 
|2009 | 405,459        | 
|     |                | 
|     |                | 
|     | Cdn$ 2,022,355 | 
|     |                | 

In addition, in Canada, at December 31, 2002, the Company
  has approximately Cdn$2.02 million (December 31, 2001 - Cdn$1.63 million) of
  resource and other unused tax pools to offset future taxable income derived
  in Canada. The Company also has losses and deductions of approximately NZ$25.94
  million (December 31, 2001: NZ$18.22 million) available to offset future taxable
  income derived in New Zealand, Australia and Papua New Guinea.

Significant components of the Companys deferred tax
  assets are comprised of the following at December 31, 2002 calculated at 39.12%
  (December 31, 2001 and 2000: 44.12%):

|December 31,                        |   | 2002       |   |   | 2001       |  
|----------------------------------- | - | ---------- | - | - | ---------- | -
|                                    |   |            |   |   |            |  
|                                    |   |            |   |   |            |  
|Resource and other unused tax pools |   | 404,372    |   |   | 456,056    |  
|Net operating loss carry-forwards   |   | 5,829,852  |   |   | 4,745,112  |  
|                                    |   |            |   |   |            |  
|                                    |   |            |   |   |            |  
|                                    |   | 6,234,224  |   |   | 5,201,168  |  
|Valuation allowance                 |   | (6,234,224 | ) |   | (5,201,168 | )
|                                    |   |            |   |   |            |  
|                                    | $ | -          |   | $ | -          |  
|                                    |   |            |   |   |            |  

A valuation allowance has been established, and accordingly,
  no benefit has been recognized for the Companys net operating losses and
  deferred tax assets. The Company believes that, based on a number of factors,
  the available objective evidence creates sufficient uncertainty regarding the
  realizability of the future tax assets such that a full valuation allowance
  has been recorded. These factors include the Companys recent history of
  net losses and the expected near-term future losses. The Company will continue
  to assess the realizability of the future tax assets based on actual and forecasted
  operating results.

The increase in the valuation allowance of $1,033,056 is attributed
  to the following:

|- current year provision        | 834,254   |  
|------------------------------- | --------- | -
|- timing differences not booked | 850,669   |  
|- change in tax rate            | (589,434  | )
|- tax losses forfeited          | (62,433   | )
|                                |           |  
|                                | 1,033,056 |  
|                                |           |  

NOTE 10 - COMPARATIVE FIGURES

Certain comparative figures have been reclassified to conform
  to the current years presentation.

NOTE 11 - SUBSEQUENT EVENTS

A gas prepayment agreement was entered into with a New Zealand
  company, NGC New Zealand Limited (NGC), whereby NGC provided $1,050,400 towards
  the Companys ongoing exploration programs. This money was received on
  April 3 2003. In return NGC are able to receive a prepurchase of the first $1,050,400
  of gas supplied by the Company to NGC, under contracts to be freely negotiated
  at existing market rates. The Company will negotiate in the first instance with
  NGC, and if no contract is entered into within three months of notification,
  the Company is free to seek other markets for the gas.

- 81 -

---

There were no other events subsequent to December 31, 2002,
  (other than those disclosed in Note 4) which would have a significant effect
  on these financial statements.

NOTE 12: SEGMENTED INFORMATION

The Company operates in the one industry: petroleum exploration
  and production. It operates in several geographical regions, therefore information
  on country segments is provided as follows.

For Year to December 31, 2002:

|                         |   | Canada   |   |   | New Zealand |   |   | Australia |   |   | PNG       |   |   | Total Company |  
|------------------------ | - | -------- | - | - | ----------- | - | - | --------- | - | - | --------- | - | - | ------------- | -
|                         |   |          |   |   |             |   |   |           |   |   |           |   |   |               |  
|Production Income:       |   |          |   |   |             |   |   |           |   |   |           |   |   |               |  
|Revenue                  |   | -        |   |   | 1,845,925   |   |   | -         |   |   | -         |   |   | 1,845,925     |  
|Production expenses      |   | -        |   |   | (1,063,503  | ) |   | -         |   |   | -         |   |   | (1,063,503    | )
|                         |   |          |   |   |             |   |   |           |   |   |           |   |   |               |  
|Net Production Income    |   | -        |   |   | 782,422     |   |   | -         |   |   | -         |   |   | 782,422       |  
|Interest income          |   | 8,301    |   |   | 21,217      |   |   | -         |   |   | -         |   |   | 29,518        |  
|Administrative expenses  |   | (300,082 | ) |   | (1,120,408  | ) |   | 160,482   |   |   | 679,112   |   |   | (580,896      | )
|Stock compensation       |   |          |   |   |             |   |   |           |   |   |           |   |   |               |  
|expense                  |   | (274,080 | ) |   | -           |   |   | -         |   |   | -         |   |   | (274,080      | )
|Write-off of oil and gas |   |          |   |   |             |   |   |           |   |   |           |   |   |               |  
|properties               |   | -        |   |   | (2,532,027  | ) |   | (230,778  | ) |   | (20,929   | ) |   | (2,783,734    | )
|                         |   |          |   |   |             |   |   |           |   |   |           |   |   |               |  
|Net income/(loss)        | $ | (565,861 | ) | $ | (2,848,796  | ) | $ | (70,296   | ) | $ | 658,183   |   |   | (2,826,770    | )
|                         |   |          |   |   |             |   |   |           |   |   |           |   |   |               |  
|Oil and Gas properties   |   | -        |   |   | 4,508,660   |   |   | 966,635   |   |   | 2,047,873 |   |   | 7,523,168     |  
|Office Assets            |   | -        |   |   | 28,455      |   |   | -         |   |   | -         |   |   | 28,455        |  
|Due from Related Parties |   | -        |   |   | 55,410      |   |   | 24,474    |   |   | (27,819   | ) |   | 52,065        |  
|Other Non-current Assets |   | -        |   |   | -           |   |   | -         |   |   | -         |   |   | -             |  
|Current Assets           |   | 516,174  |   |   | 1,625,263   |   |   | 10,013    |   |   | 6,807     |   |   | 2,158,257     |  
|                         |   |          |   |   |             |   |   |           |   |   |           |   |   |               |  
|Total Assets             | $ | 516,174  |   | $ | 6,217,788   |   | $ | 1,001,122 |   | $ | 2,026,861 |   | $ | 9,761,945     |  
|                         |   |          |   |   |             |   |   |           |   |   |           |   |   |               |  
|Specific Items:          |   |          |   |   |             |   |   |           |   |   |           |   |   |               |  
|Amortization expense     |   | 25,974   |   |   | 27,033      |   |   | -         |   |   | -         |   |   | 53,007        |  
|Purchase of property and |   |          |   |   |             |   |   |           |   |   |           |   |   |               |  
|equipment                |   | -        |   |   | (11,529     | ) |   | -         |   |   | -         |   |   | (11,529       | )
|                         |   |          |   |   |             |   |   |           |   |   |           |   |   |               |  

For Year to December 31, 2001:

|                         |   | Canada   |   |   | New Zealand |   |   | Australia |   |   | PNG     |   |   | Total Company |  
|------------------------ | - | -------- | - | - | ----------- | - | - | --------- | - | - | ------- | - | - | ------------- | -
|                         |   |          |   |   |             |   |   |           |   |   |         |   |   |               |  
|Production Income:       |   |          |   |   |             |   |   |           |   |   |         |   |   |               |  
|Revenue                  |   | -        |   |   | 3,744,036   |   |   | -         |   |   | -       |   |   | 3,744,036     |  
|Production expenses      |   | -        |   |   | (1,288,105  | ) |   | -         |   |   | -       |   |   | (1,288,105    | )
|                         |   |          |   |   |             |   |   |           |   |   |         |   |   |               |  
|Net Production Income    |   | -        |   |   | 2,455,931   |   |   | -         |   |   | -       |   |   | 2,455,931     |  
|Interest income          |   | 25,788   |   |   | 69,166      |   |   | -         |   |   | -       |   |   | 94,954        |  
|Administrative expenses  |   | (261,747 | ) |   | (451,736    | ) |   | (7,020    | ) |   | (15,121 | ) |   | (735,624      | )
|Write-off of oil and gas |   |          |   |   |             |   |   |           |   |   |         |   |   |               |  
|properties               |   | -        |   |   | (678,352    | ) |   | (20,299   | ) |   | (7,811  | ) |   | (706,462      | )
|                         |   |          |   |   |             |   |   |           |   |   |         |   |   |               |  
|                         |   |          |   |   |             |   |   |           |   |   |         |   |   |               |  
|Net income/(loss)        | $ | (235,959 | ) | $ | 1,395,009   |   | $ | (27,319   | ) | $ | (22,932 | ) | $ | 1,108,799     |  
|                         |   |          |   |   |             |   |   |           |   |   |         |   |   |               |  

- 82 -

---

|Oil and Gas properties   |   | -       |  |   | 5,167,589 |   |  | 926,882 |  |   | 1,999,270 |  |   | 8,093,741  |  
|------------------------ | - | ------- |  | - | --------- | - |  | ------- |  | - | --------- |  | - | ---------- | -
|Office Assets            |   | 26,341  |  |   | 43,862    |   |  | -       |  |   | -         |  |   | 70,203     |  
|Due from Related Parties |   | -       |  |   | 28,395    |   |  | -       |  |   | -         |  |   | 28,395     |  
|Other Non-current Assets |   | -       |  |   | -         |   |  | -       |  |   | -         |  |   | -          |  
|Current Assets           |   | 569,475 |  |   | 3,117,350 |   |  | 4,933   |  |   | 7,081     |  |   | 3,698,839  |  
|                         |   |         |  |   |           |   |  |         |  |   |           |  |   |            |  
|Total Assets             | $ | 595,816 |  | $ | 8,357,196 |   |  | 931,815 |  | $ | 2,006,351 |  | $ | 11,891,178 |  
|                         |   |         |  |   |           |   |  |         |  |   |           |  |   |            |  
|Specific Items:          |   |         |  |   |           |   |  |         |  |   |           |  |   |            |  
|Amortization expense     |   | 27,808  |  |   | 39,534    |   |  | -       |  |   | -         |  |   | 67,342     |  
|Purchase of property and |   |         |  |   |           |   |  |         |  |   |           |  |   |            |  
|equipment                |   | -       |  |   | (12,710   | ) |  | -       |  |   | -         |  |   | (12,710    | )
|                         |   |         |  |   |           |   |  |         |  |   |           |  |   |            |  

For Year to December 31, 2000:

|                         |   | Canada   |   |   | New Zealand |   |   | Australia |   |   | PNG      |   |   | Total Company |  
|------------------------ | - | -------- | - | - | ----------- | - | - | --------- | - | - | -------- | - | - | ------------- | -
|                         |   |          |   |   |             |   |   |           |   |   |          |   |   |               |  
|Production Income:       |   |          |   |   |             |   |   |           |   |   |          |   |   |               |  
|Revenue                  |   | -        |   |   | 475,646     |   |   | -         |   |   | -        |   |   | 475,646       |  
|Production expenses      |   | -        |   |   | (171,705    | ) |   | -         |   |   | -        |   |   | (171,705      | )
|                         |   |          |   |   |             |   |   |           |   |   |          |   |   |               |  
|Net Production Income    |   | -        |   |   | 303,941     |   |   | -         |   |   | -        |   |   | 303,941       |  
|                         |   |          |   |   |             |   |   |           |   |   |          |   |   |               |  
|Interest income          |   | 222,176  |   |   | 2,373       |   |   | -         |   |   | -        |   |   | 224,549       |  
|Administrative expenses  |   | (524,013 | ) |   | (176,544    | ) |   | (16,654   | ) |   | (26,389  | ) |   | (743,600      | )
|Write-off of oil and gas |   |          |   |   |             |   |   |           |   |   |          |   |   |               |  
|properties               |   | -        |   |   | (1,830,655  | ) |   | (357,509  | ) |   | (537,761 | ) |   | (2,725,925    | )
|                         |   |          |   |   |             |   |   |           |   |   |          |   |   |               |  
|                         |   |          |   |   |             |   |   |           |   |   |          |   |   |               |  
|Net income/(loss) before |   |          |   |   |             |   |   |           |   |   |          |   |   |               |  
|other items              |   | (301,837 | ) |   | (1,700,885  | ) |   | (374,163  | ) |   | (564,150 | ) |   | (2,941,035    | )
|Other Items              |   | -        |   |   | 70,000      |   |   | -         |   |   | -        |   |   | 70,000        |  
|Net income/(loss)        | $ | (301,837 | ) | $ | (1,630,885  | ) | $ | (374,163  | ) | $ | (564,150 | ) | $ | (2,871,035    | )
|                         |   |          |   |   |             |   |   |           |   |   |          |   |   |               |  

NOTE 13 - DIFFERENCES BETWEEN UNITED STATES AND CANADIAN
  GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

These financial statements have been prepared in accordance
  with Canadian generally accepted accounting principles (Canadian GAAP)
  which conform in all material respects with United States generally accepted
  accounting principles (U.S. GAAP) except for the following differences:

a) Assets

Marketable Securities and Investments. Under Canadian GAAP the Companys
  marketable securities and investments are reported at cost, or, for other than
  a temporary decline in value from cost, at market value. Under US GAAP the Companys
  marketable securities and investments are classified as available-for-sale securities
  and reported at market value, with unrealized gains and losses included as a
  component of comprehensive income.

b) Stockholders Equity

i) Contributed Surplus

Under Canadian GAAP, CICA issued a new accounting pronouncement that applies
  to the Company with respect to the 2002 and subsequent years. The general effect
  of the pronouncement is to:

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|1. | require the cost of stock options issued, or repriced in
      the 2002 or subsequent years, to both employees and non-employees to be
      booked as an expense, and
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                       
|2. | require disclosure in its financial statements of various
        details relating to options issued.                                                                 

The Company has adopted a fair value based method for determining the cost
  of all options for Canadian reporting purposes. This has resulted in a stock
  option compensation cost of $274,080 being recorded in these financial statements
  for the 2002 year.

The Company, for purposes of US GAAP, follows Accounting Principles Board
  Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) to account
  for all stock options granted to employees. Under APB 25, the intrinsic value
  model is followed and compensation cost is recognized if the market price of
  the companys common shares exceeds the exercise price on the date of grant.
  During 2001 the Company repriced all outstanding options. The repriced options
  are accounted for under variable accounting and compensation cost is recognized
  for the difference between the exercise price and the market price of the common
  shares until such options are exercised, expired or forfeited. During 2002 the
  Company granted 300,000 performance options to employees. No compensation cost
  has been recognized for these options as the performance criteria have not yet
  been met. Compensation cost will be recognized if and when the performance criteria
  are met, based on the excess of market price over exercise price at that date.

For non-employees, the Company uses the fair value model for determining stock
  option compensation cost of options granted. Although similar to the fair value
  based method adopted for Canadian reporting purposes, US GAAP requires that
  the options be revalued each period (and cumulative compensation cost adjusted
  accordingly) until earned.

|December 31,                               |   | 2002      |   |   | 2001      | 
|------------------------------------------ | - | --------- | - | - | --------- | 
|                                           |   |           |   |   |           | 
|                                           |   |           |   |   |           | 
|Contributed surplus under Canadian GAAP    | $ | 274,080   |   |   | -         | 
|                                           |   |           |   |   |           | 
|Less compensation stock (Canadian GAAP)    |   | (274,080  | ) |   | -         | 
|Stock option compensation cost (recovery)  |   |           |   |   |           | 
|Employees                                  |   | 35,524    |   |   | 584,036   | 
|Non-employees                              |   | (69,921   | ) |   | 320,489   | 
|Common stock and warrant placement expense |   | 778,750   |   |   | -         | 
|Cumulative historical adjustments to date  |   | 2,079,139 |   |   | 1,174,614 | 
|                                           |   |           |   |   |           | 
|Common stock under U.S. GAAP               | $ | 2,823,492 |   | $ | 2,079,139 | 
|                                           |   |           |   |   |           | 

The Common Stock and Warrant issuance expense comprises a
  discount on shares issued to insiders on September 12, 2002 and the fair value
  of warrants issued on the same date. The discount on the 1,250,000 common shares
  was calculated as the difference between the market value at the date of issue
  ($1.10) and the discounted share price ($0.80) and applied to the total number
  of shares issued. The fair value of each warrant is estimated using the Black-Scholes
  pricing model with the following assumptions:

|Expected dividend yield   | 0.00%     
|------------------------- | ----------
|Expected price volatility | 96.00%    
|Risk-free interest rate   | 4.50%     
|Expected life of option   | 1.67 years

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ii) Accumulated Deficit

The effects of Note 13(b) (i) on accumulated deficit are as follows:

|December 31,                                |   | 2002        |   |   | 2001        |  
|------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                            |   |             |   |   |             |  
|                                            |   |             |   |   |             |  
|Accumulated deficit under Canadian GAAP     | $ | (11,374,077 | ) | $ | (8,547,307  | )
|                                            |   |             |   |   |             |  
|Add back compensation stock (Canadian GAAP) |   | 274,080     |   |   | -           |  
|                                            |   |             |   |   |             |  
|Stock option compensation cost (US GAAP)    |   |             |   |   |             |  
|Employees                                   |   | (35,524     | ) |   | (548,036    | )
|Non-employees                               |   | 69,921      |   |   | (320,489    | )
|Common stock and warrant placement expense  |   | (778,750    | ) |   | -           |  
|                                            |   |             |   |   |             |  
|                                            |   | (11,844,350 | ) |   | (9,451,832  | )
|Cumulative historical adjustments           |   |             |   |   |             |  
|required under US GAAP                      |   | (2,079,139  | ) |   | (1,174,614  | )
|                                            |   |             |   |   |             |  
|                                            |   |             |   |   |             |  
|Accumulated deficit under U.S. GAAP         | $ | (13,923,489 | ) | $ | (10,626,446 | )
|                                            |   |             |   |   |             |  

CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT

c) Net Profit/(Loss) for the Year

The following are the effects of Note 13 (b) on Net Profit/(Loss) for the
  2002, 2001 and 2000 fiscal years:

|December 31,                               |   | 2002       |   |   | 2001      |   |   | 2000       |  
|------------------------------------------ | - | ---------- | - | - | --------- | - | - | ---------- | -
|                                           |   |            |   |   |           |   |   |            |  
|Net profit/(loss) for the year under       |   |            |   |   |           |   |   |            |  
|Canadian GAAP                              | $ | (2,826,770 | ) | $ | 1,108,799 |   | $ | (2,871,035 | )
|Add back Canadian GAAP compensation cost   |   | 274,080    |   |   | -         |   |   | -          |  
|Stock Option compensation cost             |   |            |   |   |           |   |   |            |  
|Employees                                  |   | (35,524    | ) |   | (584,036  | ) |   | (315,000   | )
|stock options issued during the year       |   | 69,921     |   |   | (320,489  | ) |   | -          |  
|Common stock and warrant placement expense |   | (778,750   | ) |   | -         |   |   | -          |  
|                                           |   |            |   |   |           |   |   |            |  
|Net profit/(loss) for the year U.S. GAAP   | $ | (3,297,043 | ) | $ | 204,274   |   | $ | (3,186,035 | )
|                                           |   |            |   |   |           |   |   |            |  
|                                           |   |            |   |   |           |   |   |            |  
|Comprehensive income adjustment for year   |   | -          |   |   | -         |   |   | (70,000    | )
|                                           |   |            |   |   |           |   |   |            |  
|Net Comprehensive income/(loss)            |   |            |   |   |           |   |   |            |  
|for the year U.S. GAAP                     | $ | (3,297,043 | ) | $ | 204,274   |   | $ | (3,256,035 | )
|                                           |   |            |   |   |           |   |   |            |  

d) Earnings/(Loss) per Share

The following is a reconciliation of the numerators and denominators of the
  basic and diluted earnings/(loss) per share calculations for the 2002, 2001,
  and 2000 fiscal years:

- 85 -

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|December 31,                                      |   | 2002       |   |   | 2001      |  |   | 2000        |  
|------------------------------------------------- | - | ---------- | - | - | --------- |  | - | ----------- | -
|                                                  |   |            |   |   |           |  |   |             |  
|Numerator, net profit/(loss) for the year         |   |            |   |   |           |  |   |             |  
|under US GAAP                                     | $ | (3,297,043 | ) | $ | 204,274   |  | $ | (3,186,035) |  
|                                                  |   |            |   |   |           |  |   |             |  
|                                                  |   |            |   |   |           |  |   |             |  
|Denominator: - Basic                              |   |            |   |   |           |  |   |             |  
|Weighted average number of shares                 |   |            |   |   |           |  |   |             |  
|under Canadian GAAP                               |   | 6,869,461  |   |   | 6,489,324 |  |   | 6,160,074   |  
|Adjustment required under US GAAP                 |   | -          |   |   | -         |  |   | -           |  
|                                                  |   |            |   |   |           |  |   |             |  
|Weighted average number of shares                 |   |            |   |   |           |  |   |             |  
|under US GAAP                                     |   | 6,869,461  |   |   | 6,489,324 |  |   | 6,160,074   |  
|                                                  |   |            |   |   |           |  |   |             |  
|Basic earnings/(loss) per share under U.S. GAAP   | $ | (0.48      | ) | $ | 0.03      |  | $ | (0.52       | )
|                                                  |   |            |   |   |           |  |   |             |  
|Denominator: - Diluted                            |   |            |   |   |           |  |   |             |  
|Weighted average number of shares                 |   |            |   |   |           |  |   |             |  
|under Canadian GAAP                               |   | 6,869,461  |   |   | 6,680,384 |  |   | 6,160,074   |  
|Adjustment required under US GAAP                 |   | -          |   |   | -         |  |   | -           |  
|                                                  |   |            |   |   |           |  |   |             |  
|Weighted average number of shares                 |   |            |   |   |           |  |   |             |  
|under US GAAP                                     |   | 6,869,461  |   |   | 6,680,384 |  |   | 6,160,074   |  
|                                                  |   |            |   |   |           |  |   |             |  
|Diluted earnings/(loss) per share under U.S. GAAP | $ | (0.48      | ) | $ | 0.03      |  | $ | (0.52       | )
|                                                  |   |            |   |   |           |  |   |             |  

Due to net losses incurred for the 2002 and 2000 fiscal years,
  stock options and share purchase warrants outstanding were not included in the
  computation of diluted loss per share as the inclusion of such securities would
  be antidilutive.

e) New Accounting Pronouncements

In December 2002, the FASB issued SFAS No. 148, an amendment
  of SFAS 123, Accounting for Stock-Based Compensation, which provides
  alternatives for companies electing to account for stock-based compensation
  using the fair value criteria established by SFAS 123. The Company intends to
  continue to account for stock-based compensation under the provisions of APB
  No. 25.

In August 2001, the FASB issued Statement of Financial Accounting
  Standards No. 143 ("SFAS 143"), Accounting for Asset Retirement Obligations,
  effective for the fiscal years beginning after June 8, 2002. This statement
  provides the accounting for the cost of legal obligations associated with the
  retirement of long-lived assets. SFAS 143 requires that companies recognize
  the fair value of a liability for asset retirement obligations in the period
  in which the obligations are incurred and capitalize that amount as a part of
  the book value of the long-lived asset. That cost is then depreciated over the
  remaining life of the underlying long-lived asset. The Company does not expect
  that the adoption of SFAS 143 will have a material impact on its results of
  operations or its financial position.

During 2002, the company early adopted FASB statement No 145,
  rescission of FASB Statements No 4, 44 and 64, amendment of FSAB No 13 and Technical
  Corrections (SFAS No. 145). SFAS No. 145 requires any gain or loss
  on early extinguishment of debt to be included in income from continuing operations
  instead of being classified as an extraordinary item.

In January 2003, the FASB issued FASB Interpretation No. 46,
  Consolidation of Variable Interest Entities. The objective of this interpretation
  is to provide guidance on how to identify a variable interest entity (VIE) and
  determine when the assets, liabilities, non-controlling interests, and results
  of operations of a VIE need to be included in a company's consolidated financial
  statements. A company that holds variable interests in an entity will need to
  consolidate the entity if the company's interest in the VIE is such that the
  company

- 86 -

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will absorb a majority of the VIE's expected losses and/or
  receive a majority of the entity's expected residual returns, if they occur.
  Interpretation No. 46 also requires additional disclosures by primary beneficiaries
  and other significant variable interest holders. The provisions of this interpretation
  became effective upon issuance. The Company does not expect this interpretation
  to have a material effect on its consolidated financial statements.

In November 2002, the FASB issued FSAB Interpretation No.
  45, Guarantors Accounting and Disclosure requirements guarantees,
  including indirect guarantees of indebtedness of others, which addresses
  the accounting for and disclosure of guarantees. Interpretation 45 requires
  a guarantor to recognize a liability for the fair value of the guarantee at
  inception. The recognition of the liability is required even if it is not probable
  that payments will be required under the guarantee. The disclosure requirements
  are effective for interim and annual financial statements ending December 15,
  2002. The initial recognition and measurement provisions are effective for all
  guarantees within the scope of interpretation 45 issued or modified after December
  31, 2002. The adoption of Interpretation No. 45 is not expected to have a material
  effect on the Companys financial statements.

- 87 -

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Index to Exhibits

|Exhibit Reference | Exhibit Description                                                                                                              | Page Number
|----------------- | -------------------------------------------------------------------------------------------------------------------------------- | -----------
|1                 | Articles of Association
        for the Registrant [1]                                                                           | N/A        
|4.1               | Asset Purchase Agreement
        between the Registrant and Trans-Orient Petroleum Ltd. [2]                                      | N/A        
|4.2               | Variation to Asset Purchase
        Agreement between the Registrant and Trans-Orient Petroleum Ltd. [3]                         | N/A        
|4.3               | Form of Stock Option Agreement
        for all vesting options granted to named directors and officers                           | 89         
|4.4               | Stock Option Agreement
        with David Bennett for performance vesting options                                                | 93         
|4.5               | Farm-out Agreement between
        the Registrant and Krystal Corporation Pte Ltd                                                | 97         
|4.6               | Form of Subscription Agreement
        between the Registrant, Indo-Pacific Energy (NZ) Limited and subscribers
        to IPENZ | 114        
|4.8               | Gas Pre-purchase and Option
        Agreement between the Registrant and NGC New Zealand Limited                                 | 128        
|4.8.1             | Form of Asset Purchase
        Agreement  for each of PEP 38716, PEP 38728 and PEP 38716                                        | N/A        
|4.8.2             | Agreement for Sale &
        Purchase of Data and Shares in Bligh Oil & Minerals NZ Limited                                      | N/A        
|8                 | List of Subsidiaries of
        the Registrant                                                                                   | 140        
|12.1              | Auditors report
        for the fiscal year 2000 [4]                                                                            | N/A        
|99.1              | Section 906 Certification                                                                                                        | 141        

|[1] | Incorporated by reference as previously
        included in our Form 10-K for the year ended December 31, 1997 filed on
        April 8, 1998.   
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                  
|[2] | Incorporated by reference as previously
        included in our Form 8-K filed on April 13, 2000.                                                
|    |                                                                                                                                                  
|[3] | Incorporated by reference as previously
        included in our Form 20-F filed for the year ended December 31, 2001.                            
|    |                                                                                                                                                  
|[4] | Incorporated by reference as previously
        included in our Form 20-F/A filed for the year ended December 31, 2001,
        on June 20, 2003.

- 88 -

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