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**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 Fiscal Year ended December 31, 2004

Commission File No.: 0-29344

**AUSTRAL PACIFIC ENERGY LTD.**
  (Exact name of Company as specified in its charter)

**Yukon Territory, Canada**
  (Jurisdiction of incorporation or organization)

**284 Karori Road, Karori
  WellingtonNew Zealand, 6003**
  (Address of principal executive offices)

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

|Title of each class | Name of each exchange on which registered
|------------------- | -----------------------------------------
|                   
|Common Shares       | American Stock Exchange, TSX-Venture     
|                    | Exchange, New Zealand Stock Exchange     

Securities registered pursuant to Section 12(g) of the Act:
  None

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 Company’s
  classes of capital or common stock as of close of the period covered by the
  annual report: 17,720,045 Common Shares

Indicate by check mark whether the Company: (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 Company was required to file such reports), and (2) has been subject to
  such filing requirements for the past 90 days:
  Yes ý     No o

Indicate by check mark which financial statement item the Company
  has elected to follow. 
  Item 17 ý     Item
  18 o

The Index to the Exhibits is found at Page 86

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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                                                        | 15  
|             | Item 5   | Operating and Financial Review and Prospects                                      | 23  
|             | Item 6   | Directors, Senior Management and Employees                                        | 32  
|             | Item 7   | Major Shareholders and Related Party Transactions                                 | 39  
|             | Item 8   | Financial Information                                                             | 40  
|             | Item 9   | The Offer and Listing                                                             | 40  
|             | Item 10  | Additional Information                                                            | 42  
|             | Item 11  | Quantitative and Qualitative Disclosures About Market
      Risk-                 | 48  
|             | Item 12  | Description of Securities other than Equity Securities                            | 49  
|**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                                                                          | 50  
|             | Item 16A | Audit Committee Financial Expert                                                  | 50  
|             | Item 16B | Code of Ethics                                                                    | 50  
|             | Item 16C | Principal Accountant Fees and Services                                            | 50  
|**Part III** |          |                                                                                   |     
|             | Item 17  | Financial Statements                                                              | 51  
|             | Item 18  | Financial Statements (Not Used)                                                   | 51  
|             | Item 19  | List of Exhibits                                                                  | 52  
|            
|             |          | Signatures                                                                        | 55  
|             |          | Index to Exhibits                                                                 | 86  

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GLOSSARY OF TERMSThe following terms as defined here are used throughout this filing:

Austral PacificorCompanyrefers toAustral
  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.

AC/PAn exploration permit in the Ashmore-Cartier Basin
  in offshore Western Australia, as issued by the Australian government, each
  such permit being identified by number.

AMEXTheAmerican Stock Exchange.

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 a flow rate of one barrel of oil per 24 hour
  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.

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.

FieldA geologically connected area of the subsurface
  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.

Fraccing Abbreviation for a technique of hydraulically
  fracturing a selected formation in order to improve the flow rate of hydrocarbons
  from that formation

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 The general term for oil, gas, condensate
  and other petroleum products.

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Joint Ventureor JVrefers to a standard form
  of participation in petroleum exploration, via unincorporated joint arrangements
  between a number of industry participants, with one party operating the permit
  (i.e. managing the operations) on behalf of all the participants, and Joint
  Venturers has a corresponding meaning.

MbblsOne thousand barrels of crude oil or other liquid
  hydrocarbons.

MMcf One million cubic feet of natural gas.

NZSXThe New Zealand Stock Exchange.

Participating Interest or Working Interest 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.

PEPA Petroleum Exploration Permit as issued by the
  New Zealand government, each such permit being identified by number.

PMP A Petroleum Mining Permit as issued by the New
  Zealand government, each such permit being identified by number.

Permit or Licence An instrument granted by a
  sovereign government, allowing the holder the right in an area for a prescribed
  period of time for exploration, development or production under specific contractual
  or legislative conditions.

Petrophysical Studies and interpretation based upon
  the theory and practice of measuring reservoir rock and fluid transport properties

Pipeline 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.

PPL A Petroleum Prospecting License as issued by the
  Papua New Guinea government, each such permit being identified by number.

PRL A Petroleum Retention License as issued by the
  Papua New Guinea government, each such permit being identified by number.

Productionrefers to the stage of exploitation at which
  hydrocarbons are produced from a discovery on an ongoing basis, intended to
  be continuous until the reservoir is fully exploited; pre-production
  being the stage before full production, during which hydrocarbons are produced
  intermittently to test reservoir characteristics and optimal production methods.

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

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

Proved Reserves 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 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

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owner of the royalty.

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

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
  (usually a test well) 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.

TSX-Vis the TSX Venture Exchange, part of the Toronto-based
  TSX Group, which includes the Toronto Stock Exchange.

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

Austral Pacific Energy Ltd. (the "Company") conducts its operations
  directly and through subsidiaries. The term "Austral Pacific" 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 Austral Pacific'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 Austral Pacific'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 Austral Pacific'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 Austral Pacific's
  crude oil and natural gas reserves, changes or disruptions in the political
  or fiscal regimes in Austral Pacific'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, 2004, 2003, 2002, 2001
  and 2000 is derived from the audited consolidated financial statements of Austral
  Pacific. The audited financial statements of Austral Pacific for the years ended
  December 31, 2004, 2003 and 2002 are included in this Filing. The selected historical
  financial information for the years ended December 31, 2001 and 2000 presented
  in the table below is derived from audited financial statements of Austral Pacific
  that are not included in this Filing. The selected financial information presented
  below should be read in conjunction with Austral Pacific '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 United States GAAP
  (“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
  19 is a reconciliation between Canadian and US GAAP.

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

|Selected Income Statement Data                                                                                                                                                                                                                                 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Amounts in accordance
      with Canadian GAAP                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                               
|Oil and gas sales                                                                                                                                                                                                                                              
|Other income                                                                                                                                                                                                                                                   
|Gain on license sales                                                                                                                                                                                                                                          
|Royalties                                                                                                                                                                                                                                                      
|Production costs                                                                                                                                                                                                                                               
|Interest expense                                                                                                                                                                                                                                               
|General and administrative expense                                                                                                                                                                                                                             
|Depletion                                                                                                                                                                                                                                                      
|Litigation costs and settlement                                                                                                                                                                                                                                
|Write-off of oil and gas properties                                                                                                                                                                                                                            
|Stock option compensation expense                                                                                                                                                                                                                              
|Income (loss) from Operations                                                                                                                                                                                                                                  
|Other Items                                                                                                                                                                                                                                                    
|Income (loss) before income taxes                                                                                                                                                                                                                              
|Income taxes                                                                                                                                                                                                                                                   
|Income (loss) for the year                                                                                                                                                                                                                                     
|Income (loss) per share                                                                                                                                                                                                                                        
|Dividends declared per share                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                               
|[1] In 2002, CICA handbook Sec. 3870, Stock Option
      Based Compensation was adopted 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 expenses                                                                                                                                                                                                                            
|Income (loss) from Operations                                                                                                                                                                                                                                  
|Income (loss) for the year                                                                                                                                                                                                                                     
|Income (loss) per share                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                               
|[2] The Amounts in accordance with US GAAP for
      fiscal yea r 2003 have been restated as described in note 19(e) of the audited
      annual financial statements.                                                                                         

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|Selected Balance Sheet Information                                                                                                                                    
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Amounts in accordance
      with Canadian GAAP                                                                                                                        
|                                                                                                                                                                      
|                                                                                                                                                                      
|                                                                                                                                                                      
|Working capital                                                                                                                                                       
|                                                                                                                                                                      
|Current Assets                                                                                                                                                        
|Due from Related Parties                                                                                                                                              
|Investments                                                                                                                                                           
|Oil and gas properties                                                                                                                                                
|Property & Equipment                                                                                                                                                  
|Deferred offering costs                                                                                                                                               
|Total assets                                                                                                                                                          
|                                                                                                                                                                      
|Current liabilities                                                                                                                                                   
|                                                                                                                                                                      
|Long-term liabilities                                                                                                                                                 
|                                                                                                                                                                      
|Share Capital                                                                                                                                                         
|Contributed surplus                                                                                                                                                   
|Accumulated deficit                                                                                                                                                   
|Shareholders' equity                                                                                                                                                  
|                                                                                                                                                                      
|Amounts in accordance with US GAAP                                                                                                                                    
|Current Assets                                                                                                                                                        
|                                                                                                                                                                      
|Total assets                                                                                                                                                          
|Current liabilities                                                                                                                                                   
|                                                                                                                                                                      
|Long-term liabilities                                                                                                                                                 
|                                                                                                                                                                      
|Paid in capital                                                                                                                                                       
|Accumulated deficit                                                                                                                                                   
|Shareholders’ equity                                                                                                                                                  
|                                                                                                                                                                      
|[1] The amounts in accordance with US GAAP
      for fiscal year 2003 have been restated as described in note 19(e) of 
      the audited annual financial statements.

B. Capitalisation and indebtedness

Not applicable

C. Reasons for the offer and use of proceeds

Not applicable

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D. Risk Factors

Exploration, Development and Production Risks

An investment in the securities of the Company is speculative
  due to the Company’s involvement in the exploration, development and production
  of oil and natural gas, and its present stage of development.

The Company’s principal long term objective is to grow
  the Company into an 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 augment and replace produced
  reserves. The Company seeks additional reserves and production growth through
  carefully considered acquisitions of additional oil and gas properties. The
  Company plans to expand as, and when, available cash flow and meritorious opportunities
  permit. Its long term goal is to maximise capital appreciation of the Company's
  securities to reflect the true value of its existing assets and potential resources
  not yet discovered.

Management will continue to evaluate prospects on an ongoing
  basis in a manner consistent with industry standards and company strategy. The
  long term commercial success of the Company depends on its ability to find,
  acquire, develop and commercially produce oil and natural gas reserves. The
  Company focuses its efforts mainly in the Taranaki region of New Zealand, where
  sizable tracts of acreage can be accumulated, there is a positive history of
  oil exploration success and although the acreage is relatively under explored,
  geological conditions are favorable for hydrocarbon accumulation. This is the
  area where its manpower, expertise and technical resources are already principally
  deployed.

No assurance can be given that the Company will be able to
  locate satisfactory properties for acquisition or participation. Moreover, if
  such acquisitions or participations are identified, the Company may determine
  that current markets, terms of acquisition and participation or pricing conditions
  make such acquisitions or participations uneconomic.

Future oil and gas exploration may involve unprofitable efforts,
  not only from dry wells, but from wells that are productive but do not produce
  sufficient net revenues to return a profit after drilling, operating and other
  costs. Completion of a well does not assure a profit on the investment or recovery
  of drilling, completion and operating costs. 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.

Operating Hazards and Environmental Liabilities

Drilling hazards or environmental damage could greatly increase
  the cost of operations and various field operating conditions may adversely
  affect the production from successful wells. These conditions include, but are
  not limited to, delays in obtaining governmental approvals or consents, shut-ins
  of connected wells resulting from extreme weather conditions, encountering unexpected
  formations or pressures, premature declines of reservoirs, blow-outs, cratering,
  sour gas releases, fires and spills, premature decline of reservoirs and the
  invasion of water into producing formations, insufficient storage or transportation
  capacity or other geological and mechanical conditions. While close well supervision
  and effective maintenance operations can contribute to maximizing production
  rates and recoveries over time, production delays and declines from normal field
  operating conditions cannot be eliminated and can be expected to adversely affect
  the long term continuity of revenue and cash flow levels to varying degrees.

All phases of the oil and natural gas business present environmental
  risks and hazards and are subject to environmental regulation pursuant to a
  variety of local and international conventions, laws and regulations. Environmental
  legislation provides for, amongst other things, restrictions and prohibitions
  on spills, releases or emissions of various substances produced in association
  with oil and natural gas operations. Exploration legislation also requires that
  wells and facility sites be operated, maintained, abandoned and reclaimed to
  the satisfaction of applicable regulatory authorities. Compliance with such
  legislation can require significant expenditures and a breach may result in
  the imposition of fines and penalties, some of which may be material.

Environmental legislation is evolving in a manner expected
  to result in stricter standards and enforcement, larger fines and liability
  and potentially increased capital expenditures and operating costs. The discharge
  of oil, natural gas or other pollutants into the air, soil or water may give
  rise to liabilities to governments and third parties and may require the Company
  to incur costs to remedy such discharge. No assurance can be given

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that environmental laws will not result in a curtailment of
  production or a material increase in the costs of production, development or
  exploration activities or otherwise adversely affect the Company’s financial
  condition, results of operations or prospects.

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.

Oil and Natural Gas Market

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.

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.

Both oil and natural gas prices are unstable and are subject
  to fluctuation. The economics of producing from some wells may change as a result
  of lower prices, which could result in a reduction in the volumes produced by
  the Company. Any material decline in prices could result in a reduction of the
  Company’s net production revenue. The Company might also elect not to
  produce from certain wells at lower prices. All of these factors could result
  in a material decrease in the Company’s net production revenue causing
  a reduction in its oil and gas acquisition and development activities. Whilst
  the Company currently does not do so, in order to partially hedge the effect
  of fluctuating oil and natural gas prices, the Company may in the future enter
  into oil and/or natural gas price swaps that fix the price that the Company
  will receive on a portion of its production for a specified period of time.

Competition

The international petroleum industry is competitive in all
  its phases. The Company competes with numerous other participants in the search
  for oil and gas, the acquisition of oil and gas properties, the marketing of
  oil and natural gas and in obtaining skilled industry personnel. The Company’s
  competitors include oil and gas companies which have greater financial resources,
  staff and facilities than the Company.

Certain of the Company’s customers and potential customers
  are themselves exploring for oil and natural gas, and the results of such exploration
  efforts could affect the Company’s ability to sell or supply oil or gas
  to these customers in the future. The Company’s ability to successfully
  bid on and acquire additional property rights, to discover reserves, to participate
  in drilling opportunities and to identify and enter into commercial arrangements
  with customers will be dependent upon developing and maintaining close working
  relationships with its future industry partners and joint operators and its
  ability to select and evaluate suitable properties and to consummate transactions
  in a highly competitive environment.

Funding Requirements

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 to any one project. The development of
  any reserves found on the Company’s exploration properties may depend
  upon the Company’s ability to obtain further financing through joint venturing
  of projects, debt financing or equity financing.

There is no assurance that market conditions will continue
  to permit the Company to raise funds if required, or that the Company will be
  able to enter into agreements with third parties to fund permit obligations,
  or be able to renegotiate such obligations. If the Company is unable to fund
  the obligations by share issues or farmout agreements or to renegotiate them,
  the Company may be unable to carry out its plan of operations and may be forced
  to abandon some of its permit interests.

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The Company faces competition from other oil companies for
  oil and gas properties and investor dollars. The Company seeks to minimize these
  effects by focussing on the market niches of exploration and early development
  stage properties where its technical competence and experience give it a credible
  advantage. Failure to obtain additional financing on a timely basis could cause
  the Company to forfeit its interest in such properties and reduce or terminate
  its operations. If the Company’s cash flow from operations is not sufficient
  to satisfy its capital expenditure requirements, there can be no assurance that
  additional debt or equity financing will be available to meet these requirements.

Insurance

The Company’s involvement in the exploration for and
  development of oil and gas properties may result in the Company becoming subject
  to liability for pollution, blow outs, property damage, personal injury or other
  hazards. Although the Company has obtained insurance in accordance with industry
  standards to address such risks, such insurance has limitations on liability
  that may not be sufficient to cover the full extent of such liabilities. In
  addition, such risks may not be insurable, in all circumstances, or the Company
  may elect, in certain circumstances, not to obtain insurance to deal with specific
  risks due to the high premiums associated with such insurance or other reasons.
  The payment of such uninsured liabilities would reduce the funds available to
  the Company. The occurrence of a significant event that the Company is not fully
  insured against, or the insolvency of the insurer of such event, could have
  a material adverse effect on the Company’s financial position, results
  of operations or prospects.

Uncertainty of Reserves Figures

Estimates of production expenditures, revenues and reserves
  will likely vary from actual, and these variances may be material. Estimates
  of oil and gas reserves are interpreted from geological, petrophysical and reservoir
  engineering data. Such interpretations are inherently uncertain, as are the
  projections of future rates of production and timing of development expenditures.
  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.

No Assurance of Earnings

The Company currently has one oil and gas property in the
  pre-production stage. The Company has a limited history of earnings and there
  is no assurance that the business of the Company will continue to be profitable.
  The Company cannot guarantee that it will continue generating revenues in the
  future. A failure to generate revenues may cause the Company to eventually go
  out of business. The Company has not paid dividends at any time in its history
  to date and there is no assurance that the Company will pay a dividend at any
  time in the future.

Reliance on Operators and Key Employees

To the extent the Company is not the operator of its oil and
  gas properties, the Company depends on such operators for the timing of activities
  related to such properties and may be largely unable to direct or control the
  activities of the operators, except through joint venture participation and
  voting. In addition, the success of the Company will be largely dependent upon
  the performance of its key employees and on the advice and project management
  skills of various consulting geologists, geophysicists and engineers retained
  by the Company from time to time. The Company’s current CEO and other
  exploration personnel are experienced in the acquisition, exploration and development
  of petroleum properties in New Zealand and other Australasian countries. If
  the current CEO leaves the Company, the Company may have some difficulty in
  immediately finding a person of comparable experience to manage the Company’s
  business. Although there are other personnel available in the sector who could
  replace other Company explorationists, there is likely to be some difficulty
  in finding immediate replacements of suitable calibre.

The Company does not currently maintain key person insurance
  on its CEO or any other employee, and therefore there is a risk that the death
  of any senior officer could have an adverse effect on the Company.

- 12 -

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Risks Relating to Papua New Guinea

Some of the Company’s oil and gas interests are located
  in Papua New Guinea, a developing country which has historically experienced
  minor periods of civil unrest and political and economic instability. Oil and
  gas exploration and development activities in this jurisdiction may be affected
  in varying degrees by political instability, government regulations relating
  to the oil and gas industry and foreign investors and the policies of other
  countries in respect of Papua New Guinea. Exploration or development activities
  in Papua New Guinea and elsewhere may require protracted negotiations with local
  and national governments, companies and third parties and may be subject to
  economic and political considerations, such as taxation, nationalisation, expropriation,
  inflation, currency fluctuations, increased regulation and approval requirements,
  governmental regulation and the risk of actions by lawless factions, any of
  which could adversely affect the economics of exploration or development projects.

Any changes in regulations or shifts in political condition
  are beyond the control of the Company and may adversely affect its business.

Infrastructure development in Papua New Guinea is limited.
  In addition, the Company’s properties are located in remote areas, which
  are difficult to access. These factors may affect the Company’s ability
  to explore and develop its properties and to store and transport its oil and
  gas production. There can be no assurance that future instability in Papua New
  Guinea will not have a material adverse effect on Papua New Guinea and in turn
  on the Company’s financial condition or operations.

Currency Fluctuations and Foreign Exchange

The Company raises its equity in United States, Canadian or
  New Zealand dollars and maintains its accounts in United States and New Zealand
  dollars. The Company’s current property acquisition and exploration commitments
  are denominated primarily in United States or New Zealand dollars and, to a
  lesser extent, in currencies of other countries. Papua New Guinea, in which
  the Company operates, may impose foreign exchange restrictions that may materially
  affect the Company’s financial position and results of operations in that
  country.

The Company 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 Company currently has no specific policies
  relating to this, but manages this risk to some degree by shifting a portion
  of its excess cash from one currency to another in a timely fashion. See also
  Item 5.A.3 – Foreign Currency Fluctuations.

Regulatory Requirements

The current or future operations of the Company, including
  development activities and commencement of production on its properties, require
  permits from various foreign and local governmental authorities and such operations
  are and will be governed by laws and regulations governing oil and gas exploration
  and development, prices, royalties, allowable production, import and export
  of hydrocarbons, restrictions on the withdrawal of capital from a country in
  which the Company is operating, taxes, labour standards, occupational health,
  waste disposal, toxic substances, land use, environmental protection and other
  matters.

The Company’s operations require licenses, permits and
  renewals of these from various governmental authorities. Management believes
  that the Company currently holds or has applied for all necessary licences and
  permits to carry on the activities which it is currently conducting under applicable
  laws and regulations in respect of its properties, and also believes that the
  Company is complying in all material respects with the terms of such licences
  and permits. However, the Company’s ability to obtain, sustain or renew
  such licenses and permits on acceptable terms is subject to changes in regulations
  and policies and the discretion of the applicable governments.

Failure to comply with applicable laws, regulations and permitting
  requirements may result in enforcement actions, including orders to cease or
  curtail operations, and may include corrective measures requiring capital expenditures,
  installation of additional equipment, or remedial actions. Parties engaged in
  oil and gas operations may be required to compensate those suffering loss or
  damage by reason of such activities and may have civil or criminal fines or
  penalties imposed for violations of applicable laws or regulations. Amendments
  to current laws, regulations and permits governing operations and activities
  of oil and gas companies, or more stringent implementation of these, could have
  a material adverse impact on the Company and could cause increases in capital
  expenditures or production costs or reduction in levels of production at producing
  properties or require abandonment or delays in development of new properties.

- 13 -

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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.

Labor Requirements

The Company may be required to hire and train local workers
  in its petroleum and natural gas operations. Some of these workers may be organised
  into labor unions. Any strike activity or labor unrest could adversely affect
  the Company’s ongoing operations and its ability to explore for, produce
  and market its oil and gas production.

Title Matters

The Company has investigated the rights to explore the various
  oil and gas properties it holds or proposes to acquire or to participate in
  and, to the best of its knowledge, those rights are in good standing. However,
  no assurance can be given that applicable governments will not revoke, or significantly
  alter the conditions of, the applicable exploration and development authorisations
  and that such exploration and development authorisations will not be challenged.

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

Such terms and conditions may be renegotiated with applicable
  regulatory authorities, but there is no assurance that the applicable authority
  will agree to the renegotiation offer.

The Company participates in its permits or licences with industry
  participants, some of whom have 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 most 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.

General claims of native peoples in New Zealand and Papua
  New Guinea may adversely affect the rights or operations of the Company, although
  the Company has not received any notice of any direct challenge to any of the
  Company’s titles or tenures.

Non-US Assets and Management

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 and substantially all of the assets of the Company
  are located outside North America. 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 judgments of United States courts predicated upon civil liabilities under
  the United States Securities Exchange Act of 1934, as amended. Furthermore,
  it may be difficult for investors to enforce judgments 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.

- 14 -

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Inadequacy of Public Market

There can be no assurance that a stable market for the Company’s
  common shares will be maintained. If the Company fails to remain current in
  its filings with the SEC, Canadian and New Zealand regulatory authorities, the
  Company may lose its AMEX quotation as well as its Canadian and New Zealand
  listings and the Company’s shareholders may not be able to resell their
  shares in the public market within the United States as well as the overseas
  markets.

Dilution, Change of Control

The Company’s Articles of Continuance authorise the
  issuance of an unlimited number of shares of common stock. The Company’s
  Board of Directors has the power to issue any further shares without stockholder
  approval, but subject to compliance with the policies of the TSX-V and AMEX.
  The Company’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 Company’s common shares.
  If the Company 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 Company. TSX-V policies do require the Company to obtain shareholder approval
  of any transaction which will result in the creation of a new control person.

Conflicts of Interest

Interests in some petroleum properties have been acquired
  in conjunction with, or from, or interests sold to, Trans-Orient Petroleum Ltd.
  and TAG 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.

It is possible that conflicts of interest may arise between
  their duties as director and/or officer of the related companies, and as director
  or officer of the Company. The percentage participation of the Company 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.

Under the Company’s By-laws and the relevant legislation,
  any such conflict of interest is required to be disclosed and any contract in
  which a director or officer 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.

Classification as a Passive Foreign Investment Company

The Company believes it is a Passive Foreign Investment Company
  (“PFIC”), as that term is defined in Section 1297 of the Internal
  Revenue Code of 1986, as amended, and believes it will be a PFIC for, at least,
  the following fiscal year. Consequently, this classification may result in adverse
  tax consequences for U.S. holders of the Company’s shares. For an explanation
  of these effects on taxation, see Item 10, Taxation. U.S. shareholders and prospective
  holders of the Company’s shares are also encouraged to consult their own
  tax advisers.

ITEM 4. INFORMATION ON THE COMPANY

A. History and Development of the Company

|1. | The Company’s legal and commercial name is:
        Austral Pacific Energy Ltd. It changed its name from “Indo-Pacific
        Energy Ltd” on 31 December 2003.                                          
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. | The Company 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 Company is now domiciled in the Yukon in Canada,
        and operates as a corporation under the Business Corporations Act (Yukon).                                                                  

- 15 -

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|   | Its registered office is care of its Yukon attorneys:
|-- | -----------------------------------------------------
|   | Campion Macdonald                                    
|   | Suite 200 Financial Plaza                            
|   | 204 Lambert Street                                   
|   | Whitehorse, YT, Y1A 3T2                              
|   | CANADA                                               
|   |                                                      
|   | Its principal business offices are:                  
|   | Austral Pacific House                                
|   | 284 Karori Road                                      
|   | Karori, Wellington                                   
|   | NEW ZEALAND                                          
|   | Telephone Number: (644)
      476-2717               
|   |                                                      
|4. | Important Events                                     

During fiscal 2004 and up to the date of this report, the Company’s
  portfolio and financial position has changed by the occurrence of the following
  important events:

On April 18, 2005, the Company commenced trading on the American
  Stock Exchange under the symbol AEN.

An exploration drilling operation in Papua New Guinea was
  announced in February 2005. A British public unlisted company, Rift Oil PLC,
  has committed to fund the first $6million of expenditure on the Douglas-1
  well, which will test a large, seismically defined structure in the foreland
  area of the productive Papuan Basin. Planning is underway for this well, which
  is scheduled for late 2005.

On April 28, 2004, the Company signed a preliminary negotiation
  document with Genesis Power, a New Zealand State Owned Enterprise and a leading
  generator and retailer of electricity and gas in New Zealand, to drill Cardiff-2,
  a deep gas well, in PEP38738 in the onshore Taranaki Basin, New Zealand. To
  facilitate this, the Company and PEP 38738 JV participants applied to the New
  Zealand government to divide the original permit (PEP38738) into a 'deep 'permit
  (PEP38738D - covering all pre-Miocene strata) and a 'shallow’ permit (PEP38738S
  – covering all strata from present to base of Miocene). The application
  to split the permit vertically was duly approved. The Company and its JV participants
  in PEP38738D entered into commercial arrangements with Genesis, such that Genesis
  funded the first NZ$15million (approx $11million) of drilling and testing
  costs of the Cardiff-2 appraisal well. In consideration for this, Genesis acquired
  a 40% equity interest in the petroleum rights in PEP38738D, and associated rights
  to purchase all gas for certain specified prices. The transaction included a
  gas sales agreement requiring the JV venture to offer available gas from PEP38738D
  to Genesis for sale in priority to other purchasers, at an indexed price. If,
  within a certain period, Genesis does not accept the offer, the JV may offer
  the gas to any third party. Testing and commissioning gas is excluded from this
  arrangement, but the parties have agreed to negotiate in good faith for supply
  of such gas to Genesis, but without specific priority to Genesis. Genesis, as
  a JV party, has voting rights (and therefore veto rights) over the arrangements
  to be made for gas supply, but subject to applicable competition laws. The Company
  and the JV participants retained all rights to shallow petroleum in PEP38738S,
  including the Cheal field and similar prospects. The Cardiff -2 well has been
  drilled and cased, and three initial 'frac’ stimulations of separate gas
  bearing reservoirs have been successfully completed, although subsequent flow
  data was still pending on clean-up of the well-bore and reservoirs. The well
  awaits flow-test results which are not expected before July 2005.

An agreement was reached in January 2004 with Natural Gas
  Corporation ('NGC’), whereby the PEP38736 JV agreed to sell gas from the
  Kahili gas-condensate field (PEP 38736) in the onshore Taranaki Basin, New Zealand
  to NGC. NGC constructed, owns and operates a separation plant to process the
  raw well stream . NGC also installed 12 km of pipelines to connect Kahili gas
  to the existing NGC pipeline infrastructure. The Kahili field was commissioned
  in August 2004. After initial flow, production declined rapidly, and the well
  was shut-in during November. A different well performance to that recorded in
  the May 2003 production test (on which field development was based) is still
  not understood; but it is unlikely this well will produce again; and the field
  reserve estimate and financial statement value has been written down to zero,
  following an independent assessment. However, as at June 2005 a Kahili-2 well
  placed higher on the mapped structure is being considered by the joint venture
  parties, and may be drilled in the coming twelve months. This may reestablish
  production from the field.

- 16 -

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Production testing utilizing jet-pump technology commenced
  on the Cheal-A3X well in January 2005, and over 30,000 (gross) barrels of oil
  were produced up to April 2005 at an average rate in excess of 300 barrels per
  day. Equipment was then transferred to the Cheal-A3X well, which was brought
  on stream in May 2005 and commenced production at a rate of approximately 450
  barrels of oil per day. Despite stable production performance of both wells,
  regular wax cutting is required to maintain flow rates, given the nature of
  the waxy, high pour point crude, and the low temperature of the reservoir. Further
  on-site expenditure is required in order to produce both these wells, and any
  others drilled from this site, in a continuous and stable manner.

On January 2, 2004, the Company listed on the TSX-V. In conjunction
  with the TSX-V listing, the Company listed on the NZSX on 5 January 2004, raising
  approximately $5.2 million through the issuance of 4 million units. Each
  unit consisted of one common share and a half warrant – each full warrant
  entitling the holder to purchase one additional share, at any time on or before
  January 5, 2005, at a price of approximately $1.37 (NZ$2.10) . An aggregate
  of $500,000 of convertible notes were concurrently issued. Exercise of the
  warrants, together with the exercise of other warrants expiring January 5, 2005,
  led to the issuance by the Company of 9,980,721 shares during fiscal 2004.

|5 & 6. | Principal Capital Expenditures
|------ | ------------------------------

During the last 3 fiscal years the Company 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 and divestitures, also in
  the normal course of operations, the Company sold its interest in New Zealand
  Petroleum Mining Permit 38148 (Goldie and Ngatoro fields) in 2003, as disclosed
  at Note 8 d) Commitments and Contingencies-Legal Settlement of the Company’s
  2004 Financial Statements (Item 17).

|7. | Public Takeovers
|-- | ----------------

The Company is not aware of any planned takeover of its shares
  by third parties.

B. Business Overview

1. Nature of Operations

The Company is an oil and gas exploration and production company
  incorporated in Canada, and based in Wellington, New Zealand. The Company's
  focus is on the acquisition, exploration and development of properties in the
  Australasian region. The Company currently holds varying net interests equivalent
  to approximately 2.6 million acres of exploration permits in New Zealand (gross
  4.2 million acres) and 0.8 million acres of exploration interests in Papua New
  Guinea (gross 1.8 million acres). Previously, the Company also had interests
  in Australia. 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 Company sells oil and gas from producing properties in
  which it holds an interest. As noted in Item 4.A.4 – Important Events,
  during 2004, the Company implemented a development program in PEP 38736 relating
  to the “Kahili” discovery, located in the Taranaki region. The Kahili
  field was commissioned in August 2004 as PMP 38153. After initial good flow,
  production declined rapidly, and the well was shut in during November 2004.
  The Company sells all oil from its production testing of Cheal-A3X and Cheal-A4
  wells at world parity price ( less costs, fees and royalties). It plans to optimise
  field production and oil sales strategy during the course of 2005. It is expected
  that Cardiff-2A will produce gas and condensate on production test during 2005.
  It is expected that condensate will be transported from the site by road tanker,
  for eventual sale at the Omata tank farm at New Plymouth, or other available
  point of sale in the region.

2. Principal Markets

The Company sells its oil production to Swift Energy NZ Limited
  (a subsidiary of Swift Energy Ltd) and Energy Infrastructure Limited (EIL),
  acting through its agent Shell (Petroleum Mining) Company Limited (SPM). The
  oil is sold into the Australasian market. Details of revenues, by geographic
  region and by category, are included in Item 4D. – Property, Plants and
  Equipment.

- 17 -

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3. Seasonality of Company’s business

The Company’s business is generally not seasonal, and
  its revenues are generally 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 Company does not have a reliance on raw materials, as
  it operates in an extractive industry.

5. Marketing channels

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

6. Patents or licences

The Company 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 Company competes with other companies in bidding for the
  acquisition of petroleum interests from various governmental authorities, and
  in exploring and producing oil and gas in the Australasian region. The Company
  does have a competitive position in being the holder of one of the largest acreage
  holdings in onshore New Zealand and several key properties in New Zealand and
  Papua New Guinea. However, the Company is subject to competitive factors as
  detailed in Item 3.D – Risk Factors.

8. Material effects of government regulations

The Company is subject to government regulation of the oil
  and gas properties it holds and of 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 Company (a Canadian company listed on the AMEX in the
  USA, TSX-V in Canada and NZSX in New Zealand) is the parent company of, and
  conducts its operations through, several wholly owned subsidiaries, (and one
  50%-owned company), as set out in Exhibit 8. Substantially all of the Company's
  upstream exploration and development activities are conducted jointly with third
  parties under joint venture agreements.

D. Property, Plant and Equipment

The Company’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 Company has only
  minor office assets held for the purpose of operating the business and some
  oilfield equipment and materials.

Petroleum Properties in New Zealand and Papua New Guinea

The Company holds a number of government issued permits in
  the jurisdictions of New Zealand and Papua New Guinea (and also formerly in
  Australia), which authorise prospecting and exploration for hydrocarbons.For a full list of permits, refer to Note 18 c) of the Company’s 2004
  Financial Statements (Item 17). Between March 31, 2005 and June 30, 2005, the
  following changes have occurred: 
  - the Company’s withdrawal from PEP 38718 was completed; 
  - the joint venture’s surrender of PEP 38768 was completed.

- 18 -

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General

Except for the Kahili discovery in PMP38153 in New Zealand
  and the Elevala, Ketu and Stanley discoveries of hydrocarbons (undeveloped)
  in PRL’s 4 & 5 in Papua New Guinea, the properties of the Company
  are Exploration Permits or Licences and at December 31,2004 had no proven hydrocarbon
  reserves. Subsequent to the end of the fiscal year an independent report by
  Sproule International Limited placed gross Proven reserves in respect to the
  Cheal field at this time of 1.5 million barrels of oil. Sproule also wrote remaining
  Proven reserves in the Kahili property down to zero (see Exhibit 4.12) .

At June 17, 2005, the Company has no encumbrances, liens or
  mortgages on the properties, except as follows:

- a security interest granted by Millennium Oil & Gas
      Limited to NGC New Zealand Limited over Millennium’s 25% interest
      in PEP38736 and PMP38153, to secure performance of the Company under the
      gas prepayment agreement referred to at Note 13 of the Company’s 2004
      Financial Statements (Item 17).

At December 31, 2004 the carrying value of these interests
  is approximately $10,000.

For details of work planned to be done before December 31,
  2005 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 details
  on environmental liability risks, see Item 3.D – Risk Factors.

For definitions of technical terms used in the description
  of properties, see the Glossary of Terms on page 3. The general provisions applying
  to permits or licenses granted by the Governments of New Zealand, Australia
  and Papua New Guinea, government royalties payable, bonds payable (if any) and
  the rules for renewal and default are set out in Note 4-Property and Equipment
  of the Company’s 2004 Financial Statements (Item 17). The Company’s
  material properties, their locations, capital expenditure over the last 3 fiscal
  years, development plans and nature of the Company’s interests are:

Oil and gas information for the Company’s last three fiscal years:

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

|                          | Year        |   | Year        |   | Year        |  
|------------------------- | ----------- | - | ----------- | - | ----------- | -
|                          | Ended       |   | Ended       |   | Ended       |  
|                          | December 31 |   | December 31 |   | December 31 |  
|                          | 2004        |   | 2003        |   | 2002        |  
|Revenues:                 |             |   |             |   |             |  
|New Zealand               | $           |   | $           |   | $           |  
|Sales revenue
      – Oil | 67,015      |   | 159,112     |   | 1,823,142   |  
|Sales revenue
      – Gas | 145,443     |   | 13,603      |   | 22,783      |  
|Less: Royalties           | (15,040     | ) | (33,543     | ) | (184,207    | )
|Sales net of royalty      | 197,418     |   | 139,172     |   | 1,661,718   |  
|Australia                 | -           |   | -           |   | -           |  
|Papua New Guinea          | -           |   | -           |   | -           |  
|Revenue net of royalties  | 197,418     |   | 139,172     |   | 1,661,718   |  

|                      | Year Ended  December 31, 2004 | Year Ended  December 31, 2003 | Year Ended  December 31, 2002
|--------------------- | ----------------------------- | ----------------------------- | -----------------------------
|Oil & Liquids  (Bbls) | Natural Gas  (MMcf)           | Oil & Liquids  (Bbls)         | Natural Gas  (MMcf)          
|Sales:                |                               |                               |                              
|New Zealand           | 4,935                         | 0.064                         | 5,792                        
|Australia             | -                             | -                             | -                            
|Papua New Guinea      | -                             | -                             | -                            

Reserves
  In the year ended December 31, 2004 reserves previously booked for the Kahili
  Gas and Condensate field

- 19 -

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were written down to zero. This followed an independent assessment
  of the Kahili-1A well, the only producing well on the Kahili field, by Sproule
  International Limited using data provided by the Company and from public sources
  (refer to Note 4 of the Company’s 2004 Financial Statements). The total
  carrying value of the Kahili – 1A well of $2,866,603 was written off
  during the year.

The December 31, 2003 reserves quoted for the undeveloped
  Kahili Gas and Condensate field are from an evaluation completed by Sproule
  International Limited on data provided by the Company and from public sources,
  and have an effective date of December 31, 2003 in constant US dollar prices
  and costs. The accuracy of reserves estimates and associated economic analysis
  is, in part, a function of the quality and quantity of available data and of
  engineering and geological interpretation and judgment. As a well matures and
  new information becomes available, revision may be required which may either
  increase or decrease the previous reserve assignments. Sometimes these revisions
  may result not only in a significant change to the reserves and value assigned
  to a property, but also may impact the total company reserve and economic status.
  The reserves and forecasts provided above were based upon technical analysis
  of the available data using accepted engineering principles. However, they must
  be accepted with the understanding that further information and future reservoir
  performance subsequent to the date of the estimate may justify their revision.

The December 31, 2002 reserves quoted for the Ngatoro oil
  field were from the field Operator’s estimated reserves, which are supplied
  annually to the New Zealand Ministry of Economic Development. The field Operator
  at the time was an independent company, New Zealand Oil & Gas Limited, which
  employed its own independent petroleum-engineering experts. The Company 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 differences between the reported Reserves at December 31, 2004,
    2003 and 2002 are:

> - the sale of PMP 38148 (Ngatoro and Goldie fields) 
>     - the addition of Kahili reserves at end 2002 and revision in 2003 
>     - the write-off of Kahili reserves (refer to Note 4 of the Company’s
>     2004 Financial Statements) following an independent assessment by Sproule
>     International Limited.

|                                                           | Reserves, Working
      Interest Before Royalties
|---------------------------------------------------------- | -------------------------------------------------
|                                                           | As at December 31, 2004                          
|                                                           | Oil & Liquids                                    
|                                                           |                                                  
|                                                           | (MBbls)                                          
|Proven                                                     |                                                  
|New Zealand:                                               |                                                  
|Ngatoro– developed                                         | -                                                
|Kahili-undeveloped                                         | -                                                
|Australia                                                  | -                                                
|Papua
      New Guinea                                     | -                                                
|Total
      proven                                         | 0                                                
|                                                           |                                                  
|Standardized
      Measure of Undiscounted Net Cash Flows: |                                                  
|                                                           | US$’ 000                                         
|New Zealand:                                               |                                                  
|Revenue                                                    | -                                                
|Less future production                                     |                                                  
|and
      development costs                                | -                                                
|Net Revenue                                                | 0                                                
|Less
      Taxes                                           | -                                                
|Net income                                                 | 0                                                
|Less
      10% discount                                    | -                                                
|Standardized Measure                                       | 0                                                

The Ngatoro oil reserves in 2003 and 2002 were developed reserves,
  as they were from producing formations in the producing wells. In the year ended
  December 31, 2004 Kahili reserves were shifted to the 'Proven developed’
  category following the completion of field development work and commencement
  of production however at year end all Kahili reserves were de-booked (refer
  to Note 4 of the Company’s 2004 Financial Statements).

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. Royalties payable to the New Zealand

- 20 -

---

government are calculated on an annual basis as the greater
  of 5% of net sales revenue or 20% of adjusted 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.

As at December 31, 2004 no calculations of standardized measure
  of undiscounted and discounted future net cash flow are required as the Company
  has no proved producing oil and natural gas reserves.

The December 31, 2003 undiscounted future net cash flow from
  proved producing oil and natural gas reserves is largely based on information
  provided by in-house reserve calculations and has been calculated with the inclusion
  of all estimated future production and development costs, before royalties .
  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 December 31, 2003 undiscounted
  and discounted future net cash flow have been evaluated by Sproule International
  Limited in accordance with standards set out in the Canadian Oil and Gas Evaluation
  Handbook (the “COGE Handbook”) and have an effective date of December
  31, 2003. The standardized measure of discounted net cash flows from production
  has been calculated on the Company’s 45% interest in the undeveloped Kahili
  gas and condensate field as this is the only interest the Company holds in proven
  oil and gas properties, as at December 31, 2003.

The December 31, 2002 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 Company’s 5% interest in the producing Ngatoro
  oil field and 40.43% working interest (but at the time current 100% revenue
  interest) in the Goldie pool, as these were the only interests the Company holds
  in proven and developed oil properties, as at December 31, 2002.

Subsequent to December 31, 2004 a report was commissioned
  from Sproule International Limited. Sproule assigned 1.511 million barrels of
  Proven Developed and Undeveloped Oil Reserves to the Cheal Field, together with
  1.425 million barrels of Probable Reserves as at 30 April 2005. These figures
  will be subject to amendment in the light of ongoing production experience.
  The Sproule report also summarized the resource potential of the Cardiff structure,
  but as hydrocarbons have yet to be flow-tested from Cardiff-2A in a controlled
  and sustained manner, no reserves were assigned. A summary of the Sproule report
  is available at www.sedar.com under the
  Company’s filings.

Principal Properties

The Company’s material properties, their locations,
  capital expenditure over the last 3 fiscal years, development plans, and nature
  of the Company’s interests are:

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 for other operators.

New Zealand Permit PMP 38148 (Company’s share –
  Ngatoro 5%; Goldie 40.4307%)

By the end of June 2003, the Ngatoro wells (excluding Goldie-1)
  had produced over 3.6 million barrels of oil and 8.4 billion cubic feet of gas.
  Gas continued to be sold under long-term contract, and oil was sold on a monthly
  basis at world market reference prices. At the end of June 2003, production
  from the Ngatoro field was averaging 516 barrels of oil per day (Company share
  26 barrels per day) compared to 800 bopd (Company share 40 bopd) at June 2002,
  and 2.1 million cubic feet of gas per day (Company share 0.10 million cubic
  feet of gas per day). The Goldie-1 well within PMP 38148 remained shut-in throughout
  the year, up to the effective date of sale of PMP 38148 by the Company.

On September 26, 2003 the Company gained regulatory approval
  to sell its interest and entitlement to

- 21 -

---

petroleum in PMP 38148 to Greymouth Petroleum Acquisition
  Company Limited and Southern Petroleum (Ohanga) Limited. The effective date
  of the sale was July 1, 2003.

New Zealand Permit PEP 38736/PMP 38153 (45%)

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 indicated
  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. The Kahili-1A well was subsequently developed and produced
  briefly from August, 2004 to November 2004. Underperformance of the well resulted
  in its being suspended in November 2004.

See Item 4.A.4 – Important Events. Drilling of Kahili-2
  within the coming twelve month interval is being considered. A seismic survey
  within the PEP 38736 permit area was undertaken in May 2005. These data are
  yet to be processed and interpreted.

Undeveloped

New Zealand, Taranaki Basin, North Island

New Zealand Permit PEP 38738 (Deep – 25.1%; Shallow
  - 36.5%)

This permit was acquired by the Company in October 2002, in
  return for the grant of a 25% net profit royalty. Subsequently in September
  2003, the Company purchased the 25% net profit royalty back and final cancellation
  of all private interest royalties over the permit occurred in 2004.

In May 2003, the participants re-entered the Cheal-1 well,
  originally drilled in 1995, which at that time had tested oil and gas from a
  shallow secondary target. A test of the Urenui pay in Cheal-1 well in July 2003
  flowed gas at rates up to 4.5 mmscfd in a one day test period. Further testing
  was deferred until suitable production test equipment was installed. Extended
  flow testing commenced in October 2004, in order to establish developable reserves.
  Analysis of the test results indicates that this well was accessing gas and
  oil reserves from within a few hundred metres of the wellbore and was insufficient
  by itself to justify development.

Cheal-A3X was drilled in May 2004 to test the Mt Messenger
  sands beneath the shallower Urenui oil/gas pay previously discovered in Cheal-1
  & -2. This well discovered oil pay sands over a gross interval of ~60m (~200
  feet) within the Mt Messenger formation. A subsequent flow test during July
  averaged in excess of 300 barrels of oil per production-day, and produced nearly
  7,000 barrels of high value light, sweet crude oil with no water, during a month
  of testing; confirming its 'new field’ discovery status. Cheal-A3X well
  is presently (June 2005) being production-tested pending establishment of long
  term production rights and installation of permanent production infrastructure
  at the Cheal-A site. Cheal-A4 was deviated from the Cheal-A site during October
  2004 to intersect the Mt Messenger reservoir ~300m (~1,000 feet) southeast of
  Cheal-A3X; and Mt Messenger oil pay was again intersected. Following further
  site development to enable improved heating of the well-stream and the installation
  of jet-pumping facilities, Cheal-A4 was put on production test in late January
  2005. Several jet-pump nozzles were trialled, and by end April 2005 the well
  had produced 30,000 barrels of oil and was flowing in a stable manner at an
  average rate of 350 barrels of oil per day. The oil was being transported to
  the nearby Waihapa treatment station for sale. A similar production-testing
  programme is presently underway at Cheal-A3X. Sproule International Limited
  have assigned 1.511 million barrels of Proven Developed and Undeveloped Oil
  Reserves to the Cheal Field, together with 1.425 million barrels of Probable
  Reserves as at 30 April 2005. These figures will be subject to amendment in
  the light of ongoing production experience.

As noted in Item 4.A.4 Important Events, funding of the Cardiff-2
  well was negotiated in 2004. This negotiation resulted in separate joint ventures
  being established for exploration of the shallower petroleum deposits, such
  as the Cheal prospect, and of the deeper deposits, such as the Cardiff prospect.
  The Cardiff-2 appraisal well was spudded in October 2004, to test various gas
  bearing Kapuni Formation sandstones intersected below 4,000m (13,000 feet) in
  Cardiff-1, drilled in 1991. Cardiff-2 reached a TD of 4,895m (16,060 feet) in
  late December; and obtained excellent geological and electric log data across
  the Kapuni reservoir intervals. However, Cardiff-2 had to be abandoned due to
  problems encountered during setting 7” casing over the

- 22 -

---

Kapuni Formation. A Cardiff-2A well was deviated out of the
  Cardiff-2 borehole, and drilled (with one sidetrack) to a depth of 4,931m (16,178
  feet), and successfully logged and cased in preparation for production testing
  as Cardiff-2A ST1. As at early June 2005,successful frac operations had been
  conducted on two reservoir zones, but flow of hydrocarbons under controlled
  test conditions still awaited clean-up of the wellbore and reservoir. A third
  zone is scheduled for frac operations in mid June, and production testing of
  all three zones will continue for up to three months thereafter.

AustraliaOffshore Permits AC/P 19 and AC/P 31 (100%); Timor Sea

These permits are adjacent and were operated in conjunction
  with each other. The Company was required to drill one exploration well in AC/P
  19 by December 29, 2003. This was not done, although both the Ursa and Dorado
  Prospects identified as potential targets for drilling. A variation to the permit
  was sought and granted to allow the Company an extension until July 29, 2004
  to drill a well, due to the lack of availability of a suitable drilling rig.
  Funding was also being sought but was unable to be obtained. AC/P 31 required
  the acquisition of a minimum of 40 kms of new 2D seismic in Years 3 and 4, ending
  September 2003. This was not completed, but purchase of data was offered instead
  and a deferral of the seismic commitment until July 2004 was sought. The Regulator
  rejected the Company’s proposal for AC/P 31, and the permit was surrendered.
  Further delays in obtaining farm-in funding also led to the surrender of AC/P
  19 subsequent to balance date. See footnote 10 to Note 18 c) of the Company’s
  2004 Financial Statements (Item 17).

Offshore Permit AC/P 26 (50%); Timor Sea

The Company's share of the committed work program for the
  2003 fiscal year did not require any expenditures to be incurred. The company
  decided to withdraw from this permit in June 2004, but retains the option to
  participate at 20% contributing and beneficial interest level in the Anson West
  prospect if it is drilled within 2 years of the Company’s withdrawal.
  As at the date of this report, the Company has not received advice of any planned
  drilling in the Anson West prospect.

Papua New Guinea

Papua New Guinea Licence PPL 235 (35%); Onshore Papuan
  Basin

The Company was awarded this permit in August 2003. PPL 235
  covers most of the prospective part of the acreage previously held under PPL
  192 and PPL 215.

The initial work stage of PPL 235 is to drill an exploration
  well within the first two years of the licence. A tested well will cost approximately
  $10,000,000, and both the Kamu and Douglas Prospects are ready for drilling.
  As noted in Item 4.A.4 – Important Events, the Company has obtained farm-in
  funding for the project covering the first $6million of drilling expenditure
  in exchange for a 65% interest in the permit. Planning is underway for this
  well, which is scheduled for late 2005. In the event of a discovery, the site
  is located near a navigable river system suitable for import of necessary hardware
  and export of oil. One or other of Kamu and Douglas will be drilled, with the
  possibility that the other will be drilled 'back to back’ with the first,
  while a rig is in the area. Other prospects and leads are identified, which
  would likely be drilled if the Douglas or Kamu wells are successful.

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, 2004, 2003, and
  2002, together with the notes related thereto. The financial statements have
  been prepared in accordance with Canadian GAAP.A reconciliation to US GAAP is
  provided within Item 5, paragraph 5 below All dollar values are expressed in
  U.S. dollars, unless otherwise stated. All references to daily production are
  before royalty, unless stated otherwise.

1. Operating Results

Summary

- 23 -

---

The Company is in the exploration, production testing or evaluation
  stage on a number of its oil and gas properties. The Company has reported a
  2004 loss of $5,718,533 (under US GAAP – loss of $10,333,619)
  compared to net income in December 2003 year of $47,616. A loss was also
  reported for the 2002 year of $2,826,770. Total losses incurred from incorporation
  to December 31, 2004 were $17,044,994 (under US GAAP –total losses
  of $25,379,683).

Discussion of Material Changes

Production income and expenses

Gross oil production revenue was $67,015 for the year
  ended December, 2004 compared to $159,112 for the year ended December, 2003
  (2002: $1,823,142).

Sales volumes have decreased to 4,935 barrels in 2004 compared
  to 5,792 barrels in 2003 (2002: 85,358 barrels). Production was attributable
  to “test” production from the Company’s interest in PEP38738S
  (3,555 barrels) and production from the Companys interest in PMP38153 (1,380
  barrels). The selling price increased from an average of $28.54 per barrel
  in 2003 to $38.67 per barrel in 2004 (2002: $21.47 per barrel).

The reduction in net production revenue and volumes from 2002
  was mainly due to Goldie-1 well shut-in from August 30, 2002 and the sale of
  interest in the PMP 38148 permit effective from July 1, 2003.

Gross natural gas production revenues were $145,443 compared
  to $13,603 for 2003 (2002: $22,783). The increased revenue was attributable
  to gas produced from the Kahili field – PMP38153.

Direct production costs and royalties were $82,583 versus
  $94,675 in 2003 (2002: $957,012). Depletion of $85,550 (2003: $25,930,
  2002: $106,491) was recorded in regard to the Company’s producing
  properties.

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.

Expenses

General and administrative expenses decreased slightly from
  $1,932,718 (gross) in 2003 to $1,868,690 (gross) in 2004. A foreign
  exchange gain of $197,858 was reduced from the foreign exchange gain of
  $673,909 in 2003. Cost recoveries increased to $930,673 from $477,439
  in 2003 (2002: $403,454) in accordance with recovery mechanisms contained
  within various agreements the Company is a party to.

Administrative expenses included wages and benefits of $605,069,
  listing fees and shareholder communications expenses of $397,902 and miscellaneous
  expenditure of $325,328. Stock compensation decreased from an expense of
  $143,312 in 2003 to a credit of $11,450 in 2004 which reflected Black-Scholes
  valuation using updated input assumptions (refer to Note 9c of the Company’s
  2004 Financial Statements).

The 2004 results included Oil and Gas Properties write offs
  of $5,287,611 compared to write-offs in 2003 of $908,433 (2002 write
  off; $2,783,734). The write off included expenditure totaling $2,781,052
  in relation to PMP 38153 (Kahili) which was written off following an independent
  assessment of reserves which wrote remaining reserves down to nil.

Significant unsuccessful exploration well write offs were
  as follows:

| | - PEP 38741 | $ 508,757 (Honeysuckle)       
| | ----------- | ------------------------------
| | - PEP 38765 | $ 305,513 (Miromiro-1)        
| | - PEP 38748 | $ 232,116 (Hihi-1, Kakariki-1)
| | - PEP 38718 | $ 210,646 (Tuihu-1A)          

In anticipation of an application being made to relinquish
  the Australian permit areas the carrying value ($1,087,656) of all Australian
  work programs was written off. The application to relinquish the Australian
  permit areas was made subsequent to year end.

Interest Income

Interest income of $326,012 (2003; $57,624; 2002:$
  29,518) was earned on surplus cash balances. Interest

- 24 -

---

earned has increased in line with the increased balance of
  cash on deposit throughout the year. .

Interest expense

The Company finances its business primarily from the issuance
  of common shares and from the receipt of petroleum revenues. The Company has
  not previously effected any borrowing and has consequently not incurred any
  significant interest expense.

Capital Expenditure

Oil and Gas Property expenditure for the 2004 fiscal period
  amounted to $2,555,008 (2003: $1,717,643; 2002; $2,470,865). Detailed
  2004 expenditure may be obtained from Note 4 in the 2004 financial statements.

2. Inflation

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

3. Foreign Currency Fluctuations

The Company holds cash reserves in both NZ dollars and US
  dollars. It receives oil revenues in US dollars and incurs expenses and petroleum
  property expenditures in both NZ and US dollars. During 2004 and subsequent
  to the reporting date, the value of the New Zealand currency has increased against
  the value of the US currency. Thehighest and lowest NZ$:US$
  rate throughout the period January 1, 2004 to May 31, 2005 is 0.5910 and 0.7464
  respectively.The Company 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 Company has some expenses payable
  in US dollars and has a natural hedge by using its US dollar funds on hand.
  The Company, however, has no formal policy relating to the foregoing.

4. Government regimes

See Item 3.D –Risk Factors, Item 10.D – Exchange
  Controls and Item 10.E – Taxation for information on the governmental
  policies or factors that could materially affect the Company’s operations
  or investments made by US shareholders.

5. Other

The Company’s consolidated financial statements have
  been prepared in accordance with Canadian GAAP , which differs in some respects
  from United States GAAP. Any differences in accounting principles as they pertain
  to the accompanying consolidated financial statements were insignificant except
  as described below.

|(a) | Convertible Instrument with Beneficial Conversion Feature                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | Emerging Issues Task Force (“EITF”)
        issue No. 00-27 requires an imputed interest expense be recognised for
        convertible instruments with beneficial conversion features. The expense
        is calculated as the excess of (1) the fair value of the common shares
        issuable upon conversion over (2) the proportionate share of the carrying
        value of the convertible instrument allocated to those common shares based
        on their relative fair value compared to all instruments to be issued
        upon conversion.
|   
|    | On January 5, 2004, the Company issued convertible
        notes with a face value of $500,000. The notes were convertible into
        one unit at $1.15. Each unit consists of one common share and one
        warrant. At issuance, the fair value of the units exceeded the carrying
        value of the convertible notes. For US GAAP, the Company recognised $225,503
        of imputed beneficial conversion interests costs.                                                                                                                      
|   
|(b) | Special Class Shares                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    | Under US GAAP, the carrying value of Special Class
        shares should reflect the expected redemption value of the shares at the
        end of the period. Consequently, for the period ended December 31, 2003,
        an accretion expense of $5,732 was recognised to reflect an increase
        in the carrying value of the special                                                                                                                                                                                                                

- 25 -

---

|    | class shares to their expected redemption value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | On November 12, 2003 the Special Class shareholders
        signed a conditional share exchange agreement. On January 5, 2004 the
        conditions of the exchange agreement were met, resulting in the issuance
        of one unit fo every 1.35 Special Class shares. Each unit consisted of
        one common share and one half-warrant in the Company. The 555,569 warrants
        were exercisable at a price of NZ$1.85 any time before January 5,
        2004. Upon issuance of the units by the Company the fair value of the
        warrants were classified as a liability in accordance with SFAS 133 (see
        note 19(c)) with the residual of the Special Class share carrying value
        allocated to Paid in Capital.                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(c) | Derivative Contracts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    | During the year the Company issued two series of
        share purchase warrants with exercise prices stated in New Zealand dollars.
        These warrants require physical settlement in common shares of the Company.
        The Company’s functional currency is in US dollars. Typically, contracts
        indexed to a company’s own stock do not meet the definition of a
        derivative. However, guidance provided by the Derivatives Implementation
        Group in Issue C8 states the difference between the currency of the stated
        exercise price and the functional currency gives rise to an embedded derivative.
        Furthermore, SFAS 133, Accounting for Derivative Instruments and Hedging
        Activity,provides that when an embedded derivative cannot be separated
        from its host contract, that contract must be treated as a derivative
        in its entirety. Accordingly, warrants with a stated exercise price in
        New Zealand dollars are considered derivatives for the purposes of US
        GAAP.                                                                                           
|   
|    | SFAS 133 requires that derivatives be recognised
        as an asset or liability and measured at fair value over their life. Changes
        in fair value are charged to net earnings. During the year the change
        in fair value of those contracts settled resulted in a net realised loss
        of $2,670,591 for the purposes of US GAAP. Warrants outstanding at
        31 December 2004 must be recognised at their fair value with the change
        in fair value charged to the net earnings. Consequently, at December 31,
        2004, a liability of $960,620 was recognised in relation to the fair
        value of unexercised warrants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    | Upon settlement, the carrying value of the liability
        or asset is de-recognised and treated as paid-in capital.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(d) | Stock Based Compensation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    | In 2002 the Company prospectively adopted CICA Handbook
        section 3870, Stock Based Compensation. This standard requires
        the Company to record a compensation expense over the vesting period of
        the options based on the fair value of the options at grant date. Upon
        exercise of the options, the value of expense previously recognised is
        reallocated from contributed surplus to share capital. Under Canadian
        GAAP a stock option compensation cost recovery of $11,450 was recognised
        for the period ended December 31, 2004 (2003; $143,312; 2002: $274,080).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    | For US GAAP, the Company has applied Accounting
        Principles Board Opinion No. 25, Accounting for Stock Issued to Employees,
        to all stock options granted to employees. Under APB 25, the intrinsic
        value model is followed and compensation cost is recognised if the market
        price of the Company’s common shares exceeds the exercise price
        on the date of the grant. During 2001 the Company re-priced all outstanding
        options. The re-priced options are accounted for under variable accounting
        and compensation cost is recognised for the difference between the exercise
        price and the market price of the common shares until such time as the
        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 stock options issued to non-employees the Company
        has adopted SFAS 123, Share based payments, for US GAAP purposes.
        CICA section 3870 is consistent with the recommendations of SFAS 123.
        The additional compensation costs recognized under US GAAP for non-employees
        results from the revaluation of options granted prior to the date of adoption
        of the CICA section 3870.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|    | In 2003 an amendment to the terms of Series A warrants
        was considered a grant of new warrants under SFAS 123. (refer to Note
        9(d) of the Company’s 2004 Financial Statements). Consequently,
        compensation expense of $260,303 was recognised to reflect the amended
        terms of the warrants. The                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

- 26 -

---

| | compensation expenses were calculated using the
      Black-Scholes pricing model with the following assumptions:
| | -----------------------------------------------------------------------------------------------------------------

| | Expected dividend yield   | 0.00  | %    
| | ------------------------- | ----- | -----
| | Expected price volatility | 55.76 | %    
| | Risk-free interest rate   | 1.28  | %    
| | Expected life of option   | 1.04  | years

| | The 2002 Common Stock and Warrant issuance expense
        of $778,750 comprised 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 | 55.76 | %    
| | Risk-free interest rate   | 2.96  | %    
| | Expected life of option   | 0.67  | years

|(e) | New Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | SFAS 123(R)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | In 2004, FASB issued revised SFAS 123(R), Share-Based
        Payment. This amended statement eliminates the alternative to use Accounting
        Principles Board (“APB”) Opinion No. 25’s intrinsic
        value method of accounting, as was provided in the originally issued Statement
        123. As a result, public entities are required to use the grant-date fair
        value of the award in measuring the cost of employee services received
        in exchange for an equity award of equity instruments. Compensation cost
        is required to be recognized over the requisite service period. For liability
        awards, entities are required to re-measure the fair value of the award
        at each reporting date up until the settlement date. Changes in fair value
        of liability awards during the requisite service period are required to
        be recognized as compensation cost over the vesting period. Compensation
        cost is not recognized for equity instruments for which employees do not
        render the requisite service. This amended statement is effective the
        beginning of the first interim or annual reporting period that begins
        on or after June 15, 2005. The Company is currently assessing the impact
        of this amendment.
|   
|    | SAB 106                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | In September 2004, the Securities and Exchange Commission
        issued Staff Accounting Bulletin 106 (“SAB 106”) regarding
        the application of FAS 143 by oil and gas producing entities that follow
        the full cost accounting method. SAB 106 states that after the adoption
        of FAS 143 the future cash flows associated with the settlement of asset
        retirement obligations that have been accrued on the balance sheet should
        be excluded from the computation of the present value of estimated future
        net revenues for purposes of the full cost ceiling test calculation. The
        company has not assessed the impact on the results of the ceiling test
        or depletion, depreciation and amortization calculations of not adopting
        SAB 106 in the fourth quarter of 2004. The company will adopt SAB 106
        from 1 January 2005.                                                                                                                                                                                                                                                                                                                                                                                                                    

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 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.

- 27 -

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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, with the assistance of 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 proven cost center by comparing
  the net capitalized costs to the present value of the estimated future net revenues
  from production of proved reserves, net of the effects of future costs to develop
  and produce the proved reserves, plus the costs of unproved properties net of
  impairment. 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.

The Company has included the asset retirement obligations
  in the capitalized cost of the full cost pool. The Company has also included
  in the calculation of the full-cost ceiling limitation the cash outflows that
  are needed to settle the recorded asset retirement obligations.

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)   | there are no firm plans for further drilling on
        the unproved property;                                     
|----- | -------------------------------------------------------------------------------------------------------------------
|     
|(ii)  | negative results were obtained from studies of the
        unproved property;                                      
|     
|(iii) | negative results were obtained from studies conducted
        in the vicinity of the unproved property; or         
|     
|(iv)  | the remaining term of the unproved property does
        not allow sufficient time for further studies or drilling.

The Company had $85,550 (2003:$25,930) of depletion
  relating to its proven properties and $5,287,611 (2003: $908,433) of
  write downs relating to its proven and unproven properties in the year ended
  December 31, 2004 (refer to Note 4 of the Company’s 2004 Financial Statements
  for further detail)

Stock Options

The Company has recognized stock based compensation expense
  based on the following:

All stock option based awards granted on or after January
  1, 2002 are measured and recognized in the consolidated financial statements
  using a fair value based method. Fair value is calculated using the Black-Scholes
  option-pricing model and the compensation cost is amortized over the vesting
  period. Compensation associated with unvested options is remeasured on each
  balance sheet date using the Black Scholes option pricing model.

The Company measures compensation expense for the options
  where there has been a substantive change or modification to such options on
  each balance sheet date.

This has resulted in a stock option compensation cost recovery
  of $11,450 being recorded in these financial statements for the 2004 year.
  Further details are discussed in A. 5.b. above

B. Liquidity and Capital Resources

1. Liquidity

The Company may raise additional capital from outside sources,
  or to farm-out capital expenditures, or to reschedule and defer commitments
  to meet it’s work program. The Company relies on its ability to raise
  additional capital through the issuance of common shares, which has a dilutive
  effect on the Company's shareholders. In the event that the Company chooses
  to raise additional funding, the Company cannot give assurance that it will
  be able to secure outside sources of capital in an amount that is sufficient
  for it to undertake its work programs. The Company may utilize loan funding
  as an alternative source of funding if this can be achieved in terms that are
  beneficial to the Company.

- 28 -

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The Company had cash and short-term deposits of $11,187,924
  at December 31, 2004 compared to $2,234,287 as of December 31, 2003 (2002;
  $1,292,827). Working capital as at December 31, 2004 was $11,832,438
  versus $1,767,967 for December 31, 2003 (2002; 1,774,680). The improvement
  in the Companys cash and working capital position is attributable to financing
  activities which included the issue of shares and associated warrants to the
  public in New Zealand. Funds were also received from the exercise and conversion
  of various warrants, and options. (refer to Note 9 of the Company’s 2004
  Financial Statements for further detail)

The Company used cash of $65,065 in operating activities
  during the year ended December 31, 2004 compared to cash used in operating activities
  of $2,646,115 in 2003 (2002; cash used of $734,463). $162,894 was
  used for purchases of property and equipment compared to $20,028 in 2003
  (2002; $11,259) and $2,395,754 was expended on the Company’s exploration
  activities versus $2,147,426 for the year ended December 31, 2003 (2002;
  $2,313,445).

No cash was provided from the sale of licences for the year
  ended December 31, 2004 compared to cash provided from the sale of PMP38148
  of $5,000,000 in 2003 ($198,299 in 2002). A gain on sale was recorded
  in respect to this sale following the reduction of the proven cost pool carrying
  value to $nil.

Financing activities raised $11,625,433 for the year ended
  December 31, 2004 compared to $535,442 for 2003 and $1,000,000 for 2001.
  The funds raised were attributable to financing activities as follows:

| | - | public fund raising in New Zealand which raised
        $5,217,992 (before costs of $408,083) through the issue of 4 million
        common shares                                                                                                        
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | - | issue of 2 convertible notes raised $500,000                                                                                                                                                                                                              
| | - | the conversion of warrants (New Zealand public float
        warrants, New Zealand special class warrants, Series A warrants, warrants
        issued on the conversion of the convertible notes and previously issued
        warrants) raised $5,719,941
| | - | the exercise of share options raised $187,500                                                                                                                                                                                                             

No amounts were due or payable to related parties (2003: $52,065
  received and 2002: $23,670 paid).

The net effect of the above noted transactions was an increase
  of cash of $8,953,637 for the year ended December 31, 2004 compared to an
  increase of $941,460 for the 2003 year (2002; decrease of $1,989,180).

The Company’s working capital had decreased by $823,091
  to $11,009,347 at the end of March 2005. The decrease was primarily attributable
  to cash used on oil and gas property expenditure ($1,928,950) offset by
  proceeds from the exercise of warrants ($1,116,175), an increase in accounts
  receivable of $438,478 offset by a decrease in prepaid expenses ($320,778).

2. Capital Resources

The Company's capital resources have historically been comprised
  primarily of private investors, including members of management, who are either
  existing contacts of the Company's management or who come to the attention of
  the Company through personal and business contacts, financial institutions and
  other intermediaries. The 2004 New Zealand Initial Public Offering introduced
  approximately 600 new shareholders to the Company. 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 Company’s previously producing property
  (PMP 38148) was of too small a scale to be used for such purpose. The Company's
  access to capital is always dependent upon general financial market conditions,
  especially those that pertain to venture capital situations such as oil and
  gas exploration companies.

As at the date of this filing, the Company has no binding
  agreements with management, investors, shareholders or anyone else respecting
  additional financing.

Due to the speculative nature of the Company’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 Company are somewhat limited. Other than
  the foregoing, there are no other trends in the nature of its capital resources
  that could be considered predictable.



- 29 -

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3. Capital Commitments

Plan of Operations

At December 31 2004 the Company has the following material
  work obligations within the year ending December 31, 2005:

|Property | Description of Work            | US$       | Source of Funds         
|-------- | ------------------------------ | --------- | ------------------------
|         |                                |           |                         
|PPL 235  | Well                           | 7,500,000 | Working capital/farm out
|PEP38480 | Seismic/permit maintenance/G&G | 416,571   | Working capital         
|PEP38330 | Well/permit maintenance/G&G    | 377,641   | Working capital         
|PEP38741 | Well/permit maintenance/G&G    | 323,550   | Working capital         
|PEP38748 | Well/permit maintenance/G&G    | 269,625   | Working capital         
|PEP38746 | Seismic/permit maintenance/G&G | 193,052   | Working capital         
|PMP38153 | Permit maintenance/G&G         | 169,864   | Working capital         
|PEP38258 | Seismic/permit maintenance/G&G | 134,813   | Working capital         

These estimates have been revised as at May 31, 2005, and
  the amended work obligations are as follows:

|Property    | Description of Work                  | US$     | Source of Funds             
|----------- | ------------------------------------ | ------- | ----------------------------
|PPL235 (1)  | Well                                 | 875,000 | Working capital             
|PEP38738(D) | Drilling/fracture/permit maintenance | 722,381 | Working capital/test revenue
|PEP38716    | Well                                 | 674,750 | Working capital             
|PEP38741    | Well/permit maintenance              | 413,231 | Working capital             
|PEP38738(S) | Permit maintenance/G&G               | 305,588 | Working capital/test revenue
|PEP38753    | Seismic/permit maintenance/G&G       | 217,290 | Working capital             
|PEP38256    | Permit maintenance/G&G               | 170,164 | Working capital             
|PMP38153    | Permit maintenance/G&G               | 107,475 | Working capital             
|PEP38492    | Permit maintenance/G&G               | 93,513  | Working capital             

| | (1) | A farm-out arrangement has been entered into in
        respect to PPL235 which results in the farmee funding the first $6
        million of expenditure.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

In addition to the above required work programs, the Company
  is planning to carry out, but no firm commitment exists, the following significant
  projects during fiscal 2005:

Anticipated Planned Work Before December 31, 2005
  (As at May 31, 2005)

|Property              | Description of Work | ($)     |  | Source of funds             
|--------------------- | ------------------- | ------- |  | ----------------------------
|                      |                     |         |  |                             
|Undeveloped           |                     |         |  |                             
|PEP38480              | Seismic             | 700,000 |  | Working capital/farm-out    
|PEP38738S             | Facilities upgrade  | 638,750 |  | Working capital/test revenue
|                      |                     |         |  |                             
|                      |                     |         |  |                             
|Total Planned Program | 1,338,750           |         | 

In addition to the above significant expenditures planned
  subsequent to May 2005, the Company anticipates various minor expenditures on
  geology and geophysics desk and field studies in various permits as work plans
  are further developed.

For the 5 months to May 31, 2005, the Company has successfully
  funded its projects from working capital , test production revenues and the
  exercise of options. The Company 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 Company intends to
  seek deferral of projects until such time as funding is available. If none of
  these options are possible, the Company would then be required to relinquish
  certain properties without financial penalty.

- 30 -

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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 Company is production and sales of oil. Trends which are also important are oil prices and exchange rates. Oil revenue is subject to international prices, based in US$, therefore NZ$/US$ exchange rate
fluctuations affect the Company’s NZ$ cash reserves.

Oil sales revenue arising from test production in the 2004 fiscal year has been offset against Property & Equipment in accordance with Canadian GAAP.

Oil sales, prices and closing exchange rates for the months subsequent to December 31, 2004 are:

|Month         | Production | Sales | Oil Price | Revenue | Exchange
|------------- | ---------- | ----- | --------- | ------- | --------
|              | BBLs       | BBLs  | US$       | US$     | (NZ/US$)
|              |            |       |           |         |         
|January 2005  | 1,257      | 1,257 | 42.16     | $       | 53,012  
|February 2005 | 2,698      | 2,698 | 51.22     | $       | 138,209 
|March 2005    | 2,858      | 2,858 | 48.86     | $       | 139,643 
|April 2005    | 2,895      | 2,895 | 43.67     | $       | 126,431 

All revenue in the table above arises from test production
  and will be offset against Property & Equipment in accordance with Canadian
  GAAP.

E. Off-Balance Sheet Arrangements

The Company has off-balance sheet arrangements in the form
  of “farm-in” arrangements, whereby a third party will take part
  share of a permit for a premium to recognize the work previously undertaken.
  This is one of the options that the Company has available to meet exploration
  permit commitments. See item 5.B.1. – Liquidity.

Two material “farm-in” arrangements were entered
  into during the reporting period. See item 4 – Important Events.

A British public unlisted company, Rift Oil PLC, farmed-in
  PPL235 (Papua New Guinea) and committed to fund the first $6million of expenditure
  on the Douglas-1 well. In consideration Rift Oil PLC acquired a 65% equity interest
  in respect of PPL 235.

Genesis Power, a New Zealand State Owned Enterprise farmed-in
  to PEP38738D in the onshore Taranaki Basin, New Zealand and in return agreed
  to fund the first NZ$15million (approx $10 million) of drilling costs
  and will fund a certain amount of the flow-testing of the Cardiff-2 appraisal
  well. In consideration Genesis acquired a 40% equity interest in respect of
  the deep petroleum rights in PEP38738D, and associated rights, if Genesis choose
  to exercise the rights, to purchase all gas for certain fixed and market prices.

F. Tabular Disclosure of Contractual Obligations

As at December 31, 2004, the Company has the following contractual
  obligations for Capital Expenditure:

- 31 -

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|Contractual Obligations       | Payments Due by Period
|----------------------------- | ----------------------
|Total                         | Less than 1
      year
|Long Term Debt                | 0                     
|Capital Lease Obligations     | 0                     
|Operating Leases              | 10,070                
|Purchase Obligations          | 0                     
|Other Long Term Obligations   | 10,945,977            
|Total Contractual Obligations | 10,956,047            

(1) Other Long Term Obligations that the Company
  has are in respect to the Company’s share of expected exploration permit
  obligations.(2) Other Long Term Obligations classified as 'After 5 years’
  is in respect to Prepaid gas revenue. The contractual agreement underlying the
  Prepaid gas revenue expires in 2013 but the obligations could arise earlier
  than this depending upon gas discoveries and commercial arrangements entered
  in respect to them. (refer to Note 13 of the Company’s 2004 Financial
  Statements for further detail)

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 Company are as follows:

|Name                    | Residence    | Date of Birth      | Position Held          
|----------------------- | ------------ | ------------------ | -----------------------
|                       
|David Newman [1] [2]    | Wanganui,    | July 23, 1943      | Chairman of the Board, 
|                        | New Zealand  |                    | Director               
|                       
|Ronald Bertuzzi [1] [3] | Vancouver    | August 7, 1937     | Director               
|                        | B.C., Canada |                    |                        
|                       
|Bernhard Zinkhofer      | Richmond,    | May 4, 1955        | Director               
|                        | B.C., Canada |                    |                        
|                       
|Garth Johnson [2] [4]   | Vancouver,   | September 12, 1972 | Director               
|                        | B.C., Canada |                    |                        
|                       
|Peter Tapper [1] [2]    | Auckland,    | August 23, 1932    | Director               
|                        | New Zealand  |                    |                        
|                       
|Dr. David Bennett       | Wellington,  | March 4, 1946      | President,             
|                        | New Zealand  |                    | Chief Executive Officer
|                        |              |                    | Director [5]           
|                       
|Jeanette Watson         | Wellington,  | July 27, 1963      | Corporate Secretary    
|                        | New Zealand  |                    |                        
|                       
|Jenni Lean [6]          | Wellington,  | January 26, 1951   | Commercial Manager     
|                        | New Zealand  |                    |                        
|                       
|Dr. Terry Russell       | Wellington,  | July 15, 1948      | Exploration Manager    
|                        | New Zealand  |                    |                        
|                       
|Nigel Robinson [7]      | Wellington,  | August 20, 1969    | Chief Financial Officer
|                        | New Zealand  |                    |                        
|                       
|Bruce McGregor [8]      | Wellington,  | February 17, 1960  | Chief Financial Officer
|                        | New Zealand  |                    |                        

|[1] | Current member of audit committee
|--- | ---------------------------------



- 32 -

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|[2] | Current member of remuneration committee                                
|--- | ------------------------------------------------------------------------
|[3] | Appointed to audit committee on November 8, 2004                        
|[4] | Resigned from audit committee on November 8, 2004                       
|[5] | Appointed to the Board June 25, 2004                                    
|[6] | Resigned as an officer of the Company effective
        January 29, 2005
|[7] | Resigned effective April 25, 2005                                       
|[8] | Appointed effective April 25, 2005.                                     

Mr. David Newman

Mr. Newman was appointed to the Board in September 2003. Mr.
  Newman is a Chartered Accountant and formerly Chief Executive Officer of the
  Institute of Directors in New Zealand. He previously had a 22 year career with
  British Petroleum, culminating in four years as Chief Executive and Managing
  Director of BP New Zealand Limited (1990 - 1994). During his career with BP,
  Mr. Newman served as CFO of BP Oil South Africa, and as CEO of BP New Zealand
  was direct supervisor for the company’s CFO. Previously, he was 10 years
  with Deloittes, and Ernst & Young, in New Zealand and in the United Kingdom,
  including 5 years as an audit manger. He has served as audit committee chairman
  for a number of New Zealand public issuers and other significant companies.

Mr. Newman’s current directorships include Chairman
  of Infratil Limited (director since February 1994), of Finmedia Limited (director
  since December 1999) and of Wellington International Airport Limited (director
  since December 1998). Mr. Newman is also a member of the Board of Guardians
  of the New Zealand Superannuation Fund and a director of Infratil Airport Holdings
  Limited. Mr. Newman’s past directorships have included Chairman of Norwich
  Union and State Insurance Group in New Zealand, Chairman of the NZ Refining
  Company Limited, member of the advisory board of BP Australia, and a director
  of New Zealand Post Limited.

Mr. Peter Tapper

Mr. Tapper was appointed to the Board in September 2003. Mr.
  Tapper has an honours degree in Civil Engineering from the University of Auckland,
  New Zealand and he has had a career in the oil and gas industry, working for
  Royal Dutch Shell for 34 years (1956-1990). Mr. Tapper’s career included
  a large number of overseas postings, working in Holland, Brunei, Indonesia,
  USA, Qatar and Australia, and he is widely recognised for his extensive experience
  and expertise in offshore and large condensate fields, LNG production and export.
  While employed by Shell, Mr. Tapper held senior management positions, which
  included Deputy Managing Director (and Technical Director) of Shell Brunei,
  and (on secondment from Shell) Executive General Manager of Woodside Offshore
  Petroleum (the operator of the North West Shelf Project, a joint venture between
  Shell, BP Chevron, BHP, Mitsubishi and Mitsui, and Woodside).

Mr. Tapper’s past directorships have included various
  Shell and Woodside companies, Chairman of Mermaid Port and Marine Services,
  the Dawson Group, and Chairman of Coplex Resources Limited. He is a Fellow of
  the Institute of Engineers (Aust), a Fellow of the Energy Institute (UK), a
  Chartered Engineer (UK), Member of the Institution of Civil Engineers (UK) and
  a Member of the Institute of Professional Engineers of New Zealand.

Mr. Ronald Bertuzzi

Mr. Bertuzzi was a member of the board of directors from October
  2, 1992 to October 30, 1996 and was reappointed in March 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. He has now retired but for the 10 years previous, Mr. Bertuzzi
  was a sales manager with El Rad Services of Vancouver, B.C. in Canada.

Mr. Bertuzzi is a past member of the board and a past president
  of Gondwana Energy Ltd. and is a past member of the board of AMG Oil Ltd.

Mr. Bernhard J. Zinkhofer

Mr. Zinkhofer was appointed to the board of directors in March,
  2001 after serving the Company for a number of years as legal counsel. Mr. Zinkhofer
  was educated at the universities of Calgary (B.Comm-1977) and Victoria (LL.B-1983)
  in Canada and is accredited as a Chartered Accountant (1980) and as a lawyer
  (1984).

- 33 -

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He has practised law as a partner at the Canadian law firm
  of Lang Michener LLP in their Vancouver, British Columbia office since 1992.

Mr. Zinkhofer also serves or has served as a director of Trans-Orient
  Petroleum Ltd (1997-2003), TAG Oil Ltd. (1997 – 2003), Strategic Technologies
  Inc. (1995 to present), Helijet International Corp. (1996 - 2004), Foran Mining
  Corp. (1997 – 2000), Caliente Capital Corp. (1999 – 2003), Verida
  Internet Corp. (1999 – 2001) and Arrabbiata Capital Corp. (2002 - 2004).

Mr.Garth Johnson

Mr. Johnson was appointed as a director of the Company in
  May 2003. Mr. Johnson started working with the Company and its associated companies
  in 1997 as the Corporate Accountant. Mr. Johnson has been engaged in the administration
  of private and public businesses since 1994 and he provides the Company with
  extensive experience in finance, accounting and regulatory reporting for international
  oil and gas companies. Mr. Johnson is a Certified General Accountant.

Mr. Johnson is also a Board member, CFO and Corporate Secretary
  of TAG Oil Ltd., and is a former Treasurer and Corporate Secretary of Gondwana
  Energy Ltd., and former CFO director and Corporate Secretary of Trans-Orient
  Petroleum Ltd. Mr. Johnson is an employee of DLJ Management Ltd. which provides
  services to the Company.

Dr. David Bennett

Dr. Bennett has over 35 years exploration experience, together
  with various research posts. He joined the Company in 1996, subsequently becoming
  Chief Executive Officer, President and a director in October 1996. He accommodated
  the addition of Messrs Newman and Tapper to the Board by resigning as a director
  of the Company in September 2003 but remained its President. He was re-appointed
  to the Board on June 25, 2004.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 postdoctoral 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
  Issuer and other associated companies.

Dr. Bennett was formerly President and a director of Trans-Orient
  Petroleum Ltd. (1997-2001), a director of Durum Cons. Energy Corp. (since re-named
  TAG Oil Ltd.) (1997-2001) and AMG Oil Ltd. (1998-2003)

Ms Jeanette Watson

Ms. Watson was appointed as Company Secretary in 2000. Ms
  Watson has a B.Sc. (Geology) and an LLB from Victoria University in Wellington,
  New Zealand and is qualified as a lawyer. She has practised commercial and corporate
  law (1986 to 1989 and 1992 to 2000) at Rudd Watts & Stone (now called Minter
  Ellison Rudd Watts) at their Wellington 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 Company.

Dr. Terry Russell

Dr. Russell has a B.Sc (Hons) from Victoria University in
  Wellington, New Zealand and a PhD from the University of New England, New South
  Wales. He has over 25 years experience in oil and gas exploration, principally
  working with junior oil explorers. Dr. Russell joined the Company as Exploration
  Manager in 2002. Prior to joining the Company, he most recently worked for the
  Australian-based Bligh Oil & Minerals NL where he was responsible for managing
  Bligh's operated and non-operated permits in New Zealand and Tunisia. Dr. Russell
  has worked on exploration and/or development projects in New Zealand, Australia,
  the United States, Argentina and Tunisia. He has extensive experience in the
  development of exploration plays and prospect generation; seismic and drilling
  operations; and government liaison, project and joint venture management.



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Ms Jenni Lean

Ms Lean has a B.Sc. and MBA from Victoria University in Wellington,
  New Zealand. She has experience as a computer programmer at the Australian National
  University in Canberra, taught mathematics and science in Wellington and has
  worked in the strategic planning division at New Zealand’s government
  science research body. She has been Executive Officer for New Zealand’s
  rural consultants body and an integral part of a forestry trading group in New
  Zealand. Since 1995 she has been involved with the Company as part of the senior
  management team, previously as Commercial Manager and currently as a contractor
  to the Company. Ms Lean’s spouse, Dr. Bennett, is the Company’s
  Chief Executive Officer.

Mr. Nigel Robinson

Mr. Robinson has a B.Com (Accounting) from Otago University
  in Dunedin, New Zealand and is a Chartered Accountant member of the Institute
  of Chartered Accountants of New Zealand. He joined the Company in September
  2003 and was appointed Chief Financial Officer December 1, 2003. He resigned
  from this position effective April 25, 2005. He has expertise in corporate reporting/accounting
  and business processes. Mr. Robinson has been a fishery officer, investigating
  accountant for the Ministry of Agriculture and Fisheries, assistant financial
  accountant, internal auditor, general accounting manager and external auditor.
  He has been involved in the down stream operations of the oil industry with
  roles as internal auditor and general accounting manager with Caltex New Zealand
  Limited, a Chevron/Texaco subsidiary.

Mr. Bruce McGregor

Mr. McGregor is a Chartered Accountant, a member of the Institute
  of Chartered Accountants of New Zealand and a member of the Institute of Directors
  in New Zealand. He joined the company as Chief Financial Officer in April 2005.
  He has previously worked for Methanex New Zealand and Fletcher Challenge Energy
  in various accounting, finance and commercial roles. Prior to joining the Company,
  Mr. McGregor worked for Shell (Petroleum Mining) Company, a member of the Royal
  Dutch Shell Group, as Finance Manager.

Events Subsequent to December 31, 2004

On April 25, 2005, Mr. Robinson resigned as CFO of the Company
  and was replaced by Mr. Bruce McGregor.

On January 29, 2005, Ms Jenni Lean resigned as Commercial
  Manager of the Company and remains as a contractor to the Company. No appointment
  to the position of Commercial Manager has been made.

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, 2004:

- 35 -

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SUMMARY COMPENSATION TABLE

|                        |              |             |                                      |               |      |              | Beneficial
|----------------------- | ------------ | ----------- | ------------------------------------ | ------------- | ---- | ------------ | ----------
|Name and                | Compensation |             | Securities Under Option
      [1][2] | Ownership [2]
|Position with Company   | Salary       | Other       | Number of                            | Exercise      |      | Expiry Date  |           
|                        | ($)          | ($)         | Options                              | Price         |      |              | Number    
|                        |              |             |                                      |               |      |              |           
|Dr. David Bennett       |              |             |                                      |               |      |              |           
|President,  Chief       | $223,373     | $Nil [3]    | 400,000                              | $1.00         | [4]  | Jul 6, 2005  | 821,768   
|Executive Officer       |              |             | 200,000                              | $1.00         | [5]  | Jul 6, 2005  | [7]       
|                        |              |             | 300,000                              | $1.00         | [6]  | Oct 15, 2007 |           
|                        |              |             |                                      |               |      |              |           
|David Newman            |              |             |                                      |               |      |              |           
|Chairman, Director      | $Nil         | [8]         | 25,000                               | $1.25         | [9]  | Oct 15,2008  | [10]      
|                        |              |             |                                      |               |      |              |           
|Ronald Bertuzzi         |              |             |                                      |               |      |              |           
|Director                | $Nil         | [8]         | 25,000                               | $1.25         | [4]  | Jul 6, 2005  | 38,358    
|                        |              |             |                                      |               |      |              |           
|Bernhard Zinkhofer      |              |             |                                      |               |      |              |           
|Director                | $Nil         | $Nil [3][8] | 75,000                               | $1.25         | [9]  | Mar 26, 2006 | [10]      
|                        |              |             |                                      |               |      |              |           
|Garth Johnson           |              |             |                                      |               |      |              |           
|Director                | $Nil         | [3][8]      | 10,000                               | $1.25         | [4]  | Jul 6, 2005  | [10]      
|                        |              |             | 10,000                               | $1.25         | [11] | Jun 25, 2009 |           
|                        |              |             |                                      |               |      |              |           
|Peter Tapper            |              |             |                                      |               |      |              |           
|Director                | $Nil         | [8]         | 25,000                               | $1.25         | [9]  | Oct 15,2008  | [10]      
|                        |              |             |                                      |               |      |              |           
|Jeanette Watson         |              |             |                                      |               |      |              |           
|Corporate Secretary     | $Nil         | $73,368     | Nil                                  |               |      |              | [10]      
|                        |              | [12]        |                                      |               |      |              |           
|                        |              |             |                                      |               |      |              |           
|Dr. Terry Russell       |              |             |                                      |               |      |              |           
|Exploration Manager     | $145,992     | $Nil        | Nil                                  |               |      |              | [10]      
|                        |              |             |                                      |               |      |              |           
|Nigel Robinson [13]     |              |             |                                      |               |      |              |           
|Chief Financial Officer | $50,944      | $Nil        | Nil                                  |               |      |              | [10]      
|                        |              |             |                                      |               |      |              |           
|Bruce McGregor [14]     | $Nil         | $Nil        | Nil                                  |               |      |              | Nil       
|Chief Financial Officer |              |             |                                      |               |      |              |           
|                        |              |             |                                      |               |      |              |           
|Jenni Lean [15]         |              |             |                                      |               |      |              |           
|Commercial Manager      | $Nil         | $39,438     | Nil                                  |               |      |              | 821,768   
|                        |              | [3][12]     |                                      |               |      |              | [7]       

|[1] | Each option was granted without purchase price and
        entitles the holder to the issue of one common share, upon payment of
        the exercise price. All options have an expiry period of 5 years                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|[2] | Common shares and common shares under vested options
        or exercisable warrants held directly or indirectly by directors or officers
        of the Company, as at June 17, 2005. Percentage calculated as a percentage
        of common shares issued
|[3] | During the fiscal reporting period, certain further
        amounts were received – for details, see the disclosures at Item
        7.B – Related Party Transactions                                                                                       
|[4] | Options were granted on October 15, 2002, under
        substantially the same terms as the vesting options agreement of July
        6, 2000, except that all vestings were accelerated to be completed by
        April 15, 2005                          
|[5] | Stock Options not subject to vesting provisions                                                                                                                                                                                                             
|[6] | Vesting of Stock Options subject to performance
        measurement                                                                                                                                                                                         
|[7] | David Bennett and Jenni Lean are spouses, so each
        individual’s options and shareholdings are aggregated with the others
        in calculating beneficial holdings                                                                                  

- 36 -

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|[8]  | Individual amounts are not required to be disclosed
        by the Company’s home jurisdiction                                                                 
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|[9]  | Stock Options vest over a period of 18 months                                                                                                                  
|[10] | Common shares and common shares under vested options
        or exercisable warrants beneficially owned is less than one percent of
        total common shares
|[11] | Stock Options vest over a period of 3 years                                                                                                                    
|[12] | Ms Lean and Ms Watson are contractors to the Company,
        not employees, and therefore do not receive salary payments                                      
|[13] | Mr. Robinson resigned with effect from April 25,
        2005                                                                                                  
|[14] | Mr. McGregor was appointed with effect from April
        25, 2005                                                                                             
|[15] | Ms Lean resigned as an officer of the Company with
        effect from January 29, 2005                                                                        

Compensation of Directors

The Chairman (if non-executive) receives $25,000 per year,
  the chairman of the audit committee receives $20,000 per year and each other
  non-executive director (except Mr. Zinkhofer) receives $5000 to $7,500
  per year. In fiscal 2004, the total amount paid to directors was $58,954.

Stock Options

In fiscal 2004, 170,000 shares were granted to senior managers
  of the Company pursuant to exercises of incentive stock options (20,000 at an
  exercise price of $1.25; 150,000 at $1.00) .

10,000 options were granted to Mr. Johnson as approved by
  the directors on February 13, 2004, with an effective date of June 25, 2004,
  after approval of the Share Option Plan at the 2004 AGM. These were the only
  options granted by the Company during fiscal 2004. The exercise price is $1.25.
  The expiration date of the options is June 25, 2009.

Indemnification of Directors and Officers

The Company 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.

C. Board practices

1. Term of office

All directors have a term of office expiring at the next annual
  general meeting of the Company, but are eligible for re-election, unless a director's
  office is earlier vacated in accordance with the Company’s By-laws 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 17, 2005)    
| | DIRECTORS          |                          
| | David Newman       | 2 years                  
| | Ronald Bertuzzi    | 7 years                  
| | Bernhard Zinkhofer | 4 years                  
| | Garth Johnson      | 2 years                  
| | Peter Tapper       | 2 years                  
| | Dr. David Bennett  | 1 year                   
| |                    |                          
| | OFFICERS           |                          
| | Dr. David Bennett  | 9 years                  
| | Jeanette Watson    | 5 years                  
| | Dr. Terry Russell  | 2 years                  
| | Bruce McGregor     | 2 months                 

- 37 -

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|2. | Directors’ service contracts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | No director has a contract that provides for any
        benefits upon termination of his/her service as a director.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   | The Company has a management agreement with a subsidiary,
        Austral Pacific Energy (NZ) Limited, which company 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, upon termination without cause, he will be paid two months
        severance for each year of service since October 1997 (limited to a maximum
        of 24 months’ pay) and six months severance in lieu of equivalent
        notice.
|  
|3. | Audit and remuneration committees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

| | List of Audit Committee members as at June 17,
      2005:       
| | -----------------------------------------------------------------
| |                                                                  
| |                                                                  
| |                                                                  
| |                                                                  
| | List of Remuneration Committee members as at June
      17, 2005:
| |                                                                  
| |                                                                  
| |                                                                  

| | The Board adopted an Audit Committee
        Charter on April 24, 2004 (amended on November 8, 2004)  governing
        the conduct of the audit committee, and adopted procedures for receiving
        and dealing with  accounting complaints on November 8, 2004. The
        Audit Committee monitors the veracity of the financial  and regulatory
        reports produced by the Company, and the controls that are in place to
        ensure the  opportunities for fraud or material error in the financial
        statements of the Company are minimised. The  Charter which sets
        out the committee’s responsibilities, procedures for communication
        with the auditor,  and against which the committee’s performance
        is measured.                                                                                                                                                                                                                                                                                
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | The Board of Directors established a
        remuneration committee in April 2004. This committee currently consists
        of Mr. Newman (Committee Chair), Mr. Johnson and Mr. Tapper. Dr. Bennett,
        who was then, and remains, CEO of the Company, was a member of the committee
        from April 2004 until his replacement on the committee by an independent
        director, Mr. Tapper, on November 8, 2004. The Board established terms
        of reference for the remuneration committee on June 25, 2004. Directors
        and officers’ remuneration must be considered by the remuneration
        committee. The remuneration committee also approves grants of incentive
        stock options to management and other service providers, under the criteria
        of the 2004 Share Option Plan and the policy adopted by the Board. Any
        variation from the policy or the Plan rules, and all options granted to
        directors, must be approved by the dis-interested directors, of the full
        Board.

D. Employees

As of December 31, 2004, the Company employed seven people
  full time in its Wellington, New Zealand office. The persons employed in the
  Wellington office are the president/chief executive officer and six persons
  occupied with technical support, company and joint venture accounting, financial
  reporting, and office management. In addition, another two persons were employed
  in the 2004 year on a part time basis to assist in technical and administrative
  support.

In addition to the foregoing, the Company 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 established a share option plan for the granting
  of options to employees and service providers, which plan was approved by shareholders
  on June 25, 2004 at the AGM, and accepted by the TSX-V. The Plan was attached
  as an Exhibit to the Company’s Form 20-F filing in 2004. The Plan provides
  for the Board to issue non-assignable, non-transferable options, with a term
  of up to 5 years, terminating within 90 days after

- 38 -

---

the optionee ceases to be associated with the Company, at
  an exercise price not less than the TSX-V specified Discounted Market Price,
  such options vest over 3 years.

Stock options granted before this Plan was put in place were
  issued at exercise prices determined by the Board of Directors, with options
  vesting over 18 months. These options are non-transferable, non-assignable with
  a term of 5 years, terminating 45 days after the optionee ceases to be associated
  with the Company.

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 or ascertained from
        public filings, the only persons holding, directly or indirectly, five
        percent or more of the Company's Common Stock and rights to acquire stock
        within 60 days, are listed below (as of June 17, 2005) [update final
        draft]:

|Beneficial Owner                 | Number of Shares andRights | Percent of Class
|-------------------------------- | -------------------------- | ----------------
|Mr. P Loretto [1]                | 2,210,790                  | 11.88 %         
|Mr. A Guidi [2]                  | 1,560,591                  | 8.39 %          
|Trans-Orient Petroleum Ltd.[3]   | 1,414,940                  | 7.60 %          
|Exploration Capital Partners Ltd | 1,015,196                  | 5.45 %          

| | [1] | Mr. Loretto is a former director of the Company,
        and the President, CEO and a director of Trans- Orient Petroleum Ltd.
        Mr. Loretto is also a principal shareholder of Trans-Orient Petroleum
        Ltd and as such all holdings disclosed in relation to Trans-Orient Petroleum
        Ltd are also included in Mr. Loretto’s holdings.                 
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | [2] | Mr. Guidi is a former director of the Company.                                                                                                                                                                                                                                                                                                                             
| | [3] | 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 Petroleum Ltd. Mr. Johnson previously served as CFO, Corporate
        Secretary and a director of Trans-Orient Petroleum Ltd.

| | 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, other than
        the transfer of control of  Trans-Orient Petroleum Ltd. from Mr.
        Guidi to Mr. Loretto in November 2003, thereby transferring  beneficial
        interest in Trans-Orient’s holdings in the Company from Mr. Guidi
        to Mr. Loretto, and the  acquisition by Exploration Capital Partners
        Limited Partnership of more than 5% of the capital of the  Company
        during 2004. The Company’s major shareholders do not have different
        voting rights.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2. Host country shareholders

To the knowledge of the Company, 4,324,637 common shares are
  held by 1002 registered shareholders in the United States representing 23.24
  per cent of the total common shares outstanding as at June 16, 2005.

3. Controlling shareholders

Mr. Peter Loretto, a resident of Canada, directly and via
  his controlling position in Trans-Orient Petroleum Ltd, controls an undiluted
  11.88% 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
  or issuances of common shares of the Company which have materially affected
  control of the Company since the last Annual General Meeting of the Members
  of the Company held on June 8, 2005, 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, other than the issue of shares upon the exercise
  of warrants disclosed in the Company’s filings in fiscal 2004.

- 39 -

---

B. Related party transactions

During 2004, the Company incurred $223,373 (2003: $197,165;
  2002: $152,177) in remuneration to the President of the Company and $37,553
  (2003: $32,741; 2002: $24,245) in rent to a trust in which the President
  of the Company is a trustee. Also during 2004, $33,718 (2003: $111,634;
  2002: $104,179) was paid to the President of the Company’s spouse,
  in her role as Commercial Manager.

Other directors received a total remuneration of $58,954
  during 2004. (2003:$20,986; 2002:$12,001).

During 2004 the Company paid a law firm in which a Director
  is a partner, $81,771 (2003: $95,980; 2002: $16,490) for legal services.

The Company also paid a company that employs a Director, $18,000
  (2003: $9,454; 2002: $Nil) for financial services.

Interests in some petroleum properties have been acquired
  in conjunction with, or from, or interests sold to, Trans-Orient Petroleum Ltd.
  and TAG 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.

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.

C. Interests of experts and counsel

Not applicable

ITEM 8. FINANCIAL INFORMATION

A. Consolidated Statements and Other Financial Information

Consolidated financial statements for the 12 months ended
  December 31, 2004 are provided under PART III. Item 17. Financial Statements.

There are no material legal proceedings to which the Company
  is subject or which are anticipated or threatened. Previously the Company was
  subject to proceedings as detailed in Note 8 d) to the Company’s Financial
  Statements (Item 17).

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.

B. Significant Changes

No significant changes material to the Company’s business
  have occurred since the date of the annual financial statements, except as disclosed
  in Note 15-Subsequent Events to the Company’s Financial Statements (Item
  17) and in Items 4.A.4 Important Events and 4.D Property, Plants and Equipment.

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, 2004:

- 40 -

---

|Year     | OTCBB
      (1)(2)(6) | OTCBB | NZSX
      (2)(4) | NZSX | TSX-V
      (2)(5) | TSX-V | AMEX
      (2)(6) | AMEX
|-------- | --------------------- | ----- | ----------------- | ---- | ------------------ | ----- | ----------------- | ----
|         | High                  | Low   | High              | Low  | High               | Low   | High              | Low 
|         |                       |       |                   |      |                    |       |                   |     
|         |                       |       |                   |      |                    |       |                   |     
|2000 (3) | 4.75                  | 0.63  | 3.75              | 2.45 | No trades          |       | No trades         |     
|2001 (3) | 2.75                  | 0.71  | 1.55              | 1.55 | No trades          |       | No trades         |     
|2002     | 1.50                  | 0.63  | No trades         |      | No trades          |       | No trades         |     
|2003     | 1.55                  | 0.35  | No trades         |      | No trades          |       | No trades         |     
|2004     | 3.40                  | 1.30  | 3.28              | 1.35 | 3.38               | 1.32  | No trades         |     

Summary trading by quarter for the two most recently competed
  fiscal periods ending December 31, 2004:

|Year/
      Quarter | OTCBB
      (1)(2)(6) | OTCBB | NZSX
      (2)(4) | NZSX | TSX-V
      (2)(5) | TSX-V | AMEX
      (2)(6) | AMEX
|------------------- | --------------------- | ----- | ----------------- | ---- | ------------------ | ----- | ----------------- | ----
|                    | High                  | Low   | High              | Low  | High               | Low   | High              | Low 
|                    |                       |       |                   |      |                    |       |                   |     
|2003                |                       |       |                   |      |                    |       |                   |     
|Quarter 1           | 1.02                  | 0.35  | No trades         |      | No trades          |       | No trades         |     
|Quarter 2           | 1.02                  | 0.55  | No trades         |      | No trades          |       | No trades         |     
|Quarter 3           | 1.20                  | 0.78  | No trades         |      | No trades          |       | No trades         |     
|Quarter 4           | 1.55                  | 0.81  | No trades         |      | No trades          |       | No trades         |     
|                    |                       |       |                   |      |                    |       |                   |     
|2004                |                       |       |                   |      |                    |       |                   |     
|Quarter 1           | 2.40                  | 1.30  | 1.79              | 1.34 | 2.41               | 1.32  | No trades         |     
|Quarter 2           | 2.68                  | 1.75  | 2.41              | 1.60 | 2.71               | 1.72  | No trades         |     
|Quarter 3           | 2.60                  | 1.95  | 2.67              | 2.05 | 2.56               | 1.93  | No trades         |     
|Quarter 4           | 3.40                  | 2.68  | 3.28              | 2.66 | 3.38               | 2.81  | No trades         |     
|                    |                       |       |                   |      |                    |       |                   |     
|2005                |                       |       |                   |      |                    |       |                   |     
|Quarter 1           | 3.80                  | 2.70  | 3.57              | 2.87 | 3.77               | 2.64  | No trades         |     

Summary trading for the six most recently completed months
  ending May 31, 2005

|Month    | OTCBB
      (1)(2)(6) | OTCBB     | NZSX
      (2)(4) | NZSX | TSX-V
      (2)(5) | TSX-V | AMEX
      (2)(6) | AMEX
|-------- | --------------------- | --------- | ----------------- | ---- | ------------------ | ----- | ----------------- | ----
|         | High                  | Low       | High              | Low  | High               | Low   | High              | Low 
|         |                       |           |                   |      |                    |       |                   |     
|Dec 2004 | 3.15                  | 2.78      | 3.14              | 2.66 | 3.24               | 2.81  | No trades         |     
|Jan 2005 | 3.00                  | 2.70      | 3.09              | 2.87 | 2.92               | 2.64  | No trades         |     
|Feb 2005 | 3.40                  | 2.80      | 3.29              | 2.93 | 3.35               | 2.72  | No trades         |     
|Mar 2005 | 3.80                  | 2.76      | 3.57              | 3.11 | 3.77               | 2.86  | No trades         |     
|Apr 2005 | 3.30                  | 2.85      | 3.20              | 3.04 | 3.25               | 2.80  | 3.30              | 2.85
|May 2005 | no trades             | no trades | 3.27              | 3.13 | 3.51               | 2.83  | 3.47              | 2.86

|(1) | OTCBB quotations may reflect interdealer prices,
        without retail markup, markdown or commission and may not necessarily
        reflect actual transactions.                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | All OTCBB and AMEX quotes are from www.amex.com.
        All TSX-V prices are from www.tsx.comand
        NZSX (listed) prices are from www.finance.yahoo.com. All NZSE Unlisted trades prices
        are from www.directbroking.co.nz. Quoted prices are closing prices.
|(3) | The Company 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.                                                                                   
|(4) | The Company was listed on the NZSX’s unlisted
        market board until the end of 2003. From January 6, 2004, the Company
        was quoted on the NZSX main board.                                                                                                    
|(5) | The Company listed on the TSX-V from January 2,
        2004.                                                                                                                                                                                                             
|(6) | The Company listed on the AMEX from April 18, 2005,
        and de-listed from the OTC-BB at that time.                                                                                                                                                                   

- 41 -

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B. Plan of Distribution

Not applicable

C. Markets

The authorised capital of the Company consists of an unlimited
  number of Common Shares without par value, of which 18,611,453 Common Shares
  are issued as of June 17, 2005.

The Company is listed on the TSX-V and the NZSX under the
  symbol “APX”, and, from April 18, 2005, on the AMEX under the symbol
  “AEN”.

D., E. & F.Not applicable

ITEM 10. ADDITIONAL INFORMATION

A. Share Capital

Not applicable

B. Memorandum and Articles of association

The Articles of Association were previously filed with Form
  10-12G for the Year Ended December 31, 1997, dated April 8, 1998. At a special
  general meeting of the shareholders on December 31, 2003, the Company adopted
  a new form of Bylaws, which were filed with Form 20-F, filed for the year ended
  December 31, 2003.

On April 15, 2005, the Board of Directors resolved to amend
  the Company’s By-laws and that the amendments would take effect from the
  end of the 2005 AGM, if they were confirmed by the shareholders by ordinary
  resolution. The resolution was so passed. The main change is the establishment
  of a one-third quorum requirement, as required by AMEX rules. The previous quorum
  for shareholder meetings required only two shareholders or proxyholders representing
  a minimum of five percent of the issued voting shares of the Company. The Company’s
  By-laws as amended are filed as an Exhibit to this report.

C. Material contracts

The Company has not entered into any material contracts in
  the two years prior to the date of this filing which can reasonably be regarded
  as being out of the ordinary course of the Company’s business (which ordinary
  course includes the routine purchase and farmin/farmout of oil and gas properties,
  and settlement of claims), other than those contracts disclosed in previous
  filings (Forms 20-F filed for the years ended December 31, 2003 and December
  31, 2002), except the AMEX Listing Agreement dated December 6, 2004, which is
  filed as an Exhibit to this Form 20-F.

D. Exchange controls

The Company is a corporation incorporated pursuant to the
  laws of the Province of British Columbia, Canada. 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 (the “Common Shares”), other
  than withholding tax requirements. Any such remittances to United States residents
  are generally subject to withholding tax, however no such remittances are likely
  in the foreseeable future. See “Taxation”, below.

There is no limitation imposed by the laws of Canada or by
  the charter or other constituent documents of the Company on the right of a
  non-resident to hold or vote its common shares, other than as provided in the
  Investment Canada Act (Canada) (the “Investment Act”).
  The following discussion summarizes the material features of the Investment
  Act for a non-resident who proposes to acquire a controlling number of the
  Company’s common shares. 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 Company does not believe the Investment
  Act will have any affect on it or on its non-Canadian shareholders due to
  a number of factors including the nature of its operations and the Company’s
  relatively small capitalization.

- 42 -

---

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
  (i.e. a “non-Canadian”), unless after review by the Minister responsible
  for the Investment Act is satisfied that the investment is likely to
  be of net benefit to Canada. An investment in the Company’s common shares
  by a non-Canadian (other than a “WTO investor” as that term is 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 CDN$5
  million, 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 the 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, was not less than
  a specified amount, which for 2005 exceeds CDN$250 million. A non-Canadian
  would acquire control of the Company for the purposes of the Investment Act
  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 such Common
  Shares 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 the Common Shares.

The foregoing assumes the Company will not engage in the production
  of uranium or own an interest in a producing uranium property in Canada, or
  provide any financial service or transportation service, as the rules governing
  these businesses are different.

Certain transactions relating to the Common Shares of the
  Company would be exempt from the Investment Act, including

|(a) | an acquisition of the Common Shares by a person
        in the ordinary course of that person’s business as a trader or
        dealer in securities,                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) | an acquisition of control of the Company in connection
        with the realization of security granted for a loan or other financial
        assistance and not for a purpose related to the provisions of the Investment
        Act, and                                                     
|   
|(c) | an acquisition of control of the Company by reason
        of an amalgamation, merger, consolidation or corporate reorganization
        following which the ultimate direct or indirect control in fact of the
        Company, through the ownership of the Common Shares, remained unchanged.

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

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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 US Holder is subject to tax under the Tax Act in respect
  of a capital gain realized on the sale or other disposition of a common share
  only if the US Holder holds the common share as "taxable Canadian property"
  for purposes of the Tax Act and is not entitled to relief under the Treaty.

In general terms, provided the common shares are listed on
  a prescribed exchange at the relevant time (the current TSX listing would be
  sufficient for this purpose), common shares will not be "taxable Canadian property"
  unless (i) at any time during the 60 month period ending at the time of disposition,
  the US Holder and/or persons and entities not dealing at arm's length with the
  US Holder owned 25% or more of the issued shares of any class or series of the
  capital stock of the Company, or (ii) the US Holder's common shares were acquired
  in certain types of tax-deferred exchanges in consideration for property that
  was itself "taxable Canadian property".

Furthermore, even if common shares are so held as "taxable
  Canadian property", relief under the Treaty is generally available provided
  the value of the common shares is not 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
  in Canada. US Holders claiming Treaty relief should do so by filing a Canadian
  income tax return for the relevant taxation year, and should consult with their
  own advisors in this regard.

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 Company 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

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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, 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 Credit

A U.S. Holder who pays (or has withheld from distributions)
  Canadian income tax with respect to the ownership of common shares of the 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.

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Disposition of common shares of the Company

A 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.

Passive Foreign Investment Company

A U.S. Holder who holds stock in a foreign corporation during
  any year in which such corporation qualifies as a passive foreign investment
  company ("PFIC") is subject to U.S. federal income taxation of that foreign
  corporation under one of two alternative tax methods at the election of each
  such U.S. Holder.

Section 1297 of the Code defines a PFIC as a corporation that
  is not formed in the United States and, for any taxable year, either (i) 75%
  or more of its gross income is "passive income," which includes but is not limited
  to interest, dividends and certain rents and royalties or (ii) the average percentage,
  by value (or, if the company is a controlled foreign corporation or makes an
  election, adjusted tax basis), of its assets that produce or are held for the
  production of "passive income" is 50% or more. The Company believes that it
  is presently a PFIC.

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

A QEF election also allows the Electing U.S. Holder to (i)
  generally treat any gain realized on the disposition of his common shares (or
  deemed to be realized on the pledge of his common shares) as capital gain; (ii)
  treat his share of the Company's net capital gain, if any, as long-term capital
  gain instead of ordinary income, and (iii) either avoid interest charges resulting
  from PFIC status altogether (see discussion of interest charge below), or make
  an annual election, subject to certain limitations, to defer payment of current
  taxes on his share of the Company's annual realized net capital gain and ordinary
  earnings subject, however, to an interest charge. If the Electing U.S. Holder
  is not a corporation, such an interest charge would be treated as nondeductible
  "personal interest."

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

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

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

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

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

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

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

Certain special, generally adverse, rules will apply with
  respect to the common shares while the Company is a PFIC whether or not it is
  treated as a QEF. For example under Section 1298(b)(6) of the Code, a U.S. Holder
  who uses PFIC stock as security for a loan (including a margin loan) will, except
  as may be provided in regulations, be treated as having made a taxable disposition
  of such stock.

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

Mark-to-Market Election for PFIC Stock

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

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

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

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

If PFIC stock is owned by a controlled foreign corporation
  (“CFC”), the CFC is treated as a U.S. person that may make the mark-to-market
  election. Amounts includable in the CFC's income under the election are treated
  as foreign personal holding company income, and deductions are allocable to
  foreign personal holding company income. A CFC is a foreign corporation in which
  more than 50% of the voting power of all classes of stock or the total value
  of the stock is owned, directly or indirectly, by U.S. Holders, each of whom
  own 10% or more of the total combined voting power.

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

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

F. Dividends and paying agents

Not applicable

G. Statement by experts

Not applicable

H. Documents on display

Certain documents concerning the Company which are referred
  to in this document may be inspected at the offices of Austral Pacific Energy
  Ltd., at Austral 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, or via the Company’s website at www.austral-pacific.com.

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 b) to the consolidated financial statements in Item 17, and in the Exhibits
  as Exhibit 8. During the reporting period, the Company placed one subsidiary
  into voluntary liquidation (Ngatoro Energy Limited), incorporated two subsidiaries
  (Kanuka Energy Limited and Rockwell Energy Limited (50% ownership)), and changed
  the name of one subsidiary from Indo-Pacific Energy (NZ) Limited to Austral
  Pacific Energy (NZ) Limited.

-ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
  MARKET RISK

Not applicable – the Company does not hold or issue
  relevant types of financial instruments.

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ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

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

The Company is aware of the importance of maintaining controls
  and procedures and is working towards  improving its controls and procedures.
  Beginning with the fiscal year ending December 31, 2006, Section 404  of
  the U.S. Sarbanes-Oxley Act 2002 (“Section 404”), will require the
  Company to include an internal control  report from management with the
  annual report on Form 20-F. The internal control report must contain (1) a 
  statement of management’s responsibility for establishing and maintaining
  adequate internal control over  financial reporting for the Company, (2)
  a statement identifying the framework used by management to  conduct the
  required evaluation of the effectiveness of the Company’s internal controls
  over financial reporting,  (3) management’s assessment of the effectiveness
  of the Company’s internal controls over financial reporting  as of
  the end of the most recent fiscal year, including a statement as to whether
  or not the Company’s internal  controls over financial reporting
  are effective and (4) a statement that the Company’s independent auditors 
  have issued an attestation report on management’s assessment of the internal
  controls over financial  reporting.

In connection with the required Section 404 evaluation described
  above the Company is presently re-  documenting, with the assistance of
  independent consultants, business processes and controls as they relate 
  to financial reporting in an effort to comply with the requirements of Section
  404. Following the completion of  this work internal tests will be developed
  to verify the proper application of the internal control procedures and 
  their effectiveness. The actual testing of the effectiveness of the internal
  control procedures is intended to be  undertaken in 2006 with sufficient
  time being allowed to undertake remediation items identified from the 
  outcomes of the testing program.

In connection with the audit of the Company’s 2004 fiscal
  year financial statements, in March 2005, our  independent auditors, KPMG,
  notified the Company that they had identified an issue which could be 
  considered a material weakness. The weakness relates to inadequate controls
  over the closing processes  supporting the U.S. GAAP financial statements
  and the preparation and work-papers supporting the U.S.  GAAP financial
  statements.

As the Company is still in the evaluation process, other conditions
  may be identified that result in significant  deficiencies or material
  weaknesses in the future. The Company cannot be certain as to the timing of 
  completion of the evaluation, testing and any remediation actions or the impact
  of the same on operations. If  the Company is are not able to implement
  the requirements of Section 404 in a timely manner or with  adequate compliance
  or the Company’s independent auditors are not able to certify as to the
  effectiveness of  internal controls over financial reporting, the Company
  may be subject to sanctions or investigation by  regulatory authorities,
  such as the U.S. Securities and Exchange Commission (“SEC”). As
  a result, there could  be a negative reaction in the financial markets
  due to a loss of confidence in the reliability of the Company’s 
  financial statements. In addition, additional costs may be incurred in improving
  internal control systems which  would negatively impact upon financial
  results.

| | - | undertake a review of the accounting personnel competencies to ensure
      that they are appropriate for the Company’s requirements
| | - | ------------------------------------------------------------------------------------------------------------------------------------

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| | - | increase training for accounting personnel in U.S. GAAP accounting pronouncements                              
| | - | ---------------------------------------------------------------------------------------------------------------
| | - | improve reconciliation templates to assist the reconciliation process
      between Canadian GAAP and U.S. GAAP

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 the Company’s
  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 December 31, 2004. 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 December 31, 2004, have concluded that, as of such date, the Company’s
  disclosure controls and procedures were not, based on the foregoing material
  weakness discussed above, adequate and effective for recording, processing,
  summarizing and reporting the material information we are required to disclose
  in the reports we file or submit under the Exchange Act, within the time periods
  specified in the rules and forms of the SEC. Except as described above, there
  were no significant changes in our internal control over financial reporting
  that occurred during the period covered by this annual report that have materially
  affected, or that are reasonably likely to affect, our internal control over
  financial reporting.

ITEM 16. RESERVED

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

The Company’s Board of Directors has determined that
  it has one independent audit committee financial expert serving on its audit
  committee. This financial expert is Mr David Newman who is accredited in New
  Zealand as a Chartered Accountant.

ITEM 16B. CODE OF ETHICS

The Company has adopted a code of ethics that applies to the
  Chief Executive Officer and the Chief Financial Officer, as well as to all other
  staff. The Company has made available its code of ethics on its website, www.austral-pacific.com/ethics.php

A copy of the Company’s code of ethics is available,
  free of charge, from the offices of Austral Pacific Energy Ltd., at Austral
  Pacific House, 284 Karori Road, Karori, Wellington, New Zealand. This can be
  requested in writing, addressed to the Company Secretary.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

|Principal Accountant Service(1) | For the fiscal year ended
      December 31, 2004 | For the fiscal year ended
      December 31, 2003(1)
|------------------------------- | ------------------------------------------------- | ----------------------------------------------------
|Audit Fees                      | $70,338                                           | $89,724                                             
|Audit Related Services          | $26,461                                           | $12,072                                             
|Tax Fees                        | -                                                 | $2,109                                              
|All Other Fees                  | -                                                 | $27,562                                             

| | (1) | With effect from January 1, 2004 the principal accountant changed from
      BDO Dunwoody LLP to KPMG New Zealand in relation to the December 31, 2004
      audit.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

The nature of the services provided by KPMG (2004) and BDO Dunwoody LLP (2003)
  under each of the categories indicated in the table is described below.

Audit Fees

- 50 -

---

Audit fees were for professional services rendered by KPMG
  (2003: BDO Dunwoody LLP) for the audit of the Company’s annual financial
  statements and services provided in connection with statutory and regulatory
  filing or engagements.

Audit-Related Fees

Audit-related fees were for assurance and related services
  reasonably related to the performance of the audit or review of the annual statements
  or bi-annual statements that are not reported under “Audit Fees”
  above.

Tax Fees

Tax fees were for tax compliance, tax advice and tax planning
  professional services. These services consisted of: tax compliance including
  the review of tax returns, and tax planning and advisory services relating to
  common forms of domestic and international taxation (i.e. income tax, capital
  tax, goods and services tax, payroll tax and value added tax).

All Other Fees

Fees disclosed in the table above under the item “all
  other fees” were incurred for services other than the audit fees, audit-related
  fees and tax fees described above. These services consisted of assistance in
  the review and documentation of processes and controls.

Pre-Approval Policies and Procedures

It is within the mandate of the Company’s Audit Committee
  to approve all audit and non-audit related fees. The Audit Committee has pre-approved
  specifically identified non-audit related services, including tax compliance,
  review of tax returns, documentation of processes and controls as submitted
  to the Audit Committee from time to time. The auditors also present the estimate
  for the annual audit related services to the Committee for approval prior to
  undertaking the annual audit of the financial statements.

D. Exemptions From the Listing Standards for Audit Committees

None

E. Purchases of Equity Securities by the Issuer and Affiliated
  Purchasers

Neither the Company, nor any of its “affiliated purchasers,”
  purchased any of the Company’s securities in 2004.

PART III

ITEM 17. FINANCIAL STATEMENTS.

INDEX TO FINANCIAL STATEMENTS

|                                                                 | Page 
|---------------------------------------------------------------- | -----
|Auditors’ Reports                                                | 55-57
|Consolidated Balance Sheets                                      | F-1  
|Consolidated Statements of Operations and
      Deficit          | F-2  
|Consolidated Statements of Changes in Stockholders’
      Equity | F-3  
|Consolidated Statements of Cash Flows                            | F-4  
|Notes to the Consolidated Financial Statements                   | F-5  

ITEM 18. FINANCIAL STATEMENTS

Not Applicable

- 51 -

---

ITEM 19. EXHIBITS

List of Exhibits

|Exhibit Reference | Exhibit Description                                                                                                                       
|----------------- | ------------------------------------------------------------------------------------------------------------------------------------------
|1.1               | Articles of Continuance of the Company [1]                                                                                                
|1.2               | Certificate of Amendment of the Company [2]                                                                                               
|1.3               | Bylaws of the Company (amended 2005)                                                                                                      
|2.1.1             | TSX-V listing application [3]                                                                                                             
|2.1.2             | NZSX Prospectus and Investment Statement [4]                                                                                              
|2.1.3             | AMEX listing agreement                                                                                                                    
|4.1.1             | Asset Purchase Agreement between the Company and Trans-Orient
      Petroleum Ltd. [5]                                                    
|4.1.2             | Variation to Asset Purchase Agreement between the Company
      and Trans-Orient Petroleum Ltd. [6]                                       
|4.1.3             | Warrant Amendment Agreement [12]                                                                                                          
|4.2               | Form of Stock Option Agreement for all vesting options granted
      to named directors and officers [7]                                  
|4.3               | Stock Option Agreement with David Bennett for performance
      vesting options [8]                                                       
|4.4               | Farm-out Agreement between the Company and Krystal Corporation
      Pte Ltd [7]                                                          
|4.5.1             | Form of Subscription Agreement between the Company, Indo-Pacific
      Energy (NZ) Limited and subscribers to IPENZ [7]                   
|4.5.2             | Form of Share Exchange Agreement between the Company, Indo-Pacific
      Energy (NZ) Limited and subscribers to IPENZ [12]                
|4.6               | Gas Pre-purchase and Option Agreement between the Company
      and NGC New Zealand Limited [14]                                          
|4.7.1             | Form of Asset Purchase Agreement – for each of PEP 38716,
      PEP 38728 and PEP 38716 [7]                                               
|4.7.2             | Agreement for Sale & Purchase of Data and Shares in Bligh
      Oil & Minerals NZ Limited [7]                                             
|4.8               | 2004 Share Option Plan [12]                                                                                                               
|4.9.1             | Petroleum Products Sale & Purchase Agreement between Ngatoro
      Energy Limited and Greymouth Petroleum Acquisition Company Limited [12]
|4.9.2             | Sale Deed for PMP38148 interest between Ngatoro Energy Limited
      and Southern Petroleum (Ohanga) Limited[12]                          
|4.10              | Report of Reserves Form 51-101F1 [8]                                                                                                      
|4.11              | Form of Convertible note issued by the Company January 2004
      [12]                                                                    
|4.12              | Report on Reserves and Resource Potential by Sproule International
      Limited [13]                                                     
|8                 | List of Subsidiaries of the Company                                                                                                       
|11                | Code of Ethics [8]                                                                                                                        
|12.1              | Section 302 Certification of CEO                                                                                                          
|12.2              | Section 302 Certification of CFO                                                                                                          
|13.1              | Section 906 Certification of CEO                                                                                                          
|13.2              | Section 906 Certification of CFO                                                                                                          
|15.2.1            | Change of auditor papers January 2004 [10]                                                                                                
|15.2.2            | Change of auditor papers April 2004 [11]                                                                                                  

- 52 -

---

|[1]  | Incorporated by reference as previously included in Form 10-12G filed
      April 8,1998.                                                                                                        
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|[2]  | Incorporated by reference as previously included in a Form 6-K filed
      December 31, 2003.                                                                                                    
|[3]  | Incorporated by reference as previously included in a Form 6-K filed
      January 6, 2004.                                                                                                      
|[4]  | Incorporated by reference as previously included in a Form 6-K filed
      November 28, 2003.                                                                                                    
|[5]  | Incorporated by reference as previously included in our Form 8-K filed
      on April 13, 2000.                                                                                                  
|[6]  | Incorporated by reference as previously included in our Form 20-F filed
      for the year ended December 31, 2001.                                                                              
|[8]  | Incorporated by reference as previously included in a Form 6-K filed
      April 23, 2004.                                                                                                       
|[9]  | Available on the Company’s website at www.austral-pacific.com                                                                                                                                    
|[10] | Incorporated by reference as previously included in a Form 6-K filed
      January 22, 2004.                                                                                                     
|[11] | Incorporated by reference as previously included in a Form 6-K filed
      May 27, 2004.                                                                                                         
|[13] | Incorporated by reference as previously included in a Form 6-K filed
      May 25, 2005.                                                                                                         
|[14] | Previously included in our Form 20-F filed for the year ended December
      31, 2002, without a handwritten amendment made at the time of execution,
      now re-filed with amendment included.

- 53 -

---

SIGNATURES

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

|                    | AUSTRAL PACIFIC ENERGY LTD.
|------------------- | ---------------------------
|                    |                            
|Date: July 14, 2005 | By:  “David Bennett”       
|                    | Name:  Dr. David Bennett   
|                    | Title:  President & CEO    

- 54 -

---

Auditor’s Report for the Financial Year ended 31 December,
  2002

---

Auditor’s Report

---

To the Shareholders ofAustral Pacific Energy Ltd.(formerly Indo-Pacific Energy Ltd.)

We have audited the consolidated statements of operations
  and deficit, changes in stockholders’ equity and cash flows of Austral
  Pacific Energy Ltd. (formerly Indo-Pacific Energy Ltd.) for the year ended December
  31, 2002. 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 audit.

We conducted our audit in accordance with Canadian generally
  accepted auditing standards and the standards of the Public Company Accounting
  Oversight Board (United States). Those standards require that we 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 results of operations and cash flows of
  the company for the year ended December 31, 2002 , in accordance with Canadian
  generally accepted accounting principles.

/s/ BDO Spicers

Chartered Accountants 
  Wellington, New Zealand 
  April 16, 2003

---

Comments by the Auditors for U.S. and New Zealand
  Readers on 
  Canada-U.S. and New Zealand Reporting Differences

The, reporting standards in New Zealand and the standards
  of the Public Company Accounting Oversight Board (United States) (“PCAOB”)
  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 of the consolidated financial
  statements as at December 31, 2002. The standards of PCAOB 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, have
  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 conditions and events in
  the auditors’ report when these are adequately disclosed in the financial
  statements.

/s/ BDO Spicers

Chartered Accountants 
  Wellington, New Zealand 
  April 16, 2003

- 55 -

---

Auditor’s Report for the Financial Year ended 31 December,
  2003

---

Auditor’s Report

---

To the Shareholders ofAustral Pacific Energy Ltd.(formerly Indo-Pacific Energy Ltd.)

We have audited the Consolidated Balance Sheet of Austral
  Pacific Energy Ltd. (formerly Indo-Pacific Energy Ltd.) as at December 31, 2003
  and the Consolidated Statements of Operations and Deficit, Changes in Stockholders’
  Equity and Cash Flows for the year 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 audit.

We conducted our audit in accordance with Canadian generally
  accepted auditing standards and the standards of the Public Company Accounting
  Oversight Board (United States). Those standards require that we 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, 2003 and the results of its operations and its cash flows for the
  year then ended, in accordance with Canadian generally accepted accounting principles.

The Consolidated Statements of Operations and Deficit, Changes
  in Stockholders’ Equity and Cash Flows for the year ended December 31,
  2002 were reported upon by other auditors. Their report covered the year ended
  December 31, 2002, contained no reservations and was dated April 16, 2003.

/s/ BDO Dunwoody LLP 
  Chartered Accountants 
  Vancouver, Canada
  March 5, 2004 (except for Note 19(e), June 29, 2005)

---

Comments by the Auditors for U.S. and New Zealand
  Readers on 
  Canada-U.S. and New Zealand Reporting Differences

---

The reporting standards in New Zealand and the standards of
  the Public Company Accounting Oversight Board (United States) (“PCAOB”)
  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 of the consolidated financial
  statements as at December 31, 2003. The standards of PCAOB also require the
  addition of an explanatory paragraph when changes in an accounting policy, such
  as those involving asset retirement obligations described in Note 2 (p), have
  a material effect on the consolidated financial statements. Furthermore, the
  standards of PCAOB require the addition of an explanatory paragraph when financial
  statements disclosures are restate, such as those described in Note 19 (e),
  which have a material effect on the financial statements. Our report to the
  shareholders dated March 5, 2004 (except for Note 19(e), June 29, 2005), is
  expressed in accordance with Canadian reporting standards, which do not permit
  a reference to such conditions and events in the auditors’ report when
  these are adequately disclosed in the financial statements.

/s/ BDO Dunwoody LLP 
  Chartered Accountants 
  Vancouver, Canada 
  March 5, 2004 (except for Note 19(e), June 29, 2005)

- 56 -

---

Auditor’s Report for the Financial Year ended 31 December,
  2004



To the Shareholders of Austral Pacific Energy Ltd.

We have audited the accompanying consolidated balance sheet
  of Austral Pacific Energy Ltd. as of December 31, 2004 and the consolidated
  statement of operations and deficit, changes in stockholder’s equity and
  cash flows for the year then ended. These consolidated financial statements
  are the responsibility of the Company's management. Our responsibility is to
  express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of
  the Public Company Accounting Oversight Board (United States). 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. We believe that our audit provides
  a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred
  to above present fairly, in all material respects, the financial position of
  Austral Pacific Energy Ltd. as of December 31, 2004 and the results of its operations
  and its cash flows for the year then ended in accordance with Canadian generally
  accepted accounting principles.

Canadian generally accepted accounting principles vary in
  certain significant respects from accounting principles generally accepted in
  the United States of America. Information relating to the nature and effect
  of such differences is presented in note 19 to the consolidated financial statements.



Wellington, New Zealand

March 31, 2005, except as to note 19, which is as of July 13, 2005.

- 57 -

---

AUSTRAL PACIFIC ENERGY LTD. 
  (Formerly Indo-Pacific Energy Ltd.)

CONSOLIDATED FINANCIAL STATEMENTS 
  (Expressed in United States Dollars)

DECEMBER 31, 2004

---

|AUSTRAL
      PACIFIC ENERGY LTD(formerly Indo-Pacific Energy Ltd.)Consolidated Balance Sheets (Expressed in United States Dollars)
|-----------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                   

|December 31                                        | 2004        |   | 2003        |  
|-------------------------------------------------- | ----------- | - | ----------- | -
|                                                   | $           |   | $           |  
|                                                  
|Assets                                             |             |   |             |  
|                                                  
|Current                                            |             |   |             |  
|Cash and cash equivalents (Note 3)                 | 11,187,924  |   | 2,234,287   |  
|Accounts receivable (Note 6)                       | 480,499     |   | 872,532     |  
|Inventory                                          | 98,518      |   | -           |  
|Prepaid expenses and deposits                      | 467,097     |   | 273,994     |  
|                                                   | 12,234,038  |   | 3,380,813   |  
|                                                  
|Deferred offering costs (Note 9(a))                | -           |   | 408,083     |  
|Property and equipment (Note 4)                    | 5,649,110   |   | 8,336,771   |  
|                                                  
|Total Assets                                       | 17,883,148  |   | 12,125,667  |  
|                                                  
|Liabilities                                        |             |   |             |  
|                                                  
|Current                                            |             |   |             |  
|Accounts payable                                   | 22,969      |   | 26,781      |  
|Accrued liabilities                                | 378,631     |   | 172,105     |  
|Prepaid gas revenue (Note 13)                      | -           |   | 1,258,033   |  
|                                                   | 401,600     |   | 1,456,919   |  
|                                                  
|Prepaid gas revenue (Note 13)                      | 1,324,785   |   | -           |  
|Asset retirement obligations (Note 5)              | 156,575     |   | 155,927     |  
|Special class shares of subsidiary
      (Note 11) | -           |   | 943,525     |  
|                                                  
|Total Liabilities                                  | 1,882,960   |   | 2,556,371   |  
|                                                  
|Stockholders’ Equity                               |             |   |             |  
|                                                  
|Common stock without par value (Note 9);           |             |   |             |  
|unlimited number of shares authorized;             |             |   |             |  
|Issued and outstanding 17,720,045 shares           | 32,683,328  |   | 20,478,365  |  
|Contributed surplus                                | 361,854     |   | 417,392     |  
|Accumulated deficit                                | (17,044,994 | ) | (11,326,461 | )
|                                                  
|Total Stockholders’ Equity                         | 16,000,188  |   | 9,569,296   |  
|                                                  
|Total Liabilities and Stockholders’
      Equity   | 17,883,148  |   | 12,125,667  |  

Commitments and Contingencies (Note 8) Related Party Transactions(Note 7) Subsequent Events(Note 15)

Approved by the Directors:

|“D J Bennett”                                   | “D Newman”                                     
|----------------------------------------------- | -----------------------------------------------
|_______________________________________________ | _______________________________________________
|Director                                        | Director                                       

See accompanying notes to the consolidated financial statements

- F-1 -

---

|AUSTRAL
      PACIFIC ENERGY LTD. (formerly Indo-Pacific Energy Ltd.)Consolidated Statements of Operations and Deficit 
      (Expressed in United States Dollars)
|------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                  

|For the years ended December 31              | 2004        |   | 2003        |   | 2002        |  
|-------------------------------------------- | ----------- | - | ----------- | - | ----------- | -
|                                             | $           |   | $           |   | $           |  
|                                            
|Production Income:                           |             |   |             |   |             |  
|Oil and gas sales                            | 212,458     |   | 172,715     |   | 1,845,925   |  
|Production costs                             | (67,543     | ) | (61,132     | ) | (772,805    | )
|Royalties                                    | (15,040     | ) | (33,543     | ) | (184,207    | )
|                                            
|Net production income                        | 129,875     |   | 78,040      |   | 888,913     |  
|                                             |             |   |             |   |             |  
|Expenses                                     |             |   |             |   |             |  
|General and administrative expense           | (1,868,690  | ) | (1,932,716  | ) | (1,409,929  | )
|Depletion (Note 4)                           | (85,550     | ) | (25,930     | ) | (106,491    | )
|Litigation costs and settlement (Note 8(d))  | -           |   | (2,250,463  | ) | -           |  
|Foreign exchange gain                        | 197,858     |   | 673,909     |   | 151,049     |  
|Amortization (Note 4)                        | (32,402     | ) | (18,160     | ) | (53,007     | )
|Interest expense                             | (28,698     | ) | -           |   | -           |  
|Write-off of oil and gas properties (Note 4) | (5,287,611  | ) | (908,433    | ) | (2,783,734  | )
|Gain on licence sales (Note 8(d))            | -           |   | 3,896,306   |   | 53,457      |  
|Total Expenses                               | (7,105,093  | ) | (565,487    | ) | (4,148,655  | )
|                                            
|Net loss for the year before other income    | (6,975,218  | ) | (487,447    | ) | (3,259,742  | )
|                                             |             |   |             |   |             |  
|Other Income                                 |             |   |             |   |             |  
|Interest income                              | 326,012     |   | 57,624      |   | 29,518      |  
|Joint venture recoveries                     | 930,673     |   | 477,439     |   | 403,454     |  
|                                            
|Net (loss)/income for the year               | (5,718,533  | ) | 47,616      |   | (2,826,770  | )
|                                            
|Deficit, beginning of year                   | (11,326,461 | ) | (11,374,077 | ) | (8,547,307  | )
|                                            
|Deficit, end of year                         | (17,044,994 | ) | (11,326,461 | ) | (11,374,077 | )
|                                             |             |   |             |   |             |  
|Basic earnings/(loss) per share(Note 10)     | (0.42       | ) | 0.01        |   | (0.41       | )
|                                            
|Diluted earnings/(loss) per share            | (0.42       | ) | 0.01        |   | (0.41       | )
|(Note 10)                                    |             |   |             |   |             |  

See accompanying notes to the consolidated financial statements

- F-2 -

---

|AUSTRAL
      PACIFIC ENERGY LTD. (formerly Indo-Pacific Energy Ltd.)Consolidated Statements of Changes in Stockholders’ Equity
      (Expressed in United States Dollars)
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                          

|                                                   |              |  |             |   |             |   |               |   | Total      |  
|-------------------------------------------------- | ------------ |  | ----------- | - | ----------- | - | ------------- | - | ---------- | -
|                                                   | Common Stock |  | Contributed |   | Accumulated |   | Stockholders’ |  
|                                                   | Shares       |  | Amount $    |   | Surplus     |   | Deficit       |   | Equity     |  
|                                                   |              |  |             |   |             |   |               |   |            |  
|Balance at January 1, 2002                         | 6,489,324    |  | 19,478,365  |   | -           |   | (8,547,307    | ) | 10,931,058 |  
|                                                  
|Issuance of common shares for cash (Note 9(a))     | 1,250,000    |  | 1,000,000   |   | -           |   | -             |   | 1,000,000  |  
|Stock option compensation (Note 9(c))              | -            |  | -           |   | 274,080     |   | -             |   | 274,080    |  
|Net loss for 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  |  
|                                                  
|Stock option compensation (Note 9(c))              | -            |  | -           |   | 143,312     |   | -             |   | 143,312    |  
|Net income for the year                            | -            |  | -           |   | -           |   | 47,616        |   | 47,616     |  
|                                                  
|Balance at December 31, 2003                       | 7,739,324    |  | 20,478,365  |   | 417,392     |   | (11,326,461   | ) | 9,569,296  |  
|                                                  
|Issuance of common shares for cash (Note 9(a))     | 4,000,000    |  | 5,217,992   |   | -           |   | -             |   | 5,217,992  |  
|Less deferred offering costs (Note 9(a))           |              |  | (408,083    | ) | -           |   | -             |   | (408,083   | )
|Issuance of common shares in exchange for special  | 1,111,123    |  | 943,525     |   | -           |   | -             |   | 943,525    |  
|class shares of subsidiary (Note 9(a))             |              |  |             |   |             |   |               |   |            |  
|Exercise of share purchase warrants for cash (Note | 4,235,052    |  | 5,719,941   |   | -           |   | -             |   | 5,719,941  |  
|9(a))                                              |              |  |             |   |             |   |               |   |            |  
|Exercise of share purchase options (Note 9(a))     | 180,000      |  | 231,588     |   | (44,088     | ) | -             |   | 187,500    |  
|Convertible notes converted to shares (Note 9(a))  | 454,546      |  | 500,000     |   | -           |   | -             |   | 500,000    |  
|Stock option compensation (Note 9(c))              | -            |  | -           |   | (11,450     | ) | -             |   | (11,450    | )
|Net loss for the year                              | -            |  | -           |   | -           |   | (5,718,533    | ) | (5,718,533 | )
|                                                   |              |  |             |   |             |   |               |   |            |  
|Balance at December 31, 2004                       | 17,720,045   |  | 32,683,328  |   | 361,854     |   | (17,044,994   | ) | 16,000,188 |  

See accompanying notes to the consolidated financial statements

- F-3 -

---

|AUSTRAL
      PACIFIC ENERGY LTD. (formerly Indo-Pacific Energy Ltd.) Consolidated Statements of Cash Flows
      (Expressed in United States Dollars)
|------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                      

|For the years ended December 31                    | 2004       |   | 2003       |   | 2002       |  
|-------------------------------------------------- | ---------- | - | ---------- | - | ---------- | -
|                                                   | $          |   | $          |   | $          |  
|                                                   |            |   |            |   |            |  
|Operating Activities                               |            |   |            |   |            |  
|Net (loss)/income for the year                     | (5,718,533 | ) | 47,616     |   | (2,826,770 | )
|Adjustments to reconcile net income/(loss) to      |            |   |            |   |            |  
|cash applied to operating activities:              |            |   |            |   |            |  
|Depletion                                          | 85,550     |   | 25,930     |   | 106,491    |  
|Write-off of oil and gas properties                | 5,287,611  |   | 908,433    |   | 2,783,734  |  
|Amortization                                       | 32,402     |   | 18,160     |   | 53,007     |  
|Stock option compensation                          | (11,450    | ) | 143,312    |   | 274,080    |  
|Gain on licence sales                              | -          |   | (3,896,306 | ) | (53,457    | )
|Net unrealized foreign exchange loss/(gain)        | 191,378    |   | (653,072   | ) | 113,077    |  
|                                                   |            |   |            |   |            |  
|(Increase)/decrease in assets                      |            |   |            |   |            |  
|Accounts receivable                                | 301,679    |   | (350,998   | ) | (554,071   | )
|Prepaid expenses and deposits                      | (193,103   | ) | (123,882   | ) | (48,588    | )
|Inventory                                          | (98,518    | ) | 5,423      |   | (5,423     | )
|Increase/(decrease) in liabilities                 |            |   |            |   |            |  
|Accounts payable                                   | (3,812     | ) | (185,110   | ) | (504,687   | )
|Accrued liabilities                                | 206,526    |   | 419        |   | (71,856    | )
|Prepaid gas revenue                                | (145,443   | ) | 1,258,033  |   | -          |  
|Asset retirement obligation                        | 648        |   | 155,927    |   | -          |  
|                                                   |            |   |            |   |            |  
|                                                   | (65,065    | ) | (2,646,115 | ) | (734,463   | )
|Financing Activities                               |            |   |            |   |            |  
|Share issues                                       | 11,125,433 |   | -          |   | 1,000,000  |  
|Issuance of convertible notes                      | 500,000    |   | -          |   | -          |  
|Issuance of special class shares                   | -          |   | 943,525    |   | -          |  
|Deferred offering costs                            | -          |   | (408,083   | ) | -          |  
|                                                   |            |   |            |   |            |  
|                                                   | 11,625,433 |   | 535,442    |   | 1,000,000  |  
|Investing Activities                               |            |   |            |   |            |  
|Due from related parties                           | -          |   | 52,065     |   | (23,670    | )
|Proceeds from sale of licences                     | -          |   | 5,000,000  |   | 198,299    |  
|Purchase of property and equipment                 | (162,894   | ) | (20,028    | ) | (11,259    | )
|Oil and gas properties                             | (2,395,754 | ) | (2,147,426 | ) | (2,313,445 | )
|Change in non-cash working capital                 | 90,354     |   | 188,361    |   | 159,484    |  
|                                                   | (2,468,294 | ) | 3,072,972  |   | (1,990,591 | )
|                                                   |            |   |            |   |            |  
|Net increase/(decrease) in cash during the year    | 9,092,074  |   | 962,299    |   | (1,725,054 | )
|Effect of exchange rate fluctuations on cash and   | (138,437   | ) | (20,839    | ) | (264,126   | )
|short-term deposits                                |            |   |            |   |            |  
|Cash and cash equivalents, beginning
      of year | 2,234,287  |   | 1,292,827  |   | 3,282,007  |  
|Cash and cash equivalents, end
      of year       | 11,187,924 |   | 2,234,287  |   | 1,292,827  |  
|                                                   |            |   |            |   |            |  
|Supplemental Cash Flow Information                 |            |   |            |   |            |  
|Interest paid                                      | 28,698     |   | -          |   |            |  

See accompanying notes to the consolidated financial statements

- F-4 -

---

NOTE 1 - NATURE OF OPERATIONS

The Company is incorporated in the Yukon Territory under the
  Business Corporations Act (Yukon). On December 31, 2003 the Company changed
  its name from Indo-Pacific Energy Ltd. to Austral Pacific Energy Ltd.

The accompanying financial statements have been prepared on
  a going concern basis which contemplates the realization of assets and the satisfaction
  of liabilities and commitments in the normal course of business.

The Company is primarily engaged in the acquisition, exploration
  and development of oil and gas properties in New Zealand, Papua New Guinea and
  Australia. The Company has no proven reserves and 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.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

|a) | Accounting Principles and Use of Estimates
      These financial statements are prepared in accordance
        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,
        commitments and contingent liabilities at the date of the financial statements
        and the reported amounts of the revenues and expenses for the years presented.
        Specifically, estimates were utilized in calculating depletion, asset
        retirement obligations, stock based compensation, amortization and impairment
        write-downs. Actual results could differ from these estimates and the
        differences could be material.Material differences between Canadian and
        New Zealand generally accepted accounting principles which affect the
        Company are referred to in Notes 18.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

|b) | Basis of Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | These consolidated financial statements include
        the accounts of Austral Pacific Energy Ltd. and its wholly- owned subsidiaries:
        Indo-Pacific Energy Australia Pty Limited, Odyssey International Pty Limited,
        Indo- Pacific Energy (PNG) Limited (amalgamated with Trans-Orient Petroleum
        (PNG) Limited during 2004), Source Rock Holdings Limited, Austral Pacific
        Energy (NZ) Limited (formerly Indo-Pacific Energy (NZ) Limited), Rata
        Energy Limited, Millennium Oil & Gas Limited, Ngatoro Energy Limited
        (liquidated October 2004), Totara Energy Limited, Kanuka Energy Limited
        (registered November 25, 2004), Trans-Orient Petroleum (Aust) Pty Limited,
        ZOCA 96-16 Pty Limited and Trans-Orient Petroleum (PNG) Limited. All significant
        inter-company balances and transactions have been eliminated upon consolidation.
|  
|c) | Joint Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   | Substantially all of the Company's upstream explorationand
        development activities are conducted jointly with third parties and accordingly
        these financial statements reflect only the Company's proportionate share
        of assets, liabilities, revenues, expenses and cash flows from these activities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|d) | Translation of Foreign Currencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   | The Company’s functional currency is the United
        States dollar.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   | Results of foreign operations, all of which are
        considered financially and operationally integrated, are translated to
        United States dollars using the average exchange rate for revenue and
        expenses, except depletion and amortization, which are translated at the
        rate of exchange applicable to the related assets. Monetary assets and
        liabilities are translated into United States dollars at the rates prevailing
        on the balance sheet date. Non-monetary assets and liabilities are translated
        into United States dollars at the rates prevailing on the transaction
        dates. Exchange gains and losses are recorded as income or expense in
        the year in which they occur.                                                                                                                                                         
|  
|e) | Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

- F-5 -

---

|   | Cash and cash equivalents, accounts receivable,
        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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|g) | Plant and Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   | Plant and equipment consists of furniture and office
        equipment and the Company’s share of joint venture assets. The furniture
        and office equipment 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%. The Company’s share of the joint venture assets is recorded
        at cost and will be amortized over the asset’s useful production
        life.                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|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.                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   | Depletion is calculated for producing properties
        by using the unit-of-production method based on proved reserves, before
        royalties, as determined by independent consultants. Costs of abandoned
        oil and gas properties are accounted for as adjustments of capitalized
        costs and written off to expense. For purposes of this calculation, reserves
        and production are converted to equivalent units of petroleum based on
        relative energy content of six thousand cubic feet of natural gas to one
        barrel of petroleum.                                                                                                                                                                                                                                                                                                                                                                       
|  
|   | Costs of acquiring and evaluating significant unproved
        petroleum and natural gas interests are excluded from costs subject to
        depletion and depreciation until it is determined that proved reserves
        are attributable to such interest or until impairment occurs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   | The Company conducts a cost recovery ceiling test
        to ensure capitalized costs less accumulated depletion and depreciation,
        future income taxes and accumulated future abandonment and site restoration
        provision do not exceed the estimated future net revenues plus the cost
        of unproved interests, net of impairments. The future net revenues are
        calculated based on proved reserves, using year-end prices and costs.
        Estimated future capital costs, recurring general and administrative costs,
        future financing costs, future abandonment and site restoration costs
        and income taxes are deducted in determining future net revenues. Any
        amount carried on the balance sheet in excess of the ceiling test limit
        is charged to current operations.                                                                                                           
|  
|i) | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   | The Company uses the asset and liability method
        of accounting for income taxes. Under this method current income taxes
        are recognized for the estimated income taxes payable for the current
        year. Future income taxes are recognized for temporary differences between
        the tax and accounting bases of assets and liabilities and for the benefit
        of losses available to be carried forward for tax purposes that are likely
        to be realized. Future income tax assets and liabilities are measured
        using enacted or substantively enacted tax rates expected to apply to
        taxable income in the years in which those temporary differences are expected
        to be recovered or settled. The effect on future tax assets and liabilities
        of a change in tax rates is recognized in income in the period that included
        the date of enactment or substantive enactment.

- F-6 -

---

|j) | Inventory                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | Inventories of crude oil and the Company’s
        share of joint venture inventory are valued at the lower of cost and net
        realizable value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|k) | Oil and Gas Revenue Recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   | Sales of oil and gas are recognized in the period
        in which the product is delivered to the customer. Proceeds received under
        gas prepayment agreements are recorded as a liability. The liability is
        reduced by gas sold and delivered under gas purchase arrangements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|l) | Per Share Amounts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   | Basic per share amounts are calculated by dividing
        the net income or loss by the weighted average shares outstanding during
        the reporting period. Diluted per share amounts are calculated similar
        to basic per share amounts except that the weighted average shares outstanding
        are increased to include additional shares from the assumed exercise of
        stock options, if dilutive. The number of outstanding shares would be
        calculated by assuming that the outstanding stock options were exercised
        and that the proceeds from such exercises were used to acquire common
        shares at the average market price during the reporting period.                                                                                                           
|  
|m) | Stock Based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   | The Company has recognized stock based compensation
        expense based on the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   | All stock option based awards granted on or after
        January 1, 2002 are measured and recognized in these consolidated financial
        statements using a fair value based method. Fair value is calculated using
        the Black-Scholes option-pricing model and the compensation cost is amortized
        over the vesting period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   | The Company measures compensation expense for the
        options where there has been a substantive change or modification to such
        options on each balance sheet date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   | Consideration received upon the exercise of stock
        options together with the amount of non-cash compensation expense recognized
        in contributed surplus is recorded as share capital.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|n) | Asset Retirement Obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   | The Company recognizes the estimated fair value
        of legal obligations associated with the retirement of petroleum and natural
        gas properties in the period in which they are incurred. The obligation
        is recorded as a liability with a corresponding increase in the carrying
        amount of the petroleum and natural gas properties. The incremental capitalized
        amount will be depleted on a unit-of-production basis over the life of
        the proved reserves. The obligation is increased each period, or accretes,
        due to the passage of time and is recorded in the statement of operations.
        Revisions to the estimated fair value would result in an adjustment to
        the obligation and carrying amount of the petroleum and natural gas properties.
|  
|o) | Comparative Figures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   | Certain comparative figures have been reclassified to conform to the
      current year’s presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|p) | Changes in Accounting Policy                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   | During 2003, the Company early adopted on a retroactive
        basis the Canadian Institute of Chartered Accountant Handbook Section
        3110, Asset Retirement Obligations [“Section 3110”]. Section
        3110 requires the recognition of a liability for an asset retirement obligation
        in the period in which it is incurred and/or when a reasonable estimate
        of fair value can be made. The adoption of Section 3110 resulted in $155,927
        in asset retirement obligations being accrued in 2003 and had no impact
        on the comparative figures.                                                                                                                                                                                                                              
|  
|   | There have been no changes in accounting policies
        applied during the year ended December 31, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

- F-7 -

---

NOTE 3 – CASH AND CASH EQUIVALENTS

The Company considers deposits in banks, funds held in trust
  accounts and certificates of deposit with maturities of three months or less
  as cash or cash equivalents. The components of cash and cash equivalents are
  as follows:

|Cash on Deposit     | December 31, 2004 | December 31, 2003
|------------------- | ----------------- | -----------------
|                    | $                 | $                
|New Zealand Dollars | 6,250,596         | 1,370,609        
|U.S. Dollars        | 4,868,001         | 803,738          
|Canada Dollars      | 30,202            | 36,589           
|PNG Kina            | 37,084            | 11,082           
|Australian Dollars  | 2,041             | 12,269           
|                    | 11,187,924        | 2,234,287        

NOTE 4 - PROPERTY AND EQUIPMENT

|2004                           | Net Book          |  | Additions       |  | Depreciation/ Depletion |   | Net Book          | 
|------------------------------ | ----------------- |  | --------------- |  | ----------------------- | - | ----------------- | 
|                               | Value at          |  | (Recoveries)    |  | and Write Downs         |   | Value at          | 
|                               | December 31, 2003 |  | During the Year |  | During the Year         |   | December 31, 2004 | 
|Furniture and office equipment | 30,323            |  | 62,581          |  | (32,402                 | ) | 60,502            | 
|Share of joint venture assets  | -                 |  | 100,313         |  | -                       |   | 100,313           | 
|                               | 30,323            |  | 162,894         |  | (32,402                 | ) | 160,815           | 
|Proved:                        |                   |  |                 |  |                         |   |                   | 
|New Zealand2                   | 2,721,572         |  | 145,031         |  | (2,866,603              | ) | -                 | 
|Total Proved                   | 2,721,572         |  | 145,031         |  | (2,866,603              | ) | -                 | 
|Unproved:                      |                   |  |                 |  |                         |   |                   | 
|New Zealand3                   | 2,478,334         |  | 2,249,328       |  | (1,402,244              | ) | 3,325,418         | 
|Australia1                     | 978,013           |  | 109,642         |  | (1,087,655              | ) | -                 | 
|Papua New Guinea               | 2,128,529         |  | 51,007          |  | (16,659                 | ) | 2,162,877         | 
|Total unproved                 | 5,584,876         |  | 2,409,977       |  | (2,506,558              | ) | 5,488,295         | 
|Total property and equipment   | 8,336,771         |  | 2,717,902       |  | (5,405,563              | ) | 5,649,110         | 

- F-8 -

---

|2003                           | Net Book          |  | Additions       |   | Depreciation/Depletion |   | Net Book          | 
|------------------------------ | ----------------- |  | --------------- | - | ---------------------- | - | ----------------- | 
|                               | Value at          |  | (Recoveries)    |   | and Write Downs        |   | Value at          | 
|                               | December 31, 2002 |  | During the Year |   | During the Year        |   | December 31, 2003 | 
|Furniture and office equipment | 28,455            |  | 20,028          |   | (18,160                | ) | 30,323            | 
|                               | 28,455            |  | 20,028          |   | (18,160                | ) | 30,323            | 
|Proved:                        |                   |  |                 |   |                        |   |                   | 
|New Zealand                    | 802,170           |  | 1,945,332       |   | (25,930                | ) | 2,721,572         | 
|Total Proved                   | 802,170           |  | 1,945,332       |   | (25,930                | ) | 2,721,572         | 
|Unproved:                      |                   |  |                 |   |                        |   |                   | 
|New Zealand                    | 3,762,654         |  | (375,887        | ) | (908,433               | ) | 2,478,334         | 
|Australia                      | 922,735           |  | 55,278          |   | -                      |   | 978,013           | 
|Papua New Guinea               | 2,035,609         |  | 92,920          |   | -                      |   | 2,128,529         | 
|Total unproved                 | 6,720,998         |  | (227,689        | ) | (908,433               | ) | 5,584,876         | 
|Total property and equipment   | 7,551,623         |  | 1,737,671       |   | (952,523               | ) | 8,336,771         | 

|1. | The Company applied for an extension on certain
        Australian work programmes that were due to be completed by December 29,
        2003. At December 31, 2004 a permit extension had been suspended, and
        whilst the Company continues to pursue farm out arrangements for future
        work programme commitments it has written off all capitalized petroleum
        expenditures in relation to its Australian work programmes.                                                                                                                                                                                                                                                
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. | Kahili-1A, the only producer well on the Kahili
        gas-condensate field (PMP 38153) in the onshore Taranaki basin, New Zealand,
        ceased production in November 2004. Although a pressure survey in March
        2005 indicated some pressure recovery, it is unlikely that significant
        commercial flows will ever be re-established from Kahili-1A. In consequence,
        an independent assessment of Kahili- 1A by Sproule International Ltd of
        Calgary, for the purposes of Form NI 51-101, has written the remaining
        reserves down to zero. Consequently, the capitalized expenditures associated
        with Kahili-1A have been totally written off.
|  
|3. | The Company participated in four unsuccessful exploration
        wells in onshore Taranaki, New Zealand during 2004 and early 2005. These
        were Honeysuckle-1, Miromiro-1, Hihi-1 and Kakariki-1. All these wells
        have been totally written off.                                                                                                                                                                                                                                                                                                                                                                                                                                  

During the year, the Company capitalized $190,985 (2003: $238,847)
  of overhead charges relating directly to its exploration and development activities.

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. Permit holders 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,  except for any discovery made between June 30, 2004 and
      December 31, 2009, the royalty will be the  greater of 1% of the net
      sales revenue from any natural gas and 5% of the net sales revenues from
      any  oil or 20% of accounting profits from the sale of petroleum products.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

AUSTRALIA

| | Unless otherwise indicated, exploration permits for Petroleum
      (offshore Australia) 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. Permit holders  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 project expenditures
      compounded forward at the Long-Term Bond Rate ("LTBR") plus  1.05%.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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. Petroleum
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- F-9 -

---

|                                     | retention licences granted in Papua New
        Guinea provide for the exclusive retention of interest in the  permit
        for an initial term of five years, renewable for a further five years
        over the original area, while  development options are developed.
        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 project landowners and affected local level
        government. 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).
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|NOTE 5 – ASSET RETIREMENT OBLIGATION
|                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                     | The Company has an obligation to plug
        and abandon its petroleum and natural gas wells at the end of  their
        useful lives. The current present value of this obligation has been projected
        using estimates of the  future costs and the timing of abandonment.
        At December 31, 2004 the Company estimated the present  value of
        its asset retirement obligations to be $0.16 million (2003: $0.16
        million) based on a future liability  of $0.31 million. These
        costs are expected to be incurred near the end of well production. A credit- 
        adjusted risk-free discount rate of 8.05% was used to calculate the present
        value.                                                                                                                                                                                                                                                                                                      

NOTE 6 – ACCOUNTS RECEIVABLE

| |                           | 2004    | 2003   
| | ------------------------- | ------- | -------
| |                           | $       | $      
| | Trade receivables         | 339,351 | 101,007
| | Joint venture receivables | 141,148 | 771,525
| |                           | 480,499 | 872,532

NOTE 7 – RELATED PARTY TRANSACTIONS

| | During 2004, the Company incurred
        $223,373 (2003: $197,165; 2002: $152,177) in remuneration
        to the  President of the Company and $37,553 (2003: $32,741;
        2002: $24,245) in rent to a trust in which the  President of
        the Company is a trustee. Also during 2004, $33,718 (2003: $111,634;
        2002: $104,179) was  paid to the President of the Company’s
        spouse, in her role as Commercial Manager.                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Other directors received a total remuneration
        of $58,954 during 2004. (2002:$20,986; 2002:$12,001).                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | During 2004 the Company paid a law firm
        in which a Director is a partner, $81,771 (2003: $95,980; 2002: 
        $16,490) for legal services.                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | The Company also paid a company that
        employs a Director, $18,000 (2003: $9,454; 2002: $Nil) for 
        financial services.                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Interests in some petroleum properties
        have been acquired in conjunction with, or from, or interests sold 
        to, Trans-Orient Petroleum Ltd. and TAG 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.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | 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 8 - COMMITMENTS AND CONTINGENCIES

a) Work Commitments

| | The Company participates in oil and gas exploration and development
      operations jointly with independent  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
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- F-10 -

---

| | for the 2005 fiscal year is $9,631,262.                                             
| | ------------------------------------------------------------------------------------
| |                                                                                     
| | The Company’s commitments under licence obligations
      are summarized as follows:

Contractual and 
        Other Obligations
      Payments Due by Period
          (US$)Total
      Less than 1  
        year
      1-3 years
      4-5  
        years
      After 5  
        YearsOperating leases
      10,070
      10,070
      -
      -
      -Joint venture
        budgeted
        commitments (1)
      2,121,192
      2,121,192Other obligations (2)
      7,500,000
      7,500,000
      -
      -
      -Total contractual or
        other obligations
      9,631,262
      9,631,262
      -
      -
      -


| |  | (1)   The Joint venture budgeted
        commitments that the Company has are in respect of its current year exploration
        permit  obligations. The Company is committed to its share of current
        year exploration permit obligations to other joint venture  participants
        and has a contractual obligation to various joint venture participants
        for these current year exploration permit obligations.                                                                                                                                                                 
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | (2) The Other obligations that
        the Company has are in respect of its wholly owned permits. Although the
        company does not have a contractual obligation to the other joint
        venture parties, management has the intention to meet these obligations
        by  way of suitable farm-in arrangement or permit extension. Where
        this is not possible, the Company will surrender the permit.  The
        Other obligations are the Company’s present estimates of future
        expenditure required to maintain some of its current  permits in
        good standing.

| | Subsequent to December 31, 2004, the Company has entered into
      a farm out agreement with Rift Oil PLC  to contribute the first $6
      million to the Company’s commitment to drill a well, and pro rata
      thereafter, in  the PPL 235 licence in PNG (refer to note 15b), in
      return for a 65% interest in the permit. The Company’s  interest
      in PPL 235 has therefore decreased from 100% to 35%. The Company has committed
      to continue  its participation in three New Zealand exploration permits,
      and ceased participation in two other New  Zealand exploration permits.
      This has committed the Company to further $2.2 million of commitments 
      subsequent to December 31, 2004. The effect of the above transactions is
      a net decrease in the total  commitments of $4.8 million (resulting
      in post balance date total commitments of $4.8 million).
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | This is the Company’s share of commitments as recorded
      on various licence documents, but the  Company intends to farm out
      major expenditures 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)   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 in this area.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

c)   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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

d)   Legal Settlement

| | On October 3, 2003 the Company paid Greymouth Petroleum Holdings
      Limited $2 million which released  both parties from any claims
      and liabilities against each other. On September 26, 2003 the Companysold 
      its interest and entitlement to petroleum in New Zealand PMP 38148 and recognized
      a gain on licence  sales of $3,896,306. Effective date of this
      sale was July 1, 2003.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- F-11 -

---

NOTE 9 - 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.
| | ----------------------------------------------------------------------------------------------------------------------

| | Issued and fully paid:                | Number     | Amount    
| | ------------------------------------- | ---------- | ----------
| |                                       | Of Shares  | $         
| | Balance at December 31, 2002 and 2003 | 7,739,324  | 20,478,365
| | Issued during 2004                    | 9,980,721  | 12,204,963
| | Balance at December 31, 2004          | 17,720,045 | 32,683,328

| | On January 5, 2004, 4,000,000 units at NZ$2.00 were issued
      by the Company for total proceeds of  US$5,217,992 under a public
      fund raising on the New Zealand Stock Exchange. Each unit entitles the 
      holder to a common share and half share purchase warrant exercisable at
      NZ$2.10 on or before January  5, 2005. The New Zealand public fund
      raising had associated costs of US$408,083.           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | The special class shareholders in one of the Company’s
      New Zealand subsidiaries also converted their  special class shares
      into 1,111,123 units in the Company during the year. Each unit was comprised
      of a  common share and a one-year half share purchase warrant exercisable
      at NZ$1.85 on or before January  5, 2005.                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Each warrant entitles the holder to purchase one common share
      of the Company.                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | During the year, two $250,000 convertible notes that the
      Company had issued on January 5, 2004 were  converted into 227,273
      units per Convertible Note. Each unit comprised one common share and one 
      share purchase warrant permitting the holder to purchase an additional common
      share at a price of$1.15  per share, for a 12 month period from
      issuance date of the Note (expiry 5 January 2005).
| |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | As at December 31, 2004, the Company had received $5,719,941
      from the conversion of 1,630,185 New  Zealand public float warrants,
      290,749 New Zealand special class warrants, 836,845 Series A warrants, 
      1,250,000 previously issued warrants and 227,273 warrants issued on conversion
      of the convertible notes  being exercised.                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | The Company has also received $187,500 from the exercise
      of 180,000 share purchase options. An  additional $44,088 was transferred
      from contributed surplus to common stock in relation to past  compensation
      costs that related to the 180,000 options exercised.                                                                                                                                                

b)   Incentive Stock Options

| | In the past, the Company had no defined
        plan for involving employees in the capital of the Company. The 
        Company had, at the discretion of the board of directors, granted incentive
        stock options to its officers,  directors, employees and consultants,
        for the purchase of shares in the Company.                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                       
| | In 2004, the Company established a share
        option plan for the granting of options to employees and  service
        providers and this plan required shareholder approval. The board of directors
        adopted this plan  and this was presented to and approved at the
        annual general meeting of the shareholders on 25 June  2004.
| |                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                       
| | The following stock options were outstanding at December 31,
      2004:                                                                                                                                                                                                                                                                              

| | Number    | Type of Option     | Date Fully     | Number Vested | Exercise  | Expiry          
| | --------- | ------------------ | -------------- | ------------- | --------- | ----------------
| | of Shares |                    | Vested         | December 31,  | Price per | Date            
| |           |                    |                | 2004          | Share     |                 
| |           |                    |                |               |           |                 
| | 300,000   | Performance shares | -              | -             | $1.00     | October 15, 2007
| | 200,000   | Non Vesting 1      | -              | 200,000       | $1.00     | July 6, 2005    
| | 400,000   | Vesting            | April 15, 2004 | 400,000       | $1.00     | July 6, 2005    
| | 59,600    | Vesting            | April 15, 2004 | 59,600        | $1.25     | July 6, 2005    

- F-12 -

---

| | 40,400    | Vesting | October  15,  2003 | 40,400  | $1.25 | July 6,  2005     
| | --------- | ------- | ------------------ | ------- | ----- | ------------------
| | 30,000    | Vesting | April  15,  2004   | 30,000  | $1.25 | October  15,  2007
| | 85,000    | Vesting | April  15,  2004   | 85,000  | $1.25 | March  26,  2006  
| | 50,000    | Vesting | April  15,  2005   | 37,500  | $1.25 | October  15,  2008
| | 10,000    | Vesting | June  25,  2007    | -       | $1.25 | June  25,  2009   
| |           |         |                    |         |       |                   
| | 1,175,000 |         |                    | 852,500 |       |                   

| | 1The non vesting shares were issued as fully vested
      options on July 6, 2000. 
      The weighted average exercise price for options outstanding at December
      31, 2004 is $1.06 (December 31, 2003 :  $1.05). No options
      were exercised during 2003 and 2002. 
      The weighted average exercise price for options fully vested at December
      31, 2004 is $1.07 (December 31, 2003 :  $1.06).  
      A summary of stock option activities for the years presented is as follows:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Description                            | Number     |   | Exercise Price
|-------------------------------------- | ---------- | - | --------------
|Of Activity                            | Of Options |   | per Option    
|                                       |            |   |               
|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 (forfeited) | (56,000    | ) | $1.25         
|Outstanding at December  31, 2002      | 1,805,000  |   | $0.90 - 1.25  
|Cancelled in 2003: vesting (forfeited) | (410,000   | ) | $1.25         
|Cancelled in 2003: vesting (forfeited) | (100,000   | ) | $0.90         
|Granted in 2003: vesting               | 50,000     |   | $1.25         
|Outstanding at December  31, 2003      | 1,345,000  |   | $1.00 – 1.25  
|Granted in 2004: vesting               | 10,000     |   | $1.25         
|Exercised in 2004: vesting (converted) | (150,000   | ) | $1.00         
|Exercised in 2004: vesting (converted) | (30,000    | ) | $1.25         
|Outstanding at December  31, 2004      | 1,175,000  |   | $1.00 – 1.25  

c)   Stock Based Compensation

| | The stock option compensation cost recognized
        as a recovery for 2004 of $11,450 (2003: $143,312  expense
        and 2002: $274,080 expense). The fair value of each stock option grant
        on the date of grant was  estimated using the Black-Scholes option-pricing
        model, amortized over the vesting period using the  following weighted-average
        assumptions:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                           | 2004    | 2003   
| | ------------------------- | ------- | -------
| | Expected dividend yield   | 0.00%   | 0.00%  
| | Expected price volatility | 35.27%  | 55.76% 
| | Risk-free interest rate   | 3.23%   | 3.20%  
| | Expected life of option   | 3 Years | 2 Years

| | The weighted average fair value of the options granted in
      2004 and 2003 are $1.09 and $0.29.
| | --------------------------------------------------------------------------------------------------

d)   Share Purchase Warrants

| | The following share purchase warrants to purchase shares
      of the Company are outstanding at December 31, 2004 :
| | --------------------------------------------------------------------------------------------------------------------

- F-13 -

---

|Number Of Warrants | Exercise Price | Expiry Date      
|------------------ | -------------- | -----------------
|                   |                |                  
|227,273            | $1.15          | January  5,  2005
|264,820            | NZ$1.85        | January  5,  2005
|369,815            | NZ$2.10        | January  5,  2005
|861,908            |                |                  

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

| | Description                               | Number      |   | Exercise Price      | 
| | ----------------------------------------- | ----------- | - | ------------------- | 
| | Of Activity                               | of Warrants |   | per Warrant         | 
| | Outstanding at December 31, 2000 and 2001 | 1,226,845   |   | $2.00 – 3.75        | 
| | Granted in  2002                          | 1,250,000   |   | $0.90(1)            | 
| | Cancelled in 2002                         | (190,000    | ) | $2.00               | 
| | Outstanding at December 31, 2002          | 2,286,845   |   | $0.90 - 2.00        | 
| | Cancelled in 2003                         | (200,000    | ) | $2.00               | 
| | Outstanding at December 31, 2003          | 2,086,845   |   | $1.15(1)– 1.50(2)   | 
| | Granted in  2004                          | 454,546     |   | $1.15               | 
| | Granted in  2004                          | 2,000,000   |   | NZ$2.10(4)          | 
| | Granted in  2004                          | 555,569     |   | NZ$1.85(4)          | 
| | Exercised in 2004                         | (836,845    | ) | $1.50               | 
| | Exercised in 2004                         | (1,477,273  | ) | $1.15               | 
| | Exercised in 2004                         | (290,749    | ) | NZ$1.85(4)          | 
| | Exercised in 2004                         | (1,630,185  | ) | NZ$2.10(4)          | 
| | Outstanding at December 31, 2004(3)       | 861,908     |   | $1.15, NZ$1.85-2.10 | 

| | (1) | In accordance with the original terms, the exercise
        price per share of the Warrants issued on September 12, 2002 increased
        from $0.90 to $1.15 for the year from September 13, 2003 to September
        12, 2004.                                                                                                                                                                                                          
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) | In January 2002 and then in December 2003, the terms
        of the series “A” warrants were amended to extend the expiry
        date to January 5, 2005 and to increase the exercise price per warrant
        to $1.50. Also, the Series “A” warrant holder’s
        right to receive one Series “B” warrants for each Series A
        warrant exercised in the event of a commercial discovery was cancelled
        in December 2003.
|
| | (3) | Subsequent to December 31, 2004, 846,408 outstanding
        warrants were exercised and 15,500 expired without exercise (refer to
        note 15).                                                                                                                                                                                                                                                                                        
|
| | (4) | Based on the foreign exchange rate at balance date
        warrants granted at NZ$2.10 equate to US$1.50 and warrants granted
        for NZ$1.85 equate to US$1.32.                                                                                                                                                                                                                                                                        

NOTE 10 – 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 period ending:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                   | For the years ended December 31
| | ------------------------------------------------- | -------------------------------
| |                                                   | 2004                           
| |                                                   |                                
| | Numerator, net income/(loss) for the year         | (5,718,533                     
| | Denominator:                                      |                                
| | Weighted-average number of shares – basic         | 13,627,617                     
| | Basic earnings/(loss) per share                   | (0.42                          
| | Denominator:                                      |                                
| | Weighted-average number of shares –
      diluted | 13,627,617                     
| | Diluted earnings/(loss) per share                 | (0.42                          

| | Due to net losses incurred during 2004 and 2002 and the average
      stock price for 2003 being below the
| | ----------------------------------------------------------------------------------------------------------

- F-14 -

---

| | strike price, 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 in those years.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                          
| | There were a total of 1,714,408 unexercised warrants and vested
      options outstanding at December 31,  2004. If exercised, these have
      the potential to dilute earnings of future periods.                      

NOTE 11 – ISSUE OF SPECIAL CLASS SHARES OF SUBSIDIARY

| | On June 18, 2003, a private placement
        in one of the Company’s New Zealand subsidiaries, Austral 
        Pacific Energy (NZ) Limited (“APENZ”), was made to 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. $943,525).
        Such shares  conferred no voting rights, but did confer the right
        to convert such shares to common shares units of  APENZ in the event
        of a listing of and issue of other common shares in APENZ on the New Zealand 
        Stock Exchange. Each unit consisted of one common share and one half warrant
        with the same terms  as the warrants included in the public offering.
        Subsequently, the company decided not to proceed with  the listing
        of APENZ. In the event that the listing did not proceed, the subscription
        agreement required  the Company to offer to 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 Company. If
        the Special Class  shareholders rejected the Company’s share
        exchange offer, they were entitled to receive redemption  dividends
        calculated based on and paid out of 20% of APENZ’s production income.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | On November 12, 2003, each Special Class
        shareholder signed a conditional share exchange  agreement which
        agreed to transfer to the Company all of the Special Class shares in exchange
        for the  issuance of common shares by the Company. These Special
        Class shares where exchanged for  common shares on January 5, 2004,
        upon the listing of the Company on the TSX Venture Exchange and 
        the New Zealand Stock Exchange (NZX), at one common share for every 1.35
        Special Class share  resulting in the issuing of 1,111,123 common
        shares. Also, 555,569 warrants were attached to these  shares exercisable
        at a price of NZ$1.85 any time before January 5, 2005 (Note 15(a)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | As at December 31, 2004, 290,749 such
        warrants had been exercised. After balance date, all remaining  warrants
        issued under the Share Exchange Agreements (264,820) were exercised in
        accordance with  their terms (Note 15(a)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | As at December 2003 the Special Class
        shares were classified as a liability rather than equity on the 
        basis that they confer no voting rights and are repayable via the various
        options noted above. At  December 2003 the carrying cost and estimated
        fair value of the Special Class shares were the same.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

NOTE 12 - 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 37.12% (37.12% for  the fiscal 2003 year and 39.12% for
        the fiscal 2002 year), and the provision for income taxes is as 
        follows:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|For the years ended,                             | 2004       |   | 2003     |   | 2002       |  
|------------------------------------------------ | ---------- | - | -------- | - | ---------- | -
|                                                
|Net income/(loss) for the year before tax        | (5,718,533 | ) | 47,616   |   | (2,826,770 | )
|                                                
|Provision (benefit of)/for tax at statutory rate | (2,122,719 | ) | 17,675   |   | (1,105,832 | )
|Foreign tax rate differential                    | 198,325    |   | (22,955  | ) | 118,638    |  
|Non-deductible stock based compensation          | (4,176     | ) | 53,197   |   | 107,220    |  
|(recovery)/expenditure                           |            |   |          |   |            |  
|Non-deductible equity raising costs              | -          |   | 72,616   |   | -          |  
|Non-deductible legal settlement payment          | -          |   | 742,400  |   | -          |  
|Other                                            | 5,194      |   | 427      |   | 45,720     |  
|Increase/(decrease) in valuation allowance       | 1,923,376  |   | (863,360 | ) | 834,254    |  
|                                                
|Income Tax Provision                             | -          |   | -        |   | -          |  

- F-15 -

---

| | In Canada the Company has net operating losses of approximately
      $2.57 million available for future  reduction from taxable income
      derived in Canada, which expire as follows:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|     | Net operating loss
|---- | ------------------
|2005 | 127,718           
|2006 | 109,324           
|2007 | 237,828           
|2008 | 317,242           
|2009 | 336,536           
|2010 | 588,643           
|2011 | 853,463           
|    
|     | 2,570,754         

| | In addition, in Canada, at December 31,
        2004, the Company has approximately $1.24 million of  resource
        and other unused tax pools to offset future taxable income derived in
        Canada. The Company’s  Canadian resource and other unused tax
        pools are available to the Company for an indefinite period.  The
        Company also has losses and deductions of approximately $9.09 million
        available to offset future  taxable income derived in New Zealand,
        Australia and Papua New Guinea. The Company’s losses and  deductions
        that are available to offset future taxable income derived in New Zealand,
        Australia and  Papua New Guinea are available to the Company for
        indefinite period, provided that the company  maintains a 50% continuity
        of shareholding from the time that the losses and deductions are incurred 
        until the point of offset against taxable income. Tax losses reported
        at December 31, 2002 of $13.64  million have been revised down
        to $9.18 million. The valuation allowance below has also been 
        amended to reflect this revision.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | The components of the net future income tax asset at December
      31 are summarized below:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

|                                    | 2004       |   | 2003       |  
|----------------------------------- | ---------- | - | ---------- | -
|Future income tax assets:           |            |   |            |  
|Net operating loss carryforwards    | 3,955,879  |   | 3,788,124  |  
|Resource tax pool                   | 459,431    |   | 459,431    |  
|Share issuance costs                | 121,184    |   | -          |  
|Asset retirement obligation         | 58,121     |   | 57,880     |  
|Total gross future income tax asset | 4,594,615  |   | 4,305,435  |  
|                                   
|Less: Valuation allowance           | (3,617,273 | ) | (1,589,454 | )
|                                   
|Net future income tax asset         | 977,342    |   | 2,715,981  |  
|                                   
|Future income tax liabilities:      |            |   |            |  
|Property and equipment              | (918,227   | ) | (2,465,825 | )
|Foreign Exchange                    | (59,115    | ) | (250,156   | )
|                                   
|Net future income tax liability     | (977,342   | ) | (2,715,981 | )

| | A valuation allowance has been established,
        and accordingly, no benefit has been recognized for the  Company’s
        net operating losses and other 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 ability to realize the future tax assets based
        on actual and  forecasted operating results.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 13 – PREPAID GAS AGREEMENT

| | On April 2, 2003, the Company entered
        into a gas prepayment agreement with a New Zealand company,  whereby
        the issuer provided NZ$2,000,000 (approximately $1,438,000) to
        fund the Company’s ongoing
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- F-16 -

---

| | exploration programs. This money was
        advanced on April 3, 2003, with the Company to deliver  NZ$2,000,000
        (approximately $1,438,000) of gas to the issuer, under contracts to
        be negotiated at then  prevailing market rates. For each gas producing
        discovery the Company will negotiate in the first  instance with
        the issuer, 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. A waiver of this obligation was obtained for New  Zealand
        permit PEP 38738 Deep. If the amount is not discharged through gas sales
        to the issuer 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, Austral Pacific Energy (NZ)
        Limited. The prepayment is  secured under a registered charge over
        Millennium Oil and Gas Ltd’s (a wholly-owned subsidiary of the 
        Company) 25% interest in the Kahili joint venture PEP 38736.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | In the event that insufficient gas is
        delivered to discharge the prepayment, and the Company agrees to 
        refund the prepayment, interest will be payable at the average New Zealand
        bank bill rate, on any  balance outstanding at April 2, 2013, calculated
        for the ten year period. At December 31, 2004 the  Company intends
        to discharge the prepayment within the ten year term through the delivery
        of gas to the  issuer, and as a result no accrual for interest has
        been recorded.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | As at December 31, 2004, the Company
        had delivered gas worth $145,443. As at December 31, 2004,  the
        amount has been reclassified as a long term liability due to there being
        no current gas being supplied  to the issuer under the current gas
        prepayment agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

NOTE 14 – CONVERTIBLE NOTES

| | On January 5, 2004, the Company issued
        two Convertible Notes for $250,000 each. On September 29,  2004
        the two Convertible Notes were converted, at the option of the holder,
        into 227,273 Units per  Convertible Note at the conversion rate of
        $1.10 per Unit. Each Unit comprised one common share and  one
        share purchase warrant permitting the holder to purchase an additional
        common share at a price of  $1.15 per share, for a 12 month period
        from issuance date of the Note (expiry 5 January 2005). As at  December
        31, 2004, 227,273 warrants issued on conversion of the convertible notes
        had been  exercised. On January 5, 2005, the remaining 227,273 warrants
        issued on conversion were exercised.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | Interest of $26,833 was paid on conversion.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

NOTE 15 - SUBSEQUENT EVENTS

|a) | Completion of warrant conversion                                                                                                                                                                                                                                                                                           
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | In January 2005, 846,408 of the total warrants outstanding
        at balance date were exercised for a total proceeds of $1,129,134.
        15,500 warrants expired without exercise.                                                                                                                                    
|  
|b) | Farm out Agreement for PPL 235                                                                                                                                                                                                                                                                                             
|  
|   | On January 31, 2005, the Company received confirmation
        that Rift Oil PLC would participate in a US$6 million farm out arrangement
        to undertake drilling operations in PPL 235 in return for a 65% interest
        in the permit. The Company’s interest in PPL 235 has decreased from
        100% to 35%.

NOTE 16 - SEGMENTED INFORMATION

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

2004

|                                | Canada |  | New Zealand |  | Australia |  | PNG |  | Total Company | 
|------------------------------- | ------ |  | ----------- |  | --------- |  | --- |  | ------------- | 
|Production Income:              |        |  |             |  |           |  |     |  |               | 
|Revenue                         | -      |  | 212,458     |  | -         |  | -   |  | 212,458       | 
|Production and royalty expenses | -      |  | (82,583)    |  | -         |  | -   |  | (82,583)      | 
|Net production income           | -      |  | 129,875     |  | -         |  | -   |  | 129,875       | 
|Interest income                 | 18,303 |  | 307,709     |  | -         |  | -   |  | 326,012       | 
|Joint venture recoveries        | -      |  | 930,673     |  | -         |  | -   |  | 930,673       | 

- F-17 -

---

|Foreign exchange gain               | -        |   | 197,858    |   | -          |   | -         |   | 197,858     |  
|----------------------------------- | -------- | - | ---------- | - | ---------- | - | --------- | - | ----------- | -
|Administrative expenses             | (542,372 | ) | (1,296,014 | ) | (14,885    | ) | (15,419   | ) | (1,868,690  | )
|Interest expense                    | (28,698  | ) | -          |   | -          |   | -         |   | (28,698     | )
|Amortization expense                | -        |   | (32,402    | ) | -          |   | -         |   | (32,402     | )
|Depletion                           | -        |   | (85,550    | ) | -          |   | -         |   | (85,550     | )
|Write-off of oil and gas properties | -        |   | (4,183,296 | ) | (1,087,656 | ) | (16,659   | ) | (5,287,611  | )
|                                   
|Net income/(loss)                   | (552,767 | ) | (4,031,147 | ) | (1,102,541 | ) | (32,078   | ) | (5,718,553  | )
|                                   
|Plant and equipment                 | -        |   | 3,486,232  |   | -          |   | 2,162,877 |   | 5,649,110   |  
|Current assets                      | 315,923  |   | 11,837,162 |   | 1,984      |   | 78,969    |   | 12,234,038  |  
|Total assets                        | 315,923  |   | 15,323,394 |   | 1,984      |   | 2,241,846 |   | 17,883,148, |  
|                                   
|Specific Items:                     |          |   |            |   |            |   |           |   |             |  
|Purchase of property and equipment  | -        |   | 162,894    |   | -          |   | -         |   | 162,894     |  

2003

|                                    | Canada   |   | New Zealand |   | Australia |   | PNG       |   | Total Company |  
|----------------------------------- | -------- | - | ----------- | - | --------- | - | --------- | - | ------------- | -
|Production Income:                  |          |   |             |   |           |   |           |   |               |  
|Revenue                             | -        |   | 172,715     |   | -         |   | -         |   | 172,715       |  
|Production expenses                 | -        |   | (94,675     | ) | -         |   | -         |   | (94,675       | )
|Net production income               | -        |   | 78,040      |   | -         |   | -         |   | 78,040        |  
|Interest income                     | 2,188    |   | 55,436      |   | -         |   | -         |   | 57,624        |  
|Joint venture recoveries            | -        |   | 477,439     |   | -         |   | -         |   | 477,439       |  
|Gain on licence sale                | -        |   | 3,896,306   |   | -         |   | -         |   | 3,896,306     |  
|Foreign exchange gain               | -        |   | 673,909     |   | -         |   | -         |   | 673,909       |  
|Depletion                           | -        |   | (25,930     | ) | -         |   | -         |   | (25,930       | )
|Administrative expenses             | (308,983 | ) | (1,598,359  | ) | (3,716    | ) | (21,658   | ) | (1,932,716    | )
|Litigation costs and settlement     | -        |   | (2,250,463  | ) | -         |   | -         |   | (2,250,463    | )
|Amortization expense                | -        |   | (18,160     | ) | -         |   | -         |   | (18,160       | )
|Write-off of oil and gas properties | -        |   | (908,433    | ) | -         |   | -         |   | (908,433      | )
|                                   
|Net income/(loss)                   | (306,795 | ) | 379,785     |   | (3,716    | ) | (21,658   | ) | 47,616        |  
|                                   
|Plant and equipment                 | -        |   | 5,230,227   |   | 978,015   |   | 2,128,529 |   | 8,336,771     |  
|Non-current assets                  | 408,083  |   | -           |   | -         |   | -         |   | 408,083       |  
|Current assets                      | 234,083  |   | 3,092,359   |   | 9,605     |   | 44,766    |   | 3,380,813     |  
|Total assets                        | 642,166  |   | 8,322,586   |   | 987,620   |   | 2,173,295 |   | 12,125,667    |  
|                                   
|Specific Items:                     |          |   |             |   |           |   |           |   |               |  
|Purchase of property and equipment  | -        |   | 20,028      |   | -         |   | -         |   | 20,028        |  

2002

|                         | Canada   |   | New Zealand |   | Australia |   | PNG     |   | Total      |  
|------------------------ | -------- | - | ----------- | - | --------- | - | ------- | - | ---------- | -
|Production Income:       |          |   |             |   |           |   |         |   |            |  
|Revenue                  | -        |   | 1,845,925   |   | -         |   | -       |   | 1,845,925  |  
|Production expenses      | -        |   | (957,012    | ) | -         |   | -       |   | (957,012   | )
|Net production income    | -        |   | 888,913     |   | -         |   | -       |   | 888,913    |  
|Interest income          | 8,301    |   | 21,217      |   | -         |   | -       |   | 29,518     |  
|Joint venture recoveries | -        |   | 403,454     |   | -         |   | -       |   | 403,454    |  
|Gain on licence sale     | -        |   | 53,457      |   | -         |   | -       |   | 53,457     |  
|Administrative expenses  | (574,162 | ) | (805,662    | ) | (11,973   | ) | (18,132 | ) | (1,409,929 | )
|Foreign exchange gain    | -        |   | 151,049     |   | -         |   | -       |   | 151,049    |  
|Depletion                | -        |   | (106,491    | ) | -         |   | -       |   | (106,491   | )
|Amortization expense     | (25,974  | ) | (27,033     | ) | -         |   | -       |   | (53,007    | )

- F-18 -

---

|Write-off of oil and gas properties | -        |   | (2,532,027 | ) | (230,778  | ) | (20,929   | ) | (2,783,734 | )
|----------------------------------- | -------- | - | ---------- | - | --------- | - | --------- | - | ---------- | -
|                                   
|Net income/(loss)                   | (591,835 | ) | (1,953,123 | ) | (242,751  | ) | (39,061   | ) | (2,826,770 | )
|                                   
|Plant and equipment                 | -        |   | 4,537,115  |   | 966,635   |   | 2,047,873 |   | 7,551,623  |  
|Due from related parties            | -        |   | 55,410     |   | 24,474    |   | (27,819   | ) | 52,065     |  
|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:                     |          |   |            |   |           |   |           |   |            |  
|Purchase of property and equipment  | -        |   | (11,259    | ) | -         |   | -         |   | (11,259    | )

NOTE 17 – SALES TO SIGNIFICANT CUSTOMERS

| | The Company made oil sales of $67,015 (2003: $148,991;
      2002: $1,817,257) to Shell (Petroleum Mining)  Company Ltd and
      $154,906 (2003:nil and 2002:nil) to Swift Energy (NZ) Limited during
      the year.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                       
| | The Company delivered gas worth $145,443 to NGC New Zealand
      Ltd under a prepaid gas agreement  (refer to Note 13).                                                                                              

NOTE 18 - DIFFERENCES BETWEEN NEW ZEALAND 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 New Zealand  generally
      accepted accounting principles (NZ GAAP) except for the following differences:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|a) | Stockholders’ Equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | A previous reconciling difference, as reported in
        2003, existed between NZ and Canadian GAAP relating to the recognition
        of stock based compensation expenditure. Canadian GAAP requires all stock
        options to be recognized using a fair value based approach. For the purposes
        of NZ GAAP, there was no previous requirement to record the fair value
        of stock options granted.                                                                                                                                                                                        
|  
|   | For the year ended 31 December 2004, the company
        has elected to early adopt NZIFRS 2 Share Based Payments. NZIFRS
        2 requires stock options issued to be measured and recognized in the financial
        statements using a fair value based approach. NZIFRS 1 First time adoptionencourages, a first time adopter to apply NZIFRS 2 to equity instruments
        that were granted on or before 7 November 2002. As a result the company
        has retrospectively applied NZIFRS 2 from 1 January 2002, consistent with
        the adoption of the fair value method under Canadian GAAP.

CONSOLIDATED STATEMENT OF CASH FLOWS

|b) | Cash Flows from operating activities.                                                                                                                                                                                                                                    
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | The Statement of Cash Flows is presented in Canadian
        GAAP using the indirect method. The Statement of Cash Flows under NZ GAAP
        requires the direct method to be used. Cash Flows for operating activities
        under the direct method are as follows:

- F-19 -

---

| | For the years ended December 31 | 2004 |  | 2003 |  | 2002 | 
| | ------------------------------- | ---- |  | ---- |  | ---- | 
| | Operating Activities            |      |  |      |  |      | 
|
| | Cash inflows                    |      |  |      |  |      | 

| | Oil and gas proceeds                                       | 279,210  |   | 1,430,748  |   | 2,047,059  |  
| | ---------------------------------------------------------- | -------- | - | ---------- | - | ---------- | -
| | Interest received                                          | 326,012  |   | 57,624     |   | 29,518     |  
| |                                                            |          |   |            |   |            |  
| | Cash outflows                                              |          |   |            |   |            |  
| | Payments to suppliers and employees                        | (695,757 | ) | (4,060,841 | ) | (2,798,337 | )
| | Net GST payments                                           | 25,470   |   | (73,646    | ) | (12,703    | )
| |                                                            |          |   |            |   |            |  
| | Net cash inflows/(outflows) for operating
      activities | (65,065  | ) | (2,646,115 | ) | (734,463   | )

|c) | Disclosure of Joint Venture Interests.                                                                                                                                                                                                                                                                                                            
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | In accordance with SSAP 25 Accounting for Interests
        in Joint Ventures and Partnerships, which deals with the accounting and
        disclosure requirements of participants for interests in joint ventures,
        the company is required to disclose significant joint venture information
        for New Zealand reporting purposes.
|  
|   | The company held interests at December 31, in significant
        unincorporated joint ventures established to explore, develop and produce
        petroleum as follows:                                                                                                                                                                         
|  

|New Zealand                         |       |        |        | 2004   | 2003  
|----------------------------------- | ----- | ------ | ------ | ------ | ------
|                                    |       |        |        |        | %     
|PMP 38153                           |       |        |        | 45.00  | 45.00 
|PEP 38256 –
      Exploration 1     | 46.16 | 30.00 
|PEP 38258 –
      Exploration       |       | 75.00  | 75.00 
|PEP 38330 –
      Exploration 2     | 44.23 | 34.28 
|PEP  38716 
      –  Exploration3   | 42.40 | 42.40 
|PEP  38718 
      –  Exploration  4 | 12.50 | 10.00 
|PEP  38736 
      –  Exploration    | 45.00 | 45.00 
|PEP  38738 
      –  Exploration  5 | 36.50 | 33.50 
|PEP38738 Deep –
      Exploration 6 | 25.10 | -     
|PEP  38480 
      –  Exploration    | 75.00 | 75.00 
|PEP  38741 
      –  Exploration    | 30.00 | 30.00 
|PEP  38746 
      –  Exploration  7 | 50.00 | 25.00 
|PEP  38748 
      –  Exploration    | 25.00 | 25.00 
|PEP  38753 
      –  Exploration  8 | 60.00 | 30.00 
|PEP  38765 
      –  Exploration  9 | 27.50 | -     
|PEP  38766 
      –  Exploration  9 | 25.00 | -     
|PEP  38768 
      –  Exploration  9 | 50.00 | -     
|Australia                           |       |        |        |        |       
|AC/P 19 10                          |       |        |        | 100.00 | 100.00
|AC/P 31 10                          |       |        |        | -      | 100.00
|AC/P 26 10                          |       |        |        | -      | 50.00 
|Papua New Guinea                    |       |        |       
|PPL 228 11                          |       |        |        | 10.00  | 10.00 
|PPL 235 - Exploration               |       | 100.00 | 100.00
|PRL 4 –Retention                    |       | 7.50   | 7.50  
|PRL 5 –Retention                    |       | 7.50   | 7.50  

The financial statements of all joint ventures are unaudited.

|1. | Orion Exploration Limited transferred
        5.38% interest in PEP38256 to the company on August 18, 2004. Magellan
        Petroleum (NZ) Limited transferred 16.16% interest in PEP38256 to the
        company on November 9, 2004.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | On March 25, 2004 a further 9.95% interest
        was acquired in PEP38330 on withdrawal of other participants.                                                                                                                       
|3  | Subsequent to December 31, 2004 the Company
        has increased its interest in PEP 38716 to 52.924% subject to finalization
        of agreements.                                                                                  
|4. | Subsequent to balance date the Company
        has given notice to the other joint venture participants in PEP 38718
        of its intention to                                                                                       
|   | withdraw from the permit, subject to
        finalization of the deed of assignment.                                                                                                                                                   
|5. | A subsidiary of the company relinquished
        its rights to a royalty from Rata Energy Limited and Cheal Petroleum Limited
        and Cheal Petroleum Limited assigned a 3.0% interest to the company on
        June 15, 2004.    
|6. | On July 27, 2004 a consent was provided
        to a joint venture operating agreement in respect to PEP38738 Deep Petroleum.                                                                                                          
|7. | On April 6, 2004 a further 25.0% interest
        was transferred in PEP38746 on withdrawal of a previous participant.                                                                                                                 
|8. | On August 25, 2004 a further 30.0% interest
        was transferred in PEP38753 on withdrawal of a other participants.                                                                                                                 
|9. | Permits PEP 38765, PEP38766 and PEP 38768
        were granted in February 2004. PEP 38765 replaces PPP38761. In February
        2005, the PEP 38768 joint venture has applied to surrender the permit.                               

- F-20 -

---

|10. | The Company applied for extension on
        AC/P 19 and AC/P 31 work programmes that were due to be completed by December
        29,  2003. An extension of the permit work obligation on AC/P 19
        was granted but the AC/P 31 extension was declined by the  authorities
        and an appeal was not pursued. At balance date the permit extension in
        respect of AC/P 19 was suspended and whilst  the Company continues
        to pursue farm out arrangements for future work programme commitments
        it has written off all capitalized  petroleum expenditures. At balance
        date the permit extension in respect of AC/P 19 was suspended; and whilst
        the Company  continues to pursue farm-out arrangements for future
        work program commitments, it has written off all capitalized petroleum 
        expenditure. The Company has transferred its 50% interest in AC/P26 to
        current participant Hardman Resources Ltd, in exchange  for the grant
        of an option to participate up to a 20% level in the drilling of the Anson
        West Prospect, when and if drilled by Hardman.  TheCompany has received
        no advice of any planned drilling in the Hanson West prospect, and has
        adjusted the carrying value to reflect this.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|11. | Subsequent to balance date the PPL 228
        joint venture did not accept the top file permit offered over the similar
        area and the joint  venture has relinquished its interest in this
        permit area.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

| | The contribution made by joint ventures
        to the consolidated results was to increase revenues by $212,458 
        (2003: $172,715) and expenses by $168,133 (2003: $120,605).
        The consolidated proportion of joint  venture assets and liabilities
        do not represent a material portion of the company’s asset and liabilities. 
        The total value of consolidated joint venture assets is $444,602 and
        liabilities $67,966.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|d) | Disclosure of Parent Company Accounts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | On September 29, 2003, the Company became subject
        to section 15 of the New Zealand Financial Reporting Act when it registered
        on the NZX (New Zealand Stock Exchange). Under this requirement the Company
        is required to disclose the Company’s parent accounts separately.
        In 2003 the Company received an exemption from the NZX to disclose audited
        parent company accounts. As 2004 is the first year the company is subject
        to this requirement, the 2003 parent company accounts were not audited.
        Thus the comparative figures set out below are unaudited.
|  

| |  | Parent Company Accounts - Statement of Financial Position |             |   |                  |  
| |  | --------------------------------------------------------- | ----------- | - | ---------------- | -
| |  | (Expressed in United States Dollars)                      |             |   |                  |  
| |  | For the years ended December 31                           | 2004        |   | 2003 (Unaudited) |  
| |  |                                                           | $           |   | $                |  
|
| |  | Assets                                                    |             |   |                  |  
| |  | Current                                                   |             |   |                  |  
| |  | Cash and cash equivalents                                 | 308,664     |   | 125,296          |  
| |  | Accounts receivable                                       | 705         |   | 4,847            |  
| |  | Prepaid expenses
      and deposits                       | 6,554       |   | 11,077           |  
| |  |                                                           | 315,923     |   | 141,220          |  
| |  |                                                           |             |   |                  |  
| |  | Deferred offering costs                                   | -           |   | 408,083          |  
| |  | Investment in/Advance
      to subsidiaries               | 15,805,012  |   | 9,087,109        |  
| |  | Total Assets                                              | 16,120,935  |   | 9,636,412        |  
| |  |                                                           |             |   |                  |  
| |  | Liabilities                                               |             |   |                  |  
| |  | Accounts payable
      and accrued liabilities            | 120,747     |   | 67,116           |  
| |  | Total Liabilities                                         | 120,747     |   | 67,116           |  
| |  |                                                           |             |   |                  |  
| |  | Stockholders’ Equity                                      |             |   |                  |  
| |  | Common stock without par value (Note 9);                  |             |   |                  |  
| |  | unlimited number of shares authorized;                    |             |   |                  |  
| |  | Issued and outstanding 17,720,045 shares                  | 32,683,328  |   | 20,478,365       |  
| |  | Contributed surplus                                       | 361,854     |   | 417,392          |  
| |  | Accumulated deficit                                       | (17,044,994 | ) | (11,326,461      | )
| |  | Total Stockholders’ Equity                                | 16,000,188  |   | 9,569,296        |  
| |  | Total Liabilities
      and Stockholders’ Equity          | 16,120,935  |   | 9,636,412        |  

- F- 21 -

---

| |  | Parent Company Accounts - Statement of Financial Performance |      |  |                  | 
| |  | ------------------------------------------------------------ | ---- |  | ---------------- | 
| |  | (Expressed in United States Dollars)                         |      |  |                  | 
| |  | For the years ended December 31                              | 2004 |  | 2003 (Unaudited) | 
| |  |                                                              | $    |  | $                | 
| |  | Expenses                                                     |      |  |                  | 

| |  | General and administrative               | 1,803,194   |   | (140,754    | )
| |  | ---------------------------------------- | ----------- | - | ----------- | -
| |  | Adjustment to investment in subsidiaries | 3,945,092   |   | (47,354     | )
| |  | Stock option compensation                | (11,450     | ) | 143,312     |  
| |  | expense/(recovery)                       |             |   |             |  
| |  | Total Expenses                           | 5,736,836   |   | (44,796     | )
| |  | Other Income                             |             |   |             |  
| |  | Interest income                          | 18,303      |   | 2,820       |  
| |  | Net income/(loss) for the year           | (5,718,533  | ) | 47,616      |  
| |  | Deficit, beginning
      of year         | (11,326,461 | ) | (11,374,077 | )
| |  | Deficit, end of year                     | (17,044,994 | ) | (11,326,461 | )
| |  | Basic earnings/(loss)
      per share    | (0.42       | ) | 0.01        |  
| |  | Diluted earnings/(loss) per share        | (0.42       | ) | 0.01        |  



| |  | Parent Company Accounts - Statement of Cash Flows |            |   |                  |  
| |  | ------------------------------------------------- | ---------- | - | ---------------- | -
| |  | (Expressed in United States Dollars)              |            |   |                  |  
| |  | For the years ended December 31                   | 2004       |   | 2003 (Unaudited) |  
| |  |                                                   | $          |   | $                |  
| |  | Net Cash from/(used in) Operating Activities      |            |   |                  |  
| |  | Cash provided from/(used in):                     |            |   |                  |  
| |  | Interest income received                          | 18,303     |   | 2,819            |  
| |  | Receipts from customers                           | 8,665      |   | (10,568          | )
| |  |                                                   |            |   |                  |  
| |  | Net Cash from/(used in) Investing Activities      |            |   |                  |  
| |  | Cash provided from/(used in):                     |            |   |                  |  
| |  | Payment to suppliers                              | (1,749,563 | ) | 273,229          |  
| |  | Advances to subsidiaries                          | (9,719,470 | ) | (651,003         | )
| |  |                                                   |            |   |                  |  
| |  | Net Cash from/(used in) financing Activities      |            |   |                  |  
| |  | Proceeds from issue of shares                     | 11,125,433 |   | 0                |  
| |  | Proceeds from issue
      of convertible notes    | 500,000    |   |                  |  
| |  | Total movement in cash balances                   | 183,368    |   | (385,523         | )
| |  | Cash balances at
      beginning of year          | 125,296    |   | 510,819          |  
| |  | Cash balances                                     | 308,664    |   | 125,296          |  

| | Under the New Zealand Financial Reporting Standards, the Company
      is required to disclose the audit fee of $141,139 for  2004 (2003:$88,912).
| | --------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 19 - DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
  ACCOUNTING PRINCIPLES

| | The Company’s consolidated financial statements have
      been prepared in accordance with Canadian  GAAP which differs in some
      respects from United States GAAP. Any differences in accounting principles 
      as they pertain to the accompanying consolidated financial statements were
      insignificant except as  described below.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- F-22 -

---

Reconciliation of Net Loss and Loss per share under Canadian GAAP to U.S.
  GAAP

|                                                                                                                                                   | Year        | Year          | Year       
|-------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | ------------- | -----------
|                                                                                                                                                   | Ended       | Ended         | Ended      
|                                                                                                                                                   | December 31 | December 31   | December 31
|                                                                                                                                                   | 2004        | 2003          | 2002       
|                                                                                                                                                   |             | (Restated)(1) |            
|Net (loss)/profit for the year under Canadian GAAP                                                                                                 | (5,718,533) | 47,616        | (2,826,770)
|                                                                                                                                                   |             |               |            
|Add back Canadian GAAP compensation cost (d)                                                                                                       | (11,450)    | 143,312       | 274,080    
|Stock option compensation cost (d)                                                                                                                 |             |               |            
|Employees                                                                                                                                          | (4,919)     | (174,316)     | (35,524)   
|Contractors                                                                                                                                        | 1,141       | (21,681)      | 69,921     
|Common stock and warrant issuance expense (d)                                                                                                      | -           | -             | (778,750)  
|Compensation expense of new Series A warrants (d)                                                                                                  | -           | (260,303)     | -          
|Interest expense on the redemption value of                                                                                                        |             |               |            
|special class shares (b)                                                                                                                           | -           | (5,732)       | -          
|Interest on prepaid gas agreement                                                                                                                  | -           | (47,291)      | -          
|Beneficial conversion features (a)                                                                                                                 | (225,503)   | -             | -          
|NZ tradable warrants unrealised expense (c)                                                                                                        | (804,935)   | -             | -          
|NZ tradable warrants realised expense (c)                                                                                                          | (2,670,591) | -             | -          
|Net loss for the year under US GAAP                                                                                                                | (9,434,790) | (318,395)     | (3,297,043)
|Weighted average number of shares under US GAAP                                                                                                    |             |               |            
|Basic                                                                                                                                              | 13,627,617  | 7,739,324     | 6,869,461  
|Diluted                                                                                                                                            | 13,627,617  | 7,739,324     | 6,869,461  
|Loss per share under US GAAP                                                                                                                       |             |               |            
|Basic                                                                                                                                              | (0.69)      | ($0.04)       | ($0.48)    
|Diluted                                                                                                                                            | ($0.69)     | ($0.04)       | ($0.48)    
|[1] Net loss and loss per
      share under US GAAP for the year ended December 31, 2003 have been restated
      as  described below in note (e).

Accumulated deficit under Canadian GAAP and U.S. GAAP

|                                                                                                                                         | As at            |   | As at            |   | As at            |  
|---------------------------------------------------------------------------------------------------------------------------------------- | ---------------- | - | ---------------- | - | ---------------- | -
|                                                                                                                                         | December 31 2004 |   | December 31 2003 |   | December 31 2002 |  
|                                                                                                                                         | Canadian         |   | US               |   | Canadian         |  
|                                                                                                                                         | GAAP             |   | GAAP             |   | GAAP             |  
|                                                                                                                                         |                  |   |                  |   |                  |  
|Accumulated deficit, beginning of year                                                                                                   | (11,326,461      | ) | (14,241,884      | ) | (11,374,077      | )
|Net loss                                                                                                                                 | (5,718,533       | ) | (9,434,790       | ) | 47,616           |  
|                                                                                                                                         |                  |   |                  |   |                  |  
|Accumulated deficit, end of year                                                                                                         | (17,044,994      | ) | (23,676,674      | ) | (11,326,461      | )
|[1] Accumulated deficit
      under US GAAP for the year ended December 31, 2003 has been restated as
      described below in note (e).

Equity reconciliation from Canadian GAAP to U.S. GAAP

|                                                                                                                                         | As at            |   | As at            |   | As at           
|---------------------------------------------------------------------------------------------------------------------------------------- | ---------------- | - | ---------------- | - | ----------------
|                                                                                                                                         | December 31 2004 |   | December 31 2003 |   | December 31 2002
|                                                                                                                                         |                  |   | (restated)       |   |                 
|Total Equity under Canadian GAAP                                                                                                         | 16,000,188       |   | 9,569,296        |   | 9,378,368       
|Fair Value of unsettled derivative exercised (e)                                                                                         | (960,620         | ) | -                |   | -               
|Imputed interest on Special Class Shares (b)                                                                                             | -                |   | (5,732           | ) | -               
|Interest on prepaid gas revenue                                                                                                          | (47,291          | ) | (47,291          | ) | -               
|Total Equity under US GAAP                                                                                                               | 14,992,277       |   | 9,516,273        |   | 9,378,368       
|[1] Accumulated deficit under
      US GAAP for the year ended December 31, 2003 has been restated as described
      below in note (e).

- F-23 -

---

Balance sheet under Canadian GAAP and U.S. GAAP

|                                                                                                                                   | As at            |   | As at            |   | As at            |  
|---------------------------------------------------------------------------------------------------------------------------------- | ---------------- | - | ---------------- | - | ---------------- | -
|                                                                                                                                   | December 31 2004 |   | December 31 2003 |   | December 31 2002 |  
|                                                                                                                                   | Canadian         |   | US               |   | Canadian         |  
|                                                                                                                                   | GAAP             |   | GAAP             |   | GAAP             |  
|                                                                                                                                   |                  |   |                  |   |                  |  
|Assets                                                                                                                             |                  |   |                  |   |                  |  
|Current                                                                                                                            |                  |   |                  |   |                  |  
|Cash
      and cash equivalents                                                                                                    | 11,187,924       |   | 11,187,924       |   | 2,234,287        |  
|Accounts
      receivable                                                                                                          | 480,499          |   | 480,499          |   | 872,532          |  
|Inventory                                                                                                                          | 98,518           |   | 98,518           |   | -                |  
|Prepaid
      expenses and deposits                                                                                                | 467,097          |   | 467,097          |   | 273,994          |  
|                                                                                                                                   | 12,234,038       |   | 12,234,038       |   | 3,380,813        |  
|Deferred
      offering costs                                                                                                      | -                |   | -                |   | 408,083          |  
|Due
      from related parties                                                                                                     | -                |   | -                |   | -                |  
|Property
      and equipment                                                                                                       | 5,649,110        |   | 5,649,110        |   | 8,336,771        |  
|Total Assets                                                                                                                       | 17,883,148       |   | 17,883,148       |   | 12,125,667       |  
|Liabilities                                                                                                                        |                  |   |                  |   |                  |  
|Current                                                                                                                            |                  |   |                  |   |                  |  
|                                                                                                                                   |                  |   |                  |   |                  |  
|Accounts
      payable and accrued liabilities                                                                                     | 401,600          |   | 448,891          |   | 198,886          |  
|Prepaid
      gas revenue (e)                                                                                                      | -                |   | -                |   | 1,258,033        |  
|                                                                                                                                   | 401,600          |   | 448,891          |   | 1,456,919        |  
|Prepaid
      gas revenue (e)                                                                                                      | 1,324,785        |   | 1,324,785        |   | -                |  
|Asset
      retirement obligations                                                                                                 | 156,575          |   | 156,575          |   | 155,927          |  
|Special
      class shares of subsidiary (b)                                                                                       | -                |   | -                |   | 943,525          |  
|Warrants
      liability (c)                                                                                                       | -                |   | 960,620          |   | -                |  
|Total Liabilities                                                                                                                  | 1,882,960        |   | 2,890,871        |   | 2,556,371        |  
|Stockholders' Equity                                                                                                               |                  |   |                  |   |                  |  
|Paid
      in capital (a), (c), (d), (e)                                                                                           | 33,045,182       |   | 38,668,951       |   | 20,895,757       |  
|Accumulated
      deficit (a), (b), (c), (d), (e)                                                                                  | (17,044,994      | ) | (23,676,674      | ) | (11,326,461      | )
|Total Stockholders' Equity                                                                                                         | 16,000,188       |   | 14,992,277       |   | 9,569,296        |  
|Total Liabilities and Stockholders'
      Equity                                                                                   | 17,883,148       |   | 17,883,148       |   | 12,125,667       |  
|[1] Balance sheet under
      US GAAP for the year ended December 31, 2003 has been restated as described
      below in note (e).

|(a) | Convertible Instrument with Beneficial Conversion Feature                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | Emerging Issues Task Force (“EITF”)
        issue No. 00-27 requires an imputed interest expense be recognised for
        convertible instruments with beneficial conversion features. The expense
        is calculated as the excess of (1) the fair value of the common shares
        issuable upon conversion over (2) the proportionate share of the carrying
        value of the convertible instrument allocated to those common shares based
        on their relative fair value compared to all instruments to be issued
        upon conversion.                                                                                                                                                                                     
|   
|    | On January 5, 2004, the Company issued convertible
        notes with a face value of $500,000. The notes were convertible into
        one unit at $1.15. Each unit consists of one common share and one
        warrant. At issuance, the fair value of the units exceeded the carrying
        value of the convertible notes. For US GAAP, the Company recognised $225,503
        of imputed beneficial conversion interests costs.                                                                                                                                                                                                                                                                                                           
|   
|(b) | Special Class Shares                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    | Under US GAAP, the carrying value of Special Class
        shares should reflect the expected redemption value of the shares at the
        end of the period. Consequently, for the period ended December 31, 2003,
        an accretion expense of $5,732 was recognised to reflect an increase
        in the carrying value of the special class shares to their expected redemption
        value.                                                                                                                                                                                                                                                                                                                                            
|   
|    | On November 12, 2003 the Special Class shareholders
        signed a conditional share exchange agreement. On January 5, 2004 the
        conditions of the exchange agreement were met, resulting in the issuance
        of one unit of every 1.35 Special Class shares. Each unit consisted of
        one common share and one half-warrant in the Company. The 555,569 warrants
        were exercisable at a price of NZ$1.85 any time before January 5,
        2004. Upon issuance of the units by the Company the fair value of the
        warrants were classified as a liability in accordance with SFAS 133 (see
        note 19(c)) with the residual of the Special Class share carrying value
        allocated to Paid in Capital.

- F-24 -

---

|(c) | Derivative Contracts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | During the year the Company issued two series of
        share purchase warrants with exercise prices stated in New Zealand dollars.
        These warrants require physical settlement in common shares of the Company.
        The Company’s functional currency is in US dollars. Typically, contracts
        indexed to a company’s own stock do not meet the definition of a
        derivative. However, guidance provided by the Derivatives Implementation
        Group in Issue C8 states the difference between the currency of the stated
        exercise price and the functional currency gives rise to an embedded derivative.
        Furthermore, SFAS 133, Accounting for Derivative Instruments and Hedging
        Activity,provides that when an embedded derivative cannot be separated
        from its host contract, that contract must be treated as a derivative
        in its entirety. Accordingly, warrants with a stated exercise price in
        New Zealand dollars are considered derivatives for the purposes of US
        GAAP.                                                                                           
|   
|    | SFAS 133 requires that derivatives be recognised
        as an asset or liability and measured at fair value over their life. Changes
        in fair value are charged to net earnings. During the year the change
        in fair value of those contracts settled resulted in a net realised loss
        of $2,670,591 for the purposes of US GAAP. Warrants outstanding at
        31 December 2004 must be recognised at their fair value with the change
        in fair value charged to the net earnings. Consequently, at December 31,
        2004, a liability of $960,620 was recognised in relation to the fair
        value of unexercised warrants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    | Upon settlement, the carrying value of the liability
        or asset is de-recognised and treated as paid-in capital.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(d) | Stock Based Compensation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    | In 2002 the Company prospectively adopted CICA Handbook
        section 3870, Stock Based Compensation. This standard requires
        the Company to record a compensation expense over the vesting period of
        the options based on the fair value of the options at grant date. Upon
        exercise of the options, the value of expense previously recognised is
        reallocated from contributed surplus to share capital. Under Canadian
        GAAP a stock option compensation cost recovery of $11,450 was recognised
        for the period ended December 31, 2004 (2003; $143,312; 2002: $274,080).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    | For US GAAP, the Company has applied Accounting
        Principles Board Opinion No. 25, Accounting for Stock Issued to Employees,
        to all stock options granted to employees. Under APB 25, the intrinsic
        value model is followed and compensation cost is recognised if the market
        price of the Company’s common shares exceeds the exercise price
        on the date of the grant. During 2001 the Company re-priced all outstanding
        options. The re-priced options are accounted for under variable accounting
        and compensation cost is recognised for the difference between the exercise
        price and the market price of the common shares until such time as the
        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 stock options issued to non-employees the Company has adopted SFAS
      123, Share based payments, for US GAAP purposes. CICA section 3870
      is consistent with the recommendations of SFAS 123. The additional compensation
      costs recognized under US GAAP for non-employees results from the revaluation
      of options granted prior to the date of adoption of the CICA section 3870.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|    | In 2003 an amendment to the terms of Series A warrants
        was considered a grant of new warrants under SFAS 123. (refer to Note
        9(d) of the Company’s 2004 Financial Statements). Consequently,
        compensation expense of $260,303 was recognised to reflect the amended
        terms of the warrants. The compensation expenses were calculated using
        the Black-Scholes pricing model with the following assumptions:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   

| | Expected dividend yield   | 0.00%     
| | ------------------------- | ----------
| | Expected price volatility | 55.76%    
| | Risk-free interest rate   | 1.28%     
| | Expected life of option   | 1.04 years

- F-25 -

---

| | The 2002 Common Stock and Warrant issuance
        expense of $778,750 comprised 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 | 55.76%    
| | Risk-free interest rate   | 2.96%     
| | Expected life of option   | 0.67 years

|(e) | Restatement of 2003 Comparative                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | The US GAAP information for the year ended December
        31, 2003 has been restated. An advance received in 2003 under the prepaid
        gas agreement was previously recorded as a loan at the face value discounted
        by an imputed interest rate of 8%, resulting in a discount of $688,282
        which was recorded as a credit to equity, and the discount was amortized
        to interest expense for an amount of $46,966 in the year ended December
        31, 2003.                                                                                                       
|   
|    | The balance of the gas prepayment outstanding at
        April 2013, originally disclosed as “non-interest bearing”,
        is in fact interest bearing if repaid in cash. As a result interest should
        not have been imputed under US GAAP. The amount received should have been
        recorded as a liability at face value consistent with the accounting method
        under Canadian GAAP. For US GAAP an interest expense amounting to $47,291
        has been accrued at year end calculated on the balance of the prepayment
        at the average New Zealand bank bill rate.
|   
|    | The impact of this US GAAP restatement, which has
        no impact on the Canadian GAAP financial statements, is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   

Previously reported
      As restatedNet loss
      $(318,070)
      $(318,395)Loss per share
      ($0.04)
      ($0.04)Liabilities
      $1,920,787
      $2,609,394Paid-in capital
      $24,446,439
      $23,758,157Accumulated deficit
      $(14,241,559)
      $(14,241,884)


|(f) | New Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | SFAS 123(R)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | In 2004, FASB issued revised SFAS 123(R), Share-Based
        Payment. This amended statement eliminates the alternative to use Accounting
        Principles Board (“APB”) Opinion No. 25’s intrinsic
        value method of accounting, as was provided in the originally issued Statement
        123. As a result, public entities are required to use the grant-date fair
        value of the award in measuring the cost of employee services received
        in exchange for an equity award of equity instruments. Compensation cost
        is required to be recognized over the requisite service period. For liability
        awards, entities are required to re-measure the fair value of the award
        at each reporting date up until the settlement date. Changes in fair value
        of liability awards during the requisite service period are required to
        be recognized as compensation cost over the vesting period. Compensation
        cost is not recognized for equity instruments for which employees do not
        render the requisite service. This amended statement is effective the
        beginning of the first interim or annual reporting period that begins
        on or after June 15, 2005. The Company is currently assessing the impact
        of this amendment.
|   
|    | SAB 106                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | In September 2004, the Securities and Exchange Commission
        issued Staff Accounting Bulletin 106 (“SAB 106”) regarding
        the application of FAS 143 by oil and gas producing entities that follow
        the full cost accounting method. SAB 106 states that after the adoption
        of FAS 143 the future cash flows associated with the settlement of asset
        retirement obligations that have been accrued on the balance sheet should                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

- F-26 -

---

| | be excluded from the computation
        of the present value of estimated future net revenues for purposes of 
        the full cost ceiling test calculation. The company has not assessed the
        impact on the results of the  ceiling test or depletion, depreciation
        and amortization calculations of not adopting SAB 106 in the fourth 
        quarter of 2004. The company will adopt SAB 106 from  1 January 2005.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- F-27 -

---

Index to Exhibits

|Exhibit Reference | Exhibit Description                                                                                                                   | Reference 
|----------------- | ------------------------------------------------------------------------------------------------------------------------------------- | ----------
|1.1               | Articles of Continuance of the Company                                                                                                | [1]       
|1.2               | Certificate of Amendment of the Company                                                                                               | [2]       
|1.3               | Bylaws of the Company (amended 2005)                                                                                                  | Filed     
|2.1.1             | TSX-V listing application                                                                                                             | [3]       
|2.1.2             | NZSX Prospectus and Investment Statement                                                                                              | [4]       
|2.1.3             | AMEX listing agreement                                                                                                                | Filed     
|4.1.1             | Asset Purchase Agreement between the Company and Trans-Orient
      Petroleum Ltd.                                                    | [5]       
|4.1.2             | Variation to Asset Purchase Agreement between the Company
      and Trans-Orient Petroleum Ltd.                                       | [6]       
|4.1.3             | Warrant Amendment Agreement                                                                                                           | [12]      
|4.2               | Form of Stock Option Agreement for all vesting options granted
      to named directors and officers                                  | [7]       
|4.3               | Stock Option Agreement with David Bennett for performance
      vesting options                                                       | [8]       
|4.4               | Farm-out Agreement between the Company and Krystal Corporation
      Pte Ltd                                                          | [7]       
|4.5.1             | Form of Subscription Agreement between the Company, Indo-Pacific
      Energy (NZ) Limited and subscribers to IPENZ                   | [7]       
|4.5.2             | Form of Share Exchange Agreement between the Company, Indo-Pacific
      Energy (NZ) Limited and subscribers to IPENZ                 | [12]      
|4.6               | Gas Pre-purchase and Option Agreement
      between the Company and NGC New Zealand Limited                                           | Filed [14]
|4.7.1             | Form of Asset Purchase Agreement – for each of PEP 38716,
      PEP 38728 and PEP 38716                                               | [7]       
|4.7.2             | Agreement for Sale & Purchase of Data and Shares in Bligh
      Oil & Minerals NZ Limited                                             | [7]       
|4.8               | 2004 Share Option Plan                                                                                                                | [12]      
|4.9.1             | Petroleum Products Sale & Purchase Agreement between Ngatoro
      Energy Limited and Greymouth Petroleum Acquisition Company Limited | [12]      
|4.9.2             | Sale Deed for PMP38148 interest between Ngatoro Energy Limited
      and Southern Petroleum (Ohanga) Limited                          | [12]      
|4.10              | Report of Reserves Form 51-101F1                                                                                                      | [8]       
|4.11              | Form of Convertible note issued by the Company January 2004                                                                           | [12]      
|4.12              | Report on Reserves and Resource Potential by Sproule International
      Limited                                                      | [13]      
|8                 | List of Subsidiaries of the Company                                                                                                   | Filed     
|11                | Code of Ethics                                                                                                                        | [8]       
|12.1              | Section 302 Certification of CEO                                                                                                      | Filed     
|12.2              | Section 302 Certification of CFO                                                                                                      | Filed     
|13.1              | Section 906 Certification of CEO                                                                                                      | Filed     
|13.2              | Section 906 Certification of CFO                                                                                                      | Filed     
|15.2.1            | Change of auditor papers January 2004                                                                                                 | [10]      
|15.2.2            | Change of auditor papers April 2004                                                                                                   | [11]      

- 86 -

---

|[1]  | Incorporated by reference as previously included in Form 10-12G filed
      April 8,1998.                                                                                                        
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|[2]  | Incorporated by reference as previously included in a Form 6-K filed
      December 31, 2003.                                                                                                    
|[3]  | Incorporated by reference as previously included in a Form 6-K filed
      January 6, 2004.                                                                                                      
|[4]  | Incorporated by reference as previously included in a Form 6-K filed
      November 28, 2003.                                                                                                    
|[5]  | Incorporated by reference as previously included in our Form 8-K filed
      on April 13, 2000.                                                                                                  
|[6]  | Incorporated by reference as previously included in our Form 20-F filed
      for the year ended December 31, 2001.                                                                              
|[8]  | Incorporated by reference as previously included in a Form 6-K filed
      April 23, 2004.                                                                                                       
|[9]  | Available on the Company’s website at www.austral-pacific.com                                                                                                                                    
|[10] | Incorporated by reference as previously included in a Form 6-K filed
      January 22, 2004.                                                                                                     
|[11] | Incorporated by reference as previously included in a Form 6-K filed
      May 27, 2004.                                                                                                         
|[13] | Incorporated by reference as previously included in a Form 6-K filed
      May 25, 2005.                                                                                                         
|[14] | Previously included in our Form 20-F filed for the year ended December
      31, 2002, without a handwritten amendment made at the time of execution,
      now re-filed with amendment included.

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