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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 20-F

[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12 (b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934

OR

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

For the fiscal year ended April 30, 2008

OR

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

For the transition period from ____________to ____________

Commission file number 000-49760 OR

[ ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

MEGAWEST ENERGY CORP(Exact name of Registrant as specified in its charter)

Not Applicable(Translation of Registrant's
Name into English)

Alberta, Canada(Jurisdiction of incorporation
or organization)

Suite 800, 926  5thAvenue S.W. Calgary,
  Alberta, Canada T2P 0N7(Address of principal executive
offices)

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

Not ApplicableTitle of Class

Not ApplicableName of Each Exchange on Which
Registered

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

Common Shares, Without Par Value(Title of
Class)

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

Not ApplicableTitle of Class

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

There were 95,131,666 common shares, without par value, issued
and outstanding as of April 30, 2008 and 132,919,472 common shares, without par
value, issued and outstanding as of August 28, 2008.

Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act. [ ] YES
[X] NO

If this report is an annual or transition report, indicate by
check mark if the registrant is not required to file reports pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934.[X] YES [ ] NO

Note  Checking the box above will not relieve any registrant
required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.[X] YES [ ] NO

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of
the Exchange Act. (Check one):Large accelerated filer [ ] Accelerated filer
[X] Non-accelerated filer [ ]

Indicate by check mark which financial statement item the
registrant has elected to follow.[ ] Item 17 [X] Item 18

If this is an annual report, indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).[ ] YES [X] NO

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court. [ ] YES [ ] NO

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PART I

This annual report contains forward-looking statements as that
term is defined in Section 27A of the United States Securities Act of
1933 and Section 21E of the United States Securities Exchange Act of
1934. These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology such as "may", "should", "expects", "plans", "anticipates",
"believes", "estimates", "predicts", "potential" or "continue" or the negative
of these terms or other comparable terminology. These statements are only
predictions and involve known and unknown risks, uncertainties and other
factors, including the risks in the section entitled "Risk Factors" that may
cause our or our industry's actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by these
forward-looking statements.

Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Except as required by
applicable law, including the securities laws of the United States, we do not
intend to update any of the forward-looking statements to conform these
statements to actual results.

As used in this annual report, the terms "we", "us", "our" and
"company" mean MegaWest Energy Corp. and "MegaWest USA" means our directly-owned
subsidiary MegaWest Energy (USA) Corp., unless otherwise indicated and all
references to "common shares" refer to common shares, without par value, in our
capital stock.

Unless otherwise indicated, all dollar amounts referred to
herein are in Canadian dollars.

|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 following table summarizes selected financial data for our
company prepared in accordance with Canadian generally accepted accounting
principles (GAAP) for the five fiscal years ended April 30, 2008. Additional
information is presented to show the differences which would result from the
application of United States GAAP to our financial information. The data set out
below for the five year period ended April 30, 2008 is derived from our audited
financial statements which were examined by our principal accountant. The data
should be read in conjunction with our audited financial statements and related
notes included in this annual report and with the information appearing under
the heading "Item 5  Operating and Financial Review and Prospects" below. The
data is presented in Canadian dollars.

Selected Financial Data (Stated in Canadian
      Dollars - Calculated in accordance with Canadian GAAP)Year Ended April 30 (Audited)2008
    2007
    2006(1)
    2005(1)
    2004(1)Net Sales or Operating Revenues
    $-
    $-
    $-
    $-
    $-Net Income (Loss) (2)
    ($17,903,023)
    ($6,893,052)
    ($222,945)
    ($61,031)
    ($143,489)Net Income (Loss) from Operations per
      Common Share
    ($0.23)
    ($0.31)
    ($0.04)
    ($0.01)
    ($0.05)


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Selected Financial Data (Stated in Canadian
      Dollars - Calculated in accordance with Canadian GAAP)Year Ended April 30 (Audited)2008
    2007
    2006(1)
    2005(1)
    2004(1)Net Income (Loss) per Common Share
    ($0.23)
    ($0.31)
    ($0.04)
    ($0.01)
    ($0.08)Total Assets
    $48,555,322
    $52,532,847
    $31,440
    $137,113
    $176,549Net Assets (Deficiency in Assets) (2)
    $44,743,759
    $48,148,521
    ($129,422)
    $93,523
    $150,054Capital Stock(3)
    $87,060,351
    $66,955,725
    $376,092
    $376,092
    $371,592Number of Common Shares
    95,131,666
    72,436,050
    6,337,500
    6,337,500
    1,837,500Dividends per Common Share
    $-
    $-
    $-
    $-
    $-Weighted Average Number of Common
      Shares
    79,413,793
    22,102,129
    6,337,500
    5,018,322
    1,837,500Working Capital
    $2,499,296
    $28,152,901
    ($139,422)
    ($30,087)
    $150,054Long-Term Debt(4)
    $-
    $2,928,442
    $-
    $-
    $-


| | Notes:
| | ------
| | (1)   
| | (2)   
| | (3)   
| | (4)   

Reconciliation to United States Generally Accepted
Accounting Principles

Canadian GAAP conforms in all material respects with United
States GAAP except for certain matters as described in Reconciliation to U.S.
GAAP as at April 30, 2008 and 2007 and for the years ended April 30, 2008, 2007
and 2006. The differences between Canadian GAAP and U.S. GAAP, which affect our
financial statements for the year ended April 30, 2008, are as follows:

- increase amount recorded for oil and gas net assets acquired and related
  consideration given;
- classify convertible promissory notes as a liability and adjust accretion
  expense; and
- adjust stock-based compensation expense for stock options and warrants;

Had we followed U.S. GAAP, certain selected financial
information reported above, would have been reported in as follows (stated in
Canadian dollars):

Selected Financial Data (Stated in Canadian
      Dollars - Calculated in accordance with U.S. GAAP)Year Ended April 30 (Audited)2008
    2007
    2006
    2005
    2004Net Income (Loss)
    ($19,429,964)
    ($18,112,762)
    ($222,945)
    ($61,031)
    ($143,489)Net Income (Loss) per Common Share
    ($0.24)
    ($0.81)
    ($0.04)
    ($0.01)
    ($0.08)Total Assets
    $98,990,287
    $97,902,628
    $31,440
    $137,113
    $176,549Net Assets (Deficiency in Assets)
    $115,272,876
    $100,898,521
    ($129,422)
    $93,523
    $150,054Capital Stock
    $132,963,810
    $92,748,456
    $376,092
    $376,092
    $371,592Long-Term Debt
    $-
    $1,959,258
    $-
    $-
    $-


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Disclosure of Exchange Rate History

The following table sets out average exchange rates, based on
the noon buying rates in New York City for cable transfers in foreign currencies
as certified for customs purposes by the Federal Reserve Bank of New York for
the conversion of Canadian dollars into United States dollars in effect on the
last date of each month during the period, for the following periods:

Year Ended April 302008
    2007
    2006
    2005
    2004Average for period
    $0.9785
    $0.8789
    $0.8423
    $0.7873
    $0.7444


The following table sets out the high and low exchange rates,
based on the above-mentioned noon buying rate in New York City for the
conversion of Canadian dollars into United States dollars, for the following
periods:

High
    LowAugust 1 to August
      20, 2008
    $0.9366
    $0.9755July 2008
      $0.9746
      $0.9985June 2008
      $0.9726
      $0.9989May 2008
      $0.9816
      $1.0163April 2008
      $0.9739
      $0.9979March 2008
      $0.9732
      $1.0162February 2008
      $0.9815
      $1.0291January 2008
      $0.9714
      $1.0096


On August 20, 2008, the above-mentioned noon buying rate in New
York City for the conversion of Canadian dollars into United States dollars was
$0.9366 per Canadian dollar.

|B. | Capitalization and Indebtedness
|-- | -------------------------------

Not applicable.

|C. | Reasons for the Offer and Use of
      Proceeds
|-- | -----------------------------------------------

Not applicable.

|D. | Risk Factors
|-- | ------------

Much of the information contained in this annual report
includes or is based upon estimates, projections or other "forward looking
statements". Such forward looking statements include any projections or
estimates made by our company and our management in connection with our business
operations. While these forward-looking statements, and any assumptions upon
which they are based, are made in good faith and reflect our current judgment
regarding the direction of our business, actual results will almost always vary,
sometimes materially, from any estimates, predictions, projections, assumptions
or other future performance suggested herein.

Such estimates, projections or other forward looking statements
involve various risks and uncertainties as outlined below. We caution the reader
that important factors in some cases have affected and, in the future, could
materially affect actual results and cause actual results to differ materially
from the results expressed in any such estimates, projections or other forward
looking statements.

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The common shares of our company are considered speculative.
You should carefully consider the following risks and uncertainties in addition
to other information in this annual report in evaluating our company and our
business before purchasing our common shares. Our business, operating or
financial condition could be harmed due to any of the following risks.

Risks Relating to our Financial Condition

We have yet to attain profitable operations and because we
will need additional financing to fund our exploration activities, there is
substantial doubt about our ability to continue as a going concern.

To date, we have acquired interests in five oil and gas
properties; however, we have not established a proved commercial project on any
of our properties that generates commercial revenues. Our short and long-term
prospects depend upon the success of our exploration, appraisal and development
drilling programs and the production response to our Marmaton River and Grassy
Creek projects in Missouri. As at April 30, 2008, all of our projects are
unproved. We also had an accumulated deficit of $42,316,952 and cash balances of
$5,617,892. For the fiscal year ended April 30, 2008, we incurred a net loss of
$17,903,023 (see "Operating Results" below in this annual report). Accordingly,
we have not generated significant revenues nor have we realized a profit from
our operations to date. Any profitability in the future from our business will
be dependent upon locating and developing economic reserves of oil and gas,
which itself is subject to numerous risk factors as set out herein. Since we
have not generated significant revenues, we may have to raise additional monies
through the sale of our equity securities, debt and/or joint venture farmouts in
order to continue our business operations and develop our projects, if
determined to be commercial.

We will require additional financing to continue as a going
concern.

We expect to require further funds to finance the development
of our company. If additional funds are raised by issuing equity securities,
further dilution to existing or future shareholders is likely to result.
Obtaining additional financing is subject to a number of factors, including
investor acceptance of any business we may acquire or combine with in the future
and general investor sentiment. Such financing, if required, may not be
available upon terms and conditions acceptable to us, if at all. Our inability
to obtain additional financing in a sufficient amount when needed and upon terms
and conditions acceptable to us could have a materially adverse effect upon our
company. If adequate funds are not available on acceptable terms when needed, we
may be required to delay projects, scale back or suspend the development of our
properties, which could impair our ability to compete in the marketplace, and
may result in the dissolution of our company.

Risks Relating to Oil and Gas Operations

The oil and gas industry is highly competitive and we may be
unsuccessful in acquiring further leases.

The oil and gas industry is intensely competitive. We compete
with numerous individuals and companies, including many major oil and gas
companies, which have substantially greater technical, financial and operational
resources and staff for suitable business opportunities, desirable oil and gas
properties for drilling operations, drilling equipment and funds. We may be
unable to raise the necessary funds or complete any projected work.

As our Missouri, Kansas, Kentucky, Montana and Texas
properties are in the exploration stage or early stages of development, we may
not be able to establish commercial reserves on these projects.

Exploration for commercial reserves of oil and gas is subject
to a number of risk factors. Few of the prospects that are explored are
ultimately developed into producing oil and/or gas wells. As at April 30, 2008
all of our projects are considered unproved and are without proved reserves of
oil and gas, with the exception of a limited amount of proved reserves assigned
to our Chetopa Kansas project (see "Other Oil and Gas Information" below in this
annual report).We may not be able to establish commercial reserves on
any of our projects (see "Business Overview" below in this annual report).

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The potential profitability of oil and gas ventures depends
upon factors beyond the control of our company, any of which may have a material
adverse effect on our company.

The potential profitability of oil and gas projects is
dependent upon many factors beyond our control, including: world prices and
markets for oil and gas which are unpredictable, highly volatile, potentially
subject to governmental fixing, pegging or controls; adverse weather conditions
can hinder drilling and production operations; production from any well may be
unmarketable if it is impregnated with water or other deleterious substances;
and the marketability of oil and gas which may be acquired or discovered will be
affected by proximity and capacity of oil and gas pipelines and processing
equipment, market fluctuations of prices, taxes, royalties, land tenure,
allowable production and environmental protection. The extent of these factors
cannot be accurately predicted but the combination of these factors may result
in our company not receiving an adequate return on invested capital.

Oil and gas operations are subject to comprehensive
regulation which may cause substantial delays or require capital outlays in
excess of those anticipated causing an adverse effect on our company. Further,
exploration and production activities are subject to certain environmental
regulations which may prevent or delay the commencement or continuance of our
operations.

Oil and gas operations in United States are also subject to
federal and state laws and regulations which seek to maintain health and safety
standards by regulating the design and use of drilling methods and equipment.
Various permits from government bodies are required for drilling and production
operations to be conducted; we may not receive such permits. Furthermore oil and
gas operations in the United States are also subject to federal and state laws
and regulations including, but not limited to: the construction and operation of
facilities, the use of water in industrial processes, the removal of natural
resources from the ground, and the discharge/release of materials into the
environment.

Environmental standards imposed by federal and state
authorities may be changed and such changes may have material adverse effects on
our activities. Moreover, compliance with such laws may cause substantial delays
or require capital outlays in excess of those anticipated, thus causing an
adverse effect on us. Additionally, we may be subject to liability for pollution
or other environmental damages which we may elect not to insure against due to
prohibitive premium costs and other reasons. Our current and anticipated
exploration and drilling activities are subject to the aforementioned
environment regulations. When and if we establish reserves or enter into
production, we will become subject to additional regulations which do not
currently pertain to us or affect our current operations.

Exploratory drilling involves many risks and we may become
liable for pollution or other liabilities which may have an adverse effect on
our financial position.

Drilling operations generally involve a high degree of risk.
Hazards such as unusual or unexpected geological formations, blow-outs, sour gas
leakage, fire, inability to obtain suitable or adequate machinery, equipment or
labour, and other risks are involved. We may become subject to liability for
pollution or hazards against which we cannot adequately insure or which we may
elect not to insure. Incurring any such liability may have a material adverse
effect on our financial position and operations.

We have oil and gas leases in respect of the real property
associated with our projects, but the real property may be subject to prior
unregistered agreements, or transfers which have not been recorded or detected
through title searches.

We have oil and gas leases with respect to the real property
associated with our projects and we believe our interests are valid (see
"Business Overview  Projects" below in this annual report). These leases do not
guarantee title against all possible claims. The real property may be subject to
prior unregistered agreements, or transfers which have not been recorded or
detected through title research. If the oil and gas leases to the real property
associated with our projects are challenged, we may have to expend funds
defending any such claims and may ultimately lose some or all of any revenues
generated from the projects if we lose our interest in such leases.

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Risks Relating to our Common Stock

Shareholders' interests in our company will be diluted and
investors may suffer dilution in their net book value per share if we issue
additional shares or raise funds through the sale of equity securities.

Our constating documents authorize the issuance of an unlimited
number of common shares, without par value, and an unlimited number of preferred
shares, without par value (see "Stock Ownership" below in this annual report).
In the event that we are required to issue additional shares, enter into private
placements to raise financing through the sale of equity securities or acquire
additional oil and gas property interests in the future from the issuance of
shares of our common stock to acquire such interests, the interests of existing
shareholders in our company will be diluted and existing shareholders may suffer
dilution in their net book value per share depending on the price at which such
securities are sold. If we do issue additional shares, it will cause a reduction
in the proportionate ownership and voting power of all existing
shareholders.

Principal shareholders, senior management and directors have
significant influence regarding share ownership. This concentration could lead
to conflicts of interest and difficulties for non-insider investors effecting
corporate changes, and could adversely affect our company's share price.

As of August 28, 2008, our senior management, directors and
greater than five percent shareholders (and their affiliates), acting together,
held approximately 23 percent of the issued and outstanding shares of our
company, on a diluted basis, and have the ability to influence all matters
submitted to our company's shareholders for approval (including the election and
removal of directors and any merger, consolidation or sale of all or
substantially all of our company's assets) and to control our company's
management and affairs (see "Stock Ownership" below in this annual report).
Accordingly, this concentration of ownership may have the effect of delaying,
deferring or preventing a change in control of our company, impeding a merger,
consolidation, takeover or other business combination involving our company or
discouraging a potential acquirer from making a tender offer or otherwise
attempting to obtain control of our company, which in turn could have a material
adverse effect on the market price of our shares.

Employee, director and consultant stock options and warrants
could lead to greater concentration of share ownership among insiders and could
lead to dilution of share ownership which could lead to depressed share
prices.

Because the success of our company is highly dependent upon our
respective employees, our company has granted to certain employees, directors
and consultants stock options to purchase shares of our common stock as non-cash
incentives (see "Stock Ownership" below in this annual report). To the extent
that significant numbers of such stock options may be granted and exercised, the
interests of the other shareholders of our company may be diluted causing
possible loss of investment value.

We have never declared or paid cash dividends on our common
shares and do not anticipate doing so in the foreseeable future.

Our board of directors may never declare cash dividends, which
action is exclusively within our discretion. Shareholders cannot expect to
receive a dividend on our common stock in the foreseeable future, if at all.

Trading of our common stock may be restricted by the
Securities and Exchange Commission (SEC)'s "Penny Stock" rules which may limit a
shareholder's ability to buy and sell our shares.

The SEC has adopted rules which generally define "penny stock"
to be any equity security that has a market price (as defined) less than US$5.00
per share or an exercise price of less than $5.00 per share, subject to certain
exceptions. Our securities are covered by the penny stock rules, which impose
additional sales practice requirements on broker-dealers who sell to persons
other than established customers and "accredited investors". The term
"accredited investor" refers generally to institutions with assets in excess of
US$5,000,000 or individuals with a net worth in excess of US$1,000,000 or annual
income exceeding US$200,000 or US$300,000 jointly with their spouse.

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The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document in a form prepared by the SEC which
provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction and monthly account
statements showing the market value of each penny stock held in the customer's
account. The bid and offer quotations, and the broker-dealer and salesperson
compensation information, must be given to the customer orally or in writing
prior to effecting the transaction and must be given to the customer in writing
before or with the customer's confirmation.

In addition, the penny stock rules require that prior to a
transaction in a penny stock not otherwise exempt from these rules, the
broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for the share
that is subject to these penny stock rules. Consequently, these penny stock
rules may affect the ability of broker-dealers to trade our securities. We
believe that the penny stock rules discourage investor interest in and limit the
marketability of our common shares.

The National Association of Securities Dealer (NASD) has
adopted sales practice requirements which may limit a shareholder's ability to
buy and sell our shares.

In addition to the "penny stock" rules described above, the
NASD has adopted rules that require that in recommending an investment to a
customer, a broker-dealer must have reasonable grounds for believing that the
investment is suitable for that customer. Prior to recommending speculative low
priced securities to their non-institutional customers, broker-dealers must make
reasonable efforts to obtain information about the customer's financial status,
tax status, investment objectives and other information. Under interpretations
of these rules, the NASD believes that there is a high probability that
speculative low priced securities will not be suitable for at least some
customers. The NASD requirements make it more difficult for broker-dealers to
recommend that their customers buy our common shares, which may limit your
ability to buy and sell our shares and have an adverse effect on the market for
our shares.

Risks Relating to our Management

Our articles contain provisions indemnifying our officers
and directors against all costs, charges and expenses incurred by them.

Our articles contain provisions that state, subject to
applicable law, we must indemnify every director or officer of our company,
subject to the limitations of the Business Corporations Act (Alberta), against
all losses or liabilities that our company's directors or officers may sustain
or incur in the execution of their duties. Our company's articles further state
that no director or officer will be liable for any loss, damage or misfortune
that may happen to, or be incurred by our company in the execution of his duties
if he acted honestly and in good faith with a view to the best interests of our
company. Such limitations on liability may reduce the likelihood of litigation
against our company's officers and directors and may discourage or deter our
shareholders from suing our company's officers and directors based upon breaches
of their duties to our company, though such an action, if successful, might
otherwise benefit our company and our shareholders.

As a majority of our directors and officers are residents of
countries other than the United States, investors may find it difficult to
enforce, within the United States, any judgments obtained against our company or
our directors and officers.

We do not currently maintain a permanent place of business
within the United States. A majority of our directors and officers are nationals
and/or residents of countries other than the United States, and all or a
substantial portion of such persons' assets are located outside the United
States. As a result, it may be difficult for investors to enforce within the
United States any judgments obtained against our company or our officers or
directors, including judgments predicated upon the civil liability provisions of
the securities laws of the United States or any state thereof.

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- 10 -

Key management employees may fail to properly carry out
their duties or may leave, which could negatively impact our corporate
operations and/or our share price.

Our company's financial condition and the success of our oil
and gas operations is dependent on our ability to hire and retain highly skilled
and qualified personnel, including George T. Stapleton, II, R. William Thornton
and George Orr. We face competition for qualified personnel from numerous
industry sources, and we may not be able to attract and retain qualified
personnel on acceptable terms. The loss of service of any of our key personnel
could have a material adverse effect on our operations and/or financial
condition, which may negatively impact our share price. We do not have key-man
insurance on any of our employees and with the exception of three senior
officers, R. William Thornton, George T. Stapleton, II and George Orr, we do not
have written employment agreements with any of our key personnel.

Because we have not adopted a formal conflicts of interest
policy, the occurrence of one or more conflicts could have a negative impact on
our ability to raise capital and/or our share price.

Some of our directors and officers serve or may serve as
directors or officers of other oil and gas or mineral exploration companies or
have interests in other oil and gas or mineral exploration companies or
ventures. To the extent that our company has dealings with such companies or
ventures, certain of our directors and officers may have a conflict of interest
in negotiating and concluding terms respecting the extent of such dealings.
Pursuant to the provisions of the Business Corporations Act (Alberta), our
directors and senior officers must disclose material interests in any contract
or transaction (or proposed contract or transaction) material to our company
(see "Related Party Transactions" below in this annual report). However, our
lack of a formal conflicts of interest policy may make it difficult for our
company to raise additional capital because institutional investors may be
unable to invest in our company. Furthermore, we may be unable to list our
shares on an exchange if such exchange requires that we have a formal conflicts
of interest policy, which may limit your ability to buy and sell our shares and
may have an adverse effect on the value of your investment in our company or the
market for our shares.

|ITEM 4. | INFORMATION ON MEGAWEST ENERGY CORP.
|------- | ------------------------------------

|A. | History and Development of MegaWest Energy
      Corp.
|-- | ------------------------------------------------------

We are a corporation organized under the laws of the Province
of Alberta, Canada. We were originally incorporated under the Company Act
(British Columbia) on February 8, 2000 under the name "Brockton Capital Corp.".
Our name was changed to "MegaWest Energy Corp." effective February 27, 2007. At
a meeting of the shareholders of our company on October 29, 2007, the
shareholders approved the continuance of our company from the Province of
British Columbia into the Province of Alberta under the Business Corporations
Act (Alberta). Effective February 12, 2008, our company continued into the
Province of Alberta as a company organized under the Business Corporations Act
(Alberta) and we ceased to be a company organized under the Business
Corporations Act (British Columbia). The continuance was effected to reflect our
establishment of principle executive offices in Calgary, Alberta.

Our corporate offices are located at Suite 800, 926 
5th Avenue SW, Calgary Alberta, Canada T2P 0N7. Our telephone number
is (403) 984-6342 and our facsimile number is (403) 984-6343.

Our company was originally engaged in the consumer electronics
market. However, due to our inability to generate revenues from our existing
line of business, subsequent to our fiscal year ended April 30, 2006, new
management was hired to pursue alternative business opportunities, namely
non-conventional oil and gas resource exploration and development.

During the fiscal year ended April 30, 2007, we completed three
private placements to provide us with the necessary working capital to evaluate
and pursue non-conventional oil and gas opportunities in the United States and
Canada and to establish a head office in Calgary, Alberta. The first of the
private placements, an offering of 23,500,000 shares of our common stock at
US$0.10 per share for aggregate proceeds of US$2,350,000 was completed in
December 2006. In January and February 2007, we completed a further private
placement of 8,425,000 units, at a price of US$0.50 per unit, for aggregate
proceeds of US$4,212,500, each of which units consisted of one share of

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- 11 -

our common stock and one-half of one share purchase warrant (each
  whole warrant entitled the holder to purchase an additional share of our common
  stock at an exercise price of US$1.00 per share for a period of one year). On
  December 14, 2007, our board of directors approved a six month extension for
  the share purchase warrants and on July 5, 2008 the share purchase warrants
  expired. On February 28, 2007, our company completed an additional private placement
  of 27,448,550 units, at a price of US$1.00 per unit, for aggregate proceeds
  of US$27,448,550, each of which units consists of one share of our common stock
  and one-half of one share purchase warrant (each whole warrant entitles the
  holder to purchase an additional share of our common stock at an exercise price
  of US$1.30 per share a period of one year). In conjunction with the February
  28, 2007, private placement, we issued 655,848 warrants (each of which entitles
  the holder to purchase one share of our common stock at US$1.30 per share for
  a period of one year) to finders, rights to buy an additional 180,000 units
  under the same terms as the January 2007 private placement and rights to buy
  a further 375,000 units under the same terms as the February 2007 private placement.
  On December 14, 2007, our board of directors approved a six month extension
  for the share purchase warrants and on August 28, 2008 the share purchase warrants
  and units expired. In respect of both of the above-mentioned extensions: (a)
  no consideration was given by our company or received by the warrant holders;
  and (b) the extension was effected to encourage the warrant holders to continue
  to hold investments in our company.

In November 2006, we took our first steps to become a
non-conventional oil and gas company when in December 2006 we entered into
several non-binding letters of intent with companies involved in the business of
the exploration of oil and gas resources in Kansas, Missouri, Kentucky and
Texas.

On March 26, 2007, we purchased (through our subsidiary,
MegaWest Energy (USA) Corp.) all of the assets of Deerfield Energy Kansas Corp.
The purchased assets included certain items of equipment and fixed assets and
interests in two oil and gas leases covering 392 unproved acres in respect of
the Chetopa project near Chetopa, Kansas. The consideration given for the assets
was 250,000 shares of our common stock and the assumption of a promissory note
in the amount of US$500,000 payable to a private company, Agosto Corporation
Limited. Pursuant to our assumption of the promissory note, we granted Agosto a
conversion feature that enables the holder of the note to convert the principal
amount of the loan plus accrued interest into shares of our common stock at a
rate of US$0.25 per share. On maturity on June 20, 2008 these promissory notes
were converted into common shares of our company.

As part of the Chetopa acquisition, we are obligated to pay a
net revenue interest up to a maximum of US$750,000 on net revenues generated
from the Chetopa project. The net revenue interest becomes payable after our
company recovers 100 percent of its capital and operating costs, and will be
paid quarterly from 25 percent of the project's net revenues.

On April 2, 2007, we acquired (in conjunction with MegaWest
Energy (USA) Corp.) all of the issued and outstanding membership units of
Kentucky Reserves, LLC (Kentucky Reserves) in consideration for US$3,000,000
cash and 5,000,000 shares of our common stock. Kentucky Reserve's assets
included oil and gas leases covering 27,009 unproved acres in the Edmonson,
Warren and Butler Counties in Kentucky. Pursuant to the membership unit purchase
agreement, we acquired a 62.5 percent working interest in the shallow rights in
certain tar sands and a 37.5 percent interest in the certain deep rights.
Furthermore, pursuant to the purchase agreement, we are committed to undertake a
US$15,000,000 work program within the area covered by the leases, which work
program must be completed within 30 months of the execution of the purchase
agreement for the purpose of determining the most effective way of extracting
heavy oil/bitumen from the leases. The work program may consist of field testing
and evaluation, drilling, logging and coring of wells, formation and fluid
testing, the construction of heavy oil pilot projects such as steam, water
flooding, solvent injection, electro-thermal heating, or the like. Should we be
unable to expend the work program commitment within the 30-month period, we will
be subject to a 37.5 percent penalty on the unexpended amount of the work
program commitment.

On April 5, 2007, we acquired (through MegaWest Energy (USA)
Corp.) all of the issued and outstanding membership units of Deerfield Energy
LLC (Deerfield Missouri) in consideration for US$925,000 cash, including a
change in control fee, and 4,750,000 shares of our common stock. The assets of
Deerfield Missouri include rights to oil development agreements in Vernon
County, Missouri covering 7,620 unproved acres and all of the issued and
outstanding units of Deerfield Kansas. At the closing of the transaction, we
paid US$625,000 of the purchase price. Owing to potential issues related to
certain oil development agreements, the unpaid cash of US$300,000 and 4,750,000
shares of our common stock were placed in an escrow account, set-up for our
indemnification in respect

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- 12 -

of the said claims. Pursuant to the escrow agreement, the said
cash and shares can be released on a pro-rata basis to the previous unit holders
of Deerfield Missouri upon either the modification of certain oil development
agreements into oil and gas leases or until 4,000 acres of replacement acreage
have been leased. To rectify the escrow indemnifications, we engaged in a
leasing program in Missouri and in October 2007, we surpassed the 4,000 acre
threshold of replacement acreage. As a result, the US$300,000 cash and 4,750,000
shares of our common stock held in escrow were released. Of the cash held in
escrow, US$100,000 plus interest was paid to us for reimbursement of our costs
associated with leasing the replacement acreage.

On April 25, 2007, we acquired (in conjunction with MegaWest
Energy (USA) Corp.) all of the issued and outstanding membership units of
Trinity Sands Energy LLC (Trinity) in consideration for US$200,000 cash and
95,000 exchange shares of MegaWest Energy (USA) Corp. Each exchange share may be
exchanged for US$10 in cash or 100 shares of our common stock during the period
January 1, 2008 to July 31, 2008, after this time, we may compel the holders of
the exchange shares to convert their exchange shares into shares of our common
stock. The assets of Trinity consisted of a 50 percent working interest in
approximately 14,948 unproved acres in Edwards County, Texas and an earn-in
agreement to increase the said working interest to 66.67 percent and earn up to
a 66.67 percent working interest in an additional 13,348 undeveloped acres in
Edwards Country, Texas. As of February 28, 2008, all of the exchange shares were
converted into 9,500,000 shares of our common stock.

In June 2007, we began oil production from the Chetopa project
and have shipped over 11,500 barrels of oil from the project. To date this
production has not been material and has been incidental to the pilot
project.

On October 24, 2007, we acquired (in conjunction with MegaWest
Energy Montana Corp.) a 40 percent working interest in oil and gas leases
covering approximately 34,000 unproved acres of land in Montana for
consideration of US$300,000 cash and 500,000 units, of which each unit consists
of one share of our common stock and one-half of one share purchase warrant
(each whole warrant entitles the holder to purchase an additional share of our
common stock at an exercise price of US$2.50 per share until April 24, 2009).
Pursuant to earn-in agreements, we can earn an additional 20 percent working
interest in the lands by completing US$2.5 million of work that includes
additional leasing, seismic, geological studies, test wells and pilot project
development and implementation. In addition, our company and the vendors have
established a regional area of mutual interest (AMI) covering approximately
1,000,000 acres that will remain active for the next two years. The interest in
the AMI will be divided 65 percent to our company and 35 percent to the vendors.
We will pay for 100 percent of the lease acquisition, initial geological and
geophysical activity, drilling and completing of all wells, if any, comprising
an agreed upon initial work program for each new prospect within the AMI and we
will receive 100 percent payout of all such costs and expenses incurred for each
such prospect prior to vendor receiving its respective share.

In November 2007 we commenced construction of our first
commercial project in Missouri called Marmaton River. Commissioning and start up
of the facility was completed on March 16, 2008 when steam injection commenced
and the first oil sales from the project occurred on August 4, 2008 (see
"Business Overview" below in this annual report).

On May 15, 2008, we completed a private placement of 26,750,000
shares of our common stock at US$0.60 per share for aggregate proceeds of
US$16,050,000. The proceeds of the placement were used to fund our ongoing oil
and gas exploration and development activities.

|B. | Business Overview
|-- | -----------------

MegaWest is a non-conventional oil company with emphasis on
North American heavy oil projects. The MegaWest has operatorship of, and owns or
has the right to earn a majority interest in, over 146,000 gross acres of
prospective oil and gas leases in Missouri, Kansas, Kentucky, Montana, and Texas
and is continuing to seek additional oil and gas properties to add to its
portfolio. MegaWest is incorporated in Alberta whose shares trade in the United
States on the Over-the-Counter Bulletin Board exchange ("OTC") under the symbol
"MGWSF".

Prior to November 2006, we were a technology company, whose
business plan was to acquire the rights to market, sell and distribute a product
line of consumer electronic technology products in Canada.

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- 13 -

Description of Operations

Our strategy is to evaluate, enhance and exploit each project
and prospect through:

- geoscience and engineering analysis to validate each project and identify
  technologies which may result in economic recovery;
- field work including: seismic, drilling and operation of pilot projects to
  corroborate engineering and geoscience analysis, resulting in a commercial
  project design and development plan; and
- engaging an independent third-party to establish the value of commercial
  reserves, leading to funding and execution of the commercial development plan,
  farm-out, or sale.

The objectives of our companys fiscal 2008 budget were
  to establish reserves and demonstrate commercial feasibility through delineation
  drilling and the completion of a thermal pilot or enhanced recovery production
  tests. To date, we have identified significant resource potential on part of
  our lands through delineation drilling and analysis, which has been confirmed
  through the results of an independent reserves and resource report, announced
  on August 14, 2008. In addition, we have demonstrated oil production at our
  pre-commercial Chetopa steam project, and we have recently sold first oil from
  our Marmaton River, Missouri project. We are midway through construction and
  have completed drilling on our Grassy Creek, Missouri project.

Missouri

The Missouri lease holdings include a 100 percent interest in
32,909 gross unproved acres of land. We have drilled 38 exploration/delineation
wells (drill, log and abandon) with a 66% success rate and completed 120
development, service and observation wells with a 100% success rate to date.

The Marmaton River project area spans 215 gross acres and
comprises 13 steam injection wells, 40 producing wells, one water source well
and one water disposal well on approximately 10 acres. A steam generation and
oil treating plant with a throughput capacity of 500 barrels of oil per day has
been constructed on site. Commissioning and start up of the facility was
completed on March 16, 2008 when steam injection commenced. First oil sales from
the project occurred on August 4, 2008, and daily production levels are
increasing. The remaining project acreage will be drilled in approximately 10
acre increments in future years to extend the project life and maintain the
target production plateau. Drilling of 10 injection wells and 24 production
wells on approximately 10 additional adjacent acres is underway.

We have commenced construction of a second project in Missouri,
the Grassy Creek project. The project is comprised of 46 production wells, 15
injection wells, 2 observation wells and 2 service wells on approximately 15
acres. The total leased area of the project is 320 gross acres. To date,
construction of the Grassy Creek facilities is estimated to be 50% complete and
drilling of the project wells is completed. Our company intends to complete the
construction and commence injection of steam by the fourth calendar quarter of
2008. This project will have a steam injection and production treating plant
similar to Marmaton River with a design capacity of 500 barrels of oil per day.
Ongoing drilling is planned to maintain this project at target production
rates.

Subject to exploration success, it is anticipated that up to 14
additional projects of similar design may be drilled and constructed on the
Missouri lease holdings.

Kansas

The pre-commercial Chetopa project is a heavy oil demonstration
project located two miles south of Chetopa, Kansas. The project includes certain
oil and gas equipment and a 100 percent interest in two oil and gas leases
covering 392 gross unproved acres. On 15 of these acres are 20 steam injector
wells, 33 producer wells and a water

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- 14 -

well which had been previously drilled, completed, equipped and
tied in for production. A tank battery, steam generator and two transfer
stations are also in place on the property. We are continuing to optimize the
recovery process on the initial 15 acre development, and over 11,500 barrels of
oil have been trucked and sold to the Coffeyville refinery located twenty miles
west of Chetopa. To date, the price received for the oil produced from the
project has been over 80 percent of the benchmark price of West Texas
Intermediate (WTI).

The Chetopa project was originally purchased to acquire the
surface equipment and steam generator at a discount for use in Missouri.
However, we elected to refurbish the facilities and on June 13, 2007, the first
truckload of oil was shipped from the project. Substantial downtime has been
experienced with the equipment and our company has budgeted funds for equipment
upgrading during 2009. We plan to drill five exploration wells around the
Chetopa project, further evaluate the application of alternate recovery
technologies to the reservoir and then decide if additional acreage will be
acquired and developed.

We are obligated to pay a net revenue interest up to a maximum
of US$750,000 on net revenues generated from the Chetopa project. The net
revenue interest becomes payable after our company recovers 100 percent of its
capital and operating costs, and will be paid quarterly from 25 percent of the
project's net revenues. As at April 30, 2008, no net revenue interest has been
paid, as we have not yet recovered our capital and operating costs.

Kentucky

The Kentucky lease holdings include a 62.5 percent working
interest in the shallow rights (above the Beech Creek limestone formation) and
an additional 37.5 percent working interest in the deep rights on 36,008 gross
unproved acres in Kentucky.

We are committed to fund a work program covering the first
US$15,000,000 of exploration, testing and development expenditures on the leases
aimed at proving the commercial recovery of the potential oil contained in the
leases. We drilled eight exploration wells at various strategic locations on the
Kentucky Reserves lands in fiscal 2008. The result of this drilling program was
confirmation of the commercial prospectivity of three Mississippian heavy oil
pay zones found at depths of 200-600 feet from surface. A number of potential
project locations have been indentified, and the first location has been
appraised with four delineation wells. A steam drive enhanced recovery project
has been designed and applications have been submitted for this location.
Purchasing and construction of long-lead items is underway and drilling is
expected to commence in the third calendar quarter of 2008, with planned
commissioning in the late fourth calendar quarter of 2008 or early 2009.

In the event that our company does not complete the
US$15,000,000 work program by October 2009, we are obligated to pay 37.5 percent
of the unspent balance to our joint venture partner. As at April 30, 2008, we
had spent $2,967,078 towards this commitment.

Montana

The Montana lease holdings include 42,560 gross unproved acres
in Montana covering three prospects, Teton, Loma and Devils Basin.

At Teton and Loma, our company has a 40 percent working
interest and can earn an additional 20 percent working interest on certain
leases (60 percent overall) by carrying its working interest partner through the
first US$2.5 million of work. Acquisition of a new 2D seismic over the existing
Teton and Loma prospects has recently been completed and processing is underway.
Interpretation of this seismic may lead to the drilling of a number of wells
beginning in the 4th quarter of calendar 2008 to test these prospects. At Teton,
our company is targeting a heavy oil reservoir, which if successful, may
ultimately be developed through the application of a Steam Assisted Gravity
Drainage (SAGD), steam drive or cyclic steam stimulation. At Loma, our company
is targeting a light oil reservoir.

In addition, we and our working interest partner have established
  a regional Area of Mutual Interest (AMI) covering approximately 1,000,000 acres
  that is expected to remain active until October 2009. The interest in the AMI
  will be divided 65 percent to our company and 35 percent to our partner. We
  have to pay for the lease acquisition, initial geological and geophysical activity,
  drilling and completing of all wells, if any, comprising an agreed upon initial

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- 15 -

work program for each new prospect within the AMI and will
receive 100 percent payout of all such costs and expenses incurred for each such
prospect prior to our partner receiving its share.

The Devils Basin prospect was acquired on July 31, 2008. Upon
completion of acquisition earning ($105,000 cash, 100,000 shares of our common
stock and a carry of our partners 25 percent working interest cost on the first
well), We will own a 75 percent working interest of the 4,990 acre prospect. The
acreage includes demonstrated light oil production from the Heath Shale from
vertical wells. Seismic will be used to identify prospective drill locations and
we plan to test the prospect with a horizontal well.

Texas

As of April 30, 2008, our companys interest in the project
consists of 33,963 gross unproved acres in Edwards County, Texas. Pursuant to
earn-in agreements, we may earn up to a 66.67 percent working interest in all
leased acreage. Included in the total undeveloped acres are 20,600 acres in
which we have earned a 50 percent working interest.

We have completed a geological study of the project. This
included compilation and evaluation of all available data, the conversion of all
available logs to digital form, well curve editing and correction after
digitizing, and the organization of well logs and all historical drilling,
completion and core data into a structured database. Seven exploration wells
were drilled during fiscal 2008 and four of these wells were cased. Subsequent
to April 30, 2008, testing of prospective gas zones on these wells had been
completed and the results showed non-economic amounts of gas. Although a number
of the exploration wells encountered hydrocarbon bearing formations, we plan to
focus our resources in areas with more attractive economics and as a result, as
at April 30, 2008, we had recorded an impairment charge in the statement of
operations of $5,891,223 against the project. We will undertake a review of
strategic alternatives related to this project.

Principal Markets

The principal market that we compete in is the North American
energy market, specifically the North American oil market. With the exception of
the recent production from the Marmaton River and Chetopa projects, we do not
have, nor have we ever had, any oil and gas operations.

Extraction Processes

Our business model is dependent on the use of thermal recovery
technologies to recover previously uneconomic oil and gas reserves that have now
been made economically viable by the recent increases in the price of oil and
the development of new technologies in Canada. Our operational and head office
is in Calgary, Alberta, where we have access to technical experts in the
recovery of heavy oil. We have built a team with expertise in various methods of
primary and thermal heavy oil recovery, including Cyclic Steam Stimulation
(CSS), Steam Assisted Gravity Drainage (SAGD), steam drive, in situ
combustion, ET-DSP( (a form of electro-thermal heating) and solvent
processes.

Technology Summary

Heavy Oil

North America's heavy oil and bitumen deposits are estimated to
contain more than 3 trillion barrels of resource, rivaling the oil reserves of
Saudi Arabia. Crude oil is considered "heavy" if its API gravity is lower than
20 degrees and its viscosity is higher than 1,000 centipoise. Natural bitumens
are even poorer raw materials, with API gravities lower than 10 degrees and
viscosities greater than 10,000 centipoise. Heavy oil and bitumen are highly
viscous requiring heat or dilution to enable significant production and recovery
of reserves.

Numerous large oil sands projects, both mining and in
situ have been announced and are being actively pursued to exploit this
resource. The well-established North American heavy oil deposits offer
world-class exploitation opportunities. We believe that the need for North
American energy self-sufficiency combined with the encouraging

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- 16 -

outlook for heavy oil demand, strong prices, and easy access to
refineries make this an ideal time for the re-optimization of non-conventional
heavy oil supplies.

Similar to other maturing resources, primary heavy oil
production in the Canadian heavy oil industry has peaked and is on decline.
Encouraged by favourable economic terms and long term leases, thermal recovery
is rapidly increasing and now exceeds 240,000 bopd. There are 21 approved Steam
Assisted Gravity Drainage (SAGD) projects, six approved Cyclic Steam Stimulation
(CSS) projects and one approved in situ combustion project in the
Province of Alberta. Projections on the future phased developments of these
projects indicate that thermal production could reach 1,500,000 bopd by 2013 if
investment proceeds as planned. There is a significant and well-established
commercial enhanced recovery technology industry in Canada.

Large unconventional energy resources that are difficult to
produce using today's conventional recovery methods are the focus of our
company. These resources represent the key to easing energy supply concerns in
the near term and the future. We are building a team to evaluate and exploit our
company's projects using the best proven or emerging technologies.

In Situ Resource Recovery

Although most heavy oil or bitumen in Canada is currently
produced by open pit mining, about 80 percent of the oil sands are buried too
deep below the surface for this process to be applied. This oil must be
recovered by in situtechniques, which heat or dilute the heavy oil,
thereby lowering its viscosity and allowing it to migrate towards producing
wells, where it is brought to the surface. A technical review of our prospects
will identify the most suitable technology for each resource and may include
proven technologies such as Cyclic Steam Stimulation (CSS), Steam Assisted
Gravity Drainage (SAGD), Steam Drive, in situ Combustion and CO2
injection or such emerging technologies as ET-DSP( (a form of electro-thermal
heating) or N-Solv (a solvent based technology).

We will be exploring synergistic technologies to improve
capital efficiency, increase energy efficiency, reduce energy costs, reduce the
requirement for water, and increase the profitability of in situ
processes. Production from in situ processes may well replace mining as
the main source of heavy oil production from tar sands, contributing
significantly to energy self-sufficiency in North America.

|C. | Organizational Structure
|-- | ------------------------

As of the date of this annual report, we have the following
directly owned subsidiaries incorporated in the United States:

Subsidiary
    Incorporation / Acquisition Date
    Ownership PercentageMegaWest Energy
      (USA) Corp.
    January 9, 2007
    100%MegaWest Energy Kentucky Corp. (formerly Kentucky
      Reserves, LLC)
    April 2, 2007
    100%MegaWest Energy Missouri Corp. (formerly Deerfield Energy
      LLC)
    April 5, 2007
    100%MegaWest Energy Kansas Corp. (formerly Deerfield Energy
      Kansas Corp.)
    April 5, 2007
    100%MegaWest Energy Texas Corp. (formerly Trinity Sands Energy
      LLC)
    April 25, 2007
    100%MegaWest Energy Montana Corp.
    October 19, 2007
    100%


|D. | Property, Plants and Equipment
|-- | ------------------------------

We currently rent office space located at Suite 800, 926 
5th Avenue SW, Calgary, Alberta, Canada T2P 0N7 for the amount of
$20,000 per month and office space located at 1000, N Osage Street, Nevada,
Missouri, 64772, for the amount of US$1,000 per month.

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- 17 -

In addition to the property information described above in this
annual report in "Business Overview", the oil and gas acreage under lease and
well information at each of our property areas is summarized below in "Oil and
Gas Producing Activities and Other Oil and Gas Information" below. Additionally,
we have two completed project areas, Chetopa in Kansas and Marmaton River in
Missouri, each of which has equipment for steam injection, oil production,
collection and treating. A third project, Grassy Creek in Missouri, is under
construction.

In addition, we have purchased eight used steam generators for
future heavy oil commercial project locations. Two of these units have been
installed at the Marmaton River and Grassy Creek projects in Missouri. Four of
these generators were acquired subsequent to April 30, 2008.

Oil and Gas Producing Activities and Other Oil and Gas
Information

Oil and Gas Reserves

For the year ended April 30, 2008 and part of the year ended
April 30, 2007, we were engaged in oil and gas activities. As at April 30, 2008
and 2007, all of our oil and gas properties are considered unproved and we have
not established substantive proved reserves that are material to our operations
or financial position in accordance with SEC reserve guidance set out in
Industry Guide 2 - Disclosure of Oil and Gas Operations.

Specifically, reserves that can be produced economically
through applications of improved recovery techniques (such as steam injection)
are included in the "proved" classification upon successful testing by a pilot
project, or the operation of an installed program in the reservoir, provides
support for the engineering analysis on which the project or program was based.
If an improved recovery technique, which has not been verified by routine
commercial use in the area is to be applied, the hydrocarbon volumes estimated
to be recoverable cannot be classified as proved reserves unless the technique
has been demonstrated to be technically and economically successful by a pilot
project or installed program in that specific rock volume.

Oil and Gas Wells

The following table sets out the number of oil wells in which
we held a working an interest as of April 30, 2008 and 2007.

|              | Producing      | Non-Producing 
|------------- | -------------- | --------------
|              | April 30, 2008 | April 30, 2007
|              | Gross          | Net           
|United States |                |               
|Kansas        | 33.0           | 33.0          
|Missouri      | 40.0           | 40.0          
|Kentucky      | -              | -             
|Montana       | -              | -             
|Texas         | -              | -             
|Total         | 73.0           | 73.0          

The following table sets forth the number of exploratory and
development wells which MegaWest completed during its financial year ended April
30, 2008.

|                                | Exploratory | Development
|------------------------------- | ----------- | -----------
|                                | Gross       | Net        
|Oil wells                       | 4           | 2          
|Gas wells                       | -           | -          
|Service wells                   | -           | -          
|Oilsands Evaluation (Dry holes) | 51          | 48         
|Total Wells                     | 55          | 50         

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- 18 -

Project Area

The following table sets out the lease area we have an interest
in, by area, as of April 30, 2008 and 2007.

|              |  | April 30, 2008 |  |  | April 30, 2007 | 
|------------- |  | -------------- |  |  | -------------- | 
|              |  | Gross          |  |  | Net            | 
|United States |  |                |  |  |                | 
|Kansas        |  | 320            |  |  | 320            | 
|Missouri      |  | 10,312         |  |  | 10,312         | 
|Kentucky      |  | 36,008         |  |  | 22,505         | 
|Montana       |  | 36,571         |  |  | 16,767         | 
|Texas         |  | 34,603         |  |  | 12,042         | 
|Total         |  | 117,814        |  |  | 61,946         | 

Oil and Gas Costs

The following table summarizes the costs incurred in oil and
gas property acquisition, exploration, and development activities for our
company for the years ended April 30, 2008 and 2007.

|Activity                                  |   | April 30, 2008 |  |   | April 30, 2007 | 
|----------------------------------------- | - | -------------- |  | - | -------------- | 
|Property acquisition, including equipment | $ | 11,254,040     |  | $ | 20,140,324     | 
|Exploration                               | $ | 8,625,175      |  |   | 616,031        | 
|Development                               | $ | 1,600,745      |  |   | -              | 
|Total                                     | $ | 21,479,960     |  | $ | 20,756,355     | 

|ITEM 4A. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

Not Applicable.

|ITEM 5. | OPERATING AND FINANCIAL REVIEW AND
      PROSPECTS
|------- | --------------------------------------------------

The information in this Item is presented in accordance with
Canadian generally accepted accounting principles, and has not been reconciled
to United States generally accepted accounting principles. The following
discussion of our financial condition and results of operations for the five
year fiscal period ending April 30, 2008, should be read in conjunction with our
consolidated financial statements and related notes included elsewhere in this
annual report in accordance with "Item 8  Financial Information" below.

Overview

We are an exploration stage non-conventional oil and gas
company with an initial focus on North American heavy oil.

Critical Accounting Estimates

Our accounting principles are described in Note 1 to our annual
consolidated financial statements for the year ended April 30, 2008 and 2007. We
prepare our annual consolidated financial statements in conformity with Canadian
GAAP, and have also prepared a Reconciliation to U.S. GAAP as at April 30, 2008
and 2007 and for the years ended April 30, 2008, 2007 and 2006.

The preparation of our financial statements requires us to make
estimates and judgments that affect our reported amounts of assets, liabilities,
revenue and expenses. On an ongoing basis we evaluate our estimates, including
those related to acquisitions, status of oil and gas projects (proved or
unproved), asset impairment, tax valuation allowances, volatility and market
value of our share price and contingencies. These estimates are based on
information that is currently available to us and on various other assumptions
that we believe to be reasonable under the circumstances. Actual results may
vary from those estimates under different assumptions and conditions.

---

- 19 -

The critical accounting policies that affect the more
significant judgments and estimates used in preparation of our consolidated
financial statements are described below.

Oil and Gas Operations

We follow the full cost method to account for our oil and gas
operations, whereby all costs of exploring for and developing oil and gas
reserves are capitalized and accumulated in country-by-country cost centres.
These capitalized costs will be depleted using the unit-of-production method
based on estimates of proved reserves once the underlying property in considered
proved. The costs related to unproved properties are not subject to depletion.
At April 30, 2008, all our properties were assessed to be unproven. Factors used
to make this assessment included commercial production levels on demonstration
projects for an extended period of time and the existence of proved
reserves.

The capitalized costs in each unproved project are assessed to
determine whether it is likely such costs will be recovered in the future. Costs
which are not likely to be recovered in the future are written-off. We assess
the carrying amounts of our unproved oil and gas assets for impairment by
assessing the likelihood of recovering our costs through cash flow projections
of future net revenues.

Our management prepared estimates of future net revenues using
internal and independent estimates of resource potential. The process of
estimating quantities of resource potential is inherently uncertain and complex.
It requires judgments and decisions based on available geological, geophysical,
engineering and economic data. These estimates may change substantially as
additional data from ongoing exploration activities becomes available and as
economic conditions impacting oil and gas prices and costs change. Our resource
estimates are based on assumed exploration success, availability of future
capital to finance development, future production forecasts, prices and economic
conditions. Additional assumptions and estimates used in the future net revenue
calculations include:

- estimates of production and recovery rates, which vary depending on the
  method of extraction used and the characteristics of the reservoir and
  resource estimates;
- estimates of operating costs, which vary with equipment and facility
  efficiency, inflation; and
- estimates of future capital costs, which vary with inflation, equipment and
  facility performance.

Significant changes in these factors could reduce our estimates
of future net revenues and accordingly could result in an impairment of our oil
and gas assets. Our management will perform quarterly assessments of the
carrying amounts of its oil and gas assets as additional data from ongoing
exploration activities becomes available.

As a result of these procedures, we recorded and impairment
charge on our Texas property of $5,891,223 during the year ended April 30,
2008.

Fair Value of our Companys Common Shares, Options and
Warrants

We completed a number of share based transactions during the
year ended April 30, 2007. Under Canadian GAAP, share based transactions are
recorded at their fair values. Generally, the best indicator of fair value of a
companys shares is quoted market prices, unless the market is not active or
liquid, in which case fair value is determined using valuation techniques
including recent arms length market transactions between knowledgeable, willing
parties. In addition, the fair value of options and warrants granted and the
incremental fair value of the extension of warrants were based on the
Black-Scholes option pricing model, which uses the common share fair value on
the grant date as an input. To January 2008, our company used recent arms
length transactions, specifically private placements, as indicators of fair
value. Subsequently, we used the quoted market price of our shares.

Share based transactions impact a number of financial statement
items including stock-based compensation expense, contributed surplus, share
capital, warrants, convertible promissory notes, exchange shares and deficit on
related party acquisitions.

---

- 20 -

The determination of whether the market for our shares is
active and liquid is based on significant judgments including the volatility of
the share price, volume of shares traded in relation to total shares outstanding
and value of shares traded in relation to total company market capital.

|A. | Operating Results
|-- | -----------------

The following discussion is prepared in accordance with
Canadian GAAP. For differences between Canadian and U.S. GAAP related to our
financial statements, refer to the Reconciliation to U.S. GAAP as at April 30,
2008 and 2007 and for the years ended April 30, 2008, 2007 and 2006.

Years Ended April 30, 2008 and 2007

We reported a net loss of $17,903,023, ($0.23) per share basic
and diluted, for the year ended April 30, 2008, compared with a net loss of
$6,893,052, ($0.31) per share, for the year ended April 30, 2007. The loss for
the 2008 period was mainly attributable to general and administrative expenses
of $5,973,385, the impairment of Texas oil and gas assets of $5,891,223,
non-cash financing cost of $2,466,000 (due to the extension of the term of the
warrants), a write-down of marketable securities of $2,094,000, and foreign
exchange loss of $1,935,473 on US dollar cash balances translated to Canadian
dollars.

General and administrative expenses for the year ended April
30, 2008 totaled $5,973,385 net of $1,422,233 capitalized to oil and gas assets.
During the year ended April 30, 2007, we incurred general and administrative
expenses of $5,523,694, net of $176,600 capitalized to oil and gas assets.
General and administrative expense includes stock-based compensation, salary and
benefits, professional fees, investor relations, office and operations and
information technology, as summarized in the table below.

Years Ended April 302008
    
    
    2007Stock-based compensation:Stock options
    $
    1,065,860
    
    $
    1,863,448Shares to be
      issued for services
    
    806,000
    
    
    -Shares issued for services
    
    394,900
    
    
    434,900Consulting
      warrants
    
    -
    
    
    1,600,800Less: capitalized portion
    
    (360,880
    )
    
    -1,905,880
    
    
    3,899,148Salaries and benefits
    
    2,703,669
    
    
    1,171,885Professional fees
    
    720,248
    
    
    229,111Investor relations
    
    627,091
    
    
    100,097Office and operations
    
    936,734
    
    
    272,952Information technology
    
    141,126
    
    
    27,101Less: capitalized portion
    
    (1,061,353
    )
    
    (176,600
    )4,067,515
    
    
    1,624,546$
    5,973,395
    
    $
    5,523,694


Stockbased compensation expenses of $2,266,760 (2007 -
$3,899,148) were recorded for the year ended April 30, 2008. Stock-based
compensation expenses comprised of $1,065,860 (2007 - $1,863,448) attributable
to the cost associated with granting stock options to new employees and
consultants, $806,000 (2007 - $nil) attributable to shares issued as
consideration for employee bonuses, $394,900 (2007  $434,900) attributable to
the cost associated with issuing shares for consulting services and $nil (2007 -
$1,600,800) attributable to the cost associated with issuance of warrants to
various investor relations consultants. The overall decrease in stock-based
compensation is primarily due to fewer stock option and warrant grants in 2008
compared to 2007.

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- 21 -

Salary and benefit costs of $2,703,669 (2007 - $1,171,885) were
recorded during the year ended April 30, 2008. The increase in salary and
benefit costs in 2008 is due to higher staff levels and our company operating
for the entire fiscal year, whereas in 2007 our company operated for less than
six months as an oil and gas company.

Professional fees totaled $720,248 (2007 - $229,111) and
consist of legal fees, audit, accounting and tax advisory primarily related to
filing registration documents with the Securities and Exchange Commission (SEC)
during the year and our company being in operation for the entire fiscal year in
2008.

Investor relation expenses of $627,091 (2007 - $100,097) for
the year ended April 30, 2008 and were incurred in an effort to raise investor
awareness of our company.

Office and operations costs during the year ended April 30,
2008 totaled $936,734 (2007 - $272,952) and are primarily made up of office rent
and supplies, license and maintenance costs, insurance, telephone and internet,
travel and miscellaneous costs.

Information technology costs during the year ended April 30,
2008 totaled $141,126 (2007  $27,101) and mainly consists of software license
and maintenance fees.

The impairment of Texas oil and gas assets of $5,891,223 was
recorded during the fourth quarter of 2008 upon the completion of drilling,
testing and geological analysis.

The foreign exchange loss for the year ended April 30, 2008
resulted primarily from the translation of our U.S. dollar denominated cash
balances into our Canadian dollar functional currency. The Canadian dollar
increased in value against the U.S. dollar during the year. We have not entered
into any hedging agreements: however, our company holds U.S. dollars to pay its
U.S. denominated project costs.

Financing costs of $2,466,000 were recorded to reflect the
incremental costs associated with extending the term of 18,682,623 common share
purchase warrants by six months as calculated using the Black-Scholes option
pricing model.

The write-down of marketable securities relates to the
non-temporary decline in value of our investment in Energy Finders.

Our company had interest income of $712,763 for the year ended
April 30, 2008 compared with $263,125 for the comparable period. The increase in
interest income for the 2008 period was related to interest earned on cash
balances generated from private placements that raised an aggregate amount of
US$34,011,050 in the third and fourth fiscal quarters of 2007.

Years Ended April 30, 2007 and 2006

We reported a net loss of $6,893,052 for the year ended April
30, 2007, compared with a net loss of $222,945 for the year ended April 30,
2006, for an aggregate net loss for the five year period ended April 30, 2007 of
$7,366,290. The loss for the year ended April 30, 2007 was mainly attributable
to administrative expenses of $1,624,546, stock-based compensation costs of
$3,899,148 and foreign exchange loss of $1,548,840.

Stock-based compensation expense was $3,899,148 for the year
ended April 30, 2007 and was attributable to the cost associated with granting
stock options and warrants to new employees, consultants and directors in
connection with forming a new oil and gas company.

Administrative expenses, excluding stock-based compensation,
totalled $1,624,546 for the year ended April 30, 2007 compared with $104,601 for
the year ended April 30, 2006. The increase was caused by new management
changing our focus to oil and gas exploration in December 2006. A number of
employees were hired and a new office was established in Calgary, Alberta that
resulted in salary and benefit costs, professional fees and office costs.

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- 22 -

The foreign exchange loss of $1,548,840 for the year ended
April 30, 2007 resulted primarily from the translation of our U.S. dollar
denominated cash balances into our Canadian dollar functional currency. The
Canadian dollar has strengthened in value compared to the U.S. dollar for the
period following the private placements. We do not engage in hedging activities
or use derivative instruments.

Administrative expenses totalled $104,601 for the year ended
April 30, 2006 compared with $57,292 for the year ended April 30, 2005. The
increase was substantially caused by the payment of $61,200 in fees to Carob
Management for consulting services related to new business opportunities for our
company and other administration duties.

During the year ended April 30, 2004, we advanced $109,280 plus
accrued interest to Cyberhand Technologies Inc. pursuant to notes payable to
fund activities pending a proposed acquisition. The balance owing on these notes
and interest accrued thereon in the amount of $123,610 was assigned to Cyberhand
Technologies Inc. in exchange for distribution rights pursuant to a July 5, 2004
distributor agreement, whereby we acquired the non-exclusive right to distribute
peripheral computer hardware products designed, manufactured and marketed by
Cyberhand Technologies Inc. Pursuant to the distributor agreement, we agreed to
purchase a minimum of 15,000 units on or before July 5, 2007, and upon
completion of this minimum order, to purchase 50,000 units per month or forfeit
our rights under the distributor agreement. As required by the distributor
agreement, we purchased an initial stocking order of 200 units at a cost of
$10,735, which was written down to its net realizable value of $4,735 for the
year ended April 30, 2005 and to $1.00 for the year ended at April 30, 2006.
During the year ended April 30, 2006, we wrote down the distribution right
granted under the distributor agreement to $10,000 to recognize the impairment
of the asset primarily due to the lack of sales of the Cyberhand Technologies
Inc. products.

We had interest income of $263,125, $nil and $2,261 for the
years ended April 30, 2007, 2006 and 2005, respectively. The increase in
interest income for the year ended April 30, 2007 is related to interest earned
on cash balances generated from the private placements that raised an aggregate
amount of US$34,011,050.

|B. | Liquidity and Capital Resources
|-- | -------------------------------

As our companys projects are either exploration in nature or
in the early stages of development, and profitable oil and gas operations have
not been attained, we anticipate spending our existing funds in the upcoming
fiscal year to acquire, explore, appraise and develop oil and properties. We
will need additional financing to continue operations and fund our 2009 capital
plan. In addition, the ultimate development of our oil and gas projects, if
assessed to be commercial, will require additional funding. Our future
operations are dependent upon our ability to obtain additional financing and
ultimately achieve profitable operations. Additional capital may be in the form
of equity, debt and or joint venture farmouts. The outcome of these matters
cannot be predicted with certainty at this time.

Cash and Financial Conditions

Our company had working capital of $4,328,075 as at April 30,
2008 compared to working capital balance of $28,494,151 as at April 30, 2007.
Cash used in operating activities for the year ended April 30, 2008, totalled
$3,709,747 on a $17,903,023 net loss for the period.

We had working capital of $28,152,901 as at April 30, 2007
compared to a working capital deficiency of $139,422 as at April 30, 2006. Cash
used in operating activities for the year ended April 30, 2007 totalled $424,158
on a $6,893,052 net loss for the year.

We had a working capital deficiency of $139,422 as at April 30,
2006 compared to a working capital deficiency of $30,087 as at April 30, 2005.
Cash used in operating activities for the year ended April 30, 2006, totalled
$31,724 including a $222,945 net loss for the fiscal year.

As at April 30, 2008, we had cash available of $5,617,892. In
addition, subsequent to April 30, 2008, we completed a private placement
financing whereby gross proceeds of $16,050,000 were received upon the issuance
of 26,750,000 common shares.

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- 23 -

Investing Activities

Cash used in investing activities was $18,490,624 for the year
ended April 30, 2008 (2007 - $6,591,403) and included cash capital expenditures
of $17,505,081 incurred on our companys oil and gas assets as follows:

- $2,033,306 on the Chetopa project for facility commissioning and
  completion;
- $6,232,784 in the Missouri area for lease acquisition, geological and
  geophysical activities and costs for the construction of the Marmaton River
  project;
- $2,845,169 in the Kentucky area for lease rentals, geological and
  geophysical activities and costs associated with completing a 12 well
  exploration and delineation drilling program;
- $5,071,927 on the Texas project for geological and geophysical activities
  and costs during the year associated with a seven well exploration program;
- $554,814 for lease acquisitions and geological and geophysical activities
  in the Montana area; and
- $767,081 for other expenditures on oil and gas and office equipment,
  including costs for the acquisition of used steam generators.

Cash used in investing activities was $6,932,653 for the year
ended April 30, 2007 and included expenditures of $7,274,445 as follows:

- $4,244,360 for the acquisitions of the Chetopa, Deerfield Missouri,
  Kentucky Reserves and Trinity Sands projects;
- $836,875 for capital expenditures on oil and gas assets, primarily for the
  Chetopa project, and other equipment;
- $1,851,960 for an investment in our Trinity Sands project joint venture
  partner Energy Finders; and
- $341,250 cash deposited in trust as contingent consideration for the
  Deerfield Missouri acquisition.

Cash used in investing activities was $nil for the year ended
April 30, 2006.

Financing Activities

Cash received from financing activities was $321,388 for the
year ended April 30, 2008, and related to the cash proceeds received on the
exercise of stock options, warrants, and unit rights. Subsequent April 30, 2008,
we completed a private placement financing pursuant to which gross proceeds of
$16,050,000 were received from the issuance of 26,750,000 common shares. Our
companys stock options, incentive warrants and consulting warrants have a
cashless exercise feature and as a result, in the event of an exercise, we may
not receive any cash proceeds. Cash received from financing activities during
the year ended April 30, 2007 was $38,301,221 and related to proceeds from the
private placement financings.

Our companys debt obligations at April 30, 2008 consisted of
US$1,700,000 convertible promissory notes, which matured on June 20, 2008 and
which were converted into 7,412,559 common shares.

As part of the consideration given to acquire Trinity Sands
Energy LLC, 95,000 class B shares of our subsidiary, MegaWest Energy (USA) Corp.
were issued. Each class B exchange share is convertible into 100 shares of our
common stock with up to 9,500,000 shares of our common stock to be issued. The
holders of these MegaWest Energy (USA) Corp. shares have the right to exchange,
or can receive a cash payment of US$950,000 (US$10.00 per exchange share) until
July 31, 2008, after which time we can implement a forced exchange of the
shares. As of February 28, 2008, all of the exchange shares had been converted
into 9,500,000 shares of our common stock.

During the fiscal year ended April 30, 2007, we completed three
private placements to provide us with $38,301,221, before costs, of working
capital to evaluate and pursue non-conventional oil and gas opportunities in the
United States and Canada and to establish a head office in Calgary, Alberta (see
"History and Development" above in this annual report).

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- 24 -

In December 2006, we settled $165,700 of accounts payable
through the issuance of 600,000 shares of our common stock pursuant to debt
settlement and subscription agreements dated December 21, 2006. The fair value
of the shares was based on recent arm's length private placements.

In the year ended April 30, 2006, we borrowed $40,000 from
shareholders of our company and issued $40,000 in short term, unsecured notes
bearing interest at 10 percent in respect thereof. On October 20, 2006, our
shareholders approved a subdivision of the issued and outstanding shares of our
common stock on an up to 3 to 1 basis. This subdivision is subject to the
discretion of the directors and is currently not proposed to be implemented.

We completed our initial public offering on July 5, 2001, and
raised $262,500 from the sale of 1,750,000 shares of our common stock. In July
2004, we completed a private placement of 4,500,000 shares of our common stock
at $0.001 per share, including 1,250,000 shares of our common stock purchased by
directors and officers. As at April 30, 2004, there were 2,250,000 shares of our
common stock held in escrow, whose release was subject to the policies of the
TSX Venture Exchange. On July 29, 2004, as a result of the voluntary delisting
from the TSX Venture Exchange, the 2,250,000 escrowed shares were cancelled and
returned to the treasury.

As of August 28, 2008, there were 132,919,472 common shares
issued and outstanding.

|C. | Research and Development, Patents and
      Licenses, etc.
|-- | ----------------------------------------------------------

We do not currently, and did not previously, have research and
development policies in place. Over the past three fiscal years, no funds were
expended by our company on research and development activities.

|D. | Trend Information
|-- | -----------------

We do not currently know of any trends that would be material
to our operations.

|E. | Off-Balance Sheet Arrangements
|-- | ------------------------------

We do not have any off-balance sheet arrangements that have or
are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that are
material to investors.

|F. | Contractual Obligations
|-- | -----------------------

Contractual Obligations as at April 30,
      2008 (in thousands of Canadian dollars)Total
    Less than 1 Year
    1-3
      Years
    3-5 Years
    More than 5
      YearsOperating Leases
    $1,689
    $317
    $876
    $496
    $-Work Commitments (1)
    $4,500
    $-
    $4,500
    $-
    $-Employment Agreements (2)
    $-
    $-
    $-
    $-
    $-Oil and Gas Equipment and Services (3)
    $-
    $-
    $-
    $-
    $-Total
    $6,189
    $317
    $5,376
    $496
    $-


| | Notes:
| | ------
| | (1)   
| | (2)   
| | (3)   

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- 25 -

| | (4) | We are obligated to pay a net revenue interest up to a
      maximum of US$750,000 on net revenues generated from the Chetopa project.
      The net revenue interest becomes payable after our company recovers 100
      percent of its capital and operating costs, and will be paid quarterly up
      to 25 percent of the projects revenues.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|G. | Safe Harbour
|-- | ------------

Not applicable.

|ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND
      EMPLOYEES
|------- | ------------------------------------------------

|A. | Directors and Senior Officers
|-- | -----------------------------

The following table sets out the names and business experience
of each of our directors and senior officers, as of August 28, 2008:

Name and Age
    Present Position with
      our Company
    Date of Commencement of Office with our
      CompanyGeorge T. Stapleton, II(2)(4)(5)(6)(54)
    Chief Executive Officer and Director
    December 21, 2006George Orr(1)(2)(4)(47)
    Chief Financial Officer, Treasurer and Director
    December 21, 2006R.
      William Thornton(2)(4) (6)(53)
    President, Chief Operating Officer and Director
    December 21, 2006Brad Kitchen(1)(3)(46)
    Director
    February 19, 2003Brian J. Evans(1)(2)(3)(4)(58)
    Director
    February 19, 2007Neil McCrank (65)
    Director
    July 17, 2008John B. (Jack)
      Holmes (61)
    Director
    August 13, 2008


| | Notes:
| | ------
| | (1)   
| | (2)   
| | (3)   
| | (4)   
| | (5)   
| | (6)   

The following is a summary of the education and business
experience of each of our directors and senior management and identifies all of
the public companies each is affiliated with. For the purposes hereof, the term
public company means, for Canadian purposes, a company that is a "reporting
issuer" as that term is defined under the Securities Act (Alberta) and, for
United State purposes, a company that has a class of securities registered under
the Securities Exchange Act of 1934.

George T. Stapleton, II

Mr. Stapleton received his civil engineering degree from
Georgia Institute of Technology in 1975 and has 33 years of international
experience in the offshore oil construction and service industry, project
development, oil and gas exploration and production and energy infrastructure
related projects. Mr. Stapleton is currently the Chief Executive Officer of our
company and a director of Valcent Products Inc. and PetroBeam, Inc. He was the
Chief Operating Officer and a Director of Deerfield Energy LLC from 2005 and the
President and a director of Trinity Sands Energy LLC from 2006 until each was
acquired by our company. He was formerly the President and remains a director
since 2004 of E-T Energy Ltd., a private Canadian company testing an
electro-thermal approach to the production of bitumen from the Athabasca tar
sands. From 2000 to 2002 he was responsible for the development of simulation
based training packages for the energy and industrial sectors for Simulis, LLC.
He was President - Products & Services for NEOppg Ltd. from 1998 to 2000
where he was responsible for the development of the services side of our
company's business plan, focusing on a proprietary multilateral system, heavy
oil production systems and artificial lift products. Prior to that he was
Vice-President, Operations for Asian Tiger Energy Company, an

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- 26 -

independent oil company developing oil and gas projects,
operating primarily in Southeast Asia. Before Asian Tiger, Mr. Stapleton spent
19 years overseas with J. Ray McDermott in the Arabian Gulf, North Sea and Asia
as Field Engineer, Operations Engineer, Project Manager, Fabrication Division
Manager at Batam Island, Indonesia and finally as Division Manager  Business
Development and Project Management where he oversaw project management of all
turnkey projects for Southeast Asia and was responsible for business development
activities throughout the region.

George Orr

Mr. Orr is a chartered accountant and has several years
experience dealing with public company reporting and administrative
requirements. Mr. Orr is currently a director and the Chief Financial Officer of
Valcent Products Inc., a company listed on the OTC Bulletin Board that is
engaged in the business of the design, development and marketing of innovative
products intended for the mass consumer appeal and has been a director, since
August 9, 2007, of Pacific Copper Corp., a mining company engaged in exploration
in Peru and Chile. Additionally, Mr. Orr provides advisory services to a number
of other reporting issuers and private companies. Mr. Orr allocates
approximately 20% of his time to the affairs of our company.

R. William Thornton

Mr. Thornton received his Chemical Engineering degree from the
University of Alberta in 1977 and Masters of Engineering (reservoir) 1989 from
the University of Calgary. He also completed the University of Calgary Executive
Development Program in 1988. He has held senior management and executive
positions in all aspects of oil and gas development and in particular enhanced
recovery of heavy oil. He was General Manger  Petroleum Engineering with
Western OilSands, Vice-President, Engineering with Petrovera Resources and
Director of Primary Heavy Oil with Gulf Canada. Prior to these positions he
worked for 17 years with Murphy Oil on their various enhanced recovery projects
and technology development. During this time, Mr. Thornton spent 3 years working
in Murphy's El Dorado, Arkansas and New Orleans, Louisiana offices overseeing
engineering and operations on a large portion of Murphy's onshore U.S.
production. Mr. Thornton also has international experience, having worked in
drilling operations in interior Peru and as part of a team negotiating a
production sharing agreement in northern Iraq. Most recently, Mr. Thornton was
the Vice President, Engineering of Petrovera Resources Limited, an oil and
natural gas producer, from July 2000 to March 2004; and the General Manager
Petroleum Engineering of Western Oil Sands, an oil producer, from November 2004
to December 2006. Mr. Thornton has been our Chief Operating Officer since
January 1, 2007 and our President since February 8, 2008.

Brad Kitchen

Mr. Kitchen is a corporate finance consultant. Since 1996, he
has been the founder and President of PBK Financial Engineering Inc., a private
corporate finance consulting company. After graduating from McGill University
with an MBA, Mr. Kitchen became a financial product oriented investment banker
where he was employed in Toronto, Ontario over an eleven-year period as a
Vice-President and director at CIBC World Markets (formerly CIBC Wood Gundy
Securities Inc.) and TD Securities Inc. From January 2000 to January 2001, he
was Vice-President, Corporate Finance at Pacific Opportunities Company Ltd., a
small merchant bank and financial services company. From December 1998 to
December 1999, he was a partner of Kitchen & Fuller Holdings Inc., a holding
company for commercial real estate. From May 1998 to November 1998, he was Chief
Financial Officer of Protocol Holdings Inc., a real estate investment company.
Since April 2005, he has been a director of Cyberhand Technologies International
Inc. Since October 2005, Mr. Kitchen has been President and director of
Grenville Gold Corporation, a mining company listed on the TSX Venture Exchange;
and President of Universal Energy Corporation, an oil and gas company also
listed on the TSX Venture Exchange. Since June 2007, Mr. Kitchen has been the
President, Chief Executive Officer and director of Yankee Hat Minerals Ltd., a
Canadian gold exploration company that trades on the TSX Venture Exchange. Since
August 2006, Mr. Kitchen has been the President, Chief Executive Officer and
director of Eagle Hill Exploration Corporation, a Canadian gold exploration
company that trades on the TSX Venture Exchange.

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- 27 -

Brian J. Evans

Mr. Evans is a director of Tusk Energy Corporation, a company
listed on the TSX that is an exploration-focused oil and gas producer with
operation in western Canada. Since August 2006, Mr. Evans has served as the
Executive Director of the Werklund Group, a private investment group effective
August 2006 and prior to that was a partner and associate counsel with Miller
Thomson LLP, a national law firm. Since 1997, Mr. Evans has been a director of
CCS Income Trust, an income trust group that was until November 20, 2007 (when
it ceased to be a public company) listed on the TSX and that provided energy and
environmental waste management services, and CCS Inc. (the predecessor of CCS
Income Trust).

Neil McCrank

Mr. McCrank is Counsel to Borden Ladner Gervais LLP, a national
law firm and he is a director of Alta Gas Income Trust, one of Canadas largest
integrated infrastructure and services companies. He is Chairman of the Canadian
Energy Research Institute (CERI) and a member of a number of associations
including the Law Society of Alberta, the Canadian and Calgary Bar Association,
and the Association of Professional Engineers, Geologists and Geophysicists of
Alberta. From 1998 to 2007, Mr. McCrank was Chairman of Alberta Energy and
Utilities Board (AEUB) where he was responsible for the direction and
coordination of the boards mandate governing energy resource development and
utility matters in Alberta. Mr. McCrank holds a science degree in Electrical
Engineering and a law degree, both from Queens University in Kingston, Ontario,
Canada.

John B. (Jack) Holmes, Jr.

Mr. Holmes is currently the CEO of Zilkha Biomass Energy. In
December 2007, Mr.Holmes retired as Chief Executive Officer of Syntroleum
Corporation. From 1999 through 2002, he served in several capacities at El Paso
Corporation. From 2001 to 2002, he was Chief Operating Officer of El Paso's
Merchant Energy division. From 1999 to 2001, he was President of El Paso
Production Company. Prior to El Paso, Mr. Holmes led Sonat Exploration Company
as its President and Chief Executive Officer from 1998 to 1999 until its
acquisition by El Paso. From 1986 to 1998, he served as President and Chief
Operating Officer of Zilkha Energy Company, which under his leadership grew to
$1.3 billion in value in 1998 when before being acquired by Sonat. Before
joining the original executive team at Zilkha, Mr. Holmes held numerous
executive positions in the energy business with several independent energy
companies after a distinguished decade of service at Exxon Company, USA from
1969 to 1979. He holds a degree in Chemical Engineering from the University of
Mississippi.

Family Relationships

There are no family relationships between any of the directors
or executive officers of our company.

There are no arrangements or understandings between any of our
directors and/or executive officers and any other person pursuant to which that
director and/or executive officer was selected.

|B. | Compensation
|-- | ------------

Executive Compensation

In accordance with applicable securities legislation in Canada,
the following executive compensation disclosure is provided in respect of our
Chief Executive Officer, Chief Financial Officer and Chief Operating Officer as
at April 30, 2008 and each of our three most highly compensated executive
officers whose annual compensation exceeded $150,000 in the year ended April 30,
2008 (collectively, the Named Executive Officers). During the year ended April
30, 2008, the aggregate compensation paid to all of our executive officers whose
annual compensation exceeded $40,000 was $1,104,299 (see "Employment Agreements"
below in this annual report for details on our employment agreements with
Messrs. Stapleton, Orr and Thornton).

---

- 28 -

Summary Compensation Table

The following table sets forth a summary of all compensation
paid during the years ending April 30, 2008, 2007 and 2006 to each of the Named
Executive Officers.

Summary Compensation TableName and
        Principal Position
      Year
      Annual Compensation
      Long
        Term Compensation
      All
        Other Compen- sation ($)Salary ($)
      Bonus ($)
      Other
        Annual Compen -sation ($)
      Awards
      PayoutsSecurities Under Options (1)/
        SARs(2) Granted (#)
      Shares or Units Subject to Resale
        Restrictions(#)
      LTIP(3)
        **Payouts** (#)George T. 
        Stapleton, II 
        Chief Executive 
        Officer and 
        Director (4)
      2008 
        2007 
        2006
      $236,899 
        $89,333 
        N/A
      - 
        $335,000 
        N/A
      - 
        - 
        N/A
      - 
        1,500,000(5)
        N/A
      - 
        - 
        N/A
      - 
        - 
        N/A
      -(6)
        -(6)
        N/AGeorge Orr 
        Chief Financial 
        Officer, 
        Treasurer and 
        Director
      2008 
        2007 
        2006
      $138,000 
        $46,000 
        N/A
      - 
        - 
        N/A
      - 
        - 
        N/A
      - 
        1,500,000(7)
        N/A
      - 
        - 
        N/A
      - 
        - 
        N/A
      - 
        - 
        N/AR. William 
        Thornton 
        President, Chief 
        Operating 
        Officer and 
        Director (4)
      2008 
        2007 
        2006
      $250,000 
        $83,333 
        N/A
      - 
        $295,000 
        N/A
      - 
        - 
        N/A
      - 
        1,500,000(8)
        N/A
      - 
        - 
        N/A
      - 
        - 
        N/A
      -(9)
        -(9)
        N/AE. Wayne 
        Sampson 
        Vice President, 
        Land
      2008 
        2007 
        2006
      $168,000 
        $21,000 
        N/A
      - 
        - 
        N/A
      - 
        - 
        N/A
      - 
        600,000(10)
        N/A
      - 
        - 
        N/A
      - 
        - 
        N/A
      - (11)
        - 
        N/ADavid Sealock 
        Vice President, 
        Corporate 
        Services (12)
      2008 
        2007 
        2006
      $160,800 
        $42,188 
        N/A
      - 
        - 
        N/A
      - 
        - 
        N/A
      85,000 (13)
        600,000(14)
        N/A
      - 
        - 
        N/A
      - 
        - 
        N/A
      - (15)
        - 
        N/AKelly Sledz 
        Vice President, 
        Finance
      2008 
        2007 
        2006
      $150,600 
        $13,009 
        N/A
      - 
        - 
        N/A
      - 
        - 
        N/A
      300,000 (16)
        300,000(17)
        N/A
      -
        - 
        N/A
      - 
        - 
        N/A
      - (18)
        - 
        N/A


|Notes:
|------
|(1)   
|(2)   
|(3)   
|(4)   
|(5)   

---

- 29 -

|(6)  | During the year ended April 30, 2007, our company completed
        three acquisitions that were considered related party transactions as
        described below "Item 7.B  Related Party Transactions". As a result,
        George T. Stapleton, II, or a private company controlled by him, received
        5,293,000common shares and US$346,617 cash as consideration.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(7)  | Represents 1,000,000 stock options exercisable at a price
      of US$0.50 per share until January 5, 2011 and 500,000 stock options
      exercisable at a price of US$0.10 per share that were exercised on April
      8, 2008. Of the total options granted to the period, 500,000 were awarded
      for the role as director.                                           
|(8)  | Represents 1,000,000 stock options exercisable at a price
      of US$0.50 per share until January 5, 2011 and 500,000 stock options
      exercisable at a price of US$0.10 per share until December 21, 2011. Of
      the total options granted to the period, 500,000 were awarded for acting
      as director.                                                          
|(9)  | On June 26, 2007, Mr. Thornton was assigned 1,750,000
      incentive warrants, exercisable at a price of US$0.10 per share until
      January 15, 2009, from Endurance Energy Consulting Ltd. as described below
      in "Item 7.B  Related Party Transactions". The warrants were exercised
      into 1,750,000 common shares on April 10, 2008.                        
|(10) | Represents 600,000 stock options exercisable at a price
      of US$1.00 per share until March 19, 2011.                                                                                                                                                                                                                                                                      
|(11) | Mr. Sampson was assigned 1,200,000 incentive warrants,
      exercisable at a price of US$0.10 per share until January 15, 2009, from
      Endurance Energy Consulting Ltd. as described below in "Item 7.B  Related
      Party Transactions". The warrants were exercised into 1,200,000 common
      shares on August 20, 2008.                                          
|(12) | Mr. Sealock resigned from our company effective June 27,
      2008.                                                                                                                                                                                                                                                                                                          
|(13) | Represents 85,000 stock options exercisable at a price of
      US$2.20 per until July 9, 2011 that have been forfeited.                                                                                                                                                                                                                                                      
|(14) | Represents 600,000 stock options exercisable at a price
      of US$0.50 per share until January 8, 2011. The 450,000 unexercised
      options have been forfeited.                                                                                                                                                                                                          
|(15) | Mr. Sealock was assigned 1,200,000 incentive warrants,
      exercisable at a price of US$0.10 per share until January 15, 2009, from
      Endurance Energy Consulting Ltd. as described below in "Item 7.B  Related
      Party Transactions". The warrants were exercised on a cashless basis into
      1,116,667 common shares on February 5, 2008.                     
|(15) | Represents 300,000 stock options exercisable at a price
      of US$1.70 per share until November 11, 2011.                                                                                                                                                                                                                                                                   
|(16) | Represents 300,000 stock options exercisable at a price
      of US$1.00 per share until February 28, 2011.                                                                                                                                                                                                                                                                   
|(18) | Mr. Sledz was assigned 850,000 incentive warrants,
      exercisable at a price of US$0.10 per share until January 15, 2009, from
      Endurance Energy Consulting Ltd. as described below in "Item 7.B  Related
      Party Transactions". The warrants were exercised on a cashless basis into
      790,972 common shares on February 5, 2008.                           

Aggregated Options Exercised During the Year Ended April 30,
2008 and Year-End Option Values

The value of the unexercised Options or SARs held by each Named
Executive Officer, based upon a closing price for our companys shares of
US$0.60 on April 30, 2008, is as follows:

Name
    Securities Acquired on
      Exercise (#)
    Aggregate Value
      Realized(1) ($)
    Unexercised
      Options/SARs at April 30, 2008
    Value of Unexercised in-the- money
      Options/SARs at April 30, 2008(2)Exercisable
      (#)
    Unexercisable
      (#)
    Exercisable
      ($)
    Unexercisable
      ($)George T. Stapleton, II
    -
    -
    1,000,000
    -
    US$100,000
    -George Orr
    500,000
    US$200,000
    1,000,000
    -
    US$100,000
    -R. William Thornton
    -(3)
    -
    1,500,000
    -
    US$350,000
    -E. Wayne Sampson
    -
    -
    300,000(4)
    300,000
    -(4)
    -David Sealock
    150,000 (5)
    US$180,450 (5)
    235,000
    300,000
    US$15,000
    US$30,000Kelly Sledz
    -(6)
    -(6)
    150,000
    450,000
    -
    -


|Notes:
|------
|(1)   

---

- 30 -

|(2) | "in-the-money Options" means the excess of the market
      value of our companys shares on April 30, 2008 over the exercise price of
      the options. Our companys shares trade on the Over-the-Counter-Bulletin
      Board in the United States. The last trade on April 30, 2008 was as
      US$0.60 per share. Therefore, these calculations are based upon the
      trading price of US$0.60 per share.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | On April 10, 2008, exercised 1,750,000 incentive warrants
      at an exercise price of US$0.10 per share.                                                                                                                                                                                                                                                                                                         
|(4) | In addition to stock options, on April 30, 2008 Mr.
      Sampson held 1,200,000 incentive warrants exercisable at a price of
      US$0.10 per share. The incentive warrants were exercised into 1,200,000
      common shares on August 28, 2008.                                                                                                                                                                
|(5) | Mr. Sealock exercised his 150,000 stock options on a
      cashless basis into 105,960 common shares. In addition to stock options
      exercised, Mr. Sealock exercised 1,200,000 incentive warrants on a
      cashless basis into 1,116 667 common shares on February 5, 2008.                                                                                                                                 
|(6) | In addition to stock options, Mr. Sledz exercised on a
      cashless basis, 850,000 incentive warrants into 790,972 common shares on
      February 5, 2008.                                                                                                                                                                                                                                                      

Option and SAR Repricings

No options were re-priced during the year ended April 30,
2008.

Retirement Benefits

We do not have in place any pension or actuarial plan to
provide pension, retirement or similar benefits and no funds were set aside or
accrued by our company or its subsidiaries during the fiscal year ended April
30, 2008 to provide pension, retirement or similar benefits.

Employment Agreements

We entered into an executive employment agreement made
effective as of December 15, 2006 with R. William Thornton, whereby we have
agreed to employ Mr. Thornton as our Chief Operating Officer as of January 1,
2007 (as of February 8, 2008, Mr. Thornton has been appointed our President and
Chief Operating Officer). Pursuant to the agreement, Mr. Thornton will receive
an annual salary of $250,000 and bonuses as may be determined by our board. Upon
execution of the agreement, we paid Mr. Thornton a signing bonus in the amount
of US$250,000. Mr. Thornton will be entitled to coverage under Directors and
Officers Liability Insurance and Errors and Omission Insurance (with a minimum
cover of at least $2,000,000 per occurrence), all at our company's expense. If
Mr. Thornton's employment is terminated for just cause or by Mr. Thornton
without constructive dismissal, we will pay to Mr. Thornton the amount of his
unpaid annual salary to and including the date of termination, any declared but
unpaid bonus and all outstanding vacation pay and expense reimbursements. If Mr.
Thornton's employment is terminated by our company without just cause or by Mr.
Thornton for constructive dismissal, then in addition to the foregoing amounts,
Mr. Thornton will receive a severance payment in the amount of one year's annual
salary plus $10,000 less applicable withholdings and deductions, in respect of
lost benefits and notwithstanding any provisions of our company's stock plan,
all stock options held by Mr. Thornton will automatically vest. Additionally, in
the event of a change of control (as defined below) of our company, we and/or
Mr. Thornton may terminate Mr. Thornton's employment with our company, on which
event, we will pay to Mr. Thornton the termination payments set out above.

A change of control is defined in the agreement as the
occurrence of any of: (a) the purchase or acquisition of shares of our common
stock (or securities convertible thereto or carrying the right to acquire our
common stock) as a result of which a person or group of persons, acting jointly
or in concert, beneficially owns or exercises control or direction over shares
of our common stock that would have the right to cast more than 50% of the votes
attached to all our common stock; or (b) approval by our shareholders of: (i) an
amalgamation, arrangement or combination of our company with another entity
pursuant to which our shareholders immediately before such combination do not
own securities of the successor or continuing entity which would entitle them to
cast more than 50% of the votes attaching to all of our common stock immediately
thereafter; (ii) a liquidation, dissolution or winding-up of our company; (iii)
the sale, lease or other disposition of all or substantially all of the assets
of our company; (iv) the election at a meeting of our shareholders of a number
of directors, who were not included in the slate for election as directors
approved by our prior board of directors, and who would represent a majority of
our board of directors, or (v) the appointment of a number of directors which
would represent a majority of our board of directors and which were nominated by
any holder of our voting shares or by any group of holders of our voting shares
acting jointly or in concert and not approved by our prior board of
directors.

---

- 31 -

As part of the agreement Mr. Thornton was granted 1,000,000
common share stock options with an exercise price of US$0.50 per share that
expire January 5, 2011 and 500,000 common share stock options with an exercise
price of US$0.10 per share that expire December 21, 2011.

Our board of directors approved an executive employment
agreement with George T. Stapleton, II, whereby we have agreed to employ Mr.
Stapleton as our Chief Executive Officer as of January 1, 2007. Pursuant to the
agreement, Mr. Stapleton will receive an annual salary of US$240,000 and
performance bonuses as may be determined by our board. As part of the agreement,
we paid Mr. Stapleton a signing bonus in the amount of US$300,000. Mr. Stapleton
will be entitled to coverage under Directors and Officers Liability Insurance
and Errors and Omission Insurance (with a minimum cover of at least $2,000,000
per occurrence), all at our company's expense. If Mr. Stapleton's employment is
terminated for just cause or by Mr. Stapleton without constructive dismissal, we
will pay to Mr. Stapleton the amount of his unpaid annual salary to and
including the date of termination, any declared but unpaid bonus and all
outstanding vacation pay and expense reimbursements. If Mr. Stapleton's
employment is terminated by our company without just cause or by Mr. Stapleton
for constructive dismissal, then in addition to the foregoing amounts, Mr.
Stapleton will receive a severance payment in the amount of one year's annual
salary plus $10,000 less applicable withholdings and deductions, in respect of
lost benefits and notwithstanding any provisions of our company's stock plan,
all stock options held by Mr. Stapleton will automatically vest. Additionally,
in the event of a change of control (as defined above) of our company, we and/or
Mr. Stapleton may terminate Mr. Stapleton's employment with our company, on
which event, we will pay to Mr. Stapleton the termination payments set out
above. As part of the agreement Mr. Stapleton was granted 1,000,000 common share
stock options with an exercise price of US$0.50 per share that expire January 5,
2011 and 500,000 common share stock options with an exercise price of US$0.10
per share which were exercised on March 23, 2007.

Our board of directors approved an executive employment agreement
  with George Orr, whereby we have agreed to employ Mr. Orr as our Chief Financial
  Officer as of January 2, 2007. Pursuant to the agreement, Mr. Orr will receive
  an annual salary of $138,000 and bonuses as may be determined by our board.
  Mr. Orr will be entitled to coverage under Directors and Officers Liability
  Insurance and Errors and Omission Insurance (with a minimum cover of at least
  $2,000,000 per occurrence), all at our company's expense. If Mr. Orr's employment
  is terminated for just cause or by Mr. Orr without constructive dismissal, we
  will pay to Mr. Orr the amount of his unpaid annual salary to and including
  the date of termination, any declared but unpaid bonus and expense reimbursements.
  If Mr. Orr's employment is terminated by our company without just cause or by
  Mr. Orr for constructive dismissal, then in addition to the foregoing amounts,
  Mr. Orr will receive a severance payment in the amount of one year's annual
  salary plus $10,000 less applicable withholdings and deductions, in respect
  of lost benefits and notwithstanding any provisions of our company's stock plan,
  all stock options held by Mr. Orr will automatically vest. Additionally, in
  the event of a change of control (as defined above) of our company, we and/or
  Mr. Orr may terminate Mr. Orr's employment with our company, on which event,
  we will pay to Mr. Orr the termination payments set out above. As part of the
  agreement Mr. Orr was granted 1,000,000 common share stock options with an exercise
  price of US$0.50 per share that expire January 5, 2011. As part of Mr. Orr's
  role as a director, our company granted 500,000 common share stock options with
  an exercise price of US$0.10 per share that were exercised on April 8, 2008.

Compensation of Directors

No cash compensation was paid to any of our directors for
services as a director during the year ended April 30, 2008. Our company has no
formal arrangement pursuant to which directors are compensated by us for their
services in their capacity as directors, except for the granting from time to
time of incentive stock options. Directors are entitled to reimbursement for
reasonable travel and other out-of-pocket expenses incurred in connection with
attendance at meetings of our board. Our board of directors may award special
remuneration to any director undertaking any special services on our behalf,
other than services ordinarily required of a director. No director received
and/or accrued any compensation for his services as a director, including
committee participation and/or special assignments for the year ended April 30,
2008.

The following table provides a summary of compensation paid by
our company during the year ended April 30, 2008 to its non-executive
directors:

---

- 32 -

SUMMARY COMPENSATION TABLEName and Principal
      Position(1)
    Annual Compensation
    Long Term Compensation
      Securities Under Options/SARs GrantedCash
    Special RemunerationBrad Kitchen
    -
    -
    -Brian J. Evans
    -
    -
    -Dr. Gail Bloomer
    -
    -
    -


|Notes:                                                                                                                          
|--------------------------------------------------------------------------------------------------------------------------------
|(1)          
      The compensation paid to the three executive directors is disclosed above
      in "Executive Compensation".

|C. | Board Practices
|-- | ---------------

Our directors are re-elected and our officers are re-appointed
at the annual general meeting of our shareholders. Our last annual general
meeting was held on October 29, 2007, at which Messrs. Orr, Stapleton and
Thornton, Bloomer, Evans and Kitchen were re-appointed as directors of our
company. On May 26, 2008, Mr. Bloomer resigned as a director of our company. Our
board appointed two additional directors, Mr. Neil McCrank and Mr. Jack Holmes,
Jr. on July 17, 2008 and August 13, 2008, respectively.

Each of our current directors and officers will continue to
hold his respective office until his successor is elected or appointed, unless
his office is earlier vacated under any of the relevant provisions of our
articles or the Business Corporations Act (Alberta). Our next annual general
meeting is scheduled for October 20, 2008.

Other than an executive employment agreements entered into with
R. William Thornton, George T. Stapleton, II, and George Orr, there are no
service contracts between our company and any of our directors providing for
benefits upon termination of employment.

Our board of directors has four committees, namely: an audit,
  compensation, corporate governance and human resources, nominating committee
  and reserves committee as described below. We do not have an executive committee
  of our board of directors. With the recent addition of two new board members,
  our board will re-evaluate its committee memberships and composition.

Audit Committee

The terms under which the audit committee operates are set out
in the Audit Committee Charter, which provides that the audit committee will,
among other things: (a) review and report to our board of directors our
financial statements and MD&A and the auditors report, if any, prepared in
relation to those financial statements, before they are published; (b) review
our annual and interim earnings press releases we publicly disclose this
information; satisfy itself that adequate procedures are in place for the review
of our public disclosure of financial information extracted or derived from our
financial statements and periodically assess the adequacy of those procedures;
(c) recommend to our board of directors the external auditor to be nominated for
the purpose of preparing or issuing an auditors report or performing other
audit, review or attest services to our company, and the compensation of the
external auditor; (d) oversee the work of the external auditor engaged for the
purpose of preparing or issuing an auditors report or performing other audit,
review or attest services for our company, including the resolution of
disagreements between management and the external auditor regarding financial
reporting; (e) monitor, evaluate and report to our board of directors on the
integrity of the financial reporting process and the system of internal controls
that management and the board of directors have established; (f) monitor the
management of the principal risks that could impact the financial reporting of
our company; (g) establish procedures for the receipt, retention and treatment
of complaints received by our company regarding accounting, internal accounting
controls, or auditing matters, and the confidential, anonymous submission by our
employees of concerns regarding questionable accounting or auditing matters; (h)
pre-approve all non-audit services to be provided to our company or its
subsidiary entities by our companys external auditor; and (i) review and
approve our companys hiring policies regarding partners, employees and former
partners and employees of the present and former external auditor of our
company.

---

- 33 -

The members of our companys audit committee are Brian Evans,
George Orr and Brad Kitchen. George Orr is our Chief Financial Officer and
Treasurer and is therefore not considered to be an independent member of the
audit committee. Brad Kitchen and Brian Evans are considered to be independent
members. The test we use to determine the independence of our directors is that
set out in the Canadian Securities Regulators' Multilateral Instrument 52-110 
Audit Committees. The instrument provides that a member of an audit committee is
independent if the member has no direct or indirect material relationship with
the issuer (namely, a relationship which could, in the view of the issuers
board of directors, reasonably interfere with the exercise of a members
independent judgement).

Compensation Committee

On October 29, 2007, our board of directors appointed a
compensation committee and approved a charter under which it will operate to
discharge the Boards responsibilities relating to compensation of our companys
Chief Executive Officer and our companys other executive officers, including
the Chairman of the Board, President, Principal Financial Officer, Principal
Accounting Officer (or Controller) and Vice President in charge of a principal
business unit, division or function such as sales, administration or finance,
any other officer who performs a policy-making function, or any other person who
performs similar significant policy-making functions for our company
(collectively, the Executive Officers). The Committee has overall responsibility
for approving and evaluating all compensation plans, policies and programs of
our company as they affect the Executive Officers. Prior to October 29, 2007,
our corporate governance and human resources committee oversaw our companys
compensation matters.

The members of our compensation committee are Brian Evans, Brad
Kitchen and Gail Bloomer (prior to his resignation on May 26, 2008) all of whom
are considered to be independent members. With the recent addition of two new
board members, our board will re-evaluate its committee memberships and
composition.

Corporate Governance and Human Resources Committee

The function of the corporate governance and human resources
committee is to assist our board of directors in fulfilling its oversight
responsibilities, primarily through: (a) overseeing the management of programs,
including, but not limited to: (i) our companys compensation program,
including, but not limited to: benefits program, employee salary and bonus
program, stock option program and group savings plan, and (ii) corporate policy
and procedure process and controls; and (b) providing an avenue of communication
for internal operations. The charter under which the corporate governance and
human resources committee operates is attached hereto as Exhibit 99.3.

The members of our companys corporate governance and human
resources committee are George T. Stapleton, II (our Chief Executive Officer),
George Orr (our Chief Financial Officer and Treasurer) and R. William Thornton
(our President and Chief Operating Officer), all of whom are not considered
independent. Brian J. Evans is also a member and is considered to be
independent.

We do not have a majority of independent directors on our
corporate governance and human resources committee; however, such a majority is
not required by any applicable securities legislation.

Nominating Committee

On October 29, 2007, our board of directors appointed a
nominating committee and approved a charter under which it will operate and be
responsible for, including: (a) identifying and recommending to our board of
directors individuals qualified to be nominated for election to the board; (b)
recommending to our board the members and chairman for each board committee; (c)
overseeing the annual self-evaluation of the performance of the board and the
annual evaluation of our companys management; and(d) establishing a process for
nominating and evaluating new members of our board of directors.

The members of our companys nominating committee are George T.
Stapleton, II (our Chief Executive Officer), George Orr (our Chief Financial
Officer and Treasurer) and R. William Thornton (our President and Chief
Operating Officer), all of whom are not considered independent. Brian J. Evans
is also a member and is considered to be independent.

---

- 34 -

We do not have a majority of independent directors on our nominating
  committee; however, such a majority is not required by any applicable securities
  legislation.

*Reserves Committee*

On August 13, 2008, our board of directors appointed R. William
  Thornton, Neil McCrank and Jack Holmes, Jr. As members of a reserves committee.
  A chairman has not been appointed and a charter has not been approved to date.
  The purpose of the reserves committee will be to oversee the engagement of independent
  reserve engineers and to assist the board of directors with its regulatory reporting
  obligations of reserves.

|D. | Employees
|-- | ---------

As at August 28, 2008, we employed 41 full-time equivalent
people.

|E. | Share Ownership
|-- | ---------------

Our authorized share structure consists of an unlimited number
  of common shares without par value and an unlimited number of preferred shares
  without par value.

The following table identifies the number of our company's
outstanding shares as at August 28, 2008 and the number of common shares that
could be issued if all of our dilutive securities were converted into
shares.

August 28, 2008Common shares
      outstanding
    132,919,472Stock options
    11,484,500(1)Incentive warrants
    10,675,000(2)Consulting warrants
    6,000,000(3)Acquisition warrants
    250,000(4)Total
    161,324,972


| | Notes:
| | ------
| | (1)   
| | (2)   
| | (3)   
| | (4)   

Of the above securities, our directors and senior officers
owned the following common shares as of August 28, 2008:

Name
      Office Held
    Common
      Shares
    Options and Dilutive Securities Exercisable
      for Common Shares(1)Number
      Beneficially Owned
    Percentage of
      Class
    Number Beneficially Owned
      (Unexercised)
    Exercise
      Price
    Expiry
      DateGeorge T. Stapleton, II Chief Executive
      Officer and Director
    7,183,543
    5.4%
    1,000,000
    US$0.50
    January 5, 2011George Orr Chief Financial Officer,
      Treasurer and Director
    950,000
    *%
    1,000,000
    US$0.50
    January 5, 2011R. William Thornton
      President, Chief Operating Officer and Director
    4,595,000
    3.5%
    1,000,000
    US$0.50
    January 5, 2011500,000
    US$0.10
    December 21, 2011


---

- 35 -

Name
      Office Held
    Common
      Shares
    Options and Dilutive Securities Exercisable
      for Common Shares(1)Number
      Beneficially Owned
    Percentage of
      Class
    Number Beneficially Owned
      (Unexercised)
    Exercise
      Price
    Expiry
      DateBrad Kitchen Director
    -
    *%
    250,000
    US$1.00
    March 7, 2012250,000
    US$0.10
    December 21, 2011Brian J. Evans Director
    10,000
    *%
    500,000
    US$1.00
    February 20, 2012E. Wayne Sampson Vice President, Land
    1,340,000
    1.0%
    600,000
    US$1.00
    March 19, 2011Kelly Sledz Vice President,
      Finance
    910,972
    *%
    300,000
    US$1.00
    February 28, 2011300,000
    US$1.77
    November 11, 2011Neil McCrank, Director(2)
    -
    *%
    500,000
    US$0.45
    July 17, 2012John B. (Jack) Holmes, Jr.,
      Director(2)
    -
    *%
    500,000
    US$0.42
    August 13, 2012


|Notes:
|------
|*     
|(1)   
|(2)   

Stock Option and Equity Incentive Plans

On June 5, 2008, our board of directors adopted two new equity
incentive plans, the Canadian equity incentive plan and the U.S. equity
incentive plan. The Canadian equity incentive plan replaces and supersedes
Canadian stock option plan, and the U.S. equity incentive plan replaces and
super cedes the U.S. stock option plan. Each of our equity and stock option
plans are described below.

The purpose of the equity and stock option plans are to provide
us with a share-related mechanism to attract, retain and motivate qualified
directors, officers, consultants and employees, to reward those persons from
time to time for their contributions toward the long-term goals of our company,
and to enable and encourage such directors, officers, consultants and employees
to acquire our common shares as long-term investments.

Canadian Equity Incentive Plan

The Canadian equity incentive plan was adopted by our board of
directors and became effective on June 5, 2008. The material terms of the plan
are: (a) the total number of shares of our common stock that may be awarded
under the plan plus the total number of shares of our common stock that may be
awarded under the U.S. equity incentive plan under a stock option plan, dated
June 5, 2008, for United States based employees cannot exceed 10 percent of the
total number of shares of our common stock issued and outstanding from time to
time; (b) the plan administrator is appointed by the board of directors; (c) the
term of the plan is indefinite; (d) awards eligible to be awarded under the plan
include stock options, stock appreciation rights, restricted stock units,
performance awards and other stock based awards; (e) options are subject to
adjustment in the event of s subdivision or consolidation of our common shares,
an amalgamation, or other corporate event affecting our common shares; and (f)
the board determines the date of grant, the number of optioned shares, the
exercise price per share, the vesting period and term. The minimum exercise
price of any option granted under the plan is the weighted average price of our
common shares on the principal stock exchange on which our common shares trade
for the five trading days prior to and including the date of grant.

---

- 36 -

The Canadian equity incentive plan is filed as Exhibit 4.37 to
this Form 20-F.

Canadian Stock Option Plan

We adopted a formal written stock option plan for Canadian
resident directors, senior officers, employees and consultants on August 24,
2004. The plan provides that stock options granted under the plan vest in the
manner determined by the administrator appointed under the plan on the date of
the grant. The price at which a stock option may be exercised is determined by
our board of directors at the time of the grant. The plan also provides that we
may not grant stock options to any person or that person's associates that will
in aggregate, when exercised, exceed in any 12 month period 5 percent of our
issued and outstanding common shares.

As of February 19, 2007 and August 9, 2007, our Canadian stock
option plan was amended and restated as follows: (a) to provide that the total
number of shares of our common stock that may be issued upon the exercise of
stock options issued under the plan plus the total number of shares of our
common stock that may be issued upon the exercise of stock options issued under
a stock option plan, dated January 5, 2007, for United States based employees
cannot exceed 20 percent of the total number of shares of our common stock
issued and outstanding from time to time; (b) to set out the circumstances under
which the number and class of shares issuable upon the exercise of a stock
option will be adjusted; (c) to allow for the immediate vesting of all unexpired
and unvested stock options in the event of a change of control of our company
and for the acceleration of the vesting of stock options at the discretion of
the administrator appointed under the plan; (d) to set out how the exercise
price of a stock option may be paid and specifically to provide for a (cashless)
net exercise option; (e) to provide that our company's obligation to issue
shares upon the exercise of a stock option is dependant upon certain factors,
including the compliance of the shares with any applicable laws; (f) to provide
an option holder is responsible for the payment of any withholding taxes in
respect of the exercise of a stock option; (g) to set out the discretion of our
board of directors in respect of various matters concerning the interpretation
of the plan and the granting and exercise of stock options and, specifically,
the discretion to extend the expiry date of the stock options and to determine
the price per share at which a stock option may be exercised; and (h) to correct
minor typographical and grammatical errors and inconsistencies in the text of
the plan.

The Canadian stock option plan was replaced by the Canadian
equity incentive plan on June 5, 2008.

U.S. Equity Incentive Plan

The U.S. equity incentive plan was adopted by our board of
directors and became effective on June 5, 2008. The material terms of the plan
are: (a) the total number of shares of our common stock that may be awarded
under the plan plus the total number of shares of our common stock that may be
awarded under the Canadian equity incentive plan under a stock option plan,
dated June 5, 2008, for Canadian based employees cannot exceed 10 percent of the
total number of shares of our common stock issued and outstanding from time to
time (b) the plan administrator is appointed by the board of directors except
that the board of directors may, in its discretion, establish a committee
composed of two or more members of the board or two or more other persons to
administer the plan; (c) the term of the plan is 10 years; (d) awards eligible
to be awarded under the plan include stock options, stock appreciation rights,
restricted stock units, performance awards and other stock based awards; (e)
options are subject to adjustment in the event of s subdivision or consolidation
of our common shares, an amalgamation, or other corporate event affecting our
common shares; and (f) the board determines the date of grant, the number of
optioned shares, the exercise price per share, the vesting period and term. The
minimum exercise price of any option granted under the plan is the weighted
average price of our common shares on the principal stock exchange on which our
common shares trade for the five trading days prior to and including the date of
grant.

The U.S. equity incentive plan is filed as Exhibit 4.38 to this
annual report.

U.S. Stock Option Plan

As of January 5, 2007, our board of directors adopted a stock
option plan for U.S. resident directors, senior officers, employees and
consultants. The material terms of the plan were: (a) the number of shares of
our common stock reserved for issuance under the plan was 20 percent of the
issued and outstanding shares of our common stock from

---

- 37 -

time to time less the number of stock options granted under our
Canadian stock option plan; (b) the plan was administered by our board of
directors, except that the board of directors may, in its discretion, establish
a committee composed of two or more members of the board or two or more other
persons to administer the plan; (c) incentive stock options (stock options which
qualify under Section 422 of the Internal Revenue Code of 1986 (United States)
may be granted to any individual who, at the time the option is granted, is
resident in the U.S. and who is an employee of our company or any related
corporation.; (d) non-qualified stock options (stock options that do not qualify
under Section 422 of the Internal Revenue Code of 1986) may be granted to
employees and to such other persons who are not employees as the plan
administrator shall select, subject to any applicable laws; (f) the plan
provides that, generally, the number of shares subject to each stock option, the
exercise price, the expiry time, the extent to which such stock option is
exercisable and other terms and conditions relating to such stock options will
be determined by the board of directors of our company or any committee to which
such authority is delegated by the board from time to time; (g) the term of the
stock options granted under the plan will not exceed ten years from the date of
grant, provided that the term of the stock options will be reduced upon the
death of an option holder or if an option holder ceases to be employed by or
hold office with our company; (h) the vesting of stock options granted under the
plan will be in 25 percent increments, beginning one year from the date of the
grant, provided that the plan allows for the immediate vesting of all unexpired
and unvested stock options in the event of a change of control of our company
and for the acceleration of the vesting of stock options at the discretion of
the administrator appointed under the plan; (i) the exercise price of the stock
options will be determined by the plan administrator in compliance with
applicable laws, including the rules of an applicable stock exchange or national
market system; and (j) the plan will terminate when all of the stock options,
available for grant thereunder, have been granted or when the plan is otherwise
terminated by our company (provided that any stock options outstanding when the
plan is terminated will remain in effect until they are exercised or
expire).

The U.S. stock option plan was replaced by the U.S. equity
incentive plan on June 5, 2008.

|ITEM 7. | Major Shareholders and Related Party
      Transactions
|------- | -------------------------------------------------------

|A. | Major Shareholders
|-- | ------------------

As of August 28, 2008, there were 132,919,472 shares of our
common stock issued and outstanding. The following table sets out persons known
to us to be the beneficial owners of more than 5 percent of the issued and
outstanding shares of our common stock as of August 28, 2008:

Shareholder
    Amount Owned
    Percentage of Class(1)Sprott Asset
      Management Inc.
    9,550,000
    7.2%Agosto Corporation Limited
    8,442,201
    6.4%George T.
      Stapleton, II, Chief Executive Officer
    7,183,543
    5.4%


| | Note:                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------
| | (1)          
      Based on 132,919,472 shares of our common stock issued and outstanding as
      of August 28, 2008.

The voting rights of our major shareholders do not differ from
the voting rights of shareholders who are not major shareholders.

Since our previous fiscal year end April 30, 2007, we issued
60,483,422 shares of our common stock to date (year ended April 30, 2007 -
70,848,550).

As of August 28, 2008, Pacific Corporate Trust Company, our
registrar and transfer agent, reported that of the 132,919,472 issued and
outstanding shares of our common stock, 75,432,994 shares were registered to
Canadian residents (271 shareholders), 38,735,616 shares were registered to
residents of the U.S. (62 shareholders) and 17,550,862 shares were registered to
residents of countries other than Canada or the U.S. (15 shareholders).

---

- 38 -

To the best of our knowledge, we are not directly or indirectly
owned or controlled by another corporation, by any foreign government or by any
other natural or legal person.

There are no arrangements known to us, the operation of which
may at a subsequent date result in a change in the control of our company.

|B. | Related Party Transactions
|-- | --------------------------

Other than as disclosed herein, to the best of our knowledge,
there have been no material transactions or loans from May 1, 2007 to August 28,
2008 between our company and: (a) enterprises that directly or indirectly
through one or more intermediaries, control or are controlled by, or are under
common control with, our company; (b) associates; (c) individuals owning,
directly or indirectly, an interest in the voting power of our company that
gives them significant influence over our company, and close members of any such
individual's family; (d) key management personnel of our company, including
directors and senior management of our company and close members of such
individuals' families; and (e) enterprises in which a substantial interest in
the voting power is owned, directly or indirectly, by any person described in
(c) or (d) or over which such a person is able to exercise significant
influence.

We entered into the following related party transactions during
the three period ended April 30, 2008. These transactions were measured by the
exchange amount, which is the amount agreed upon by the transacting parties.

|1. | During the year ended April 30, 2007, we incurred $87,608
      (2006 - $26,797; 2005 - $23,926) in general and administrative costs to
      entities controlled by former directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|2. | During the year ended April 30, 2007, we incurred $5,463
      in consulting fees to Dr. Gail Bloomer a director of our
company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|3. | Our Chief Financial Officer, George Orr, is affiliated
      with a company that assisted us in completing the share issue private
      placements and that provides us with ongoing investor relations services.
      For the year ended April 30, 2008 we paid $211,474 (2007 - $75,000) for
      these services.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4. | At April 30, 2006, accounts payable and accrued
      liabilities includes $34,078 to a partnership controlled by two directors
      of our company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|5. | During the year ended April 30, 2007, our company granted
      10,000,000 incentive warrants (exercisable for shares of our common stock
      at US$0.10 per share) to Endurance Energy Consulting Ltd., a private
      company controlled by that R. William Thornton (a director and our
      President and Chief Operating Officer), and 9,000,000 incentive warrants
      (exercisable for shares of our common stock at US$0.10 per share) were
      granted to Gladrock Energy LLC, a private company that is controlled by
      Dr. Gail Bloomer (a former director) As described in "Item 6.B. 
      Compensation" above. The warrants were granted as consideration of the
      holder's efforts in identifying, evaluating and possibly delivering oil
      and gas exploration and development properties to our company.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|7. | During the year ended April 30, 2007, we issued 600,000
      common shares to the said subscribers in settlement of $167,500 of debt
      pursuant a form of debt settlement and subscription agreement dated
      December 21, 2006, entered into with each of Karkrash Holdings Ltd., Carob
      Management Ltd. (a private company controlled by Gregory Burnett, a former
      director of our company), Brian Hanson, Roy Brown and Amisano Hanson,
      Chartered Accountants.                                                                                                                                                                                                                                                                                                                                                     

---

- 39 -

|8. | During the year ended April 30, 2007, our company
      completed three acquisitions that were considered related party
      transactions. The acquisitions of the assets of Deerfield Kansas,
      Deerfield Missouri and Trinity (as described in "Item 4.A.  History and
      Development of MegaWest Energy Corp." above) are considered related party
      transactions, since at the respective acquisition dates, George T.
      Stapleton, II (a director and the President and Chief Executive Officer of
      our company) was also the Chief Executive Officer and unitholder of
      Trinity Sands Energy LLC (47.37 percent of issued and outstanding units)
      and Chief Operating Officer and unitholder of Deerfield Missouri (15.86
      percent of the issued and outstanding units), the parent company of
      Deerfield Kansas.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | As a result, George T. Stapleton, II, or a private
      company controlled by him, received (i) 39,650 of the common shares issued
      for the assets of Deerfield Kansas, (ii) US$251,880 cash from Deerfield
      Missouri, including a change of control fee and 753,350 common shares and
      (iii) 45,000 class B exchange shares of our subsidiary, MegaWest USA, that
      were converted into 4,500,000 common shares and US$94,737 cash of the
      consideration issued to Trinity.                                                                                                                                                                                                                                                                                                                                                            

|ITEM 8. | Financial Information
|------- | ---------------------

Financial Statements filed as part of this Annual
Report

- Report of Independent Registered Public Accounting Firm, KPMG LLP, on the
  effectiveness of internal controls over financial reporting as of April 30,
  2008
- Report of Independent Registered Public Accounting Firm, KPMG LLP, dated
  August 28, 2008, on the Consolidated Financial Statements of our company as at
  April 30, 2008 and 2007.
- Auditors' Report, Morgan & Company, Chartered Accountants, dated August
  25, 2006, on the Financial Statements of our company as at April 30, 2006 and
  2005.
- Consolidated Balance Sheets at April 30, 2008 and 2007
- Consolidated Statements of Operations, Deficit and Comprehensive Loss for
  the years ended April 30, 2008, 2007 and 2006
- Consolidated Statements of Cash Flows for the years ended April 30, 2008,
  2007 and 2006

Reconciliation to U.S. GAAP

- Auditors Report dated August 28, 2008, together with Comments by Auditor
  for U.S. Readers in Canada  U.S. Reporting Difference

The financial statements can be found under "Item 18 -
Financial Statements" below.

Significant Changes

Other than as disclosed herein, no significant change has
occurred in our financial statements since the fiscal year ended April 30,
2008.

Legal Proceedings

There are no pending legal proceedings to which we are a party
or of which any of our property is the subject. There are no legal proceedings
to which any director, officer or affiliate of our company or any associate of
any such director, officer or affiliate of our company is a party or has a
material interest adverse to us.

---

- 40 -

Dividend Distributions

Holders of our common shares are entitled to receive such
dividends as may be declared from time to time by our board, in its discretion,
out of funds legally available for that purpose. We intend to retain future
earnings, if any, for use in the operation and expansion of our business and do
not intend to pay any cash dividends in the foreseeable future.

|ITEM 9. | The Offer and Listing
|------- | ---------------------

|A. | Offer and Listing Details
|-- | -------------------------

Our common shares are traded on the OTC Bulletin Board under
the symbol "MGWSF". Our common shares were listed on the Canadian Venture
Exchange (now the TSX Venture Exchange) from August 27, 2001 to June 16, 2004.
On March 28, 2005, our common shares were listed for trading on the OTC Bulletin
Board under the symbol "BCKOF". Effective March 6, 2007, our trading symbol was
changed to "MGWSF".

The annual high and low market prices for our common shares for
the five most recent full fiscal years are as follows:

Year Ended
    TSX Venture Exchange
      OTC Bulletin BoardHigh
    Low
    High
    LowApril 30, 2008
    N/A
    N/A
    US$2.75
    US$0.40April 30, 2007
    N/A
    N/A
    US$2.75
    US$0.50April 30, 2006
    N/A
    N/A
    US$1.01
    US$0.30April 30, 2005
    N/A
    N/A
    No trades
    No tradesApril 30, 2004
    $0.65
    $0.25
    N/A
    N/A


The high and low market prices for our common shares for each
full financial quarter for the two most recent full fiscal years on the OTC
Bulletin Board were as follows:

OTC Bulletin BoardQuarter Ended
    High
    LowApril 30, 2008
    US$0.86
    US$0.40January 31, 2008
    US$1.80
    US$0.81October 31, 2007
    US$2.35
    US$1.50July 31, 2007
    US$2.75
    US$1.80April 30, 2007
    US$2.75
    US$1.80January 31, 2007
    US$0.52
    US$1.90October 31, 2006
    US$0.61
    US$0.52July 31, 2006
    US$0.60
    US$0.50


The high and low market prices of our common shares for each of
the most recent six months, from February, 2008 through July, 2008, on the OTC
Bulletin Board were as follows:

---

- 41 -

Month Ended
    OTC Bulletin BoardHigh
    LowJuly 31, 2008
    US$0.62
    US$0.40June 30, 2008
    US$0.64
    US$0.54May 31, 2008
    US$0.71
    US$0.55April 30, 2008
    US$0.74
    US$0.40March 31, 2008
    US$0.82
    US$0.52February 29, 2008
    US$0.86
    US$0.68


|B. | Plan of Distribution
|-- | --------------------

Not applicable.

|C. | Markets
|-- | -------

Our common shares are quoted on the OTC Bulletin Board under
the symbol "MGWSF".

|D. | Selling Shareholders
|-- | --------------------

Not applicable.

|E. | Dilution
|-- | --------

Not applicable.

|F. | Expenses of the Issue
|-- | ---------------------

Not applicable.

|ITEM 10. | Additional Information
|-------- | ----------------------

|A. | Share Capital
|-- | -------------

Not applicable.

|B. | Memorandum and Articles of
      Association
|-- | --------------------------------------------

Our company was incorporated under the laws of the Province of
British Columbia, Canada on February 8, 2000. At a meeting of the shareholders
of our company on October 29, 2007, the shareholders approved the continuance of
our company from the Province of British Columbia into the Province of Alberta
under the Business Corporations Act (Alberta). Effective February 12, 2008, our
company continued into the Province of Alberta under the Business Corporations
Act (Alberta) and we ceased to be a company organized under the Business
Corporations Act (British Columbia). Set out below is a summary of various
provisions of our articles of continuance and by-laws prescribed by the Business
Corporations Act (Alberta) in respect of: (a) objects and purposes: (b)
directors; (c) authorized capital; (d) rights, preference and restrictions
attached to our classes of shares; (e) shareholder meetings; and (f) limitation
on rights of non-Canadians; (g) delay of change of control; and (h) reporting of
share ownership.

Objects and Purposes

Neither our articles nor by-laws contain a description of our
objects and purposes.

---

- 42 -

Directors

Neither our articles nor by-laws restrict: (a) a directors
power to vote on a proposal, arrangement or contract in which the director is
materially interested; or (b) our directors power, in the absence of an
independent quorum, to vote compensation to themselves or any members of their
body. Our by-laws provide that our directors may, without shareholder approval,
borrow money upon the credit of our company, issue and sell bonds or debentures
and provide guarantees. Neither our articles nor by-laws set out a mandatory
retirement age for our directors and our directors are not required to own
securities of our company in order to serve as directors.

Authorized Capital

Our articles provide that our authorized capital consists of an
unlimited number of shares of common stock, without par value, and an unlimited
number of shares of preferred stock, without par value. Our preferred stock may
be issued in one or more series and our directors may fix the number of shares
which is to comprise each series and the designation, rights, privileges,
restrictions and conditions attaching to each series.

Rights, Preferences and Restrictions

Pursuant to our articles, holders of our common stock are
entitled to vote at all meetings of shareholders, except meetings at which only
holders of a specified class of shares are entitled to vote, receive any
dividend declared by our companys board of directors and, subject to the
rights, privileges, restrictions and conditions attaching to any other class of
shares, receive the remaining property of our company upon dissolution. Shares
of our preference stock of each series rank on a parity with our share of
preference stock of any other series and are entitled to a preference over
shares of our common stock with respect to the payment of dividends and the
distribution of assets or return of capital in the event of liquidation,
dissolution or winding-up of our company.

The provisions in our articles attaching to our common stock
and our preference stock may be altered, amended, repealed, suspended or changed
by the affirmative vote of the holders of not less than 2/3s of the outstanding
shares of common stock and 2/3s of the shares of preference stock, as
applicable.

With the exception of special resolutions (i.e. resolutions in
respect of fundamental changes to our company, including: the sale of all or
substantially all of its assets, an merger or other arrangement or an alteration
to our companys authorized capital) that require the approval of 2/3s of the
votes cast by shareholders (holding common stock) entitled to vote at a meeting,
either in person or by proxy, resolutions to approve matters brought before a
meeting of our shareholders require approval by a simple majority of the votes
cast by shareholders entitled to vote at a meeting, either in person or by
proxy.

Shareholder Meetings

The Business Corporations Act (Alberta) provides that: (a)
meetings of shareholders must be held in Alberta, unless otherwise provided in a
companys by-laws; (b) directors must call an annual general of shareholders not
later than 15 months after the last preceding annual general; (c) for the
purpose of determining shareholders entitled to receive notice of or vote at
meetings of shareholders, the directors may fix in advance a date as the record
date for that determination, provided that such date shall not precede by more
than 50 days or by less than 21 days the date on which the meeting is to be
held; (d) a quorum of shareholders is present at a meeting if the holder or the
holders of a majority of shares entitled to vote at the meeting are present in
person or represented by proxy (This is modified by our by-laws which provide
that the quorum for the transaction of business at a meeting of our shareholders
is two persons who are, or who represent by proxy, shareholders who, in the
aggregate, hold at least 5 percent of the issued shares entitled to be voted at
the meeting.); (e) the holders of not less than five percent of the issued
shares entitled to vote at a meeting may requisition the directors to call a
meeting of shareholders for the purposes stated in the requisition; (f) only
shareholders entitled to vote at the meeting, our directors and our auditor are
entitled to be present at a meeting of shareholders; and (g) upon the
application of a director or shareholder entitled to vote at the meeting, the
Court of Queens Bench of Alberta may order a meeting to be called, held and
conducted in a manner that the Court directs.

---

- 43 -

Limitations on Rights of Non-Canadians

Except as provided in the Investment Canada Act, there are no
limitations specific to the rights of non-Canadians to hold or vote our common
stock under the laws of Canada or Alberta or in our charter documents. See
"Exchange Controls" below in this annual report for a discussion of the
principal features of the Investment Canada Act for non-Canadian residents
proposing to acquire our common stock.

Delay of Change of Control

Pursuant to the provisions of the Business Corporations Act
(Alberta), at each annual general meeting of our shareholders all of our
directors retire and the shareholders appoint a new board of directors. Each
director holds office until our next annual general meeting unless: (a) he dies
or resigns; (b) he is removed by ordinary resolution of our shareholders (or
class or series of shareholders if such class or series has the exclusive right
to elect one or more directors); or (c) the director becomes disqualified to
hold officer, as provided under the Business Corporations Act (Alberta). A
director appointed or elected to fill a vacancy on our board holds office for
the unexpired term of his predecessor (generally, until our next annual general
meeting).

With the exception of provisions in our articles that limit the
number of directors that can be appointed between annual meetings of
shareholders and that give our directors the authority to issue blank cheque
preferred stock, there are no provisions in our articles or by-laws that would
have the effect of delaying, deferring or preventing a change in control of our
company, and that would operate only with respect to a merger, acquisition or
corporate restructuring involving our company.

Reporting of Share Ownership

Neither our articles nor our by-laws contain any provisions
governing the ownership threshold above which shareholder ownership must be
disclosed. Securities legislation in Canada, however, requires that we disclose
in our annual general meeting proxy statement, holders who beneficially own more
than 10 percent of our issued and outstanding shares, and United States Federal
securities laws require the disclosure in our annual report on Form 20-F of
holders who own more than five percent of our issued and outstanding shares.

|C. | Material Contracts
|-- | ------------------

The following is a summary of the material provisions of the
agreements referenced below and should be read together with the full text of
such agreements.

On July 31, 2008, we entered into a purchase agreement whereby
we purchased (in connection with MegaWest Energy Montana Corp.) a 75 percent
working interest in oil and gas leases of approximately 4,990 undeveloped acres
in Montana. The consideration we gave for the purchase was US$105,000 cash and
100,000 common shares.

In respect of a private placement that was completed on May 15,
2008, we entered into a form of private placement subscription agreement with
various accredited investors whereby we issued 27,650,000 common shares, at a
price of US$0.60 per share, for aggregate proceeds of US$16,050,000.

On October 24, 2007, we entered into a purchase agreement
whereby we purchased (in connection with MegaWest Energy Montana Corp.) a 40
percent working interest in oil and gas leases of approximately 33,000
undeveloped acres in Montana. As part of the agreement, we can earn an
additional 20 percent working interest by carrying the vendor through the first
US$2.5 million of work split over two prospects, after which the vendor will be
responsible for its 40 percent working interest share of all cost, risk, expense
and benefit related to the prospects. The remaining consideration we gave for
the purchase was US$300,000 cash, 500,000 common shares and 250,000 common share
purchase warrants (each of which are exercisable into common shares at a price
of US$2.50 until April 24, 2009).

In July 2007, we entered into an executive employment agreement
with George T. Stapleton, II, whereby we have agreed to employ Mr. Stapleton as
our Chief Executive Officer effective January 1, 2007. Pursuant to the
agreement, Mr. Stapleton will receive an annual salary of US$240,000. As part of
the agreement we paid Mr.

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Stapleton a signing bonus in the amount of US$300,000, issued
to Mr. Stapleton 1,000,000 fully vested common share stock options with an
exercise price of US$0.50 per share exercisable until January 5, 2011 and issued
to Mr. Stapleton 500,000 fully vested common share stock options with an
exercise price of US$0.10 per share which were exercised on March 23, 2007.

In July 2007, we entered into an executive employment agreement
with George Orr, whereby we have agreed to employ Mr. Orr as our Chief Financial
Officer effective January 2, 2007. Pursuant to the agreement, Mr. Orr will
receive an annual salary of $138,000. As part of the agreement we issued to Mr.
Orr 1,000,000 fully vested common share stock options with an exercise price of
US$0.50 per share exercisable until January 5, 2011.

In April 2007, we entered into a membership unit purchase
agreement whereby we purchased (though our subsidiary, MegaWest Energy (USA)
Corp). all of the issued and outstanding membership units of Trinity Sands
Energy LLC in consideration for US$200,000 in cash and 95,000 exchange shares of
MegaWest Energy (USA) Corp. and our release of Trinity of its obligations to us
in respect of a promissory note (previously assumed by us) in the amount of
US$1,200,000 granted by Trinity to Agosto Corporation Limited. Each exchange
share may be exchanged for US$10 in cash or 100 shares of our common stock
during the period January 1, 2008 to July 31, 2008. As of February 28, 2008, all
of the exchange shares were converted into 9,500,000 shares of our common
stock.

In April 2007, we entered into a membership unit purchase
agreement whereby we purchased (though MegaWest Energy (USA) Corp.) all of the
issued and outstanding membership units of Kentucky Reserves, LLC in
consideration for US$3,000,000 in cash and 5,000,000 shares of our common stock.

In April 2007, we entered into a membership unit purchase
agreement whereby we purchased (though MegaWest Energy (USA) Corp.) all of the
issued and outstanding membership units of Deerfield Energy LLC in consideration
for US$800,000 in cash and 4,750,000 shares of our common stock. In connection
with the purchase agreement, we entered into an escrow agreement whereby part of
the consideration of the Deerfield Energy LLC acquisition was placed into
escrow, to be released under certain conditions.

In March 2007, we entered into an asset purchase agreement
whereby we purchased (though MegaWest Energy (USA) Corp.) all of the assets of
Deerfield Energy Kansas Corp. in consideration for 250,000 shares of our common
stock and our release of Deerfield Energy LLC (the parent of Deerfield Energy
Kansas Corp.) of its obligations to us in respect of a promissory note
(previously assumed by us) in the amount of US$500,000 granted by Deerfield
Energy LLC to Agosto Corporation Limited in the amount of US$500,000.

In February 2007, we entered into an agreement with a
consultant, Mercury Capital Inc., to provide advisory services to our company
whereby we have agreed to issue to the consultant up to 750,000 shares of our
common stock. At November 28, 2007, all 750,000 of the shares were issued.

In respect of a private placement that was completed on March
  1, 2007, we entered into a form of private placement subscription agreement
  with various accredited investors whereby we issued 27,448,550 units, at a price
  of US$1.00 per unit, for aggregate proceeds of $32,115,870, each of which units
  consists of one share of our common stock and one-half of one common share purchase
  warrant, with each whole warrant entitling the holder to purchase an additional
  share of our common stock at an exercise price of US$1.30 per share for a period
  of one year. On December 14, 2007, the term of the common share purchase warrants
  was extended six months and they expired on August 28, 2008.

In respect of a private placement that was completed on March
  1, 2007, we entered into a rights agreement with PowerOne Capital Markets Limited
  (an accredited investor) pursuant to the terms of the PowerOne consulting agreement,
  whereby we issued rights to buy 375,000 units at a price of US$1.00 per unit,
  of which each unit consists of one share of our common stock and one-half of
  one common share purchase warrant, with each whole warrant entitling the holder
  to purchase an additional share of our common stock at an exercise price of
  US$1.30 per share for a period of one year. On December 14, 2007, the term of
  the common share purchase warrants six months and they expired on August 28,
  2008.

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- 45 -

In respect of a private placement that was completed on January
  5, 2007, we entered into a form of private placement subscription agreement
  with various accredited investors whereby we issued 8,425,000 units, at a price
  of US$0.50 per unit, for aggregate proceeds of $4,992,234, each of which units
  consists of one share of our common stock and one-half of one common share purchase
  warrant, with each whole warrant entitling the holder to purchase an additional
  share of our common stock at an exercise price of US$1.00 per share for a period
  of one year. On December 14, 2007, the term of the common share purchase warrants
  was extended six months and they expired on July 5, 2008.

In respect of a private placement that was completed on January
5, 2007, we entered into a rights agreement with PowerOne Capital Markets
Limited (an accredited investor) pursuant to the terms of the PowerOne
consulting agreement, whereby we issued rights to buy 180,000 units at a price
of US$0.50 per unit, of which each unit consists of one share of our common
stock and one-half of one common share purchase warrant, with each whole warrant
entitling the holder to purchase an additional share of our common stock at an
exercise price of US$1.00 per share for a period of one year.

We entered into a corporate support agreement with Sweetwater
Capital Corp. effective January 1, 2007 whereby Sweetwater Capital Corp.
provides us with various administrative and consulting services for $15,000 per
month, for an initial term of eighteen months. This contract has expired and is
no longer in effect.

Pursuant to a form of debt settlement and subscription
agreement dated December 21, 2006, entered into with each of Karkrash Holdings
Ltd., Carob Management Ltd., Brian Hanson, Roy Brown and Amisano Hanson,
Chartered Accountants, we issued 600,000 shares of our common stock to the said
subscribers in settlement of $165,700 of debt.

Pursuant to a consulting agreement with PowerOne Capital
Markets Limited dated effective December 20, 2007, we agreed to retain PowerOne
to perform capital raising activities. As compensation for services to be
rendered, it was agreed that PowerOne would receive unit rights to acquire units
on the same terms as the January 5, 2007 and March 1, 2007 private placements.
The number of units rights was negotiated in an arms length manner between
PowerOne and our company on the basis of PowerOnes estimation of the then
present value of the underlying common stock and our estimation of the services
to be provided.

Pursuant to a form of warrant issuance agreement dated December
20, 2006, we granted 19,500,000 warrants Endurance Energy Consulting Ltd.,
Gladrock Energy LLC and 1187016 Alberta Ltd. that entitle such persons to
purchase shares of our common stock at a price of US$0.10 per share upon the
occurrence of certain conditions. The conditions include that the warrants are
exercisable if the holder thereof delivers an oil or gas exploration or
development project with a potential economic value in the amount of at least
US$1.00 multiplied by the total number of warrants issued to the holder to our
company by January 15, 2009.

Pursuant to a letter of intent dated December 20, 2006, entered
into with Trinity Sands Energy LLC and its unit holders in respect of our
purchase of all of the issued and membership units of Trinity Sands Energy LLC,
we entered into an assumption and loan conversion agreement with a private
company, Agosto Corporation Limited dated December 20, 2006, as amended, whereby
we assumed the repayment of a US$1,200,000 loan made by Agosto to Trinity Sands
Energy LLC. In exchange for the assumption of Agosto loan, we issued a
convertible promissory note to Agosto in the amount of US$1,200,000 with simple
interest accruing at a rate of six percent per annum.

Pursuant to a letter of intent dated December 20, 2006, entered
into with Deerfield Energy LLC in respect of our acquisition of all of the
assets of Deerfield Energy LLC, we entered into an assumption and loan
conversion agreement with Agosto Corporation Limited dated December 20, 2006, as
amended, whereby we assumed the repayment of a US$500,000 loan made by Agosto to
Deerfield Energy LLC. In exchange for the assumption of Agosto loan, we issued a
convertible promissory note to Agosto in the amount of US$500,000 with simple
interest accruing at a rate of six percent per annum.

In respect of a private placement that was completed December
18, 2006, we entered into a form of private placement subscription agreement
with various accredited investors whereby we issued 23,500,000 shares of our
common stock at US$0.10 per share for aggregate proceeds of $2,707,168.

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- 46 -

Effective December 15, 2006, we entered into an executive
employment agreement with R. William Thornton, whereby we have agreed to employ
Mr. Thornton as our Chief Operating Officer as January 1, 2007 (as of February
8, 2008, Mr. Thornton has been appointed our President and Chief Operating
Officer). Pursuant to the agreement, Mr. Thornton will receive an annual salary
of $250,000. Upon execution of the agreement we paid Mr. Thornton a signing
bonus in the amount of US$250,000, issued to Mr. Thornton 1,000,000 common share
stock options with an exercise price of US$0.50 per share exercisable until
January 5, 2011 and issued to Mr. Thornton 500,000 common shares stock options
with an exercise price of US$0.10 per share exercisable until December 21,
2011.

|D. | Exchange Controls
|-- | -----------------

There are presently no governmental laws, decrees or
regulations in Canada which restrict the export or import of capital, or which
impose foreign exchange controls or affect the remittance of interest, dividends
or other payments to non-resident holders of our common stock. However, any
remittances of dividends to shareholders not resident in Canada are subject to
withholding tax in Canada (see "Taxation" below in this annual report).

Except as provided in the Investment Canada Act, there are no
limitations specific to the rights of non-Canadians to hold or vote our common
stock under the laws of Canada or Alberta, or in our charter documents. The
following summarizes the principal features of the Investment Canada Act for
non-Canadian residents proposing to acquire our common stock

The Investment Canada Act governs the acquisition of Canadian
businesses by non-Canadians. Under the Investment Canada Act, non-Canadian
persons or entities acquiring "control" (as defined in the Investment Canada
Act) of a corporation carrying on business in Canada are required to either
notify, or file an application for review with, Industry Canada. Industry Canada
may review any transaction which results in the direct or indirect acquisition
of control of a Canadian business, where the gross value of corporate assets
exceeds certain threshold levels (which are higher for investors from members of
the World Trade Organization, including United States residents, or World Trade
Organization member-controlled companies) or where the activity of the business
is related to Canadas cultural heritage or national identity. No change of
voting control will be deemed to have occurred, for purposes of the Investment
Canada Act, if less than one-third of the voting control of a Canadian
corporation is acquired by an investor.

If an investment is reviewable under the Investment Canada Act,
an application for review in the form prescribed is normally required to be
filed with Industry Canada prior to the investment taking place, and the
investment may not be implemented until the review has been completed and the
Minister responsible for the Investment Canada Act is satisfied that the
investment is likely to be of net benefit to Canada. If the Minister is not
satisfied that the investment is likely to be of net benefit to Canada, the
non-Canadian applicant must not implement the investment, or if the investment
has been implemented, may be required to divest itself of control of the
Canadian business that is the subject of the investment.

Certain transactions relating to our common stock would be
exempt from the Investment Canada Act, including:

- the acquisition of our common stock by a person in the ordinary course of
  that persons business as a trader or dealer in securities;
- the acquisition of control of our 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 Canada Act; and
- the acquisition of control of our company by reason of an amalgamation,
  merger, consolidation or corporate reorganization following which the ultimate
  direct or indirect control in fact of our company, through ownership of our
  common stock, remains unchanged.

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|E. | Taxation
|-- | --------

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN
TO BE USED, AND CANNOT BE USED, FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT
MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO
ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

Material United States Federal Income Tax
Consequences

The following is a general discussion of material United States
federal income tax consequences that may apply to holders and prospective
holders of shares of our common stock. This discussion is based on the Internal
Revenue Code of 1986, as amended, (the Code), Treasury Department regulations
promulgated thereunder, published Internal Revenue Service (IRS) rulings and
administrative pronouncements and court decisions of current applicability, any
or all of which may materially and adversely change at any time, possibly on a
retroactive basis. In addition, this discussion does not consider the potential
effects, adverse or beneficial, of any proposed changes in the governing tax
law, whether by judicial, executive or legislative action, which, if effected,
may be applied, possibly on a retroactive basis. Further, no opinion was
requested by us, or has been provided by our counsel or independent registered
public accounting firm, with respect to the United States income tax
consequences described in the following discussion. Accordingly, we urge holders
and prospective holders of shares of our common stock to consult with, and rely
upon, their own tax advisors in analyzing the potential United States federal,
state, local and non-United States tax consequences associated with purchasing,
owning and disposing of shares of our common stock.

As used in this section the term "U.S. Holder" denotes the
beneficial owner of one or more shares of our common stock who is:

- an individual citizen or resident of the United States;
- a corporation, or entity taxable as a corporation, that is created or
  organized under the laws of the United States or of any political subdivision
  thereof or the District of Columbia;
- an estate whose income is taxable in the United States irrespective of
  source; or
- a trust if: (a) a court within the United States is able to exercise
  primary supervision over the administration of the trust; and (b) one or more
  United States persons have the authority to control all substantial decisions
  of the trust.

This discussion does not address the tax consequences peculiar
to, and the term U.S. Holder does not include, persons subject to special
provisions of United States federal income tax law, such as tax-exempt
organizations, qualified retirement plans, individual retirement accounts and
other tax-deferred accounts, financial institutions, insurance companies, real
estate investment trusts, regulated investment companies, dealers in securities,
persons or entities that have a functional currency other than the United States
dollar, shareholders subject to the alternative minimum tax, shareholders who
hold our common stock as part of a straddle, hedging or a conversion
transaction, constructive sale or other arrangement involving more than one
position, partners and other pass-through entities and persons holding an
interest in such entities, and shareholders who acquired our common stock
through the exercise of employee stock options or otherwise as compensation for
services. This discussion is limited to U.S. Holders who own shares of our
common stock as capital assets within the meaning of Section 1221 of the Code.
This discussion does not address the consequences peculiar to persons or
entities holding an interest in a shareholder or the consequences peculiar to a
person of the ownership, exercise or disposition of any options, warrants or
other rights to acquire shares of our common stock. If a partnership (including
an entity treated as a partnership for United States federal income tax
purposes) holds shares of our common stock, the tax treatment of a partner will
generally depend upon the status of the partner and upon the activities of the
partnership. If you are a partnership, or a partner in a partnership, holding
shares of our common stock, we urge you to consult with, and rely upon, your own
tax advisor in analyzing the potential United States federal, state, local and
non-United States tax consequences associated with purchasing, owning and
disposing of shares of our common stock.

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Dividends

Though we do not anticipate paying any cash dividends in the
foreseeable future, should U.S. Holders of shares of our common stock receive
dividend distributions:

| |  | to the extent such distributions are paid out of our
      current or accumulated earnings and profits, as determined for United
      States federal income tax purposes, subject to any applicable foreign tax
      credit, and without a reduction for any Canadian income tax withheld from
      such distributions, such holders would generally be required to include,
      in their gross income for United States federal income tax purposes, an
      amount equal to the United States Dollar value of such distributions on
      the date of receipt (based on the exchange rate on such date).       
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | to the extent such dividend distributions exceed our
      current or accumulated earnings and profits, as determined for United
      States federal income tax purposes, the amount of any distribution so
      received will: (a) first be applied to reduce a U.S. Holders adjusted
      basis in our common stock, and, as a return of basis, will not be subject
      to United States federal income tax; and (b) thereafter, any residual
      amount of such distribution will be treated as a gain from the sale or
      exchange of our common stock, which amount is taxable as a capital
      gain.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | Any taxable dividends received on shares of our common
      stock by a U.S. Holder who is an individual, a trust or an estate (an
      "Individual Holder") will be treated as qualified dividend income, which
      is subject to tax at preferential rates through December 31, 2010,
      provided that:                                                                                                                                                                                                                                                                                                        
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | o                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | o                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | o                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | o                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

Special rules may apply to any extraordinary dividenda
dividend equal to or in excess of 10% of a shareholders adjusted basis, or,
under certain circumstances, the fair market value, of a share of common
stockrequiring that such a distribution be treated as qualified dividend
income. Any loss from the sale or exchange of shares of our common stock with
respect to which an Individual Holder has received an extraordinary dividend
treated as qualified dividend income will be deemed a long-term capital loss to
the extent of such dividend. Taxable extraordinary dividends not treated as
qualified dividend income will be taxed as ordinary income, rather than as
capital gains.

Foreign Tax Credit

A U.S. Holder who pays, or has withheld from distributions,
Canadian income tax with respect to the ownership of shares of our common stock
may be entitled, at his election, to either a deduction or a tax credit for such
foreign tax paid or withheld. Furthermore, a U.S. Holder that is a domestic
corporation owning 10% or more of our voting stock may be eligible to claim a
deemed paid foreign tax credit based on any underlying non-United States income
taxes paid by us. The election to credit or deduct foreign taxes is made on a
yearly basis and applies to all foreign income taxes paid by, or withheld from,
the U.S. Holder during the year.

There are significant and complex limitations applicable to the
foreign tax credit and as such we urge you to consult with, and rely upon, your
own tax advisor regarding the availability of the foreign tax credit, the deemed
paid foreign tax credit available to certain corporations and the application of
limitations on the credit in light of your particular circumstances.

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Sale, Exchange or other Disposition of Common Stock

Generally, a U.S. Holder will recognize a taxable gain or loss
upon the sale, exchange or other disposition of shares of our common stock in an
amount equal to the difference between the amount realized by the U.S. Holder
from such sale, exchange or other disposition and the U.S. Holders tax basis in
such shares. Subject to certain qualifications and limitations, such gain or
loss will be treated as a long-term capital gain or loss if the U.S. Holder has
held the common stock for more than one year at the time of the sale, exchange
or other disposition. Preferential tax rates for long-term capital gains may
apply to certain U.S. Holders who satisfy this minimum holding period. There are
presently no preferential tax rates for long-term capital gains recognized by a
corporation.

Special Rules

Special United States federal income tax rules apply to
shareholders of passive foreign investment companies and controlled foreign
corporations. The preceding discussions do not address the United States federal
income tax consequences to a U.S. Holder in the event that we were treated as a
passive foreign investment company or controlled foreign corporation. While our
management does not believe that we are, or that we are likely to become, a
passive foreign investment company or a controlled foreign corporation, the
circumstances which would result in our becoming such are not entirely within
our control and as such there always exists the possibility, however remote,
that we may become a passive foreign investment company or controlled foreign
corporation in the future.

Passive Foreign Investment Company

The status of being a passive foreign investment corporation (a
PFIC) depends upon the composition of a companys income and assets and the
market value of its assets and shares from time to time. There is no assurance
that we will be considered, or not be considered a PFIC for any taxable year. If
we were treated as a PFIC for any taxable year during which a U.S. Holder held
shares, certain adverse tax consequences could apply to the U.S. Holder.

If we are treated as a PFIC for any taxable year, gains
recognized by such U.S. Holder on a sale or other disposition of shares would be
allocated ratably over the U.S. Holders holding period for the shares. The
amount allocated to the taxable year of the sale or other exchange and to any
year before we became a PFIC would be taxed as ordinary income. The amount
allocated to each other taxable year would be subject to tax at the highest rate
in effect for individuals or corporations, as applicable, and an interest charge
would be imposed on the amount allocated to such taxable year. Further, any
distribution in respect of shares in excess of 125% of the average of the annual
distributions on shares received by the U.S. Holder during the preceding three
years or the U.S. Holders holding period, whichever is shorter, would be
subject to taxation as described above. Certain elections may be available to
U.S. Holders that may mitigate some of the adverse consequences resulting from
PFIC status. However, regardless of whether such elections are made, dividends
paid by a PFIC will not be "qualified dividend income" and will generally be
taxed at the higher rates applicable to other items of ordinary income.

U.S. Holders and prospective holders should consult their
own tax advisors regarding the potential application of the PFIC rules to their
ownership of our common stock.

Controlled Foreign Corporation

A controlled foreign corporation is a foreign corporation of
which more than 50% of the stock, by vote or value, is owned, directly,
indirectly or constructively, by U.S. Holders each of whom, directly, indirectly
or constructively, owns 10% or more of the total combined voting power of all
classes of stock of the foreign corporation (each a "CFC Shareholder"). If we
are a controlled foreign corporation, a CFC Shareholder would be treated as
receiving current distributions of an allocable share of certain types of our
income at the end of each year. Additionally, such a CFC Shareholder would
recognize ordinary income to the extent of an allocable share of our earnings
and profits, rather than capital gain, on the sale of his common stock. Our
management does not believe that we are a controlled foreign corporation,
because U.S. Holders who directly, indirectly or constructively own 10% or more
of the total voting power of our outstanding common stock do not own more than
50% of shares of our common stock.

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United States Federal Income Taxation of Non-U.S.
Holders

For purposes of this discussion, a beneficial owner of our
common stock that is not a U.S. Holder (other than a partnership or entity
treated as a partnership for United States federal income tax purposes) is a
"Non-U.S. Holder". If you are a partnership, or a partner in a partnership,
holding shares of our common stock, we urge you to consult with, and rely upon,
your own tax advisor in analyzing the potential United States federal, state,
local and non-United States tax consequences associated with purchasing, owning
and disposing of shares of our common stock.

Distributions on our Common Stock

Any distributions we pay to a Non-U.S. Holder will not be
subject to United States federal income tax or withholding tax if the Non-U.S.
Holder is not engaged in a United States trade or business. If the Non-U.S.
Holder is engaged in a United States trade or business, any distributions we pay
will be subject to United States federal income tax at regular graduated rates
if: (a) those distributions are treated as dividends or capital gains (as
previously described with respect to U.S. Holders); (b) are effectively
connected with the Non-U.S. Holders United States trade or business; and (c) if
an income tax treaty applies, are attributable to a permanent establishment
maintained by the Non-U.S. Holder in the United States. In addition, a branch
profits tax may be imposed at a 30% rate, or at such lower rate under an
applicable income tax treaty, on the effectively connected earnings of a
Non-U.S. Holder that is a corporation.

Sale, Exchange or other Disposition of Common Stock

Non-U.S. Holders generally will not be subject to United States
federal income tax on any gain recognized on the disposition of shares of our
common stock unless the gain is effectively connected with the Non-U.S. Holders
conduct of a trade or business in the United States and, if an income tax treaty
applies, is attributable to a permanent establishment maintained by the Non-U.S.
Holder in the United States. If the Non-U.S. Holder is engaged in a United
States trade or business and a gain recognized on the disposition of shares of
our common stock is effectively connected with that trade or business, and, if a
tax treaty applies, is attributable to a permanent establishment maintained by
such Non-U.S. Holder in the United States, such gain will be subject to United
States federal income tax at regular graduated rates and, if the Non-U.S. Holder
is a corporation, a branch profits tax may be imposed at a 30% rate, or at such
lower rate established under an applicable income tax treaty. A Non-U.S. Holder
who is: (i) an individual; (ii) present in the United States for 183 days or
more in a taxable year; and (iii) who meets certain other requirements will also
be subject to United States federal income tax on capital gains recognized
during such year, including such gains realized from a disposition of our stock.

Information Reporting and Backup Withholding Tax

Generally, dividend payments or other taxable distributions
made within the United States will be subject to information reporting
requirements and a United States backup withholding tax if a U.S Holder fails to
provide an accurate taxpayer identification number certified under penalties of
perjury, as well as certain other information, or otherwise establish an
exemption from backup withholding.

Non-U.S. Holders may be required to establish their exemption
from information reporting and backup withholding by certifying their status on
an IRS Form W-8BEN, W-8ECI or W-8IMY as applicable.

If a Non-U.S. Holder sells shares to or through the United
States office of a United States or foreign broker, the payment of proceeds
generally will be subject to information reporting requirements and a backup
withholding tax unless the Non-U.S. Holder properly certifies its non-United
States status under penalties of perjury or otherwise establishes an exemption
and the payer or broker does not have actual knowledge or reason to know that
the holder is a United States person. Information reporting requirements and
backup withholding taxes generally will not apply to the payment of proceeds of
the sale of common shares effected outside the United States by a foreign office
of a broker. Information reporting requirements (but not backup tax withholding
requirements) will apply, however, to the payment of the sale proceeds if the
broker is a United States person or has certain other contacts with the United
States.

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Backup withholding is not an additional tax. Rather, a holder
generally may obtain a refund of any amounts withheld under the backup
withholding rules that exceed such holders United States federal income tax
liability by timely filing a properly completed claim for refund with the IRS.

Material Canadian Federal Income Tax Consequences

The following summary is a general discussion of material
Canadian federal income tax consequences that may apply to holders and
prospective holders of shares of our common stock that are non-residents of
Canada (Non-Canadian Holders). This discussion is based on the Income Tax Act
(Canada), the regulations promulgated thereunder, all amendments thereto
publicly proposed by or on behalf of the Minster of Finance (Canada) prior to
the date hereof, the published administrative practices of the Canada Revenue
Agency and on the current provisions Canada-United States Income Tax Convention
(1980), as amended (the Canada-US Treaty), any or all of which may materially
and adversely change at any time, possibly on a retroactive basis. In addition,
this discussion does not consider the potential effects, adverse or beneficial,
of any proposed changes in the governing tax law, whether by judicial, executive
or legislative action, which, if effected, may be applied, possibly on a
retroactive basis. No opinion was requested by us, or has been provided by our
counsel or independent registered public accounting firm, with respect to the
Canadian income tax consequences described in the following discussion.
Accordingly, we urge holders and prospective holders of shares of our common
stock to consult with, and rely upon, their own tax advisors in analyzing the
potential Canadian federal, provincial, local and non-Canadian tax consequences
associated with purchasing, owning and disposing of shares of our common
stock.

As used in this section the term "Non-Canadian Holder" denoted
the beneficial owner of one or more shares of our common stock who is:

- a non-resident of Canada;
- holds our common shares as capital property;
- deals with us at arms length; and
- does not use or hold our common shares in or in the course of carrying on
  business in Canada.

Dividends

Though we do not anticipate paying any cash dividends in the
foreseeable future, should a Non-Canadian Holder of shares of our common stock
receive dividend distributions, such holder will be subject to a Canadian
withholding tax equal to 25%, subject to such lower rate as may be available
under an applicable tax treaty, of the gross amount of any distributions paid or
deemed to be paid.

In accordance with the Canada-US Treaty the rate of withholding
tax applicable to distributions paid to a Non-Canadian Holder who is a resident
of the United States is:

- to the extent such holder beneficially owns at least 10% of our voting
  stock, 5% of the gross amount of such distribution paid; or
- to the extent such holder beneficially owns less than 10% of our voting
  stock, 15% of the gross amount of such distribution paid.

We are required to withhold the applicable amount from each
distribution paid and remit the withheld amount directly to the Receiver General
for Canada for the account of the Non-Canadian Holder.

In accordance with the Canada-US Treaty, certain tax-exempt
entities residing in the United States may be exempt from Canadian withholding
taxes, including any withholding taxes levied in respect of dividends received
on our common shares.

---

- 52 -

Sale, Exchange or other Disposition of Common Shares

A Non-Canadian Holder who disposes of shares of our common
stock, including by deemed disposition upon death, will not be subject to
Canadian federal income tax on any capital gain (or capital loss) thereby
realized unless the common shares constitute "taxable Canadian property" as
defined by the Income Tax Act (Canada) and no relief is afforded under any
applicable tax treaty. Generally, our common shares will not constitute taxable
Canadian property of a Non-Canadian Holder unless: (a) the common shares are
held as capital property used in carrying on a business (other than an insurance
business) in Canada; or (b) the Non-Canadian Holder or persons with whom the
Non-Canadian Holder did not deal at arms-length alone or together held or held
options to acquire, at any time within the five years preceding the disposition,
25% or more of the shares of any class of our capital stock.

A Non-Canadian Holder who is resident of the United States and
realizes a capital gain on disposition of common shares that are taxable
Canadian property will nevertheless, by virtue of the Canada-US Treaty,
generally be exempt from Canadian tax thereon unless: (a) more than 50% of the
value of the common shares are derived from, or forms an interest in, Canadian
real estate, including Canadian mineral resource properties, (b) the common
shares formed part of the business property of a permanent establishment that
the Non-Canadian Holder has or had in Canada within the twelve months preceding
disposition, or (c) the Non-Canadian: (i) was a resident of Canada at any time
within the ten years immediately preceding the disposition and for a total of
120 months during the twenty years, preceding the disposition, and (ii) owned
the common share when he ceased to be a resident of Canada.

A Non-Canadian Holder who is subject to Canadian tax in respect
of a capital gain on disposition of common shares must include one-half of the
capital gain in computing his taxable income earned in Canada. The Non-Canadian
Holder may, subject to certain limitations, deduct one half of any capital loss
arising on disposition of taxable Canadian property from taxable capital gains
realized in the year of disposition in respect of taxable Canadian property and,
to the extent not so deductible, from such taxable capital gains of any of the
three preceding years or any subsequent year.

A Non-Canadian Holder whose common shares constitute taxable
Canadian property and who is a resident of the United States and entitled to
benefits under the Canada-US Treaty generally would be exempt from Canadian tax
on any capital gain realized on a disposition of those shares in any event,
provided such shares do not derive their value principally from Canadian real
property (including Canadian resource properties). Our management is of the view
that our common shares do not derive their value principally from Canadian real
property. A Non-Canadian Holder claiming exemption under the Treaty will,
however, have Canadian tax filing obligations with respect to a disposition of
common shares.

|F. | Dividends and Paying Agents
|-- | ---------------------------

Not applicable.

|G. | Statements by Experts
|-- | ---------------------

Not applicable.

|H. | Documents on Display
|-- | --------------------

Documents and agreements concerning our company referred to in
this annual report may be viewed by appointment during normal business hours at
our registered and records office at Suite 3700, 400 3rd Ave SW,
Calgary, Alberta T2P 4H2.

|I. | Subsidiary Information
|-- | ----------------------

As of the date of this annual report, we have the following
direct and indirectly owned subsidiaries incorporated in the United States:

---

- 53 -

Subsidiary
    Incorporation /
      Acquisition Date
    Ownership
      PercentageMegaWest Energy
      (USA) Corp.
    January 9, 2007
    100%MegaWest Energy Kentucky Corp. (formerly Kentucky
      Reserves, LLC)
    April 2, 2007
    100%MegaWest Energy Missouri Corp. (formerly Deerfield Energy
      LLC)
    April 5, 2007
    100%MegaWest Energy Kansas Corp. (formerly Deerfield Energy
      Kansas Corp.)
    April 5, 2007
    100%MegaWest Energy Texas Corp. (formerly Trinity Sands Energy
      LLC)
    April 25, 2007
    100%MegaWest Energy Montana Corp.
    October 19, 2007
    100%


|ITEM 11. | Quantitative and Qualitative Disclosures
      About Market Risk
|-------- | ----------------------------------------------------------------

Not applicable.

|ITEM 12. | Description of Securities Other Than Equity
      Securities
|-------- | ------------------------------------------------------------

Not applicable.

PART II

|ITEM 13. | Defaults, Dividend Arrearages and
      Delinquencies
|-------- | -----------------------------------------------------

Not applicable.

|ITEM 14. | Material Modifications to the Rights of
      Security Holders and Use of Proceeds
|-------- | ----------------------------------------------------------------------------------

Not applicable.

|ITEM 15. | Controls and Procedures
|-------- | -----------------------

As required by Rule 13a-15 under the Securities Exchange Act
of 1934, as of the end of the period covered by this annual report, being
April 30, 2008, we have carried out an evaluation of the effectiveness of the
design and operation of our company's disclosure controls and procedures. This
evaluation was carried out under the supervision and with the participation of
our company's management, including our Chief Executive Officer and our Chief
Financial Officer. Based upon that evaluation, our Chief Executive Officer and
our Chief Financial Officer concluded that our disclosure controls and
procedures are not effective as of April 30, 2008, due to the material
weaknesses identified in our companys internal controls over financial
reporting below. There have been no significant changes in our internal controls
over financial reporting that occurred during our most recent fiscal quarter
that have materially affected, or are reasonably likely to materially affect our
internal controls over financial reporting.

Disclosure controls and procedures are controls and other
procedures that are designed to ensure that information required to be disclosed
in our reports filed or submitted under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported, within the time period
specified in the SEC's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in our reports filed under the
Securities Exchange Act of 1934 is accumulated and communicated to
management including our Chief Executive Officer and Chief Financial Officer as
appropriate, to allow timely decisions regarding required disclosure.

---

- 54 -

Management Report on Internal Control Over Financial
Reporting

Our companys management is responsible for establishing and
maintaining adequate internal control over financial reporting as required under
applicable securities regulatory requirements.

Our company maintains a set of internal controls over financial
reporting which have been designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
in accordance with Canadian and U.S. GAAP.

Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. A system of
internal controls can provide only reasonable, not absolute, assurance that the
objectives of the control system are met, no matter how well conceived or
operated.

Our management assessed the effectiveness of our companys
internal control over financial reporting as of April 30, 2008. In making this
assessment, our management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control
Integrated Framework. Based on the evaluation under this framework, our
management has concluded that, as of April 30, 2008, our companys internal
control over financial reporting was not effective as a result of two material
weaknesses described below:

- our company did not have the appropriate level of U.S. GAAP expertise
  involved in the preparation of our reconciliation to U.S. GAAP. This control
  deficiency did not result in adjustments to the current year financial
  statements. This control deficiency resulted in a reasonable possibility that
  a material misstatement of the reconciliation to U.S. GAAP will not be
  prevented or detected on a timely basis; and
- our companys control environment did not sufficiently promote effective
  internal control over financial reporting throughout the organization.
  Specifically, we did not effectively educate or communicate to all employees
  about a code of conduct or whistle blowing procedures. This control
  deficiency, which could affect all financial statement balances and
  disclosures, did not result in adjustments to the financial statements;
  however, there is a reasonable possibility that this deficiency could
  contribute to a material misstatement of the financial statements not being
  prevented or detected on a timely basis.

Our management has reviewed the results of its assessment with
our audit committee and our auditors, KPMG LLP, the independent registered
public accounting firm that audited our consolidated financial statements has
issued an auditors report dated August 28, 2008 on the effectiveness of our
companys internal controls over financial reporting as at April 30, 2008. Their
report is included in Item 18 below.

Changes to Internal Controls and Procedures for Financial
Reporting

We are taking steps to remediate the material weaknesses, but
will not be able to assert that we have remediated the material weaknesses until
the remedial controls have been fully implemented and management has tested the
remediated controls. Our managements remediation plan includes having the
appropriate personnel complete U.S. GAAP education and training and will
consider the need to engage third party advisors in its U.S. GAAP reconciliation
process. In addition, management is in the process of obtaining board approval
to the adoption of a formal code of conduct and a while blower policy, and once
obtained, will communicate these to our employees.

Subsequent to the fiscal year ended April 30, 2008, our company
implemented a new accounting system. As a result of this change, the potential
for control weaknesses has increased. Senior management of our company will
continue to monitor the effectiveness of our internal controls over financial
reporting during the implementation of the system.

|ITEM 16.  | Reserved                        
|--------- | --------------------------------
|          |                                 
|ITEM 16A. | Audit Committee Financial Expert

Our board has determined that we have one member of our audit
committee that qualifies as an "audit committee financial expert" as defined in
Item 401(e) of Regulation S-B. We believe that the members of our board of

---

- 55 -

directors, who are the same members of our audit committee, are
collectively capable of analyzing and evaluating our financial statements and
understanding internal controls and procedures for financial reporting.

Our board of directors has determined that Brad Kitchen and
Brian Evans qualify as "independent" members of our audit committee as that term
is defined in Rule 4350(d) of the Marketplace Rules of the National Association
of Securities Dealers (NASD). The remaining member of our audit committee is not
"independent" as defined in Rule 4350(d) of the Marketplace Rules of the NASD.
We believe that having an audit committee that consists entirely of independent
directors is not warranted in our circumstances given the early stages of our
development and the fact that we have not generated revenues to date.

|ITEM 16B. | Code of Ethics
|--------- | --------------

We have not formally adopted a written code of ethics that
meets the new United States' Sarbanes-Oxley standards. Our board has approved a
formal code of conduct that will be adopted by our company during our next
fiscal year.

To date, we have not seen any need to adopt a written code of
ethics on the basis that our corporate culture effectively deters wrongdoing and
promotes honest and ethical conduct, full, fair and accurate, timely, and
understandable disclosure in reports and documents, the compliance with
applicable governmental laws, rules and regulations, the prompt internal
reporting.

|ITEM 16C. | Principal Accountant Fees and Services
|--------- | --------------------------------------

Our board of directors appointed KPMG LLP as our principal
accountant to audit our financial statements for the fiscal year ended April 30,
2008.

Audit Fees

The aggregate fees billed by KPMG LLP for professional services
rendered for the audit of our annual financial statements for the year ended
April 30, 2008 were $80,000 (2007 - $90,310).

Audit Related Fees

The aggregate fees billed for assurance and related services by
KPMG LLP relating to the performance of interim reviews of our financial
statements and involvement in prospectus/registration documents, for the year
ended April 30, 2008 which are not reported under the heading "Audit Fees"
above, were $71,828 (2007 - $nil).

Tax Fees

For the year ended April 30, 2008, the aggregate fees billed
for tax compliance, tax advice and tax planning by KPMG LLP was $2,000 (2007 -
$nil).

All Other Fees

For the fiscal years ended April 30, 2008 and 2007, the
aggregate fees billed by KPMG LLP for products and services, other than the
services set out above, were $nil, respectively.

Audit Committee Pre-Approved Procedures

Our audit committee pre-approves all services provided by our
principal accountant. All of the services and fees described under the headings
"Audit Fees", "Audit Related Fees", "Tax Fees" and "All Other Fees" above were
reviewed and approved by the audit committee before the respective services were
rendered and none of such services were approved by the audit committee pursuant
to paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X.

---

- 56 -

|ITEM 16D. | Exemption from the Listing Standards for
      Audit Committees
|--------- | ---------------------------------------------------------------

Not Applicable.

|ITEM 16E. | Purchases of Equity Securities by our
      Company and Affiliated Purchasers
|--------- | -----------------------------------------------------------------------------

Not Applicable.

PART III

|ITEM 17. | Financial Statements
|-------- | --------------------

Refer to "Item 18  Financial Statements" below.

|ITEM 18. | Financial Statements
|-------- | --------------------

Financial Statements Filed as Part of this Annual
Report

Consolidated Financial Statements of MegaWest Energy
Corp.

|- | Report of Independent Registered Public Accounting Firm,
      KPMG LLP, on the effectiveness of internal controls over financial
      reporting as of April 30, 2008                      
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|- | Report of Independent Registered Public Accounting Firm,
      KPMG LLP, dated August 28, 2008, on the Consolidated Financial Statements
      of our company as at April 30, 2008 and 2007.
|- | Auditors' Report, Morgan & Company, Chartered
      Accountants, dated August 25, 2006, on the Financial Statements of our
      company as at April 30, 2006 and 2005.                     
|- | Consolidated Balance Sheets at April 30, 2008 and 2007                                                                                                                                      
|- | Consolidated Statements of Operations, Deficit and
      Comprehensive Loss for the years ended April 30, 2008, 2007 and 2006                                                               
|- | Consolidated Statements of Cash Flows for the years ended
      April 30, 2008, 2007 and 2006                                                                                               
|- | Notes to Consolidated Financial Statements April 30, 2008                                                                                                                                   

Reconciliation to U.S. GAAP

|- | Auditors Report dated August 28, 2008, together with
      Comments by Auditor for U.S. Readers in Canada  U.S. Reporting Difference
|- | --------------------------------------------------------------------------------------------------------------------------------------

---

- 57 -

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM

To the Board of Directors of MegaWest Energy Corp.

We have audited MegaWest Energy Corp.'s internal control over
financial reporting as of April 30, 2008 based on the criteria established in
Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Managements Report on Internal Control
over Financial Reporting. Our responsibility is to express an opinion the
Company's internal control over financial reporting 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 the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in
all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also included performing
such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.

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

Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of the companys annual or
interim financial statements will not be prevented or detected on a timely
basis. The following material weaknesses have been identified and included in
managements assessment:

- lack of sufficient staff with an appropriate level of U.S. GAAP expertise;
  and
- control environment did not sufficiently promote effective internal control
  over financial reporting throughout the organization.

We also have audited, in accordance with the standards of the
  Public Company Accounting Oversight Board (United States), the consolidated
  financial statements of the Company as at and for the year ended April 30, 2008.
  These material weaknesses were considered in determining the nature, timing,
  and extent of audit tests applied in our audit of the 2008 consolidated financial
  statements and this report does not affect our report dated August 28, 2008,
  which expressed an unqualified opinion on those consolidated financial statements.

---

- 58 -

In our opinion, because of the effect of the aforementioned
material weaknesses on the achievement of the objectives of the control
criteria, the Company has not maintained effective internal control over
financial reporting as of April 30, 2008, based on criteria established in
Internal ControlIntegrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.

KPMG LLP

Chartered Accountants

Calgary, Canada August 28, 2008

---

- 59 -



an Exploration Stage Company

Consolidated Financial Statements

April 30, 2008 and 2007

---

- 60 -

REPORT OF MANAGEMENT

To the Shareholders ofMegaWest Energy Corp.

The preparation and presentation of the consolidated financial
statements and Managements Discussion and Analysis (MD&A) are the
responsibility of management and have been approved by the Board of
Directors.

The consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles (GAAP).
Financial statements, by nature, are not precise since they include certain
amounts based upon estimates and judgments. When alternative methods exist,
management has chosen those it deems to be the most appropriate in the
circumstances.

Management, under the supervision of and the participation of
the Chief Executive Officer and the Chief Financial Officer, have a process in
place to evaluate disclosure controls and procedures and internal control over
financial reporting as required by Canadian and U.S. securities regulations. We,
as CEO and CFO, will certify our annual filings with the Canadian Securities
Administrators and the U.S. Securities and Exchange Commission (SEC) as required
in Canada by Multilateral Instrument 52-109 and in the United States as required
by the Securities Exchange Act of 1934.

The Board of Directors is responsible for ensuring that
management fulfills its responsibilities for financial reporting and is
ultimately responsible for reviewing and approving the consolidated financial
statements. The Board carries out its responsibility principally through its
Audit Committee.

The Audit Committee is appointed by the Board of Directors and
consists of a majority of independent, non-management directors. The Audit
Committee meets at least four times a year with management and meets
independently with the external auditors and as a group to review any
significant accounting, internal control and auditing matters in accordance with
the terms of the Audit Committee charter. The Audit Committee reviews the
consolidated financial statements before they are submitted to the Board of
Directors for approval. The external auditors have free access to the Audit
Committee without obtaining prior management approval.

Management is responsible for establishing and maintaining
adequate internal control over financial reporting.

Management has assessed the effectiveness of its internal
control over financial reporting as of April 30, 2008 based on the framework in
Internal Control-Integrated Framework issued by the Committee on Sponsoring
Organizations of the Treadway Commission. Based on their evaluation, management
concluded that as of April 30, 2008, the Company did not maintain effective
internal control over financial reporting due to material weaknesses described
in its MD&A dated August 28, 2008.

KPMG LLP, our auditors, has audited managements assessment of
the effectiveness of our internal control over financial reporting as of April
30, 2008, as stated in their report which appears in our Annual Report on Form
20-F, filed with the SEC.

|/s/ George T.
      Stapleton, II |  | /s/ F.
      George Orr
|--------------------------------- |  | -----------------------
|George T. Stapleton, II           |  | F. George Orr          
|Chief Executive Officer           |  | Chief Financial Officer

August 28, 2008

---

- 61 -

AUDITORS REPORT

To the Board of Directors ofMegaWest Energy Corp.

We have audited the accompanying consolidated balance sheets of
MegaWest Energy Corp. as of April 30, 2008 and 2007 and the consolidated
statements of operations and deficit, comprehensive loss and accumulated other
comprehensive loss and cash flows for the years ended April 30, 2008 and 2007.
These financial statements are the responsibility of the company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with Canadian generally
accepted auditing standards and in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance 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, these consolidated financial statements present
  fairly, in all material respects, the financial position of the company as of
  April 30, 2008 and 2007 and the result of its operations and cash flows for
  the years ended April 30, 2008 and 2007 in accordance with Canadian generally
  accepted accounting principles.

We also have audited, in accordance with the standards of the
  Public Company Accounting Oversight Board (United States), the Company’s
  internal control over financial reporting as of April 30, 2008, based on the
  criteria established in Internal Control-Integrated Framework issued by the
  Committee of Sponsoring Organizations of the Treadway Commission (COSO), and
  our report dated August 28, 2008 expressed an adverse opinion on the effectiveness
  of the Company’s internal control over financial reporting.

The financial statements for the year ended April 30, 2006 were
audited by another auditor who expressed an opinion without reservation on those
statements in their report dated August 25, 2006.

/s/ KPMG LLP KPMG LLP Calgary, Canada August 28,
2008

---

| | - 62 - | 
| | ------ | 

AUDITORS REPORT

To the Shareholders, Brockton Capital Corp.(A
Development Stage Company)

We have audited the balance sheets of Brockton Capital Corp. (A
Development Stage Company) as at April 30, 2006 and 2005 and the statements of
operations and cash flows for each of the years in the three year period ended
April 30, 2006 and for the period February 8, 2000 (Date of Incorporation) to
April 30, 2006 and the statement of shareholders equity (deficiency) for the
period February 8, 2000 (Date of Incorporation) to April 30, 2006. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with Canadian generally
accepted auditing standards and 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.

In our opinion, these financial statements present fairly, in
all material respects, the financial position of the Company as at April 30,
2006 and 2005 and the results of its operations and its cash flows for each of
the years in the three year period ended April 30, 2006 and for the period
February 8, 2000 (Date of Incorporation) to April 30, 2006, in accordance with
Canadian generally accepted accounting principles.

|Vancouver, Canada | /s/ Morgan & Company 
|----------------- | ---------------------
|August 25, 2006   | Chartered Accountants

---

- 63 -

|MegaWest Energy Corp (an exploration stage company)
|---------------------------------------------------
|Consolidated Balance Sheets                        
|April 30                                           

|(in Canadian
      dollars)                                   |   | 2008        |   |   | 2007        |  
|------------------------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                                              |   |             |   |   |             |  
|Assets                                                        |   |             |   |   |             |  
|Current assets                                                |   |             |   |   |             |  
|Cash and
      cash equivalents                               | $ | 5,617,892   |   | $ | 29,670,201  |  
|Accounts receivable and prepaid expenses                      |   | 397,958     |   |   | 125,590     |  
|                                                              |   | 6,015,850   |   |   | 29,795,791  |  
|                                                              |   |             |   |   |             |  
|Oil and gas assets (note 3)                                   |   | 42,236,315  |   |   | 20,756,355  |  
|Administrative assets (note 5)                                |   | 303,157     |   |   | 128,741     |  
|Marketable securities (note 6)                                |   | -           |   |   | 1,851,960   |  
|                                                              |   |             |   |   |             |  
|                                                              | $ | 48,555,322  |   | $ | 52,532,847  |  
|                                                              |   |             |   |   |             |  
|Liabilities and Shareholders' Equity                          |   |             |   |   |             |  
|Current liabilities                                           |   |             |   |   |             |  
|Accounts
      payable and accrued liabilities                | $ | 1,687,775   |   | $ | 1,301,640   |  
|Convertible promissory notes (note 7)                         |   | 1,828,779   |   |   | 1,867,387   |  
|Exchange shares (note 8)                                      |   | -           |   |   | 1,061,055   |  
|Asset
      retirement obligations (note 9)                   |   | 295,009     |   |   | 154,244     |  
|                                                              |   | 3,811,563   |   |   | 4,384,326   |  
|                                                              |   |             |   |   |             |  
|Shareholders' Equity                                          |   |             |   |   |             |  
|Share capital (note 10)                                       |   | 63,849,504  |   |   | 41,168,088  |  
|Warrants (note 11)                                            |   | 19,935,537  |   |   | 14,702,031  |  
|Contributed surplus (note 12)                                 |   | 3,154,744   |   |   | 2,365,598   |  
|Equity portion of convertible
      promissory notes (note 7) |   | 120,566     |   |   | 120,566     |  
|Equity portion of exchange shares (note 8)                    |   | -           |   |   | 8,599,442   |  
|Accumulated deficit from prior
      operations               |   | (562,633    | ) |   | (562,633    | )
|Accumulated deficit from exploration stage                    |   | (41,753,959 | ) |   | (18,244,571 | )
|                                                              |   | 44,743,759  |   |   | 48,148,521  |  
|Future operations (note 1)                                    |   |             |   |   |             |  
|Commitments (note 20)                                         |   |             |   |   |             |  
|Subsequent events (notes 3, 7, 10, 11, 13 and 20)             |   |             |   |   |             |  
|                                                              | $ | 48,555,322  |   | $ | 52,532,847  |  

See accompanying notes to consolidated financial
statements.

Approved by the Board:

|/s/ George T.
      Stapleton, II |  | /s/
      Brad Kitchen
|--------------------------------- |  | ----------------------
|George T. Stapleton II, Director  |  | Brad Kitchen, Director

---

- 64 -

|MegaWest Energy Corp (an exploration stage company)
|---------------------------------------------------
|Consolidated Statements of Operations and Deficit  

|                                                   |   |                      |   |   |             |   |   |           |   |   | From            |  
|-------------------------------------------------- | - | -------------------- | - | - | ----------- | - | - | --------- | - | - | --------------- | -
|                                                   |   | Years ended April 30 |   |   | Exploration |  
|                                                   |   |                      |   |   |             |   |   |           |   |   | Stage Inception |  
|                                                   |   |                      |   |   |             |   |   |           |   |   | on November 1,  |  
|                                                   |   |                      |   |   |             |   |   |           |   |   | 2006 through    |  
|(in Canadian
      dollars)                        |   | 2008                 |   |   | 2007        |   |   | 2006      |   |   | April 30, 2008  |  
|                                                   |   |                      |   |   |             |   |   |           |   |   |                 |  
|Interest income                                    | $ | 712,763              |   | $ | 263,125     |   | $ | -         |   | $ | 975,886         |  
|                                                   |   |                      |   |   |             |   |   |           |   |   |                 |  
|Expenses                                           |   |                      |   |   |             |   |   |           |   |   |                 |  
|General and administrative (note 14)               |   | 5,973,395            |   |   | 5,523,694   |   |   | 104,601   |   |   | 11,439,968      |  
|Impairment of oil and gas
      assets (note 3(d)) |   | 5,891,223            |   |   | -           |   |   | -         |   |   | 5,891,223       |  
|Foreign exchange loss                              |   | 1,935,473            |   |   | 1,548,840   |   |   | -         |   |   | 3,484,313       |  
|Financing costs (note 11
      (iii))              |   | 2,466,000            |   |   | -           |   |   | -         |   |   | 2,466,000       |  
|Marketable securities write-down (note 6)          |   | 2,094,000            |   |   | -           |   |   | -         |   |   | 2,094,000       |  
|Accretion on promissory notes                      |   | 175,743              |   |   | 71,270      |   |   | -         |   |   | 247,013         |  
|Depreciation and accretion                         |   | 79,952               |   |   | 12,373      |   |   | 118,344   |   |   | 92,325          |  
|                                                   |   | 18,615,786           |   |   | 7,156,177   |   |   | 222,945   |   |   | 25,714,842      |  
|                                                   |   |                      |   |   |             |   |   |           |   |   |                 |  
|Net loss                                           |   | (17,903,023          | ) |   | (6,893,052  | ) |   | (222,945  | ) |   | (24,738,956     | )
|                                                   |   |                      |   |   |             |   |   |           |   |   |                 |  
|Accumulated deficit, beginning of period           |   | (18,807,204          | ) |   | (505,514    | ) |   | (282,569  | ) |   | -               |  
|Deficit adjustment on related party                |   |                      |   |   |             |   |   |           |   |   |                 |  
|acquisitions (note 4)                              |   | (5,848,405           | ) |   | (11,408,638 | ) |   | -         |   |   | (17,257,043     | )
|Adoption of new accounting standard (note          |   |                      |   |   |             |   |   |           |   |   |                 |  
|2)                                                 |   | 242,040              |   |   | -           |   |   | -         |   |   | 242,040         |  
|                                                   |   |                      |   |   |             |   |   |           |   |   |                 |  
|Accumulated deficit, end of period                 | $ | (42,316,592          | ) | $ | (18,807,204 | ) | $ | (505,414  | ) | $ | (41,753,959     | )
|                                                   |   |                      |   |   |             |   |   |           |   |   |                 |  
|Net loss per share                                 |   |                      |   |   |             |   |   |           |   |   |                 |  
|Basic
      and diluted (note 16)                  | $ | (0.23                | ) | $ | (0.31       | ) | $ | (0.04     | ) |   |                 |  
|                                                   |   |                      |   |   |             |   |   |           |   |   |                 |  
|Weighted average shares outstanding                |   |                      |   |   |             |   |   |           |   |   |                 |  
|Basic and diluted                                  |   | 79,413,793           |   |   | 22,102,129  |   |   | 6,337,500 |   |   |                 |  

See accompanying notes to consolidated financial
statements.

---

- 65 -

|MegaWest Energy Corp (an exploration stage company)                                         
|--------------------------------------------------------------------------------------------
|Consolidated Statements of Comprehensive Loss and
      Accumulated Other Comprehensive Loss

|                                 |   | Year ended April 30 , 2008 |  
|-------------------------------- | - | -------------------------- | -
|(in Canadian
      dollars)      |   |                            |  
|                                 |   |                            |  
|Net loss                         | $ | (17,903,023                | )
|                                 |   |                            |  
|Other comprehensive income       |   |                            |  
|(loss):                          |   | -                          |  
|                                 |   |                            |  
|                                 |   |                            |  
|Comprehensive loss               | $ | (17,903,023                | )
|                                 |   |                            |  
|Accumulated other                |   |                            |  
|comprehensive loss,              |   |                            |  
|beginning of year                | $ | -                          |  
|Adoption of new accounting       |   |                            |  
|standard (note 2)                |   | 242,040                    |  
|Marketable securities write-down |   |                            |  
|(note 6)                         |   | (242,040                   | )
|                                 |   |                            |  
|                                 |   |                            |  
|Accumulated other                |   |                            |  
|comprehensive loss, end
      of |   |                            |  
|year                             | $ | -                          |  

See accompanying notes to consolidated financial
statements.

---

- 66 -

|MegaWest Energy Corp (an exploration stage company)
|---------------------------------------------------
|Consolidated Statements of Cash Flows              

|                                            |   |                      |   |   |                  |   |   |          |   |   | From Exploration   |  
|------------------------------------------- | - | -------------------- | - | - | ---------------- | - | - | -------- | - | - | ------------------ | -
|                                            |   |                      |   |   |                  |   |   |          |   |   | Stage Inception on |  
|                                            |   | Years ended April 30 |   |   | November 1, 2006 |  
|                                            |   |                      |   |   |                  |   |   |          |   |   | through April 30,  |  
|(in Canadian
      dollars)                 |   | 2008                 |   |   | 2007             |   |   | 2006     |   |   | 2008               |  
|                                            |   |                      |   |   |                  |   |   |          |   |   |                    |  
|Operating activities                        |   |                      |   |   |                  |   |   |          |   |   |                    |  
|Net loss                                    | $ | (17,903,023          | ) | $ | (6,893,052       | ) | $ | (222,945 | ) | $ | (24,739,317        | )
|Items not involving cash                    |   |                      |   |   |                  |   |   |          |   |   |                    |  
|Impairment of oil and gas
      assets      |   | 5,891,223            |   |   | -                |   |   | -        |   |   | 5,891,223          |  
|Stock-based compensation                    |   | 1,905,880            |   |   | 3,899,148        |   |   | -        |   |   | 5,805,028          |  
|Foreign exchange                            |   | 1,875,923            |   |   | 1,606,317        |   |   | -        |   |   | 3,482,240          |  
|Accretion
      on promissory notes         |   | 175,743              |   |   | 71,270           |   |   | -        |   |   | 247,013            |  
|Depreciation and
      accretion            |   | 79,952               |   |   | 12,373           |   |   | 118,344  |   |   | 92,325             |  
|Marketable securities write-down            |   | 2,094,000            |   |   | -                |   |   | -        |   |   | 2,094,000          |  
|Financing costs                             |   | 2,466,000            |   |   | -                |   |   | -        |   |   | 2,466,000          |  
|Change in non-cash
      working capital    |   | (295,445             | ) |   | 879,786          |   |   | 72,877   |   |   | 533,910            |  
|                                            |   | (3,709,747           | ) |   | (424,158         | ) |   | (31,724  | ) |   | (4,127,578         | )
|Financing activities                        |   |                      |   |   |                  |   |   |          |   |   |                    |  
|Proceeds from private placements            |   | -                    |   |   | 38,301,221       |   |   | -        |   |   | 38,301,221         |  
|Proceeds from stock option,
      warrant,  |   |                      |   |   |                  |   |   |          |   |   |                    |  
|and unit right
      exercises              |   | 321,388              |   |   | 58,500           |   |   | -        |   |   | 379,888            |  
|Notes payable                               |   | -                    |   |   | (40,000          | ) |   | 40,000   |   |   | (40,000            | )
|                                            |   | 321,388              |   |   | 38,319,721       |   |   | 40,000   |   |   | 38,641,109         |  
|Investing activities                        |   |                      |   |   |                  |   |   |          |   |   |                    |  
|Expenditures on oil and gas assets          |   | (17,505,081          | ) |   | (705,762         | ) |   | -        |   |   | (17,869,050        | )
|Expenditures on administrative
      assets |   | (241,326             | ) |   | (131,113         | ) |   | -        |   |   | (372,440           | )
|Acquisitions, net of cash acquired          |   | (347,429             | ) |   | (4,244,360       | ) |   | -        |   |   | (4,591,789         | )
|Marketable securities                       |   | -                    |   |   | (1,851,960       | ) |   | -        |   |   | (1,851,960         | )
|Change in non-cash working capital          |   |                      |   |   |                  |   |   |          |   |   |                    |  
|related to oil and gas assets               |   | (396,788             | ) |   | 341,792          |   |   | -        |   |   | (396,788           | )
|                                            |   | (18,490,624          | ) |   | (6,591,403       | ) |   | -        |   |   | (25,082,027        | )
|                                            |   |                      |   |   |                  |   |   |          |   |   |                    |  
|Change in cash and cash equivalents         | $ | (21,878,983          | ) | $ | (31,304,160      | ) | $ | 8,276    |   | $ | 9,431,504          |  
|                                            |   |                      |   |   |                  |   |   |          |   |   |                    |  
|Exchange rate fluctuations on change in     |   |                      |   |   |                  |   |   |          |   |   |                    |  
|cash and cash equivalents                   |   | (2,173,326           | ) |   | (1,648,100       | ) |   | -        |   |   | (3,821,425         | )
|Cash and cash equivalents, beginning of     |   |                      |   |   |                  |   |   |          |   |   |                    |  
|period                                      |   | 29,670,201           |   |   | 14,141           |   |   | 5,865    |   |   | 7,813              |  
|                                            |   |                      |   |   |                  |   |   |          |   |   |                    |  
|Cash and cash equivalents, end of           |   |                      |   |   |                  |   |   |          |   |   |                    |  
|period                                      | $ | 5,617,892            |   | $ | 29,670,201       |   | $ | 14,141   |   | $ | 5,617,892          |  

See accompanying notes to consolidated financial
statements.

---

- 67 -

|MegaWest Energy Corp (an exploration stage company)   
|------------------------------------------------------
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2008, 2007 and 2006     
|(in Canadian
      dollars unless otherwise indicated)

MegaWest Energy Corp ("MegaWest") was incorporated on February
8, 2000 under the Company Act in the province of British Columbia, Canada as
Brockton Capital Corp. On February 27, 2007 the Company changed its name to
MegaWest Energy Corp and on February 12, 2008 it was continued in the province
of Alberta, where it is currently registered under the Business Corporations Act
(Alberta).

The primary business activity of MegaWest and its subsidiaries
(collectively the "Company") is the acquisition, exploration and development of
oil and gas properties in North America. Prior to December 2006, MegaWest was a
technology company whose business plan was to acquire the rights to market, sell
and distribute a product line of consumer electronic technology products in
Canada.

|1. | Significant Accounting Policies:
|-- | --------------------------------
|   |                                 
|   | (a)                             
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   | (b)                             
|   |                                 
|   |                                 
|   |                                 
|   | (c)                             
|   |                                 
|   |                                 

MegaWest Energy USA Corp MegaWest
Energy Texas Corp MegaWest Energy Kentucky Corp MegaWest Energy Missouri
Corp MegaWest Energy Kansas Corp MegaWest Energy Montana Corp

All intercompany balances and
transactions have been eliminated.

| | (d) | Use of Estimates and Measurement Uncertainty:                                                                                                                                                                                                                                
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                              
| |     | The preparation of financial statements in conformity
      with GAAP requires management to make estimates and assumptions that
      affect the reported amounts and other disclosures in these financial
      statements. Actual results may differ from those estimates.
| |     |                                                                                                                                                                                                                                                                              
| |     | Significant estimates used in the preparation of these
      financial statements include estimates of oil and gas reserves and
      resources, oil and gas asset impairment, stock-based compensation and
      asset retirement obligations.                              

---

|- 68 -                                                
|------------------------------------------------------
|MegaWest Energy Corp (an exploration stage company)   
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2008, 2007 and 2006     
|(in Canadian
      dollars unless otherwise indicated)

| | (e) | Cash and Cash Equivalents:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | Cash and cash equivalents consist of highly liquid
      investments with terms to maturity, at the date of acquisition, not
      exceeding 90 days.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (f) | Oil and Gas Operations:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | The Company follows the full cost method of accounting
      for oil and gas operations whereby all costs related to exploration and
      development of oil and gas reserves are capitalized. Such costs are
      capitalized on a country-by-country basis, which to date there is one cost
      centre, the United States.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | These capitalized costs will be depleted using the
      unit-of-production method based on estimated gross proved oil and gas
      reserves as determined by independent reservoir engineers. Oil and gas
      reserves and production will be converted into equivalent units based upon
      relative energy content.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | Costs of acquiring and evaluating unproved properties are
      initially excluded from the depletion calculations. Properties are
      considered unproved until they have established commercial production for
      a sustained period of time. These unevaluated properties are assessed
      periodically to ascertain whether impairment has occurred. When proved
      reserves are assigned or the property is impaired, the associated costs
      are added to the costs subject to depletion calculations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | In applying the full cost method, the Company calculates
      a ceiling test whereby the carrying value of oil and gas assets is
      compared quarterly to the sum of undiscounted future cash flows expected
      to result from proved reserves and the lower of cost and market of
      unproved properties. Cash flows are based on third party quoted forward
      prices, adjusted for transportation and quality differentials. Should the
      ceiling test result in an excess of carrying value, the Company would then
      measure the amount of impairment by comparing the carrying amounts of oil
      and gas assets to an amount equal to the estimated net present value of
      future cash flows from proved plus probable reserves and the market value
      of unproved properties. A risk free interest rate would be used to arrive
      at the net present value of future cash flows. The carrying value of oil
      and gas assets in excess of the discounted future cash flows would be
      recorded as a permanent impairment.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | Proceeds from the sale of oil and gas assets are applied
      against capitalized costs, with no gain or loss recognized, unless a sale
      would alter the rate of depletion and depreciation by more than 20 per
      cent.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (g) | Administrative Assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | Leasehold improvements, office furniture and equipment
      are stated at cost. Depreciation on leasehold improvements is provided on
      a straight-line basis over five years and depreciation on office furniture
      and equipment is provided on a declining balance method over the estimated
      useful lives of the respective assets, at rates ranging from 20  30
      percent per year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (h) | Marketable Securities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | Marketable securities are recorded at fair
  value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (i) | Asset Retirement Obligations:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | The Company recognizes a liability for the estimated fair
      value of site restoration and abandonment costs when the obligations are
      legally incurred and the fair value can be reasonably estimated. The fair
      value of the obligations is based on the estimated cash flow required to
      settle the obligations discounted using the Company's credit adjusted
      risk-free interest rate. The obligation is recorded as a liability with a
      corresponding increase in the carrying amount of the oil and gas assets.
      The capitalized amount will be depleted on a unit-of-production method.
      The liability is increased each period, or accretes, due to the passage of
      time and a corresponding amount is recorded in the statement of operations
      as an operating expense. Revisions to the estimated fair value would
      result in an adjustment to the liability and the capitalized amount in oil
      and gas assets.                                                                                       

---

|- 69 -                                                
|------------------------------------------------------
|MegaWest Energy Corp (an exploration stage company)   
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2008, 2007 and 2006     
|(in Canadian
      dollars unless otherwise indicated)

| | (j) | Convertible Promissory Notes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | Convertible promissory notes were recorded at the amount
      of proceeds received less the amount attributed to the conversion feature
      which is included as part of shareholders' equity. The liability component
      is accreted to the face value of the promissory note at maturity on an
      effective yield basis. The accretion is charged to the statement of
      operations as interest expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (k) | Foreign Currency Translation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | The Company's subsidiaries are considered financially and
      operationally integrated. The Canadian dollar is the Company's functional
      currency. As a result, monetary assets and liabilities denominated in
      foreign currencies are translated to Canadian dollars at the exchange rate
      in effect at the balance sheet date and non-monetary assets and
      liabilities at the exchange rates in effect at the time of the
      transactions. Revenues and expenses are translated to Canadian dollars at
      rates approximating exchange rates in effect at the time of the
      transactions. Exchange gains and losses resulting from the period-end
      translation of monetary assets and liabilities denominated in foreign
      currencies are recorded in the statement of operations.                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (l) | Oil and Gas Revenue:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | After an oil and gas project becomes commercial, sales of
      crude oil and natural gas will be recognized in the period in which the
      product is delivered to the customer. Oil and gas revenue represents the
      Company's share and is recorded net of royalty payments to governments and
      other mineral interest owners.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (m) | Stock-Based Compensation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | The Company accounts for all stock options and warrants
      granted to employees, directors and certain service providers using the
      fair value method. Under this method, compensation expense is recorded
      with a corresponding credit to contributed surplus. Stock-based
      compensation expense for employees is based on the estimated fair value of
      the related option or warrant at the time of grant and is expensed on a
      straight-line basis over the vesting period of the option. Stock-based
      compensation expense for certain service providers is based on the
      estimated fair value of the related option or warrant once vested. At the
      end of each reporting period, the fair value of each option and warrant
      not vested is calculated and the appropriate amount is expensed in that
      period. Compensation expense is adjusted for the estimated amount of
      forfeitures at the time of issuance.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | Consideration received upon the exercise of stock options
      and warrants together with the amount of non-cash compensation expense
      recognized in contributed surplus is recorded as share capital.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (n) | 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 and
      future tax assets and liabilities are recognized for future tax
      consequences attributable to differences between the financial statement
      carrying value and tax basis of assets and liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | Future tax assets and liabilities are measured using
      enacted or substantively enacted tax rates expected to apply to taxable
      income in the years in which these 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 includes
      the date of enactment or substantive enactment. A valuation allowance is
      recorded against any future income tax asset if it is more likely than not
      that the asset will not be realized.                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (o) | Per Share Amounts:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | Basic per share amounts are computed by dividing the loss
      by the weighted average shares outstanding during the reporting period.
      Diluted amounts for options and warrants are computed using the treasury
      stock method. The treasury stock method assumes that proceeds received
      from the exercise of in-the-money options and warrants are used to
      repurchase shares at the average market price for the period. The
      difference between the number of shares that could have been purchased at
      market prices in the period and the number of in-the-money options and
      warrants is added to the                                                                                                                                                                                                                                                                                                                               

---

|- 70 -                                                
|------------------------------------------------------
|MegaWest Energy Corp (an exploration stage company)   
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2008, 2007 and 2006     
|(in Canadian
      dollars unless otherwise indicated)

| |     | weighted average shares outstanding. Dilutive amounts for
      convertible promissory notes are determined by using the "as if converted
      method".                                                                                                                                                                                                                                                                                                                                             
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (p) | New Canadian GAAP Accounting Standards:                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | As of May 1, 2008, MegaWest will be required to adopt the
      following new accounting standards from the Canadian institute of
      Chartered Accountants ("CICA"):                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | (iii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | Management is in the process of reviewing the
      requirements of these recent sections and expects the only effect on the
      Company will be disclosures around how the Company manages its capital and
      incremental disclosures regarding the significance of financial
      instruments for the entitys financial position and performance; and the
      nature, extent and management of risks arising from financial instruments
      to which the entity is exposed.             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | In January 2006, the CICA Accounting Standards Board
      ("AcSB") adopted a strategic plan for the direction of accounting
      standards in Canada. As part of that plan, accounting standards in Canada
      for public companies are going to converge with International Financial
      Reporting Standards ("IFRS") for fiscal periods commencing on or after
      January 1, 2011. The Company continues to monitor and assess the impact of
      convergence of Canadian GAAP and IFRS.

|2. | Adoption of New Accounting Standards:                                                                                                                                                              
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                    
|   | On May 1, 2007, MegaWest adopted new Canadian accounting
      standards regarding other comprehensive income, financial instruments and
      hedge accounting as prescribed by the CICA Handbook.
|   |                                                                                                                                                                                                    
|   | (a)                                                                                                                                                                                                
|   |                                                                                                                                                                                                    
|   |                                                                                                                                                                                                    
|   |                                                                                                                                                                                                    
|   | (b)                                                                                                                                                                                                
|   |                                                                                                                                                                                                    
|   |                                                                                                                                                                                                    
|   |                                                                                                                                                                                                    
|   |                                                                                                                                                                                                    

---

|- 71 -                                                
|------------------------------------------------------
|MegaWest Energy Corp (an exploration stage company)   
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2008, 2007 and 2006     
|(in Canadian
      dollars unless otherwise indicated)

| | (c) | Section 3865 Hedges ("S.3865"):                                                                                                                              
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                              
| |     | S.3865 establishes standards for how and when hedge
      accounting may be applied. MegaWest does not currently participate in any
      hedging activities.

MegaWest also adopted Section 1506
Accounting Changes, the only impact of which is to provide disclosure of when an
entity has not applied a new source of GAAP that has been issued but is not yet
effective.

|3. | Oil and Gas Assets:
|-- | -------------------

To April 30, 2008, all of the Companys
properties are unproven. Accordingly, no provision for depletion expense has
been made and all oil sales to date have been netted against project costs. The
following table summarizes the oil and gas assets by project.

|Oil and Gas
      Assets      |   | Kansas (a) |   |   | Missouri (b) |  |   | Kentucky (c) |  |   | Texas
      (d) |   |   | Montana (e) |  |   | Other
      (f) |  |   | Total      |  
|----------------------------- | - | ---------- | - | - | ------------ |  | - | ------------ |  | - | --------------- | - | - | ----------- |  | - | --------------- |  | - | ---------- | -
|Balance, April 30, 2006       | $ | -          |   | $ | -            |  | $ | -            |  | $ | -               |   | $ | -           |  | $ | -               |  | $ | -          |  
|Acquisitions (note 4)         |   | 440,042    |   |   | 47,012       |  |   | 18,633,054   |  |   | 930,014         |   |   | -           |  |   | -               |  |   | 20,050,122 |  
|Additions                     |   | 421,859    |   |   | 44,269       |  |   | 140,329      |  |   | 91,283          |   |   | -           |  |   | 8,493           |  |   | 706,233    |  
|Balance, April 30, 2007       |   | 861,901    |   |   | 91,281       |  |   | 18,773,383   |  |   | 1,021,297       |   |   | -           |  |   | 8,493           |  |   | 20,756,355 |  
|Additions                     |   | 2,814,489  |   |   | 6,491,989    |  |   | 2,967,078    |  |   | 5,169,926       |   |   | 211,008     |  |   | 767,081         |  |   | 18,421,571 |  
|Pre-commercial oil sales, net |   | (740,915   | ) |   | -            |  |   | -            |  |   | -               |   |   | -           |  |   | -               |  |   | (740,915   | )
|Acquisitions                  |   | -          |   |   | -            |  |   | -            |  |   | -               |   |   | 9,690,527   |  |   | -               |  |   | 9,690,527  |  
|Impairment                    |   | -          |   |   | -            |  |   | -            |  |   | (5,891,223      | ) |   | -           |  |   | -               |  |   | (5,891,223 | )
|Balance, April 30, 2008       | $ | 2,935,475  |   | $ | 6,583,270    |  | $ | 21,740,461   |  | $ | 300,000         |   | $ | 9,901,535   |  | $ | 775,574         |  | $ | 42,236,315 |  

| | (a) | Kansas                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | Costs relate to the Chetopa project, which is a heavy oil
      project located two miles south of Chetopa, Kansas. The assets include
      certain oil and gas facilities, equipment, steam injection and oil
      production wells and a 100 percent interest in two oil and gas leases
      covering 392 acres.                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | To date, the project has operated in a pre-commercial
      stage, and $740,915 of oil sales, net of royalties, have been recorded
      against the costs.                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | As part of the project, MegaWest is obligated to pay a
      net revenue interest up to a maximum of U.S. $750,000 on net revenues
      generated from the Chetopa project. The net revenue interest becomes
      payable after MegaWest recovers 100 percent of its capital and operating
      costs, and is to be paid quarterly from 25 percent of the projects net
      revenues. As at April 30, 2008 no amount of net revenue interest has been
      paid as MegaWest has not recovered its capital and operating
  costs.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (b) | Missouri                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | In Missouri, the Company has a 100 percent working
      interest in approximately 10,306 unproved acres of oil and gas leases at
      April 30, 2008. Costs incurred relate to land acquisition, geological and
      geophysical activities, exploration and delineation drilling and the
      construction of a 500 barrel per day steam project.                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (c) | Kentucky                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | In Kentucky, the Company has a 62.5 percent working
      interest in the shallow rights and an additional 37.5 percent working
      interest in the deep rights, in certain oil and gas leases totaling
      approximately 35,400 unproved acres at April 30, 2008. Costs incurred
      relate to land acquisition, geological and geophysical activities and
      exploration and delineation drilling.                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | As part of the acquisition of the Kentucky area, MegaWest
      is obligated to spend U.S. $15,000,000 by October 2009. In the event
      MegaWest does not complete this work program, the Company is obligated to
      pay 37.5 percent of the unspent balance to its joint venture partner. To
      April 30, 2008 MegaWest has spent $2,967,078 million towards this
      commitment.                                                                                                                                         

---

|- 72 -                                                
|------------------------------------------------------
|MegaWest Energy Corp (an exploration stage company)   
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2008, 2007 and 2006     
|(in Canadian
      dollars unless otherwise indicated)

| | (d) | Texas                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | In Texas, the Company is a partner in the Trinity Sands
      Project of approximately 34,000 unproved acres in Texas. Pursuant to
      earn-in agreements MegaWest may earn up to a 66.67 percent working
      interest in all leased acreage. Currently, MegaWest has earned a 50
      percent working interest in 20,600 acres and 12.5 percent working interest
      the remaining 13,385 acres. Costs incurred relate to land acquisition,
      geological and geophysical activities and exploration drilling.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | Based on the results of oil and gas activities to date,
      the Company recorded a $5,891,223 impairment of its Texas costs on April
      30, 2008.                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (e) | Montana                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | On October 24, 2007 MegaWest completed the acquisition of
      a 40 percent working interest in two prospects in Montana totaling 37,400
      unproved acres. The cost of the acquisition of $9,690,527 was comprised
      of:                                                                                                                                                                                                                                                                                        

| | Cash                                                          | $ | 309,034   | 
| | ------------------------------------------------------------- | - | --------- | 
| | Common shares (500,000)                                       |   | 486,250   | 
| | Warrants (250,000 exercisable at U.S.$2.50
      per warrant) |   | 45,707    | 
| | Incentive warrants (10,000,000, exercisable at U.S. $0.10)    |   | 8,810,850 | 
| | Expenses                                                      |   | 38,686    | 
| | Total cost                                                    | $ | 9,690,527 | 

MegaWest can earn an additional 20
percent working interest in each prospect by carrying its working interest
partner through the first U.S. $2.5 million of work. In addition, MegaWest and
its working interest partner have established a two year term regional area of
mutual interest ("AMI") covering approximately 1,000,000 acres. The interest in
the AMI shall be divided 65 percent to MegaWest and 35 percent to its partner.
MegaWest shall pay for the lease acquisition, initial geological and geophysical
activity, drilling and completing of any wells, comprising an agreed upon
initial work program for each new prospect within the AMI and shall receive 100
percent payout of all such costs and expenses incurred for each such prospect
prior to its partner receiving its respective share.

The amounts assigned to the common
shares and warrants were based on their fair values on the issue date. The fair
value of common shares was based on the cash consideration received for the most
recent private placements of shares. The $45,707 fair value of the warrants was
determined by using the Black-Scholes option pricing model assuming a volatility
of 89 percent, risk free interest rate of 3.83 percent and term of 1.5 years.
The incentive warrants were issued in December 2006 to provide additional
prospects for MegaWest and the acquisition triggered the vesting of 10,000,000
of these incentive warrants. The $8,810,850 fair value of the incentive warrants
on issuance was determined by using the Black-Scholes option pricing model
assuming a volatility of 89 percent, risk free interest rate of 3.83 percent and
term of 1.3 years.

On July 31, 2008, MegaWest acquired the
Devils Basin prospect. Upon completion of acquisition earning ($105,000 cash,
100,000 shares of MegaWest and a carry of its partners 25 percent working
interest cost on the first well), MegaWest will own a 75 percent working
interest of the 4,990 acre prospect.(f) Other

Other costs consist primarily of three
used steam generators and related equipment that will be assigned to a project
once a project is established and the location is determined.

Oil and gas assets include $1,061,353
(2007 - $176,600) of capitalized general and administrative costs and $360,880
(2007 $nil) of capitalized stock-based compensation costs.

---

|- 73 -                                                
|------------------------------------------------------
|MegaWest Energy Corp (an exploration stage company)   
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2008, 2007 and 2006     
|(in Canadian
      dollars unless otherwise indicated)

|4. | Acquisitions during the Year Ended April 30,
      2007:                                    
|-- | --------------------------------------------------------------------------------------------
|   |                                                                                             
|   | The Company completed the following acquisitions during
      the year ended April 30, 2007.
|   |                                                                                             
|   | (a)                                                                                         
|   |                                                                                             
|   |                                                                                             
|   |                                                                                             
|   | (b)                                                                                         
|   |                                                                                             
|   |                                                                                             
|   |                                                                                             
|   |                                                                                             
|   |                                                                                             
|   | (c)                                                                                         
|   |                                                                                             
|   |                                                                                             
|   |                                                                                             
|   |                                                                                             
|   |                                                                                             
|   | (d)                                                                                         
|   |                                                                                             
|   |                                                                                             

---

|- 74 -                                                
|------------------------------------------------------
|MegaWest Energy Corp (an exploration stage company)   
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2008, 2007 and 2006     
|(in Canadian
      dollars unless otherwise indicated)

The following table summarizes the estimated net assets
acquired, liabilities assumed and consideration given as of each acquisition
date.

|                                    |   | Deerfield      |   |   | Kentucky      |  |   | Deerfield     |   |   |                |   |   |             |  
|----------------------------------- | - | -------------- | - | - | ------------- |  | - | ------------- | - | - | -------------- | - | - | ----------- | -
|                                    |   | Kansas         |   |   | Reserves      |  |   | Missouri      |   |   | Trinity Sands  |   |   | Totals      |  
|Closing Date                        |   | March 26, 2007 |   |   | April 2, 2007 |  |   | April 5, 2007 |   |   | April 25, 2007 |   |   |             |  
|                                    |   |                |   |   |               |  |   |               |   |   |                |   |   |             |  
|Net Assets Acquired:                |   |                |   |   |               |  |   |               |   |   |                |   |   |             |  
|Cash                                | $ | -              |   | $ | 3,521         |  | $ | 75,330        |   | $ | 166,750        |   | $ | 245,601     |  
|Oil and gas assets                  |   | 440,042        |   |   | 18,633,054    |  |   | 47,012        |   |   | 930,014        |   |   | 20,050,122  |  
|Working capital                     |   | (13,667        | ) |   | -             |  |   | 7,058         |   |   | -              |   |   | (6,609      | )
|Asset retirement obligations        |   | (160,376       | ) |   | -             |  |   | -             |   |   | -              |   |   | (160,376    | )
|                                    | $ | 265,999        |   | $ | 18,636,575    |  | $ | 129,400       |   | $ | 1,096,764      |   | $ | 20,128,738  |  
|Consideration Given:                |   |                |   |   |               |  |   |               |   |   |                |   |   |             |  
|Shares                              |   |                |   |   |               |  |   |               |   |   |                |   |   |             |  
|Common shares                       |   | 250,000        |   |   | 5,000,000     |  |   | -             |   |   | -              |   |   | 5,250,000   |  
|Exchange shares
      (note 8)      |   | -              |   |   | -             |  |   | -             |   |   | 95,000         |   |   | 95,000      |  
|Incentive warrants                  |   | -              |   |   | 9,000,000     |  |   | -             |   |   | -              |   |   | 9,000,000   |  
|                                    |   |                |   |   |               |  |   |               |   |   |                |   |   |             |  
|Value of common shares              | $ | 290,325        |   | $ | 5,772,500     |  | $ | -             |   | $ | -              |   | $ | 6,062,825   |  
|Value of exchange shares            |   | -              |   |   | -             |  |   | -             |   |   | 9,660,497      |   |   | 9,660,497   |  
|Value of incentive warrants         |   | -              |   |   | 9,372,231     |  |   | -             |   |   | -              |   |   | 9,372,231   |  
|Cash                                |   | -              |   |   | 3,412,500     |  |   | 579,050       |   |   | 227,500        |   |   | 4,219,050   |  
|Note payable assumed                |   | 591,250        |   |   | -             |  |   | -             |   |   | 1,361,085      |   |   | 1,952,335   |  
|Expenses                            |   | 6,438          |   |   | 79,344        |  |   | 162,638       |   |   | 22,018         |   |   | 270,438     |  
|                                    |   | 888,013        |   |   | 18,636,575    |  |   | 741,688       |   |   | 11,271,100     |   |   | 31,537,376  |  
|Deficit adjustment on related party |   |                |   |   |               |  |   |               |   |   |                |   |   |             |  
|acquisitions                        |   | (622,014       | ) |   | -             |  |   | (612,288      | ) |   | (10,174,336    | ) |   | (11,408,638 | )
|                                    |   |                |   |   |               |  |   |               |   |   |                |   |   |             |  
|                                    | $ | 265,999        |   | $ | 18,636,575    |  | $ | 129,400       |   | $ | 1,096,764      |   | $ | 20,128,738  |  
|Contingent Consideration:           |   |                |   |   |               |  |   |               |   |   |                |   |   |             |  
|Shares                              |   |                |   |   |               |  |   |               |   |   |                |   |   |             |  
|Number                              |   | -              |   |   | -             |  |   | 4,750,000     |   |   | -              |   |   | 4,750,000   |  
|Value                               | $ | -              |   | $ | -             |  | $ | 5,500,975     |   | $ | -              |   | $ | 5,500,975   |  
|Cash                                |   | -              |   |   | -             |  |   | 347,430       |   |   | -              |   |   | 347,430     |  
|                                    | $ | -              |   | $ | -             |  | $ | 5,848,405     |   | $ | -              |   | $ | 5,848,405   |  

The acquisitions of the assets of Deerfield Energy Kansas
Corp., Deerfield Missouri and Trinity were considered related party
transactions, since at the respective acquisition dates the President and Chief
Executive Officer of the Company, was also the Chief Executive Officer and a
unitholder of Trinity (47.37% of issued and outstanding units) and the Chief
Operating Officer and unitholder of Deerfield Missouri (15.86% of the issued and
outstanding units), which is also the parent company of Deerfield Kansas.

As a result, the Chief Executive Officer of the Company, or a
private company controlled by him, received i) 39,650 of the common shares
issued for the assets of Deerfield Kansas, ii) 753,350 common shares and
$291,702 cash from Deerfield Missouri, including a change in control fee, and
iii) 45,000 class B exchange shares of our subsidiary, MegaWest USA that were
converted into 4,500,000 common shares and $107,763 cash of the consideration
issued to Trinity.

---

|- 75 -                                                
|------------------------------------------------------
|MegaWest Energy Corp (an exploration stage company)   
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2008, 2007 and 2006     
|(in Canadian
      dollars unless otherwise indicated)

|5. | Administrative Assets:                                                                        
|-- | ----------------------------------------------------------------------------------------------
|   |                                                                                               
|   | Administrative assets consist of office equipment,
      furniture and leasehold improvements.

| |                         |   |         |  |   | Accumulated  |  |   |                      | 
| | ----------------------- | - | ------- |  | - | ------------ |  | - | -------------------- | 
| |                         |   | Cost    |  |   | Depreciation |  |   | Net
      book Value | 
| | Balance, April 30, 2006 | $ | -       |  | $ | -            |  | $ | -                    | 
| | Additions               |   | 131,113 |  |   | 2,372        |  |   | 128,741              | 
| | Balance, April 30, 2007 |   | 131,113 |  |   | 2,372        |  |   | 128,741              | 
| | Additions               |   | 241,326 |  |   | 66,910       |  |   | 174,416              | 
| | Balance, April 30, 2008 | $ | 372,439 |  | $ | 69,282       |  | $ | 303,157              | 

|6. | Marketable Securities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | In January 2007, the Company acquired 7,500,000 common
      shares of Energy Finders Inc. ("Energy Finders"), at the time representing
      approximately nine percent of its issued and outstanding share capital.
      The Company does not have any representation on the Energy Finders board
      of directors or exert influence over Energy Finders. Due to the
      non-temporary decline in value, the Company recognized the year to date
      loss of $2,094,000 on its investment in the statement of operations and
      deficit and continues to hold its investment in Energy Finders.                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|7. | Convertible Promissory Notes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | In December 2006, MegaWest assumed two convertible
      promissory notes totaling $1,952,335 (U.S. $1,700,000) in conjunction with
      two acquisitions (see note 4). As part of the assumption, the Company
      agreed to pay: interest at six percent and the outstanding interest and
      principal are convertible into MegaWest common shares at U.S. $0.25 per
      share until June 20, 2008. The fair value of the conversion feature at the
      date of assumption was estimated to be $120,566 and has been classified as
      equity. The fair value was estimated at $0.02 per share using the
      Black-Scholes option pricing model assuming a volatility of 80 percent,
      risk free interest rate of 4.90 percent and expected term of eighteen
      months.                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | On June 20, 2008 the promissory notes and accrued
      interest were converted into 7,412,559 common shares. On conversion, the
      liability and equity portions of the exchange shares totaling $1,882,975
      were transferred to share capital.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|8. | Exchange Shares:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | As part of the consideration given to acquire Trinity
      Sands (see note 4(d)), MegaWest issued 95,000 class B shares of its
      subsidiary, MegaWest USA. Each class B exchange share was convertible into
      100 MegaWest shares (9,500,000 common shares of MegaWest could be issued).
      The holders of these MegaWest USA shares had the right to exchange, or
      receive a cash payment of U.S. $10.00 per exchange share until July 31,
      2008. The cash redemption value of the exchange shares of $1,061,055 was
      recorded as a liability. The estimated fair value of the conversion
      feature of $8,599,442 was classified as equity. The fair value per
      exchange share was determined by using the Black-Scholes option pricing
      model assuming a volatility of 80 percent, risk free interest rate of 5.09
      percent and expected term of fifteen months.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | In February 2008, the class B exchange shares were
      converted into 9,500,000 common shares of MegaWest. On conversion, the
      liability and equity portions of the exchange shares were transferred to
      share capital.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|9. | Asset Retirement Obligations:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The total future asset retirement obligation was
      estimated based on the Companys ownership interest in all wells and
      facilities, the estimated costs to abandon and reclaim the wells and
      facilities and the estimated timing and costs to be incurred in future
      periods. The present value of this obligation has been projected using
      estimates of the future costs denominated in U.S. dollars and the timing
      of abandonment. At April 30, 2008 the Company estimated the present value
      of its asset retirement obligations to be $295,009 based on a future
      undiscounted liability of $416,000. These costs are expected to be
      incurred within two to ten years. A credit-adjusted risk-free discount
      rate of ten per cent and an inflation rate of two per cent were used to
      calculate the present value.                               

---

|- 76 -                                                
|------------------------------------------------------
|MegaWest Energy Corp (an exploration stage company)   
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2008, 2007 and 2006     
|(in Canadian
      dollars unless otherwise indicated)

Changes to the asset retirement
obligation were as follows:

| | Balance, April 30, 2006                                  | $ | -       |  
| | -------------------------------------------------------- | - | ------- | -
| | Liabilities acquired through acquisitions
      (note 4) |   | 160,376 |  
| | Accretion                                                |   | 10,001  |  
| | Change in foreign exchange rates                         |   | (16,133 | )
| | Balance, April 30, 2007                                  |   | 154,244 |  
| | Liabilities incurred during the period                   |   | 141,881 |  
| | Accretion                                                |   | 13,042  |  
| | Change in foreign exchange rates                         |   | (14,158 | )
| | Balance, April 30, 2008                                  | $ | 295,009 |  

|10. | Share Capital:                                                                                                                                                                        
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                       
|    | The authorized capital of the Company consists of
      unlimited common shares without par value and 100,000,000 preferred shares
      without par value (of which none are issued).
|    |                                                                                                                                                                                       
|    | Issued common shares:                                                                                                                                                                 

| |                                                                               |  | Number of     |  |   |            |  
| | ----------------------------------------------------------------------------- |  | ------------- |  | - | ---------- | -
| |                                                                               |  | Common Shares |  |   | Amount     |  
| | Outstanding, April 30, 2005 and 2006                                          |  | 6,337,500     |  | $ | 207,342    |  
| | Shares issued on private placement (i)                                        |  | 23,500,000    |  |   | 2,707,168  |  
| | Shares issued on debt
      settlement (ii)                                   |  | 600,000       |  |   | 165,700    |  
| | Shares issued on private placement, net of
      $283,000 ascribed to         |  |               |  |   |            |  
| | warrants (iii)                                                                |  | 8,425,000     |  |   | 4,709,234  |  
| | Shares issued on private placement, net of
      $3,446,000 ascribed to       |  |               |  |   |            |  
| | warrants (iv)                                                                 |  | 27,448,550    |  |   | 28,669,870 |  
| | Share issue costs related to private
      placements (v)                     |  | -             |  |   | (1,882,451 | )
| | Shares issued for Kentucky
      property (note 4(b))                         |  | 5,000,000     |  |   | 5,772,500  |  
| | Shares issued for Kansas property (note 4(a))                                 |  | 250,000       |  |   | 290,325    |  
| | Shares issued for services
      (vi)                                         |  | 375,000       |  |   | 434,900    |  
| | Shares issued on stock option exercise,
      including $35,000 transfer from |  |               |  |   |            |  
| | contributed
      surplus                                                     |  | 500,000       |  |   | 93,500     |  
| | Outstanding, April 30, 2007                                                   |  | 72,436,050    |  |   | 41,168,088 |  
| | Shares issued for services
      (vi)                                         |  | 375,000       |  |   | 394,900    |  
| | Shares issued for Montana property (note 3(e))                                |  | 500,000       |  |   | 486,250    |  
| | Shares issued for Missouri
      property (note 4(c))                         |  | 4,750,000     |  |   | 5,500,975  |  
| | Shares issued on conversion of exchange shares
      (note 8)                 |  | 9,500,000     |  |   | 9,556,567  |  
| | Shares issued on exercise of
      1,025,000 stock options, including         |  |               |  |   |            |  
| | $195,714 transfer
      from contributed surplus                              |  | 844,593       |  |   | 246,634    |  
| | Shares issued on exercise of
      6,925,000 warrants, including $6,189,622   |  |               |  |   |            |  
| | transfer from
      warrants and $36,000 from contributed surplus for unit    |  |               |  |   |            |  
| | rights                                                                        |  | 6,726,023     |  |   | 6,496,090  |  
| | Outstanding, April
      30, 2008                                             |  | 95,131,666    |  | $ | 63,849,504 |  

| | (i)   | On December 21, 2006 the Company issued 23,500,000 common
      shares for proceeds of $2,707,168.                                                                                                                                                                                                                                                                                 
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                    
| | (ii)  | In December 2006, the Company agreed to issue 600,000
      common shares to settle accounts payable of $165,700, which included
      amounts payable to former directors and officers of the Company.                                                                                                                                                                            
| |       |                                                                                                                                                                                                                                                                                                                                                                                    
| | (iii) | In January and February 2007 the Company issued 8,425,000
      units for gross proceeds of $4,992,234. Each unit included one common
      share and one half share purchase warrant. One whole share purchase
      warrant entitled the holder to acquire one share for U.S. $1.00. The
      amount classified to warrants of $283,000 was based on the fair value of
      the

---

|- 77 -                                                
|------------------------------------------------------
|MegaWest Energy Corp (an exploration stage company)   
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2008, 2007 and 2006     
|(in Canadian
      dollars unless otherwise indicated)

| |        | share purchase warrants which was determined by using the
      Black-Scholes option pricing model assuming a volatility of 80 percent,
      risk free interest rate of 5.10 percent and expected term of one year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |        | In connection with placement, the Company granted a
      consultant rights to purchase 180,000 units under the same terms as the
      private placement for a period of one year from the date of the placement.
      The value of these units, recorded as issue costs (noted in v below), was
      determined using the Black-Scholes option pricing model. On January 5,
      2008, these unit rights were exercised, resulting in 180,000 common shares
      and 90,000 share purchase warrants being issued.                                                                                                                                                             
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (iv)   | On March 1, 2007 the Company issued 27,448,550 units for
      gross proceeds of $32,115,870. Each unit included one common share and one
      half share purchase warrant. One whole share purchase warrant entitles the
      holder to acquire one share for U.S. $1.30. As a commission, and
      additional 655,848 share purchase warrants were issued. The amount
      classified as warrants of $3,446,000 was based on the fair value of the
      share purchase warrants, which was determined by using the Black-Scholes
      option pricing model assuming a volatility of 80 percent, risk free
      interest rate of 4.95 percent and expected term of one year.
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |        | In connection with the placement, the Company granted a
      consultant rights to purchase 375,000 units under the same terms as the
      private placement for a period of one year from the date of the placement.
      The value of these units, recorded as issue costs (noted in v below), was
      determined using the Black-Scholes option pricing model.                                                                                                                                                                                                                                                                                                               
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (v)    | Included in issue costs of the private placements is
      $1,514,051 of fees paid in cash, $190,000 representing the fair value of
      655,848 share purchase warrants issued and $178,400 representing the fair
      value of 180,000 units (note iii) and 375,000 units (note iv) issued in
      connection with the financings.                                                                                                                                                                                                                                                                                                                                             
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (vi)   | In March 2007, the Company entered into an agreement with
      a consultant to provide advisory services. The consideration for the
      advisory services was 750,000 common shares of the Company, of which
      375,000 were issued during the period ended April 30, 2007 and 375,000
      were issued during the year ended April 30, 2008. The value of the common
      shares was based on the cash consideration received for private placements
      of shares around the issuance date.                                                                                                                                                                             
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (vii)  | On May 15, 2008, MegaWest closed a private placement
      financing whereby 26,750,000 common shares were issued for gross proceeds
      of $16,050,000. Expenses paid in conjunction with this financing were
      $1,013,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (viii) | On June 20, 2008, MegaWest issued 7,412,559 common shares
      on the conversion of the convertible promissory notes (see note 7).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (ix)   | Subsequent to April 30, 2008, the Company has issued
      585,247 common shares on the cashless exercise of 700,000 warrants,
      1,200,000 common shares on the cash exercise of warrants, 415,000 shares
      as compensation for consulting services, and 1,325,000 shares to employees
      for performance bonuses.                                                                                                                                                                                                                                                                                                                                                       

---

|- 78 -                                                
|------------------------------------------------------
|MegaWest Energy Corp (an exploration stage company)   
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2008, 2007 and 2006     
|(in Canadian
      dollars unless otherwise indicated)

|11. | Warrants:                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                   
|    | Each of the Companys warrants entitles the holder to
      acquire one common share. The following table summarizes the changes in
      warrants during the years ended April 30, 2008 and
2007:

| |                                                                         |  | Number of  |   |   |            |  
| | ----------------------------------------------------------------------- |  | ---------- | - | - | ---------- | -
| |                                                                         |  | Warrants   |   |   | Amount     |  
| | Outstanding, April 30, 2006                                             |  | -          |   | $ | -          |  
| | Incentive warrants issued (i)                                           |  | 19,500,000 |   |   | -          |  
| | Incentive warrants
      (9,000,000) vested on Kentucky acquisition (i) |  | -          |   |   | 9,372,231  |  
| | Consulting warrants issued (ii)                                         |  | 6,000,000  |   |   | 1,600,800  |  
| | Granted in January 2007
      private placement (note 10 (ii))          |  | 4,212,500  |   |   | 283,000    |  
| | Granted in March 2007 private placement (note 10 (iii))                 |  | 14,380,123 |   |   | 3,446,000  |  
| | Outstanding, April 30, 2007                                             |  | 44,092,623 |   |   | 14,702,031 |  
| | Incentive warrants (10,000,000) vested
      on Montana acquisition (i) |  | -          |   |   | 8,810,850  |  
| | Extension of warrant
      term (i)                                     |  | -          |   |   | 55,571     |  
| | Extension of warrant term (iii)                                         |  | -          |   |   | 2,466,000  |  
| | Warrants issued for
      Montana property (iv)                         |  | 250,000    |   |   | 45,707     |  
| | Incentive warrants exercised, transfer
      to share capital           |  | (6,925,000 | ) |   | (6,189,622 | )
| | Warrants issued on exercise of unit
      rights (note 10 (ii))         |  | 90,000     |   |   | 45,000     |  
| | Outstanding, April
      30, 2008                                       |  | 37,507,623 |   | $ | 19,935,537 |  

The following table summarizes the
warrants outstanding as of April 30, 2008:

| |                         | Warrants Outstanding | Warrants Vested
| | ----------------------- | -------------------- | ---------------
| |                         |                      | Weighted Ave.  
| | Warrant Type            | Number               | Remaining Life 
| | Incentive (i)           | 12,575,000           | 0.7 years      
| | Consulting (ii)         | 6,000,000            | 0.7 years      
| | Private Placement (iii) | 4,302,500            | 0.2 years      
| | Private Placement (iii) | 14,380,123           | 0.3 years      
| | Purchase (iv)           | 250,000              | 1.0 years      
| |                         | 37,507,623           | 0.5 years      

| | (i)   | The incentive warrants were issued in an effort to secure
      additional non-conventional oil and gas prospects. The warrants allow the
      holders to purchase common shares from MegaWest at an exercise price of
      U.S.$0.10 per share. The warrants were to expire December 20, 2007,
      however the Company extended the term of the warrants to January 15, 2009.
      The estimated incremental fair value of the warrant extension recorded was
      determined using the Black-Scholes option pricing model.                                                                                                                                                                                                      
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |       | In April 2007, 9,000,000 warrants vested on the Kentucky
      Reserves acquisition (note 4(b)), and in October 2007 10,000,000 warrants
      vested on the Montana Big Sky acquisition (note 3(e)). The remaining
      500,000 warrants will vest if the holder brings a project of merit to the
      Company that has an economic value of at least U.S.$1.00 per
  share.                                                                                                                                                                                                                                                                                                                                                         
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (ii)  | The consulting warrants were issued to various investor
      relations and other contractors. The consulting warrants vest on grant
      date, and expire on January 5, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (iii) | The private placement warrants were issued in conjunction
      with the private placements completed in January and March of 2007. The
      warrants were to expire on January 5 and March 1, 2008, respectively. On
      December 14, 2007 the Company extended the term of these warrants to July
      5 and August 28, 2008, respectively and as a result, recorded a financing
      cost in the amount of $2,466,000. The estimated incremental fair value of
      the warrant extension was determined using the Black-Scholes option
      pricing model. Subsequent to year end, all of the private placement
      warrants expired unexercised and $3,729,000 was transferred from warrants
      to contributed surplus.

---

|- 79 -                                                
|------------------------------------------------------
|MegaWest Energy Corp (an exploration stage company)   
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2008, 2007 and 2006     
|(in Canadian
      dollars unless otherwise indicated)

| | (iv) | The purchase warrants were issued in conjunction with the
      Montana asset purchase in October 2007. The warrants expire on April 24,
      2009.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------

|12. | Contributed Surplus:                                                                                        
|--- | ------------------------------------------------------------------------------------------------------------
|    |                                                                                                             
|    | The following table summarizes the changes in warrants
      during the years ended April 30, 2008 and
2007:

| |                                                                                           |   | Amount    |  
| | ----------------------------------------------------------------------------------------- | - | --------- | -
| | Balance, April 30, 2006                                                                   | $ | 168,750   |  
| | Shares and warrants as issue costs from
      March 2007 private placement (note 10 (iv)) |   | 368,400   |  
| | Stock-based
      compensation expense                                                    |   | 1,863,448 |  
| | Transfer to share capital on exercise of 500,000 stock options                            |   | (35,000   | )
| | Balance, April 30, 2007                                                                   |   | 2,365,598 |  
| | Stock-based compensation expense                                                          |   | 1,065,860 |  
| | Transfer to share
      capital on exercise of 1,025,000 stock options                    |   | (195,714  | )
| | Transfer to share capital on exercise
      of 180,000 unit rights                        |   | (36,000   | )
| | Transfer to warrants on exercise of
      180,000 unit rights                             |   | (45,000   | )
| | Balance, April 30,
      2008                                                             | $ | 3,154,744 |  

|13. | Stock Options:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | MegaWest had two stock option plans, one intended for
      Canadian employees (the "2004 plan") and one for U.S. employees (the "2007
      plan"). The number of shares reserved for issuance in aggregate under both
      plans was limited to 20 percent of the issued and outstanding common
      shares of MegaWest. The exercise price, term and vesting schedule of stock
      options granted are set by the board of directors at the time of grant.
      Stock options granted under the plans can be exercised on a cashless
      basis, whereby the employee receives a lesser amount of shares in lieu of
      paying the exercise price based on the quoted market price of the shares
      on the exercise date.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | The following table summarizes the changes in stock
      options outstanding during the years ended April 30, 2008 and
  2007:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

| |                                   |  | Number of  |   |  | Weighted Avg.    | 
| | --------------------------------- |  | ---------- | - |  | ---------------- | 
| |                                   |  | Options    |   |  | Exercise Price   | 
| | Outstanding, April 30, 2006       |  | 302,500    |   |  | U.S. $0.15       | 
| | Expired                           |  | (302,500   | ) |  | 0.15             | 
| | Granted                           |  | 10,169,000 |   |  | 0.59             | 
| | Exercised                         |  | (500,000   | ) |  | 0.10             | 
| | Outstanding, April 30, 2007       |  | 9,669,000  |   |  | U.S. $0.62       | 
| | Expired                           |  | (114,000   | ) |  | 0.67             | 
| | Forfeited                         |  | (450,000   | ) |  | 0.67             | 
| | Granted                           |  | 1,570,000  |   |  | 1.65             | 
| | Exercised                         |  | (1,025,000 | ) |  | 0.24             | 
| | Outstanding, April
      30, 2008 |  | 9,650,000  |   |  | U.S.
      $0.81 | 

---

|- 80 -                                                
|------------------------------------------------------
|MegaWest Energy Corp (an exploration stage company)   
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2008, 2007 and 2006     
|(in Canadian
      dollars unless otherwise indicated)

The following table summarizes
information about the options outstanding and exercisable at April 30, 2008:

| |                   | Options Outstanding | Options Vested 
| | ----------------- | ------------------- | ---------------
| |                   |                     | Weighted Ave.  
| | Exercise Price    | Options             | Remaining Life 
| | U.S.$0.10         | 750,000             | 3.6 years      
| | U.S.$0.50         | 4,892,500           | 2.8 years      
| | U.S.$0.89         | 300,000             | 3.8 years      
| | U.S.$1.00         | 2,187,500           | 3.2 years      
| | U.S.$1.57 - $2.25 | 1,520,000           | 3.5 years      
| |                   | 9,650,000           | 3.1
      years

For the year ended April 30, 2008, the
Company recorded $1,065,859 (2007 - $1,863,448; 2006 - $nil) of stock-based
compensation expense related to stock options with a corresponding increase in
contributed surplus. The fair value of the options granted in the years ending
April 30 was determined using the Black-Scholes option pricing model with the
following assumptions:

| |                                           |   | 2008    |  |   | 2007    |  |   | 2006 | 
| | ----------------------------------------- | - | ------- |  | - | ------- |  | - | ---- | 
| | Fair value of options granted, per option | $ | 0.37    |  | $ | 0.41    |  | $ | -    | 
| | Expected volatility                       |   | 80%     |  |   | 80 %    |  |   | -    | 
| | Risk-free interest rate                   |   | 4.58%   |  |   | 5.04    |  |   | -    | 
| | Expected lives                            |   | 4 years |  |   | 4 years |  |   | -    | 
| | Forfeiture                                |   | 20%     |  |   | 20%     |  |   | -    | 

On June 5, 2008, the Companys board of
directors amended and restated to the stock option plans to allow the issue of
other equity instruments (stock appreciation rights). The amended incentive
plans specify that the number of common shares reserved for issuance under the
plans is ten percent of the issued and outstanding common shares and to date,
only stock options remain outstanding under the equity plans.

In addition, subsequent to April 30,
2008, the Company has granted 2,369,500 stock options to certain employees and
directors with a four year term at exercise prices ranging from U.S$0.42 to
U.S.$0.62 per share.

|**14.** | General and Administrative Expenses:
|------- | ------------------------------------

General and administrative expenses for
the years ended April 30 consisted of:

| |                                        |   | 2008       |   |   | 2007      |   |   | 2006    | 
| | -------------------------------------- | - | ---------- | - | - | --------- | - | - | ------- | 
| | Stock-based compensation:              |   |            |   |   |           |   |   |         | 
| | Stock options                          | $ | 1,065,860  |   | $ | 1,863,448 |   | $ | -       | 
| | Shares to be
      issued for services |   | 806,000    |   |   | -         |   |   | -       | 
| | Shares issued for services             |   | 394,900    |   |   | 434,900   |   |   | -       | 
| | Consulting
      warrants              |   | -          |   |   | 1,600,800 |   |   | -       | 
| | Less: capitalized portion              |   | (360,880   | ) |   | -         |   |   | -       | 
| |                                        |   | 1,905,880  |   |   | 3,899,148 |   |   | -       | 
| |                                        |   |            |   |   |           |   |   |         | 
| | Salaries and benefits                  |   | 2,703,669  |   |   | 1,171,885 |   |   | -       | 
| | Professional fees                      |   | 720,248    |   |   | 229,111   |   |   | 83,720  | 
| | Investor relations                     |   | 627,091    |   |   | 100,097   |   |   | -       | 
| | Office and operations                  |   | 936,734    |   |   | 272,952   |   |   | 20,881  | 
| | Information technology                 |   | 141,126    |   |   | 27,101    |   |   | -       | 
| | Less: capitalized portion              |   | (1,061,353 | ) |   | (176,600  | ) |   | -       | 
| |                                        |   | 4,067,515  |   |   | 1,624,546 |   |   | 104,601 | 
| |                                        |   |            |   |   |           |   |   |         | 
| |                                        | $ | 5,973,395  |   | $ | 5,523,694 |   | $ | 104,601 | 

---

|- 81 -                                                
|------------------------------------------------------
|MegaWest Energy Corp (an exploration stage company)   
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2008, 2007 and 2006     
|(in Canadian
      dollars unless otherwise indicated)

|15. | Income taxes:                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                              
|    | Income tax expense differs from the amount that would be
      computed by applying the Canadian federal and provincial statutory income
      tax rates to the loss for the year as follows:

| |                                               |   | 2008        |   |   | 2007       |   |   | 2006     |  
| | --------------------------------------------- | - | ----------- | - | - | ---------- | - | - | -------- | -
| |                                               |   |             |   |   |            |   |   |          |  
| | Loss for the year                             | $ | (17,903,023 | ) | $ | (6,893,052 | ) | $ | (222,945 | )
| |                                               |   |             |   |   |            |   |   |          |  
| | Statutory tax rate                            |   | 32.7 %      |   |   | 34.5 %     |   |   | 37.6 %   |  
| |                                               |   |             |   |   |            |   |   |          |  
| | Expected income tax recovery                  |   | (5,854,289  | ) |   | (2,378,103 | ) |   | (83,827  | )
| | Increase (decrease) resulting from:           |   |             |   |   |            |   |   |          |  
| | Non-deductible
      stock-based compensation |   | 623,223     |   |   | 1,345,200  |   |   | -        |  
| | Non-deductible financing cost                 |   | 806,382     |   |   | -          |   |   | -        |  
| | Other non-deductibles                         |   | 129,904     |   |   | -          |   |   | -        |  
| | Change in future tax rates                    |   | 983,980     |   |   | -          |   |   | -        |  
| | Change in valuation allowance                 |   | 3,310,800   |   |   | 1,032,903  |   |   | 83,827   |  
| |                                               | $ | -           |   | $ | -          |   | $ | -        |  

The components of the April 30 net
future income tax asset and liability, after applying corporate income tax
rates, are as follows:

| |                                                |   | 2008        |   |   | 2007        |  
| | ---------------------------------------------- | - | ----------- | - | - | ----------- | -
| | Net future income tax asset:                   |   |             |   |   |             |  
| | Oil and gas and administrative assets          | $ | 14,009,000  |   | $ | 12,509,300  |  
| | Operating losses                               |   | 1,493,000   |   |   | 636,000     |  
| | Share issue costs                              |   | 363,000     |   |   | 436,700     |  
| | Unrealized loss on
      marketable securities |   | 554,900     |   |   | -           |  
| | Unrealized foreign exchange loss               |   | 936,900     |   |   | 464,000     |  
| |                                                |   | 17,356,800  |   |   | 14,046,000  |  
| | Less: valuation allowance                      |   | (17,356,800 | ) |   | (14,046,000 | )
| |                                                | $ | -           |   | $ | -           |  

| | The Company has accumulated operating losses which expire
      over the following years: |   |           | 
| | ----------------------------------------------------------------------------------------- | - | --------- | 
| | 2009                                                                                      | $ | 48,867    | 
| | 2010                                                                                      |   | 60,060    | 
| | 2011                                                                                      |   | 157,207   | 
| | 2012                                                                                      |   | 74,847    | 
| | 2013                                                                                      |   | 118,417   | 
| | Thereafter                                                                                |   | 5,635,381 | 
| | Total                                                                                     | $ | 6,094,779 | 

The Companys income tax filings are
subject to audit by taxation authorities in Canada and the United States, which
may result in the payment of income taxes and/or a decrease in its operating
losses available for carry-forward in those jurisdictions. While the Company
believes its tax filings do not include uncertain tax positions the results of
potential audits or the effect of changes in tax law cannot be ascertained at
this time.

No amounts have been recorded in the
financial statements related to the above mentioned uncertain tax positions as
management has determined the likelihood on an unfavorable outcome to the
Company to be low.

---

|- 82 -                                                
|------------------------------------------------------
|MegaWest Energy Corp (an exploration stage company)   
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2008, 2007 and 2006     
|(in Canadian
      dollars unless otherwise indicated)

|16. | Per Share Amounts:                                                                                                                                                          
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                             
|    | There is no change between the basic and diluted per
      share amounts as the effects of stock options, warrants and convertible
      promissory notes are anti-dilutive.
|    |                                                                                                                                                                             
|17. | Supplemental Cash Flow
  Information:                                                                                                                                       

| |                                             |   |                      |  |   |                    |  |  |      |  |   | From Exploration  | 
| | ------------------------------------------- | - | -------------------- |  | - | ------------------ |  |  | ---- |  | - | ----------------- | 
| |                                             |   | Years ended April 30 |  |   | Stage Inception on | 
| |                                             |   |                      |  |   |                    |  |  |      |  |   | November 1, 2006  | 
| |                                             |   |                      |  |   |                    |  |  |      |  |   | through April 30, | 
| |                                             |   | 2008                 |  |   | 2007               |  |  | 2006 |  |   | 2008              | 
| |                                             |   |                      |  |   |                    |  |  |      |  |   |                   | 
| | Non-Cash investing activities               |   |                      |  |   |                    |  |  |      |  |   |                   | 
| | Common shares issued for properties         | $ | 5,987,225            |  | $ | 6,062,825 $        |  |  | -    |  | $ | 12,050,050        | 
| | Exchange shares issued for
      properties |   | -                    |  |   | 9,660,497          |  |  | -    |  |   | 9,660,497         | 
| | Warrants granted for properties             |   | 45,707               |  |   | -                  |  |  | -    |  |   | 45,707            | 
| | Incentive warrants vested on
      property |   |                      |  |   |                    |  |  |      |  |   |                   | 
| | acquisition                                 |   | 8,810,850            |  |   | 9,372,231          |  |  | -    |  |   | 18,183,081        | 
| | Capitalized stock-based
      compensation  |   | 360,880              |  |   | -                  |  |  | -    |  |   | 360,880           | 
| |                                             |   |                      |  |   |                    |  |  |      |  |   |                   | 
| | Non-Cash financing activities               |   |                      |  |   |                    |  |  |      |  |   |                   | 
| | Common shares issued on debt settlement     |   | -                    |  |   | 165,700            |  |  | -    |  |   | 165,700           | 
| | Common shares issued on
      cashless      |   |                      |  |   |                    |  |  |      |  |   |                   | 
| | exercise of options and warrants            |   | 6,421,337            |  |   | 35,000             |  |  | -    |  |   | 6,456,337         | 
| | Common shares issued for
      services     |   | 394,900              |  |   | 434,900            |  |  | -    |  |   | 829,800           | 
| | Common shares issued on conversion of       |   |                      |  |   |                    |  |  |      |  |   |                   | 
| | exchange shares                             |   | 9,556,567            |  |   | -                  |  |  | -    |  |   | 9,556,567         | 
| |                                             |   |                      |  |   |                    |  |  |      |  |   |                   | 
| | Cash interest paid (received)               |   | 712,763              |  |   | 263,125            |  |  | -    |  |   | 975,888           | 
| | Cash taxes paid                             |   | -                    |  |   | -                  |  |  | -    |  |   | -                 | 
| |                                             |   |                      |  |   |                    |  |  |      |  |   |                   | 
| | Components of Cash and Cash Equivalents     |   |                      |  |   |                    |  |  |      |  |   |                   | 
| | Cash deposits                               | $ | 5,159,927            |  | $ | 26,328,951         |  |  |      |  |   |                   | 
| | Restricted cash                             |   | 457,965              |  |   | 341,250            |  |  |      |  |   |                   | 

|18. | Related Party Transactions:                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                             
|    | The Company incurred the following related party
      transactions during the years ended April 30, 2008 and 2007 not otherwise
      disclosed. These transactions were measured at the exchange amount, which
      is the amount agreed upon by the transacting parties.
|    |                                                                                                                                                                                                                                                                             
|    | (a)                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                             
|    | (b)                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                             
|    | (c)                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                             
|    | (d)                                                                                                                                                                                                                                                                         

---

|- 83 -                                                
|------------------------------------------------------
|MegaWest Energy Corp (an exploration stage company)   
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2008, 2007 and 2006     
|(in Canadian
      dollars unless otherwise indicated)

| | (e) | During the year ended April 30, 2007, the Company
      incurred $5,463 (2006 - $nil) in consulting fees to a current director of
      the Company.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------

|19. | Financial Instruments:                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | The Company is exposed to foreign currency fluctuations
      as it has cash, short-term deposits and accounts payable denominated in
      U.S. dollars. In addition, a significant portion of the Company's
      operating activities are conducted in U.S. dollars. There are no exchange
      rate contracts in place. In addition, the Company is exposed to interest
      rate risk on its convertible promissory notes.                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | At April 30, 2008, the fair value of the Company's
      financial instruments, including cash and cash equivalents, accounts
      receivable, and accounts payable and accrued liabilities approximate their
      carrying values due to their short terms to maturity. The fair values of
      the convertible promissory notes were estimated to be $2,850,000. The fair
      value was determined using the Black-Scholes option pricing model at April
      30, 2008.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|20. | Commitments and Contractual Obligations:                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

| | 2009       | $ | 316,620   | 
| | ---------- | - | --------- | 
| | 2010       |   | 306,620   | 
| | 2011       |   | 286,620   | 
| | 2012       |   | 282,840   | 
| | 2013       |   | 298,056   | 
| | Thereafter |   | 197,615   | 
| | Total      | $ | 1,688,371 | 

| | (c) | Severance Obligations:                                                                                                                                                      
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                             
| |     | Pursuant to employment agreements with three senior
      officers, the Company is obligated to pay up to $688,000 under certain
      events around employment termination.

---

|- 84 -                                                
|------------------------------------------------------
|MegaWest Energy Corp (an exploration stage company)   
|Notes to the Consolidated Financial Statements        
|For the years ended April 30, 2008, 2007 and 2006     
|(in Canadian
      dollars unless otherwise indicated)

|21. | Segmented Information:                                                                                                                                                                                                                                                                                 
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                        
|    | MegaWest presently has one reportable business segment,
      that being oil and gas exploration and development. MegaWests corporate
      and administrative operations are carried on in Canada, while all of the
      oil and gas properties and operations are located in the United
    States.

| |                                  |   | Year Ended April 30, 2008 |  
| | -------------------------------- | - | ------------------------- | -
| |                                  |   | Canada                    |  
| | Interest income                  | $ | 712,763                   |  
| |                                  |   |                           |  
| | General and administrative       |   | 5,910,730                 |  
| | Impairment of oil and gas assets |   | -                         |  
| | Foreign currency loss            |   | 1,935,473                 |  
| | Financing costs                  |   | 2,466,000                 |  
| | Loss on marketable securities    |   | 2,094,000                 |  
| | Accretion on promissory notes    |   | 175,743                   |  
| | Depreciation and accretion       |   | 66,910                    |  
| | Net loss                         |   | (11,936,093               | )
| |                                  |   |                           |  
| | Oil and gas assets               |   | 775,574                   |  
| | Administrative assets            |   | 303,157                   |  
| |                                  |   |                           |  
| | Oil and gas asset additions      |   | 767,081                   |  
| | Administrative asset additions   |   | 241,326                   |  

| |                                |   | Year Ended April 30, 2007 |  
| | ------------------------------ | - | ------------------------- | -
| |                                |   | Canada                    |  
| | Interest income                | $ | 263,125                   |  
| |                                |   |                           |  
| | General and administrative     |   | 5,520,686                 |  
| | Foreign currency loss          |   | 1,548,840                 |  
| | Accretion on promissory notes  |   | 71,270                    |  
| | Deprecation and accretion      |   | 2,372                     |  
| | Net loss                       |   | (6,880,043                | )
| |                                |   |                           |  
| | Oil and gas assets             |   | 8,493                     |  
| | Administrative assets          |   | 128,741                   |  
| |                                |   |                           |  
| | Oil and gas asset additions    |   | 8,493                     |  
| | Administrative asset additions |   | 131,113                   |  

All costs incurred prior to the Company
changing to focus to oil and gas exploration, in November 2006, were incurred in
Canada.

|**22.** | Comparative Figures:
|------- | --------------------

Certain comparative figures have been
  reclassified to conform to current period presentation.

---

- 85 -

INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS AUDIT REPORT ON
  RECONCILIATION TO UNITED STATES GAAP

To the Board of Directors of MegaWest Energy Corp.

We have audited the accompanying consolidated balance sheets
  of MegaWest Energy Corp. as of April 30, 2008 and 2007 and the consolidated
  statements of operations and deficit, comprehensive loss and accumulated other
  comprehensive loss and cash flows for the years ended April 30, 2008 and 2007,
  which are included in the Annual Report on Form 20-F. In connection with our
  audits of the aforementioned consolidated financial statements, we also have
  audited the related supplemental note entitled Reconciliation to United
  States GAAP included in Form 20-F. This supplemental note is the responsibility
  of the Companys management. Our responsibility is to express an opinion
  on this supplemental note based on our audits.

In our opinion, such supplemental note, when considered in relation
  to the basic consolidated financial statements taken as a whole, present fairly,
  in all material respects, the information set forth therein.

KPMG LLP 
  Calgary, Canada 
  August 28, 2008

COMMENTS BY INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS ON
  CANADA UNITED STATES OF AMERICA REPORTING DIFFERENCES

The standards of the Public Company Accounting Oversight Board
  (United States) require the addition of an explanatory paragraph when the financial
  statements are affected by conditions and events that cast substantial doubt
  on the company's ability to continue as a going concern, such as those described
  in note 1 to the consolidated financial statements. Although we conducted our
  audits in accordance with the standards of the Public Company Accounting Oversight
  Board (United States), our reports to the board of directors and shareholders
  dated August 28, 2008 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.

KPMG LLP 
  Calgary, Canada 
  August 28, 2008

---

- 86 -

|MegaWest Energy Corp (an exploration stage company)                                                                      
|-------------------------------------------------------------------------------------------------------------------------
|Reconciliation to U.S. GAAP as at April 30, 2008 and 2007 and
      for the years ended April 30, 2008, 2007 and 2006 (in
|Canadian dollars
      unless otherwise indicated)                                                                       

The consolidated financial statements of the Company have been
  prepared in accordance with GAAP as applied in Canada. For the years ended April
  30, 2008 and 2007, Canadian GAAP conforms in all material respects with U.S.
  GAAP except for certain matters, detailed in the following.

(a) Consolidated Balance Sheets:

|Assets as at April 30, 2008                                              |  
|------------------------------------------------------------------------ | -
|                                                                         |  
|Assets                                                                   |  
|Canadian GAAP:                                                           | $
|Adjustments for:                                                         |  
|Measuring oil and
      gas assets at exchange amounts for related party |  
|acquisitions (ii)                                                        |  
|Oil and gas assets
      on acquisitions (iii)                           |  
|Additional capitalized stock-based compensation (vi)                     |  
|U.S. GAAP                                                                | $

|Assets as at April 30, 2007                                              |  
|------------------------------------------------------------------------ | -
|                                                                         |  
|Assets                                                                   |  
|Canadian GAAP:                                                           | $
|Adjustments for:                                                         |  
|Measuring oil and
      gas assets at exchange amounts for related party |  
|acquisitions (ii)                                                        |  
|Oil and gas assets
      on acquisitions (iii)                           |  
|Marketable securities to fair value (iv)                                 |  
|U.S. GAAP                                                                | $

---

- 87 -

|MegaWest Energy Corp (an exploration stage company)                                                                      
|-------------------------------------------------------------------------------------------------------------------------
|Reconciliation to U.S. GAAP as at April 30, 2008 and 2007 and
      for the years ended April 30, 2008, 2007 and 2006 (in
|Canadian dollars
      unless otherwise indicated)                                                                       

|Liabilities and Equity as at April 30, 2008 |  
|------------------------------------------- | -
|                                            |  
|                                            |  
|                                            |  
|                                            |  
|                                            |  
|                                            |  
|Canadian GAAP:                              | $
|Adjustments for:                            |  
|Re-class deficit adjustment                 |  
|on related party                            |  
|acquisitions (ii)                           |  
|Property acquisitions (iii)                 |  
|Comprehensive income (iv)                   |  
|Comprehensive loss (iv)                     |  
|Re-class convertible note (v)               |  
|Stock-compensation                          |  
|transactions (vi)                           |  
|Value of warrants on private                |  
|placements (vii)                            |  
|Re-measure exchange shares                  |  
|at April 30, 2007
      (viii)              |  
|Transfer on stock option                    |  
|exercise (ix)                               |  
|Transfer on warrant exercise                |  
|(ix)                                        |  
|                                            |  
|Transfer on unit exercise (ix)              |  
|Net loss adjustments for year               |  
|ended April 30,
      2007 (v)              |  
|Net loss adjustments for year               |  
|ended April 30, 2008 (v)                    |  
|                                            |  
|U.S. GAAP                                   | $

---

- 88 -

|MegaWest Energy Corp (an exploration stage company)                                                                      
|-------------------------------------------------------------------------------------------------------------------------
|Reconciliation to U.S. GAAP as at April 30, 2008 and 2007 and
      for the years ended April 30, 2008, 2007 and 2006 (in
|Canadian dollars
      unless otherwise indicated)                                                                       

|Liabilities and Equity as at April 30, 2007 |  
|------------------------------------------- | -
|                                            |  
|                                            |  
|                                            |  
|                                            |  
|                                            |  
|                                            |  
|                                            |  
|Canadian GAAP:                              | $
|Adjustments for:                            |  
|Re-class deficit                            |  
|adjustment on related                       |  
|party acquisitions
      (ii)               |  
|Property Acquisitions                       |  
|(iii)                                       |  
|Comprehensive income                        |  
|(iv)                                        |  
|Re-class convertible note                   |  
|(v)                                         |  
|                                            |  
|Stock-compensation                          |  
|transactions (vi)                           |  
|Value of warrants on                        |  
|private placements                          |  
|(vii)                                       |  
|Re-class liability portion                  |  
|of exchange shares                          |  
|(viii)                                      |  
|                                            |  
|Re-measure of exchange                      |  
|shares (viii)                               |  
|                                            |  
|Transfer on stock option                    |  
|exercise (ix)                               |  
|Net loss adjustments for                    |  
|year ended April 30,                        |  
|2007                                        |  
|                                            |  
|                                            |  
|U.S. GAAP                                   | $

For the year ended April 30, 2006, Canadian GAAP conforms in
  all material respects with U.S. GAAP.

|(i)  | There are certain differences between the full cost
        method of accounting for oil and gas assets as applied in Canada and in
        the U.S. The principal difference is in the method of performing ceiling
        test evaluations under the full cost method. Canadian GAAP requires the
        ceiling test evaluation to use estimates of future oil and gas prices
        and costs plus the value of unproved properties on an undiscounted basis.
        To calculate the amount of impairment, the future net cash flows of a
        cost center's proved and probable reserves are discounted using a risk-free
        interest rate.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     | In the ceiling test evaluation for U.S. GAAP purposes,
        under Regulation S-X, future net cash flows from proved reserves using
        period-end, non-escalated prices and costs, are discounted to present
        value at 10 percent per annum plus the value of unproved properties is
        compared to the carrying value of oil and gas assets. There is no GAAP
        difference related to this matter for the year ended April 30, 2008 and
        2007.                                                                                                                                                                              
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(ii) | There is a difference in the measurement basis used
        to record related party transactions under Canadian GAAP compared to U.S.
        GAAP when the transacting entities are not under common control. Under
        Canadian GAAP, related party transactions are recorded at their carrying
        amounts unless independent evidence exists to support the                                                                                                                                                                                                                                                                                      

---

- 89 -

|MegaWest Energy Corp (an exploration stage company)                                                                      
|-------------------------------------------------------------------------------------------------------------------------
|Reconciliation to U.S. GAAP as at April 30, 2008 and 2007 and
      for the years ended April 30, 2008, 2007 and 2006 (in
|Canadian dollars
      unless otherwise indicated)                                                                       

|      | exchange amount. Since independent evidence did not
        exist for the exchange amounts of the related party acquisitions of Trinity,
        Deerfield Missouri and the assets of Deerfield Kansas, they were recorded
        at their carrying amounts. Under U.S. GAAP, only related party transactions
        between transacting entities under common control are recorded at their
        carrying amount. Since common control did not exist between MegaWest and
        Trinity, Deerfield Missouri and Deerfield Kansas, these acquisitions were
        recorded at their exchange amounts. As a result, the difference between
        the carrying amount and exchange amount of $17,257,043 at April 30, 2008
        and $11,408,638 at April 30, 2007 is re-classified from deficit under
        Canadian GAAP to oil and gas assets under U.S. GAAP.
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(iii) | There is a difference in determining the fair value
        of shares issued for certain stock-based transactions under Canadian GAAP
        compared to U.S. GAAP if the market for the Company's shares is not active
        and liquid. Under Canadian GAAP, if the market for the Company's shares
        is not active and liquid, fair value is established using valuation techniques
        that include recent arm's length market transactions. Under U.S. GAAP,
        regulatory interpretation requires the use of quoted market prices as
        fair value.                                                                                                                                                                                                                                                                                             
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|      | As a result of this GAAP difference, the amount recorded
        for oil and gas asset acquisitions is higher under U.S. GAAP when the
        consideration given includes common shares or warrants. The following
        adjustments were made to the acquisitions below:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

| |                                               |   | Equity      |   |   |            |  |   |            |   |   |             |  
| | --------------------------------------------- | - | ----------- | - | - | ---------- |  | - | ---------- | - | - | ----------- | -
| |                                               |   | Portion of  |   |   |            |  |   |            |   |   |             |  
| |                                               |   | Exchange    |   |   | Common     |  |   |            |   |   |             |  
| |                                               |   | Shares      |   |   | Shares     |  |   | Warrants   |   |   | Total       |  
| |                                               |   |             |   |   |            |  |   |            |   |   |             |  
| | Kentucky Reserves                             | $ | -           |   | $ | 7,792,875  |  | $ | 14,027,175 |   | $ | 21,820,050  |  
| | Trinity Sands                                 |   | 11,515,824  |   |   | -          |  |   | -          |   |   | 11,515,824  |  
| | Assets of Chetopa
      Kansas                |   | -           |   |   | 383,229    |  |   | -          |   |   | 383,229     |  
| | April 30, 2007                                |   | 11,515,824  |   |   | 8,176,104  |  |   | 14,027,175 |   |   | 33,719,103  |  
| | Deerfield Missouri                            |   | -           |   |   | 2,493,275  |  |   | -          |   |   | 2,493,275   |  
| | Montana                                       |   | -           |   |   | 359,825    |  |   | 7,328,274  |   |   | 7,688,099   |  
| | Kentucky Reserves                             |   | -           |   |   | -          |  |   | (9,700     | ) |   | (9,700      | )
| | Impairment of Trinity Sands oil
      and gas |   |             |   |   |            |  |   |            |   |   |             |  
| | assets                                        |   | (11,515,824 | ) |   | -          |  |   | -          |   |   | (11,515,824 | )
| | April 30, 2008                                | $ | -           |   | $ | 11,029,204 |  | $ | 21,345,749 |   | $ | 32,374,953  |  

|     | In January 2008, the Companys market for the shares
        became active and liquid. As a result, this GAAP difference will no longer
        be applicable to future share based transactions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(iv) | For the year ended April 30, 2007 there was a difference
        in the carrying amounts of marketable securities under Canadian GAAP compared
        to U.S. GAAP. Under Canadian GAAP, marketable securities were recorded
        at the lower of cost or market value, and were not re-measured unless
        an impairment of carrying amount occurred. Under U.S. GAAP, marketable
        securities available for sale are recorded and re-measured at each balance
        sheet date at their fair value. At April 30, 2007 under U.S. GAAP the
        Company recorded a $242,040 unrealized gain on marketable securities as
        a component of other comprehensive income. During the year ended April
        30, 2008, the value of these marketable securities declined, and the Company
        recognized a comprehensive loss of $242,000.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     | On May 1, 2007, after the adoption of new Canadian accounting
        standards for financial instruments, this GAAP difference no longer exists.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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- 90 -

|MegaWest Energy Corp (an exploration stage company)                                                                      
|-------------------------------------------------------------------------------------------------------------------------
|Reconciliation to U.S. GAAP as at April 30, 2008 and 2007 and
      for the years ended April 30, 2008, 2007 and 2006 (in
|Canadian dollars
      unless otherwise indicated)                                                                       

|(v)  | There is a difference in the treatment of convertible
        promissory notes under Canadian GAAP compared to U.S. GAAP. Under Canadian
        GAAP, the equity component of the note is valued using an option pricing
        model and classified as shareholders' equity. The residual amount is classified
        as a liability and interest is recorded, to bring the liability to its
        future value at maturity using the effective interest rate method.                                                                                                                                                                                                                                                                         
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     | Under U.S. GAAP, the convertible promissory notes are
        classified as liability, and interest is accrued at the contractual rate.
        This results in the re-classification of the equity portion to liability,
        and a reduction in interest expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(vi) | The fair value of the Company's stock compensation transactions
        was estimated using the Black-Scholes options pricing model. One of the
        assumptions used in the Black-Scholes model is the market price of the
        underlying share on the grant date. As a result of the GAAP difference
        on the fair value of the Company's shares described in (iii), the stock
        compensation transactions have a different fair value input under Canadian
        GAAP compared to U.S. GAAP. Under Canadian GAAP, the fair value of the
        Company's shares was based on recent arm's length transactions, including
        recent private placements. Under U.S. GAAP, the quoted OTC exchange price
        is used.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     | This results in the GAAP differences for the following
        stock-based transactions:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

| |                                                |   | Canadian  |   |   |                 |   |   | GAAP       |  
| | ---------------------------------------------- | - | --------- | - | - | --------------- | - | - | ---------- | -
| | Year ended April
      30, 2008                |   | GAAP      |   |   | U.S.
      GAAP |   |   | Adjustment |  
| | Compensation cost on stock options             | $ | 1,065,859 |   | $ | 3,188,800       |   | $ | 2,122,941  |  
| | Compensation cost
      on common shares       |   | 394,900   |   |   | 672,626         |   |   | 277,726    |  
| | Adjustment to contributed surplus              |   | 1,460,759 |   |   | 3,861,426       |   |   | 2,400,667  |  
| | Capitalized stock-based
      compensation     |   | (360,880  | ) |   | (1,163,849      | ) |   | (802,969   | )
| | Adjustment to net loss                         | $ | 1,099,879 |   | $ | 2,697,577       |   | $ | 1,597,698  |  
| |                                                |   |           |   |   |                 |   |   |            |  
| |                                                |   | Canadian  |   |   |                 |   |   | GAAP       |  
| | Year ended April
      30, 2007                |   | GAAP      |   |   | U.S.
      GAAP |   |   | Adjustment |  
| | Compensation cost on stock options             | $ | 1,863,448 |   | $ | 7,712,061       |   | $ | 5,848,613  |  
| | Compensation cost
      on consulting warrants |   | 1,600,800 |   |   | 6,403,200       |   |   | 4,802,400  |  
| | Adjustment to contributed surplus              |   | 3,464,248 |   |   | 14,115,261      |   |   | 10,651,013 |  
| | Shares issued to settle
      debt             |   | -         |   |   | 597,392         |   |   | 597,392    |  
| | Adjustment to 2007 net loss                    | $ | 3,464,248 |   | $ | 14,712,653      |   | $ | 11,248,405 |  

|       | In January 2008, the Companys
        market for the shares became active and liquid. As a result, this GAAP
        difference will no longer be applicable to future share based transactions.                                                                                                                                                                                                                                                                 
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(vii)  | The value ascribed to the share
        purchase warrants issued in connection with the unit private placements
        is adjusted under U.S. GAAP, as the OTC exchange quoted price is used
        for the market price input in the option pricing model. This results in
        an adjustment of $9,053,000 from share capital to warrants and $1,604,600
        million from share capital to contributed surplus for the stock-based
        issue costs.
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|       | In January 2008, the Companys
        market for the shares became active and liquid. As a result, this GAAP
        difference will no longer be applicable to future share based transactions.                                                                                                                                                                                                                                                                 
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(viii) | There is a difference in the
        classification and remeasurement of exchange shares under Canadian GAAP
        compared to U.S. GAAP. Under Canadian GAAP, the exchange shares are split
        between the equity and liability components.                                                                                                                                                                                                               

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- 91 -

|MegaWest Energy Corp (an exploration stage company)                                                                      
|-------------------------------------------------------------------------------------------------------------------------
|Reconciliation to U.S. GAAP as at April 30, 2008 and 2007 and
      for the years ended April 30, 2008, 2007 and 2006 (in
|Canadian dollars
      unless otherwise indicated)                                                                       

|                                                                                                                                                            | The equity component of the exchange shares is
      valued using an option pricing model and classified as shareholders' equity.
      The residual amount is classified as a liability at its fair value.                                                                                                                                                                                                                                      
|----------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                            | Under U.S. GAAP, the exchange
        shares components are not separated, rather they are accounted for as
        temporary equity. The exchange shares are measured at fair value on issuance
        and for each reporting period, the exchange shares are remeasured to their
        redemption value, and the resulting difference is recognized as an adjustment
        to retained earnings (deficit).                                
|                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(ix)                                                                                                                                                        | As a result of the higher stock
        compensation cost as described in (vi), when stock options and warrants
        are exercised, there will be an adjustment under U.S. GAAP related to
        the transfer from contributed surplus and warrants to share capital.                                                                                                                                                                       
|                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                            | During the year ended April 30,
        2008; 1,025,000 options were exercised resulting in an additional $1,278,614
        transferred to share capital from contributed surplus, 6,925,000 warrants
        were exercised resulting in an additional $5,033,319 transferred to share
        capital from warrants and 180,000 unit rights were exercised resulting
        in an additional $213,300 share capital from contributed surplus.
|                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                            | During the year ended April 30,
        2007, 500,000 options were exercised resulting in an additional $430,000
        transferred to share capital from contributed surplus.                                                                                                                                                                                                                                                                  
|                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(x)                                                                                                                                                         | As at April 30, 2008, accounts
        payable and accrued liabilities consisted of trade payables of $388,064
        (2007 - $246,978), salary and bonus accrual of $876,000 (2007 - $401,029),
        operational accruals of $423,711 (2007 - $615,185) and sales tax accruals
        of $nil (2007 - $38,448).                                                                                                                            
|                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(b) Consolidated Statement of Operations:                                                                                                                  
|                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|The application of U.S. GAAP has
        the effects on the following consolidated statement of operations for
        the years ended April 30 as follows:

|                                              |   | Years Ended April 30 |  
|--------------------------------------------- | - | -------------------- | -
|                                              |   | 2008                 |  
|                                              |   |                      |  
|                                              |   | Net
      Loss       |  
|Canadian GAAP Loss:                           | $ | (17,903,023          | )
|Adjustments for:                              |   |                      |  
|Reduced interest
      expense on convertible |   |                      |  
|promissory notes (v)                          |   | 70,757               |  
|Stock-based compensation
      expense on     |   |                      |  
|stock options (vi)                            |   | (2,122,941           | )
|Less capitalized
      stock-based            |   |                      |  
|compensation expense                          |   | 802,969              |  
|Stock-based compensation
      on shares      |   |                      |  
|issued for services (viii)                    |   | (277,726             | )
|U.S. GAAP Loss                                | $ | (19,429,964          | )
|Adjustment affecting comprehensive income     |   |                      |  
|under U.S. GAAP:                              |   |                      |  
|Unrealized gain (loss) on marketable          |   |                      |  
|securities (iv)                               |   | (242,040             | )
|U.S. GAAP Comprehensive
      Loss            | $ | (19,672,004          | )

There were no differences between Canadian GAAP and U.S. GAAP
  during the year ended April 30, 2006.

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- 92 -

|MegaWest Energy Corp (an exploration stage company)                                                                      
|-------------------------------------------------------------------------------------------------------------------------
|Reconciliation to U.S. GAAP as at April 30, 2008 and 2007 and
      for the years ended April 30, 2008, 2007 and 2006 (in
|Canadian dollars
      unless otherwise indicated)                                                                       

|(c) | Recent Developments in US GAAP:
      In December 2007, the FASB issued Statement of Financial
        Accounting Standards No. 141 (revised 2007), Business Combinations
        (SFAS No. 141(R)) and Statement of Financial Accounting Standards
        No. 160, Noncontrolling Interests in Consolidated Financial Statements
        (SFAS No. 160). Effective for fiscal years beginning after
        December 15, 2008, the standards will improve, simplify, and converge
        internationally the accounting for business combinations and the reporting
        of noncontrolling interests in consolidated financial statements. SFAS
        141(R) requires the acquiring entity in a business combination to recognize
        all (and only) the assets acquired and liabilities assumed in the transaction;
        establishes the acquisition date fair value as the measurement objective
        for all assets acquired and liabilities assumed; and requires the acquirer
        to disclose to investors and other users all of the information they need
        to evaluate and understand the nature and financial effect of the business
        combination. SFAS 160 requires all entities to report noncontrolling (minority)
        interests in subsidiaries in the same way as equity in the consolidated
        financial statements. Management is currently evacuating the impact of
        the adoption of these new standards on its financial statements.
      In February 2007, the FASB issued Statement of Financial
        Accounting Standards No. 159, "The Fair Value Option for Financial Assets
        and Financial Liabilities" ("SFAS No. 159"). Under SFAS 159, entities
        are provided with an option to report selected financial assets and liabilities
        at fair value. The standard permits an entity to elect the fair value
        option on an instrument-by-instrument basis; and once the election is
        made, it is irrevocable. The objective is to improve financial reporting
        by providing entities with the opportunity to mitigate volatility in reported
        earnings caused by measuring related assets and liabilities differently
        without having to apply complex hedge accounting provisions. In addition,
        SFAS 159 establishes presentation and disclosure requirements designed
        to facilitate comparisons between entities that choose different measurement
        attributes for similar types of assets and liabilities. The effective
        date of SFAS 159 is for fiscal years beginning after November 15, 2007.
        Management is in the process of reviewing the requirements of this recent
        statement.
      In September 2006, the FASB issued Statement of Financial
        Accounting Standards No. 157, "Fair Value Measurements" ("SFAS No. 157").
        This statement defines fair value, establishes a framework for measuring
        fair value in generally accepted accounting principles (GAAP), and expands
        disclosures about fair value measurements. This statement does not require
        any new fair value measurements; however, for some entities the application
        of this statement will change current practice. SFAS No. 157 is effective
        for financial statements issued for fiscal years beginning after November
        15, 2007, and interim periods within those fiscal years, although early
        adoption is permitted. Management is in the process of reviewing the requirements
        of this recent statement.
      In March 2008, the FASB issued SFAS 161, Disclosures
        about Derivative Instruments and Hedging Activities, an amendment of FASB
        Statement No. 133.This Statement requires enhanced disclosures about
        an entitys derivative and hedging activities and thereby improves
        the transparency of financial reporting. Disclosing the fair values of
        derivative instruments and their gains and losses in a tabular format
        provides a more complete picture of the location in an entitys financial
        statements of both the derivative positions existing at period end and
        the effect of using derivatives during the reporting period. Entities
        are required to provide enhanced disclosures about (a) how and why an
        entity uses derivative instruments, (b) how derivative instruments and
        related hedged items are accounted for under Statement 133 and its related
        interpretations, and (c) how derivative instruments and related hedged
        items affect an entitys financial position, financial performance
        and cash flows. We are currently evaluating the impact of adopting SFAS
        161.
      In May 2008, the FASB issued Statement No. 162, The
        Hierarchy of Generally Accepted Accounting Principles(SFAS
        162). FAS 162 identifies the sources of accounting principles and
        the framework for selecting the principles to be used in the preparation
        of financial statements of nongovernmental entities that are presented
        in conformity with GAAP. SFAS 162 directs the GAAP hierarchy to the entity,
        not the independent auditors, as the entity is responsible for selecting
        accounting principles for financial statements that are presented in conformity
        with GAAP. SFAS 162 is effective 60 days following the SECs approval
        of the Public Company Accounting Oversight Board amendments to remove
        the GAAP hierarchy from the auditing standards. We are currently evaluating
        the impact of adopting SFAS 162.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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- 93 -

|ITEM 19. | Exhibits
|-------- | --------

Exhibits Required by Form 20-F.

|Exhibit |                                                                                                                                                                              
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  | Description                                                                                                                                                                  
|1.1     | Certificate of Incorporation  British Columbia (1)                                                                                                                          
|1.2     | Notice of Articles  British Columbia (2)                                                                                                                                    
|1.3     | Certificate of Name Change  British Columbia (2)                                                                                                                            
|1.4     | Articles  British Columbia (2)                                                                                                                                              
|1.5     | Certificate of Continuance  Alberta (6)                                                                                                                                     
|1.6     | Articles of Continuance  Alberta (6)                                                                                                                                        
|1.70    | By-law No. 1  Alberta (6)                                                                                                                                                   
|4.1     | Form of Subscription Agreement entered into with various
      subscribers in December 2006: (2)                                                                             
|4.2     | Form of Subscription Agreement entered into with various
      subscribers in December 2006: (2)                                                                             
|4.3     | Employment Agreement dated December 15, 2006 with R.
      William Thornton (2)                                                                                              
|4.4     | Letter of Intent dated December 20, 2006 with Deerfield
      Energy LLC (2)                                                                                                 
|4.5     | Assumption and Loan Conversion Agreement dated December
      20, 2006 with Agosto Corporation Limited and Deerfield Energy LLC (2)                                          
|4.6     | First Supplemental Agreement to Assumption and Loan
      Conversion Agreement dated December 20, 2006 with Agosto Corporation
      Limited and Deerfield Energy LLC (2)    
|4.7     | Letter of Intent dated December 20, 2006 with Trinity
      Sands Energy LLC (2)                                                                                             
|4.8     | Assumption and Loan Conversion Agreement dated December
      20, 2006 with Agosto Corporation Limited and Trinity Sands Energy LLC (2)                                      
|4.9     | First Supplemental Agreement to Assumption and Loan
      Conversion Agreement dated December 20, 2006 with Agosto Corporation
      Limited and Trinity Sands Energy LLC (2)
|4.10    | Form of Warrant Issuance Agreement dated December 20,
      2006 entered into with: (2)                                                                                      
|        | Gladrock Energy LLC Endurance Energy Consulting Ltd.
      1187016 Alberta Ltd.                                                                                              

---

- 94 -

|Exhibit |                                                                                                                                                                        
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  | Description                                                                                                                                                            
|4.11    | Form of Debt Settlement and Subscription Agreement dated
      December 21, 2006 entered into with: (2)                                                                
|        | Karkrash Holdings Ltd. Carob Management Ltd.
      Brian Hanson Roy Brown Amisano Hanson                                                                               
|4.12    | Canadian Stock Option Plan dated August 24, 2004, amended
      and restated February 19, 2007 and August 9, 2007 (3)                                                  
|4.13    | U.S. Stock Option Plan dated January 5, 2007 (3)                                                                                                                       
|4.14    | Form of Subscription Agreement entered into with various
      subscribers in January and February 2007 (2)                                                            
|4.15    | Form of Subscription Agreement entered into with various
      subscribers in January and February 2007 (2)                                                            
|4.16    | Form of Subscription Agreement entered into with various
      subscribers in March 2007 (2)                                                                           
|4.17    | Form of Subscription Agreement entered into with various
      subscribers in March 2007 (2)                                                                           
|4.18    | Asset Purchase Agreement dated March 26, 2007 with
      Deerfield Energy Kansas Corp. (2)                                                                             
|4.19    | Membership Unit Purchase Agreement dated March 26, 2007
      with the members of Deerfield Energy LLC (3)                                                             
|4.20    | Membership Unit Purchase Agreement dated April 2, 2007
      with the members of Kentucky Reserves, LLC (3)                                                            
|4.21    | Membership Unit Purchase Agreement dated April 25, 2007
      with the members of Trinity Sands Energy LLC (3)                                                         
|4.22    | Escrow Agreement dated April 5, 2007 with the unit
      holders of Deerfield Energy LLC and Clark Wilson LLP (3)                                                      
|4.23    | Consulting Agreement dated as of February 15, 2007 with
      Mercury Capital Inc. (3)                                                                                 
|4.24    | Employment Agreement with George T. Stapleton, II (3)                                                                                                                  
|4.25    | Employment Agreement with George Orr (3)                                                                                                                               
|4.26    | Warrant Certificate dated February 28, 2007 for 375,000
      units at US$1.30 evidencing Rights Agreement entered into with PowerOne
      Capital Markets Limited (3)
|4.27    | Warrant Certificate dated January 5, 2007 for 180,000
      units at US$0.50 evidencing Rights Agreement entered into with PowerOne
      Capital Markets Limited (3)  
|4.28    | Corporate Support Agreement made effective January 1,
      2007 with Sweetwater Capital Corp. (4)                                                                     
|4.29    | Agreement of Purchase and Sale made as of October 15,
      2007 in respect of the Big Sky project in Choteau County, Montana (5)                                      

---

- 95 -

|Exhibit |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4.30    | Regional Area
        of Mutual Interest Agreement made as of October 24, 2007 in respect of
        the Big Sky project in Choteau County, Montana (5)                                                                                                                                                                                                                                                                                                               
|4.31    | Operating and Farmin Agreement
        dated October 24, 2007 in respect Loma Area, Montana (Big Sky project)
        (5)                                                                                                                                                                                                                                                                                                                                             
|4.32    | Operating and
        Farmin Agreement dated October 24, 2007 in respect Teton Area, Montana
        (Big Sky project) (5)                                                                                                                                                                                                                                                                                                                                            
|4.33    | Amendment to Warrant Issuance
        Agreement dated September 18, 2007 with Endurance Energy Consulting (5)                                                                                                                                                                                                                                                                                                                                                         
|4.34    | Amendment to
        Warrant Issuance Agreement dated September 18, 2007 with Gladrock Energy
        LLC (5)                                                                                                                                                                                                                                                                                                                                                         
|4.35    | Amendment to Warrant Issuance
        Agreement dated September 18, 2007 with 1187016 Alberta Ltd. (5)                                                                                                                                                                                                                                                                                                                                                                
|4.36    | Consulting Agreement
        dated December 20, 2007 with PowerOne Capital Markets Limited (5)                                                                                                                                                                                                                                                                                                                                                                        
|4.37    | Canadian
        Equity Incentive Plan, amended and restated June 5, 2008 (8)                                                                                                                                                                                                                                                                                                                                                                                         
|4.38    | U.S.
        Equity Incentive Plan, amended and restated June 5, 2008 (8)                                                                                                                                                                                                                                                                                                                                                                                             
|4.39    | Form
        of Subscription Agreement entered into various non U.S. subscribers persons
        in May 2008 (8)                                                                                                                                                                                                                                                                                                                                                      
|4.40    | Form
        of Subscription Agreement entered into various U.S. subscribers persons
        in May 2008 (8)                                                                                                                                                                                                                                                                                                                                                          
|8.1     | Significant, direct and indirect,
        subsidiaries as at August 28, 2008:                                                                                                                                                                                                                                                                                                                                                                                         
|        | MegaWest Energy
        (USA) Corp. - Nevada 
        MegaWest Energy Missouri Corp (formerly Deerfield Energy LLC)  Delaware
        
        MegaWest Energy Kansas Corp (formerly Deerfield Energy Kansas Corp.) 
        Delaware 
        MegaWest Energy Kentucky Corp (formerly Kentucky Reserves, LLC) 
        Ohio 
        MegaWest Energy Texas Corp (formerly Trinity Sands Energy LLC) 
        Delaware 
        MegaWest Energy Montana  Delaware
|12.1    | Section
        302 Certification under Sarbanes-Oxley Act of 2002for George T.
        Stapleton, II (8)                                                                                                                                                                                                                                                                                                                                                             
|12.2    | Section
        302 Certification under Sarbanes-Oxley Act of 2002for George Orr
        (8)                                                                                                                                                                                                                                                                                                                                                                          
|12.3    | Section
        906 Certification under Sarbanes-Oxley Act of 2002for George T.
        Stapleton, II and George Orr (8)                                                                                                                                                                                                                                                                                                                                              
|23.1    | Consent
        of KPMG LLP (8)                                                                                                                                                                                                                                                                                                                                                                                                                                       
|99.1    | Audit Committee
        Charter (4)                                                                                                                                                                                                                                                                                                                                                                                                                                   
|99.2    | Compensation Committee Charter
        (4)                                                                                                                                                                                                                                                                                                                                                                                                                            
|99.3    | Corporate Governance
        and Human Resources Committee Charter (4)                                                                                                                                                                                                                                                                                                                                                                                                

---

- 96 -

|Exhibit |                                       
|------- | --------------------------------------
|Number  | Description                           
|        |                                       
|99.4    | Nominating Committee Charter
      (4)

|(1) | Incorporated by reference to our Form 6-K filed with the
      Securities and Exchange Commission on March 6, 2006.      
|--- | -------------------------------------------------------------------------------------------------------------------------
|(2) | Incorporated by reference to our Form 20-F filed with the
      Securities and Exchange Commission on March 30, 2007.    
|(3) | Incorporated by reference to our Form 20-F filed with the
      Securities and Exchange Commission on August 10, 2007.   
|(4) | Incorporated by reference to our Form F-1/A filed with
      the Securities and Exchange Commission on November 7, 2007. 
|(5) | Incorporated by reference to our Form F-1/A filed with
      the Securities and Exchange Commission on December 31, 2007.
|(6) | Incorporated by reference to our Form F-1/A filed with
      the Securities and Exchange Commission on February 15, 2008.
|(7) | Incorporated by reference to our Form F-1/A filed with
      the Securities and Exchange Commission on March 20, 2008.   
|(8) | Filed herewith.                                                                                                          

REMAINDER OF PAGE INTENTIONALLY LEFT BLANK SIGNATURE
PAGE TO FOLLOW

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SIGNATURES

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

MEGAWEST ENERGY CORP.

Per: /s/ George T. Stapleton, II

George T. Stapleton, IIChief Executive Officer and Director
(Principal Executive Officer)

Dated: August 29, 2008

---