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|August 17, 2007          
|-------------------------
|                         
|Mr. Drew Cadenhead       
|c/o TAG Oil Ltd.         
|PO Box 183               
|117 Powderham Street     
|New Plymouth, New Zealand
|                         
|Dear Mr. Cadenhead:      

|Re: | Termination of Employment
|--- | -------------------------

Pursuant to our previous discussions and as we have both agreed
along with the Board of TAG Oil Ltd.s (the Company) support, the Company
needs to make some strategic changes in the management of the Company and, as a
result, your employment with the Company will end effective September 1, 2007.
As a result of the termination of your employment, the Company is prepared to
provide you with the following severance package in recognition of the
contributions you have made to the Company over the past several years and to
assist you in transitioning to new opportunities:

|1. | Payment for Days Worked. You will be paid your
      regular base salary, up to and including September 1, 2007, less
      applicable statutory deductions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|2. | Vacation Pay. You will be paid for all accrued but
      unused vacation days, up to September 1, 2007, less applicable statutory
      deductions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|3. | Initial Severance Payment. You will be paid the
      sum of CAD$50,000, less applicable statutory deductions. This amount is
      inclusive of any entitlements you may be entitled to receive under either
      British Columbia or New Zealand employment standards
legislation.                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|4. | Benefits Coverage. The Company will continue your
      health and dental insurance coverage until the completion of the
      consulting period set out below. All other company- sponsored benefits,
      including long term disability insurance coverage, terminate effective
      September 1, 2007. You may have the option to convert your group life
      insurance policy to an individual plan within 31 days from the termination
      of your employment. Questions regarding group life conversion should be
      discussed with Linda Randsley at Southern Cross, who can be reached at 06
      759-9979.                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|5. | Consulting Period. Following September 1, 2007,
      you agree to provide consulting services to the Company for three months,
      in order to assist with the orderly transition of the Companys business.
      In exchange, the Company shall pay you the sum of CAD$1,000 per full day
      of work, with a minimum CAD$10,000 payment per month based on ten days of
      work per month. Any days of work required over ten days per month must be
      approved by Garth Johnson in advance. This consulting agreement may be
      extended by mutual agreement for a further three months on the written
      agreement of both parties.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|6. | Relocation Expenses. The Company shall reimburse
      you for all reasonable expenses incurred in relation to moving your family
      and possessions from New Zealand to North America, to a maximum amount of
      CAD$30,000. You shall be reimbursed within 30 days of receipt of
      appropriate documentation substantiating such expenses.
  Upon                                                                                                                                                                                                                                                                                            

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|    | approval in advance by the Company, certain of these
      costs may be advanced to you or paid directly by the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|7.  | Final Severance Payment. Upon the completion of an
      orderly transition of duties to Garth Johnson, consisting of (but not
      limited to) transferring records (hard copy and electronic), returning
      assets, liaise, as necessary and as requested by the Company, with
      shareholders, employees, ministry officials and joint venture partners
      during the consulting period set out above, the Company on November 30,
      2007 will pay you the sum of CAD$355,600, less applicable statutory
      deductions which, in conjunction with the initial termination payment set
      out above, constitutes a total of 16 months salary.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|8.  | Stock Options. Subject to applicable securities
      legislation, all existing options shall continue to vest until the
      completion of the consulting period and shall be exercisable for a further
      30 days following the expiration of that consulting agreement.                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|9.  | Resignation as Director and Officer. You will resign as a
      director and from any other office you hold at the Company and any of its
      subsidiaries, including without limitation, TAG Oil (NZ) Limited, TAG Oil
      (Canterbury) Limited and Cheal Petroleum Limited. A copy of a resignation
      letter is attached for your signature.                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10. | Release of Claims. In exchange for the payments
      set out above, you agree to sign a written release of any and all claims
      you may have against the Company in the form attached to this
    letter.                                                                                                                                                                                                                                                                                                                                                                                                                                                       

You may accept this offer by signing this letter and the
enclosed Release and returning them to us before August 24, 2007. We ask that
you carefully consider this offer and seek whatever professional advice you
require.

By signing this letter below, TAG Oil Ltd. undertakes not to
speak ill of you in any way whatsoever now or hereafter.

If you have any questions about the content of this letter,
please feel free to contact me at 604-609-3351.

Again, we want to thank you for the contributions you have made
to the Company and wish you all the best in your future endeavours.

Yours truly,

Garth Johnson Chief Financial Officer

/gj

Enclosures

Acknowledged and agreed to this __________ day of August, 2007.

|               | 
|-------------- | 
|Drew Cadenhead | 

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