---

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

FORM 20-F

 ̈ REGISTRATION
  STATEMENT PURSUANT TO SECTION 12(b) or 12(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 March 31, 2005 (with
other information to September 28, 2005 except where noted)

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 0-22500

TAG OIL LTD.(Exact name of
Registrant specified in its charter)

Not Applicable(Translation of Registrants
name into English)

YUKON TERRITORY, CANADA(Jurisdiction of
incorporation or organization)

Suite 400, 534 17thAvenue SW
Calgary, Alberta, Canada, T2S 0B1(Address of principal
executive offices)

COMMON SHARES WITHOUT PAR VALUE(Title of
Class)

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

|Title of Each
      Class | Name
      of each exchange on which registered
|------------------------- | -----------------------------------------------
|None                      | Not applicable                                 

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

**Common Shares without Par
Value**(Title of Class)

---

Securities for which there is a reporting obligation pursuant to
Section 15(d) of the
Act.                  None

Number of outstanding shares of TAG Oils only class of capital
stock as on March 31, 2005.

26,026,081 Common Shares Without Par Value (46,631,081
outstanding at September 28, 2005)

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

Indicate by check mark which financial statement item 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  ̈                                  
  Nox

(End of Cover Page)

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3



TABLE OF CONTENTS of the Form 20F of TAG Oil Ltd.

|GLOSSARY | 4                                                                                     
|-------- | --------------------------------------------------------------------------------------
|         |                                                                                       
|ITEM 1.  | IDENTITY OF DIRECTORS, SENIOR
      MANAGEMENT AND ADVISERS                           
|         |                                                                                       
|ITEM 2.  | OFFER STATISTICS AND EXPECTED
      TIMETABLE                                         
|         |                                                                                       
|ITEM 3.  | KEY INFORMATION                                                                       
|         |                                                                                       
|ITEM 4.  | INFORMATION ON THE COMPANY                                                            
|         |                                                                                       
|ITEM 5.  | OPERATING, FINANCIAL REVIEW
      AND PROSPECTS                                       
|         |                                                                                       
|ITEM 6.  | DIRECTORS, SENIOR MANAGEMENT
      AND EMPLOYEES                                      
|         |                                                                                       
|ITEM 7.  | MAJOR SHAREHOLDERS AND RELATED
      PARTY TRANSACTIONS                               
|         |                                                                                       
|ITEM 8.  | FINANCIAL INFORMATION                                                                 
|         |                                                                                       
|ITEM 9.  | THE OFFER AND LISTING                                                                 
|         |                                                                                       
|ITEM 10. | ADDITIONAL INFORMATION                                                                
|         |                                                                                       
|ITEM 11. | QUANTITATIVE AND QUALITATIVE
      DISCLOSURES ABOUT MARKET RISK                      
|         |                                                                                       
|ITEM 12. | DESCRIPTION OF SECURITIES
      OTHER THAN EQUITY SECURITIES                          
|         |                                                                                       
|ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES
      AND DELINQUENCIES                                 
|         |                                                                                       
|ITEM 14. | MATERIAL MODIFICATIONS TO
      THE RIGHTS OF SECURITY HOLDERS AND USE OF **PROCEEDS**
|         |                                                                                       
|ITEM 15. | CONTROLS AND PROCEDURES                                                               
|         |                                                                                       
|ITEM 16. | AUDIT COMMITTEE, CODE OF
      ETHICS, ACCOUNTANTS FEES                               
|         |                                                                                       
|ITEM 17. | FINANCIAL STATEMENTS                                                                  
|         |                                                                                       
|ITEM 18. | FINANCIAL STATEMENTS                                                                  
|         |                                                                                       
|ITEM 19. | EXHIBITS                                                                              

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- 4 -

Currency, Measurement and Glossary of Industry Terms

Currency and Measurement

All currency amounts are stated in Canadian dollars unless
otherwise indicated.

Conversion from metric into imperial units of measurement is as
follows:

|Metric Units   | Imperial Units           | 
|-------------- | ------------------------ | 
|               |                          | 
|hectare        | 2.471 acres              | 
|metre (m)      | 3.281 feet               | 
|kilometre (km) | 0.621 miles (3,281 feet) | 

Industry Expressions

The following are industry expressions used in this Annual
Report:

TAG, We, Our, CompanyorRegistrantrefers to TAG
Oil Ltd., a corporation organized and registered under the laws of Yukon,
Canada, and unless the context clearly requires, includes its subsidiaries.

AMIis an Area of Mutual Agreement relating to joint venture
  partners of two or more permits that have agreed to explore together, a defined
  area within their permits.

Basin is a segment of the crust of the Earth which has
been downwarped and in which thick layers of sediments have accumulated over a
long period of time.

Depletion is the reduction in petroleum reserves due to
production.

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

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

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

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

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

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

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

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

Joint Ventureor JVrefers to a standard form of
participation in petroleum exploration, via unincorporated joint arrangements
between a number of industry participants, with one party operating

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- 5 -

the permit (ie managing the operations) on behalf of all the
participants, and Joint Venturers has a corresponding meaning.

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

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

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

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

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

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

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

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

Trap is a geological structure covered by a seal in
which hydrocarbons build up to form an oil or gas reservoir.

Forward Looking Statements

Certain statements in this Report constitute forward-looking
statements. These forward-looking statements are not guarantees of our future
operational or financial performance and are subject to risks and uncertainties.
When used in this Annual Report, the words estimate, intend, expect,
anticipate and similar expressions are intended to identify forward-looking
statements. Readers are cautioned not to place undue reliance on these
statements, which speak only as of the date of this Annual Report. These
statements are subject to risks and uncertainties that could cause results to
differ materially from those contemplated in such forward-looking statements.

Such risks and uncertainties include, but are not limited to,
those identified under the subheading Risk Factors in Item 3 hereof.

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

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- 6 -

PART I

ITEM
1.               
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable

ITEM
2.               
OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable

ITEM
3.               
KEY INFORMATION

Selected financial data

The selected historical financial information presented in the
table below for each of the years ended March 31, 2005, 2004 2003, 2002 and
2001, is derived from the audited consolidated financial statements of the
Company. The audited consolidated financial statements of the Company for the
years ended March 31, 2005, 2004 and 2003 are included in this filing. The
selected historical financial information for the year ended March 31, 2002
& 2001 presented in the table below are derived from audited consolidated
financial statements of the Company that are not included in this filing. The
selected financial information presented below should be read in conjunction
with our consolidated financial statements and the notes thereto (Item 17) and
the Operating and Financial Review and Prospects (Item 5) elsewhere in this
filing.

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

Under Canadian Generally Accepted Accounting Principles (in
Cdn$)

|                       | Year Ended March 31 |  
|---------------------- | ------------------- | -
|                       | 2005                |  
|                       | $                   |  
|Current Assets         | 6,556,579           |  
|Oil and Gas Properties | 1,933,088           |  
|Property and           |                     |  
|Equipment              | 16,834              |  
|Incorporation Costs    | -                   |  
|Total Assets           | 8,506,501           |  
|Share Capital          | 18,639,495          |  
|Deficit                | (10,679,415         | )
|Interest Income        | 17,352              |  
|Rental Income          | -                   |  
|Net Loss               | (1,214,377          | )
|Net Loss per Share     | (0.09               | )

Please refer to Note 2 of Item 17, which includes the Companys
adopted recommendations of the Canadian Institute of Chartered Accountants.

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- 7 -

Under U.S. Generally Accepted Accounting Principles (in
Cdn$)

|                       |  | Year Ended March 31 |  
|---------------------- |  | ------------------- | -
|                       |  | 2005                |  
|                       |  | $                   |  
|Current Assets         |  | 6,583,579           |  
|Oil and Gas Properties |  | 2,018,617           |  
|Property and           |  |                     |  
|Equipment              |  | 16,834              |  
|Incorporation Costs    |  | -                   |  
|Total Assets           |  | 8,619,030           |  
|Share Capital          |  | 21,682,353          |  
|Deficit                |  | (13,698,873         | )
|Cumulative             |  |                     |  
|Comprehensive Adj.     |  | 27,000              |  
|Interest Income        |  | 17,352              |  
|Rental Income          |  | -                   |  
|Net Loss               |  | (1,204,177          | )
|Net Loss per Share     |  | (0.09               | )

Please refer to Note 13 of Item 17, which includes all material
differences between Canadian and US GAAP that are relevant in preparation of our
financial statements.

Given the nature of our operations and assets we are of the
view that for the two years ended March 31, 2005 the foregoing difference in
Canadian and U.S. GAAP would not have resulted in any material disclosure
differences insofar as our financial results are concerned.

Exchange Rates

Our financial statements, as provided under Item 8 and 17 are
presented in Canadian Dollars. On March 31, 2005 the buying rate for Canadian
dollars was US $1.00 for Cdn$ 1.2096. At the close of business on September 28,
2005 the buying rate for Canadian dollars was US$1.00 for Cdn$1.1785. Rates of
exchange are obtained from the Bank of Canada and believed by the Company to
approximate closely the rates certified for customs purposes by the Federal
Reserve Bank in New York.

The following table sets out the buying rate for Canadian
dollars for the last six months:

|          | Oct 2004 | Nov 2004 | Dec 2004 | Jan 2005 | Feb 2005 | Mar 2005
|--------- | -------- | -------- | -------- | -------- | -------- | --------
|Month End | 1.2180   | 1.1860   | 1.2020   | 1.2412   | 1.2335   | 1.2096  
|Average   | 1.2472   | 1.1957   | 1.2176   | 1.2256   | 1.2383   | 1.2157  
|High (2)  | 1.2521   | 1.2004   | 1.2238   | 1.2303   | 1.2441   | 1.2205  
|Low (2)   | 1.2437   | 1.1925   | 1.2127   | 1.2201   | 1.2350   | 1.2120  

The following table sets out the buying rate for Canadian
dollars for the last five fiscal years:

|             | 2005   | 2004   | 2003   | 2002   | 2001  
|------------ | ------ | ------ | ------ | ------ | ------
|             |        |        |        |        |       
|Year End (1) | 1.2096 | 1.3113 | 1.4678 | 1.5942 | 1.5763
|Average      | 1.2782 | 1.3527 | 1.5491 | 1.5655 | 1.5041
|High (2)     | 1.2834 | 1.4924 | 1.5988 | 1.6125 | 1.5763
|Low (2)      | 1.2742 | 1.2683 | 1.4628 | 1.5583 | 1.4497

Notes:(1) Year end is March 31.(2) The high and low
buying rate figures are selected from daily high and low closing figures.

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- 8 -

Capitalization and indebtedness

Not applicable.

Reasons for the offer and use of proceeds

Not applicable.

Risk Factors

The common shares of our company must be considered a
speculative investment due to a number of factors. An investment in our common
shares should only be made by persons who can afford to lose their entire
investment and there can be no assurance that our common shares will increase in
value. The purchase of the common shares involves a number of significant risk
factors. Purchasers of common shares should consider the following:

1. ****Failure to Locate Commercial Quantities of Hydrocarbons and
Geological Risks

Exploration for hydrocarbons is a speculative venture
necessarily involving substantial risk. There is no certainty that the
expenditures we incur on our exploration properties will result in discoveries
of commercial quantities of hydrocarbons. In addition, even if hydrocarbons are
discovered, the costs of extraction and delivering the hydrocarbons to market,
and variations in the market price may render any deposit found uneconomic.
Geological conditions are variable and unpredictable. Even if production is
commenced from a well, the production will inevitably decline and may be
affected or terminated by geological conditions that cannot be foreseen.

2. ****Marketability and Price of Oil and Natural Gas

The marketability and price of oil and natural gas that may be
acquired or discovered may be affected by numerous factors beyond our control.
We may be affected by the differential between the price paid by refiners for
light, quality oil and various grades of oil produced. We are subject to market
fluctuations in the prices of oil and natural gas, deliverability uncertainties
related to the proximity of reserves to pipeline and processing facilities and
government regulation relating to prices, taxes, royalties, land tenure,
allowable production, the export of oil and natural gas and many other aspects
of the oil and natural gas business.

Our operations will be further affected by the remoteness of,
and restrictions on access to, certain properties as well as climatic
conditions.

3. ****Limited Financial Resources

We have limited financial resources and, if our business is not
profitable, may not be able to raise sufficient funds to sustain, continue or
expand our business. We currently have no operating revenues and rely
principally on the issuance of common shares to raise funds to finance our
business. There is no assurance that market conditions will continue to permit
us to raise funds, if required.

4. ****History of Losses and Reliance on Certain Persons

We have a history of losses from operations from failed
investments in the oil and gas business. Through September 22, 2005, the
management of the Company and the growth of the business depended on the
continued involvement of Mr. Alex Guidi, a principal shareholder who was
instrumental in securing funding for the Company. There are no formal agreements
in place with Mr. Guidi and Mr. Guidi has other business interests, which result
in him devoting only a small portion of his time to the business of the Company.
As a result of the Companys most recent brokered private placement, which
concluded on September 22, 2005, TAG has established a broader shareholder
base.

5. ****Dilution

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- 9 -

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

6. ****Environmental Risks

We are subject to laws and regulations that control the
discharge of materials into the environment, require removal and cleanup in
certain circumstances, require the proper handling and disposal of waste
materials or otherwise relate to the protection of the environment. In operating
and owning petroleum interests, we may be liable for damages and the costs of
removing hydrocarbon spills for which we are held responsible. Laws relating to
the protection of the environment have in many jurisdictions become more
stringent in recent years and may, in certain circumstances, impose strict
liability, rendering our company liable for environmental damage without regard
to negligence or fault on the part of our company. Such laws and regulations may
expose us to liability for the conduct of, or conditions caused by others or for
acts our company that were in compliance with all applicable law at the time
such acts were performed. The application of these requirements or the adoption
of new requirements could have a material adverse effect on our business. We
believe that we have conducted our business in substantial compliance with all
applicable environmental laws and regulations.

7. ****Indemnities may be Unenforceable or Uncollectable

The operating agreements we have with participants in a
property generally provide for the indemnification of the company that is the
operator. We are not the operator in programs on oil and gas properties and may
be requested to reimburse the company that is the operator for losses or damages
caused or incurred in the course of operations.

8. ****Title to Properties and Consequences of Failure to Satisfy
Prescribed Permit or Licence Terms and Conditions

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

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

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

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- 10 -

We do not maintain title insurance over our properties. See
also Risk Factor 12 regarding title assurance.

9. ****Possible Lack of or Inadequacy of Insurance

The operator of each permit maintains insurance against certain
public liability, operational and environmental risks on behalf of the
respective joint venture, but there is no assurance that an event causing loss
will be covered by such insurance, that such insurance will continue to be
available to our company, or that the benefits of such insurance will be
adequate to cover our liability.

10. ****Effect
of Different Currencies

We hold cash reserves in CDN and US dollars, but incur the
majority of our petroleum property expenditures in New Zealand dollars.
Subsequent to the reporting date, the value of the New Zealand currency has
depreciated against the value of the CDN and US currency to our benefit. An
increase in value of the New Zealand dollar versus the CDN or US dollar would
have a detrimental effect to us as our expenses incurred would, in turn,
increase in CDN and US dollars.

11.****Penny Stock Regulation and Difficulties in Selling Shares

The Securities and Exchange Commission (the SEC) has adopted
rules that regulate broker-dealer practices in connection with transactions in
penny stocks. Penny stocks generally are equity securities with a price of
less than $5.00 per share (other than securities registered on certain national
securities exchanges or quoted on the NASDAQ National Market System, provided
that current price and volume information with respect to transactions in such
securities is provided by the exchange or system). 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 prepared by
the SEC that 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 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. In addition, the penny stock rules require that prior to a transaction
in a penny stock not otherwise exempt from such rules, the broker-dealer must
make a special written determination that a penny stock is a suitable investment
for the purchaser and receive the purchasers written agreement to the
transaction. These disclosure requirements often have the effect of reducing the
level of trading activity in any secondary market for a stock that becomes
subject to the penny stock rules. Our common stock is currently subject to the
penny stock rules, and accordingly, investors may find it difficult to sell
their shares, if at all.

12.****No Title Assurance

The possibility exists that title to one or more properties may
be lost due to an omission in the claim of title. We do not maintain title
insurance and there is no guarantee of title. The properties may be subject to
prior unregistered agreements or transfers or native land claims, and title may
be affected by undetected defects.

13.****Dealings With Associated Companies

We are associated through common directors and common
shareholdings with three other public hydrocarbon companies. In certain cases,
we have been assigned interests from associated companies in compliance with
applicable corporate law.

We may also make application for interests in petroleum
properties with associated companies. Persons who are not willing to rely on the
discretion and judgment of management and the boards of directors of our company
and the associated companies should not consider a purchase of our
securities.

See Item 7  Major Shareholders and Related Party
Transactions

14.****Competition

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- 11 -

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

15.****Foreign Jurisdiction Risks; Governmental Laws and Local
Conditions

Claims of aboriginal peoples in New Zealand may adversely
affect the rights or operations of our company and there is no assurance that
governmental regulation will not vary, including regulations relating to prices,
royalties, allowable production, environmental matters, import and export of
hydrocarbons and protection of water resources and agricultural lands. Our
exploration interests in New Zealand are subject to regulations that relate
directly and indirectly to our operations, including title to the petroleum
interests, production, marketing and sale of hydrocarbons, taxation,
environmental matters, restriction on the withdrawal of capital from a country
and other factors. There is no assurance that the laws relating to the ownership
of petroleum interests and the operation of our business in New Zealand will not
change in a manner that may materially and adversely affect our business.

16.****Value of Properties

The amounts attributed to our properties in our financial
statements represent acquisition and exploration expenditures to date, and
should not be taken to in any way reflect realizable value.

17.****Legal Proceedings Against Foreign Directors

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

ITEM
4.               
INFORMATION ON THE COMPANY

History and Development of the Company

Corporate Actions

Our legal and corporate name is TAG Oil Ltd. although we have
had the name changes disclosed below. We are a Calgary, Alberta, Canada based
hydrocarbon resource company that holds an interest in the following New Zealand
exploration permits: Petroleum Exploration Permits (PEP) 38256, 38258, 38480,
38741, 38745, 38757, 38758 and 38765. TAG Oil Ltd. also has certain commercial
agreements associated with the AMI-Hursthouse, PEP 38260 and PEP 38751.

As a company domiciled in the Yukon Territory, Canada, our
legally registered office is Suite 200, Financial Plaza, 204 Lambert Street,
Whitehorse, YT, Canada, Y1A 3T2. Our principal business office is located at
Suite 400-17th Avenue, Calgary, Alberta, Canada, T2S 0B1 and our
regional exploration office is located at 23 Arden Place, Oakura, Taranaki, New
Zealand.

We were incorporated in British Columbia on December 12, 1990
under the name "398052 B.C. Ltd." by the registration of memorandum and articles
under the Company Act (British Columbia). We changed our name to "Aldus Energy
(Canada) Corp." on January 28, 1991, to "Aldus Energy Corp." on April 4, 1991,
to "Durum Energy Corp." on July 18, 1991, to Durum Cons. Energy Corp. on
October 27, 1998 and to

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- 12 -

our current name TAG Oil Ltd. on June 12, 2002. We became a
reporting company in British Columbia on obtaining a receipt for our initial
prospectus in British Columbia in February 1992. We obtained a listing on the
Vancouver Stock Exchange (the VSE) and commenced trading through the
facilities of the VSE on March 16, 1992. Trading in our common shares was halted
by the VSE on September 12, 1996 and recommenced on May 5, 1997.

On October 29, 1997 we were continued (or re-domiciled) from a
company subsisting under the jurisdiction of the Company Act (British Columbia)
to a company subsisting under the Business Corporations Act (Yukon). Our
authorized share capital was originally 25,000,000 common shares without par
value. Effective April 5, 1995, we subdivided our shares on a two new for one
old basis. Effective October 27, 1998, we increased our authorized share capital
to an unlimited number of common shares without par value and consolidated our
shares on a one new for five old basis.

Effective with the October 27, 1998 share consolidation (or
reverse-split), we changed our name to Durum Cons. Energy Corp. and then
changed our name again to our current name TAG Oil Ltd. on June 12, 2002. Our
common shares were listed on the Canadian Venture Exchange (CDNX) under the
trading symbol DUR until we voluntarily delisted on September 21, 2000.

During the 2005 fiscal year, we implemented a forward stock
split on the basis of one additional new share issued for every two old shares
held, resulting in 3,989,025 new shares being issued to existing shareholders of
record on April 27, 2004.

All references to our outstanding common shares, issuances
of common shares, options and warrants and prices associated with the above
corporate actions and their effects on share capital have been shown on a
retroactive basis.

Effective July 18, 2005, TAG Oil Ltd. commenced trading on the
TSX Venture Exchange (TSXV) under the symbol TAO. We continue to trade on
the United States Over-the-Counter Bulletin Board (OTCBB) under the trading
symbol TAGOF.

During the 2005 fiscal year, the Company completed the
deregistration of its inactive subsidiary Durum (Australia) Pty. Ltd. and is
continuing with the deregistration of its inactive subsidiary Durum Energy (PNG)
Limited. These actions are consistent with the Companys desire to focus on the
primary business in New Zealand.

Exploration and Acquisitions:

2005

During the 2005 fiscal year the Company continued its
exploration and acquisition focus in New Zealand as described below.

The material aspects of the Companys 2005 exploration program
related to the completion of a 16 square kilometer 3-D seismic program on its
100% held property PEP 38757 during the last quarter of the 2005 fiscal year,
along with drilling three unsuccessful, non-operated, wells during the year
being the Honeysuckle-1 well on PEP 38741 (TAG interest 20%) in June 2004, the
Miromiro-1 well on PEP 38765 (TAG interest 10%) in December 2004 and the
Hursthouse-1 well (TAG interest 12.5%) in December 2004, located within the Area
of Mutual Interest covering portions of PEP 38745 and PEP 38732.

During the year the Company also acquired interests in three
new interests; PEP 38757 (100% interest), PEP 38758 (100% interest) and
AMI-Hursthouse (12.5% interest). In return for the assignment of interests in
PEP 38757 and PEP 38758 the Company granted a 5% overriding royalty to PEP 38757
Limited and PEP 38758 Limited, in lieu of any cash consideration. In addition to
secure the services of an independent professional to provide geotechnical
services to the Company on PEP 38757 and 38758 at 50% of New Zealand standard
consulting rates, the Company granted the geotechnical consultant a 0.5%
overriding royalty based on Net Sales Revenue on PEP 38757 and PEP 38758. As
part of the acquisition

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- 13 -

of the interest in the AMI-Hursthouse area, the Company paid
NZ$65,000 in past costs relating to the interest as well as committing to paying
for its percentage share of the drilling costs of the Hursthouse-1 well
described above.

General and Administrative costs relating to exploration and
acquisitions of $829,333 were similar to the 2004 fiscal year ($650,680) with
the exception of travel costs, filing, listing and transfer agent fees, as well
as professional fees also increasing materially due to the Companys forward
stock split, the successful application for listing on the TSX Venture Exchange
and additional costs relating to the acquisition of additional exploration
interests.

Subsequent to the 2005 fiscal year end:

| | a. | The Company drilled the Supplejack-1 well
        on August of 2005 in PEP 38741 (TAG 20%). The well intersected 2 separate
        hydrocarbon bearing zones, which are presently being evealuated for commerciality.                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | b. | The Company acquired a 16.67% interest
        in PEP 38745 in consideration for a 5% gross overriding royalty on the
        interest assigned and was assigned a 33.33% interest in PEP 38751 in return
        for reimbursing past costs of approximately $13,000. The Company expects
        to drill a well on these interests in October and November of 2005, respectively.                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | c. | The Company entered into an agreement with
        Green Gate Limited on May 13, 2005 under which the Company can earn a
        40% interest in and become operator of the onshore area of PEP 38260 by
        completing a 25km 2-D seismic program. The Company can then earn an additional
        40% of the onshore portion of the permit by drilling one well on the permit.
        After earning its 70% interest onshore of PEP 38260, the Company will
        have the option to acquire a 15% interest in the offshore portion of PEP
        38260 by reimbursing 15% of the past costs associated with the offshore
        portion of the permit.

2004

In our 2004 fiscal year, we focussed on our current work
programs associated with our New Zealand permits and we also sought to expand
our exploration interests in New Zealand. The Company completed the required
work commitments on its existing permits and acquired two new permits as
described below.

During the 2004 fiscal year the Company (25%) and Austral
Pacific Energy Ltd. (75%) as operator, were awarded a new exploration permit
(PEP 38258) located in the offshore Canterbury Basin. In addition the Company
(10%), Austral Pacific (27.5%), Tap (New Zealand) Pty Ltd (50%) and Magellen
Petroleum (NZ) Ltd. (12.5%) were awarded new exploration permit (PEP 38765)
(formerly PPP 38761 and Block M) located in the onshore Taranaki Basin. We
also increased our interest in the onshore Canterbury Basin Project (PEP
38256) in New Zealand from 10% to 40.38% . As the activity of the Company
increased during 2004, so did the general and administrative costs associated
with operating our Company. The Company incurred significant general and
administrative costs totalling $650,680 (2003: $622,388) plus incurring stock
option compensation expenses totalling $290,030 (2003: $110,606).

The Company also retained key oil and gas exploration
personnel, included as a significant cost in our general and administrative
expenses, in order for the Company to maintain our work commitments and
acquisition efforts in New Zealand.

2003

During the 2003 fiscal year the we made three oil and gas
property acquisitions (PEP 38741, PPP 38761 and PEP 38480), through agreements
made with associated company Austral Pacific Energy Ltd. (Austral-Pacific)
(formerly Indo-Pacific Energy Ltd.) and one acquisition (PEP 38723) through an

---

- 14 -

agreement made with associated company Gondwana Energy, Ltd.,
for exploration interests in New Zealand and incurred significant expenditures
totalling $517,379 directly related to its oil and gas properties for the year.
We also incurred significant general and administrative costs totalling
$622,388, and stock option compensation expenses totalling $110,606, relating to
the increased activity of the Company in its acquisition efforts in the oil and
gas industry.

Financing:

On May 2, 2003, we approved an extension of the 6,600,000
warrants, to purchase common shares of the Company entitling holders, who are
principal shareholders of the Company, to purchase 6,000,000 common shares at a
price of US$0.20 per share until June 6, 2003, US$0.23 per share until June 6,
2005 and US$0.33 per share until expiry on June 6, 2006 and 600,000 common
shares at a price of US$0.20 per share until August 21, 2003, US$0.23 per share
until August 21, 2005 and US$0.33 per share until expiry on August 21, 2006.

See Item 7  Major Shareholders and Related Party
Transactions

On May 14, 2003, we issued 2,100,000 shares for US$0.0033 per
share, to the President of the Company, pursuant to a Consulting, Incentive
Shares and Non-Competition agreement approved by the board of directors on April
24, 2003.

See Item 7  Major Shareholders and Related Party
Transactions

On May 30, 2003, we granted options to purchase 465,000 common
shares of the Company vesting over five years and 300,000 common shares of the
Company vesting over four years, exercisable at the price of US$0.267 per share
until expiry on May 31, 2008 and May 31, 2009 respectively.

See Item 7  Major Shareholders and Related Party
Transactions

On March 4, 2004, we issued 300,000 shares from treasury upon
the exercise of share purchase warrants at a price of US$0.35 per share for
proceeds of US$105,000.

In May of 2004, we completed a non-brokered private placement
financing of 542,495 units at a price of US$1.67 per unit, for proceeds of
US$905,967. Each unit consists of one common share and a two-year share warrant
entitling the purchaser to acquire an additional share for US$1.83 per share for
the first year and thereafter at a price of US$2.00 per share until expiry at
the end of the second year.

The Company, primarily in the fourth quarter of the 2005 fiscal
year issued 6,150,000 common shares from treasury pursuant to the exercise of
certain share purchase warrants at a price of US$0.23 per share, for proceeds of
US$1,414,500 and 100,000 common shares from treasury pursuant to the exercise of
certain stock options at a price of US$0.267 per share, for proceeds of
US$26,700.

See Item 7  Major Shareholders and Related Party
Transactions

On December 24, 2004 the Company re-purchased 1,800,000
incentive shares for cancellation and return to treasury at the owners cost,
that had been previously issued to the Companys President for US$5,940.

See Item 7  Major Shareholders and Related Party
Transactions

Our final capital raising transaction for the 2005 fiscal year
occurred in March of 2005 and consisted of a private placement financing of
9,066,500 units at a price of US$0.40 per unit for proceeds of US$3,626,600.
Each unit consists of one common share and a two-year share purchase warrant
entitling the purchaser to acquire an additional common share for US$0.60 per
share for the first year and thereafter at a price of US$0.80 per share until
expiry at the end of the second year, subject to an accelerated expiry if a
market trigger price is reached of US$1.00 in year one and US$1.20 in year two,
in

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- 15 -

which event the warrant will expire 30 days after notice is
given to the holder that the trigger price was reached.

See Item 7  Major Shareholders and Related Party
Transactions

Subsequent to the 2005 fiscal year, on May 19, 2005, the
Companys Board of Directors approved an amendment to the terms of the Companys
542,495 share purchase warrants issued May 4, 2004. The amendment, was approved
by the warrant holders, and reduced the exercise price of the warrants from
US$2.00 to US$0.80 in consideration for the warrant holders accepting an
accelerated expiry provision whereby the warrants will expire 30 days after
notice is given by the Company that the Companys shares have traded over
US$1.20 for 10 consecutive days.

On August 19, 2005, the Company chose to accelerate the
9,066,500 share purchase warrants outstanding described above, as the market
trigger price was reached in year one. As a result, the expiry of the 9,066,500
share purchase warrants, exercisable at US$0.60 per share was changed to
September 26, 2005. All affected warrants were exercised prior to expiry for
proceeds of US$5,439,900.

On September 22, 2005 the Company completed a brokered private
placement financing of 11,538,500 shares at a price of $1.30 per share for gross
proceeds of $15,000,050.

Business Overview

Nature of Operations

We are an independent oil and gas acquisition and exploration
company, incorporated in Canada, with all our interests in hydrocarbon
exploration prospects currently being in New Zealand. We are involved in the
exploration for hydrocarbons and all of our current property holdings are in the
grassroots or primary exploration stage. We currently do not generate any
revenues from the sale of hydrocarbons and therefore are not currently affected
by principal markets for hydrocarbon products, seasonality of products, or
marketing channels. We do not have a reliance on raw materials, or any
significant patents or licences, as we operate in an extractive industry.

We compete with other companies in bidding for the acquisition
of petroleum interests from various authorities, and in exploring for oil and
gas in the Austral Pacific region. We are also subject to government regulation
of the oil and gas properties we hold and in the operations we conduct on those
properties. The effects of these regulations are described in Item 4. Property,
Plant and Equipment.

Organizational Structure

Our operations are conducted in part through our wholly-owned
subsidiaries, being;

|1. | TAG Oil (NZ) Limited;                                   
|-- | --------------------------------------------------------
|2. | TAG Oil (Canterbury) Limited;                           
|3. | Durum Energy (PNG) Limited (deregistration in progress);

All of the above noted subsidiaries are owned 100% and we hold
100% of the voting rights.

Petroleum Exploration Regime in New Zealand

Petroleum exploration permits granted in New Zealand generally
provide for the exclusive right to explore for petroleum for an initial term of
five years, renewable for a further five years over one-half of the original
area. Any production permits granted will be for a term of up to 40 years from
the date of issue.

The New Zealand government has revised the royalty regime for
any discoveries between June 30, 2004 and December 31, 2009 as follows: ad
valorum (AVR) 1% on natural gas and 5% on oil and accounting

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- 16 -

profits royalty (APR) of 15% on the first $750MM ($NZ) of gross
sales for off-shore discoveries and 15% on the first $250MM ($NZ) of gross sales
for on-shore discoveries. The revised royalty regime is more fully described in
the New Zealand Ministry of Economic Development  Crown Minerals Minerals
Programme for Petroleum (2005).

No performance bond is required, but in the event that the
permit holder(s) do not satisfy the regulatory agency that they have met the
performance obligations of the committed work program (or such variation as may
have been agreed with the regulatory agency), the government has the power to
cancel the permit.

Environmental Regulation in New Zealand

In New Zealand, on land and in waters within twelve miles of
the coast, the Resource Management Act 1991 controls users of natural and
physical resources, including petroleum explorers, with a view to managing
resource usage in ways that will not compromise future utilization. The Resource
Management Act 1991 places the emphasis on assessment of the effect the proposed
activity will, or might, have on the environment with a view to promoting
sustainable management. Under the Resource Management Act 1991, most of the
responsibility for managing resources and their use is given to local
authorities. Regional and district councils must produce and continuously update
planning schemes for their jurisdictions which establish procedures and
standards for assessing and approving environmental standards in accordance with
the Resource Management Act.

Property, Plant and Equipment

Our major operations and principal activities are in the oil
and gas exploration business. The following is a brief description of the
principal prospects held by the Company. For definitions of technical terms in
the following description of properties, see the Glossary of Industry Terms
found at the beginning of this report. Apart from our interests in the following
hydrocarbon exploration properties, we hold only minor office assets for the
purpose of operating our business.

The following properties are discussed in this section:

|Property      | Location   | Working Interest(2) | Gross Acres | Net Acres 
|------------- | ---------- | ------------------- | ----------- | ----------
|              |            |                     | (sq. kms)  | (sq. kms)
|              |            |                     |             |           
|PEP 38765     | Taranaki   | 10                  | 12.71       | 1.271     
|PEP 38758     | Taranaki   | 100                 | 99.317      | 99.317    
|PEP 38757     | Taranaki   | 100                 | 29.447      | 29.447    
|PEP 38751 (1) | Taranaki   | 33.33               | 66.052      | 22.0171   
|PEP 38745 (2) | Taranaki   | 25                  | 50.498      | 12.6245   
|PEP 38741     | Taranaki   | 20                  | 13.5296     | 2.7059    
|PEP 38480 (3) | Taranaki   | 25                  | 323.75      | 80.9375   
|PEP 38260 (4) | Canterbury | 30                  | 5,198.68    | 1,559.6040
|PEP 38258     | Canterbury | 25                  | 10,950.338  | 2,737.5845
|PEP 38256     | Canterbury | 53.84               | 2,881       | 1,557.1304

|(1) | The Company has entered into an assignment agreement,
        effective June 10, 2005, for a working interest in PEP 38751 in the amount
        of 33 1/3%. Notice of this agreement has yet to be issued to the New Zealand
        Ministry of Economic Development.                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                     
|(2) | The Companys interest in PEP 38745 has increased
        from 16.667 to 25% as the result of the withdrawal of one of the JV partners.                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                     
|(3) | At the date of this report, the JV of PEP 38480 had
        not met the commitments described in the permit terms to maintain the
        permit in good standing. On September 26, 2005 the Company agreed to relinquish
        this permit as a suitable amendment to the terms of the permit could not
        be reached with the New Zealand Ministry of Economic Development.
|    |                                                                                                                                                                                                                                                                                                                                                                                     
|(4) | The Company has entered into an agreement, effective
        May 16, 2005, with the 100% PEP 38260 permit holder where in exchange
        for completing certain work permit program requirements, at the Companys
        own cost, the                                                                                                                                          

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- 17 -

Company will receive certain working
  interests. At the date of this report, the Company is in the process of completing
  the required permit conditions to earn a 30% interest and operatorship of the
  onshore portion of this permit. Notice of this agreement has yet to be issued
  by the New Zealand Ministry of Economic Development.

Petroleum Exploration Permit 38765; Taranaki

The Company (10%), and other joint venture participants,
Austral Pacific (27.5%), TAP (New Zealand) Pty Ltd. (50%) and Magellan Petroleum
(NZ) Limited. (12.5%), were granted PEP 38765, located in the onshore Tarankai
Basin, North Island, on February 4, 2004. During the 2005 fiscal year the Joint
Venture drilled the Miro-Miro-1 exploration well that was plugged and abandoned.
The Company expects to maintain this permit in good standing by drilling another
exploration well with its JV partners on the permit during the 2006 fiscal year
at a cost to the Company of approximately $130,000.

Petroleum Exploration Permit 38758; Taranaki

The Company was assigned a 100% interest in PEP 38758, located
in the onshore Taranaki Basin, North Island in December of 2004.

During the balance of the 2005 fiscal year the Company incurred
minor costs in preparation for a geochemical survey and seismic re-processing
scheduled for first and second quarter of the 2006 fiscal year. The Company has
now completed both the geochemical survey and the seismic re-processing on the
permit and intends to complete an extensive 2-D seismic survey over the permit
at a cost of approximately $500,000 during the remainder of the 2006 fiscal
year.

The Company was required to have completed the 2-D seismic
survey by August of 2005 to maintain this permit in good standing and has
requested an extension to the permit conditions. The Company believes it will be
granted the requested extension by the MED based on the appropriate services
being secured to carry out the necessary seismic program in February of 2006.

Petroleum Exploration Permit 38757; Taranaki

The Company was assigned a 100% interest in PEP 38757, located
in the onshore Taranaki Basin, North Island in December of 2004.

During the balance of the 2005 fiscal year the Company
completed the acquisition of a 16 square kilometre 3-D seismic program and has
identified some drill ready prospects. The Company has now committed to drill a
well on the permit at a cost of approximately $1,200,000 and have secured the
OD&E rig# 19 for drilling in November of 2005.

The Company was required to have a well drilled by August of
2005 to maintain this permit in good standing and has requested an extension to
the permit conditions. The Company believes it will be granted the requested
extension by the MED based on the appropriate services being secured to drill
the well in November of 2005.

Petroleum Exploration Permit 38751; Taranaki

In June of 2005, the Company executed a Deed of Assumption and
Assignment with Bridge Petroleum Limited (Bridge) to acquire a 33% interest in
this permit. Bridge holds the remaining 67% working interest in this permit. The
deed between the Company and Bridge has been submitted to the MED and the
Company is awaiting formal confirmation from MED that their records have been
updated to reflect the Companys working interest.

The MED has previously granted a permit conditions extension
requiring that a well be drilled in this permit area before January 31, 2006.
However, the Company and Bridge have now committed to drill a well on the permit
at a cost to the Company of approximately $320,000. The OD&E rig# 19 has
been secured for drilling in December of 2005.

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- 18 -

Petroleum Exploration Permit 38745; Taranaki

The Company originally acquired a 16.67% interest in this
permit with an effective date of April 1, 2005 with the Companys interest
increasing to 25% in September 2005 as a result of a JV participant withdrawing
from the permit. Bridge and Tap (New Zealand) Pty Ltd. (Tap) hold 25% and 50%
working interests respectively.

The MED has granted a permit conditions extension requiring
that an exploration well be drilled before December 31, 2005. However the
OD&E rig #19 has now been secured and a firm drilling contract is in place
for drilling in December 2005 at a cost to the Company of approximately
$330,000.

Petroleum Exploration Permit 38741; Taranaki

The Company acquired a 20% participating interest in this
permit by way of a farm-in agreement with an effective date in August 2002 from
related company Austral Pacific Energy (NZ) Limited (Austral), by paying
Austral NZ$479,195. The farm-in costs of NZ$479,195 included our share of
planning, acquisition and processing of the 3D seismic program over the permit,
up to a $3.3 million ceiling amount, whereby any cost overruns will be paid
pro-rata by each participant in line with their interest share. The acquisition
price we paid was based on a similar agreement entered into by Austral with an
unrelated party, Tap, on PEP 38741 and totalled $366,201. After the farm-in, the
participant interests in PEP 38741 are Tap (50%), Austral (30%), as the
operator, and TAG (20%).

During the 2003 fiscal period, the NZ$3.3 million ceiling
amount was reached and accordingly we paid our pro-rata costs of all
expenditures relating to the permit thereafter.

During the 2005 fiscal year the Company and its JV partners
drilled the Honeysuckle-1 well that was plugged and abandoned.

Since the end of the 2005 fiscal year and to the date of this
report, we have spent approximately $340,000 on drilling costs relating to the
Supplejack-1 well and approximately $185,000 on testing and completion costs.

AMI-Hursthouse; Taranaki

During the 2005 fiscal year the Company and the other
AMI-Hursthouse participants drilled the Hursthouse-1 well that was plugged and
abandoned. The AMI-Hursthouse covers a portion of PEP 38745 and PEP 38732. The
Company expects only to incur minor costs relating to the administration of the
AMI-Hursthouse for the remainder of the 2006 fiscal year.

Petroleum Exploration Permit 38480; Offshore
Taranaki

We acquired, by way of a sale agreement with an effective date
in August 2002, a 25% participating interest in this offshore permit from
related company Austral by paying Austral, 25% of past costs of acquisition
totalling $19,010 (NZ$25,000). After the farm-in, the participant interests in
this permit are Austral Pacific (75%), as the operator, and TAG (25%).

During the 2005 fiscal year the Company and its JV partners
completed geology and geophysical work on the permit and re-processed previously
collected 2-D seismic on this permit.

Subsequent to the 2005 fiscal year, a 100 sq km 2-D seismic
program was required to be completed by the JV prior to August 15, 2005 to
maintain the permit in good standing. However the necessary seismic equipment
was not available to perform the work by August 15, 2005 and the JV requested an
extension from the MED as seismic equipment was secured to complete the program
in December of 2005. The MED did not grant the requested extension and the JV
agreed to relinquish the permit on September 26, 2005.

Petroleum Exploration Permit 38260; Onshore
Canterbury

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- 19 -

The Company has entered into an agreement, effective May 16,
2005, with Green Gate Limited, the 100% permit holder, where in exchange for
completing certain work permit program requirements, at the Companys own cost,
the Company will receive certain working interests.

At the date of this report, the Companys has completed a 5
kilometre 2-D seismic program on the permit and expects to complete a further
20kms of 2-D seismic at a cost to the Company of $500,000 to earn a 30% working
interest and operatorship of the onshore portion of this permit. Notice of this
agreement has yet to be issued to the MED.

Petroleum Exploration Permit 38258; Offshore
Canterbury

On August 18, 2003, the Company (25%) and Austral (75%) were
awarded this exploration permit located in the offshore Canterbury Basin. During
the 2005 fiscal year the JV undertook a determination of a hydrocarbon charge
model, completed remapping of stratigraphic and structural traps along the
western flank of the Clipper sub-basin, compiled a ranking of risked prospects
and leads and committed to acquire 100 sq kms of 3-D seismic in the 2006 fiscal
year. The acquisition of the 3-D seismic is expected to cost us approximately
$305,000 during our 2006 fiscal year.

Petroleum Exploration Permit 38256; Canterbury

During the 2005 fiscal year, the Company increased its interest
in this permit to 53.84% as a result of a JV partners withdrawal from the
permit. Austral, the operator of the permit, holds the remaining 46.16% working
interest. During the 2005 fiscal year the JV completed geology and geophysical
work in preparation for the 2-D seismic survey required to maintain the permit
in good standing.

In June and July of 2005 the JV completed the required 2-D
seismic over the Salmon and Chertsey South prospects, at a cost to the Company
of approximately $220,000. The Company also committed to the next phase of the
permit conditions that consisted of completing technical evaluations of the
Salmon and Chertsey South prospects and agreeing to make a firm commitment by
August 15, 2006 to drill a well on the permit by August 25, 2007 or surrender
the permit. The Company expects the committed phase of the permit to cost
approximately $25,000 for the remainder of the 2006 fiscal year.

ITEM
5.               
OPERATING, FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis is managements opinion
of our historical financial and operating results and should be read in
conjunction with our audited consolidated financial statements. (See Item 17)
for the years ended March 31, 2005, 2004, and 2003, together with the notes
related thereto. The financial statements have been prepared in accordance with
Canadian GAAP, and a reconciliation to US GAAP is provided in note 13 to the
financial statements, under Item 17.

All dollar values are expressed in Canadian dollars, unless
otherwise stated.

Operating Results

Summary

We are in the exploration and evaluation stage with respect to
our oil and gas properties and therefore we do not generate any sales or revenue
from operations. We have experienced losses in each of our fiscal periods and
have not yet achieved break-even cash flow. Our main source of capital currently
is the issuance of equity securities, which has a dilutive effect on our
shareholders. Total losses incurred since incorporation to the period ending
March 31, 2005 were $10,679,415. The level of future operations may be limited
by the availability of capital resources, the sources of which are not
predictable. The results of operations should be largely measured by the success
of the extent and quality of oil and gas discovered as a result of exploration
programs.

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- 20 -

Results of Operations  2005 Compared to 2004 and
2003

We have conducted our operations as an acquisition and
exploration company. Our primary acquisitions over the 2005 fiscal year was
acquiring PEP 38757, PEP 38758 and the AMI-Hursthouse area as well as increasing
our interest in PEP 38256, all of which is described above. Our primary
exploration focus over the 2005 fiscal year was completing a 16 square kilometer
3-D seismic program over PEP 38757 and drilling three unsuccessful,
non-operated, wells on PEP 38741 (Honeysuckle-1), PEP 38765 (Miro-Miro-1) and on
the AMI-Hursthouse (Hursthouse-1). In addition, we have deregistered our
Australian subsidiary and are in the process of deregistering our Papua New
Guinea subsidiary.

Our objectives for the 2006 fiscal year are to selectively
acquire additional interests in prospective permits where warranted and to
complete the required exploration work required under our permit terms and
conditions and where possible exceed those requirements. To date we have drilled
the Supplejack-1 well on PEP 38741 and we have completed a seismic program on
PEP 38256 as described above. The Company also intends to drill four more wells
on our existing New Zealand interests PEP 38757, 38765, 38745 and 38751. The
Company has a number of other prospects located on its current interests that
are suitable for drilling and if rig availability and access to the service
industry provides us the opportunity, the Company will consider drilling
additional wells during the remainder of the 2006 fiscal year.

We are also planning to acquire 2-D seismic on our offshore
Canterbury permit PEP 38258, 3D seismic on our onshore Taranaki permit PEP 38758
and 2-D seismic on PEP 38260.

For the three years ended March 31, 2005, we generated $nil in
oil and gas revenues. Total cost of sales for the same three year period was
also $nil.

Costs and expenses:

The Company incurred $829,233 in general and administrative
(G&A) expenses for the year ended March 31, 2005, compared to $650,680 for
the year ended March 31, 2004 and $622,388 for the year ended March 31,
2003.

The main components of the $178,553 increase in G&A costs
were related to an increase in filing, listing and transfer agent costs of
$59,611, an increase of $67,849 in professional fees consisting of audit,
accounting and legal fees and an increase of $40,187 in travel costs. These
costs increased due to an increase in corporate activity relating to the
Companys steps to increase its exploration business.

Specifically filing, listing and transfer agent costs increased
as a result of the extraordinay general meeting (EGM) the Company held in
April of 2004 as well as the cost of implementing the forward stock split
approved at the EGM. Listing fees were incurred during the year as well and
relate to the Company successfully obtaining a TSX Venture Exchange listing.
Professional fees also increased as a result of the EGM and obtaining the TSX
Venture Exhange listing. However increases to legal fees also included the costs
of acquiring the Companys new oil and gas interests. Travel costs increased as
a direct result of the increased activity relating to the Companys oil and gas
acquisition and exploration efforts.

In addition to the above, and due to the depreciation of the
U.S. dollar and the fact that substantially all of the Companys cash balances
and financings were in U.S. Dollars at the March 31, 2005 fiscal year end, the
Company experienced a foreign exchange loss of $212,589 versus $30,787 for the
year ended March 31, 2004. The stock option compensation costs of $185,395 that
were recorded during the 2005 fiscal year were down substantially from the
$290,030 recorded last year as fewer new options were issued. Also included in
the year ended March 31, 2004 is a gain on property and equipment totalling
$23,256, resultant from the Company selling its commercial office unit during
that period. Interest income was esentially the same for the two periods with
$17,352 being recorded for 2005 and $15,737 being recorded for the 2004 fiscal
year.

The Companys net loss for the 2005 fiscal year was $1,214,377
(2004: $938,001 and 2003: $995,253).

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- 21 -

We believe that the general and administrative costs of the
Company for the 2006 fiscal year will be consistent with costs for the 2005
fiscal year. Although we do not expect to incur the large non-cash, stock based
compensation costs incurred as a result of the issuance of stock options to
directors and consultants during the 2006 fiscal year as we did during the 2005
and 2004 fiscal years, we expect to incur additional costs relating to
consulting fees, directors fees and wages and benefits directly related to the
amount of acquisition and exploration activity we expect to carry out as
detailed above.

Inflation

We operate primarily in New Zealand, where inflation for our
operational costs is at low levels  i.e. in the 2-5% range.

Foreign Currency Fluctuations

We hold cash reserves in CDN and US dollars, but incur the
majority of our petroleum property expenditures in New Zealand dollars.
Subsequent to the reporting date, the value of the New Zealand currency has
depreciated against the value of the CDN and US currency to the benefit of our
Company during that period. An increase in value of the New Zealand dollar
versus the CDN or US dollar would have a detrimental effect to us as our
expenses incurred would, in turn, increase in CDN and US dollars. We do not
currently hedge our exposure to currency rate changes, although we may choose to
selectively hedge exposure to foreign currency exchange rate risk. We have no
policies relating to the foregoing.

Government Regimes

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

Differences between Canadian and U.S. Generally Accepted
Accounting Principles

The Company is subject to changes in accounting standards.
These financial statements accompanying the report have been prepared in
accordance with Canadian generally accepted accounting principles (Canadian
GAAP) which conform in all material respects with United States generally
accepted accounting principles (U.S. GAAP) However there are some exceptions
and these are detailed below in Item 17, Note 13 Differences between Canadian
and United States Generally Accepted Accounting Principles.

New Accounting pronouncements

Effective March 31, 2003, the Company has adopted retroactively
the Canadian Institute of Chartered Accountants new standard on Asset
Retirement Obligations. The Company recognizes the fair value of an Asset
Retirement Obligation (ARO) in the period in which it is incurred when a
reasonable estimate of the fair value can be made. The fair value is determined
through a review of engineering studies, industry guidelines and managements
estimate on a site-by-site basis. The fair value of the ARO is recorded as a
liability, with a corresponding increase in the amount of the related asset. The
capitalized amount is depleted on the unit-of-production method based on proven
reserves. The liability amount of accretion is expensed in the period. Actual
costs incurred upon the settlement of the ARO are charged against the liability.
At March 31, 2005 the Company does not have any asset retirement obligations.

---

- 22 -

Liquidity and capital resources 2005 Compared to 2004 and
2003

As of the date of this report, the Company has sufficient
capital to conduct its planned exploration program through the end of the 2006
fiscal year to maintain our interests in all of our New Zealand based permits.
However, owing to the inherent risks of oil & gas acquisition and
exploration, it is uncertain whether we will be able to generate sufficient
income and/or secure outside sources of capital in an amount that are sufficient
for us to continue with our expected operations beyond the end of 2006. Due to
the exploratory nature of our business, we do not believe that traditional forms
of debt financing are available to us.

We did not receive any revenue from our operations in 2005 and
as all our current properties are in the exploration stage we do not expect to
receive any revenue for our 2006 fiscal year.

Operating Activities:

The Company had $6,368,935 in cash and cash equivalents and
$6,010,158 in working capital at March 31, 2005. This compares to $876,466 in
cash and cash equivalents and $896,208 in working capital for year ended March
31, 2004.

The Company had a net use of cash of $645,951 from operating
activities for the year ending March 31, 2005 compared to a net use of cash of
$660,655 for the comparable year ending March 31, 2004.

Financing Activities:

Financing activities for the year ended March 31, 2005
consisted of the Company receiving $7,430,175 as follows:

 ****In May 2004, the Company completed a private placement financing by
issuing 542,495 post-split units at a price of US$1.67 and for proceeds of
US$905,967 (CAD$1,247,218).

 ****The Company, primarily in the fourth quarter issued 6,150,000 common
shares from treasury pursuant to the exercise of certain share purchase warrants
at a price of US$0.23 per share, for proceeds of US$1,414,500 (CAD$1,744,978)
and 100,000 common shares from treasury pursuant to the exercise of certain
stock options at a price of US$0.267 per share, for proceeds of US$26,700 (CAD$
$32,934).

 ****On December 24, 2004 the Company purchased 1,800,000 incentive shares
for cancellation and return to treasury at the owners cost, that had been
previously issued to the Companys President for US$5,940 (CAD$7,338).

 ****The Companys final capital raising transaction for the 2005 fiscal
year occurred in March of 2005 and consisted of a private placement of 9,066,500
units at a price of US$0.40 per unit for proceeds of US$3,626,600
(CAD$4,412,383).

Refer to Item 17 Note 6 for further details.

Please see Other below for financing activities that occurred
subsequent to year end.

Financing activities for the year ended March 31, 2004
consisted of receiving US$7,000 (CAD$9,710) as a result of the issuance of
2,100,000 common shares, to the Companys President and US$105,000 (CAD$139,440)
from the issuance of 450,000 common shares upon the exercise of certain share
purchase warrants.

---

- 23 -

Investing Activities:

Investing activities for the 2005 fiscal year consisted of
using $1,287,879 of cash for exploration work on our New Zealand oil and gas
properties. Please refer to Item 17 Note 4 for additional information relating
to these expenditures as well as Property, Plant and Equipment above. The
Company also used $3,876 in cash for the purchase of equipment.

For the similar period last year, the Company received net
proceeds of $404,141 as a result of selling its commercial office unit, used
$124,169 of cash for exploration work on PEP 38256, PEP 38258, PEP 38741, PEP
38480 and PEP 38765 and used $3,268 of cash for the purchase of equipment.

The net result for the twelve-month period ending March 31,
2005 was a net use of cash totalling $1,291,755 for investing activities. This
compares to a net provision of cash from investing activities totalling $276,704
for the same period last year.

Conclusion:

The net impact of all cash activities during the twelve months
ended March 31, 2005 resulted in a net increase in cash of $5,492,469, compared
to a net decrease in cash of $234,801 for the year ended March 31, 2004.

Other:

The Company, in the second quarter of the 2006 fiscal year
issued 9,066,500 common shares from treasury pursuant to the exercise of certain
share purchase warrants at a price of US$0.60 per share, for proceeds of
US$5,439,900.

The Company, also completed a brokered private placement
financing consisting of 11,538,500 common shares at a price of $1.30 per share
for gross proceeds of $15,000,050. As part of this financing the Company paid a
6% cash commission on the proceeds and issued 400,000 broker warrants,
exercisable at a price of $1.30 for a period of one year from the date of
closing.

Our capital resources are comprised primarily of private
investors who are either existing contacts of management or who come to our
attention through brokers, financial institutions and other intermediaries.
Management is of the view that conventional banking is unavailable to
exploration stage resource companies. Our access to capital is always dependent
upon general financial market conditions. Our capital resources, as a result of
our March and September 2005 private placements, have expanded to a broader
group than in previous fiscal years, but are not anticipated to change during
the 2006 fiscal year.

Our required capital expenditures on petroleum properties for
the remainder of the 2006 fiscal year are approximately $3,300,000 which can be
met by the working capital at the time of issuing this report.

Anticipated Total Work Obligations Before March 31, 2006 (As
at March 31, 2005)

|                       | Description of                           |           | Source of      
|---------------------- | ---------------------------------------- | --------- | ---------------
|Property               | Work                                     | CAD$      | Funds          
|Unproved:              |                                          |           |                
|PEP 38256              | 2-D Seismic and Permit Maintenance       | 140,000   | working capital
|PEP 38258              | Maintenance and Geological
      Studies | 15,000    | working capital
|PEP 38741              | Drill Well and Permit Maintenance        | 210,000   | working capital
|PEP 38765              | Drill Well and Permit
      Maintenance  | 125,000   | working capital
|PEP 38757              | Drill Well                               | 900,000   | working capital
|PEP 38758              | 2-D Seismic                              | 187,500   | working capital
|PEP 38480              | 3-D
      Seismic                        | 243,000   | working capital
|Total Work Obligations |                                          | 1,820,500 |                

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- 24 -

The estimates of anticipated Total Work Obligations before
March 31, 2006, have been revised as at September 28, 2005, and the amended
obligations are as follows:

|                       | Description of                          |            | Source of      
|---------------------- | --------------------------------------- | ---------- | ---------------
|Property               | Work                                    | CAD$(1)    | Funds          
|Unproved:              |                                         |            |                
|PEP 38256              | 2-D Seismic                             | 125,000    | working capital
|PEP 38258              | 3-D Seismic                             | 305,000    | working capital
|PEP 38741              | Testing and Completion                  | 75,000     | working capital
|PEP 38765              | Drill Well and Permit
      Maintenance | 130,000    | working capital
|PEP 38757              | Drill Well                              | 1,200,000  | working capital
|PEP 38758              | 2-D Seismic                             | 500,000    | working capital
|PEP 38745              | Drill Well                              | 163,000    | working capital
|PEP 38751              | Drill Well                              | 317,000    | working capital
|PEP 38260              | 2-D
      Seismic                       | 500,000    | working capital
|Total Work Obligations |                                         | $3,315,000 |                

(1)      Revised as to updated
obligations and after considering work already performed to the date of this
report.

Research and Development, Patents and Licences

Not applicable.

Trend Information

Exchange rate fluctuation is an important trend to the Company
as we hold our cash in CAD$ and US$ and we incur our exploration expenditures in
NZ$. Refer to Item 3. Risk Factors- Effect of Different Currencies.

ITEM
6.               
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

The directors and officers of our company are:

|Name and Municipality          | Position Held                     | Office Held Since
|------------------------------ | --------------------------------- | -----------------
|of Residence                   |                                   |                  
|                               |                                   |                  
|Drew Cadenhead (1)             | President, Chief Executive Offier | April 24, 2003   
|New Plymouth, New Zealand      | and Director                      |                  
|                               |                                   |                  
|Garth Johnson,                 | Chief Financial Officer,          | April 20, 2001   
|Vancouver, BC, Canada.         | Secretary and a Director          |                  
|                               |                                   |                  
|Paul Infuso (1)                | Director                          | February 2, 2005 
|Winnipeg, MB, Canada           |                                   |                  
|                               |                                   |                  
|James Smith (1)                | Director                          | February 2, 2005 
|Calgary, AB, Canada            |                                   |                  
|                               |                                   |                  
|Brian Jones                    | Executive Vice President          | August 15, 2005  
|Calgary, AB, Canada            |                                   |                  
|                               |                                   |                  
|(1) Member of audit committee. |                                   |                  

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- 25 -

Mr. Drew Cadenhead has been the Companys President, Chief
Executive Officer and a Director since April 24, 2003. Mr. Cadenhead began his
career in the oil and gas industry in 1979 with Amoco and Canadian Hunter where
he was responsible for exploration in Canada's Western Sedimentary Basin. Mr.
Cadenhead has held various executive positions in the energy sector, including
Vice President of Exploration and executive positions responsible for
acquisitions and divestitures. Of particular importance to the Company is, Mr.
Cadenhead's international successes in New Zealand's Taranaki Basin with
Fletcher Challenge. Mr. Cadenhead is a member of the C.S.P.G. and APEGGA and
holds the professional designation P. Geol and received his Bachelor of Science
in Geology from the University of Calgary.

Mr. Garth Johnson is a Certified General Accountant who was a
Controller with a manufacturer in the lumber industry from 1994 to 1997 in
Surrey, B.C. In 1997, Mr. Johnson joined our Company as the corporate
accountant. He is currently the Chief Financial Officer, Secretary and a
Director of our Company as well as a Director of Austral Pacific Energy Ltd.

Mr. Paul Infuso is an independent oil & gas consultant with
more than twenty years of experience. Mr. Infuso has held executive and
leadership positions with both Ulster Petroleum and Impact Energy, where he
played a key role in their success. Mr Infuso is a member of the board of
directors of Arrow Energy Ltd.

Mr. James Smith is a seasoned business executive who has over
30 years of experience with public equity, financial management and reporting.
He has been involved in the oil and gas industry at an executive level since
1983. Mr. Smith has formerly worked as CFO of Crestar Energy, as Vice President
of Amoco Canada and as an executive for Dome Petroleum. Mr. Smith is a member of
the board of directors of Penn West Petroleum Ltd., Grey Wolf Exploration, Deep
Resources Ltd., Grand Petroleum Inc., Pure Energy Services Ltd and Penn West
Energy Trust.

Mr. Brian Jones is an experienced senior executive with over 23
years of senior management domestic and international experience. Mr. Jones has
formerly worked as President and Chairman of the Board of Pacific Ammonia (A
subsidiary of Mitsui & Co. Ltd.) and as a Plant Manager for Methanex
Corporation and Venture Manager and Operations Manager for Methanex New Zealand
Ltd.

Effective July 25, 2005, the Company secured directors and
officers liability insurance.

Compensation

The following table sets forth the aggregate compensation paid
by the company for services rendered during the last full fiscal year
indicated:

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- 26 -

SUMMARY COMPENSATION TABLE

Named Executive Officer and Principal
      Position
      Year
      EndedCompensation
    Securities Under OptionSalary ($)
      Other Annual
        Compensation 
        ($)
    Number of Options
    Exercise Price
    Expiry DateDrew Cadenhead President, Chief Executive
      Officer and 
        Director (1) (7)
    2005 2004 2003
    165,260 147,667 -
    - 12,000 -
    400,000 - -
    US$0.65 - -
    January 1, 2010 - -Garth Johnson, Chief Financial Officer and
      Secretary (2)
    2005 2004 2003
    69,082 58,335 21,033
    - - -
    - - 75,000(6)
    - - US$0.65(6)
    - - May 31, 2008Paul Infuso Director (3)
    2005 2004 2003
    2,000 - -
    - - -
    75,000 - -
    US$0.65 - -
    Feb 10, 2010 - -James Smith Director (3)
    2005 2004 2003
    1,000 - -
    - - -
    50,000 - -
    US$0.65 - -
    Feb 10, 2010 - -Alan Hart, Chairman and Director
      (4)
    2005 2004 2003
    30,349 49,024 87,175
    - - -
    - - 75,000(6)
    - - US$0.65(6)
    - - May 31, 2008Barry MacNeil, Chairman and Director
      (5)
    2005 2004 2003
    5,350 - -
    - - -
    - - 15,000
    - - US$0.65
    - - May 31, 2008Gordon Abougoush, 
        Chairman and Director
      (5)
      2005
        2004 2003
    -
        -
        -
    -
        -
        -
    - - 75,000(6)
    - - US$0.65(6)
    - - May 31, 2008


|(1) | Mr. Cadenhead was granted 400,000 options on January
        1, 2005. The options vest over a five year period.                                                                                                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Mr. Johnson was paid $69,082 (2004: $58,335; 2003:
        $21,033) through invoices submitted by DLJ Management Corp., a subsidiary
        of Trans-Orient Petroleum Ltd., as a result of Mr. Johnsons time
        spent on business of the Company.                                                                                                                                                             
|(3) | Mr. Infuso and Mr. Smith were paid $1,000 and $500
        per month respectively in their capacity as Directors starting from date
        of their appointment on February 10, 2005. In addition Mr. Infuso and
        Mr. Smith were each granted 75,000 and 50,000 options on February 10,
        2005.                                                                                                        
|(4) | Mr. Hart resigned from the Board of Directors effective
        June 11, 2005 and his options expired on September 11, 2005 as they were
        not exercised.                                                                                                                                                                                                                                                      
|(5) | Mr. MacNeil and Mr. Abougoush resigned from the Board
        of Directors effective February 2, 2005 and their options expired on May
        2, 2005 as they were not exercised.                                                                                                                                                                                                                                   
|(6) | On September 9, 2004, options previously granted
        to these Directors were amended. Mr. Johnson, Mr. Hart and Mr. Abougoush
        all agreed to reduce their options to 75,000 from the 150,000 options
        originally granted as well as increasing the exercise price from US$0.267
        to US$0.65. Mr. MacNeil agreed to increase his exercise price from US$0.267
        to US$0.65.            
|(7) | Pursuant to a Consulting Agreement dated December
        22, 2004 the Company purchased, for the owners cost and for cancellation
        and return to treasury, 1,800,000 incentive shares that had been issued
        to the Companys President. The Companys President continues
        to own 300,000 of the previously issued incentive shares subject to certain
        vesting and resale restrictions.

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- 27 -

Subsequent to March 31, 2005, the board adopted a policy that
all independent Directors will be paid $1,000 per month in their capacity as
Directors, with options to be granted at the Boards discretion.

Please refer to Item 17 Note 9 for details of compensation
agreements with Directors for the fiscal year ended March 31, 2005.

We currently do not offer profit sharing, pension or retirement
benefit plans to our officers or directors and none are presently proposed.
There are no arrangements for payments on termination for any officer in the
event of a change of control, with the exception that upon a change of control
of the Company occurring, directors options and incentive shares that are
subject to vesting provisions are deemed to have vested completely, immediately
prior to a change of control occurring.

Board Practices

All directors have a term of office expiring at our next annual
general meeting, to be held in September of 2006, unless re-elected or unless a
director's office is earlier vacated in accordance with our by-laws or the
provisions of the Business Corporations Act (Yukon).

All officers have a term of office lasting until their removal
or replacement by the board of directors. As of September 28, 2005 the following
are the Companys officers and directors.

| | Name                                                                  | Period served in position
| | --------------------------------------------------------------------- | -------------------------
| |                                                                       |                          
| | Drew Cadenhead,
      President, Chief Executive Officer and Director | 2 years, 5 months        
| |                                                                       |                          
| | Garth Johnson,
      Secretary, Chief Financial Officer and Director  | 4 years, 5 months        
| |                                                                       |                          
| | James Smith,
      Director                                           | 7 months                 
| |                                                                       |                          
| | Paul Infuso,
      Director                                           | 7 months                 
| |                                                                       |                          
| | Brian Jones,
      Executive Vice-President                           | 1 month                  

Audit and remuneration committees

List of Audit Committee members as at September 28, 2005:

Drew Cadenhead 
  James Smith 
  Paul Infuso

Audit Committee members do not have service contracts and are
not paid for their services as an audit committee member. The committee is
constituted to monitor the veracity of the financial and regulatory reports
produced by the Company, and the controls that are in place to ensure the
opportunities for fraud or material error in the financial statements of the
Company are minimized. Please refer to Exhibits for a copy of the Audit
Committee Charter.

The Company does not have a remuneration committee. Currently
any material commitments, inclusive of remuneration, are required to be
pre-approved by the board of directors.

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- 28 -

Employees and Consultants

We have two full time consultants Mr. Cadenhead, through his
wholly-owned company Rimu Resources Limited located in Taranaki, New Zealand and
Mr. Brian Jones, located in Calgary, Alberta. All of the Companys
administrative duties are carried out by either Mr. Cadenhead and Mr. Jones, or
by DLJ Management Corp., located in Vancouver, B.C., (DLJ) a 100% owned
subsidiary of Trans-Orient Petroleum Ltd., under a month-to-month contract. We
are billed by DLJ on a monthly basis for time spent on Company matters, on a
cost recovery basis.

See Item 7  Major Shareholders and Related Transactions.

Share ownership by directors and officers of the Company at
September 28, 2005 are as follows:

|Name           | Number of Shares | Number of Options | Exercise Price
      US$ | Expiry Date                                 
|-------------- | ---------------- | ----------------- | ------------------------ | --------------------------------------------
|
|Drew Cadenhead | 300,000          | 400,000           | 0.65                     | Jan 1, 2010                                 
|Garth Johnson  | 38,000           | 75,000/75,000     | 0.65                     | May 31, 2008/May 10, 2010                   
|
|
|Paul Infuso    | 200,000          | 75,000            | 0.65                     | February 10, 2010                           
|James Smith    | 100,000          | 50,000/25,000     | 0.65/0.95                | February 10, 2010/July 29,
      
      2010
|
|
|Brian Jones    | -                | -                 | -                        | -                                           

There have been no incentive stock options exercised by any
director, officer or employee to the report date.

On September 9, 2005 the Company received disinterested
shareholder approval to the Companys new share option plan where directors,
officers, employees and consultants to the Company or its affiliates are
eligible to receive grants of options. Under the new option plan the number of
shares reserved for issuance as share incentive options be equal to 10% of the
Companys issued and outstanding shares at any time. These options are
non-assignable and non transferable, and have a term of up to 5 years,
terminating within 90 days after the optionee ceases to be associated with the
Company and vesting over a period of at least 18 months. The exercise prices
will be established at the time the options are granted; subject to a minimum
exercise price of not less than the Discounted Market Price as defined in the
policies of the TSXV.

**ITEM
7.****MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS**

Major shareholders

Beneficial Holder of More Than Five Percent of Outstanding
Shares

The Company sets forth the common stock ownership of the only
individual known by us to be the beneficial owner of 5% or more of our common
stock. All ownership is of record and reflects beneficial ownership as of
September 28, 2005. Information was provided by the individual.

|Name and address | Number of | Percent 
|---------------- | --------- | --------
|of owner         | Shares    | of Class
|                 |           |         
|Alex Guidi       | 4,886,000 | 10.48   
|Vancouver, B.C.  |           |         

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- 29 -

To the knowledge of the Company, there have been no significant
changes in percentage share ownership held by any major shareholders, during the
last three years with the exception of:

| | 1. | On April 27, 2003, The Companys President Mr.
        Cadenhead purchased 2,100,000 common shares of the Company. During the
        2005 fiscal year 1,800,000 of these shares were re-purchased by the Company
        for cost and were returned to treasury.                                                                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | 2. | As a result of our private placement financings as
        described in this report all of the individuals, with Mr. Alex Guidi,
        being the one exception, that previously held 5% or more of the Companys
        common stock in the Company last annual report had their percentage share
        of the Companys common shares reduced to under 5%. Mr. Guidis
        share ownership was however reduced as a result of the Companys
        financing efforts.

Insider Reporting

The Securities Act (Yukon) does not prescribe any reporting for
insiders of our Company. The company is a reporting issuer in British Columbia
and insiders comply with the requirements of Part 12 of the Securities Act
(British Columbia). Insiders (generally officers, directors and holders of more
than ten percent of voting securities) are required to file individual insider
reports of changes in their ownership within ten days after the month in which
any trade in our securities occurs. Copies of the reports and summaries of the
insider activity as well as issuer activity are available for public inspection
at www.sedi.com, the Canadian regulatory
website for insider trading.

Major Shareholder Voting Right

There are no different voting rights, attributable to the major
shareholders and every shareholder has equal rights. Mr. Cadenhead, as part of
the Consulting, Incentive Shares and Non-Competition Agreement, agreed to vote
his 2,100,000 incentive shares of the Company at the direction of the Board of
Directors of the Company at all shareholders meetings of the Company until
April 24, 2006. This agreement was amended with an effective date of December
22, 2004 and 1,800,000 of the previously issued shares were re-purchased by the
Company for cancellation and return to treasury. However all remaining unvested
shares are required to be voted at the direction of the Board of Directors.

Host Country Shareholders

The proportion and number of shareholders of record in the
United States as at September 28, 2005 are as follows:

| | Estimated
      proportion of shares held in the U.S. | 11.2%    
| | ----------------------------------------------------- | ---------
| | Number of shareholders                                | 557      
| | Number of shares
      held                           | 5,229,186

Arrangements Affecting Shareholdings

Mr. Alex Guidi is the Companys controlling shareholder. There
are no known arrangements, which would significantly affect the control of the
controlling shareholder.

Related Party Transactions

The following are reported as Related Party Transactions. The
nature of the transaction, the affiliate(s) who had an interest in the
transaction and the nature of the interest are included in the description of
each of the transactions:

|(a) | On August 15, 2005 the Company entered into an agreement
        with Mr. Brian Jones to retain Mr. Jones to provide his services as the
        Companys Executive Vice President. The agreement is for an initial
        three month period with monthly compensation of $7,000 per month. This
        agreement is
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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- 30 -

|    | extendable for one year, with a compensation review,
        upon the mutual agreement of both parties in writing 10 days prior to
        the expiry of the agreement on November 15, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(b) | On May 10, 2005 the Company granted a director an
        option to acquire up to an additional 75,000 common shares, vesting over
        eighteen months, exercisable at a price of US$0.65 per share until expiry
        on May 10, 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(c) | In March of 2005, three directors participated in
        a private placement, acquiring a total of 169,000 units at a price of
        US$0.40 per unit. Subsequent to year end on September 26, 2005 the three
        Directors exercised their share purchase warrants acquired as part of
        the private placement at an exercise price of US$0.60 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(d) | At March 31, 2005 we owed Nil (2004: $9,960) to certain
        public companies with directors, officers and/or principal shareholders
        in common with the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(e) | On December 22, 2004, the Company entered into a
        new agreement with Rimu Resources Ltd. (Rimu), a private company
        wholly-owned by its President, to retain Rimu to continue to provide oil
        and gas exploration executive services to the Company. The agreement is
        for a two- year period with an effective date of January 1, 2005, extendable
        if agreed by both parties, with annual compensation of $185,000 for the
        first year and $200,000 for the second year. Included as part of the agreement
        was the repurchase for cancellation of 1,800,000 incentive shares at cost,
        that were issued to the President under a previous agreement. The agreement
        also included an option to purchase 400,000 common shares of the Company
        at a price of US$0.65 per share.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(f) | On February 2, 2005, the Company entered into agreements
        with two Directors for compensation for services as Directors. One agreement
        provides for compensation of $12,000 annually plus an option to purchase
        75,000 shares of the Company and the other agreement provides for compensation
        of $6,000 annually plus an option to purchase 50,000 shares of the Company.
        In July of 2005 the Company adopted a policy whereby all independent Directors
        are to be paid $1,000 per month. In addition on July 22, 2005 a Director
        was granted an additional option to purchase 25,000 shares at a price
        of US$0.95 per share, vesting over 18 months.                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(g) | On February 7, 2005, the Company entered into an
        agreement with its Board Chairman, for services as a Director as well
        as to provide a minimum of two weeks of consulting work per month for
        compensation of US$6,000 per month. The agreement is on a month-to-month
        basis and can be cancelled by the Company with 60 days written notice.
        This agreement ended upon the receipt of resignation from Mr. Alan Hart
        on June 11, 2005.                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(h) | During the 2005 fiscal year, Mr. Alex Guidi exercised
        share purchase warrants to acquire 3,750,000 shares of the Company at
        a price of US$0.23 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(i) | During the fiscal year ending March 31, 2005 the
        Company paid DLJ Management Corp. (DLJ) $118,236 (2004: $127,887)
        for corporate services which included office space rental, accounting
        and administrative services. These services are billed on a cost recovery
        basis by DLJ. DLJ is a wholly owned subsidiary of Trans-Orient Petroleum
        Ltd.                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(j) | During the fiscal year ending March 31, 2005 the
        Company paid a total of $273,041 (2004 fiscal year - $255,205) in wages
        and consulting fees to its Directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(k) | During the fiscal year ending March 31, 2005 the
        Company paid a total of $9,600 (March 31, 2004 - $9,600) in rent to a
        private company wholly owned by Mr. Alex Guidi.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(l) | During the 2005 fiscal year certain of the Companys
        Directors agreed to reduce their previously granted stock options from
        465,000 to 240,000 and to increase the exercise price of the remaining
        options from US$0.267 to US$0.65.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

---

- 31 -

Interests of experts and counsel

Not applicable

ITEM
8.               
FINANCIAL INFORMATION

Consolidated Statements and Other Financial
Information

Consolidated financial statements are provided under PART III.
  Item 17. FINANCIAL STATEMENTS

There are no material legal proceedings to which we are subject
  or which are anticipated or threatened.

We have never paid dividends to shareholders and no dividends
  are payable in the foreseeable future.

Significant Changes

The following significant changes have occurred since March 31,
2005:

| | a) | TSX Venture Exchange listing:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | The Company commenced trading on the TSE Venture
        Exchange (TSX-V) on July 18, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | b) | Oil and gas properties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | PEP 38745 - The Company entered into an agreement,
        with an effective date of April 1, 2005, whereby Bridge Petroleum Limited
        assigned the Company a 16.67% interest in the permit in consideration
        for a 5% gross overriding royalty on the interest assigned. The Company
        recently agreed to increase its interest in this permit as a result of
        a JV partner withdrawing from the permit.                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | PEP 38260  The Company entered into an agreement
        with Green Gate Limited on May 13, 2005 under which the Company can earn
        a 30% interest in and become operator of the onshore area of the permit
        by completing a 2D seismic program at a cost of approximately $500,000.
        The Company can then earn an additional 40% of the onshore portion of
        the permit by drilling one well on the permit. After earning its 70% interest
        onshore of PEP 38260, the Company will have the option to acquire a 15%
        interest in the offshore portion of PEP 38260 by reimbursing 15% of the
        past costs associated with the offshore portion of the permit.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | PEP 38751 - The Company entered into an agreement,
        with an effective date of June 10, 2005, whereby Bridge Petroleum Limited
        assigned the Company a 33.33% interest in the permit in return for reimbursing
        past costs of approximately $13,000.                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | c) | Share purchase warrants and incentive stock options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | On August 22, 2005, the Company accelerated the expiry
        of the 9,066,500 share purchase warrants issued as part of the Companys
        March 2005 private placement, to September 26, 2005. As a result of this
        acceleration, the Company issued 9,066,500 common shares from treasury
        pursuant to the exercise of the share purchase warrants at a price of
        US$0.60 per share, for proceeds of US$5,439,900.                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | On May 19, 2005, the Companys Board of Directors
        approved an amendment to the terms of the Companys 542,495 share
        purchase warrants issued May 4, 2004. The amendment was approved by all
        warrant holders, and reduced the exercise price of the warrants from US$2.00
        to US$0.80 in consideration for the warrant holders accepting an accelerated
        expiry                                                                                                                                                                                                                                                                                                         

---

- 32 -

| |    | provision whereby the warrants will expire 30 days
        after notice is given by the Company that the Companys shares have
        traded over US$1.20 for 10 consecutive days.                                 
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                     
| | d) | Private Placement                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                     
| |    | On September 22, 2005, the Company completed a brokered
        private placement on September 22, 2005 by issuing 11,538,500 common shares
        at a price of $1.30 per share for gross proceeds of $15,000,050.
| |    |                                                                                                                                                                                                                     
| | e) | On September 26, 2005 the Company (25%) and its JV
        partner Austral Pacific (75%) agreed to relinquish PEP 38480, located
        offshore in the Taranaki Basin.                                            

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

ITEM
9.               
THE OFFER AND LISTING

Offer and Listing Details

Price History of the stock

All values noted below are in US dollars per share for the
OTCBB and Canadian dollars for the TSX-V.

Summary trading by year, for the five most recently competed
fiscal periods ending March 31, 2005:

|     | OTCBB          |              
|---- | -------------- | -------------
|     |                |              
|Year | High (1)(2)(3) | Low (1)(2)(3)
|     |                |              
|2001 | 1.203          | 0.25         
|2002 | 1.25           | 0.20         
|2003 | 1.55           | 0.22         
|2004 | 4.50           | 0.65         
|2005 | 1.46           | 0.38         

Summary trading by quarter for the two most recently competed
fiscal periods ending March 31, 2005.

|               | **OTCBB**      |              
|-------------- | -------------- | -------------
|               |                |              
|Year and       |                |              
|Quarter        | High (1)(2)(3) | Low (1)(2)(3)
|               |                |              
|2004           |                |              
|First Quarter  | 1.40           | 0.52         
|Second Quarter | 2.25           | 1.10         
|Third Quarter  | 2.00           | 1.45         
|Fourth Quarter | 4.50           | 1.70         
|               |                |              
|               |                |              
|2005           |                |              
|First Quarter  | 2.60           | 1.87         
|Second Quarter | 2.25           | 1.01         
|Third Quarter  | 1.42           | 0.65         
|Fourth Quarter | 0.95           | 0.40         

Summary trading by quarter for any full quarter subsequent to
the year end March 31, 2005

---

- 33 -

|                 | **OTCBB**      |              
|---------------- | -------------- | -------------
|Month            | High (1)(2)(3) | Low (1)(2)(3)
|Apr 1 to June 30 | 0.80           | 0.38         

Summary trading by month for the six most recently completed
months ending August 31, 2005

|Month | High (1)(2)(3) | Low (1)(2)(3) | 
|----- | -------------- | ------------- | 
|Mar   | 0.95           | 0.62          | 
|Apr   | 0.70           | 0.60          | 
|May   | 0.65           | 0.41          | 
|Jun   | 0.80           | 0.38          | 
|July  | 1.06           | 0.60          | 
|Aug   | 1.30           | 0.95          | 

|(1) | OTCBB quotations may reflect interdealer prices,
        without retail markup, markdown or commission and may not necessarily
        reflect actual transactions.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                    
|(2) | All market prices subsequent to May 4, 2004 reflect
        trading after the 1.5:1 forward stock split to the recorded shareholders
        as of April 27, 2004. 
|    |                                                                                                                                                                    
|(3) | All quotations are from the website located at www.finance.yahoo.com.                                                                                              

Markets

The authorized capital of the Company consists of an unlimited
number of Common Shares without par value, of which 46,631,081 were issued as of
September 28, 2005.

Our shares traded on the VSE in Vancouver, British Columbia,
Canada until September 21, 2000. On July 18, 2005, the Company commenced trading
on the TSX Venture Exchange under the symbol TAO. Beginning on December 8,
1999 our shares traded on the OTC Bulletin Board (OTCBB) under the symbol
DUREF until we changed our name to TAG Oil on June 12, 2002. Thereafter our
shares have traded on the OTCBB under the symbol TAGOF.

ITEM
10.               ADDITIONAL
INFORMATION

Share Capital

Not applicable

Memorandum and Articles of association

Our Articles of Association were previously filed with our Form
20F for the Year Ended March 31, 2000. The provisions thereof have not changed
since that time.

Material contracts

Attached as exhibits are material contracts the Company entered
into during the period July 30, 2004 to September 28, 2005 as follows:

| | (a) | On December 22, 2004, the Company entered into a
        new agreement with Rimu Resources Ltd. (Rimu), a private company
        wholly-owned by its President, to retain Rimu to continue to provide oil
        and gas exploration executive services to the Company. The agreement is
        for a
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

- 34 -

| |     | two-year period with an effective date of January
        1, 2005, extendable if agreed by both parties, with annual compensation
        of $185,000 for the first year and $200,000 for the second year. Included
        as part of the agreement was the repurchase for cancellation of 1,800,000
        incentive shares at cost, that were issued to the President under a previous
        agreement. The agreement also included an option to purchase 400,000 common
        shares of the Company at a price of US$0.65 per share.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (b) | On February 2, 2005, the Company entered into agreements
        with two Directors for compensation for services as Directors. One agreement
        provides for compensation of $12,000 annually plus an option to purchase
        75,000 shares of the Company and the other agreement provides for compensation
        of $6,000 annually plus an option to purchase 50,000 shares of the Company.                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (c) | On August 15, 2005 the Company entered into an agreement
        with Mr. Brian Jones to retain Mr. Jones to provide his services as the
        Companys Executive Vice President. The agreement is for an initial
        three month period with monthly compensation of $7,000 per month. This
        agreement is extendable for one year, with a compensation review, upon
        the mutual agreement of both parties in writing 10 days prior to the expiry
        of the agreement on November 15, 2005.                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (d) | TSX Venture Exchange Listing Agreement- Form 2D                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (e) | TAG Oil Ltd. Form of Subscription Agreement Dated
        September 2005-Canadian & Non-U.S. Persons.                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (f) | TAG Oil Ltd. Form of Subscription Agreement Dated
        September 2005-U.S. Persons.                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (g) | Underwriting Agreement with an Effective date of
        September 1, 2005 between the Company and Canaccord Capital Corporation.                                                                                                                                                                                                                                                                                                                                                                                                            

All material contracts are filed under Form 6-K when
required.

Exchange Controls

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

There is no limitation imposed by Canadian law or by the
charter or other constituent documents of the Company on the right of a
non-resident to hold or vote common shares of the Company, other than as
provided in the Investment Canada Act (Canada) (the Investment Act).

The following discussion summarizes the principal features of
the Investment Act for a non-resident who proposes to acquire common shares of
the Company. It is general only, it is not a substitute for independent advice
from an investors own advisor, and it does not anticipate statutory or
regulatory amendments.

The Investment Act generally prohibits implementation of a
reviewable investment by an individual, government or agency thereof,
corporation, partnership, trust or joint venture (each an entity) that is not
a Canadian as defined in the Investment Act (a non-Canadian), unless after
review the Director of Investments appointed by the minister responsible for the
Investment Act is satisfied that the investment is likely to be of net benefit
to Canada. The size and nature of a proposed transaction may give rise to an
obligation to notify the Director and seek an advance ruling. An investment in
common shares of the Company by a non-Canadian other than a WTO Investor (as
defined in the Investment Act and which term includes entities which are
nationals of or are controlled by nationals of member states of the World Trade
Organization) when the Company was not controlled by a WTO Investor, would be
reviewable under the Investment Act if it was an investment to acquire control
of the Company and the value of the assets of the Company, as determined in
accordance with the regulations promulgated under the

---

- 35 -

Investment Act, Cdn$5 million, or if an order for review was
made by the federal cabinet on the grounds that the investment related to
Canadas cultural heritage or national identity, regardless of the value of the
assets of the Company. An investment in common shares of the Company by a WTO
Investor, or by a non-Canadian when the Company was controlled by a WTO
Investor, would be reviewable under the Investment Act if it was an investment
to acquire control of the Company and the value of the assets of the Company, as
determined in accordance with the regulations promulgated under the Investment
Act, exceeds a specified amount, which in 2003 was Cdn$237 million. A
non-Canadian would acquire control of the Company for the purposes of the
Investment Act through acquisition of common shares if the non-Canadian acquired
a majority of the common shares of the Company. The acquisition of less than a
majority but one third or more of the common shares of the Company would be
presumed to be an acquisition of control of the Company unless it could be
established that, on the acquisition, the Company was not controlled in fact by
the acquirer through the ownership of common shares.

Certain transactions relating to common shares of the Company
would be exempt from the Investment Act, including

(a)      Acquisition of common shares
of the Company by a person in the ordinary course of that persons business as a
trader or dealer in securities,

(b)      Acquisition of control of the
Company in connection with the realization of security granted for a loan or
other financial assistance and not for a purpose related to the provisions on
the Investment Act, and

(c)      Acquisition of control of the
Company by reason of an amalgamation, merger, consolidation or corporate
reorganization following which the ultimate direct or indirect control in fact
of the Company, through the ownership of common shares, remained unchanged.

Taxation

Canadian Tax Consequences

The following, summarizes the material Canadian federal income
tax consequences generally applicable to the holding and disposition of Common
Shares by a holder (in this summary, a U.S. Holder) who, (a) for the purposes
of the Income Tax Act (Canada) (the "Tax Act"), is not resident in Canada, deals
at arm's length with the Company, holds the Common Shares as capital property
and does not use or hold the Common Shares in the course of carrying on, or
otherwise in connection with, a business in Canada, and (b) for the purposes of
the Canada-United States Income Tax Convention, 1980 (the "Treaty"), is a
resident solely of the United States, has never been a resident of Canada, and
has not held or used (and does not hold or use) Common Shares in connection with
a permanent establishment or fixed base in Canada.

This summary does not apply to traders or dealers in
securities, limited liability companies, tax-exempt entities, insurers,
financial institutions (including those to which the mark-to-market provisions
of the Tax Act apply), or any other U.S. Holder to which special considerations
apply.

This summary is based on the current provisions of the Tax Act
including all regulations there under, the Treaty, all proposed amendments to
the Tax Act, the regulations and the Treaty publicly announced by the Government
of Canada to the date hereof, and the current administrative practices of the
Canada Customs and Revenue Agency. It has been assumed that all currently
proposed amendments will be enacted as proposed and that there will be no other
relevant change in any governing law or administrative practice, although no
assurances can be given in these respects. This summary does not take into
account provincial, U.S., state or other foreign income tax law or practice. The
tax consequences to any particular U.S. Holder will vary according to the status
of that holder as an individual, trust, corporation, partnership or other
entity, the jurisdictions in which that holder is subject to taxation, and
generally according to that holder's particular circumstances. Accordingly, this
summary is not, and is not to be construed as, Canadian tax advice to any
particular U.S. Holder.

---

- 36 -

Dividends

Dividends paid or deemed to be paid to a U.S. Holder by the
Company will be subject to Canadian withholding tax. Under the Treaty, the rate
of withholding tax on dividends paid to a U.S. Holder is generally limited to
15% of the gross amount of the dividend (or 5% if the U.S. Holder is a
corporation and beneficially owns at least 10% of the Companys voting shares).
The Company will be required to withhold the applicable withholding tax from any
such dividend and remit it to the Canadian government for the U.S. Holders
account.

Disposition

A U.S. Holder is not subject to tax under the Tax Act in
respect of a capital gain realized on the disposition of a Common Share in the
open market unless the share is "taxable Canadian property" to the holder
thereof and the U.S. Holder is not entitled to relief under the Treaty. A Common
Share will be taxable Canadian property to a U.S. Holder if, at any time during
the 60 months preceding the disposition, the U.S. Holder or persons with whom
the U.S. Holder did not deal at arm's length alone or together owned, or had
rights to acquire, 25% or more of the Companys issued shares of any class or
series.

A U.S. Holder whose Common Shares do constitute taxable
Canadian property, and who might therefore be liable for Canadian income tax
under the Tax Act, will generally be relieved from such liability under the
Treaty unless the value of such shares at the time of disposition is derived
principally from real property situated in Canada. Management of the Company
believes that the value of our Common Shares is not currently derived
principally from real property situated in Canada.

United States Tax Consequences

The following is a discussion of material United States federal
income tax consequences, under current law, generally applicable to a U.S.
Holder (as hereinafter defined) of common shares of the Company. This discussion
does not address all potentially relevant federal income tax matters and it does
not address consequences peculiar to persons subject to special provisions of
federal income tax law, such as those described below as excluded from the
definition of a U.S. Holder. In addition, this discussion does not cover any
state, local or foreign tax consequences (see Taxation  Canadian Federal
Income Tax Consequences above). Accordingly, holders and prospective holders of
common shares of the Company should consult their own tax advisors about the
specific federal, state, local, and foreign tax consequences to them of
purchasing, owning and disposing of common shares of the Company, based upon
their individual circumstances.

The following discussion is based upon the sections of the
Internal Revenue Code of 1986, as amended (the Code), Treasury Regulations,
published Internal Revenue Service (IRS) rulings, published administrative
positions of the IRS and court decisions that are currently applicable, any or
all of which could be materially and adversely changed, possibly on a
retroactive basis, at any time and which are subject to differing
interpretations. This discussion does not consider the potential effects, both
adverse and beneficial, of any proposed legislation, which if enacted, could be
applied, possibly on a retroactive basis, at any time.

U.S. Holders

As used herein, a U.S. Holder means a holder of common shares
of the Company who is a citizen or individual resident of the United States, a
corporation or partnership created or organized in or under the laws of the
United States or of any political subdivision thereof, an estate whose income is
taxable in the United States irrespective of source or a trust subject to the
primary supervision of a court within the United States and control of a United
States fiduciary as described Section 7701(a)(30) of the Code. This summary does
not address the tax consequences to, and U.S. Holder does not include, persons
subject to specific provisions of 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, broker-dealers,
non-resident

---

- 37 -

alien individuals, persons or entities that have a functional
currency other than the U.S. dollar, shareholders subject to the alternative
minimum tax, shareholders who hold common shares as part of a straddle, hedging
or conversion transaction, and shareholders who acquired their common shares
through the exercise of employee stock options or otherwise as compensation for
services. This summary is limited to U.S. Holders who own common shares as
capital assets and who own (directly and indirectly, pursuant to applicable
rules of constructive ownership) no more than 5% of the value of the total
outstanding stock of the Company. This summary does not address the consequences
to a person or entity holding an interest in a shareholder or the consequences
to a person of the ownership, exercise or disposition of any options, warrants
or other rights to acquire common shares. In addition, this summary does not
address special rules applicable to United States persons (as defined in Section
7701(a)(30) of the Code) holding common shares through a foreign partnership or
to foreign persons holding common shares through a domestic partnership.

Distribution on Common Shares

In general, U.S. Holders receiving dividend distributions
(including constructive dividends) with respect to common shares of the Company
are required to include in gross income for United States federal income tax
purposes the gross amount of such distributions, equal to the U.S. dollar value
of such distributions on the date of receipt (based on the exchange rate on such
date), to the extent that the Company has current or accumulated earnings and
profits, without reduction for any Canadian income tax withheld from such
distributions. Such Canadian tax withheld may be credited, subject to certain
limitations, against the U.S. Holders federal income tax liability or,
alternatively, may be deducted in computing the U.S. Holders federal taxable
income by those who itemize deductions. (See more detailed discussion at
Foreign Tax Credit below). To the extent that distributions exceed current or
accumulated earnings and profits of the Company, they will be treated first as a
return of capital up to the U.S. Holders adjusted basis in the common shares
and thereafter as gain from the sale or exchange of property. Preferential tax
rates for long-term capital gains are applicable to a U.S. Holder, which is an
individual, estate or trust. There are currently no preferential tax rates for
long-term capital gains for a U.S. Holder, which is a corporation.

In the case of foreign currency received as a dividend that is
not converted by the recipient into U.S. dollars on the date of receipt, a U.S.
Holder will have a tax basis in the foreign currency equal to its U.S. dollar
value on the date of receipt. Generally any gain or loss recognized upon a
subsequent sale or other disposition of the foreign currency, including the
exchange for U.S. dollars, will be ordinary income or loss. However, an
individual whose realized gain does not exceed $200 will not recognize that
gain, provided that there are no expenses associated with the transaction that
meet the requirements for deductibility as a trade or business expense (other
than travel expenses in connection with a business trip) or as an expense for
the production of income.

Dividends paid on the common shares of the Company generally
will not be eligible for the dividends received deduction provided to
corporations receiving dividends from certain United States corporations. A U.S.
Holder which is a corporation and which owns shares representing at least 10% of
the voting power and value of the Company may, under certain circumstances, be
entitled to a 70% (or 80% if the U.S. Holder owns shares representing at least
20% of the voting power and value of the Company) deduction of the United States
source portion of dividends received from the Company (unless the Company
qualifies as a foreign personal holding company or a passive foreign
investment company, as defined below). The Company does not anticipate that it
will earn any United States income, however, and therefore does not anticipate
that any U.S. Holder will be eligible for the dividends received deduction.

Under current Treasury Regulations, dividends paid on the
Company common shares generally will not be subject to information reporting and
generally will not be subject to U.S. backup withholding tax. However, dividends
and the proceeds from a sale of the Companys common shares paid in the U.S.
through a U.S. or U.S. related paying agent (including a broker) will be subject
to U.S. information reporting requirements and may also be subject to the 31%
U.S. backup withholding tax, unless the

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- 38 -

paying agent is furnished with a duly completed and signed Form
W-9. Any amounts withheld under the U.S. backup withholding tax rules will be
allowed as a refund or a credit against the U.S. Holders U.S. federal income
tax liability, provided the required information is furnished to the IRS.

Foreign Tax Credit

A U.S. Holder who pays (or has withheld from distributions)
Canadian income tax with respect to the ownership of common shares of the
Company may be entitled, at the option of the U.S. Holder, to either receive a
deduction or a tax credit for such foreign tax paid or withheld. Generally, it
will be more advantageous to claim a credit because a credit reduces United
States federal income taxes on a dollar-for-dollar basis, while a deduction
merely reduces the taxpayers income subject to tax. This election is made on a
year-by-year basis and generally applies to all foreign taxes paid by (or
withheld from) the U.S. Holder during that year. There are significant and
complex limitations which apply to the credit, among which is the general
limitation that the credit cannot exceed the proportionate share of the U.S.
Holders United States income tax liability that the U.S. Holders foreign
source income bears to his or its worldwide taxable income. In the determination
of the application of this limitation, the various items of income and deduction
must be classified into foreign and domestic sources. Complex rules govern this
classification process. In addition, this limitation is calculated separately
with respect to specific classes of income such as passive income,  high
withholding tax interest, financial services income, shipping income, and
certain other classifications of income. Dividends distributed by the Company
will generally constitute passive income or, in the case of certain U.S.
Holders, financial services income for these purposes. The availability of the
foreign tax credit and the application of the limitations on the credit are fact
specific, and U.S. Holders of common shares of the Company should consult their
own tax advisors regarding their individual circumstances.

Disposition of Common Shares of the Company

In general, U.S. Holders will recognize gain or loss upon the
sale of common shares of the Company equal to the difference, if any, between
(i) the amount of cash plus the fair market value of any property received, and
(ii) the shareholders tax basis in the common shares of the Company.
Preferential tax rates apply to long-term capital gains of U.S. Holders which
are individuals, estates or trusts. In general, gain or loss on the sale of
common shares of the Company will be long-term capital gain or loss if the
common shares are a capital asset in the hands of the U.S. Holder and are held
for more than one year. Deductions for net capital losses are subject to
significant limitations. For U.S. Holders, which are not corporations, any
unused portion of such net capital loss may be carried over to be used in later
tax years until such net capital loss is thereby exhausted. For U.S. Holders
that are corporations (other than corporations subject to Subchapter S of the
Code), an unused net capital loss may be carried back three years and carried
forward five years from the loss year to be offset against capital gains until
such net capital loss is thereby exhausted. However, the amount that can be
carried back is limited to an amount that does not cause or increase a net
operating loss in the carry back year.

Other Considerations

Set forth below are certain material exceptions to the
above-described general rules describing the United States federal income tax
consequences resulting from the holding and disposition of common shares:

Foreign Personal Holding Company

If at any time during a taxable year more than 50% of the total
combined voting power or the total value of the Companys outstanding shares is
owned, directly or indirectly (pursuant to applicable rules of constructive
ownership), by five or fewer individuals who are citizens or residents of the
United States and 60% or more of the Companys gross income for such year is
derived from certain passive sources (e.g., from certain interest and
dividends), the Company may be treated as a foreign personal holding company.
In that event, U.S. Holders that hold common shares would be required to include
in gross income for such year their allocable portions of such passive income to
the extent the Company does not actually distribute such income. The Company
does not believe that it currently qualifies as a foreign

---

- 39 -

personal holding company. However, there can be no assurance
that the Company will not be considered a foreign personal holding company for
the current or any future taxable year.

Foreign Investment Company

If 50% or more of the combined voting power or total value of
the Companys outstanding shares is held, directly or indirectly, by citizens or
residents of the United States, United States domestic partnerships or
corporations, or estates or trusts other than foreign estates or trusts (as
defined by the Code Section 7701(a)(31)), and the Company is found to be engaged
primarily in the business of investing, reinvesting, or trading in securities,
commodities, or any interest therein, it is possible that the Company may be
treated as a foreign investment company as defined in Section 1246 of the
Code, causing all or part of any gain realized by a U.S. Holder selling or
exchanging common shares to be treated as ordinary income rather than capital
gain. The Company does not believe that it currently qualifies as a foreign
investment company. However, there can be no assurance that the Company will not
be considered a foreign investment company for the current or any future taxable
year.

Passive Foreign Investment Company

United States income tax law contains rules governing passive
foreign investment companies (PFIC) which can have significant tax effects on
U.S. Holders of foreign corporations. These rules do not apply to non-U.S.
Holders. Section 1297 of the Code defines a PFIC as a corporation that is not
formed in the United States if, for any taxable year, either (i) 75% or more of
its gross income is passive income, which includes interest, dividends and
certain rents and royalties or (ii) the average percentage, by fair market value
(or, if the corporation is not publicly traded and either is a controlled
foreign corporation or makes an election, by adjusted tax basis), of its assets
that produce or are held for the production of passive income is 50% or more.
The Company appears to have been a PFIC for the fiscal year ended March 31,
2001, and in other certain prior fiscal years. In addition, the Company expects
to qualify as a PFIC for the fiscal year ending March 31, 2002 and may also
qualify as a PFIC in future fiscal years. Each U.S. Holder of the Company is
urged to consult a tax advisor with respect to how the PFIC rules affect such
U.S. Holders tax situation.

Each U.S. Holder who holds stock in a foreign corporation
during any year in which such corporation qualifies as a PFIC is subject to
United States federal income taxation under one of three alternative tax regimes
at the election of such U.S. Holder. The following is a discussion of such
alternative tax regimes applied to such U.S. Holders of the Company. In
addition, special rules apply if a foreign corporation qualifies as both a PFIC
and a controlled foreign corporation (as defined below) and a U.S. Holder
owns, actually or constructively, 10% or more of the total combined voting power
of all classes of stock entitled to vote of such foreign corporation (See more
detailed discussion at Controlled Foreign Corporation below).

A U.S. Holder who elects to treat the Company as a qualified
electing fund (QEF) will be subject, under Section 1293 of the Code, to
current federal income tax for any taxable year to which the election applies in
which the Company qualifies as a PFIC on his pro rata share of the Companys (i)
net capital gain (the excess of net long-term capital gain over net short-term
capital loss), which will be taxed as long-term capital gain, and (ii) ordinary
earnings (the excess of earnings and profits over net capital gain), which will
be taxed as ordinary income, in each case, for the shareholders taxable year in
which (or with which) the Companys taxable year ends, regardless of whether
such amounts are actually distributed. A U.S. Holders tax basis in the common
shares will be increased by any such amount that is included in income but not
distributed.

The procedure a U.S. Holder must comply with in making an
effective QEF election, and the consequences of such election, will depend on
whether the year of the election is the first year in the U.S. Holders holding
period in which the Company is a PFIC. If the U.S. Holder makes a QEF election
in such first year, i.e., a timely QEF election, then the U.S. Holder may make
the QEF election by simply filing the appropriate documents at the time the U.S.
Holder files his tax return for such first year. If, however, the Company
qualified as a PFIC in a prior year during the U.S. Holders holding period,
then,

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- 40 -

in order to avoid the Section 1291 rules discussed below, in
addition to filing documents, the U.S. Holder must elect to recognize under the
rules of Section 1291 of the Code (discussed herein), (i) any gain that he would
otherwise recognize if the U.S. Holder sold his stock on the qualification date
or (ii) if the Company is a controlled foreign corporation, the U.S. Holders
pro rata share of the Companys post-1986 earnings and profits as of the
qualification date. The qualification date is the first day of the Companys
first tax year in which the Company qualified as a QEF with respect to such U.S.
Holder. For purposes of this discussion, a U.S. Holder who makes (i) a timely
QEF election, or (ii) an untimely QEF election and either of the above-described
gain-recognition elections under Section 1291 is referred to herein as an
Electing U.S. Holder. A U.S. Holder who holds common shares at any time during
a year of the Company in which the Company is a PFIC and who is not an Electing
U.S. Holder (including a U.S. Holder who makes an untimely QEF election and
makes neither of the above-described gain-recognition elections) is referred to
herein as a Non-Electing U.S. Holder. An Electing U.S. Holder (i) generally
treats any gain realized on the disposition of his Company common shares as
capital gain; and (ii) may either avoid interest charges resulting from PFIC
status altogether, or make an annual election, subject to certain limitations,
to defer payment of current taxes on his share of the Companys annual realized
net capital gain and ordinary earnings subject, however, to an interest charge.
If the U.S. Holder is not a corporation, any interest charge imposed under the
PFIC regime would be treated as personal interest that is not deductible.

In order for a U.S. Holder to make (or maintain) a valid QEF
election, the Company must provide certain information regarding its net capital
gains and ordinary earnings and permit its books and records to be examined to
verify such information. The Company intends to make the necessary information
available to U.S. Holders to permit them to make (and maintain) QEF elections
with respect to the Company. The Company urges each U.S. Holder to consult a tax
advisor regarding the availability of, and procedure for making, the QEF
election.

A QEF election, once made with respect to the Company, applies
to the tax year for which it was made and to all subsequent tax years, unless
the election is invalidated or terminated, or the IRS consents to revocation of
the election. If a QEF election is made by a U.S. Holder and the Company ceases
to qualify as a PFIC in a subsequent tax year, the QEF election will remain in
effect, although not applicable, during those tax years in which the Company
does not qualify as a PFIC. Therefore, if the Company again qualifies as a PFIC
in a subsequent tax year, the QEF election will be effective and the U.S. Holder
will be subject to the rules described above for Electing U.S. Holders in such
tax year and any subsequent tax years in which the Company qualifies as a PFIC.
In addition, the QEF election remains in effect, although not applicable, with
respect to an Electing U.S. Holder even after such U.S. Holder disposes of all
of his or its direct and indirect interest in the shares of the Company.
Therefore, if such U.S. Holder reacquires an interest in the Company, that U.S.
Holder will be subject to the rules described above for Electing U.S. Holders
for each tax year in which the Company qualifies as a PFIC.

In the case of a Non-Electing U.S. Holder, special taxation
rules under Section 1291 of the Code will apply to (i) gains realized on the
disposition (or deemed to be realized by reasons of a pledge) of his Company
common shares and (ii) certain excess distributions, as defined in Section
1291(b), by the Company.

A Non-Electing U.S. Holder generally would be required to pro
rate all gains realized on the disposition of his Company common shares and all
excess distributions on his Company common shares over the entire holding period
for the common shares. All gains or excess distributions allocated to prior
years of the U.S. Holder (excluding any portion of the holders period prior to
the first day of the first year of the Company (i) which began after December
31, 1986, and (ii) for which the Company was a PFIC) would be taxed at the
highest tax rate for each such prior year applicable to ordinary income. The
Non-Electing U.S. Holder also would be liable for interest on the foregoing tax
liability for each such prior year calculated as if such liability had been due
with respect to each such prior year. A Non-Electing U.S. Holder that is not a
corporation must treat this interest charge as personal interest which, as
discussed above, is wholly nondeductible. The balance, if any, of the gain or
the excess distribution will be treated as ordinary income in the year of the
disposition or distribution, and no interest charge will be incurred

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- 41 -

with respect to such balance. In certain circumstances, the sum
of the tax and the PFIC interest charge may exceed the amount of the excess
distribution received, or the amount of proceeds of disposition realized, by the
U.S. Holder.

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

Effective for tax years of U.S. Holders beginning after
December 31, 1997, U.S. Holders who hold (actually or constructively) marketable
stock of a foreign corporation that qualifies as a PFIC may elect to mark such
stock to the market annually (a mark-to-market election). If such an election
is made, such U.S. Holder will generally not be subject to the special taxation
rules of Section 1291 discussed above. However, if the mark-to-market election
is made by a Non-Electing U.S. Holder after the beginning of the holding period
for the PFIC stock, then the Section 1291 rules will apply to certain
dispositions of, distributions on and other amounts taxable with respect to the
Company common shares. A U.S. Holder who makes the mark-to market election will
include in income for each taxable year for which the election is in effect an
amount equal to the excess, if any, of the fair market value of the common
shares of the Company as of the close of such tax year over such U.S. Holders
adjusted basis in such common shares. In addition, the U.S. Holder is allowed a
deduction for the lesser of (i) the excess, if any, of such U.S. Holders
adjusted tax basis in the common shares over the fair market value of such
shares as of the close of the tax year, or (ii) the excess, if any, of (A) the
mark-to-market gains for the common shares in the Company included by such U.S.
Holder for prior tax years, including any amount which would have been treated
as a mark-to-market gain for any prior tax year but for the Section 1291 rules
discussed above with respect to Non-Electing U.S. Holders, over (B) the
mark-to-market losses for shares that were allowed as deductions for prior tax
years. A U.S. Holders adjusted tax basis in the common shares of the Company
will be adjusted to reflect the amount included in or deducted from income as a
result of a mark-to-market election. A mark-to-market election applies to the
taxable year in which the election is made and to each subsequent taxable year,
unless the Company common shares cease to be marketable, as specifically
defined, or the IRS consents to revocation of the election. Because the IRS has
not established procedures for making a mark-to-market election, U.S. Holders
should consult their tax advisor regarding the manner of making such an
election. No view is expressed regarding whether common shares of the Company
are marketable for these purposes or whether the election will be available.

Under Section 1291(f) of the Code, the IRS has issued Proposed
Treasury Regulations that, subject to certain exceptions, would treat as taxable
certain transfers of PFIC stock by Non-Electing U.S. Holders that are generally
not otherwise taxed, such as gifts, exchanges pursuant to corporate
reorganizations, and transfers at death. Generally, in such cases the basis of
the Company common shares in the hands of the transferee and the basis of any
property received in the exchange for those common shares would be increased by
the amount of gain recognized. Under the Proposed Treasury Regulations, an
Electing U.S. Holder would not be taxed on certain transfers of PFIC stock, such
as gifts, exchanges pursuant to corporate reorganizations, and transfers at
death. The transferees basis in this case will depend on the manner of the
transfer. In the case of a transfer by an Electing U.S. Holder upon death, for
example, the transferees basis is generally equal to the fair market value of
the Electing U.S. Holders common shares as of the date of death under Section
1014 of the Code. The specific tax effect to the U.S. Holder and the transferee
may vary based on the manner in which the common shares are transferred. Each
U.S. Holder of the Company is urged to consult a tax advisor with respect to how
the PFIC rules affect his or its tax situation.

Whether or not a U.S. Holder makes a timely QEF election with
respect to common shares of the Company, certain adverse rules may apply in the
event that both the Company and any foreign corporation in which the Company
directly or indirectly holds shares is a PFIC (a lower-tier PFIC).

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Pursuant to certain Proposed Treasury Regulations, a U.S.
Holder would be treated as owning his or its proportionate amount of any
lower-tier PFIC shares, and generally would be subject to the PFIC rules with
respect to such indirectly-held PFIC shares unless such U.S. Holder makes a
timely QEF election with respect thereto. The Company intends to make the
necessary information available to U.S. Holders to permit them to make (and
maintain) QEF elections with respect to each subsidiary of the Company that is a
PFIC.

Under the Proposed Treasury Regulations, a U.S. Holder who does
not make a timely QEF election with respect to a lower-tier PFIC generally would
be subject to tax (and the PFIC interest charge) on (i) any excess distribution
deemed to have been received with respect to his or its lower-tier PFIC shares
and (ii) any gain deemed to arise from a so-called indirect disposition of
such shares. For this purpose, an indirect disposition of lower-tier PFIC shares
would generally include (i) a disposition by the Company (or an intermediate
entity) of lower-tier PFIC shares, and (ii) any other transaction resulting in a
diminution of the U.S. Holders proportionate ownership of the lower-tier PFIC,
including an issuance of additional common shares by the Company (or an
intermediate entity). Accordingly, each prospective U.S. Holder should be aware
that he or it could be subject to tax even if such U.S. Holder receives no
distributions from the Company and does not dispose of its common shares.

The Company strongly urges each prospective U.S. Holder to
consult a tax advisor with respect to the adverse rules applicable, under the
Proposed Treasury Regulations, to U.S. Holders of lower-tier PFIC
shares.

Certain special, generally adverse, rules will apply with
respect to Company common shares while the Company is a PFIC unless the U.S.
Holder makes a timely QEF election. For example under Section 1298(b)(6) of the
Code, a U.S. Holder who uses PFIC stock as security for a loan (including a
margin loan) will, except as may be provided in regulations, be treated as
having made a taxable disposition of such shares.

Documents on display

Documents concerning the Company which are referred to in this
document may be inspected in our offices at 1407-1050 Burrard Street, B.C.
Canada V6Z 2S3 or at the registered office at Suite 200 Financial Plaza, 204
Lambert Street, White Horse, YT, Y1A 3T2, Canada. Copies of the Companys
financial statements and other continuous disclosure documents required under
the British Columbia Securities Act may be viewed at www.sedar.com and documents referred to in this
document are filed with the US Securities Commission and can be viewed on the
SEC website at: www.sec.gov.

Subsidiary information

A list of subsidiaries of the Company is identified in Note 2
(b) in the notes to the consolidated financial statements and in Item 4
Organizational Structure.

ITEM
11.               QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required as the Company is a small business issuer, in
accordance with Section 12(b)-2 of the Act.

ITEM
12.               DESCRIPTION
OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

PART II

ITEM
13.               DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES

There has been no material default in any indebtedness, as the
Company has no debt.

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- 43 -

We have never paid nor declared a dividend, so there are no
arrearages.

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

Not applicable.

ITEM
15.              
CONTROLS AND PROCEDURES

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

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Controls

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

ITEM 16.

A.      Audit committee financial
expert

Our Board of Directors has determined that we have one
independent audit committee financial expert serving on its audit committee.
This financial expert is James Smith who is accredited in Canada as a Chartered
Accountant.

B.      Code of Ethics

We have adopted a code of ethics that applies to the Chief
Executive Officer and the Chief Financial Officer, as well as to all other
staff. A copy of our code of ethics is available, free of charge, from the
offices of TAG Oil Ltd., at Suite 400, 534 17th Avenue SW, Calgary,
Alberta, Canada, T2S 0B1 and this can be requested in writing, addressed to the
Company Secretary.

C.      Principal Accountants Fees
  and Services

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- 44 -

Principal Accountant Service(1)
      For the fiscal
        year ended
      For the fiscal
        year endedMarch 31, 2005
      March 31, 2004Audit Fees
      7,000
      5,000Tax Fees
      900
      1,884All Other Fees
      -
      -


(1)      De Visser Gray has been the
Principal Accountant for the two years reported above.

The nature of the services provided by De Visser Gray under
each of the categories indicated in the table is described below.

Audit Fees

Audit fees were for professional services rendered by De Visser
Gray for the audit of our annual financial statements and services provided in
connection with statutory and regulatory filing or engagements.

Audit-Related fees

Audit related fees are normally for assurance and related
services reasonably related to the performance of the audit or review of the
annual statements or bi-annual statements that are not reported under Audit
Fees above. There were no audit-related fees for the current or previous
year.

Tax Fees

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

All Other Fees

There were no other fees incurred in the period covered in the
table above.

Pre-Approval Policies and Procedures

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

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

Date
    Total
      # of Shares
    Price
      Per ShareJanuary 1, 2005
    1,800,000
    US$0.0033


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- 45 -

PART III

ITEM
17.               FINANCIAL
STATEMENTS.

Financial Statements begin on page 45.

INDEX TO FINANCIAL STATEMENTS

PageAuditors
        Report  47Consolidated
        Balance Sheets  48Consolidated
        Statements of Operations and Deficit
      49Consolidated
        Statements of Cash Flows  50Notes
        to the Consolidated Financial Statements  51


The financial statements and Report of the independent Auditors
are filed as part of the Companys Annual Report.

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- 46 -



TAG OIL LTD.



CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004

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- 47 -

D E V I S S E R    G R A
Y

CHARTERED ACCOUNTANTS

|401 - 905 West Pender Street
|----------------------------
|Vancouver, BC Canada        
|V6C 1L6                     
|                            
|Tel: (604) 687-5447         
|Fax: (604) 687-6737         

AUDITORS' REPORT

To the Shareholders of TAG Oil Ltd.

We have audited the consolidated balance sheets of TAG Oil Ltd
as at March 31, 2005 and 2004 and the consolidated statements of operations and
deficit and cash flows for each of the years in the three year period ended
March 31, 2005. 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 generally accepted
auditing standards (GAAS) in Canada and the standards of the Public Company
Accounting Oversight Board (PCAOB) (United States). Those standards require
that we plan and perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present
fairly, in all material respects, the financial position of the Company as at
March 31, 2005 and 2004 and the results of its operations and its cash flows for
each of the years in the three year period ended March 31, 2005 in accordance
with generally accepted accounting principles in Canada.

De Visser Gray

CHARTERED ACCOUNTANTS

Vancouver, British Columbia

Canada

June 23, 2005

COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA  U.S.
REPORTING DIFFERENCES

In the United States, reporting standards for auditors require
the addition of an explanatory paragraph (following the opinion paragraph) when
the financial statements are affected by significant uncertainties and
contingencies such as those referred to in note 1 to these financial statements.
Although we conducted our audits in accordance with both Canadian GAAS and the
standards of the PCAOB, our report to the shareholders dated June 23, 2005 is
expressed in accordance with Canadian reporting standards, which do not require
a reference to such matters when the uncertainties are adequately disclosed in
the financial statements.

De Visser Gray

CHARTERED ACCOUNTANTS

Vancouver, British Columbia

Canada

June 23, 2005

---

- 48 -

Consolidated Balance SheetsExpressed in Canadian
Dollars

|As at March 31                           |   | 2005        |   |   | 2004       |  
|---------------------------------------- | - | ----------- | - | - | ---------- | -
|                                         |   |             |   |   |            |  
|                                         |   |             |   |   |            |  
|Assets                                   |   |             |   |   |            |  
|Current                                  |   |             |   |   |            |  
|Cash and cash equivalents                | $ | 6,368,935   |   | $ | 876,466    |  
|Amounts receivable and prepaids          |   | 184,344     |   |   | 40,695     |  
|Marketable securities (Note 3)           |   | 3,300       |   |   | 3,300      |  
|                                         |   | 6,556,579   |   |   | 920,461    |  
|Oil and gas properties (Note 4)          |   | 1,933,088   |   |   | 645,209    |  
|Equipment (Note 5)                       |   | 16,834      |   |   | 17,470     |  
|                                         | $ | 8,506,501   |   | $ | 1,583,140  |  
|                                         |   |             |   |   |            |  
|Liabilities and Shareholders Equity     |   |             |   |   |            |  
|Current                                  |   |             |   |   |            |  
|Accounts payable and accrued liabilities | $ | 546,421     |   | $ | 14,293     |  
|Due to related
      parties (Note 9)    |   | -           |   |   | 9,960      |  
|                                         |   | 546,421     |   |   | 24,253     |  
|                                         |   |             |   |   |            |  
|Share capital (Note 6)                   |   | 18,053,464  |   |   | 10,623,289 |  
|Contributed surplus                      |   | 586,031     |   |   | 400,636    |  
|Deficit                                  |   | (10,679,415 | ) |   | (9,465,038 | )
|                                         |   | 7,960,080   |   |   | 1,558,887  |  
|                                         | $ | 8,506,501   |   | $ | 1,583,140  |  

See accompanying notes.

Approved by the Board of Directors:

|Garth Johnson         |  | Drew
      Cadenhead  
|----------------------- |  | ------------------------
|Garth Johnson, Director |  | Drew Cadenhead, Director

---

- 49 -

Consolidated Statements of Operations and Deficit
Expressed in Canadian Dollars

|For the Years
      Ended March 31     |   | 2005        |   |   | 2004       |   |   | 2003       |  
|-------------------------------------- | - | ----------- | - | - | ---------- | - | - | ---------- | -
|                                       |   |             |   |   |            |   |   |            |  
|Expenses                               |   |             |   |   |            |   |   |            |  
|General and administrative             | $ | 829,233     |   | $ | 650,680    |   | $ | 622,388    |  
|Foreign Exchange                       |   | 212,589     |   |   | 30,787     |   |   | 80,463     |  
|Amortization                           |   | 4,512       |   |   | 5,496      |   |   | 14,532     |  
|Loss before other items                |   | (1,046,334  | ) |   | (686,963   | ) |   | (717,383   | )
|                                       |   |             |   |   |            |   |   |            |  
|Other Items                            |   |             |   |   |            |   |   |            |  
|Interest income                        |   | 17,352      |   |   | 15,737     |   |   | 43,470     |  
|Rental income                          |   | -           |   |   | -          |   |   | 23,000     |  
|Gain on sale of marketable securities  |   | -           |   |   | -          |   |   | 3,656      |  
|Gain on sale of property and equipment |   | -           |   |   | 23,256     |   |   | -          |  
|Stock option compensation              |   | (185,395    | ) |   | (290,030   | ) |   | (110,606   | )
|Write-off of capital assets            |   | -           |   |   | -          |   |   | (6,216     | )
|Write-off of oil and gas properties    |   | -           |   |   | (1         | ) |   | (454,150   | )
|Recovery of costs                      |   | -           |   |   | -          |   |   | 222,976    |  
|Net loss for the year                  |   | (1,214,377  | ) |   | (938,001   | ) |   | (995,253   | )
|Deficit, beginning of year             |   | (9,465,038  | ) |   | (8,527,037 | ) |   | (7,531,784 | )
|Deficit, end of
      year             | $ | (10,679,415 | ) | $ | (9,465,038 | ) | $ | (8,527,037 | )
|                                       |   |             |   |   |            |   |   |            |  
|Loss per
      share                   | $ | (0.09       | ) | $ | (0.08      | ) | $ | (0.11      | )
|                                       |   |             |   |   |            |   |   |            |  
|Weighted average number of shares      |   |             |   |   |            |   |   |            |  
|outstanding                            |   | 13,111,779  |   |   | 11,227,776 |   |   | 9,231,338  |  

See accompanying notes.

---

- 50 -

Consolidated Statements of Cash Flows Expressed in
Canadian Dollars

|For the Years
      Ended March 31                    |   | 2005       |   |   | 2004      |   |   | 2003       |  
|----------------------------------------------------- | - | ---------- | - | - | --------- | - | - | ---------- | -
|                                                      |   |            |   |   |           |   |   |            |  
|Operating Activities                                  |   |            |   |   |           |   |   |            |  
|Net loss for the year                                 | $ | (1,214,377 | ) | $ | (938,001  | ) | $ | (995,253   | )
|Changes for non-cash working capital                  |   |            |   |   |           |   |   |            |  
|accounts:                                             |   |            |   |   |           |   |   |            |  
|Amounts receivable and prepaids                       |   | (143,649   | ) |   | 89,967    |   |   | (123,886   | )
|Due to/from related parties                           |   | (9,960     | ) |   | (71,632   | ) |   | 70,577     |  
|Accounts payable and accrued
      liabilities        |   | 532,128    |   |   | (13,260   | ) |   | (16,081    | )
|Changes for non-cash operating items:                 |   |            |   |   |           |   |   |            |  
|Amortization                                          |   | 4,512      |   |   | 5,496     |   |   | 14,532     |  
|Stock Option Compensation                             |   | 185,395    |   |   | 290,030   |   |   | 110,606    |  
|Write-off of capital assets                           |   | -          |   |   | -         |   |   | 6,216      |  
|Write-off of oil and gas properties                   |   | -          |   |   | 1         |   |   | 454,150    |  
|Recovery of costs                                     |   | -          |   |   | -         |   |   | (222,976   | )
|Gain on sale of marketable securities                 |   | -          |   |   | -         |   |   | (3,656     | )
|Gain on sale of property and equipment                |   | -          |   |   | (23,256   | ) |   | -          |  
|Cash used in
      operating activities               |   | (645,951   | ) |   | (660,655  | ) |   | (705,771   | )
|                                                      |   |            |   |   |           |   |   |            |  
|Financing Activities                                  |   |            |   |   |           |   |   |            |  
|Issuance of common shares                             |   | 7,437,513  |   |   | 149,150   |   |   | 124,608    |  
|Repurchase of
      common shares                     |   | (7,338     | ) |   | -         |   |   | -          |  
|Cash provided by financing activities                 |   | 7,430,175  |   |   | 149,150   |   |   | 124,608    |  
|                                                      |   |            |   |   |           |   |   |            |  
|Investing Activities                                  |   |            |   |   |           |   |   |            |  
|Exploration of oil and gas properties                 |   | (1,287,879 | ) |   | (124,169  | ) |   | (517,379   | )
|Proceeds from sale of property and
      equipment    |   | -          |   |   | 404,141   |   |   | -          |  
|Purchase of property and equipment                    |   | (3,876     | ) |   | (3,268    | ) |   | (7,490     | )
|Proceeds from sale of marketable securities           |   | -          |   |   | -         |   |   | 5,856      |  
|                                                      |   |            |   |   |           |   |   |            |  
|Cash (used in) provided by investing activities       |   | (1,291,755 | ) |   | 276,704   |   |   | (519,013   | )
|                                                      |   |            |   |   |           |   |   |            |  
|Net increase (decrease) in cash during
      the year |   | 5,492,469  |   |   | (234,801  | ) |   | (1,100,176 | )
|Cash position 
      Beginning of year               |   | 876,466    |   |   | 1,111,267 |   |   | 2,211,443  |  
|                                                      |   |            |   |   |           |   |   |            |  
|Cash position -
      End of year                     | $ | 6,368,935  |   | $ | 876,466   |   | $ | 1,111,267  |  

See accompanying notes.

---

- 51 -Notes to the Consolidated Financial Statements
For the Years Ended March 31, 2005 and 2004

NOTE 1 - NATURE OF OPERATIONS

The Company was incorporated under the Business Corporations
Act (British Columbia) and continued its jurisdiction of incorporation to the
Yukon Territory under the Business Corporations Act (Yukon). Its major activity
is the acquisition and exploration of international oil and gas properties.

The Company is in the process of exploring its oil and gas
properties and has not yet determined whether they contain reserves that are
economically recoverable. The success of the Companys exploration and
development of its oil and gas properties is influenced by significant financial
and legal risks, as well as commodity prices and the ability of the Company to
discover economically recoverable reserves and to bring such reserves into
future profitable production. In addition, the Company must continue to obtain
sufficient financing to develop its properties towards planned principal
operations.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

|a) | Accounting Principles and Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | These financial statements are prepared in conformity
        with Canadian generally accepted accounting principles (GAAP),
        which require the Companys management to make informed judgments
        and estimates that affect the reported amounts of assets and liabilities
        and disclosures of contingent assets and liabilities at the date of the
        financial statements and the reported amounts of revenues and expenses
        during the fiscal year. Specific items particularly subject to management
        estimates are the carrying amounts of deferred property costs, potential
        accruals for future site reclamation costs and the determination of inputs
        required in the calculation of stock based compensation. Actual results
        could differ from these estimates.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Material differences between Canadian and United
        States generally accepted accounting principles, which affect the Company,
        are described in note 13.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|b) | Basis of Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | These consolidated financial statements include the
        accounts of the Company and its wholly-owned subsidiaries: TAG Oil (NZ)
        Limited. Formerly Durum Energy (New Zealand) Limited, and
        Durum Energy (PNG) Limited. The Company consolidates its financial statements
        with those of its subsidiaries in which it has a controlling interest.
        Should restrictions be placed on any foreign subsidiary that prevent the
        Company from exercising effective control, the Companys investment
        in that subsidiary shall be accounted for using the cost basis. All significant
        intercompany balances and transactions with subsidiaries have been eliminated
        on consolidation.                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | During the 2005 fiscal year, the Company completed
        the deregistration of its inactive subsidiary Durum (Australia) Pty. Ltd.
        and is continuing with the deregistration of its inactive subsidiary Durum
        Energy (PNG) Limited.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|c) | Joint Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Substantially all of the Company's activities relate
        to the exploration for oil and gas. To the extent that these activities
        are conducted jointly with other companies, the accounts reflect only
        the Company's proportionate interest in these activities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|d) | Translation of Foreign Currencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The Company's foreign operations, conducted through
        its subsidiaries, are of an integrated nature and, accordingly, the temporal
        method of foreign currency translation is used for conversion of foreign-denominated
        amounts into Canadian dollars. Monetary assets and liabilities are translated
        into Canadian dollars at the rates prevailing on the balance sheet date.
        Other assets and liabilities are translated into Canadian dollars at the
        rates prevailing on the transaction dates. Revenues and expenses arising
        from foreign currency transactions are translated into Canadian dollars
        at the average rate for the year. Exchange gains and losses are recorded
        as income or expense in the year in which they occur.                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|e) | Fair Value of Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The Company's financial instruments consist of current
        assets and current liabilities. The fair values of the current assets
        and liabilities approximate the carrying amounts due to the short-term
        nature of these instruments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|f) | Cash and Cash Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Cash and cash equivalents include term investments
        with maturities of one year or less, together with accrued interest thereon,
        which are readily convertible to known amounts of cash.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

---

- 52 -

|g) | Oil and Gas Properties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The Company follows the full cost method of accounting
        for oil and gas properties whereby all costs relating to the acquisition,
        exploration, and development of oil and gas properties and equipment are
        capitalized in cost centres by country. Such costs include lease acquisition
        costs, geological and geophysical expenditures, lease rentals, seismic
        and costs of drilling productive and non- productive wells, together with
        overhead expenses related to acquisition, exploration and development
        activities. All cost centres are in the pre-development stage and as such
        are not subject to depletion. An assessment is performed at every reporting
        date to determine whether the aggregate net costs in each pre-development
        stage cost centre are recoverable. Costs which are unlikely to be recovered
        are written-off. The recovery of the costs incurred to date is ultimately
        dependent on discovering commercial quantities of hydrocarbons. The likelihood
        of such a discovery is not determinable at this time.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|h) | Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Equipment is recorded at cost and amortized over
        its estimated useful life on a declining-balance basis as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Furniture, office and computer equipment                      
        20% and 30%                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|i) | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The Company accounts for and measures future tax
        assets and liabilities for future tax consequences attributable to differences
        between the financial statement carrying amounts of existing assets and
        liabilities and their respective tax bases. 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 those temporary differences
        are expected to be recovered or settled. The effect on future tax assets
        and liabilities of a change in tax rates is recognized in income in the
        period that includes the date of enactment or substantive enactment of
        the change. When the future realization of income tax assets does not
        meet the test of being more likely to occur than not to occur, a valuation
        allowance in the amount of potential future benefit is taken and no asset
        is recognized. Such an allowance would apply fully to all potential income
        tax assets of the Company.                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The Companys accounting policy for future income
        taxes currently has no effect on the financial statements of any of the
        fiscal years presented.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|j) | Asset retirement obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Effective March 31, 2003, the Company has adopted
        retroactively the Canadian Institute of Chartered Accountants new
        standard on Asset Retirement Obligations. The Company recognizes the fair
        value of an Asset Retirement Obligation (ARO) in the period
        in which it is incurred when a reasonable estimate of the fair value can
        be made. The fair value is determined through a review of engineering
        studies, industry guidelines and managements estimate on a site-by-site
        basis. The fair value of the ARO is recorded as a liability, with a corresponding
        increase in the amount of the related asset. The capitalized amount is
        depleted on the unit-of-production method based on proven reserves. The
        liability amount of accretion is expensed in the period. Actual costs
        incurred upon the settlement of the ARO are charged against the liability.
        At March 31, 2005 the Company does not have any asset retirement obligations.                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|k) | Share Capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Common shares issued for non-monetary consideration
        are recorded at their fair market value based upon the lower of the trading
        price of the Companys shares on the OTC Bulletin Board on the date
        of the agreement to issue shares and the date of share issuance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|l) | Stock-Option Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The Company follows the Recommendations of the Canadian
        Institute of Chartered Accountants in connection with accounting for stock
        option based compensation. These standards were first applied on a prospective
        basis to all awards granted on or after January 1, 2002, and established
        standards for the recognition, measurement and disclosure of stock option-based
        compensation and other stock based payments made in exchange for goods
        and services. As amended during the current year, and as applied by the
        Company to both the current year and comparative years, the standard now
        requires that all stock option based awards made to consultants and employees
        be recognized in these consolidated financial statements and measured
        using a fair value based method.                                                                                                                                                                                                                                                                         

NOTE 3 - MARKETABLE SECURITIES

Marketable securities are recorded at the lower of cost and
fair market value. Marketable securities consist of 6,000 shares (March 31,
2004: 6,000 shares) of Tenke Mining Corp. (Tenke) at a book value of $3,300
(March 31, 2004: $3,300). At March 31, 2005, the market value of these shares
was $30,300 (March 31, 2004: $20,100).

NOTE 4  OIL AND GAS PROPERTIES

---

- 53 -

|               |  | Working  |  |   | Net Book       |  |   | Additions  |  |   | Net Book       | 
|-------------- |  | -------- |  | - | -------------- |  | - | ---------- |  | - | -------------- | 
|               |  | Interest |  |   | Value at       |  |   | During the |  |   | Value at       | 
|               |  | %        |  |   | March 31, 2004 |  |   | Period     |  |   | March 31, 2005 | 
|Unproved:      |  |          |  |   |                |  |   |            |  |   |                | 
|New Zealand:   |  |          |  |   |                |  |   |            |  |   |                | 
|PEP 38256      |  | 53.84    |  | $ | 117,251        |  | $ | 49,723     |  | $ | 166,974        | 
|PEP 38258      |  | 25.00    |  |   | 19,696         |  |   | 40,137     |  |   | 59,833         | 
|PEP 38741      |  | 20.00    |  |   | 394,978        |  |   | 227,064    |  |   | 622,042        | 
|PEP 38480      |  | 25.00    |  |   | 67,226         |  |   | 19,356     |  |   | 86,582         | 
|PEP 38765      |  | 10.00    |  |   | 46,058         |  |   | 160,808    |  |   | 206,866        | 
|PEP 38757      |  | 100.00   |  |   | -              |  |   | 532,030    |  |   | 532,030        | 
|PEP 38758      |  | 100.00   |  |   | -              |  |   | 3,041      |  |   | 3,041          | 
|AMI-Hursthouse |  | 12.50    |  |   | -              |  |   | 255,720    |  |   | 255,720        | 
|               |  |          |  |   |                |  |   |            |  |   |                | 
|Total Unproved |  |          |  | $ | 645,209        |  | $ | 1,287,879  |  | $ | 1,933,088      | 

The Companys oil and gas properties are located in New Zealand
and its interests in these properties are maintained pursuant to the terms of
exploration permits granted by the national government. The Company is satisfied
that evidence supporting the current validity of these permits is adequate and
acceptable by prevailing industry standards in respect to the current stage of
exploration on these properties.

The Company participated in three unsuccessful exploration
wells located in onshore Taranaki, New Zealand during the 2005 fiscal year: the
Honeysuckle-1 well on PEP 38741, the Miromiro-1 well on PEP 38765 and the
Hursthouse-1 well in the Area of Mutual Agreement-Hursthouse located on PEP
38745.

Refer to Notes 7 and 12

NOTE 5 - EQUIPMENT

Equipment is comprised as follows:

|                                               |  |         |  |  | 2005         |   |  |          |  |   | 2004     | 
|---------------------------------------------- |  | ------- |  |  | ------------ | - |  | -------- |  | - | -------- | 
|                                               |  |         |  |  | Accumulated  |   |  | Net Book |  |   | Net Book | 
|                                               |  | Cost    |  |  | Amortization |   |  | Value    |  |   | Value    | 
|Furniture, office and
      computer equipment |  | 104,046 |  |  | (87,212      | ) |  | 16,834   |  | $ | 17,470   | 

NOTE 6 - SHARE CAPITAL

|a) | Authorized and Issued Share Capital                                                                                 
|-- | --------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                     
|   | The authorized share capital of the Company consists of an unlimited
      number of common stock without par value.

| |                                                    |  | Number    |  |   |            | 
| | -------------------------------------------------- |  | --------- |  | - | ---------- | 
| | Issued and fully paid:                             |  | of Shares |  |   | Amount     | 
| |                                                    |  |           |  |   |            | 
| | Balance at March 31, 2003                          |  | 6,278,061 |  | $ | 10,474,139 | 
| | Private placement                                  |  | 1,400,000 |  |   | 9,710      | 
| | Exercise of share purchase warrants                |  | 300,000   |  |   | 139,440    | 
| | Balance at March 31, 2004                          |  | 7,978,061 |  |   | 10,623,289 | 
| | Forward stock split on the basis of one additional |  |           |  |   |            | 

---

- 54 -

| | new share for every two
      old shares     |  | 3,989,025  |   |   | -          |  
| | -------------------------------------------- |  | ---------- | - | - | ---------- | -
| | Private placement  May 2004                 |  | 542,495    |   |   | 1,247,218  |  
| | Private placement  March 2005               |  | 9,066,500  |   |   | 4,412,383  |  
| | Exercise of share purchase warrants          |  | 6,150,000  |   |   | 1,744,978  |  
| | Exercise of stock options                    |  | 100,000    |   |   | 32,934     |  
| | Re-purchase of shares and return to treasury |  | (1,800,000 | ) |   | (7,338     | )
| | Balance at March 31, 2005                    |  | 26,026,081 |   | $ | 18,053,464 |  

|   | The Companys shareholders approved, and the
        Company implemented, a forward stock split on the basis of one and one
        half post split shares for every one pre-split share. The record date
        of this forward split was April 27, 2004. The effect of this forward-split
        has been applied on a retroactive basis to all related disclosures and
        calculations in these financial statements.                                                                                                                                                                                                                                                                
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | In May of 2004 the Company completed a private placement
        financing consisting of 542,495 post-split units at a price of US$1.67
        per unit. Each unit consists of one common share and a two-year share
        purchase warrant, with each warrant entitling the purchaser to acquire
        an additional common share for US$ 1.83 for the first year and for US$2.00
        thereafter up to the end of year two.                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | In March of 2005, the Company completed a private
        placement financing consisting of 9,066,500 units at a price of US$0.40
        per unit. Each unit consists of one common share and a two year share
        purchase warrant, with each warrant entitling the purchaser to acquire
        an additional common share for US$0.60 for the first year and US$0.80
        thereafter until the end of year two, subject to an accelerated expiry
        if a market trigger price is reached of US$1.00 in year one and US$1.20
        in year two, in which event the warrant will expire 30 days after notice
        is given to the holder that the trigger price was reached.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | During the 2005 fiscal year, the Company also issued
        6,150,000 common shares from treasury upon the exercise of certain share
        purchase warrants at a price of US$0.23 per share and there were 100,000
        shares issued from treasury upon the exercise of certain stock options
        at a price of US$0.267 per share.                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | During the 2005 fiscal year, the Company purchased,
        for the owners cost and for cancellation and return to treasury, 1,800,000
        incentive shares that had been issued to the Companys President.
        These shares represented a portion of the 2,100,000 shares issued to the
        President pursuant to a Consulting, Incentive Shares and Non-Competition
        Agreement, approved by the Board of Directors during the 2004 fiscal year,
        for consideration of US$0.0033 per share.                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|b) | Share Purchase Warrants and Incentive Stock Options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | At March 31, 2005, the following share purchase warrants
        are outstanding:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

|Number          | Price           | Expiry          |    
|--------------- | --------------- | --------------- | ---
|of
      Shares | per
      Share | Date            |    
|542,495         | US$1.83         | May 4, 2005/    |    
|                | US$2.00         | May 4, 2006     |    
|9,066,500       | US$0.60         | March 18, 2006/ |    
|                | US$0.80         | March 18, 2007  | (1)
|9,608,995       |                 |                 |    

> (1) Subject to accelerated expiry of the warrants 30 days
>       from the date notice is given, at the Companys election, should the
>       Company shares trade above US$1.00 in the first year and US$1.20 in the
>       second year from issuance.

At March 31, 2005, the following stock options are
outstanding:

|Number          | Price           | Expiry           
|--------------- | --------------- | -----------------
|of
      Shares | per
      Share | Date             
|265,000         | US$0.65         | May 31, 2008     
|125,000         | US$0.65         | February 10, 2010
|400,000         | US$0.65         | January 1, 2010  
|790,000         |                 |                  

During the 2005 fiscal year, the Company granted options to two
directors and to its President to purchase 125,000 common shares vesting over
eighteen months with an expiry date of February 10, 2010 and an aggregate of
400,000 common shares vesting over five years with an expiry date of January 1,
2010, respectively, exercisable at a price of US$0.65.

The Company also granted an option to a consultant to purchase
25,000 common shares vesting over three years, exercisable at a price of US$0.65
until expiry on May 31, 2008.

---

- 55 -

On September 9, 2004 the Companys Directors, and one
consultant, agreed to reduce their previously granted stock options from 765,000
to 340,000 and to increase the exercise price of all remaining options from
US$0.267 to US$0.65. In addition, on September 30, 2004, 375,000 stock options
previously issued to former consultants of the Company, exercisable at a price
of US$0.27 per share, were terminated.

During the 2004 fiscal year, the Company granted options to
purchase 300,000 common shares vesting over four years and 465,000 shares
vesting over five years, exercisable at a price of US$0.267 until expiry on May
31, 2007 and May 31, 2008, respectively.

During the current fiscal year, the Company applied the
Black-Scholes option pricing model using the closing market prices on the grant
dates, a volatility ratio of 42% and the risk free interest rate of 3.5% to
calculate an option benefit at the dates of grant of $185,395 (2004:
$290,030).

Refer to Notes 9 and 12

NOTE 7 - COMMITMENTS AND CONTINGENCIES

The Company participates in oil and gas exploration operations
jointly with independent third and related parties and is contractually
committed under agreements to complete certain exploration programs. The
Companys management estimates that the total commitments for fiscal 2006 under
various agreements relating to permits held at March 31, 2005 are as
follows:

|                           |                    | Work Commitment or Obligation
|-------------------------- | ------------------ | -----------------------------
|Oil
      and Gas Property | Working Interest % | to
      March 31, 2006      
|PEP 38256                  | 53.84              | $ 140,000                    
|PEP 38258                  | 25.00              | 15,000                       
|PEP 38741                  | 20.00              | 210,000                      
|PEP 38765                  | 10.00              | 125,000                      
|PEP 38757                  | 100.00             | 900,000                      
|PEP 38758                  | 100.00             | 187,500                      
|PEP 38480                  | 25.00              | 243,000                      
|Total                      |                    | $
      1,820,500            

Refer to Note 12

NOTE 8 - LOSS PER SHARE

Loss per share is calculated using the weighted-average number
of common shares outstanding during the year. Diluted loss per share is not
presented, as it is anti-dilutive.

NOTE 9 - RELATED PARTY TRANSACTIONS

The Company is of the view that the amounts incurred for
services provided by related parties approximates what the Company would incur
to non-arms length parties for the same services. The following are related
party transactions not disclosed elsewhere in these financial statements.

| | a) | Due to Related Parties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | At March 31, 2005, the Company owed $Nil (March 31,
        2004 - $9,960) to public companies with directors, officers and principal
        shareholders in common.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | b) | Consulting Agreement, Directors fees and Wages                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | During the 2005 fiscal year, the Company paid $273,041
        (2004 fiscal year - $255,205) in wages and consulting fees to its Directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | On December 22, 2004, the Company entered into a
        new agreement with Rimu Resources Ltd. (Rimu), a private company
        wholly owned by its President, to retain Rimu to continue to provide oil
        and gas exploration executive services to the Company. The agreement is
        for a two-year period with an effective date of January 1, 2005, extendable
        if agreed by both parties, with annual compensation of $185,000 for the
        first year and $200,000 for the second year. Included as part of the agreement
        was the repurchase for cancellation of 1,800,000 incentive shares at cost,
        that were issued to the President under a previous agreement. The agreement
        also included an option to purchase 400,000 common shares of the Company
        at a price of US$0.65 per share.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | On February 2, 2005, the Company entered into agreements
        with two Directors for compensation for services as Directors. One agreement
        provides for compensation of $12,000 annually plus an option to purchase
        75,000 shares of the Company and the other agreement provides for compensation
        of $6,000 annually plus an option to purchase 50,000 shares of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                               

---

- 56 -

| |    | On February 7, 2005, the Company entered into an
        agreement with its Board Chairman, for services as a Director as well
        as to provide a minimum of two weeks of consulting work per month for
        compensation of US$6,000 per month. The agreement is on a month-to-month
        basis and can be cancelled by the Company with 60 days written notice.                                                         
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | c) | Oil and Gas Property                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | Austral Pacific Energy Ltd. has a director, officer
        and principal shareholders in common with the Company.                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | Refer to Note 4                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | d) | Stock Options                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | During the 2005 fiscal year, the Company granted
        three directors an aggregate of 525,000 options to purchase common shares.
        The Company also amended options that were previously granted to directors.                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | Refer to Note 6                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | e) | Private Placement                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | Three directors participated in a private placement
        completed in March of 2005, acquiring a total of 169,000 units at a price
        of US$0.40 per unit.                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | Refer to Note 6                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | f) | Other                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | During the 2005 fiscal year, the Company incurred
        $118,236 (2004 fiscal year - $127,887) of largely general and administrative
        costs through DLJ Management Corp. (DLJ), a wholly-owned subsidiary
        of Trans-Orient Petroleum Ltd. (Trans-Orient), which is a
        public company related by directors-in-common. This amount represents
        actual costs incurred by DLJ on behalf of the Company.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | During the 2004 fiscal year, the Company paid $9,600
        (March 31, 2004  $9,600) in rent to a private company wholly-owned
        by the principal shareholder of the Company.                                                                                                                                                                                                                                                

NOTE 10 - INCOME TAXES

There are no income taxes payable for the 2005 and 2004 fiscal
years. At March 31, 2005, the Company has approximately $4.2 million of resource
and other unused tax pools to offset future taxable income earned in Canada.
Additionally, at March 31, 2005 the Company has non-capital losses of
$2,320,277(March 31, 2004 - $1,369,012) available for future deduction from
taxable income earned in Canada, which expire as follows:

|2008 | $ 139,371  
|---- | -----------
|2010 | 99,137     
|2011 | 486,839    
|2012 | 643,665    
|2013 | 951,265    
|     |            
|     | $ 2,320,277

At March 31, 2005, the Company also has losses and deductions
of approximately NZ$2,641,749 (March 31, 2004 - NZ$2,137,672) available to
offset future taxable income earned in New Zealand.

The potential future benefit associated with these excess
resource tax pools and non-capital loss carry-forwards has not been recognized
in these financial statements, as it cannot be considered likely that these
amounts will be utilized to reduce future taxable income.

NOTE 11 - COMPARATIVE FIGURES

Certain of the prior years comparative figures have been
reclassified in conformity with the current years financial statement
presentation.

NOTE 12  SUBSEQUENT EVENTS

During the period subsequent to March 31, 2005 the following
occurred:

| | a) | Oil and gas properties
| | -- | ----------------------

---

- 57 -

| |    | PEP 38745 - The Company entered into an agreement,
        with an effective date of April 1, 2005, whereby Bridge Petroleum Limited
        assigned the Company a 16.67% interest in the permit in consideration
        for a 5% gross overriding royalty on the interest assigned. The Company
        expects to incur costs of $150,000 over the next twelve months related
        to the drilling of a well on this permit.                                                                                                                                                                                                                                                                          
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | PEP 38260  The Company entered into an agreement
        with Green Gate Limited on May 13, 2005 under which the Company can earn
        a 40% interest in and become operator of the onshore area of the permit
        by completing a 2D seismic program at a cost of approximately $500,000.
        The Company can then earn an additional 40% of the onshore portion of
        the permit by drilling one well on the permit. After earning its 70% interest
        onshore of PEP 38260, the Company will have the option to acquire a 15%
        interest in the offshore portion of PEP 38260 by reimbursing 15% of the
        past costs associated with the offshore portion of the permit.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | PEP 38751 - The Company entered into an agreement,
        with an effective date of June 10, 2005, whereby Bridge Petroleum Limited
        assigned the Company a 33.33% interest in the permit in return for reimbursing
        past costs of approximately $13,000. The Company expects to incur costs
        of $360,000 over the next twelve months related to the drilling of a well
        on this permit.                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | b) | Share purchase warrants and incentive stock options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | On May 19, 2005, the Companys Board of Directors
        approved an amendment to the terms of the Companys 542,495 share
        purchase warrants issued May 4, 2004. The amendment, if approved by the
        warrant holders, reduces the exercise price of the warrants from US$2.00
        to US$0.80 in consideration for the warrant holders accepting an accelerated
        expiry provision whereby the warrants will expire 30 days after notice
        is given by the Company that the Companys shares have traded over
        US$1.20 for 10 consecutive days.                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | On April 10, 2005 options granted to two former directors
        to acquire 90,000 shares of the Company expired unexercised.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | On May 10, 2005 the Company granted a director an
        option to acquire up to an additional 75,000 common shares, vesting over
        eighteen months, exercisable at a price of US$0.65 per share until expiry
        on May 10, 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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

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

CONSOLIDATED BALANCE SHEETS

| | a) | Assets
| | -- | ------
| |    | i)    
| |    |       
| |    |       

|                                                |   | March 31, |  |   | March 31, | 
|----------------------------------------------- | - | --------- |  | - | --------- | 
|                                                |   | 2005      |  |   | 2004      | 
|Marketable securities under
      Canadian GAAP | $ | 3,300     |  | $ | 3,300     | 
|Adjustment required under U.S. GAAP             |   | 10,200    |  |   | 13,200    | 
|Cumulative historical
      adjustments         |   | 16,800    |  |   | 3,600     | 
|Marketable securities under U.S. GAAP           | $ | 30,300    |  | $ | 20,100    | 

| |  |     | As a result, total current assets under U.S. GAAP
        as at March 31, 2005 and 2004 would be $6,583,579 and $937,261, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | ii) | Oil and Gas Property                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  |     | Under U.S. GAAP, the ceiling test under the full
        cost method is performed for each cost center by comparing the net capitalized
        costs to the present value of the estimated future net revenues from production
        of proved reserves discounted by 10%, net of the effects of future costs
        to develop and produce the proved reserves, plus the costs of unproved
        properties net of impairment, and less the effects of income taxes. Any
        excess capitalized costs are written off to expense. The ceiling test
        under U.S. GAAP has been limited to those periods in which U.S. GAAP balances
        have been provided.
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  |     | Under U.S. GAAP, the functional currency for each
        of the Company's foreign subsidiaries is the local currency of each subsidiary.
        Accordingly, the current rate method of foreign currency translation is
        required to be used for conversion into Canadian dollars. All assets and
        liabilities are translated into Canadian dollars at the rates prevailing
        on the balance sheet                                                                                                                                                                                                                                                       

---

- 58 -

date. Stockholders equity accounts are translated into
Canadian dollars at the rates prevailing on the transaction dates, with revenues
and expenses translated into Canadian dollars at the average rate for the
year.

Translation adjustments resulting from foreign currency
translations are recorded as a separate component of the stockholders equity
section on the balance sheet.

| |                                            |   | March 31, |   |   | March 31, | 
| | ------------------------------------------ | - | --------- | - | - | --------- | 
| |                                            |   | 2005      |   |   | 2004      | 
| | Oil and gas properties under Canadian GAAP | $ | 1,933,088 |   | $ | 645,209   | 
| | Foreign currency translation adjustment    |   | (7,487    | ) |   | 46,356    | 
| | Cumulative historical adjustments          |   | 93,016    |   |   | 46,660    | 
| | Oil and gas properties under U.S. GAAP     | $ | 2,018,617 |   | $ | 738,225   | 

| |    |                      | As a result of the adjustments, total assets under
        U.S. GAAP as at March 31, 2005 and 2004 would be $8,619,030 and $1,692,956,
        respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -- | -------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | b) | Stockholders Equity
| |    |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | i)                   | Common Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    |                      | During the comparative year, the Company began recording,
        under Canadian GAAP, the cost of stock options granted to employees and
        consultants utilizing a fair value measurement basis, a policy that is
        materially consistent with U.S. GAAP for stock-based compensation as described
        in Statement of Accounting Standards 123 (SFAS 123). However,
        in previous fiscal years, prior to the adoption of the fair value measurement
        standard under Canadian GAAP, the Company was subject to the minimum disclosure
        standards of SFAS 123 under U.S. GAAP, which required it to report, on
        a pro-forma basis, the effect of following a fair value based method of
        measuring the value of stock options granted using the Black Scholes,
        or similar, option pricing model.
| |    |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    |                      | In accordance with the mandatory disclosure standard,
        the following are the pro-forma figures for common stock had the Company
        used, from inception, a fair value-based method of accounting for stock
        based compensation as described in SFAS 123:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

|                                  |   | March 31,  |  |   | March 31,  | 
|--------------------------------- | - | ---------- |  | - | ---------- | 
|                                  |   | 2005       |  |   | 2004       | 
|Common stock under Canadian GAAP  | $ | 18,639,495 |  | $ | 11,023,925 | 
|Cumulative historical adjustments |   | 3,042,858  |  |   | 3,042,858  | 
|Common stock under U.S. GAAP      | $ | 21,682,353 |  | $ | 14,066,783 | 

| |  | ii) | Foreign Currency Translation Adjustment                                                         
| |  | --- | ------------------------------------------------------------------------------------------------
| |  |     |                                                                                                 
| |  |     | The effects of Note 13(a)(ii) on foreign currency
        translation adjustment are as follows:

|                                        |   | March 31, |   |   | March 31, | 
|--------------------------------------- | - | --------- | - | - | --------- | 
|                                        |   | 2005      |   |   | 2004      | 
|Foreign currency translation            |   |           |   |   |           | 
|adjustment under
      Canadian GAAP    | $ | -         |   | $ | -         | 
|                                        |   |           |   |   |           | 
|Foreign currency translation adjustment |   | (7,487    | ) |   | 46,356    | 
|Cumulative historical adjustments       |   | 93,016    |   |   | 46,660    | 
|                                        |   |           |   |   |           | 
|Foreign currency translation            |   |           |   |   |           | 
|adjustment under
      U.S. GAAP        | $ | 85,529    |   | $ | 93,016    | 

| |  | iii) | Accumulated Deficit                                               
| |  | ---- | ------------------------------------------------------------------
| |  |      |                                                                   
| |  |      | The effects of Note 13(b)(i) on accumlated deficit are as follows:

---

- 59 -

|                                    |   | March 31,   |   |   | March 31,   |  
|----------------------------------- | - | ----------- | - | - | ----------- | -
|                                    |   | 2005        |   |   | 2004        |  
|                                    |   |             |   |   |             |  
|Deficit under Canadian GAAP         | $ | (10,679,415 | ) | $ | (9,465,038  | )
|Net loss under U.S. GAAP            |   | (1,204,177  | ) |   | (924,801    | )
|Deduct net loss under Canadian GAAP |   | 1,214,377   |   |   | 938,001     |  
|Cumulative historical adjustments   |   | (3,029,658  | ) |   | (3,042,858  | )
|                                    |   |             |   |   |             |  
|Accumulated deficit under U.S. GAAP | $ | (13,698,873 | ) | $ | (12,494,696 | )

| |  | iv) | Accumulated Other Comprehensive Income                                                   
| |  | --- | -----------------------------------------------------------------------------------------
| |  |     |                                                                                          
| |  |     | The effects of Note 13(a) on accumulated other comprehensive income
      are as follows:

|                                         |   | March 31, |  |   | March 31, | 
|---------------------------------------- | - | --------- |  | - | --------- | 
|                                         |   | 2005      |  |   | 2004      | 
|                                         |   |           |  |   |           | 
|Accumulated other comprehensive income   |   |           |  |   |           | 
|under Canadian
      GAAP                | $ | -         |  | $ | -         | 
|                                         |   |           |  |   |           | 
|Unrealized gain on marketable securities |   | 10,200    |  |   | 13,200    | 
|Cumulative historical adjustments        |   | 16,800    |  |   | 3,600     | 
|                                         |   |           |  |   |           | 
|Accumulated other comprehensive income   |   |           |  |   |           | 
|under U.S. GAAP                          | $ | 27,000    |  | $ | 16,800    | 

As a result of these adjustments, total stockholders equity
under U.S. GAAP as at March 31, 2005 and 2004 would be $8,072,609 and
$1,668,703, respectively.

CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT

| | c) | Net Loss and Comprehensive Income for the Year                                                                    
| | -- | ------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                   
| |    | The following are the effects of Note 13(a) and (b)
        on net loss for the 2005, 2004, and 2003 fiscal years:

|                                             |   | 2005       |   |   | 2004     |   |   | 2003     |  
|-------------------------------------------- | - | ---------- | - | - | -------- | - | - | -------- | -
|                                             |   |            |   |   |          |   |   |          |  
|Net loss for the year under                  |   |            |   |   |          |   |   |          |  
|Canadian
      GAAP                          | $ | (1,214,377 | ) | $ | (938,001 | ) | $ | (995,253 | )
|                                             |   |            |   |   |          |   |   |          |  
|Net loss for the year under U.S. GAAP        | $ | (1,214,377 | ) | $ | (938,001 | ) | $ | (995,253 | )
|                                             |   |            |   |   |          |   |   |          |  
|Other comprehensive income:                  |   |            |   |   |          |   |   |          |  
|Realized gain on
      marketable securities |   | -          |   |   | -        |   |   | -        |  
|Unrealized gain on marketable                |   |            |   |   |          |   |   |          |  
|Securities                                   |   | 10,200     |   |   | 13,200   |   |   | 3,600    |  
|                                             |   |            |   |   |          |   |   |          |  
|Comprehensive loss for the
      year        |   |            |   |   |          |   |   |          |  
|under U.S. GAAP                              | $ | (1,204,177 | ) | $ | (924,801 | ) | $ | (991,653 | )

---

- 60 -

ITEM 18.               FINANCIAL
  STATEMENTS

Not applicable.

ITEM 19.               EXHIBITS

The following Exhibits are incorporated by reference:

|Exhibit Reference | Exhibit Description                                                                                                        
|----------------- | ---------------------------------------------------------------------------------------------------------------------------
|
|1                 | Articles of Association and Bylaws(1)                                                                                      
|4.1               | Consulting Agreement
        dated December 22, 2004                                                                       
|4.2               | Directors Compensation
        and Indemnity Agreements dated February 2, 2005                                             
|4.3               | Consulting Agreement
        dated August 15, 2005                                                                         
|4.4               | TSX
        Venture Listing Agreement                                                                                      
|4.5               | Form of Subscription
        Agreement for private placement dated September 2005 Canadian and Non-U.S.
        subscribers
|
|4.6               | Form of Subscription
        Agreement for private placement dated September 2005 U.S. subscribers                         
|
|4.7               | Underwriting Agreement
        dated September 1, 2005                                                                     
|4.8               | Form
        of 2005 Stock Option Plan                                                                                     
|4.9               | Audit
      Committee Charter                                                                                              
|8.0               | List
        of Wholly-Owned Subsidiaries of TAG Oil Ltd.                                                                  
|12.1              | Section
      302(a) Certification of CEO                                                                                  
|12.2              | Section
      302(a) Certification of CFO                                                                                  
|13                | Section
      906 Certifications                                                                                           
|16.1              | Code
        of Ethics                                                                                                     

|(1) | Herein incorporated references previously filed with our Form 20-F dated
      March 31, 2000 filed September 29, 2000.
|--- | -----------------------------------------------------------------------------------------------------------------------

---

- 61 -

SIGNATURES

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

|                         | **TAG OIL LTD.**
|------------------------ | ----------------
|                         |                 
|Date: September 30, 2005 | By:             
|                         |                 
|                         | Name:           
|                         |                 
|                         | Title:          

---