---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, 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, 2007**
(with other information to September 28, 2007 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
_______________

OR

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

Date of event requiring this shell company report
_______________

Commission file number**0-22500**

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

TAG OIL LTD.(Translation of Registrants name
into English)

BRITISH COLUMBIA, CANADA(Jurisdiction of
incorporation or organization)

Suite 1407, 1050 Burrard Street Vancouver, British
Columbia, Canada, V6Z 2S3(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, 2007.

**91,631,081 Common Shares Without Par
Value**

Indicate by check mark if the Registrant is a well-known
seasoned issuer as defined in Rule 405 of the Securities Act.
Yes  [  
]                          
No  [X]

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

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 whether the Registrant is a large
accelerated filer, an accelerated filer or non-accelerated filer. See
definition of accelerated filer and large accelerated filer in Rule 12b 2 of
the Exchange Act.

[   ]  Large Accelerated
Filer                  
[   ]  Accelerated
Filer               
[X]  Non Accelerated

Filer 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  [  
]                          
No  [X]

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

---

Indicate by check mark whether Registrant has filed all
documents and reports required to be filed by Sections 12, 13 or 15(d) of
the Securities Exchange Act of 1934subsequent to the distribution of
securities under a plan confirmed by a court.

NOT APPLICABLE

(End of Cover Page)

---

3

T A B L E   O F   C O N T E N T S 
  of the Form 20-F of TAG Oil Ltd.

|                                                         |                                                                                    |       
|-------------------------------------------------------- | ---------------------------------------------------------------------------------- | ------
|**CURRENCY, MEASUREMENT AND GLOSSARY OF INDUSTRY TERMS** | 4                                                                                 
|                                                         |                                                                                    |       
|ITEM 1.                                                  | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                              | 6     
|                                                         |                                                                                    |       
|ITEM 2.                                                  | OFFER STATISTICS AND EXPECTED TIMETABLE                                            | 6     
|                                                         |                                                                                    |       
|ITEM 3.                                                  | KEY INFORMATION                                                                    | 7     
|                                                         |                                                                                    |       
|ITEM 4.                                                  | INFORMATION ON THE COMPANY                                                         | **15**
|                                                         |                                                                                    |       
|ITEM 5                                                   | OPERATING, FINANCIAL REVIEW AND PROSPECTS                                          | **25**
|                                                         |                                                                                    |       
|ITEM 6.                                                  | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                         | 30    
|                                                         |                                                                                    |       
|ITEM 7.                                                  | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                                  | **35**
|                                                         |                                                                                    |       
|ITEM 8.                                                  | FINANCIAL INFORMATION                                                              | 36    
|                                                         |                                                                                    |       
|ITEM 9.                                                  | THE OFFER AND LISTING                                                              | **37**
|                                                         |                                                                                    |       
|ITEM 10.                                                 | ADDITIONAL INFORMATION                                                             | 39    
|                                                         |                                                                                    |       
|ITEM 11.                                                 | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK                   | 48    
|                                                         |                                                                                    |       
|ITEM 12.                                                 | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                             | 48    
|                                                         |                                                                                    |       
|ITEM 13.                                                 | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                                    | 48    
|                                                         |                                                                                    |       
|ITEM 14.                                                 | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
      AND USE OF PROCEEDS | **48**
|                                                         |                                                                                    |       
|ITEM 15.                                                 | CONTROLS AND PROCEDURES                                                            | 48    
|                                                         |                                                                                    |       
|ITEM 16.                                                 | AUDIT COMMITTEE, CODE OF ETHICS, ACCOUNTANTS FEES                                  | 49    
|                                                         |                                                                                    |       
|ITEM 17.                                                 | FINANCIAL STATEMENTS                                                               | 50    
|                                                         |                                                                                    |       
|ITEM 18.                                                 | FINANCIAL STATEMENTS                                                               | 64    
|                                                         |                                                                                    |       
|ITEM 19.                                                 | EXHIBITS                                                                           | 64    



---

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 that may be used in this
Annual Report:

TAG, We, OurorCompanyrefers toTAG
OilLtd., a company organized and registered under the laws of British
Columbia, Canada, and unless the context clearly requires, includes its
subsidiaries.

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

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

Depletion is the reduction in petroleum reserves due to
production.

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

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

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

Farm-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.

Fieldis a geologically connected area of the subsurface
that is producing, or has been proven to be capable of producing hydrocarbons.

---

5

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

GAAP refers to generally accepted accounting principles.

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

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

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.

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

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.

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

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

Prospect 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.

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

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

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

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

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

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

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.

---

6

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

TSX-V is the TSX Venture Exchange, part of the
Toronto-based TSX Group, which includes the Toronto Stock Exchange, and is one
of two stock exchanges on which the Companys common shares are traded.

Presentation of Information

TAG Oil Ltd. conducts its operations directly and through
subsidiaries. The term TAG Oil or Company as used herein refers, unless the
context otherwise requires, to TAG Oil Ltd. and its consolidated subsidiaries.
Unless otherwise specified, all dollar amounts described herein are in Canadian
currency. All references to daily production are before royalty, unless stated
otherwise.

All oil and natural gas reserve information contained in this
Report has been prepared and presented in accordance with National Instrument
51-101, Standard of Disclosure for Oil and Gas Activities (Canada). The actual
oil and natural gas reserves and future production may be greater than or less
than the estimates provided in this Annual Report. The estimated future net
revenue from the production of the disclosed oil and natural gas reserves does
not represent the fair market value of these reserves.

Forward Looking Statements

Certain statements in this Annual 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, will, may, 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
in 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 and or materials.

PART I

ITEM
1.           IDENTITY OF
DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM
2.           OFFER STATISTICS
AND EXPECTED TIMETABLE

Not applicable.

---

7

ITEM
3.           KEY INFORMATION

A.          
Selected financial data

The selected historical financial information presented in the
table below for each of the years ended March 31, 2007, 2006, 2005, 2004 and
2003 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, 2007, 2006 and 2005 are included in this filing. The
selected historical financial information for the years ended March 31, 2004 and
2003 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) included 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. Additional information is presented to
show the differences which would result from the application of United States
Generally Accepted Accounting Principles (US GAAP) to the Companys financial
information. Refer to Note 11 of the consolidated financial statements included
herein for a discussion of the material differences between Canadian GAAP and US
GAAP and their effect on the Companys financial position and results of
operations.

Under Canadian Generally Accepted Accounting Principles (in
Cdn$)

Year Ended March 312007
      
      
      2006
      
      
      2005
      
      
      2004
      
      
      2003$
      
      
      $
      
      
      $
      
      
      $
      
      
      $Current Assets
      
      14,658,380
      
      
      20,072,798
      
      
      6,556,579
      
      
      920,461
      
      
      1,245,229Property andEquipment
      
      32,014,990
      
      
      9,186,599
      
      
      1,949,922
      
      
      662,679
      
      
      921,624Incorporation Costs
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -Total Assets
      
      46,673,370
      
      
      29,259,397
      
      
      8,506,501
      
      
      1,583,140
      
      
      2,166,853Share Capital
      
      69,979,631
      
      
      39,134,809
      
      
      18,639,495
      
      
      11,023,925
      
      
      10,584,745Deficit
      
      (30,663,443
      )
      
      (12,104,977
      )
      
      (10,679,415
      )
      
      (9,465,038
      )
      
      (8,527,037
      )Oil and Gas Sales
      
      938,838
      
      
      -
      
      
      -
      
      
      -
      
      
      -Royalties
      
      (43,425
      )
      
      -
      
      
      -
      
      
      -
      
      
      -Production Costs
      
      (361,328
      )
      
      -
      
      
      -
      
      
      -
      
      
      -Write-down ofinventory
      
      (209,959
      )
      
      -
      
      
      -
      
      
      -
      
      
      -Write-off of oil andgas properties
      
      (17,246,651
      )
      
      (358,699
      )
      
      -
      
      
      (1
      )
      
      (454,150
      )Interest Income
      
      841,569
      
      
      399,684
      
      
      17,352
      
      
      15,737
      
      
      43,470Rental Income
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      23,000Net Loss
      
      (18,558,466
      )
      
      (1,425,562
      )
      
      (1,214,377
      )
      
      (938,001
      )
      
      (995,253
      )Net Loss per Share
      
      (0.22
      )
      
      (0.04
      )
      
      (0.09
      )
      
      (0.08
      )
      
      (0.11
      )


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

---

8

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

Year Ended March 312007
      
      
      2006
      
      
      2005
      
      
      2004
      
      
      2003$
      
      
      $
      
      
      $
      
      
      $
      
      
      $Current Assets
      
      14,658,380
      
      
      20,072,798
      
      
      6,583,579
      
      
      937,261
      
      
      1,248,829Property andEquipment
      
      33,653,239
      
      
      8,013,805
      
      
      2,035,451
      
      
      755,695
      
      
      968,284Incorporation Costs
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -Total Assets
      
      48,232,012
      
      
      28,086,603
      
      
      8,619,030
      
      
      1,692,956
      
      
      2,213,513Share Capital
      
      73,022,489
      
      
      41,467,807
      
      
      21,682,353
      
      
      14,066,783
      
      
      13,627,603Deficit
      
      (30,663,443
      )
      
      (15,111,523
      )
      
      (13,698,873
      )
      
      (12,494,696
      )
      
      (11,566,296
      )Oil and Gas Sales
      
      938,838
      
      
      -
      
      
      -
      
      
      -
      
      
      -Royalties
      
      (43,425
      )
      
      -
      
      
      -
      
      
      -
      
      
      -Production Costs
      
      361,328
      
      
      -
      
      
      -
      
      
      -
      
      
      -Write-down ofinventory
      
      (209,959
      )
      
      -
      
      
      -
      
      
      -
      
      
      -Write-off of oil and gasproperties
      
      (17,246,651
      )
      
      (358,699
      )
      
      -
      
      
      (1
      )
      
      (454,150
      )CumulativeComprehensive Adj.
      
      0
      
      
      (27,000
      )
      
      27,000
      
      
      16,800
      
      
      3,600Interest Income
      
      841,569
      
      
      399,684
      
      
      17,352
      
      
      15,737
      
      
      43,470Rental Income
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      23,000Net Loss
      
      (18,558,466
      )
      
      (1,425,562
      )
      
      (1,204,177
      )
      
      (924,801
      )
      
      (991,653
      )Net Loss per Share
      
      (0.22
      )
      
      (0.04
      )
      
      (0.09
      )
      
      (0.08
      )
      
      (0.11
      )


Please refer to Note 11 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, 2007 and 2006 the foregoing
differences 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 30, 2007 the buying rate for Canadian
dollars was US$1.00 for Cdn$1.1546. At the close of business on September 21,
2007 the buying rate for Canadian dollars was US$1.00 for Cdn$1.0009. 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 six months preceding March 31, 2007:

Oct 2006
    Nov 2006
    Dec 2006
    Jan 2007
    Feb 2007
    Mar 2007Month End
    1.1231
    1.1422
    1.1654
    1.1770
    1.1698
    1.1546Average
    1.1279
    1.1364
    1.1528
    1.1757
    1.1708
    1.1682High (2)
    1.1404
    1.1473
    1.1654
    1.1827
    1.1855
    1.1806Low (2)
    1.1152
    1.1290
    1.1403
    1.1636
    1.1591
    1.1546


---

9

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

2007
    2006
    2005
    2004
    2003Year End (1)
    1.1546
    1.1680
    1.2096
    1.3113
    1.4678Average
    1.1387
    1.1935
    1.2784
    1.3527
    1.5491High (2)
    1.1855
    1.2696
    1.3957
    1.4785
    1.5988Low (2)
    1.0983
    1.1314
    1.1759
    1.2712
    1.4628


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

**B.****Capitalization and indebtedness**

Not applicable.

C.          
Reasons for the offer and use of proceeds

Not applicable.

D.          
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 and holders of common shares should consider the following:

1. ****Failure to Locate Commercial Quantities of Hydrocarbons and
Geological and Geographic 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. The Companys future success in
exploiting and increasing its current reserve base will depend on the Companys
ability to develop its current properties and on its ability to discover and
acquire properties or prospects that are producing. But, there is no assurance
that the Companys future exploration and development efforts will result in the
discovery or development of additional commercial accumulations of oil and
natural gas.

In addition, even if further 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.

The Company will also be subject to uncertainties related to
the proximity of any reserves that it may discover to pipelines and processing
facilities. It expects that its operational costs will increase proportionally
to the remoteness of, and any restrictions on access to, the properties on which
any such reserves may be found. Adverse climatic conditions at such properties
may also hinder the Companys ability to carry on exploration or production
activities continuously throughout any given year.

2. ****Development of the Cheal Oil Field

---

10

The Company is currently undertaking the development of the
Cheal oil field, as more particularly described below under Item 4 of this
Report. This planned development is subject to risks and uncertainties involved
in the development of oil and gas production facilities. The occurrence of these
risks may adversely impact on the commercial viability of the project as the
revenues from the project may be less than anticipated and the capital and
operating costs may be greater than anticipated. The risks to revenue include
the development wells not producing predicted rates of oil and gas production,
decreases in the market prices of oil and gas, and increased storage and
transportation costs.

Accordingly, investors are cautioned that the development of
the Cheal oil field may not generate the returns forecasted by the Company.

3. ****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.

4. ****Funding Requirements

Oil exploration involves a high degree of technical and
commercial risk and is characterized by a continuous need for fresh capital.
Management seeks to minimise and spread this risk by joint-venturing oil
exploration projects with other companies and participating in properties
exhibiting a range of risk profiles to reduce its cost exposure to any one
project. The development of any reserves found on the Companys exploration
properties may depend upon the Companys ability to obtain further financing
through joint venturing of projects or equity financing.

There is no assurance that market conditions will continue to
enable the Company to raise funds if required, or that the Company will be able
to enter into agreements with third parties to fund permit obligations or be
able to renegotiate such obligations. The Company faces competition from other
oil companies for oil and gas properties and investor dollars.

The Companys current cash flow from operations is not sufficient
  to satisfy the Companys expenditure plans and requirements. If the Companys
  cash flow from operations does not increase to a level where it is sufficient
  to satisfy its capital expenditure plans and requirements, there can be no assurance
  that additional equity financing will be available to meet these plans and requirements.
  If the Company is unable to fund its permit obligations by share issues or farm-out
  agreements or to renegotiate such obligations, the Company may be unable to
  carry out its plan of operations and may be forced to abandon or forfeit some
  of its permit interests, or reduce or terminate its operations.

5. ****Limited Financial Resources

We have limited financial resources and, if our business is not
profitable, we may not be able to raise sufficient funds to sustain, continue or
expand our business. Although we currently have some operating revenues, these
revenues are not sufficient to sustain our exploration and development
activities and we expect to continue to rely principally on the issuance of
common shares to raise funds to finance our business. There is no assurance that
market conditions will permit us to raise necessary funds at all or on
acceptable terms.

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11

6. ****History of Losses

The Company, at the date of this report, has one oil and gas
property in the production stage. The Company has an accumulated deficit from
its historical operating results and there is no assurance that the business of
the Company will be profitable in the future. A failure to generate sufficient
revenues may cause the Company to eventually go out of business. The Company has
not paid dividends at any time in its history to date and there is no assurance
that the Company will pay a dividend at any time in the future.

7. ****Dilution

Our Notice of Articles authorizes the issuance of an unlimited
number of shares of common stock. The Company expects to continue to rely on the
issuance of common shares to raise funds to finance our business. Such
additional share issuances will be dilutive to current shareholders.

8. ****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 of 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.

9.*******Indemnities may be Unenforceable or Uncollectible*

The operating agreements we have with participants in a
property generally provide for the indemnification of the company that is the
operator. We do not operate all of our programs on our 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.

10. ****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 us, equipment availability, reliance on third
party operators of permits and licenses, and other 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 successfully renegotiated with the applicable
authority.

We participate in permits or licences with industry partners
with access to greater resources 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
portion of our interest in any

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12

production from the joint venture area. We are a majority
interest owner in only twoof our properties and we do not have sole
control over the future course of development in properties in which we do not
have a majority interest. 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. If a participant in a
joint venture, which participant has fewer resources than the Company, is unable
to meet its commitments, it may delay or veto exploration or development plans
which it cannot afford. This may delay the Companys desired exploration and
development program and lead to the Company and other participants assuming all
or some of the share of the non-committing entitys interest, and therefore
meeting a pro-rata share of its required contributions, as well as receiving a
pro-rata share of its revenue.

We do not maintain title insurance over our any of our
properties. See also Risk Factor 14 regarding title assurance.

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

The Company maintains insurance against certain public
liability, operational and environmental risks on behalf of the Company and
where applicable, 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.

12.****
Effect of Different Currencies

We hold cash reserves in CDN and US dollars and to a lesser
extent in New Zealand dollars. We incur the majority of our petroleum property
expenditures in New Zealand dollars. The Company does not currently hedge its
exposure to current rate changes, although it may choose to selectively hedge
exposure to foreign currency exchange rate risk. The Company manages some of
this risk by shifting a portion of its cash on hand from one currency to another
in a timely manner. A decrease in the value of the New Zealand currency against
the value of the CDN and US will be a benefit to the Company. An increase in
value of the New Zealand dollar relative to the CDN or US dollar would have a
detrimental effect on us as our expenses incurred would, in turn, increase in
CDN and US dollars.

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

The Securities and Exchange Commission (the SEC) has 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 Stock Market, 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 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.

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13

14****
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. The Company has investigated the rights to
explore the various oil and gas properties it holds or proposes to participate
in and, to the best of our knowledge, those rights are in good standing.

In addition many of the Companys properties are located on
private property and may be subject to delays and/or disputes with landowners in
certain circumstances. Such delays/disputes may affect the Companys ability to
explore for, produce or develop its oil and gas properties.

15.****
Uncertainty of Reserves Figures

Estimates of production expenditures, revenues and reserves
will likely vary from actual results, and these variances may be material.
Estimates of oil and gas reserves referred to below and in Exhibit 4.9 are
interpreted through geological, petro-physical and reservoir engineering data.
Such interpretations are inherently uncertain, as are the projections of future
rates of production and timing of development expenditures. The accuracy of the
reserves estimates is a function of the quality of available data, engineering
and geological interpretation and judgement. Factors such as historical
production from the area compared with the production from other producing
areas, assumed effects of governmental regulations, assumptions of future oil
and gas prices, future operating costs, development costs and remedial work-over
costs, will affect the estimates of economically recoverable quantities and of
future net cash flow. Any significant variance in the assumptions could
materially affect the estimated quantity and value of reserves.

16. ****Competition

The oil and gas industry is highly competitive. We encounter
strong competition from other independent operators and from major oil companies
in acquiring oil and natural gas properties suitable for development,
exploration, production, contracting for drilling equipment, securing trained
personnel and for capital to finance such activities. Many of these competitors
have financial resources and personnel resources available to them that are
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, oil storage capabilities and the effect of regional or national
regulations.

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

17. ****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.

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14

18. ****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.

19.****
Legal Proceedings Against Foreign Directors

The Company is incorporated under the laws of British Columbia,
Canada, and three of the Companys directors and officers are residents of
countries other than the United States. Substantially all of the assets of the
Company are located outside North America. Consequently, it may be difficult for
United States shareholders to enforce in the United States judgments of United
States courts against assets of the Company. Furthermore, it may be difficult
for shareholders 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s non-U.S. resident officers or directors.

20. ****Labour Requirements

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

21. ****Operators and Key Employees

To the extent that the Company is not the operator of the
majority of its oil and gas properties, the Company depends on third party
operators for the timing of activities related to such properties and may be
largely unable to direct or control the activities of the operators, except
through joint venture participation and voting.

In addition, the success of the Company largely depends upon
the performance of its key employees and on the advice and project management
skills of various consulting geologists, geophysicists and engineers retained by
the Company from time to time. Although there are other personnel available in
the sector who could replace Company personnel there is likely to be some
difficulty in finding immediate replacements of suitable caliber.

22. ****Conflicts of Interest

Interests in some petroleum properties have been acquired in
conjunction with, or interests purchased from, Austral Pacific Energy Ltd. with
which the Company had a common director and may have certain common principal
shareholders. Certain of the directors of the Company are or were directors
and/or officers of other corporations engaged in the petroleum exploration and
development or related industries. It is possible that conflicts of interest may
arise between their duties as director and/or officer of the other companies,
and as director or officer of the Company. The percentage participation of the
Company and any other company in a property is determined by the Board of
Directors of each such company independently, using the best business judgment
of the Board.

Under the Companys Articles and the relevant legislation, any
such conflict of interest is required to be disclosed and any contract in which
a director or officer has a material interest must be referred to the Board of
Directors for approval, and the interested director will not vote on any
resolution giving such approval. The Company requires confidentiality
obligations from all officers, employees and consultants.

23.*******The Company expects to be a passive foreign investment company, or
PFIC*

Shareholders who are U.S. taxpayers should be aware that the
Registrant will likely be a passive foreign investment company (PFIC) for the
current fiscal year, may also have been a PFIC in prior years and may also be a
PFIC in subsequent years. If the Company is a PFIC for any year during a U.S.
taxpayers

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15

holding period, then such U.S. taxpayer generally will be
required to treat any so-called excess distribution received on its common
shares, or any gain realized upon a disposition of common shares, as ordinary
income and to pay an interest charge on a portion of such distribution or gain,
unless the taxpayer makes a qualified electing fund (QEF) election or a
mark-to-market election with respect to the shares of the Company. In certain
circumstances, the sum of the tax and the interest charge may exceed the amount
of the excess distribution received, or the amount of proceeds of disposition
realized, by the taxpayer. A U.S. taxpayer who makes a QEF election generally
must report on a current basis its share of the Companys net capital gain and
ordinary earnings for any year in which the Company is a PFIC, whether or not it
distributes any amounts to its shareholders. A U.S. taxpayer who makes the
mark-to-market election, generally, must include as ordinary income in each
year, the excess of the fair market value of the common shares over the
taxpayers tax basis therein. The Company does not provide the information
necessary to enable U.S. shareholders to make the QEF election.

*24.******Uncertain
Future Operations*

On September 7, 2007 the Company announced that it is holding
talks with a number of advisory firms to execute an agreement to assist the
Company in its review of strategic alternatives for its New Zealand operations.
Alternatives under consideration include an outright sale of some or all of the
Companys New Zealand interests and facilities, consideration of potential
merger opportunities, faming-out certain prospects to key industry participants
and entering into new joint venture opportunities that meet the Companys risk
profile.

ITEM
4.           INFORMATION ON
THE COMPANY

A.          
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 Vancouver, British Columbia,
Canada based hydrocarbon resource company that holds varying interests in New
Zealand exploration permits as detailed below.

As a company domiciled in British Columbia, Canada, our legally
registered office is Suite 2600, Three Bentall Centre, 595 Burrard Street,
Vancouver, B.C. V7X 1L3. Our principal business office is located at Suite 1407,
1050 Burrard Street, Vancouver, B.C. V6Z 2S3, our operational office is located
at 117 Powderham Street, PO Box 183, New Plymouth, New Zealand and our technical
headquarters is located at Braemar Building, 32 The Terrace, 4th
Floor, Wellington, 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 our current name TAG Oil Ltd. on June 12, 2002. We
became a reporting company in British Columbia upon 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.

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16

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.

On January 16, 2006, the Company was re-domiciled from a
company subsisting under the Business Corporations Act (Yukon) back to British
Columbia by way of continuance under the Business Corporations Act (B.C.), which
replaced the Company Act (B.C.) in 2004.

Principal Petroleum Property Activities and Material Capital
Expenditures for the year ended March 31, 2007

Cheal Petroleum Limited (100% interest):In June
2006,the Company acquired all of the outstanding shares of Cheal
Petroleum Limited, PEP 38757 Limited and PEP 38758 Limited, all located in New
Zealand. To complete the acquisition, the Company made a cash payment of $12.8
million, issued five million common shares from treasury and granted a 0.775%
gross overriding royalty on PEP 38738-D.

Cheal Petroleum holds a 30.5% interest in the Cheal oil field
  (PMP 38156-S and PEP 38738-S) and a 15.1% interest in the Cardiff Deep Gas Prospect
  (PMP 38156-D and PEP 38738-D). An independent, National Instrument 51-101 report
  on the petroleum and natural gas reserves on PMP 38156-S dated as of March 31,
  2007 assigned the Cheal oil field gross proved undeveloped reserves of 1,655,100
  boe, gross probable reserves of 1,299,200 boe and gross possible reserves of
  1,204,900 boe, of which the Company holds a 30.5% interest in these reserves.
  Boe is defined as the sum of the oil reserves, plus gas reserves divided by
  a factor of 6, plus the natural gas liquid reserves, all expressed in barrels.

PMP 38156-S (30.5% interest):$3,224,952 in costs were
incurred by the Company during the 2007 fiscal year relating to drilling
activities and $2,145,899 was spent on the Cheal oil field production
facilities. The development plan for the Cheal oil field is expected to cost the
Company a total of approximately $11.2 million and includes completed work such
as the four wells drilled on the Cheal B site and two workovers on wells located
on the Cheal A site. In addition two more wells are scheduled to be drilled on
the Cheal A site in late 2007 or early 2008 and the completion of the permanent
production facilities is expected to be fully commissioned in September 2007.
The Company believes that upon completion of the production facilities, and with
the information available to the Company to the date of this report, daily gross
production is expected to initially increase to 800 barrels per day with a
further expectation that daily production will increase to 1,500 barrels of oil
per day upon the successful drilling of the two development wells planned on the
Cheal A site in coming months. The production facilities are capable of
processing up to 2,000 barrels of oil and 2 million cubic feet of gas per day
from a number of wells

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17

running in conjunction with each other on a jet pump with the
ability to increase the facilities capacity, should reserves support additional
production.

As of Setpember 28, 2007 the four Cheal B wells that have been
drilled were found to be oil bearing, with expectations that Cheal B-1, B-2 and
B-3, subject to definitive testing, will be capable of commercial production and
have had production casing run to allow for a continuous testing program that,
as of September 28, 2007, is ongoing. The Cheal B-4 well is currently suspended
and has had plugs set in anticipation of a potential whipstockoperation
in the future. The Cheal oil field has been in production using temporary
facilities since July 2006, utilizing wells on both the Cheal A and B sites, and
together they have produced a total of 45,094 barrels of oil to March 31, 2007
and a total of 81,527 barrels of oil to June 30, 2007. TAGs share of the oil
produced is 30.5% .

PMP 38157 (25% interest): $8,644,599 of expenditures
were made by the Company during the year relating materially to the drilling of
the Radnor-1a well. The Radnor-1a well was operated by the Company and the
Company paid 100% of the costs of the well. Gas inflow rates were considered
sub-economic and the well data continues to be analyzed. As of September 28,
2007, the Company is preparing to complete the plugging and abandoning of the
Radnor-1a well in order to complete the earning of its 25% interest in the
permit and on-site production station. However, for the joint venture to
maintain this permit in good standing with the Ministry of Economic Development
in New Zealand, the joint venture was required to re-establish production on the
permit before August 28. Based on this requirement and the results of the
Radnor-1a well, the permit will likely expire unless an extension to the permit
term is received. The Company does not expect to incur any material costs on the
permit with the exception of those associated with plugging and abandoning
Radnor-1a.

PEP 38758 (100% interest): $2,303,203 was
incurred during the 2007 fiscal year relating to drilling, completing and
testing the Mangamingi-1 well on the permit. Mangamingi-1 reached a total depth
of 1,871 meters, was perforated and flowed natural gas to flare along with some
formation water at uneconomical rates and, as a result, was plugged and
abandoned.

PEP 38741 (45% interest):$777,331 was incurred
by the Company consisting primarily of costs associated with the joint ventures
drilling of the Ratanui-1 well. After evaluating wireline and drilling data the
joint venture plugged and abandoned the well.

During the year ended March 31, 2007 the Companys joint
venture partner in PEP 38260 purported to cancel its agreement with the Company
and revoke the Companys right to explore in the permit area, claiming the
Company is in default of its obligations. On July 11, 2007 the Company accepted
an out-of court settlement offer from Green Gate Ltd. with repsect to the
dispute over PEP 38260 and the Kate prospect.

During the fiscal year ended March 31, 2007, the Company
relinquished its interests in PEP 38258, PEP 38732, PEP 38736, PEP 38744, PEP
38766 and PEP 38767 and has written-off the costs associated with each permit.
The Company also elected to write-off all costs associated with its interests in
PEP 38757, PEP 38341, PEP 38751, PEP 38256 and PEP 38758 after an assessment was
completed that determined that the costs related to each permit were unlikely to
be recovered. The Company also wrote-off certain costs associated with PMP 38157
that, at March 31, 2007, the Company deemed to be unrecoverable.

Subsequent to the 2007 fiscal year end:

- The Company relinquished permits PEP 38256, PEP 38341, PEP 38757 and PEP
  38751 after a technical assessment of data acquired to date was completed.
- On July 11, 2007 the Company accepted an out-of court settlement offer from
  Green Gate Ltd. with repsect to the dispute over PEP 38260 and the Kate
  prospect.

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18

2006:

During the 2006 fiscal year the Company continued its
exploration and acquisition focus in New Zealand as described below.

During the year ended March 31, 2006 the Company acquired
interests in fourteen petroleum interests; PMP 38153, PMP 38157, PEP 38260, PEP
38341, PEP 38342, PEP 38732, PEP 38736, PEP 38744, PEP 38745, PEP 38746, PEP
38748, PEP 38751, PEP 38766 and PEP 38767. Consideration paid for the interests
include gross overriding royalties, participation in exploration activities and
payment of past costs related to certain permits.

The Company participated in three unsuccessful exploration
wells and three exploration wells to determine their commercially viability in
combination with future successful wells, all of which are located in onshore
Taranaki, New Zealand. The unsuccessful wells drilled during the 2006 fiscal
year were: the Richmond-1 well on PEP 38745, the Konini-1 well on PEP 38751 and
the Arakamu-1 well in PEP 38757. The wells that were under evaluation to
determine commerciality are: the SuppleJack-1 well on PEP 38741 and the
SuppleJack South-1 and SuppleJack South-1a wells on PEP 38765.

During the 2006 fiscal year the Company wrote-off PEP 38480 as
this permit was relinquished after negotiations with the Ministry of Economic
Development in New Zealand did not result in amended exploration terms for the
permit. In addition the Company wrote-off the costs related to the Hursthouse-1
well as it was determined that the costs associated with this well were unlikely
to be recovered in the future.

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 kilometre 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 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.

Financing

2007:

On June 16, 2006, the Company completed a brokered private
placement financing of 40,000,000 shares at a price of $0.75 per share for gross
proceeds of $30,000,000. On June 16, 2006, the Company also issued 5,000,000
shares valued at $0.70 per share based on the closing share price of the
Companys

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19

shares on the date of issuance, as partial consideration for
the acquisition of Cheal Petroleum Limited, PEP 38757 Limited and PEP 38758
Limited.

2006:

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. These warrants expired
unexercised during the 2006 fiscal year.

On August 19, 2005, the Company accelerated 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.

2005:

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 consisted 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.

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

B.          
Business Overview

Nature of Operations

We are an independent oil and gas acquisition, exploration,
development and production company, incorporated in Canada, with all our
interests in hydrocarbon exploration prospects currently being in New Zealand.
We are involved in the exploration for and production of hydrocarbons and all of
our current property holdings, with the exception of PMP 38156-S that was
acquired during fiscal 2007, are in the grass roots or primary exploration
stage. During the 2007 fiscal year, we started generating revenues

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20

from the sale of hydrocarbons and the extent of such revenue
may be 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. Development of the Cheal oil field commenced in August
2006. This construction programme is nearing completion. Simultaneous production
from testing operations started in July 2006.

There is no spot market for natural gas in New Zealand;
therefore, all gas sales are made under long term contracts for the primary
purpose of electricity generation or reticulation to homes and businesses. The
Company did not sell any gas in 2005, 2006 or 2007. During the 2007 fiscal year,
a total of 45,094 barrels of oil (100%) was produced, and 44,731 barrels were
transported to the Waihapa Production Station and sold to Swift Energy Company.
The Companys share of production from the Cheal oil field is 30.5% . All gas
produced was associated with production testing and was flared to atmosphere in
compliance with consent conditions or used for on-site electricity
generation.

The Companys business is not seasonal, except to the extent
that:

- forecast weather may determine the timing of operations and weather delays
  may affect the speed of completion of operations; and
- its revenues are generally reliant on international oil prices, which are
  partially affected by seasonality.

Oil prices vary in line with international prices, for which
there have been, in past years, seasonal highs in the summer months (for the US
driving season) and in the winter months (for the northern hemisphere heating
oil season).

The Companys revenues are also partially reliant on local gas
prices in New Zealand, which are not affected by seasonality. As gas is sold
under long term contracts, gas prices are determined at the outset of the
contract and generally only increase by application of an inflation adjustment
formula independent of any seasonality factors.

The Companys business does not rely on the supply of raw
materials, as it operates in an extractive industry. The volatility of
international oil prices (as discussed in Item 4.B) affects the Companys
revenue, rather than its expenses.

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

The Company is not dependent upon any significant patents or
licenses, except that most of the plant at the Companys new production station
at the Cheal field (PMP 38156) was designed specifically for the production
station. The vessels, heat exchangers and piping are specific to the Cheal
process. The design of the power fluid pump, the coalescing filter, and export
compressor have been patented by their respective suppliers.

Management is negotiating to secure long-term oil and gas sales
contracts for production from the Cheal oil field. The proposed arrangements
likely will be a whole field contract, and as the Companys only production
contracts, the Companys revenue will substantially depend on such contracts.
There can be no assurance that production from other fields will develop.

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21

The oil and gas industry is highly competitive. The Companys
competitors for the acquisition, exploration, production and development of oil
and natural gas properties, and for capital to finance such activities, include
companies that have greater financial and personnel resources available to them
than the Company.

The Company actively competes for prospect acquisitions,
exploration permits and licenses, and skilled industry personnel with a
substantial number of other oil and gas companies, many of which have
significantly greater financial resources than the Company. The Companys
competitors include major integrated oil and natural gas companies and numerous
other independent oil and natural gas companies and individual producers and
operators.

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

The Company strives to be competitive by utilizing current
technologies to enhance exploitation, development and operational
activities.

The Company is subject to government regulation of the oil and
gas properties it holds and of the operations it conducts on those properties,
such those relating to hazardous substances, environmental effects, health and
safety, land access, permit conditions, and those regulations which relate to
all companies operating in the relevant jurisdictions such as corporate
governance, taxation, and employment laws. The effects of those regulations are
detailed in Item 3.D  Risk Factors, and in Item 4.D  Property, Plant and
Equipment. Such regulations do not in general have a material effect on the
Companys business, and do not affect the Companys business in a manner
different from the effects on other companies competing in the same industry.

C.          
Organizational Structure

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

|1. | TAG Oil (NZ) Limited;            
|-- | ---------------------------------
|2. | TAG Oil (Canterbury) Limited; and
|3. | Cheal Petroleum Limited.         

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

D.          
Property, Plant and Equipment

Our major operations and principal activities are in the oil
and gas exploration business. The following is a summary of the principal
interests held by the Company. Apart from our interests in the following
hydrocarbon exploration properties, we hold only minor office assets for the
purpose of operating our business and we carry inventory consisting of oil and
gas consumables.

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22

The following properties were held by the Company during the
  2007 fiscal year:

Property
    Location
    Working Interest
    Gross Sq. Kms
    Net Sq. KmsPMP 38153
    Taranaki
    15
    6
    0.9002PMP 38156-S
    Taranaki
    30.5
    30.3
    9.2411PMP 38156-D
    Taranaki
    15.1
    30.3
    4.5751PMP 38157 (1)
    Taranaki
    25
    22.48
    7.4926PEP 38256 (3)
    Canterbury
    100
    2795.965
    2795.965PEP 38258 (2)
    Canterbury
    -
    -
    -PEP 38260 (4)
    Canterbury
    -
    -
    -PEP 38341 (3)
    East Coast
    35.5
    1814.979
    644.3174PEP 38342
    East Coast
    35.5
    1723.002
    611.6656PEP 38732 (2)
    Taranaki
    -
    -
    -PEP 38736 (2)
    Taranaki
    -
    -
    -PEP 38738-S
    Taranaki
    30.5
    46.349
    14.1363PEP 38738-D
    Taranaki
    15.1
    46.349
    6.9986PEP 38741
    Taranaki
    45
    12.610
    5.6745PEP 38744 (2)
    Taranaki
    -
    -
    -PEP 38745
    Taranaki
    83.33
    50.517
    42.0957PEP 38746
    Taranaki
    16.67
    79.399
    13.2359PEP 38748
    Taranaki
    33.33
    64.236
    21.4098PEP 38751 (3)
    Taranaki
    33.33
    66.077
    22.0235PEP 38757 (3)
    Taranaki
    100
    29.461
    29.461PEP 38758
    Taranaki
    100
    49.679
    49.679PEP 38765
    Taranaki
    38.3
    12.715
    4.8699PEP 38766 (2)
    Taranaki
    -
    -
    -PEP 38767 (2)
    Taranaki
    -
    -
    -


|(1) | To receive a formally recognized 25% interest in this
      permit and the accompanying production station, the Company plans to plug
      and abandon the Radnor-1a well once the operator of the permit confirms
      that they will request ministry consent to recognize the Companys
      interest after the operations are completed. If this confirmation is not
      received from the operator, or if the operator attempts to obstruct the
      Companys plugging and abandoning operations, the Company may initiate
      legal action.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(2) | During the 2007 fiscal year, the Company relinquished its
      interests in PEP 38258, PEP 38732, PEP 38736, PEP 38744, PEP 38766 and PEP
      38767.                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(3) | Subsequent to the 2007 fiscal year end, the Company
      relinquished its interests in PEP 38256, PEP 38341, PEP 38751 and PEP
      38757.                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(4) | The Companys joint venture partner in PEP 38260
      purported to cancel its agreement with the Company and revoke the
      Companys right to explore in the permit area, and the Company reached an
      out of court settlement with respect to the
permit.                                                                                                                                                                                                                                                                                        

For further detail on each property and work done during the
year please refer to History and Development of the Company above and to the
Companys financial statements (Item 17). For details of planned work to be done
on each property before March 31, 2008 and the estimated cost thereof see below
Liquidity and Capital Resources.

Reserves

The Companys only property with recognized reserves during the
fiscal year ended March 31, 2007 was PMP38156-S (the Cheal oil field). During
the fiscal year ended March 31, 2007, the Company acquired, as detailed above, a
30.5% interest in PEP 38738-S and PEP 38738-D. In July 2006 the Ministry of
Economic Development in New Zealand issued a petroleum mining permit (PMP
38156) covering 30 square kilometres (of the total 90 square kilometres
originally held under PEP 38738-S and

---

23

PEP 38738-D) that contains the Cheal oil field and the Cardiff
deep gas prospect. The remaining 60 square kilometres remains in PEP 38738-S and
PEP 38738-D. An independent report dated as of March 30, 2007 was prepared for
the Company by Sproule International Limited (Exhibit 4.9) was completed using
data obtained from the Companys subsidiary Cheal Petroleum Limited and from
public sources. As at March 31, 2007 Sproule assigned 397,900 barrels (Company
share) of Proved Undeveloped Reserves, 294,100 barrels (Company share) of
Probable Reserves and 265,400 barrels (Company share) of Possible Reserves.
Although the Cardiff deep gas prospect was included in the area of PMP 38156,
Sproule did not assess the prospect and there has been no reserves assigned to
this prospect to the date of this report.

Petroleum Exploration Regime in New Zealand

Unless otherwise indicated and subject to the conditions of the
permit, a petroleum exploration permit granted in New Zealand provides for the
exclusive right to explore for petroleum in the land covered by the exploration
permit. Exploration permits have an initial term of five years, but are
renewable for a further term of up to five years over an area of land not
exceeding one-half of the original area (with a possible further short appraisal
extension where necessary).

An exploration permit holder may apply to the Minister of
Energy for amendments to an exploration permit, including changes to the Work
Programme or the area covered by the exploration permit, if circumstances
require and the conditions of the exploration permit have been substantially
complied with. This remains, however, a matter for the Ministers discretion.
Exploration permit holders may exceed the requirement of the Work Programme in
relation to any permit.

If an exploration permit holder does not satisfy the Minister
that it has complied with the obligations under the Work Programme (or such
variation as may have been agreed with the Minister), the New Zealand government
has the power to revoke the exploration permit. A NZ$250,000 bond is now payable
with all applications for a new permit.

Unless an earlier date is specified in the permit, an
exploration permit holder has a right to be granted a petroleum mining permit
with a term of up to 40 years if the exploration permit holder satisfies the
Minister that, as a result of the activities authorised by the exploration
permit, a deposit of petroleum has been found in the land covered by the
exploration permit.

The annual royalties payable in relation to a permit depend on
when the relevant petroleum discovery in the permit was made, and whether an
exploration permit or a mining permit is held.

On deposits of petroleum known to exist before June 30, 2005 or
discovered after December 31, 2009 , the New Zealand Government reserves a
royalty of:

| | (a) | where an exploration permit is held, a royalty of 5% of
      the net sales revenue from all petroleum obtained from the exploration
      permit; and
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                       
| | (b) | where a mining permit is held, a royalty of the greater
      of:                                                                                     
| |     |                                                                                                                                                       
| |     | (i)                                                                                                                                                   
| |     |                                                                                                                                                       
| |     | (ii)                                                                                                                                                  

On deposits of petroleum discovered in the period June 30, 2004
to December 31, 2009, where an exploration permit is held, the New Zealand
Government reserves a royalty of:

| | (a) | 1% of the net sales revenue from the sale of all natural
      gas products obtained from the exploration permit;
and
| | --- | ---------------------------------------------------------------------------------------------------------------------

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24

| | (b) | 5% of the net sales revenue from the sale of all oil
      products from the exploration permit.
| | --- | ------------------------------------------------------------------------------------------------

On deposits of petroleum discovered during the period June 30,
2004 to December 31, 2009 that are produced under a mining permit, the New
Zealand Government reserves a royalty that is the greater of:

| | (a) | 1% of the net sales revenue from the sale of all natural
      gas products obtained from the mining permit or 5% of the net sales
      revenue, from the sale of all oil products from the mining permit;
    and
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                    
| | (b) | a percentage of accounting profits, calculated on the
      following basis:                                                                                                                                       
| |     |                                                                                                                                                                                                                    
| |     | (i)                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                    
| |     | (ii)                                                                                                                                                                                                               

In calculating the accounting profits on any petroleum produced
from a discovery made during the period June 30, 2004 to December 31, 2009, a
mining permit holder may deduct, amongst other things, its prospecting and
exploration costs that it has incurred in any permit in New Zealand between June
30, 2004 and December 31, 2009. For production from all other mining permits,
only prospecting and exploration costs associated with that specific permit can
be deducted for the calculation of accounting profits for that permit.

Detailed methods for calculating net sales revenue and
accounting profits are prescribed for the purpose of royalties calculation.
Royalties are assessed annually.

On August 22, 2006 new fees were implemented with an effective
date of September 22, 2006 for all permits. For the financial year from July 1,
2006 through June 30, 2007, an exploration permit holder must pay the New
Zealand Government an annual fee of $9.47 per square kilometre for the first
1500 square kilometres and $7.22 for each additional square kilometre of the
land of any exploration permit. In respect of the same period, a mining permit
holder must pay the New Zealand Government an annual fee of NZ$303.12 per square
kilometre of the land area of any mining permit. From July 1, 2007, or on any
permit granted or extended on or after September 22, 2006, the new annual fees
require an exploration permit holder to pay the New Zealand Government NZ$10.50
per square kilometre for any exploration permit. A mining permit holder must pay
the New Zealand Government an annual fee of NZ$100 per square kilometre of the
land area of any mining permit and a prospecting permit holder must pay an
annual fee of NZ$4.00 per square kilometre of the land area of any prospecting
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.

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25

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, 2007, 2006, and 2005, 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 11 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
all but one of our oil and gas properties and are at the initial phase of
generating any sales and 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, 2007 were $30,663,443. 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 in combination with the ability to execute the
Companys development and production of reserves.

Results of Operations  2007 Compared to 2006 and 2005

We have conducted our operations as an acquisition and
exploration company for the 2007 fiscal year and our primary acquisition over
the 2007 fiscal year was acquiring an interest in Cheal Petroleum Limited
(Cheal). Cheal holds a 30.5% interest in the Cheal oil field as described
above.

Over the 2007 fiscal year, our main exploration focus was
participating in the Cheal oil field development plan that included drilling 2
development wells and 2 exploration wells on PMP 38156 and participating in the
development of permanent production facilities on PMP 38156 as described above.
To date we have also drilled the Radnor-1a deep gas well located on PMP 38157.
Testing operations yielded poor results and were considered sub-economic and the
well remains shut in at surface. The Company also drilled wells on PEP 38741 and
38758 that have been subsequently plugged and abandoned. The Company has a
number of other prospects located on its current interests that may be suitable
for drilling and if rig availability, costs and access to the service industry
provides us the opportunity, the Company will consider drilling additional
wells. The Company and its joint venture partners plan to drill a well in PMP
38153 and two wells in PMP 38156-S during the remainder of the 2008 fiscal year.
Other material commitments associated with the current permits not already
detailed in this report relate to plugging and abandoning a well on PMP 38157
and intervening and testing the Cardiff-2A well on PMP 38156-D.

During the year ended March 31, 2007, the Company relinquished
its interests in PEP 38258, PEP 38732, PEP 38736, PEP 38744, PEP 38766 and PEP
38767. Subsequent to March 31, 2007, PEP 38751, PEP 38757, PEP 38256 and PEP
38341, consisting of 868,479 net acres, were relinquished.

The Company plans to continue to maintain its permits in good
standing with the Ministry of Economic Development in New Zealand and to lodge
additional term applications accordingly.

The Company incurred a net loss for the 2007 fiscal year of
$18,558,466 ($0.22 per share) compared to a loss of $1,425,562 ($0.04 per share)
for the 2006 fiscal year and $1,214,377 ($0.09 per share) for the 2005 fiscal
year. The significant increase in loss for the 2007 fiscal year related
materially to a write-

---

26

down of the Companys property and equipment as a result of
exploration and drilling results encountered on a number of the Companys oil
and gas properties throughtout the year as described above and as detailed in
Note 4 of the accompanying audited financial statements.

The Companys revenue for the 2007 fiscal year consisted of
production revenue materially derived from the sale of oil from the Cheal oil
field detailed above, totalling $938,838 compared to $nil in oil and gas
revenues for 2006 and 2005 fiscal years. The Company also received interest
income of $841,569 compared to $399,684 of interest income being recorded for
the 2006 fiscal year and $17,352 of interest income in the 2005 fiscal year.
Interest income increased for the year when compared to the same period last
year as a result of the Companys higher working capital balances from the
financing completed during the 2007 fiscal year.

During the 2007 fiscal year, the Company received oil revenue
from the Cheal oil field production of 44,731 barrels sold (45,094 produced).
Thus, for the 2007 fiscal year, the Companys 30.5% share of oil sold and
produced was 13,643 and 13,754, respectively. Subsequent to March 31, 2007 and
up until June 30, 2007 the Cheal field produced an additional 36,433 barrels of
oil (Net to TAG: 11,112 barrels). The Companys share of production costs for
the 2007 fiscal year amounted to $361,328 while depletion and royalties amounted
to $324,022 and $43,425, respectively. The Company expects production costs per
barrel to be reduced when the field development plan is completed allowing for
production to become more consistent and efficient.

The Company incurred $2,066,665 in general and administrative
(G&A) expenses for the year ended March 31, 2007, compared to $1,404,864
for the year ended March 31, 2006 and $829,233 for the year ended March 31,
2005.

General and administrative (G&A) costs increased to
$2,066,665 in 2007 from $1,404,864 in 2006 (a 47% increase) primarily due to the
Companys increased activity levels related to the Companys assets. The main
items contributing to the increased G&A were wages, professional fees and
consulting fees. Wages accounted for a significant percentage of the increase
because during the fiscal year the Company employed a full-time exploration
manager, chief geophysicist, petroleum engineering manager and an operations
geologist. The Companys executives were also paid bonuses in December of 2006
and annual rates of compensation increased for the Companys executives during
the year. At the end of the 2007 fiscal year the Company paid severance amounts
in lieu of notice and terminated the employment of the exploration manager and
chief geophysicist.

In addition to the above, the Company recorded stock option
compensation costs of $107,782 (2006: $123,829) relating to the amortization of
the fair value compensation cost of stock options granted during the year. In
fiscal years prior to 2007, the Company expensed the total cost of the fair
value of granted stock options in the year that they were granted. In the 2007
fiscal year, the Company began amortizing the total cost of the fair value of
granted stock options over the vesting periods of the options.

During the 2007 fiscal year the Company relinquished
exploration permits PEP 38732, PEP 38736, PEP 38744, PEP 38766, PEP 38767, PEP
38258 in New Zealand and wrote-off $564,509 in capitalized costs associated with
these permits after analysing exploration data acquired and/or interpreted on
each permit during the 2007 fiscal year. As part of the 2007 fiscal year end
review process, the Company also chose to write-off $16,682,142 in costs
primarily relating to PMP 38157, PEP 38256, PEP 38260, PEP 38341, PEP 38745, PEP
38751, PEP 38757 and PEP 38758 as these permits were either relinquished
subsequent to year-end or the Company has deemed it unlikely, based on data
available to the Company, that the costs associated with the permits will be
recovered.

During the 2007 fiscal year, the Company also wrote-down
inventory by $209,959 to recognize its net realizable value.

---

27

We believe that the general and administrative costs of the
Company for the 2008 fiscal year will likely decrease for the 2008 fiscal year
as a result of the decrease in the amount of full-time employees to maintain our
New Zealand operations as detailed in this report.

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, US and NZ dollars, and incur the
majority of our petroleum property expenditures in New Zealand dollars. An
increase in value of the New Zealand dollar relative to the CDN or US dollar has
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.

The Company recorded a foreign exchange gain for the year
amounting to $134,530 compared to a foreign exchange gain of $62,080 last year.
The foreign exchange gain is caused by fluctuations of both the U.S. and New
Zealand dollar in comparison to the Canadian dollar.

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 11 Differences between Canadian
and United States Generally Accepted Accounting Principles.

New Accounting pronouncements

There have not been any new accounting pronouncements during
the 2007 fiscal year that have had a material affect on the Companys financial
statements.

Liquidity and capital resources 2007 Compared to 2006 and
2005

As of the date of this report, the Company has sufficient
capital to meet our planned exploration and development programs through the end
of the 2008 fiscal year to maintain our interests in all of our current New
Zealand based permits. However, owing to the inherent risks of oil & gas
acquisition, exploration, development and production it is uncertain whether we
will be able to generate sufficient income and/or secure outside sources of
capital in an amount that is sufficient for us to continue with our

---

28

expected operations beyond the end of 2007. Due to the
exploratory nature of our business, traditional forms of debt financing may not
be available to us and the Company may look at opportunities to farm-out,
reschedule or defer some of our capital expenditures. The Company may also
consider selling certain assets.

We received production revenue from our operations during the
2007 fiscal year from one property PMP 38156 that contains the Cheal oil field
that is currently in the development stage. The remainder of our current
properties are in the exploration stage and we do not expect to receive any
revenue from them during our 2008 fiscal year.

Operating Activities:

The Company had $13,425,795 in cash and cash equivalents and
$13,650,792 in working capital at March 31, 2007. This compares to $18,753,695
in cash and cash equivalents and $17,843,233 in working capital for year ended
March 31, 2006.

The Company had a net use of cash of $654,507 from operating
activities for the year ending March 31, 2007 compared to a net use of cash of
$2,038,848 for the comparable year ending March 31, 2006.

Financing Activities:

2007:

Financing activities for the year ended March 31, 2007
consisted of the Company receiving $28,054,682 as follows:

 ****During the 2007 fiscal year, the Company completed a brokered private
placement financing consisting of 40,000,000 shares at a price of US$0.75 per
share.

 ****On June 16, 2006 the Company issued 5,000,000 shares valued at $0.70
per share based on the closing share price of the Company on the date of
issuance, as partial consideration for the acquisition of Cheal Petroleum
Limited, PEP 38757 Limited and PEP 38758 Limited.

Refer to Item 17, Notes 3 and 6 for further details.

2006:

Financing activities for the year ended March 31, 2006
consisted of the Company receiving $20,371,485 as follows:

 ****During the 2006 fiscal year, the Company issued 9,066,500 shares from
treasury upon the exercise of certain share purchase warrants at a price of
US$0.60 per share.

 ****On September 22, 2005, the Company completed a brokered private
placement financing consisting of 11,538,500 shares at a price of $1.30 per
share. In connection with the financing the Company issued 400,000 broker
warrants exercisable at a price of $1.30 per share that expired unexercised,
subsequent to the 2006 fiscal year end.

---

29

Investing Activities:

Investing activities for the 2007 fiscal year consisted of
$32,728,075 being incurred for property and equipment expenditures that pertain
to acquisition, exploration and development work on our New Zealand oil and gas
properties. Please refer to Item 17, Notes 3 and 4 for additional information
relating to acquisitions and expenditures as well as Property, Plant and
Equipment above.

For the similar period lastyear, the Company used$5,991,084 of cash for acquisition and exploration work on our New Zealand
oil and gas properties. The Company also sold 6,000 shares of Tenke Mining Corp
for proceeds of $43,212.

The net result for the twelve-month period ending March 31,
2007 was a net use of cash totalling $32,728,075 for investing activities. This
compares to a net use of cash from investing activities totalling $5,947,877 for
the same period last year.

Conclusion:

The net impact of all cash activities during the twelve months
ended March 31, 2007 resulted in a net decrease in cash of $5,327,900, compared
to a net increase in cash of $12,384,760 for the year ended March 31, 2006.

Other:

 ****Subsequent to year-end, the Company relinquished permits PEP 38256, PEP
38341, PEP 38757 and PEP 38751after a technical assessment of data
acquired to date was completed.

 ****Subsequent to June 30, 2007, the Company reached an out of court
settlement with its joint venture partner with respect to PEP 38260.

 ****On September 7, 2007 the Company announced that it is holding talks
  with a number of advisory firms to execute an agreement to assist the Company
  in its review of strategic alternatives for its New Zealand operations. Alternatives
  under consideration include an outright sale of some or all of the Companys
  New Zealand interests and facilities, consideration of potential merger opportunities,
  faming-out certain prospects to key industry participants and entering into
  new joint venture opportunities that meet the Companys risk profile.

The Company will fund its estimated future Cheal oil field
development costs from a combination of working capital on hand and from
production revenues provided by Cheal oil field production. Therefore, we
anticipate that there will be no financing costs associated with these funds and
there will be no effect on future net revenues.

Our capital resources historically have been comprised
primarily of funds provided by private investors who are either existing
contacts of management or who come to our attention through brokers, financial
institutions and other intermediaries. During the past two fiscal years, as a
result of our brokered private placements in March and September 2005 and June
2006, our capital resources have expanded to a broader group. These capital
resources are not anticipated to change during the 2008 fiscal year. Our access
to capital is always dependent upon general financial market conditions.

---

30

Anticipated Material Work Obligations Before March 31, 2008
(As at March 31, 2007)

Description of
    
    Source ofProperty
    Work
    CAD$(1) (2)
    FundsUnproved:PMP 38157
    Plug and abandon
    425,000
    working capitalPMP 38156-S
    Field development plan
    5,500,000
    working capitalPMP 38156-D
    Intervene well, test sands and remodel
    825,000
    working capitaleconomicsPMP 38153
    Drill well
    1,125,000
    working capitalPEP 38741
    Long lead inventory items
    900,000
    working capitalPEP 38342
    Drill
      well
    850,000
    working capitalTotal Work Obligations
    
    9,625,000


| | (1) | The Company estimates an additional $200,000 will be
      spent on its various other properties during the 2008 fiscal
  year.                                       
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | Subject to change based on the Companys accessibility to
      drilling rigs, qualified personnel and other data and results becoming
      available to the Company.

The estimates of anticipated Material Work Obligations before
March 31, 2008, have been revised for the 2008 fiscal year as at September 28,
2007, and the amended obligations for the year are as follows:

Description of
    
    Source ofProperty
    Work
    CAD$(1) (2)
    FundsUnproved:PMP 38157
    Plug and abandon
    425,000
    working capitalPMP 38156-S
    Field development plan
    10,000,000
    working capitalPMP 38156-D
    Intervene well, test sands and
    825,000
    working capitalPMP 38153
    Drill well
    1,125,000
    working capitalPEP 38741
    Long lead inventory items
    900,000
    working capitalPEP 38342
    Drill well
    (850,000)
    working capitalTotal Work Obligations
    
    12,425,000


| | (1) | Revised as to updated obligations and considering work
      being performed to the date of this report.                                                              
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | Subject to change based on the Companys accessibility to
      drilling rigs, qualified personnel and other data and results becoming
      available to the Company.

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$, US$ and NZ$ 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

A.          
Directors and Senior Management

At September 28, 2007 the directors and officers of our Company
are:

---

31

|Name and Municipality         | Position Held                                                   | Office Held Since
|----------------------------- | --------------------------------------------------------------- | -----------------
|of Residence                  |                                                                 |                  
|                              |                                                                 |                  
|Garth Johnson (1)             | Chief Executive Officer                                         | September 1, 2007
|Surrey, BC, Canada            |                                                                 |                  
|                              | Chief Financial Officer, Corporate Secretary and
      Director | April 20, 2001   
|                              |                                                                 |                  
|David Bennett, PhD (2)(3)(4)  | Director                                                        | April 20, 2007   
|Wellington, New Zealand       |                                                                 |                  
|                              |                                                                 |                  
|Dan Brown (2)(3)(5)           | Director                                                        | July 20, 2007    
|Langley, BC, Canada           |                                                                 |                  
|                              |                                                                 |                  
|Giuseppe (Pino) Perone (2)(5) | Director                                                        | July 20, 2007    
|Richmond, BC, Canada          |                                                                 |                  

|(1) | Garth Johnson was appointed as Chief Executive Officer of
      the Company effective September 1, 2007.                                                     
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                              
|(2) | Member of audit committee.                                                                                                                                   
|    |                                                                                                                                                              
|(3) | Member of compensation committee.                                                                                                                            
|    |                                                                                                                                                              
|(4) | David Bennett was appointed as a director of the Company
      on April 20, 2007, and previously served as a director of the Company from
      1997 to 2001.
|    |                                                                                                                                                              
|(5) | Dan Brown and Giuseppe (Pino) Perone were appointed as
      directors of the Company on July 20, 2007.                                                      

Mr. Garth Johnson joined the Company as the corporate
accountant in 1997. He is currently the Chief Executive Officer, Chief Financial
Officer, Secretary and a director of the Company. Mr. Johnson is a Certified
General Accountant as well as Chief Financial Officer of AMG Oil Ltd.

Dr. David Bennett received a B.A. in the Natural Sciences from
Cambridge University in 1968, an M.SC. in Exploration Geophysics from the
University of Leeds and a doctorate in Geophysics from the Australian National
University with post-doctoral work at the University of Texas in 1973. Dr.
Bennett is a seasoned business executive who has over thirty years of technical
and operational experience in the oil and gas industry and has played a major
role in the discovery and development of several oil and gas fields in the
Australasian region. In addition, Dr. Bennett was a co-founder and the Chief
Executive Officer of Austral Pacific Energy Ltd. and is a director and Chairman
of Trans-Orient Petroleum Ltd. and a director of Rift Oil PLC.

Mr. Dan Brownhas been providing corporate
accounting services to public and private companies for over six years and is
also a director of AMG Oil Ltd.

Mr. Giuseppe (Pino) Perone received a B.A. with Distinction in
Sociology from the University of Victoria in 2001 and an LL.B. from the
University of Alberta in 2005. Mr. Perone is an active member of the Law Society
of British Columbia with legal experience in a variety of corporate and
commercial matters, including private placements and compliance with securities
regulators and stock exchanges.

The Companys directors and officers liability insurance was
renewed on July 25, 2007.

---

32

B.          
Compensation

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

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)(2)
      2007 
        2006 
        2005
      203,652 
        190,000 
        165,260
      20,000 
        40,000 
        -
      200,000 
        50,000 
        400,000
      $0.70 
        $1.30 
        $0.77
      08/02/11 
        11/22/10 
        01/01/10Garth Johnson, Chief 
        Financial Officer and 
        Secretary (1)(3)
      2007 
        2006 
        2005
      130,769 
        69,552 
        69,082
      12,500 
        25,000 
        -
      100,000 
        175,000 
        -
      $0.70 
        $1.30 
        -
      08/02/11 
        12/22/10 
        -Paul Infuso 
        Director (4)(5)
      2007 
        2006 
        2005
      22,500 
        12,000 
        2,000
      - 
        - 
        -
      150,000 
        - 
        75,000
      $0.70 
        - 
        $0.77
      08/02/11 
        - 
        02/10/10James Smith 
        Director (4)(6)
      2007 
        2006 
        2005
      22,500 
        10,500 
        1,000
      - 
        - 
        -
      150,000 
        25,000 
        50,000
      $0.70 
        $1.12 
        $0.77
      08/02/11 
        07/10/10 
        02/10/10Peter Loretto 
        Director (5)(6)
      2007 
        2006 
        2005
      2,500 
        - 
        -
      - 
        - 
        -
      - 
        - 
        -
      - 
        - 
        -
      - 
        - 
        -


|(1) | Mr. Cadenhead resigned as President, Chief Executive
      Officer and as a director of the Company effective September 1, 2007 and
      was replaced by Mr. Johnson as Chief Executive Officer of the
    Company.                                                                                                   
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                        
|(2) | On August 2, 2006 Mr. Cadenhead was granted 200,000
      options exercisable at $0.70 per share until expiry on August 2,
    2011.                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                        
|(3) | On August 2, 2006 Mr. Johnson was granted 100,000 options
      exercisable at $0.70 per share until expiry on August 2, 2011.                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                        
|(4) | Effective July 1, 2006 Mr. Infuso and Mr. Smith were each
      paid an additional $2,500 per month respectively in their capacity as
      directors. In addition, Mr. Infuso and Mr. Smith were each granted an
      additional 150,000 options exercisable at $0.70 per share until expiry on
      August 2, 2011.
|    |                                                                                                                                                                                                                                                                                                                        
|(5) | Mr. Infuso and Mr. Loretto resigned from the Board of
      Directors effective July 20, 2007.                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                        
|(6) | Mr. Smith resigned from the Board of Directors effective
      February 26, 2007 and was replaced by Mr. Loretto.                                                                                                                                                                                                      

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.

---

33

C.          
Board Practices

All directors have a term of office expiring at our next annual
general meeting, to be held in December of 2007, 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 (B.C.).

All officers have a term of office lasting until their removal
or replacement by the Board. As of September 28, 2007 the following are the
Companys officers and directors.

| | Name and Position               | Period Served in position
| | ------------------------------- | -------------------------
| |                                 |                          
| | Garth Johnson:                  |                          
| |                                 |                          
| | • Chief Executive
      Officer | 1 month                  
| |                                 |                          
| | • Corporate Secretary           | 6 years, 5 months        
| |                                 |                          
| | • Chief Financial
      Officer | 6 years, 5 months        
| |                                 |                          
| | • Director                      | 6 years, 5 months        
| |                                 |                          
| | David Bennett:                  |                          
| |                                 |                          
| | • Director                      | 5 months                 
| |                                 |                          
| | Dan Brown:                      |                          
| |                                 |                          
| | • Director                      | 2 months                 
| |                                 |                          
| | Giuseppe (Pino) Perone:         |                          
| |                                 |                          
| | • Director                      | 2 months                 

Audit and Compensation Committees

As at September 28, 2007 the members of the audit committee are
David Bennett, Giuseppe (Pino) Perone and Dan Brown. Mr. Bennett has served as a
member of the audit committee since April 20, 2007. Both Mr. Perone and Mr.
Brown have served as members of the audit committee since July 20, 2007 and Mr.
Brown is also the chairman. In the context of the Companys limited operations,
all members are considered to be financially literate

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 has a compensation committee consisting of Mr.
Bennett and Mr. Brown. Compensation committee members do not have service
contracts and are not paid for their services as a compensation committee
member. The committee is constituted to ensure that executives, staff and board
members are provided incentives and compensated in a way that advances both the
short and long-term interests of shareholders while also ensuring that the
Company is able to attract and retain executive management talent. Please refer
to Exhibit 4.11 for a copy of the Compensation Committee Charter.

---

34

D.          
Employees and Consultants

We have three full time employees. Mr. Johnson, CEO, CFO and
Corporate Secretary, Mr. David McCall, Engineering Manager and Mr. Carlos
Kazianis, Operations Geologist. Effective September 1, 2007, Mr. Cadenhead
resigned as the Companys President, CEO and director and has remained as a
consultant for three months and will receive $1,000 per full day of work, with a
minimum $10,000 payment per month based on ten days of work per month. Messrs.
Cadenhead, McCall and Kazianis reside in New Zealand and Mr. Johnson is located
in Vancouver, British Columbia.

On September 1, 2007 the Company entered into a Consulting
Agreement with DLJ Management Corp. (DLJ) on an on-going basis with monthly
compensation of $12,000. The Consulting Agreement relates to corporate services
provided to the Company. DLJ is a 100% owned subsidiary of Trans-Orient
Petroleum Ltd. that provides office space management, accounting and reporting
services to public and private companies on a fixed and cost recovery basis. Mr.
Dan Brown holds a corporate accounting role with DLJ and Mr. Perone holds a
position with DLJ as legal counsel.

Share ownership by directors and officers of the Company at
September 21, 2007 are as follows:

Name
    Number of
    Number of
    Exercise
    Expiry DateShares
    Options
    Price(1)Garth Johnson
    38,000
    75,000
    $0.77
    May 31, 200875,000
    $0.77
    May 10, 2010100,000
    $1.30
    Nov 22, 2010100,000
    $0.70
    August 2, 2011David Bennett
    Nil
    Nil
    Nil
    NilDan Brown
    Nil
    25,000
    $0.77
    May 31, 200825,000
    $0.70
    August 2, 2011Giuseppe (Pino)
    Nil
    Nil
    Nil
    NilPerone


(1) Certain options are denominated in US dollars and have been
converted to Canadian dollars using the March 31, 2006 closing exchange rate.

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 under which
directors, officers, employees and consultants to the Company or its affiliates
are eligible to receive grants of options. Under the current option plan the
number of shares reserved for issuance as share incentive options is 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 TSX-V.

---

35

ITEM
7.           MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.          
Major shareholders Beneficial Holder of More Than Five Percent of Outstanding
Shares

The Company sets forth the common stock ownership of the
individuals 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 21, 2007. Information was acquired by public filings with the SEC and
online from the Computershare Investor Services Inc. website.

|Name and
      Address of Owner        |  | Number of Shares | Percentage of Class
|-------------------------------------- |  | ---------------- | -------------------
|                                       |  |                  |                    
|Wellington Management Company, LLP     |  | 10,236,500       | 11.17%             
|                                       |  |                  |                    
|RAB Energy Fund Limited                |  | 7,225,000        | 7.88%              
|                                       |  |                  |                    
|South Pacific Lease Operations Limited |  | 5,000,000        | 5.46%              
|                                       |  |                  |                    
|Alex Guidi                             |  | 4,623,500        | 5.05%              

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 September 22, 2005, RAB Energy Fund Limited acquired
      6,725,000 shares of the Company primarily through a brokered private
      placement detailed above.                                                                             
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                
| | 2. | On June 15, 2006, the Company issued South Pacific Lease
      Operations Limited 5,000,000 shares of the Company as part of the
      acquisition of Cheal Petroleum Limited, PEP 38757 Limited and PEP 38758
      Limited as detailed above.
| |    |                                                                                                                                                                                                                                                
| | 3. | From June 2006 to January 2007 Wellington Management
      Company, LLP aqcuired 10,236,500 shares of the Company through a brokered
      private placement detailed above and through the open market.                                       
| |    |                                                                                                                                                                                                                                                
| | 4. | Alex Guidi aqcuired 4,623,500 shares of the Company
      through the open market.                                                                                                                                                             

Insider Reporting

The Business Corporations Act (B.C.) 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 (B.C.). 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.

---

36

Host Country Shareholders

The proportion and number of shareholders of record in the
United States as at September 21, 2007 are as follows:

Estimated proportion of shares held in the
      U.S.
    16.81%Number of U.S. shareholders
    545Number of shares held by U.S. shareholders
    15,407,772Total number of shareholders
    568Total number of shares held
    91,631,081


Arrangements Affecting Shareholdings

None.

B.          
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 2, 2006 the Company granted 600,000 options to
      four directors all of which vest over eighteen months and are exercisable
      at a price of $0.70 per share until expiry on August 2, 2011.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                             
|(b) | Independent Directors of the Company received a total of
      $53,500 (2006 fiscal year - $22,500) in directors fees for the 2007
      fiscal year.                                                      
|    |                                                                                                                                                                                                             
|(c) | Subsequent to the fiscal year ending March 31, 2007 the
      Company paid DLJ a total of $57,218 in consulting fees.                                                                                       
|    |                                                                                                                                                                                                             
|(d) | During the fiscal year ending March 31, 2007 the Company
      paid a total of $366,921 (2006 fiscal year - $365,843) in wages, bonuses
      and cost of living allowance to its Executive
Officers.       

C.          
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
of Item 17.

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,
2007:

| | a) | Certain options to purchase 475,000 common shares of the
      Company at an average price of $0.76 were cancelled.                                            
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                
| | b) | The Company relinquished permits PEP 38256, PEP 38341,
      PEP 38757 and PEP 38751 after a technical assessment of data acquired to
      date was completed.

---

37

| | c) | On July 11, 2007 the Company accepted an out-of court
      settlement offer from Green Gate Ltd. with repsect to the dispute over PEP
      38260 and the Kate prospect.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | d) | On February 26, 2007 James Smith resigned as a director
      and was replaced by Peter Loretto. Subsequently, Paul Infuso and Peter
      Loretto resigned as directors effective July 20, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | e) | Drew Cadenhead resigned as President, Chief Executive
      Officer and as a director of the Company effective September 1, 2007. The
      Company negotiated a Severance Agreement with Drew Cadenhead under which
      Mr. Cadenhead will receive compensation of $405,600 plus a consulting fee.
      Upon receipt of the resignation on September 1, 2007, Mr. Cadenhead
      received immediate compensation of $50,000 with the remaining sum of
      $355,600 being paid on November 30, 2007 that includes a consulting fee
      for three months of $1,000 per full day of work, with a minimum $10,000
      payment per month based on ten days of work per month. The consulting
      period may be extended by mutual agreement for a further three months on
      the written agreement of both the Company and Mr. Cadenhead.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | f) | On September 1, 2007 Garth Johnson replaced Drew
      Cadenhead as Chief Executive Officer and the Company entered into an
      Executive Employment Agreement with Garth Johnson on an on- going basis
      under which Mr. Johnson will receive an annual salary of $150,000 and will
      be eligible for a bonus of up to 35% of the annual salary per year, which
      will be recommended by the compensation committee of the Company and
      approved by the Board of Directors, and includes employee and vacation
      benefits and severance terms as well.                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | g) | On September 7, 2007 the Company announced that it is
      holding talks with a number of advisory firms to execute an agreement to
      assist the Company in its review of strategic alternatives for its New
      Zealand operations. Alternatives under consideration include an outright
      sale of some or all of the Companys New Zealand interests and facilities,
      consideration of potential merger opportunities, faming-out certain
      prospects to key industry participants and entering into new joint venture
      opportunities that meet the Companys risk
profile.                                                                                                                                                                                                                                              

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

There is no offering of stock hereunder. This is an annual
report only.

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.

---

38

Summary trading by year, for the five most recently completed
fiscal periods ending March 31, 2007:

OTCBB
      TSX-VYear
      High (1)(2)(3)
      Low (1)(2)(3)
      High (2)(3)
      Low (2)(3)2003
      1.55
      0.22
      -
      -2004
      4.50
      0.65
      -
      -2005
      3.75
      0.40
      -
      -2006
      1.46
      0.38
      1.70
      0.632007
      0.88
      0.20
      1.00
      0.24


Summary trading by quarter for the two most recently competed
fiscal periods ending March 31, 2007:

OTCBB
      TSX-VYear andQuarter
      High (1)(2)(3)
      Low (1)(2)(3)
      High (2)(3)
      Low (2)(3)2006First Quarter
      0.80
      0.38
      -
      -Second Quarter
      1.46
      0.60
      1.70
      1.09Third Quarter
      1.25
      0.47
      1.40
      0.63Fourth Quarter
      1.02
      0.58
      1.19
      0.692007First Quarter
      0.88
      0.60
      1.00
      0.67Second Quarter
      0.84
      0.43
      0.85
      0.50Third Quarter
      0.57
      0.34
      0.65
      0.44Fourth Quarter
      0.53
      0.20
      0.62
      0.24


Summary trading by quarter for any full quarter subsequent to
the year end March 31, 2007:

OTCBB
      TSX-VMonth
      High (1)(2)(3)
      Low (1)(2)(3)
      High (2)(3)
      Low (2)(3)Apr 1 to June 30
      0.30
      0.13
      0.30
      0.10


---

39

Summary trading by month for the six most recently completed
months ending August 31, 2007:

OTCBB
      TSX-VMonth
      High (1)(2)(3)
      Low (1)(2)(3)
      High (2)(3)
      Low (2)(3)Mar
      0.39
      0.20
      0.43
      0.24Apr
      0.30
      0.13
      0.29
      0.10May
      0.20
      0.13
      0.21
      0.16Jun
      0.29
      0.15
      0.29
      0.18July
      0.29
      0.16
      0.24
      0.18Aug
      0.21
      0.13
      0.20
      0.15


|(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 for OTCBB are from the website located at
      www.finance.yahoo.com and all quotations for TSX-V are from the website
      located at www.tsx.com.

Plan of Distribution

Not applicable.

Markets

The authorized capital of the Company consists of an unlimited
number of Common Shares without par value, of which 91,631,081 were issued as of
September 28, 2007.

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 Ltd. on June 12, 2002. Thereafter
our shares have traded on the OTCBB under the symbol TAGOF.

ITEM
10.         ADDITIONAL INFORMATION

A.          
Share Capital

Not applicable.

B.          
Memorandum and Articles of Association

Our Articles of Association were previously filed with our Form
20-F for the Year Ended March 31, 2000. On September 22, 2006 the shareholders
of the Company approved the Board of Directors recommendation to return the
Companys incorporation to British Columbia and to adopt new Articles. The new
Articles that the Company has adopted were filed with the Form 20-F for the Year
Ended March 31, 2006.

---

40

C.          
Material contracts

Attached as exhibits are material contracts the Company entered
into during the period March 31, 2006, to September 28, 2007 as follows:

| | (a) | TAG Oil Ltd. Forms of Subscription Agreement Dated June
      2006. (1)                                                             
| | --- | ------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                     
| | (b) | Underwriting Agreement with an effective date of May 12,
      2006 between the Company and Canaccord Capital Corporation.
      (1)
| |     |                                                                                                                                     
| | (c) | Share Purchase Agreement between the Company and South
      Pacific Lease Operations Limited dated May 9, 2006.
  (1)              
| |     |                                                                                                                                     
| | (d) | Severance Agreement between the Company and Drew
      Cadenhead dated September 1, 2007.                                           
| |     |                                                                                                                                     
| | (e) | Executive Employment Agreement between the Company and
      Garth Johnson dated September 1, 2007.                                 
| |     |                                                                                                                                     
| | (f) | Consulting Agreement between the Company and DLJ dated
      September 1, 2007.                                                     

(1) Incorporated by reference with our
previously filed Form 20-F dated March 31, 2006 filed on September 28, 2006.

D.          
Exchange Controls

There is no law or governmental decree or regulation in Canada
that restricts the export or import of capital, or affects the remittance of
dividends, interest or other payments to a non-resident holder of common shares
of the Company, other than withholding tax requirements. See 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 is a federal statute of broad application
regulating the establishment and acquisition of Canadian businesses by
non-Canadians, including individuals, governments or agencies thereof,
corporations, partnerships, trusts or joint ventures (each an entity).
Investments by non-Canadians to acquire control over existing Canadian
businesses or to establish new ones are either reviewable or notifiable under
the Investment Act. If an investment by a non-Canadian to acquire control over
an existing Canadian business is reviewable under the Investment Act, the
Investment Act prohibits implementation of the investment unless after review
the Director of Investments, who is appointed by the Minster of Industry, is
satisfied that the investment is likely to be of net benefit to Canada.

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. Further,
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.

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41

For a direct acquisition that would result in an acquisition of
control of the Company, subject to the exception for WTO-investors that are
controlled by persons who are resident in World Trade Organization (WTO)
member nations, an investment would be reviewable where the value of the
acquired assets exceeds CAD $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.

For an indirect acquisitions that would result in an
acquisition of control of the Company through the acquisition of a non-Canadian
parent entity, the investment would be reviewable where (a) the value of the
Canadian assets is less than or equal to 50% of the value of all of the assets
acquired in the transaction and the value of the Canadian assets is $50 million
or more, or (b) the value of the Canadian assets is greater than 50% of the
value of all of the assets acquired in the transaction and the value of the
Canadian assets is $5 million or more.

In the case of a direct acquisition by or from a WTO
investor, the threshold is significantly higher, and is adjusted for inflation
each year. The 2007 threshold is CAD $281 million. Other than the exception
noted below, an indirect acquisition involving a WTO investor is not reviewable
under the Investment Act.

The higher WTO threshold for direct investments and the
exemption for indirect investments do not apply where the relevant Canadian
business is carrying on the following businesses that have been deemed to be
sensitive: (i) the production of uranium and the ownership of an interest in a
producing uranium property in Canada; (ii) the provision of any financial
service; (iii) the provision of any transportation service; or (iv) a
cultural business.

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.

E.          
Taxation

Certain Canadian Federal Income Tax Information for United
States Residents

The following summarizes the principal Canadian federal income
tax considerations generally applicable to the holding and disposition of common
shares of the Company by a holder (a) who, for the purposes of the Income Tax
Act (Canada) (the Tax Act), is not resident in or deemed to be resident in
Canada, deals at arms length with the Company, holds the common shares as
capital property and does not use or hold the common shares in the course of
carrying on, or otherwise in connection with, a business in Canada, and (b) who,
for the purposes of the Canada-United States Income Tax Convention (the
Treaty), is a resident of the United States, has never been a resident of
Canada, has not held or used (and does not hold or use) common shares in
connection with a permanent establishment or fixed base in Canada, and who
otherwise qualifies for the full benefits of the Treaty. Holders who meet all
such criteria in clauses (a) and (b) are referred to herein as a U.S. Holder
or U.S. Holders, and this summary only addresses such U.S. Holders. The
summary does not deal with special situations, such as particular circumstances
of traders or dealers, limited liability companies, tax-exempt entities,
insurers, financial institutions (including those to which the mark-to-market
provisions of the Tax Act apply), or otherwise.

---

42

This summary is based on the current provisions of the Tax Act
and the regulations thereunder, all proposed amendments to the Tax Act and
regulations publicly announced by the Minister of Finance (Canada) to the date
hereof, the current provisions of the Treaty and the current administrative
practices of the Canada Revenue Agency. It has been assumed that all currently
proposed amendments will be enacted as proposed and that there will be no other
relevant change in any governing law, the Treaty or administrative policy,
although no assurance can be given in these respects. This summary does not take
into account provincial, U.S. or other foreign income tax considerations, which
may differ significantly from those discussed herein. The summary also assumes
that the Company will be treated as a resident of Canada for purposes of the Tax
Act and the Treaty. This summary does not take into account any proposed changes
to the Treaty announced in the Protocol agreed to between the Canadian and
United States governments on September 21, 2007. No opinion or tax ruling has
been sought or obtained in respect of any assumption made in this summary.

This summary is not exhaustive of all possible Canadian income
tax consequences. It is not intended as legal or tax advice to any particular
holder of common shares and should not be so construed. The tax consequences to
any particular holder of common shares will vary according to the status of that
holder as an individual, trust, corporation or member of a partnership, the
jurisdictions in which that holder is subject to taxation and, generally,
according to that holders particular circumstances.

Each holder should consult the holders own tax advisor with
respect to the income tax consequences applicable to the holders own particular
circumstances.

Dividends

Dividends paid or deemed to be paid or credited by the Company
to a U.S. Holder are subject to Canadian withholding tax. Under the Treaty, the
rate of withholding tax on dividends paid to a U.S. Holder is generally limited
to 15% of the gross dividend (or 5% in the case of corporate shareholders owning
at least 10% of the Companys voting shares).

Disposition

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

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

Furthermore, even if common shares are so held as taxable
Canadian property, relief under the Treaty is generally available provided the
value of the common shares is not derived principally from real property
situated in Canada. Management of the Company believes that the value of the
Companys common shares is currently not derived principally from real property
in Canada. US Holders claiming Treaty relief should do so by filing a Canadian
income tax return for the relevant taxation year, and should consult with their
own advisors in this regard.

United States Taxation Effects

The following is a general discussion of the material U.S.
Federal income tax laws for U.S. Holders (as defined below) that hold common
shares in the Company as a capital asset, as defined under U.S. Federal income
tax law, and is limited to discussion of U.S. Holders that own less than 10% of
the common shares. This discussion does not address all potentially relevant
U.S. Federal income tax matters and it does not address consequences peculiar to
persons subject to special provisions of U.S. Federal income

---

43

tax law, such as those described below as excluded from the
definition of a U.S. Holder. In addition, this discussion does not cover any
state, local or foreign tax consequences.

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

THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND
IT IS NOT INTENDED TO BE, NOR SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE
TO ANY HOLDER OR PROSPECTIVE HOLDER OF COMMON SHARES OF THE COMPANY AND NO
OPINION OR REPRESENTATION WITH RESPECT TO THE U.S. FEDERAL INCOME TAX
CONSEQUENCES TO ANY SUCH HOLDER OR PROSPECTIVE HOLDER IS MADE. THE FOLLOWING
DISCUSSION WAS NOT WRITTEN AND IS NOT INTENDED TO BE USED, AND CANNOT BE USED,
BY ANY PERSON FOR THE AVOIDANCE OF ANY PENALTIES WITH RESPECT TO TAXES THAT MAY
BE IMPOSED ON SUCH PERSON. ACCORDINGLY, U.S. HOLDERS AND PROSPECTIVE U.S.
HOLDERS OF COMMON SHARES OF THE COMPANY SHOULD CONSULT THEIR OWN TAX ADVISORS
ABOUT THE U.S. FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF
PURCHASING, OWNING AND DISPOSING OF COMMON SHARES OF THE COMPANY.

U.S. Holders

As used herein, a U.S. Holder is a holder of common shares of
the Company who or which is: (a) a citizen or individual resident (or is treated
as a citizen or individual resident) of the United States for U.S. Federal
income tax purposes; (b) a corporation, or other entity treated as a corporation
for U.S. Federal income tax purposes, created or organized in the United States,
including only the States and District of Columbia, or under the law of the
United States or any State or Territory or any political subdivision thereof;
(c) an estate, the income of which is includable in its gross income for U.S.
Federal income tax purposes without regard to its source; or (d) a trust, if (i)
a court within the United States is able to exercise primary supervision over
the administration of the trust and (ii) one or more U.S. persons have the
authority to control all substantial decisions of the trust; or the trust was in
existence on August 20, 1996, and has a valid election in effect under
applicable Treasury Regulations to be treated as a U.S. person. If a
partnership, including any entity that is treated as a partnership for U.S.
Federal income tax purposes, holds common shares of the Company, the treatment
of a partner in the partnership will generally depend upon the status of the
partner and the activities of the partnership. For purposes of this discussion,
a U.S. Holder does not include persons subject to special provisions of U.S.
Federal income tax law, such as (by way of example only) tax-exempt
organizations, qualified retirement plans, financial institutions, insurance
companies, real estate investment trusts, regulated investment companies,
broker-dealers, holders who acquired their stock through the exercise of
employee stock options or otherwise as compensation, taxpayers who have elected
mark-to-market accounting, taxpayers who hold common shares as a position in a
straddle, or as part of a synthetic security or hedge, conversion
transaction or other integrated investment, and U.S. Holders whose functional
currency is not the U.S. dollar.

Distributions on Common Shares of the Company

Subject to the Passive Foreign Investment Company discussion
below, 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 U.S. 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 or other foreign income tax withheld from such distributions. Such
Canadian or other foreign tax withheld may be credited, subject to certain
limitations, against the

---

44

U.S. Holders U.S. Federal income tax liability or,
alternatively, may be deducted in computing the U.S. Holders U.S. Federal
taxable income by those who itemize deductions. (See more detailed discussion at
Foreign Tax Credit below).

Dividends distributed by the Company (if any) to a
non-corporate U.S. Holder may be eligible for the 15% maximum U.S. Federal
income tax rate that applies to dividends received by individuals from certain
foreign corporations prior to January 1, 2011. To the extent that distributions
exceed current or accumulated earnings and profits of the Company, they will be
treated first as a tax-free return of capital to the extent of the U.S. Holders
adjusted basis in the common shares and thereafter as gain from the sale or
exchange of the common shares. Preferential tax rates for long-term capital
gains are applicable to a

U.S. Holder that is an individual, estate or trust. There are
currently no preferential tax rates for long-term capital gains for a U.S.
Holder that is a corporation.

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 U.S. corporations. A U.S.

Holder that is a corporation may, under certain circumstances,
be entitled to a dividends received deduction for the U.S. source portion of
dividends received from a qualified 10-percent owned foreign corporation
(other than a passive foreign investment company) if such U.S. Holder owns
shares representing at least 10% of the voting power and value of such
corporation. The availability of this deduction is subject to several complex
limitations that are beyond the scope of this discussion.

Information Reporting and Backup Withholding

Under current Treasury Regulations, dividends paid on the
Companys common shares, if any, 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 United States 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 28% U.S. backup withholding tax, unless the paying agent
is furnished with a duly completed and signed IRS 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 or other foreign income tax with respect to the ownership of common
shares of the Company may be entitled, at the option of the U.S. Holder, to
either a deduction or a tax credit for such foreign tax paid or withheld.
Generally, it will be more advantageous to claim a credit because a credit
reduces U.S. Federal income taxes on a dollar-for-dollar basis, while a
deduction merely reduces the taxpayers income subject to tax. This election is
made on a year-by-year basis and applies to all foreign taxes paid by (or
withheld from) the U.S. Holder during that year. There are significant and
complex limitations that apply to the credit, among which is the general
limitation that the credit cannot exceed the proportionate shares of the U.S.
Holders U.S. Federal income tax liability that the U.S. Holders foreign source
income bears to his, her 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 U.S. sources. Complex rules govern this
classification process. This limitation is calculated separately with respect to
passive income and general category income, i.e., income that is other than
passive income. The availability of the foreign tax credit and the application
of the limitations on the credit are fact specific, and U.S. Holders and
prospective 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

Subject to the Passive Foreign Investment Company discussion
below, a U.S. Holder will recognize gain or loss upon the sale or other taxable
disposition of common shares of the Company equal to the

---

45

difference, if any, between the amount of cash plus the fair
market value of any property received, and the Holders adjusted tax basis in
the common shares of the Company. This gain or loss will be capital gain or loss
if the common shares are a capital asset in the hands of the U.S. Holder. Any
capital gain or loss will be a long-term gain if the U.S. Holders holding
period for the Companys common shares is more than one year. Gains and losses
are netted and combined according to special rules in arriving at the overall
capital gain or loss for a particular tax year. Deductions for net capital
losses are subject to significant limitations. A non-corporate U.S. Holder may
deduct capital losses not offset by capital gains against such Holders ordinary
income up to a maximum annual amount of $3,000 ($1,500 for married taxpayers
filing separately), and any unused portion of such net capital loss may be
carried over to be used indefinitely in later tax years until such net capital
loss is thereby exhausted. A corporate U.S. Holder (other than corporations
subject to Subchapter S of the Code), may deduct capital losses only to the
extent of its capital gains, and any unused net capital loss may be carried back
three years from the loss year and carried forward five years from the loss year
to be offset against capital gains until such net capital loss is thereby
exhausted.

Passive Foreign Investment Company

A U.S. Holder who holds stock in a foreign corporation during
any year in which such corporation qualifies as a passive foreign investment
company (PFIC) is subject to special U.S. Federal income tax rules set forth
in Sections 1291 to 1298 of the Code.

Section 1297 of the Code defines a PFIC as a foreign (non-U.S.)
corporation, if for any taxable year, either (i) 75% or more of its gross income
is passive income, which includes but is not limited to interest, dividends
and certain rents and royalties or (ii) the average percentage, by value (or, if
the company is not publicly traded and either is a controlled foreign
corporation (CFC) or makes an election, adjusted tax basis) of its assets that
produce or are held for the production of passive income is 50% or more. For
purposes of applying the foregoing tests, the assets and gross income of any
corporation in which the PFIC is considered to own 25% or more of the shares (by
value) will be proportionately attributed to the PFIC. The Company believes that
it is presently a PFIC.

As a PFIC, each U.S. Holders income or gain with respect to a
disposition or deemed disposition of the Companys shares, or an excess
distribution (as defined below) payable on such shares, generally will be
subject to tax at the highest marginal rates applicable to ordinary income and
certain interest charges discussed below, unless the U.S. Holder has timely made
a Qualified Electing Fund election or a mark-to-market election for those
shares.

A U.S. Holder who elects in a timely manner to treat the
Company as a Qualified Electing Fund (QEF), as defined in the Code (an
Electing U.S. Holder), will be subject, under Section 1293 of the Code, to
current U.S. Federal income tax for any taxable year in which the Company
qualifies as a PFIC on the Election U.S. Holders 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 U.S.
Holders taxable year in which the Company 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 the amount that is included in income but not
distributed.

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

---

46

The procedure a U.S. Holder must comply with in making a timely
QEF election depends 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., the QEF is a Pedigreed
QEF), then the U.S. Holder may make the QEF election by filing the appropriate
documents with the U.S. Holders U.S. Federal income tax return for such first
year by the due date of such tax return. If the Company is a Pedigreed QEF with
respect to a U.S. Holder and it no longer qualifies as a PFIC in a subsequent
year, normal Code rules, and not the PFIC rules, apply. If, however, the Company
qualified as a PFIC in a prior year in the U.S. Holders holding period, then in
addition to filing a QEF election, the U.S. Holder may also elect to recognize
as an excess distribution (i) under the rules of Section 1291 of the Code
(discussed below), any gain that he would otherwise have recognized if the U.S.
Holder had sold his stock on the first day of the PFICs first taxable year as a
QEF (deemed sale election), or (ii) if the Company is a CFC, the Holders pro
rata share of the corporations post-1986 earnings and profits as of the first
day of the PFICs first taxable year as a QEF (deemed dividend election). If
the U.S. holder does not make such an election, the PFIC is an Unpedigreed
QEF.

If a U.S. Holder has not made a QEF Election at any time (a
nonqualified fund), or if the PFIC is an Unpedigreed QEF (either, a
Non-electing U.S. Holder), then special taxation rules under Section 1291 of
the Code apply to (i) gains realized on the disposition (or deemed to be
realized by reason of a pledge) of his common shares and (ii) certain excess
distributions, as specifically defined, by the Company. A Non-electing U.S.
Holder generally is required to pro rate all gains realized on the disposition
of his common shares and all excess distributions over the entire holding period
for the common shares. All gains or excess distributions allocated to prior
years of the U.S. Holder (other than years prior to the first taxable year of
the Company during such U.S. Holders holding period and beginning after January
1, 1987, for which it was a PFIC) would be taxed at the highest marginal 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 not deductible. The balance of the gain or the excess distribution is
treated as ordinary income in the year of the disposition or distribution, and
no interest charge is incurred with respect to such balance.

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

Proposed Treasury Regulations have been issued under Section
1291(f) of the Code, which 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.

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

Mark-to-Market Election for PFIC Stock

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

---

47

net mark-to-market gains on the stock that the U.S. Holder
included in income in prior tax years, or so called unreversed inclusions.

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

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

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

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

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

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

F.          
Dividends and paying agents

Not applicable.

G.          
Statement by experts

Not applicable.

---

48

H.          
Documents on display

Documents concerning the Company which are referred to in this
document may be inspected in our head office at Suite 1407, 1050 Burrard Street,
Vancouver, British Columbia, V6Z 2S3 or at the address of the Companys
registered office at Suite 2600, Three Bentall Centre, 595 Burrard Street,
Vancouver, British Columbia, V7X 1L3. 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.

I.          
Subsidiary information

A list of subsidiaries of the Company as of March 31, 2007 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.

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

The Company is aware of the importance of maintaining controls
and procedures and is continuously improving its controls and procedures. As the
Company is not an accelerated filer under SEC definitions, beginning with the
Companys fiscal year ending March 31, 2009, Section 404 of the U.S. Sarbanes
Oxley Act 2002 (Section 404) will require the Company to include an internal
control report from management with the Annual Report on Form 20-F. The internal
control report must contain (1) a statement of managements responsibility for
establishing and maintaining adequate internal control over financial reporting
of the Company, (2) a statement identifying the framework used by management to
conduct the required evaluation of the effectiveness of the Companys internal
controls over financial reporting, (3) managements assessment of the
effectiveness of the Companys internal controls over financial reporting as of
the end of the most recent fiscal year, including a statement as to whether or
not the Companys internal controls over financial reporting are effective and
(4) a statement that the Companys independent auditors have issued an
attestation report on managements assessment of the internal controls over
financial reporting.

Evaluation of Disclosure Controls and Procedures

---

49

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 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.         [RESERVED]

ITEM 16A.      AUDIT COMMITTEE
FINANCIAL EXPERT

Our Board of Directors has determined that all members of the
audit committee are considered to be financially literate in the context of the
Companys limited operations.

ITEM 16B.      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 head
office of TAG Oil Ltd. at Suite 1407, 1050 Burrard Street, Vancouver, British
Columbia, Canada, V6Z 2S3 and this can be requested in writing, addressed to the
Company Secretary.

ITEM 16C.      PRINCIPAL ACCOUNTANT
FEES AND SERVICES

Principal Accountant Service
    For the fiscal year ended March
      31, 2007
    For the fiscal year ended March
      31, 2006Audit Fees (1)
    $40,634
    $21,497Audit Related Fees (2)
    $21,316
    NilTax Fees (3)
    $5,419
    $4,881All Other Fees (4)
    -
    -


|(1) | Audit Fees include fees necessary to perform the annual
      audit and quarterly reviews of the Companys consolidated financial
      statements and include both the fees of the Companys principal auditor,
      DeVisser Gray, and the Companys New Zealand auditor BDO Spicers. Audit
      fees also include fees for review of tax provisions and for accounting
      consultations on matters reflected in the financial statements. Audit Fees
      also include audit or other attest services required by legislation or
      regulation, such as comfort letters, consents, reviews of securities
      filings and statutory audits.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Audit-Related Fees include services that are
      traditionally performed by the auditor. These audit-related services
      include employee benefit audits, due diligence assistance, accounting
      consultations on proposed transactions, internal control reviews and audit
      or attest services not required by legislation or regulation.                                                                                                                                                                                                                                                                                                
|(3) | Tax Fees include fees for all tax services other than
      those included in Audit Fees and Audit-Related Fees. This category
      includes fees for tax compliance, tax planning and tax advice. Tax
      planning and tax advice includes assistance with tax audits and appeals,
      tax advice related to mergers and acquisitions, and requests for rulings
      or technical advice from tax authorities.                                                                                                                                                                                                                               
|(4) | All Other Fees include all other non-audit
    services.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

---

50

The nature of the services provided by De Visser Gray LLP and
BDO Spicers, Chartered Accountants and Advisors under each of the categories
indicated in the table is described below.

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 Audit Committee from time to time. The Auditors also present
the estimate for the annual audit related services to the committee for approval
prior to undertaking the annual audit of the financial statements.

ITEM 16D.      EXEMPTION FROM
LISTING STANDARDS FOR AUDIT COMMITTEE

Not Applicable.

ITEM 16E.      PURCHASES OF EQUITY
SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

Not Applicable.

PART III

ITEM
17.         FINANCIAL STATEMENTS

Financial Statements begin on page 51.

INDEX TO FINANCIAL STATEMENTS

PageAuditors
      Report
    51Consolidated
      Balance Sheets
    52Consolidated
      Statements of Operations and Deficit
    53Consolidated
      Statements of Cash Flows
    54Notes
      to the Consolidated Financial Statements
    55


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

---

51

D E  V I S S E R   G R A Y 
LLPCHARTERED 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, 2007 and 2006 and the consolidated statements of operations and
deficit and cash flows for each of the years in the three year period ended
March 31, 2007. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with 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, 2007 and 2006 and the results of its operations and its cash flows for
each of the years in the three year period ended March 31, 2007 in accordance
with generally accepted accounting principles in Canada.

*De Visser Gray LLP*

CHARTERED ACCOUNTANTS

Vancouver, British Columbia Canada July 6, 2007

---

52

Consolidated Balance Sheets Expressed in Canadian
Dollars

|As at March 31                              |   | 2007        |   |   | 2006        |  
|------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                            |   |             |   |   |             |  
|Assets                                      |   |             |   |   |             |  
|Current                                     |   |             |   |   |             |  
|Cash and cash equivalents                   | $ | 13,425,795  |   | $ | 18,753,695  |  
|Amounts receivable and prepaids             |   | 375,581     |   |   | 376,334     |  
|Inventory (Note 2)                          |   | 857,004     |   |   | 942,769     |  
|                                            |   | 14,658,380  |   |   | 20,072,798  |  
|Property and equipment (Note 4)             |   | 32,014,990  |   |   | 9,186,599   |  
|                                            | $ | 46,673,370  |   | $ | 29,259,397  |  
|                                            |   |             |   |   |             |  
|Liabilities and Shareholders Equity        |   |             |   |   |             |  
|Current                                     |   |             |   |   |             |  
|Accounts payable and accrued liabilities    | $ | 1,007,588   |   | $ | 2,229,565   |  
|                                            |   |             |   |   |             |  
|Non-current                                 |   |             |   |   |             |  
|Future income tax (Note 3)                  |   | 5,329,492   |   |   | -           |  
|Asset retirement
      obligations (Note 5) |   | 202,460     |   |   | -           |  
|                                            |   | 6,539,540   |   |   | 2,229,565   |  
|                                            |   |             |   |   |             |  
|Share capital (Note 6)                      |   | 69,979,631  |   |   | 38,424,949  |  
|Contributed surplus                         |   | 817,642     |   |   | 709,860     |  
|Deficit                                     |   | (30,663,443 | ) |   | (12,104,977 | )
|                                            |   | 40,133,830  |   |   | 27,029,832  |  
|                                            | $ | 46,673,370  |   | $ | 29,259,397  |  

See accompanying notes.

Approved by the Board of Directors:

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


---

53

Consolidated Statements of Operations and Deficit
Expressed in Canadian Dollars

|For the Years Ended March 31          |   | 2007        |   |   | 2006        |   |   | 2005        |  
|------------------------------------- | - | ----------- | - | - | ----------- | - | - | ----------- | -
|                                      |   |             |   |   |             |   |   |             |  
|Revenues                              |   |             |   |   |             |   |   |             |  
|Production revenue                    | $ | 938,838     |   | $ | -           |   | $ | -           |  
|Royalties                             |   | (43,425     | ) |   | -           |   |   | -           |  
|                                      |   | 895,413     |   |   | -           |   |   | -           |  
|                                      |   |             |   |   |             |   |   |             |  
|Expenses                              |   |             |   |   |             |   |   |             |  
|General and administrative            |   | 2,066,665   |   |   | 1,404,864   |   |   | 829,233     |  
|Production costs                      |   | 361,328     |   |   | -           |   |   | -           |  
|Stock option compensation             |   | 107,782     |   |   | 123,829     |   |   | 185,395     |  
|Directors & officers insurance        |   | 53,192      |   |   | 32,250      |   |   | -           |  
|Wellhead insurance                    |   | 4,166       |   |   | -           |   |   | -           |  
|Foreign exchange                      |   | (134,530    | ) |   | (62,080     | ) |   | 212,589     |  
|Depletion and depreciation            |   | 373,126     |   |   | 7,596       |   |   | 4,512       |  
|Accretion                             |   | 7,109       |   |   | -           |   |   | -           |  
|                                      |   | (2,838,838  | ) |   | (1,506,459  | ) |   | (1,231,729  | )
|                                      |   |             |   |   |             |   |   |             |  
|Other Items                           |   |             |   |   |             |   |   |             |  
|Interest income                       |   | 841,569     |   |   | 399,684     |   |   | 17,352      |  
|Write-off of oil and gas properties   |   | (17,246,651 | ) |   | (358,699    | ) |   | -           |  
|Write-down of inventory               |   | (209,959    | ) |   | -           |   |   | -           |  
|Gain on sale of marketable securities |   | -           |   |   | 39,912      |   |   | -           |  
|                                      |   | (16,615,041 | ) |   | 80,897      |   |   | 17,352      |  
|                                      |   |             |   |   |             |   |   |             |  
|Net loss for the year                 |   | (18,558,466 | ) |   | (1,425,562  | ) |   | (1,214,377  | )
|                                      |   |             |   |   |             |   |   |             |  
|Deficit, beginning
      of year      |   | (12,104,977 | ) |   | (10,679,415 | ) |   | (9,465,038  | )
|                                      |   |             |   |   |             |   |   |             |  
|Deficit, end of
      year            | $ | (30,663,443 | ) | $ | (12,104,977 | ) | $ | (10,679,415 | )
|                                      |   |             |   |   |             |   |   |             |  
|Loss per
      share                  | $ | (0.22       | ) | $ | (0.04       | ) | $ | (0.09       | )
|                                      |   |             |   |   |             |   |   |             |  
|Weighted average number of shares     |   |             |   |   |             |   |   |             |  
|outstanding                           |   | 82,576,286  |   |   | 37,330,058  |   |   | 13,111,779  |  

See accompanying notes.

---

54

Consolidated Statements of Cash Flows Expressed in
Canadian Dollars

|For the Years Ended March 31                          |   | 2007        |   |   | 2006       |   |   | 2005       |  
|----------------------------------------------------- | - | ----------- | - | - | ---------- | - | - | ---------- | -
|                                                      |   |             |   |   |            |   |   |            |  
|Operating Activities                                  |   |             |   |   |            |   |   |            |  
|Net loss for the year                                 | $ | (18,558,466 | ) | $ | (1,425,562 | ) | $ | (1,214,377 | )
|Changes in non-cash operating items:                  |   |             |   |   |            |   |   |            |  
|Amortization                                          |   | 49,104      |   |   | 7,596      |   |   | 4,512      |  
|Stock option compensation                             |   | 107,782     |   |   | 123,829    |   |   | 185,395    |  
|Write-off of oil and gas properties                   |   | 17,246,651  |   |   | 358,699    |   |   | -          |  
|Write-down of inventory                               |   | 209,959     |   |   | -          |   |   | -          |  
|Accretion                                             |   | 7,109       |   |   | -          |   |   | -          |  
|Depletion                                             |   | 324,022     |   |   | -          |   |   | -          |  
|Inventory                                             |   | (124,194    | ) |   | (942,769   | ) |   | -          |  
|Gain on sale of marketable securities                 |   | -           |   |   | (39,912    | ) |   | -          |  
|                                                      |   | (738,033    | ) |   | (1,918,119 | ) |   | (1,024,470 | )
|Changes in non-cash working capital
      accounts:   |   |             |   |   |            |   |   |            |  
|Amounts receivable and prepaids                       |   | 753         |   |   | (191,990   | ) |   | (143,649   | )
|Due to/from related parties                           |   | -           |   |   | -          |   |   | (9,960     | )
|Accounts
      payable and accrued liabilities        |   | 82,773      |   |   | 71,261     |   |   | 66,485     |  
|Cash used in operating activities                     |   | (654,507    | ) |   | (2,038,848 | ) |   | (1,111,594 | )
|                                                      |   |             |   |   |            |   |   |            |  
|Financing Activities                                  |   |             |   |   |            |   |   |            |  
|Issuance of common shares                             |   | 28,054,682  |   |   | 20,371,485 |   |   | 7,437,513  |  
|Repurchase of common shares                           |   | -           |   |   | -          |   |   | (7,338     | )
|Cash provided by
      financing activities           |   | 28,054,682  |   |   | 20,371,485 |   |   | 7,430,175  |  
|                                                      |   |             |   |   |            |   |   |            |  
|Investing Activities                                  |   |             |   |   |            |   |   |            |  
|Property and equipment expenditures                   |   | (32,728,075 | ) |   | (5,991,089 | ) |   | (826,112   | )
|Proceeds from sale
      of marketable securities     |   | -           |   |   | 43,212     |   |   | -          |  
|Cash used in investing activities                     |   | (32,728,075 | ) |   | (5,947,877 | ) |   | (826,112   | )
|                                                      |   |             |   |   |            |   |   |            |  
|Net increase (decrease) in cash during
      the year |   | (5,327,900  | ) |   | 12,384,760 |   |   | 5,492,469  |  
|Cash and cash
      equivalents - Beginning of year   |   | 18,753,695  |   |   | 6,368,935  |   |   | 876,466    |  
|Cash and cash equivalents - End of year               | $ | 13,425,795  |   | $ | 18,753,695 |   | $ | 6,368,935  |  
|                                                      |   |             |   |   |            |   |   |            |  
|See accompanying notes.                               |   |             |   |   |            |   |   |            |  
|                                                      |   |             |   |   |            |   |   |            |  
|Supplementary disclosures:                            |   |             |   |   |            |   |   |            |  
|                                                      |   |             |   |   |            |   |   |            |  
|Interest received                                     | $ | 841,569     |   | $ | 399,684    |   | $ | 17,352     |  

Non-cash investing activities:

The Company incurred $772,776 (2006: $2,077,526 and 2005:
$465,643) in exploration expenditures which amounts were in accounts payable at
year end. The Company also recorded an aggregate of $8,979,136 in non-cash
acquisition costs related to the acquisition of Cheal Petroleum Limited as more
fully described in the accompanying notes.

---

55

Notes to the Consolidated Financial StatementsFor the Years Ended March 31, 2007 and 2006 Expressed in Canadian
Dollars

NOTE 1 - NATURE OF OPERATIONS

The Company was incorporated under the Business Corporations
Act (British Columbia) and had continued its jurisdiction of incorporation to
the Yukon Territory under the Business Corporations Act (Yukon). As approved by
shareholders at the Companys annual general meeting held on September 22, 2006,
the Company continued from the legal jurisdiction of the Yukon Territory back to
the Province of British Columbia and adopted a new set of articles appropriate
to British Columbia on October 12, 2006. Its major activity is the exploration
and development of international oil and gas properties.

The Company is in the process of exploring, developing and
producing from its oil and gas properties and has one oil and gas property that
contains 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 additional 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 accordance
      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, that affect the Company, are
      described in note 11.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|b) | Basis of Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | These consolidated financial statements include the
      accounts of the Company and its wholly-owned subsidiaries: TAG Oil (NZ)
      Limited, TAG Oil (Canterbury) Limited and Cheal Petroleum 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 prevents 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.                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

---

56

|g) | Property and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | 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 and accumulated 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. The costs in cost centres from which there has
      been no commercial production are not subject to depletion until
      commercial production commences. Depletion is calculated using costs of
      acquisition, exploration and development using the unit-of production
      method. 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.
      Oil and gas properties for which there has been commercial production, are
      subject to a ceiling test in each reporting period to determine that the
      costs are recoverable and do not exceed the fair value of the properties.
      The costs are assessed to be recoverable if the sum of the undiscounted
      cash flows expected from the production of proved reserves and the lower
      of cost and market of unproved properties exceed the carrying values of
      the oil and gas properties. If the carrying value of the oil and gas
      properties is not assessed to be recoverable, an impairment loss is
      recognized to the extent that the carrying value exceeds an estimated fair
      value. The fair value estimate is normally based on the sum of the
      discounted cash flows expected from production of proved and probable
      reserves and the lower of cost and market of unproved properties. The cash
      flows are estimated using forecast product prices and costs are discounted
      using a risk-free interest rate.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Furniture, office and computer equipment is recorded at
      cost less accumulated amortization. Amortization is provided for over its
      estimated useful life on a declining-balance basis at rates between 20%
      and 30%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|h) | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|i) | 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 TSX Venture Exchange on the date of
      the agreement to issue shares and the date of share issuance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|j) | Stock-based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The Company has a stock based compensation program for
      officers, directors, employees and consultants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | All stock option based grants are measured and recognized
      in the consolidated financial statements using a fair value based method.
      Fair value is created using the Black-Scholes option-pricing model and the
      compensation cost is amortized over the vesting period. The Company
      measures compensation expense if the options are changed or modified.
      Consideration received upon the exercise of stock options together with
      the amount of non-cash compensation expense recognized in contributed
      surplus is recorded as share capital.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|k) | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|l) | Asset retirement obligation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | 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 and probable 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, 2007 the Company has $202,460 in asset retirement
      obligations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|m) | Inventory                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Inventory is valued at the lower of cost and net
      realizable value with cost being determined using a specific
      identification basis. Inventory consists of field operation
      consumables.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

---

57

|n) | Oil and gas revenue recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Sales of oil and gas are recognized in the period in
      which the product is delivered to the customer.                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|o) | Acquisitions                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Acquisitions are accounted for using the purchase method.
      Where an entity becomes part of the Company during the year, the results
      of the entity are included in the consolidated results from the date that
      control commenced. When an entity is acquired, all identifiable assets and
      liabilities are recognized at their fair value at the acquisition date.
      The fair value does not take into consideration any future intentions by
      the Company.

NOTE 3  ACQUISITION OF CHEAL PETROLEUM LIMITED, PEP 38757
LIMITED AND PEP 38758 LIMITED

On June 16, 2006 the Company acquired
all of the issued and outstanding shares of Cheal Petroleum Limited, PEP 38757
limited and PEP 38758 Limited (collectively referred to as Cheal) all of which
are arms length oil and gas companies. The Cheal acquisition was accounted for
by the purchase method and the shares were acquired for an aggregate of
$16,439,074 by the issuance of 5,000,000 common shares of the Company priced at
$0.70 per share plus cash consideration of $12,939,074. Refer also to note 8.

The acquisition was accounted for as of
the closing date with the purchase price allocated to the assets and liabilities
as shown below:

Calculation of purchase priceCash for purchase of shares
      $
      12,839,074Fair value of shares issued
    
    3,500,000Transaction costs
      
      100,000$
    16,439,074Allocation of purchase priceOil and gas properties
    $
    22,168,070Equipment
      
      346,837Asset retirement obligations
    
    (149,644
    )Future income taxes
      
      (5,329,492
      )Working capital
    
    (596,697
    )$
      16,439,074


NOTE 4  PROPERTY AND EQUIPMENT

DepletionRecoveriesWorking
    
    
    Net Book
    
    
    Additions
    
    
    Write-offs
    
    
    Net BookInterest
    
    
    Value at
    
    
    During the
    
    
    During the
    
    
    Value at%
    
    
    March 31, 2006
    
    
    Period
    
    
    Period
    
    
    March 31, 2007Oil and Gas PropertiesNew ZealandProvedPMP 38156-S
    
    30.5
    
    $
    -
    
    $
    23,690,514
    
    $
    (324,022
    )
    $
    23,366,492Unproved:New Zealand:PMP 38153
    
    15.00
    
    
    9,597
    
    
    11,589
    
    
    -
    
    
    21,186PMP 38156-D
    
    15.10
    
    
    -
    
    
    1,818,599
    
    
    -
    
    
    1,818,599PMP 38157
    
    25.00
    
    
    4,342
    
    
    8,644,599
    
    
    (7,899,641
    )
    
    749,300PEP 38256
    
    100.00
    
    
    417,568
    
    
    71,186
    
    
    (488,754
    )
    
    -PEP 38258
    
    -
    
    
    79,167
    
    
    213,489
    
    
    (292,656
    )
    
    -PEP 38260
    
    -
    
    
    512,885
    
    
    111,266
    
    
    (624,151
    )
    
    -PEP 38341
    
    35.50
    
    
    523,150
    
    
    33,537
    
    
    (556,687
    )
    
    -PEP 38342
    
    35.50
    
    
    502,635
    
    
    30,896
    
    
    -
    
    
    533,531PEP 38732
    
    -
    
    
    1,000
    
    
    50,073
    
    
    (51,073
    )
    
    -PEP 38736
    
    -
    
    
    29,843
    
    
    11,113
    
    
    (40,956
    )
    
    -PEP 38738-S
    
    30.50
    
    
    -
    
    
    -
    
    
    -
    
    
    -


---

58

PEP 38738-D
    
    15.10
    
    
    -
    
    
    -
    
    
    -
    
    
    -PEP 38741
    
    45.00
    
    
    1,637,891
    
    
    777,331
    
    
    -
    
    
    2,415,222PEP 38744
    
    -
    
    
    -
    
    
    37,353
    
    
    (37,353
    )
    
    -PEP 38745
    
    83.33
    
    
    554,925
    
    
    31,159
    
    
    (586,084
    )
    
    -PEP 38746
    
    16.67
    
    
    95,538
    
    
    86,023
    
    
    -
    
    
    181,561PEP 38748
    
    33.33
    
    
    -
    
    
    18,765
    
    
    -
    
    
    18,765PEP 38751
    
    33.33
    
    
    563,522
    
    
    7,307
    
    
    (570,829
    )
    
    -PEP 38757
    
    100.00
    
    
    2,466,661
    
    
    66,436
    
    
    (2,533,097
    )
    
    -PEP 38758
    
    100.00
    
    
    983,650
    
    
    2,303,203
    
    
    (3,286,853
    )
    
    -PEP 38765
    
    38.30
    
    
    690,155
    
    
    151,509
    
    
    (202,180
    )
    
    639,484PEP 38766
    
    -
    
    
    -
    
    
    21,218
    
    
    (21,218
    )
    
    -PEP 38767
    
    -
    
    
    83,234
    
    
    38,019
    
    
    (121,253
    )
    
    -New interests
    
    -
    
    
    -
    
    
    136,046
    
    
    (136,046
    )
    
    -9,155,763
    
    
    38,361,230
    
    
    (17,772,853
    )
    
    29,744,140Production equipment
    
    
    
    
    -
    
    
    2,191,243
    
    
    -
    
    
    2,191,243Office equipment
    
    
    
    
    30,836
    
    
    97,875
    
    
    (49,104
    )
    
    79,607Total Unproved
    
    
    
    $
    9,186,599
    
    $
    40,650,348
    
    
    (17,821,957
    )
    $
    32,014,990


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s joint venture partner in PEP 38260 purported to
cancel its agreement with the Company and revoke the Companys right to explore
in the permit area, claiming the Company is in default of its obligations. The
Company strongly denies the claims made by the partner in the permit and is
taking legal advice; however, as a result of the uncertainty related to the
permit, the Company has chosen to write-off the costs associated with PEP 38260.
To complete the acquisition of the Companys interest in PMP 38157 the Company
is required to plug and abandon the Radnor-1a well prior to the operator of the
permit formally requesting approval of the assigniment of interest from the
Ministry of Economic Development as required. The Company has written down its
interest in PMP 38157 to NZ$1.0 million, representative of the estimated value
net of any residued obligations, which remain unaccrued.

On June 16, 2006, the Company acquired all of the outstanding
shares of Cheal Petroleum Limited (Cheal), PEP 38757 Limited and PEP 38758
Limited, all located in New Zealand. Cheal owns a 30.5% interest in PEP 38738-S
containing the Cheal Oil Field and a 15.1% interest in PEP 38738-D containing
the Cardiff deep gas prospect. Consideration paid for these three companies was
NZ$18,542,857 (CDN$12,839,074), 5 million shares of the Company and a 0.775%
gross over-riding royalty on PEP 38738-D. PEP 38757 Limited and PEP 38758
Limited were subsequently removed from the companies register in New Zealand as
they did not contain any assets.

During the year-ended March 31, 2007, mining permit PMP 38156
was granted which covers both the shallow and deep areas of a 30.3 square
kilometre area of PEP 38738-S and PEP 38738-D, with the remaining 16.1 square
kilometres of the original permit continuing to be held in PEP 38738.

During the year ended March 31, 2007 the Company relinquished
its interests in PEP 38258, PEP 38732, PEP 38736, PEP 38744, PEP 38766 and PEP
38767 and has written-off the costs associated with each permit. The Company
also elected to write-off all costs associated with its interests in PEP 38757,
PEP 38341, PEP 38751, PEP 38256 and PEP 38758 after an assessment was completed
that determined that the costs related to each permit were unlikely to be
recovered. The Company also wrote-off certain costs associated with PMP 38157
that at March 31, 2007, the Company deemed to be unrecoverable.

Refer to Note 9

NOTE 5  ASSET RETIREMENT OBLIGATIONS

The following is a continuity of asset retirement obligations
for the year ended March 31, 2007:

Balance at March 31, 2006
    $
    -Liability assumed on acquisition of Cheal
    
    149,644Additional liabilities incurred
    
    45,707Accretion expense
    
    7,109Balance at March 31, 2007
    $
    202,460


The Companys asset retirement obligations result from net
ownership interests in petroleum and natural gas development activity and,
during the year ended March 31, 2007, the Company recorded an additional
liability of $45,707 as a result of the four additional wells being drilled on
PMP 38156-S. The Company estimates the total undiscounted amount of cash flows
required to settle its asset retirement obligations to be

---

59

approximately $303,054 which will be incurred between 2015 and
2020.

The fair value of the liability for the Companys asset
retirement obligation is recorded in the period in which it is incurred, using
an inflation rate of 5% and discounted to its present value using a credit
adjusted risk free rate of 8% and the corresponding amount is recognized by
increasing the carrying amount of the oil and gas properties. The liability is
accreted each period and the capitalized cost is depreciated over the useful
life of the related asset using the unit-of-production method.

Refer to Note 3

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, 2005              |  | 26,026,081      |  | $ | 18,053,464 | 
| | Exercise of share purchase warrants    |  | 9,066,500       |  |   | 6,395,039  | 
| | Private placement                      |  | 11,538,500      |  |   | 13,976,446 | 
| | Balance at March 31, 2006              |  | 46,631,081      |  | $ | 38,424,949 | 
| | Private placement, net of issue costs  |  | 40,000,000      |  |   | 28,054,682 | 
| | Acquisition of Cheal Petroleum Limited |  | 5,000,000       |  |   | 3,500,000  | 
| | Balance at March 31, 2007              |  | 91,631,081      |  | $ | 69,979,631 | 

|   | During the 2007 fiscal year the Company completed a
      brokered private placement financing consisting of 40,000,000 shares at a
      price of $0.75 per share.                                                                                                                        
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                            
|   | On June 16, 2006 the Company issued 5,000,000 shares
      valued at $0.70 per share based on the closing share price of the Company
      on the date of issuance, as partial consideration for the acquisition of
      Cheal Petroleum Limited, PEP 38757 Limited and PEP 38758
Limited.
|   |                                                                                                                                                                                                                                                                                            
|   | Refer to Note 3 and 4                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                            
|b) | Share Purchase Warrants                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                            
|   | The following is a continuity of outstanding share
      purchase warrants:                                                                                                                                                                                                                

| |                           | Number of                     | Weighted Average  
| | ------------------------- | ----------------------------- | ------------------
| |                           | Share
      Purchase Warrants | Exercise Price (1)
| | Balance at March 31, 2005 | 9,608,995                     | $ 0.71            
| | Exercised                 | (9,066,500)                   | 0.70              
| | Issued during the year    | 400,000                       | 1.30              
| | Balance at March 31, 2006 | 942,495                       | 1.09              
| | Expired during the year   | (942,495)                     | 1.09              
| | Balance at March 31, 2007 | -                             | $     
      -    

|   | (1) Certain share purchase warrants that expired are
      denominated in US dollars and had been converted to Canadian dollars using
      the March 31, 2006 closing exchange rate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | At March 31, 2007 there are no share purchase warrants
      outstanding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|c) | Incentive Stock Options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The Company has a stock option plan for the granting of
      stock options to directors, employees and service providers. Under the
      terms of the stock option plan, the number of shares reserved for issuance
      as share incentive options will be equal to 10% of the Companys issued
      and outstanding shares at any time. The exercise price of each option
      equals the market price of the Companys shares the day prior to the date
      that the grant occurs less any applicable discount approved by the Board
      of Directors and per the guidelines of the TSX Venture Exchange. The
      options maximum term is five years and must vest over a minimum of
      eighteen months.

---

60

The following is a continuity of
outstanding stock options:

| |                                 | Number of | Weighted Average  
| | ------------------------------- | --------- | ------------------
| | Issued and fully paid:          | Options   | Exercise Price (1)
| |                                 |           |                   
| | Balance at March 31, 2005       | 790,000   | $ 0.76            
| | Cancelled/Expired               | (165,000) | 0.76              
| | Granted
      during the year   | 400,000   | 0.95              
| | Balance at March 31, 2006       | 1,025,000 | 0.83              
| | Granted
      during the year   | 935,000   | 0.69              
| | Balance at March 31,
      2007 | 1,960,000 | 0.76              

| | (1) | Certain outstanding options are denominated in US dollars
      and have been converted to Canadian dollars using the year-end closing
      exchange rate of the year of grant.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

At March 31, 2007, the following stock
options are outstanding:

Number
    
    Price
    
    Expiryof Shares
    
    per
      Share
    
    Date100,000
    
    US$0.65
    
    May 31, 2008125,000
    
    US$0.65
    
    February 2, 2010400,000
    
    US$0.65
    
    January 1, 201075,000
    
    US$0.65
    
    May 10, 201025,000
    
    US$0.95
    
    July 29, 2010150,000
    
    $1.30
    
    November 22, 2010150,000
    
    $0.66
    
    January 2, 2011100,000
    
    $0.90
    
    April 25, 2011625,000
    
    $0.70
    
    August 2, 201160,000
    
    $0.52
    
    November 22, 2011150,000
    
    $0.57
    
    February 1, 20121,960,000


During the 2007 fiscal year, the
Company granted options to four directors and one employee to purchase 625,000
common shares at a price of $0.70 per share vesting over eighteen months with an
expiry date of August 2, 2011. The Company also granted three employees options
to purchase 100,000, 60,000 and 150,000 common shares at prices of $0.90, $0.52
and $0.57 per share, respectively, all of which vest over two years.

During the 2006 fiscal year, the
Company granted options to three directors and one employee to purchase 400,000
common shares vesting over eighteen months with expiry dates ranging from May
10, 2010 to January 2, 2011 and exercisable at either US$0.65,US$ 0.95, CDN$0.66
or CDN$1.30 per share.

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 $0.13 per
option share granted (2006: $0.31 per option share granted) for a total option
benefit of $107,782 (2006: $123,829).

Refer to Note 9

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61

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 2007 under
various agreements relating to permits held at March 31, 2007 are as
follows:

Work Commitment or ObligationOil and Gas Property
    
    Working Interest %
    
    
    
    
    
    to March 31, 2008PMP 38153
    
    15.00
    
    
    
    
    $
    1,125,000PMP 38156-S
    
    30.50
    
    
    
    
    
    5,500,000PMP 38156-D
    
    15.10
    
    
    
    
    
    825,000PMP 38157
    
    33.33
    
    
    
    
    
    425,000PEP 38342
    
    35.50
    
    
    
    
    
    850,000PEP 38738-S
    
    30.50
    
    
    
    
    
    8,000PEP 38741
    
    45.00
    
    
    
    
    
    900,000PEP 38746
    
    16.67
    
    
    
    
    
    5,000PEP 38748
    
    33.33
    
    
    
    
    
    10,000PEP 38765
    
    38.30
    
    
    
    
    
    17,000Total
    
    
    
    
    
    
    $
    9,665,000


NOTE 8 - INCOME TAXES

|                                                                             |   | 2007        |   |   | 2006       |  
|---------------------------------------------------------------------------- | - | ----------- | - | - | ---------- | -
|                                                                             |   |             |   |   |            |  
|Net loss for the year                                                        | $ | (18,558,466 | ) | $ | (1,425,562 | )
|Expected income recovery                                                     |   | (6,130,199  | ) |   | (496,582   | )
|Net adjustment for amortization, deductible
      and non-deductible amounts |   | (160,257    | ) |   | (30,007    | )
|Unrecognized benefit of current non-capital loss                             |   | 6,290,456   |   |   | 526,589    |  
|Total income taxes                                                           | $ | -           |   | $ | -          |  

A reconciliation of income taxes at statutory rates and the
significant components of the Companys future income tax assets are as follows:

|                                                                         |   | 2007       |   |   | 2006       |  
|------------------------------------------------------------------------ | - | ---------- | - | - | ---------- | -
|Future income tax assets:                                                |   |            |   |   |            |  
|Net property and equipment carrying amounts in
      excess of tax pools | $ | (7,533,161 | ) | $ | (1,736,065 | )
|Non-capital loss carryforwards                                           |   | 10,818,832 |   |   | 6,170,975  |  
|                                                                         |   | 3,285,671  |   |   | 4,434,910  |  
|Valuation allowance                                                      |   | (3,285,671 | ) |   | (4,434,910 | )
|                                                                         |   | -          |   |   | -          |  
|Purchase of Cheal                                                        |   | 5,329,492  |   |   | -          |  
|Net future tax liabilities                                               | $ | 5,329,492  |   | $ | -          |  

During the current fiscal year the Company recorded a future
income tax liability on its acquisition of Cheal due to the excess of the
allocated cost of the property for consolidated accounting purposes over the tax
pools applicable to these assets in the corporate entity acquired. In the
acquisition the Companys carrying cost of the Cheal assets for consolidated
accounting purposes, as otherwise determined, was increased by this notional
$5,329,492 future tax liability assumed. This liability is not currently payable
and the Company has no current intention of creating a statutory liability for
such an amount in the future. Refer also to note 3.

The Company has non-capital losses of approximately $4.31
million (2006 - $3.45 million), which are available to reduce future taxable
income in Canada, which expire between 2007 and 2027. Subject to certain
restrictions the Company also has mineral property expenditures of approximately
$4.15 million (2006 - $4.15 million) available to reduce taxable income in
future years.

At March 31, 2007, the Company also has losses and deductions
of approximately NZ$28.8 million (March 31, 2006 - NZ$16.9 million) available to
offset future taxable income earned in New Zealand.

NOTE 9  SUBSEQUENT EVENTS

During the period subsequent to March 31, 2007 the following
occurred:

|a) | Stock options                                                                                                      
|-- | -------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                    
|   | Certain options to purchase 475,000 common shares of the
      Company at an average price of $0.76 were
cancelled.

---

62

Property and equipment

The Company relinquished permits PEP
38256, PEP 38341, PEP 38757 and PEP 38751after a technical assessment of
data acquired to date was completed.

The Company reached an out of court
settlement with respect to PEP 38260.

NOTE 10  SEGMENTED INFORMATION

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

|2007                                |   | Canada     |   |   | New Zealand |   |   | Total Company |  
|----------------------------------- | - | ---------- | - | - | ----------- | - | - | ------------- | -
|Production income:                  |   |            |   |   |             |   |   |               |  
|Revenue                             | $ | -          |   | $ | 938,838     |   | $ | 938,838       |  
|Royalty expenses                    |   | -          |   |   | (43,425     | ) |   | (43,425       | )
|                                    |   | 895,413    |   |   | 895,413     |   |   | 895,413       |  
|Expenses:                           |   |            |   |   |             |   |   |               |  
|General and administrative -net     |   | 940,959    |   |   | 1,125,706   |   |   | 2,066,665     |  
|Production costs                    |   | -          |   |   | 361,328     |   |   | 361,328       |  
|Stock option compensation           |   | 107,782    |   |   | -           |   |   | 107,782       |  
|Insurance                           |   | 53,192     |   |   | 4,166       |   |   | 57,358        |  
|Foreign exchange                    |   | 175,480    |   |   | (310,010    | ) |   | (134,530      | )
|Depletion and depreciation          |   | 6,432      |   |   | 366,694     |   |   | 373,126       |  
|Accretion                           |   | -          |   |   | 7,109       |   |   | 7,109         |  
|                                    |   | (1,283,845 | ) |   | (1,554,993  | ) |   | (2,838,838    | )
|Other items:                        |   |            |   |   |             |   |   |               |  
|Interest income                     |   | 756,622    |   |   | 84,947      |   |   | 841,569       |  
|Write-down of inventory             |   | -          |   |   | (209,959    | ) |   | (209,959      | )
|Write-off of property and equipment |   | -          |   |   | (17,246,651 | ) |   | (17,246,651   | )
|                                    |   | 756,622    |   |   | (17,371,663 | ) |   | (16,615,041   | )
|                                    |   |            |   |   |             |   |   |               |  
|Net loss for the
      year         | $ | (527,223   | ) | $ | (18,031,243 | ) | $ | (18,558,466   | )
|                                    |   |            |   |   |             |   |   |               |  
|Total assets                        |   | 12,185,420 |   |   | 34,487,950  |   |   | 46,6763,370   |  
|Capital expenditures for the year   |   | -          |   |   | 32,728,075  |   |   | 32,728,075    |  

NOTE 11 - 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) | Foreign Currency Translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | 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 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.

---

63

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 31,2007
    
    
    2006Property and Equipment under
      Canadian GAAP
    $
    32,014,990
    
    $
    9,155,763Foreign currency translation adjustment
    
    2,731,456
    
    
    (1,258,323
    )Cumulative historical
      adjustments
    
    (1,172,794
    )
    
    85,529Oil and gas properties under U.S. GAAP
    $
    33,573,632
    
    $
    7,982,969


| |    | As a result of the adjustments, total assets under U.S.
      GAAP as at March 31, 2007 and 2006 would be $48,232,032 and $28,086,603,
      respectively.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                           
| | b) | Stockholders Equity                                                                                                                                      
| |    |                                                                                                                                                           
| |    | i)                                                                                                                                                        
| |    |                                                                                                                                                           
| |    |                                                                                                                                                           
| |    |                                                                                                                                                           
| |    |                                                                                                                                                           

| |                                         |   | March 31,  |  |   | March 31,  | 
| | --------------------------------------- | - | ---------- |  | - | ---------- | 
| |                                         |   | 2007       |  |   | 2006       | 
| | Common stock under Canadian GAAP        | $ | 69,979,631 |  | $ | 38,424,949 | 
| | Cumulative historical
      adjustments |   | 3,042,858  |  |   | 3,042,858  | 
| | Common stock under U.S. GAAP            | $ | 73,022,489 |  | $ | 41,467,807 | 

| | ii) | Foreign Currency Translation Adjustment                                                  
| | --- | -----------------------------------------------------------------------------------------
| |     |                                                                                          
| |     | The effects of Note 9(a) on foreign currency translation
      adjustment are as follows:

| |                                                               |   | March 31,  |   |   | March 31,  |  
| | ------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
| |                                                               |   | 2007       |   |   | 2006       |  
| | Foreign currency translation                                  |   |            |   |   |            |  
| | adjustment under Canadian GAAP                                | $ | -          |   | $ | -          |  
| | Foreign currency translation
      adjustment                 |   | 2,731,456  |   |   | (1,258,323 | )
| | Cumulative historical adjustments                             |   | (1,172,794 | ) |   | 85,529     |  
| | Foreign currency translation
      adjustment under U.S. GAAP | $ | 1,558,662  |   | $ | (1,172,794 | )

As a result of this adjustment, total
stockholders equity under U.S. GAAP as at March 31, 2007 and 2006 would be
$36,706,065 and $25,857,038, respectively.

---

64

ITEM 18.        
FINANCIAL STATEMENTS

Not applicable.

ITEM 19.        
EXHIBITS

List of Exhibits

Exhibit Reference
      Exhibit Description1
      Articles of Association and Bylaws(1)4.1
      Form of Subscription Agreement for private placement
        dated September 2005 Canadian and Non-U.S. subscribers (2)4.2
      Form of Subscription Agreement for private placement
        dated September 2005 U.S. subscribers (2)4.3
      Underwriting Agreement dated September 1, 2005
        (2)4.4
      Form of 2005 Stock Option Plan (2)4.5
      Form of Subscription Agreement for private placement
        dated June 2006 Canadian and Non-U.S. subscribers (3)4.6
      Form of Subscription Agreement for private placement
        dated June 2006 U.S. subscribers (3)4.7
      Underwriting Agreement dated May 12, 2006 (3)4.8
      Form of Share Purchase Agreement dated May 9,
        2006 between the Company and South Pacific Lease Operations Limited (3)4.9
      Sproule report dated
        March 30, 2007 (4)4.10
      Articles (Post Continuance) as approved by shareholders
        on September 22, 2006 (3)4.11
      Compensation Committee Charter (3)4.12
      Form of Share Purchase Agreement Amendment as
        dated June 16, 2006 (3)4.13
      Severance Agreement
        between the Company and Drew Cadenhead dated September 1, 2007 (4)4.14
      Executive Employment
        Agreement between the Company and Garth Johnson dated September 1, 2007
        (4)4.15
      Consulting Agreement
        between the Company and DLJ Management Corp. dated September 1, 2007 (4)8.0
      List of Wholly-Owned
        Subsidiaries of TAG Oil Ltd. (4)16.1
      Code of Ethics (2)31.1
      Section 302(a) Certification
        of CEO (4)31.2
      Section 302(a) Certification
        of CFO (4)32
      Section 906 Certifications
        of CEO and CFO (4)


|(1) | Herein incorporated by reference previously filed with
      our Form 20-F dated March 31, 2000 filed September 29, 2000.   
|--- | ----------------------------------------------------------------------------------------------------------------------------
|(2) | Herein incorporated by reference previously filed with
      our Form 20-F dated March 31, 2005 filed on September 28, 2005.
|(3) | Herein incorporated by reference previously filed with
      our Form 20-F dated March 31, 2006 filed on September 28, 2006.
|(4) | Filed herewith.                                                                                                             

---

65

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 28, 2007 | By:             
|                         |                 
|                         | Name:           
|                         |                 
|                         | Title:          

---