---

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, 2008

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 number0-22500

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

BRITISH COLUMBIA, CANADA(Jurisdiction of
incorporation or organization)

Suite 1407, 1050 Burrard StreetVancouver,
British Columbia, Canada, V6Z 2S3(Address of principal executive
offices)

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 common shares of TAG Oils capital stock
as on March 31, 2008.

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 basis of accounting the registrant
has used to prepare the financial statements included in this filing:

U.S. GAAP  [  
]            
International Financial Reporting Standards as
issued                                  
 Other [X]                                        
by the International Accounting Standards Board  [   ]

If Other has been checked in response to the previous
question, indicate by check mark which financial statement item the
registrant has elected to follow.

Item 17
[X]          Item 18 [  
]

If this is an annual report, indicate by check mark whether the
Registrant is a shell company (as defined in Rule 12b 2 of the Exchange
Act):

Yes [  
]          
       No [X]

---

3

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

|                |                                                                                          |   
|--------------- | ---------------------------------------------------------------------------------------- | --
|                | **FORWARD-LOOKING
      STATEMENTS**                                                     | 4 
|                |                                                                                          |   
|                | **CURRENCY,
      MEASUREMENT AND GLOSSARY OF INDUSTRY TERMS**                           | 4 
|                |                                                                                          |   
|ITEM
      1.   | IDENTITY
      OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                              | 7 
|                |                                                                                          |   
|ITEM
      2.   | OFFER
      STATISTICS AND EXPECTED TIMETABLE                                            | 7 
|                |                                                                                          |   
|ITEM
      3.   | KEY
      INFORMATION                                                                    | 7 
|                |                                                                                          |   
|ITEM
      4.   | INFORMATION
      ON THE COMPANY                                                         | 16
|                |                                                                                          |   
|ITEM
      4A.  | UNRESOLVED
      STAFF COMMENTS                                                          | 29
|                |                                                                                          |   
|ITEM
      5.   | OPERATING,
      FINANCIAL REVIEW AND PROSPECTS                                          | 29
|                |                                                                                          |   
|ITEM
      6.   | DIRECTORS,
      SENIOR MANAGEMENT AND EMPLOYEES                                         | 36
|                |                                                                                          |   
|ITEM
      7.   | MAJOR
      SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                                  | 42
|                |                                                                                          |   
|ITEM
      8.   | FINANCIAL
      INFORMATION                                                              | 44
|                |                                                                                          |   
|ITEM
      9.   | THE
      OFFER AND LISTING                                                              | 45
|                |                                                                                          |   
|ITEM
      10.  | ADDITIONAL
      INFORMATION                                                             | 48
|                |                                                                                          |   
|ITEM
      11.  | QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                         | 60
|                |                                                                                          |   
|ITEM
      12.  | DESCRIPTION
      OF SECURITIES OTHER THAN EQUITY SECURITIES                             | 60
|                |                                                                                          |   
|ITEM
      13.  | DEFAUTLS,
      DIVIDEND ARREARAGES AND DELINQUINCIES                                    | 60
|                |                                                                                          |   
|ITEM
      14.  | MATERIAL
      MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
      PROCEEDS | 60
|                |                                                                                          |   
|ITEM
      15.  | CONTROLS
      AND PROCEDURES                                                            | 60
|                |                                                                                          |   
|ITEM
      15T. | CONTROLS
      AND PROCEDURES                                                            | 60
|                |                                                                                          |   
|ITEM
      16.  | [RESERVED]                                                                               | 62
|                |                                                                                          |   
|ITEM
      16A. | AUDIT
      COMMITTEE FINANCIAL EXPERT                                                   | 62
|                |                                                                                          |   
|ITEM
      16B. | CODE
      OF ETHICS                                                                     | 62
|                |                                                                                          |   
|ITEM
      16C. | PRINCIPAL
      ACCOUNTANT FEES AND SERVICES                                             | 62
|                |                                                                                          |   
|ITEM
      16D. | EXEMPTION
      FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                          | 63
|                |                                                                                          |   
|ITEM
      16E. | PURCHASES
      OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS             | 63
|                |                                                                                          |   
|ITEM
      17.  | FINANCIAL
      STATEMENTS                                                               | 63
|                |                                                                                          |   
|ITEM
      18.  | FINANCIAL
      STATEMENTS                                                               | 79
|                |                                                                                          |   
|ITEM
      19.  | EXHIBITS                                                                                 | 79

---

4

FORWARD-LOOKING STATEMENTS

Certain statements in this Annual Report on Form 20-F (Annual
Report) constitute forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended (the Securities Act), and
Section 21E of the Securities Exchange Act of 1934, as amended (the
Exchange Act). 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 may, will,
should, expect, plan, intend, anticipate, believe, estimate,
predict, potential or continue 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. We disclaim any obligation to publicly update these statements, or
disclose any difference between our actual results and those reflected in these
statements.

In evaluating these statements, you should consider various
factors, including the risks and uncertainties outlined below under the
subheading Risk Factors in Item 3, and, from time to time, in other reports we
file with the Securities and Exchange Commission (the SEC).

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, risks associated with operations,
production estimates, loss of market, regulatory matters, commodity price risk,
environmental risks, industry competition, uncertainties as to the availability
and cost of financing, risks in conducting foreign operations, potential delays
or changes in plans with respect to exploration, development or capital
expenditures.

CURRENCY, MEASUREMENT AND GLOSSARY OF INDUSTRY TERMS

Currency and Measurement

All currency amounts in this Annual Report 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, us, ourortheCompanyrefer
toTAG OilLtd., a company organized under the laws of the
Province of British Columbia, Canada, and unless the context clearly requires,
includes its subsidiaries.

Barrels of oil equivalent or BOE may be
misleading, particularly if used in isolation. A BOE conversion ratio of six
thousand cubic feet (6 mcf) to one barrel (1 bbl) is based on an energy
equivalency conversion method primarily applicable at the burner tip and does
not represent a value equivalency at the wellhead.

---

5

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.

Bbl or 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.

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.

MEDrefers to theMinistry of Economic
Development in New Zealand.

Mcf is one thousand cubic feet and Mscf means one
thousand cubic feet at standard temperature and pressure, used herein in
reference to natural gas or other gaseous hydrocarbons.

OTCBBis the Over-the-Counter Bulletin Board, which is a
regulated electronic trading service offered by the National Association of
Securities Dealers, and is an electronic trading service on which the Companys
common shares are traded.

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

---

6

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.

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 a
stock exchange on which the Companys common shares are traded.

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.

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

---

7

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
Annual Report has been prepared and presented in accordance with National
Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities (NI
51-101). 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.

Oil and natural gas reserve information contained in this
Annual Report is in accordance with both Canadian Generally Accepted Accounting
Principles (Canadian GAAP) and United States Generally Accepted Accounting
Principles (US GAAP). Canadian and U.S. GAAP require that the Company accounts
for reserves following specific guidelines of disclosure to Proved Reserves and
Proved Undeveloped Reserves. Proved Undeveloped Reserves are assigned
consistently under Canadian and U.S. GAAP to the field based on existing wells
and mapping. Proved undeveloped locations are located within one spacing unit of
existing producing wells and thus are direct offsetting wells. In addition,
pricing used to report oil and natural gas reserves are in accordance with
Canadian and U.S. GAAP as the Company has used fiscal year end prices to
determine reserve estimates for Proved Reserves.

PART I

ITEM
1.          IDENTITY OF DIRECTORS,
SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM
2.          OFFER STATISTICS AND
EXPECTED TIMETABLE

Not applicable.

ITEM
3.          KEY INFORMATION

A.        Selected
financial data

The selected historical financial information presented in the
table below for each of the years ended March 31, 2008, 2007, 2006, 2005 and
2004 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, 2008, 2007 and 2006 are included in this filing. The
audited consolidated financial statements of the Company for the years ended
March 31, 2005 and 2004 are included in previous filings. The selected financial
information presented below should be read in conjunction with our audited
consolidated financial statements and the notes thereto, and with the
information appearing under the headings, Information on the Company and
Operating and Financial Review and Prospects.

The Companys audited consolidated financial statements have
been prepared under Canadian GAAP in Canadian dollars. Additional information is
presented to show the differences which would result from the application of US
GAAP to the Companys financial information. Refer to note 12 of the audited
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.

---

8

Under Canadian GAAP (in CDN$)

Year
        Ended March 312008
      2007
      2006
      2005
      2004$
      $
      $
      $
      $Balance Sheet DataCash and CashEquivalents
      6,553,101
      13,425,795
      18,753,695
      6,368,935
      876,466Working Capital
      7,511,039
      13,650,792
      17,843,233
      6,010,158
      896,208Total Assets
      38,488,014
      46,673,370
      29,259,397
      8,506,501
      1,583,140Total Liabilities
      6,253,816
      6,539,540
      229,565
      546,421
      24,253Total ShareholdersEquity
      32,234,198
      40,133,830
      27,029,832
      7,960,080
      1,558,887Operating DataNet sales
      3,894,858
      895,413
      -
      -
      -Expenses
      (6,217,249)
      (2,838,838)
      (1,506,459)
      (1,231,729)
      (976,993)Other Items
      (5,657,524)
      (16,615,041)
      80,897
      17,352
      38,992Loss from Operations
      (7,979,915)
      (18,558,466)
      (1,425,562)
      (1,214,377)
      (938,001)Loss per Share
      (0.09)
      (0.22)
      (0.04)
      (0.09)
      (0.08)


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

Under U.S. GAAP (in CDN$)

Year Ended March 312008
      2007
      2006
      2005
      2004$
      $
      $
      $
      $Balance Sheet DataCash and CashEquivalents
      6,553,101
      13,425,795
      18,753,695
      6,368,935
      876,466Working Capital
      7,511,039
      13,650,792
      17,843,233
      6,010,158
      896,208Total Assets
      40,046,676
      48,232,012
      28,086,603
      8,619,030
      1,692,956Total Liabilities
      6,253,816
      6,539,540
      229,565
      546,421
      24,253Total ShareholdersEquity
      33,792,860
      41,692,492
      25,857,038
      8,072,609
      1,668,703Operating DataNet sales
      3,894,858
      895,413
      -
      -
      -Expenses
      (6,217,249)
      (2,838,838)
      (1,506,459)
      (1,046,334)
      (686,963)Other Items
      (5,657,524)
      (16,615,041)
      80,897
      (168,043)
      (251,038)Loss from Operations
      (7,979,915)
      (18,558,466)
      (1,425,562)
      (1,204,177)
      (924,801)Loss per Share
      (0.09)
      (0.22)
      (0.04)
      (0.09)
      (0.08)


Please refer to note 12 of Item 17, which includes all material
differences between Canadian and US GAAP that are relevant in preparation of our
audited consolidated financial statements.

Given the nature of our operations and assets, we are of the
view that for the two years ended March 31, 2008 and 2007 the foregoing
differences in Canadian and US GAAP would not have resulted in any material
disclosure differences insofar as our financial results are concerned.

---

9

Exchange Rates

Our audited consolidated financial statements, as provided
under Item 8 and 17 are presented in Canadian dollars. On March 31, 2008 the
buying rate for Canadian dollars was US$1.00 for Cdn$1.0265. At the close of
business on September 19, 2008 the buying rate for Canadian dollars was US$1.00
for Cdn$1.0500. 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, 2008:

Oct. 2007
    Nov. 2007
    Dec. 2007
    Jan. 2008
    Feb. 2008
    Mar. 2008Month End
    0.9447
    1.0000
    0.9913
    1.0038
    0.9844
    1.0265Average
    0.9747
    0.9680
    1.0030
    1.0112
    0.9999
    1.0016High (2)
    0.9984
    1.0000
    1.0201
    1.0329
    1.0171
    1.0265Low (2)
    0.9447
    0.9215
    0.9805
    0.9909
    0.9765
    0.9844


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

2008
    2007
    2006
    2005
    2004Year End (1)
    1.0265
    1.1546
    1.1680
    1.2096
    1.3113Average
    1.0330
    1.1387
    1.1935
    1.2784
    1.3527High (2)
    1.1596
    1.1855
    1.2696
    1.3957
    1.4785Low (2)
    0.9215
    1.0983
    1.1314
    1.1759
    1.2712


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:

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

---

10

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 extracting and delivering the hydrocarbons to market and variations in
the market price may render uneconomic any discovered deposit. Geological
conditions are variable and unpredictable. Even if production is commenced from
a well, the quantity of hydrocarbons produced inevitably will decline over
time, and production may be adversely affected or may have to
be terminated altogether if the Company encounters unforeseen geological
conditions.

The Company is 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.

The Companys development of oil and gas production facilities
is subject to risks that may adversely impact on the commercial viability of the
project as the realized 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.

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 access to gas processing facilities, 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.

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 financing through
joint venturing of projects, equity financing or utilizing cash flow.

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 believes that its current cash flow from operations
is sufficient to satisfy the Companys expenditure plans and requirements for
the foreseeable future. If the Companys cash flow from operations decreases to
a level where it is insufficient to satisfy its capital expenditure plans and
requirements or the Company increases 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 using cash flow, share issues or farm-out agreements or

---

11

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.

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 operating revenues that are
sufficient to sustain our exploration and development activities, we expect to
continue to rely principally on the issuance of common shares to raise funds to
finance further business growth. There is no assurance that market conditions
will permit us to raise necessary funds on acceptable terms or at all.

History of Losses

The Company, at the date of this Annual Report, has one oil and
gas property in the production stage. During the 2008 fiscal year, the Company
had a net loss of $7,979,915 and an accumulated deficit of $38,643,385 from its
historical operating results. There is no assurance that the business of the
Company will be profitable in the future. Management cannot guarantee that the
Company will continue to generate revenue in the future. A failure to generate
sufficient revenues may cause the Company to eventually terminate operations.
The Company has not paid dividends to date, has no current plans to pay any such
dividends, and there is no assurance that the Company will pay a dividend at any
time in the future.

Dilution

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

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 the Company liable for environmental damage without regard
to negligence or fault on our part. 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, results of
operations, financial condition, cash flows and shareholder value.

Carbon Emissions Regime

The New Zealand government is a signatory to the Kyoto protocol
and in order to meet the requirements of this protocol, it is in the process of
implementing Climate Change initiatives. A proposed bill is now before the New
Zealand Parliament and undergoing the consultation process to introduce a cap
and trade emissions trading scheme. TAG, along with other members of the oil and
gas exploration and production community, is eligible for involvement in the
government consultation process. More detail on the likely risks to the
Companys business are set out in Item 4.D  Property, Plants and Equipment
under the heading Carbon Emissions Regime in New Zealand.

Indemnities may be Unenforceable or Uncollectible

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12

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.

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. We believe that we are in substantial
compliance with all such permits and licenses. However, 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 production from the joint venture area. We are a
majority interest owner in only oneof 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 similar agreements, which can give rise to interpretive disputes with
other parties which 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.

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 the Company, or that the
benefits of such insurance will be adequate to cover our liability.

Effect of Different Currencies

We hold cash reserves in Canadian and U.S. dollars and to a
lesser extent in New Zealand dollars. We expect to incur the majority of our
petroleum property expenditures in New Zealand dollars. The Company does not
currently hedge its exposure to foreign currency exchange rate changes, although
we may choose to selectively hedge exposure to foreign currency exchange rate
risk in the future. 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 Canadian and
U.S. will be a benefit to the Company. An increase in value of the New Zealand
dollar relative to the Canadian or U.S. dollar would have a detrimental effect
on us as our expenses incurred would, in turn, increase in Canadian and U.S.
dollars.

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Penny Stock Regulation and Difficulties in Selling
Shares

The SEC has adopted rules that regulate broker-dealer practices
in connection with transactions in penny stocks. Penny stocks generally are
equity securities with a price of less than $5.00 per share (other than
securities registered on certain national securities exchanges or quoted on the
NASDAQ 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.

TAGs common shares are currently subject to the penny stock
rules, and accordingly, investors may find it difficult to sell their shares, if
at all.

No Title Insurance

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, we believe that 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.

Uncertainty of Reserves Figures

Actual results of production expenditures, revenues and
reserves will likely vary from estimates, and these variances may be material.
Estimates of oil and gas reserves referred to below 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. The Companys reserves are evaluated
by an independent reserves evaluator each year. Copies of the Companys
technical reports prepared by Sproule International Limited (Sproule) may be
viewed at www.sedar.com.

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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 exploration,
development, 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.

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.

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.

Legal Proceedings Against Foreign Directors

The Company is incorporated under the laws of British Columbia,
Canada, and all four of the Companys directors and officers are residents of
Canada. Consequently, it may be difficult for U.S. shareholders to effect
service of process within the U.S. upon the Company or upon its directors or
officers, or to realize in the U.S. upon judgements of U.S. courts predicated
upon civil liabilities under the Exchange Act. 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 or any of the Companys non-U.S. resident officers or
directors.

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.

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15

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.

Conflicts of Interest

Interests in some petroleum properties have been acquired in
conjunction with, or interests purchased from, Austral Pacific Energy Ltd.
(Austral) 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 companies engaged in the petroleum
exploration and development or related industries. Currently, the Company has a
common director and a common officer with Trans-Orient Petroleum Ltd.
(Trans-Orient), and a common director with AMG Oil Ltd. (AMG). 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 Company may also make application for interests in petroleum
properties with companies with which it is associated, or may become associated.
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 of directors of the Company (the
Board). Persons who are not willing to rely on the discretion and judgment of
management and the Board and any companies with which it is associated, or may
become associated should not consider a purchase of our securities.

Furthermore, 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 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.

Passive Foreign Investment Company Considerations

Shareholders who are U.S. taxpayers should be aware that the
Company may 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. U.S. taxpayers should obtain independent advice as to the
consequences of the Company being a PFIC.

Uncertain Future Operations

On September 7, 2007 the Company announced that it was 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.
Since the announcement, the Company has discontinued talks with advisory firms,
but has continued to explore and consider its alternatives that include an
outright sale of some or all of the Companys New Zealand interests and
facilities, consideration of potential merger opportunities, farming-out certain
prospects to key industry participants and entering into new Joint Venture
opportunities that meet the Companys risk profile.

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16

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, telephone no. (604) 631-3300 and fax no. (604)
631-3309. Our principal business office is located at Suite 1407, 1050 Burrard
Street, Vancouver, B.C. V6Z 2S3, and our technical headquarters is located at
Level 4, 32 The Terrace, 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.

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 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-V under the symbol TAO. We continue to trade on the 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.) (the
B.C. Act), which replaced the Company Act (B.C.) in 2004.

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17

Principal Operations, Capital Expenditures &
Divestitures

During the last three fiscal years and up to September 19,
2008, the Company has completed a variety of significant expenditures on
(including acquisitions), and some divestitures, of its oil and gas properties
in the normal course of operations.

During the fiscal year ended March 31, 2008:

The Company incurred $5,012,087 (2007: $2,145,899) in costs
during the 2008 fiscal year relating to the Cheal oil field production
facilities located at PMP 38156-S (30.5% interest) and $407,836 (2007:
$3,224,952) in costs were incurred on other aspects of field development.

During the 2008 fiscal year the Cheal production facilities
were completed, commissioned and are fully operational and the three producing
wells located at the Cheal B-Site permit area were tied-in to permanent
flowlines back to the production facility. As at March 31, 2008 there were six
wells tied into the Cheal facility.

Production for the year averaged 465 bbls gross per day (TAG:
142 bbls per day). Additional drilling is required to increase daily production
and the Cheal Joint Venture is also consindering the implementaion of a formal
cycling plan to manage gas to oil ratios, while studies are also being conducted
to identify the potential benefits of a waterflood program and a fracture
stimulation operation in order to further develop the Cheal field to capture the
maximum amount of reserves. Gas export from the field commenced on December 21,
2007 with a total of 30.03 mmscf being exported to the Waihapa Production
Station.

In July 2008, the Waihapa Production Station was temporarily
shut down due to inadequate supplies of gas to the facility from other sources.
The Cheal field oil production produces very small volumes of gas; most of which
is used to operate the plant and generate electricity into the grid. The minor
amounts of residual gas is processed at the Waihapa Production Station and sold.
As a result of the shut down, processing of raw gas from Cheal into the Waihapa
Production Station has been suspended.

Since the Company acquired its interest in PMP 38156-S in June
2006, the Cheal oil field has produced 214,831 barrels of oil to March 31, 2008.
From November 2004 to March 31, 2008, however, the Cheal oil field has produced
308,525 barrels of oil.

The Company relinquished its interests in PEP 38256, PEP 38341,
PEP 38741, PEP 38745, PEP 38751, PEP 38757 and PEP 38765, has sold its interests
in PMP 38157, PEP 38342, PEP 38738-D, PMP 38156-D and PEP 38260 and has
written-off the net costs associated with each permit. The Company also elected
to write-off all costs associated with its interest in PEP 38758 after an
assessment was completed that determined that the costs related to the permit
were unlikely to be recovered.

Pursuant to an agreement dated September 6, 2007 the Company
sold its interest in PMP 38157 for NZ$266,000.

In October 2007, the Company signed a letter of intent (LOI)
with New Zealand based Genesis Energy Limited (Genesis) to sell its 15.1%
interest in PEP 38738-D and PMP 38156-D containing the Cardiff deep gas prospect
for a combination of cash and a 1% royalty on any future production from both
permits. The LOI is conditional to a formal agreement being signed as well as
consents required from the MED.

The Company signed an agreement with Discovery Geo Corporation
(Discovery) to sell its 35.5% interest in PEP 38342 for a combination of cash
and a 1.11% royalty on future production on the permit, which is conditional to
receiving consent from the MED.

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18

The Company also reached an out of court cash settlement with
its Joint Venture partner in PEP 38260 where the Joint Venture partner paid
NZ$600,000 to the Company in exchange for the cancellation of the Companys
interest in PEP 38260.

During the year ended March 31, 2008, the Company recorded a
write-down of $6,561,682 associated with its oil and gas properties after the
Company completed an assessment that determined that the costs related to each
permit were unlikely to be recovered.

Subsequent to the fiscal year ended March 31, 2008:

The Cheal A6 development well on PMP 38156-S (TAG: 30.5%
interest) was drilledin the first quarter of the 2009 fiscal year. This
deviated development well was drilled from the Cheal A-Site surface location
reaching a total depth of 1930 meters. The well intercepted oil bearing MM3
sands at approximately 1818 meters, but the net sand interval was interpreted as
too thin that made the well uneconomic to complete. The well was plugged and
abandoned and a whipstock plug was set at 1350 meters for a side track well.
Cheal A6ST was drilled approximately 150 meters to the south of Cheal A6
reaching a total depth of 1936 meters. An assessment of the subsurface data
indicated a sub-commercial hydrocarbon discovery and the well was plugged and
abandoned.

The Cheal A7 development well on PMP 38156-S (TAG: 30.5%
interest) was drilledin the second quarter of the 2009 fiscal year. This
deviated development well was drilled from the Cheal A site surface location
reaching a total depth of 1848 meters. Following a short-term production test,
the well has commenced production through the Cheal facility.

In May 2007 the Company signed a formal agreement with a
subsidiary of New Zealand based Genesis to sell its 15.1% interest in PEP
38738-D and PMP 38156-D containing the Cardiff deep gas prospect for a
combination of cash and a 1% royalty on any future production from both permits.
The agreement is conditional to obtaining the consent of the MED. Genesis has
also agreed to pay our forward costs.

In April 2008 the Company received consent from the MED approving
  the agreement with Discovery to sell the Companys 35.5% interest in PEP
  38342 for a combination of cash and a 1.11% royalty on future production on
  the permit.

During the fiscal year ended March 31, 2007:

The Company continued its exploration and acquisition focus in
New Zealand, as well as commencing production from its Cheal oil field, as
described below.

In June 2006,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 to acquire all of the outstanding shares
  of Cheal Petroleum Limited (Cheal Petroleum), PEP 38757 Limited
  and PEP 38758 Limited, all located in New Zealand. 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).

The Company incurred $3,224,952 in costs during the 2007 fiscal
  year relating to drilling activities and $2,145,899 that was spent on the Cheal
  oil field production facilities.

The Cheal oil field had been in production using temporary
facilities since July 2006, utilizing wells on both the Cheal A and B sites, and
together they 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.

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19

The Company had made $8,644,599 of expenditures during the year
relating materially to the drilling of the Radnor-1a well on PMP 38157 (25%
interest). The Radnor-1a well was operated by the Company and the Company paid
100% of the costs of the well, but gas inflow rates were considered sub-economic
and well data required further analysis.

During the 2007 fiscal yearthe Company incurred
$2,303,203 relating to the drilling, completing and testing of the Mangamingi-1
well on PEP 38758 (100% interest). 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.

The Company also incurred$777,331 of costs primarily
associated with the Joint Ventures drilling of the Ratanui-1 wellon PEP
38741 (45% interest). 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 was 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 wrote-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.

During the fiscal year ended March 31, 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 commercial viability in
combination with future successful wells, all of which are located in onshore
Taranaki, New Zealand. The Company incurred $3,053,078 in costs for the
unsuccessful wells drilled during the 2006 fiscal year, which were: the
Richmond-1 well on PEP 38745, the Konini-1 well on PEP 38751 and the Arakamu-1
well in PEP 38757. The Company incurred $1,499,138 of costs associated with
wells that were under evaluation to determine commerciality, which were: 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 MED 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.

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20

Financing:

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, and the Company also issued 5,000,000 shares valued at
$0.70 per share based on the closing share price of the Companys shares on the
date of issuance, as partial consideration for the acquisition of Cheal
Petroleum, PEP 38757 Limited and PEP 38758 Limited.

On May 19, 2005, the Board 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.

Public Takeovers

The Company is not aware of any public takeover by third
parties in respect of its shares, or by the company of any other companys
shares, either planned or having occurred during the last and current financial
year.

B.        Business
Overview

Nature of Operations

We are an independent oil and gas acquisition, exploration,
development and production company, incorporated in British Columbia, 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, are in the grass roots or primary exploration stage. Beginning in
fiscal 2007 we began earning revenues from the sale of hydrocarbons, but 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 Australasian 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.D 
Property, Plant and Equipment.

The development of the Cheal oil field commenced in August
2006, which included completing a production facility designed to have the
capacity to process up to 2,000 barrels of oil per day and 3 million cubic feet
of gas per day from up to ten development wells. The construction of the
production facility commenced in 2006 and was completed in September, 2007. The
pre-commissioning test phase commenced on August 10, 2007 and first oil was
produced through the facilities in September 2007. The facilities are now fully
certified and were formally opened on October 8, 2007.

---

21

There is no spot market for natural gas in New Zealand, which
means that 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 2006 or 2007.

During the 2008 fiscal year, a total of 169,737 barrels of oil
(TAG: 51,770) were produced and 154,240 barrels of oil (TAG: 47,043) were sold.
The Companys share of production from the Cheal oil field is 30.5% . As
commercial arrangements for the transportation, storage, processing and sale of
the Companys crude oil production have been completed and are in operation,
different marketing channels are not currently required. The Companys gas and
LPG sales arrangements have been placed on hold due to the Companys third party
processors plant being shut down in July 2008. The Company is therefore, with
its Joint Venture partner, making efforts to help facilitate the restart of the
third party plant and investigating possible alternative gas sales channels.
Solution gas produced in association with crude oil production is used to
generate electricity for on-site use, with the excess electricity being exported
via pipeline and sold or sold into the local grid. During the 2007 fiscal year,
a total of 45,094 barrels of oil (100%) were produced, and 44,731 barrels were
transported to the Waihapa Production Station and sold to Swift Energy Company.
All gas produced in fiscal 2007 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
U.S. 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 (and in the ability to process gas) 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 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 was designed specifically for the production station. The
vessels, heat exchangers and piping are specific to the Cheal process. The
designs of the power fluid pump, coalescing filter, and export compressor have
been patented by their respective suppliers.

Management is assisting the Cheal oil fields operator,
Austral, in negotiating a renewed oil sales contract with the fields main crude
customer. The proposed arrangements will be similar to those that have operated
successfully for the last twelve months as of the date of this Annual Report.
The contract will likely be a whole field contract governing combined sales
from both of the Cheal oil fields Joint Venture parties. The vast majority of
Cheal crude oil is sold via this contract and so the Companys revenue will
depend substantially upon it. The Company has a Cheal gas and LPG sales contract
that requires a minimum 12 month termination period. The sales price for both
gas ($/GJ) and LPG ($/litre) are specified in this contract and adjusted
annually using a price producers index. Gas and LPG are processed by a third
party for the Cheal Joint Venture for a fixed fee per mscf; the processing fee
is also adjusted annually using the same price producers index. However, as the
third party processing plant has been shut since July 2008 the sales contract
has not been active since this time, while active gas and LPG sales contributed
around 5% of the monthly revenue that Cheal oil sales generated. Aside from
Cheal, there can be no assurance that production from other fields will develop.

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22

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

TAG (a company incorporated in Canada, whose common shares are
listed on the OTCBB in the U.S. and the TSX-V in Canada) is a parent company of,
and conducts its operations in part through its wholly-owned subsidiaries, as
set out below (as of March 31, 2008):

|1. | TAG Oil (NZ) Limited, organized pursuant to the laws of
      New Zealand;            
|-- | --------------------------------------------------------------------------------------
|2. | TAG Oil (Canterbury) Limited, organized pursuant to the
      laws of New Zealand; and
|3. | Cheal Petroleum Limited, organized pursuant to the laws
      of New Zealand.         

The Company owns 100% of the above subsidiaries and also holds
100% of the voting rights of each.

D.        Property, Plant
and Equipment

Material Tangible Fixed Assets

Our major operations and principal activities are in the oil
and gas exploration and production business. The Company has operated in New
Zealand in the past three years, and owns interests through its wholly owned
subsidiaries in Joint Ventures in government issued petroleum permits or
licences, as set out in the table below, under the heading Principal Petroleum
Properties. These licences and permits authorize the Company to prospect and
explore, and (in certain permits) to mine, for hydrocarbons.

The Cheal production facilities were constructed during 2006
and 2007, commissioned in August 2007, and officially opened on October 8, 2007.
Final commissioning of the pipelines and Cheal B site were completed on December
10, 2007. The Company owns a 30.5% interest in these assets, which is in
accordance with PEP 38738-01 Joint Venture operating agreement that now applies
to PMP 38156.

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23

More detailed descriptions of the Companys principal petroleum
properties can be found below, under the heading Principal Petroleum
Properties.

Major Encumbrances Thereon

The Company did not have any major encumbrances, liens or
mortgages on its assets as of March 31, 2008.

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 (the Resource Act) 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 Act 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 Act, 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 Act.

---

25

Carbon Emissions Regime in New Zealand

The New Zealand government is a signatory to the Kyoto protocol
and, in order to meet the requirements of this protocol, it is implementing
climate change initiatives. Recently, the government released a Framework for a
New Zealand Emissions Trading Scheme and the New Zealand Energy Strategy. The
government has signalled in these documents the intention to implement an
emissions trading scheme and measures to encourage the use of renewable sources
of power for electricity, to only allow new thermal generation in circumstances
where security of supply requires, to reduce transport emissions, and to promote
efficiency in the use of energy.

A proposed bill is now before the New Zealand Parliament and
under going the consultation process to introduce a cap and trade emissions
trading scheme. Liquid fossil fuels are proposed to come under the scheme in
January 2009 and natural gas in January 2010. The unit of trade is proposed to
be linked to international Kyoto units. The bill also proposes a 10 year
moratorium on the building of new thermal power generation unless required for
security of supply. To fit within the exception, an exemption will be required
from the Minister of Energy who will make this decision based on advice from the
New Zealand Electricity Commission.

TAG, along with other members of the oil and gas exploration
and production community in New Zealand, is eligible for involvement in the
government consultation process. The current expectation is that TAG oil sales
will be exempt from the scheme given these are exported to the East Coast of
Australia. TAG is also monitoring Australian government climate change
initiatives in this regard.

In regard to natural gas, given that New Zealand gas sales from
January 2010 are likely to be covered by the emissions trading scheme.

Principal Petroleum Properties

For definitions of technical terms in the following description
of properties, see the Glossary of Industry Terms at the beginning of this
Annual Report.

The following is a summary of the principal interests held by
the Company. The Companys properties are located in the onshore portion of the
Taranaki Basin in New Zealand that lies along the west coast of the North Island
and are exploration permits, except for the Cheal (PMP 38156-S), Cardiff (PMP
38156-D) and Kahili (PMP 38153) properties. All of the Companys interests in
the Taranaki Basin cover approximately 15,827 net acres. The Taranaki Basin is a
lightly explored area with established commercial production. The sediments in
the Taranaki Basin encompass a depth of some 25,000 feet with complex structure
and geology. Compression across the eastern portion of the Taranaki Basin
created a thrusted fold belt up to ten miles wide, which contains the McKee,
Tariki, Ahuroa and Waihapa-Ngaere fields. Further west in the onshore region are
the fault bounded Kapuni, Ngatoro, Kaimiro and Cheal fields. All these fields
are currently in production, with Cheal being in production for the Company, and
the other fields being in production for other owners. 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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26

The following figure shows the locations of the Companys
permits held at March 31, 2008:



The following table summarizes the Companys permits held at
March 31, 2008:

Property
    Location
    Working Interest
    Gross Sq. Kms
    Net Sq. KmsPMP 38153
    Taranaki
    15
    5.99
    0.8985PMP 38156-S
    Taranaki
    30.5
    30.3
    9.2411PMP 38156-D(1)
    Taranaki
    15.1
    30.3
    4.5753PEP 38738-S
    Taranaki
    30.5
    46.51
    14.1363PEP 38738-D(1)
    Taranaki
    15.1
    46.51
    7.023PEP 38746
    Taranaki
    16.67
    27.01
    4.5026PEP 38748
    Taranaki
    33.33
    32.011
    10.6693PEP 38758
    Taranaki
    100
    24.55
    24.55


|(1) | Subsequent to the 2008 fiscal year end, the Company
      signed a formal agreement with a subsidiary of New Zealand based Genesis
      to sell its 15.1% interest in PEP 38738-D and PMP 38156-D containing the
      Cardiff deep gas prospect for a combination of cash and a 1% royalty on
      any future production from both permits. The sale of these interests is
      conditional to obtaining the consent of the MED.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

During the year ended March 31, 2008 the Company relinquished
its interests in PEP 38256, PEP 38341, PEP 38741, PEP 38745, PEP 38751, PEP
38757 and PEP 38765 and has sold or assigned its interests in PMP 38157, PEP
38342, PEP 38738-D, PMP 38156-D and PEP 38260.

For further detail on each property, and work done during the
year, please refer above to Item 4.A - History and Development of the Company
and to the Companys audited consolidated financial

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27

statements (Item 17). For details of planned work to be done on
each property before March 31, 2009 and for the estimated cost thereof see below
Item 5.B - Liquidity and Capital Resources below.

Cheal and Cardiff Fields (PMP 38156 and PEP 38738)

On June 16, 2006, the Company acquired all of the outstanding
shares of Cheal Petroleum, PEP 38757 Limited and PEP 38758 Limited, all located
in New Zealand. Cheal Petroleum 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 ($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.

PEP 38738 and PMP 38156 are divided separately into deep and
shallow strata sections that are held by separate Joint Ventures. The Company
holds interests in both the deep and shallow sections as described above.

PMP 38156-S (Cheal Field - Shallow)

A mining permit, referred to as PMP 38156, was granted to the
Company by the MED on July 26, 2006 covering 30 square kilometres (of the total
90 square kilometres originally held under PEP 38738-S and PEP 38738-D) that
contains the Cheal oil field and the Cardiff deep gas prospect for an initial
term of 10 years with a right to extend the term of the mining permit following
delineation of further reserves. The remaining 60 square kilometres remains in
PEP 38738-S and PEP 38738-D. Upon approval of the development plan, and grant of
the mining permit, development of the Cheal oil field commenced from August
2006. The production facility and development operations are located on two
sites, the Cheal A site and the Cheal B site, which are less than a mile apart.

The Cheal A site is the location of the Cheal production
facility as well as producing wells, Cheal A1, Cheal A3 and Cheal A4, and Cheal
A7. Construction of the production facility at the Cheal A site commenced in
2006 and was completed in September, 2007. The pre-commissioning test phase
commenced on August 10, 2007 and first oil was produced through the facilities
in September 2007. The facilities are fully certified and were formally opened
on October 8, 2007. For details of planned work to be done before March 31, 2009
see Item 5.B - Liquidity and Capital Resources below.

Development at the Cheal B site in 2006 consisted of drilling
four wells (Cheal B1, B2, B3 and B4), located to the north of the Cheal A site.
Cheal B1, B2 and B3 were completed as producers and brought into production in
December 2007 following the completion of the tie-ins to the pipelines
connecting the Cheal B site with the production facilities at the Cheal A site.
Cheal B4 was an exploration well targeting Moki, Mount Messenger and Urenui
sandstones to the north west of the fields bounding fault. The well confirmed
the presence of hydrocarbon charge outside the currently recognized limits of
the field at the two upper levels, increasing confidence in the resource
potential of the north western extension of the Cheal oil field, but lacked
economic thickness of reservoir rock. This well may be sidetracked in due course
and completed as a producer.

Commercial arrangements for the transportation, storage,
processing and sale of the Companys crude oil production have been completed
and are in operation, so different marketing channels are not currently
required. Since July 2008, the Companys gas and LPG sales arrangements have
been placed on hold due to the Companys third party processors plant being
shut down. Efforts are being made by the Company and its Joint Venture partner
to help facilitate the restart of the third party plant, and, investigate
possible alternative gas sales channels. During the 2008 fiscal year, the Cheal
oil field produced a total of 169,736 (2007: 45,094) gross barrels of oil and
154,240 (2007: 44,731) gross barrels of oil were sold with associated solution
gas produced being used primarily to generate electricity for on-site use, with
the

---

28

excess electricity initially being sold into the local grid.
The minor amounts of residual gas is processed at the Waihapa Production Station
and sold. The Companys 30.5% share of oil produced and sold for the year was
51,770 (2007: 13,643) and 47,043 (2007: 13,754), respectively. The Companys
share of production costs for the 2008 fiscal year was $1,552,752 (2007:
$361,328) while depletion and royalties amounted to $1,281,614 (2007: $324,022)
and $209,096 (2007: $43,425), respectively.

Drilling of the Cheal A6 well commenced on June 10, 2008 and
Cheal A7 commenced oil production through a temporary tie back for a three month
period commencing on August 29, 2008 while permanent installations are planned.
Once permanent production from all available wells is brought on stream, TAG has
forecasted the Cheal fields gross production to average approximately 400 to
500 bpd going forward until the end of 2009. Further development activities to
increase this forecasted production will be based on sound economics and data
from recent operations, after the joint venture addresses challenges faced with
producing waxy crude oil and the costs that are associated.

The Cheal A6 well spudded on June 10, 2008 followed immediately
by Cheal A6ST and A7. Cheal A6 and A6ST were abandoned as sub-economic oil
discoveries, but Cheal A7 was found to have commercial oil indications in the
Mount Messenger formation and commenced oil production through a temporary tie
on August 29, 2008. Permanent installations for the Cheal A7 well are presently
being planned and are scheduled for installation in December 2008. As of the
date of this Annual Report, all productive wells are connected to the Cheal
facility, which allow the Company to forecast a total field production rate
through to the end of the year of approximately 500 bopd. The Cheal Joint
Venture will monitor production closely over approximately the next 5-6 months,
then proceed to incorporate that data into any further development plans for
this pool. Cheal crude oil tends to be waxy, and wax build-up within the
downhole flowing equipment has proven problematic, which restricts flow rates
over time. The Cheal Joint Venture is considering a number of potential remedies
to address this issue, including downhole electric heaters and/or power fluid
additives. Solving the wax problem at Cheal has the potential to increase daily
production, as well as increase overall recovery, from this new pool.

PMP 38156-D (Cardiff Field - Deep)

No reserves have been assigned to this property.

In May 2008, a formal agreement was signed with Genesis and the
two permit interests will be formally assigned to Genesis upon receipt of
consent from the MED. Genesis has also agreed to pay our forward costs.

Reserves

For definitions of technical terms in the following description
of the Companys reserves, see the Glossary of Industry Terms at the beginning
of this Annual Report and NI 51-101.

The Companys reserves disclosures that report on the Companys
reserves and production as at March 31, 2008 and for the 2008 fiscal year are in
the form of:

- Statement of Reserves Data and Other Oil and Gas Information;
- Report on Reserves Data by Independent Qualified Reserves Evaluator or
  Auditor; and
- Report of Management and Directors on Oil and Gas Disclosure.

The Cheal oil field on PMP 38156-S is the Companys only
property with attributed reserves during the fiscal year ended March 31,
2008.

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29

As of March 31, 2008, approximately 60.49% of the gross
recognized proved hydrocarbon reserves on the Cheal oil field are now classified
as Proved Developed Reserves (793,000 barrels gross of Proved Developed Reserves
out of a total of 1,311,000 barrels gross of Total Proved Reserves). Sproule
prepared an independent report for the Company (see Technical Report prepared by
Sproule and filed on www.sedar.com) as at
March 31, 2008, which was also completed using data obtained from the Companys
subsidiary, Cheal Petroleum, and from public sources. As at March 31, 2008
Sproule assigned 210,000 barrels (Company share) of Proved Developed Reserves,
135,000 barrels (Company share) of Proved Undeveloped Reserves, 298,000 barrels
(Company share) of Probable Reserves and 271,000 barrels (Company share) of
Possible Reserves. Sproule also assigned a present value to TAGs share of
Proved and Probable Reserves located at the Cheal oil field of US$28.18 million,
based on year end oil prices and a 10% discount rate. The assessment has
assigned gross Proved and Probable Reserves within the Cheal oil field of 2.783
million barrels.

An independent report dated as of March 30, 2007 was prepared
for the Company by Sproule in respect of the Cheal oil field and was completed
using data obtained from the Companys subsidiary, Cheal Petroleum, 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 Annual Report.

Copies of the reserves disclosure documents and technical
reports prepared by Sproule may be viewed at www.sedar.com.

Competition

Please refer to Item 3.D  Risk Factor under the heading
Competition.

ITEM 4A.       
UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM
5.          OPERATING, FINANCIAL
REVIEW AND PROSPECTS

The following discussion and analysis of the Companys
historical financial and operating results for the years ended March 31, 2008,
2007, and 2006 should be read in conjunction with (i) the audited consolidated
financial statements of the Company for the years ended March 31, 2008, 2007,
and 2006, together with the notes related thereto and (ii) Item 4 - Information
on the Company. The financial statements have been prepared in accordance with
Canadian GAAP, and a reconciliation to US GAAP is provided in Note 12 to the
audited consolidated financial statements.

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

A.        Operating
Results

Summary

During the 2008 fiscal year, the Company commenced production
from its permanent production facility located at the Cheal field and has
generated sales and revenue from operations. We remain in the exploration and
evaluation stage with respect to our other oil and gas properties.

The Companys operating and financial highlights for the year
ended March 31, 2008 include the following:

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30

- Completing and commissioning permanent production facilities for the Cheal
  oil field. The pre- commissioning test phase commenced on August 10, 2007 and
  first oil was produced through the facilities in September 2007. The
  production facility is fully certified and was formally opened on October 8,
  2007. Three further Cheal wells (Cheal B1, B2 and B3) were brought into
  production in December 2007 following the completion of the tie-ins to the
  pipelines connecting the Cheal B site with the production facilities at the
  Cheal A site;
- Implementing significant organizational changes to the management of the
  Company, including the appointment of a new Chief Executive Officer;
- Sale of its 25% interest in PMP 38157 for NZ$266,000, pursuant to an
  agreement dated September 6, 2007; and
- The Company signed a LOI with Genesis to sell its 15.1% interest in PEP
  38738-D and PMP 38156-D containing the Cardiff deep gas prospect for a
  combination of cash and a 1% royalty on any future production from both
  permits, which is conditional to a formal agreement being signed as well as
  consents required from the MED.

The Companys operating and financial highlights subsequent to
the year ended March 31, 2008 included the following:

- The Company and Austral resolved a dispute related to the construction of
  the Cheal production station located on PMP 38156-S. The agreement to resolve
  the dispute required Austral to issue 2,273,000 common shares to the Company
  valued at NZ$2,000,240 and to pay the Company NZ$300,000. The issuance of
  Austral common shares also includes six-month anti-dilution protection for the
  Company whereby the Company will be issued additional Austral common shares
  should Austral issue any shares at a price less than NZ$0.88 per share.
  Furthermore, in the event Cheal A7 is successfully completed for production,
  the Company will receive an additional US$250,000 payable in equal
  installments over twelve months. Subsequent to the agreement, Austral issued
  additional common shares at a price less than NZ$0.88. So, under the Companys
  anti-dilution protection clause, the Company was to have been issued
  approximately 750,000 additional Austral common shares. Austral has disputed
  the timing for issue as well as certain aspects of how the anti-dilutive
  protection applies to future Austral financings. The Company is considering
  its options to collect these shares from Austral;
- Implementing the appointment of a new director, John Vaccaro, which was
  followed by the resignation of David Bennett;
- Sale of its 35.5% interest in PEP 38342 to Discovery for a combination of
  cash and a 1.11% royalty on future production on the permit;
- Sale of its 15.1% interest in PEP 38738-D and PMP 38156-D to Genesis
  containing the Cardiff deep gas prospect for a combination of cash and a 1%
  royalty on any future production from both permits, although legal transfer of
  the licenses remains subject to government approval, and Genesis has also
  agreed to pay our forward costs; and
- Drilling Cheal A6, A6ST and A7 in PMP 38156-S as described above in Item
  4.A  History and Development of the Company under the heading Principal
  Capital Expenditures & Divestitures.

We have experienced losses in each of our fiscal years and at
March 31, 2008 had not yet achieved break-even cash flow. Our main sources of
capital currently stems from the sale of oil and gas and the issuance

---

31

of equity securities, which has a dilutive effect on our
shareholders. Total losses incurred since incorporation to the period ending
March 31, 2008 were $38,643,358. 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  2008 Compared to 2007 and 2006

During the 2008 fiscal year, we have conducted our operations
primarily as a production exploration company with international operations
being conducted primarily through our interest in six petroleum permits located
in the Taranaki Basin of New Zealand. Our primary acquisition during the 2007
fiscal year was acquiring an interest in Cheal Petroleum, which holds a 30.5%
interest in the Cheal oil field, and at March 31, 2008 there were six wells
producing at the Cheal oil field.

During the 2008 fiscal year, the Company received oil revenue
from the Cheal oil field production of 169,737 (2007: 45,094) gross barrels of
oil and 154,240 (2007: 44,731) gross barrels of oil sold. For the 2008 fiscal
year, the Companys 30.5% share of oil sold and produced was 47,043 (2007:
13,754) and 51,770 (2007: 13,643), respectively. Since the Company acquired its
interest in PMP 38156-S in June 2006, the Cheal oil field has produced 214,831
barrels of oil to March 31, 2008. From November 2004 to March 31, 2008, however,
the Cheal oil field has produced 308,525 barrels of oil. Subsequent to March 31,
2008 and up until June 30, 2008 the Cheal oil field produced an additional
43,707 barrels of oil (Net to TAG: 13,331 barrels) and sold 51,340 barrels of
oil (Net to TAG: 15,659 barrels). The Companys share of production costs for
the 2008 fiscal year amounted to $1,552,752 (2007: $361,328) while depletion and
royalties amounted to $1,281,614 (2007: $324,022) and $209,096 (2007: $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s revenue for the 2008 fiscal year consisted of
production revenue materially derived from the sale of oil from the Cheal oil
field totalling $4,103,954 compared to $938,838 in oil and gas revenues for 2007
fiscal year and nil in 2006 fiscal years. In addition, the Company also received
interest income of $426,590 compared to $841,569 of interest income being
recorded for the 2007 fiscal year and $399,684 of interest income in the 2006
fiscal year. Interest income decreased for the year when compared to the same
period last year as a result of the Companys lower working capital
balances.

The Company plans to continue to maintain its permits in good
standing with the MED and to lodge additional term applications accordingly.

The Company had a net use of cash of $1,500,481 from operating
activities for the year ending March 31, 2008 compared to a net use of cash of
$654,507 (2006: $2,038,848) for the comparable year ending March 31, 2007.

The Company incurred a net loss for the 2008 fiscal year of
$7,979,915 ($0.09 per share) compared to a loss of $18,558,466 ($0.22 per share)
for the same period last year and a loss of $1,425,562 ($0.04 per share) for the
2006 fiscal year, a difference resulting primarily from an increase in
production revenue to $4,103,954 (2007: $938,838, 2006: Nil) and a decrease in
oil and gas property write-offs to $6,561,682 (2007: $17,246,651, 2006:
$358,699) for the 2008 fiscal year.

The Company incurred $2,321,093 in general and administrative
(G&A) expenses for the year ended March 31, 2008, compared to $2,066,665
for the year ended March 31, 2007 and $1,404,864 for the year ended March 31,
2006.

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32

G&A costs for the 2008 fiscal year increased to $2,321,093
from $2,066,665 last year primarily due to the Companys increased activity
levels relating to general exploration opportunities and reports. The main
items, other than general exploration opportunities and reports, contributing to
the increased G&A were directors fees and consulting fees. Costs related to
exploration and reports accounted for a significant percentage of the increase
because of the Companys commitments to the Cheal development plan during the
fiscal year. The Company also paid severance amounts in lieu of notice and
termination of the President and Chief Executive Officer. We believe that the
G&A costs of the Company for the 2009 fiscal year will likely decrease as a
result of reducing operating costs in our New Zealand operations as detailed in
this Annual Report.

The Company also recorded stock option compensation costs of
$80,283 in fiscal year 2008 (2007: $107,782) relating to the amortization of the
fair value compensation cost of stock options granted during the year.

During the 2008 fiscal year, the Company recorded a write-down
amounting to $6,561,682 in costs associated with permits PEP 38741, PEP 38342,
PMP 38156-D, PMP 38157, PEP 38765 and PEP 38758, as the Company had agreed to
either relinquish the permits or assign them to arms-length parties and the
costs associated with the permits were deemed unlikely to be recovered a future
date.

During the 2008 fiscal year, the Company also wrote-down
inventory by $201,431 (2007: $209,959) to recognize its net realizable value.

Inflation

Inflation has not had a material impact on our operations.

Foreign Currency Fluctuations

Our cash reserves are held in Canadian, U.S. and New Zealand
dollars, and we incur the majority of our petroleum property expenditures in New
Zealand dollars. An increase in value of the New Zealand dollar relative to the
Canadian or U.S. dollar has a detrimental effect to us as our expenses incurred
would, in turn, increase in Canadian and U.S. 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 loss for the year
amounting to $863,843 in fiscal year 2008 compared to a foreign exchange gain of
$134,530 in fiscal year 2007. The foreign exchange loss for the year was 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 we currently operate 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.

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33

Critical Accounting Policies

Differences between Canadian and US GAAP

These audited consolidated financial statements included herein
have been prepared in accordance with Canadian GAAP. Note 12 Differences
between Canadian and United States Generally Accepted Accounting Principles to
the audited consolidated financial statements discusses material differences
between Canadian and US GAAP as they affect such audited consolidated financial
statements.

Accounting Principles and Use of Estimates

These financial statements are prepared in accordance with
Canadian 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.

Stock-based Compensation

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.

New Accounting Pronouncements

On April 1, 2007 the Company adopted the new Canadian Institute
of Chartered Accountants (CICA) standards for Comprehensive Income (CICA
1530), Financial Instruments (CICA 3855) and Hedges (CICA 3865). The new
standards bring Canadian rules into line with current rules in the United
States. The standards have introduced the concept of Comprehensive Income to
Canadian GAAP and will require that an enterprise: a) classify items of
comprehensive income by their nature in the financial statements and b) display
the accumulated balance of comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the statement
of financial position. Derivative contracts will be carried on the balance sheet
at their mark-to-market value, with any change in value flowing to either net
income or comprehensive income. Gains and losses on instruments that are
identified as hedges will flow initially to comprehensive income and be brought
into net income at the time the underlying hedged item is settled. Any
instruments that do not qualify for hedge accounting treatment will be
marked-to-market with the tax-effected adjustment flowing through the income
statement. The Company did not identify any derivatives or comprehensive income
items requiring disclosure as a result of adopting the new standards.

There have been no other material changes in accounting
policies applied during the year ended March 31, 2008. For future changes in
accounting policies refer to note 3 of Item 17.

B.        Liquidity and
Capital Resources

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34

Liquidity

In prior fiscal years the Company has maintained its liquidity
and has funded its operations primarily from the sale of its common shares.
During the 2008 fiscal year, the Company funded its operations through proceeds
from the sale of oil and gas. The Company relies on oil and gas sales proceeds
and its ability to raise additional capital through the issuance of common
shares, which may have a dilutive effect on the Companys shareholders, to fund
work commitments. If the Company chooses to raise additional funding, the
Company cannot give assurance that it will be able to secure outside sources of
capital in an amount that is sufficient for it to undertake its work
commitments.

As at March 31, 2008, the Company had $6,553,101 in cash and
cash equivalents and $7,511,039 in working capital. This compares to $13,425,795
(2006: $18,753,695) in cash and cash equivalents and $13,650,792 (2006:
$17,843,233) in working capital for the year ended March 31, 2007.

At March 31, 2008, the Companys current assets were
$9,106,065, including cash on hand of $6,553,101 and accounts receivable of
$1,537,078, and the current liabilities were $1,595,026.

We believe that we have sufficient capital to fund our
operations for the next twelve months and maintain our interests in all of our
current New Zealand based permits through to the end of the 2009 fiscal year.
However, owing to the inherent risks of oil and gas acquisition, exploration,
development and production it is uncertain whether we will continue to generate
sufficient income and/or secure outside sources of capital in an amount that is
sufficient for us to continue with our expected operations beyond the end of the
2009 fiscal year. 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.

Financial Instruments, Treasury Activities

The Companys primary objective for managing its capital
structure is to maintain financial capacity for the purpose of sustaining the
future development of the business and maintaining investor, creditor and market
confidence. The Company considers its capital structure to include shareholders
equity and working capital. Management is continually monitoring changes in
economic conditions and the risk characteristics of the underlying petroleum and
natural gas industry. In the event that adjustments to the capital structure are
necessary, the Company may consider issuing additional equity, raising debt or
revising its capital investment programs. The Companys share capital is not
subject to any external restrictions. The Company has not paid or declared any
dividends since the date of incorporation, nor are any currently contemplated.
There have been no changes to the Companys approach to capital management
during the period.

The nature of the Companys operations exposes the Company to
credit risk, liquidity risk and market risk. In addition, changes in commodity
prices, foreign exchange rates and interest rates may have a material effect on
cash flows, net income and comprehensive income. The foregoing provides
information about the Companys exposure to each of the above risks as well as
the Companys objectives, policies and processes for measuring and managing
these risks. The Companys risk management policies are established to identify
and analyze the risks faced by the Company, to set appropriate risk limits and
to monitor market conditions and the Companys activities. The Board has overall
responsibility for the establishment and oversight of the Companys risk
management framework and policies.

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. As a result of our brokered private
placements in March and September 2005 and June 2006, our capital resources
expanded to a broader group. These capital

---

35

resources are not anticipated to change during the 2009 fiscal
year. Our access to capital is always dependent upon general financial market
conditions.

Cash and cash equivalents are held primarily in U.S. dollars.
The Company has an ongoing requirement for New Zealand dollars to meet certain
operational and administrative expenses. This requirement is met by utilizing
the spot foreign exchange market to sell U.S. dollars and purchase New Zealand
dollars. The Company currently has no instruments in place for foreign exchange
hedging purposes.

The Company did not conduct any financing activities for the
year ended March 31, 2008. During the 2007 fiscal year, financing activities
provided cash of $28,054,682 from the issuance of common shares. Namely, 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
also issued 5,000,000 shares valued at $0.70 per share, as partial consideration
for the acquisition of Cheal Petroleum, PEP 38757 Limited and PEP 38758 Limited.
During the 2006 fiscal year, financing activities provided cash of $20,371,485
from the issuance of common shares. 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.

Investing activities used cash of $5,372,213 in fiscal 2008,
for property and equipment expenditures that pertain to acquisition, exploration
and development work on our New Zealand oil and gas properties. For the similar
period last year, the Company used $32,728,075 of cash for acquisition and
exploration work on our New Zealand oil and gas properties.

Therefore, the net impact of all cash activities during the
twelve months ended March 31, 2008 resulted in a net decrease in cash of
$6,872,694, compared to a net decrease in cash of $5,327,900 for the year ended
March 31, 2007.

Material Commitments for Capital Expenditures

As at the date of this Annual Report, we plan to spend approximately
  $2,550,000 in fiscal 2009 to meet our material commitments associated to our
  plan of operations, which includes exploration and development activities. Certain
  exploration commitments may exceed the exploration work required under the permit
  terms to maintain the permits in good standing and are subject to change as
  work is completed, results are received and whether the required services are
  available to the Company.

The commitment amounts for capital expenditure relate primarily
to PMP 38156-S where approximately $2,300,000 will be spent on drilling the
Cheal A6, A6ST and A7 wells and paying for associated development costs. The
Company has also committed to drilling a well on PEP 38738-S, an exploration
permit that includes the acreage of the original Cheal exploration permit that
remained after PMP 38156-S was granted over a portion of the permit. This well
is anticipated to be drilled in June or July 2009.

The Company expects to fund its material commitments for fiscal
2009 from working capital and net cash flow from operations.

C.        Research and
Development, Patents and Licences

Not applicable.

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36

D.        Trend
Information

Exchange rate fluctuation is an important trend to the Company
as we hold our cash in U.S., Canadian, and New Zealand dollars and we incur our
exploration expenditures in New Zealand dollars. Refer to Item 3.D  Risk
Factors under the heading Effect of Different Currencies.

E.        Off-Balance
Sheet Arrangements

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

F.        Tabular
Disclosure of Contractual Obligations

As at March 31, 2008 the Company had various commitments and
obligations that were largely in respect to permit work programme obligations
and the Companys share of approved Joint Venture expenditures.

The following table sets forth our contractual obligations as
at March 31, 2008:

Payments due by periodLess than 1
    
    
    More than 5Contractual Obligations
    Total
    year
    1-3 years
    3-5 years
    yearsLong-Term Debt Obligations
    -
    -
    -
    -
    -Capital (Finance) Lease
    -
    -
    -
    -
    -ObligationsOperating Lease Obligations
    -
    -
    -
    -
    -Purchase obligations
    -
    -
    -
    -
    -Other Long-TermObligations (1)
    $2,550,000
    $2,550,000
    -
    -
    -Other Long-Term LiabilitiesReflected on the CompanysBalance Sheet under theGAAP of the primaryfinancial statements
    -
    -
    -
    -
    -Total (2)
    $2,550,000
    $2,550,000
    -
    -
    -


| | (1) | The Other Long Term Obligations that the Company has are
      in respect to the Companys share of expected exploration and development
      permit obligations and/or commitments at March 31, 2008. The Company may
      choose to alter the program, reject development costs, relinquish certain
      permits or farm-out its interest in permits where practical.                                                                                                             
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (2) | The Companys total commitments include those that are
      required to be incurred to maintain its permits in good standing during
      the current permit term, prior to the Company committing to the next stage
      of the permit term where additional expenditures would be required. In
      addition costs are also included that relate to commitments the Company
      has made that are in addition to what is required to maintain the permit
      in good standing.

G.        Safe Harbor

The safe harbor provided in s. 27A of the Securities Act and s.
21E of the Exchange Act shall apply to forward-looking information provided
pursuant to Item 5.E and F where applicable.

ITEM
6.          DIRECTORS, SENIOR
MANAGEMENT AND EMPLOYEES

A.        Directors and
Senior Management

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37

As at September 19, 2008 the directors and senior management of
the Company are as follows:

|Name(1)                          | Residence               | Position                                                                                
|-------------------------------- | ----------------------- | ----------------------------------------------------------------------------------------
|                                 |                         |                                                                                         
|Garth Johnson (2)                | Surrey, B.C., Canada    | Chief Executive Officer,
      Chief Financial Officer, Corporate Secretary and Director
|                                 |                         |                                                                                         
|John Vaccaro (3)(5)              | Penticton, B.C., Canada | Director                                                                                
|                                 |                         |                                                                                         
|Dan Brown (3)(4)(6)              | Langley, B.C., Canada   | Director                                                                                
|                                 |                         |                                                                                         
|Giuseppe (Pino) Perone (3)(4)(6) | Vancouver, B.C., Canada | Director                                                                                
|                                 |                         |                                                                                         
|David McCall (7)                 | Wellington, New Zealand | Engineering and
      Developments Manager                                              
|                                 |                         |                                                                                         
|Carlos Kazianis (8)              | Wellington, New Zealand | Operations Geologist                                                                    

|(1) | Neither age nor date of birth of directors or senior
      managers is required to be reported in the Companys home country (Canada)
      nor otherwise publicly disclosed.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Garth Johnson was appointed as Chief Executive Officer of
      the Company effective September 1, 2007.                                                                     
|(3) | Member of audit committee.                                                                                                                                                   
|(4) | Member of compensation committee.                                                                                                                                            
|(5) | John Vaccaro was appointed as a director of the Company
      on June 11, 2008.                                                                                              
|(6) | Dan Brown and Giuseppe (Pino) Perone were appointed as
      directors of the Company on July 20, 2007.                                                                      
|(7) | David McCall was appointed as Engineering Manager in
      January 2007.                                                                                                     
|(8) | Carlos Kazianis was appointed as Operations Geologist of
      the Company in November 2006.                                                                                 

Mr. Garth Johnson joined the Company as the corporate
accountant in 1997. Mr. Johnson is a Certified General Accountant with over ten
years of experience in executive management, acquisitions, finance, accounting
and regulatory reporting for public companies and is currently the Chief
Executive Officer, Chief Financial Officer, Secretary and a director of the
Company. Mr. Johnson is also the President, Chief Executive Officer and a
director of Trans-Orient, as well as the Chief Financial Officer of AMG.

Mr. John Vaccaro joined the Company as a director on
June 11, 2008. Mr. Vaccaro has over 20 years of experience in the financial
services industry and, until 2006, acted as a senior investment executive with
major international brokerage firms. Since 2006, Mr. Vaccaro has established a
private client consulting practice in the financial services sector. Mr. Vaccaro
is a member of the Fellowship of the Canadian Securities Institute and holds a
degree from the University of British Columbia in Urban Land Economics with
double Majors.

Mr. Dan Brownjoined the Company as a
director on July 20, 2007. Mr. Brown has been providing corporate accounting
services to public and private companies for over seven years and is also a
director of AMG.

Mr. Giuseppe (Pino) Perone joined the Company as a
director on July 20, 2007 and is currently practicing as a corporate lawyer for
a group of public companies with legal experience in a variety of corporate and
commercial matters. Mr. Perone obtained 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, and has previously

---

38

articled at the law firm of Lang Michener LLP in their
Vancouver, British Columbia office. Mr. Perone is also an active member of the
Law Society of British Columbia and the Canadian Bar Association.

Mr. David McCalljoined the Company in January 2007.
Before joining the Company, Mr. McCall worked with Mobil Oil in the North Sea,
UK, where he was one of only two engineers invited to Mobil Oils Graduate
Engineer Training Program. During this rigorous development program Mr. McCall
experienced a broad range of petroleum engineering faculties, including
drilling, completions, reservoir and facilities engineering and offshore
operations. Mr. McCall then joined Advanced Well Technologies, one of the
leading sources of consulting engineers in the Australasian area, working on
projects in Australia, New Zealand and India. Mr. McCall obtained a B. Eng. with
Honours from the University of Aberdeen and an MBA from the Cranfield School of
Management in England, and is an active member of the Society of Petroleum
Engineers.

Mr. Carlos Kazianisjoined the Company in November 2006.
  Mr. Kazianis has extensive international field experience in well site supervision,
  management of drilling operations and critical technical support. Mr. Kazianis
  also administers the Companys geological database, provides collation
  and completion of geological prognosis for drilling, well planning, selection
  of service companies and other technical assistance. Mr. Kazianis has worked
  in Europe, Africa, Middle East, South East Asia, Papua New Guinea and New Zealand.
  Previously, he was a senior advisor to the Petroleum and Minerals Investment
  Unit of New Zealands Crown Minerals and a former Lieutenant in the New
  Zealand army.

No director or any member of senior management has any family
relationships with any other director or manager. There is no arrangement with
any major shareholder, customer, supplier or other party pursuant to which any
person was selected as a director or member of senior management.

B.        Compensation

The following table sets forth the aggregate compensation paid
by the Company for services rendered during the last full fiscal year indicated,
reported as at March 31, 2008:

SUMMARY COMPENSATION TABLE

Compensation
      Securities
        Under OptionNamed and Principal 
        Position
      Year 
        Ended
      Salary 
        ($)
      Other Annual 
        Compensation 
        ($)
      Number of 
        Options
      Exercise Price
      Expiry DateDrew Cadenhead, 
        President, Chief 
        Executive Officer and 
        Director (1)
      2008
      $405,600 (2)
      $30,000 (3)
      -
      -
      -Garth Johnson, 
        Chief Executive 
        Officer, Chief 
        Financial Officer, 
        Secretary and Director 
        (1)
      2008
      $156,250
      $25,000
      -
      -
      -


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39

Paul Infuso, Director (4)
    2008
    $11,250
    -
    -
    -
    -James Smith Director (4)
    2008
    $3,750
    -
    -
    -
    -Peter Loretto, Director (4)
    2008
    $20,895
    -
    -
    -
    -Dan Brown, Director
    2008
    -
    $22,849 (5)
    -
    -
    -Giuseppe (Pino) Perone, Director
    2008
    -
    $19,401 (5)
    -
    -
    -David Bennett, Director (6)
    2008
    $40,000
    -
    -
    -
    -David McCall, Engineering and
      Developments Manager
    2008
    $161,560
    -
    -
    -
    -Carlos Kazianis, Operations Geologist
    2008
    $82,396
    -
    -
    -
    -


|(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) | Pursuant to a severance agreement dated September 1,
      2007, Mr. Cadenhead was paid a one time severance fee of $405,600 that was
      calculated based on industry standards and in consultation with the
      Companys legal counsel.                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(3) | Commencing January 1, 2008, Mr. Cadenhead receives
      consulting compensation of $10,000 per month for a period of one year for
      his various consulting and advisory services on business development
      matters. For further detail see Item 7.B - Related Party Transactions
      and Item 10.C - Material Contracts.                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(4) | Mr. Smith resigned from the Board effective February 26,
      2007. Subsequently, Mr. Infuso and Mr. Loretto resigned from the Board
      effective July 20, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(5) | 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 that provides office space management,
      accounting and reporting services to public and private companies on a
      fixed and cost recovery basis. Mr. Brown holds a corporate accounting role
      with DLJ and Mr. Perone holds a position with DLJ as legal
  counsel.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(6) | Dr. Bennett resigned from the Board effective June 23,
      2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

No pension, retirement or similar benefits are paid or payable
to members of the Board or senior management, and no amounts are set aside or
accrued in connection with pension, retirement or similar benefits.

---

40

The Companys directors and officers liability insurance was
renewed on July 25, 2008 for a period of one year, which will cover directors
and officers in the performance of their duties.

C.        Board Practices

Term of Office

All directors have a term of office expiring at our next annual
general meeting, unless a directors office is earlier vacated in accordance
with our Articles or the provisions of the B.C. Act. All officers serve at the
discretion of the Board.

As of September 19, 2008:

|Name                   | Position                                                        | Office Held Since
|---------------------- | --------------------------------------------------------------- | -----------------
|                       |                                                                 |                  
|Garth Johnson          | Chief Executive Officer                                         | September 2007   
|                       |                                                                 |                  
|                       | Chief Financial Officer,
      Corporate Secretary and Director | April 2001       
|                       |                                                                 |                  
|John Vaccaro           | Director                                                        | June 2008        
|                       |                                                                 |                  
|Dan Brown              | Director                                                        | July 2007        
|                       |                                                                 |                  
|Giuseppe (Pino) Perone | Director                                                        | July 2007        
|                       |                                                                 |                  
|David McCall           | Engineering and
      Developments Manager                      | January 2007     
|                       |                                                                 |                  
|Carlos Kazianis        | Operations Geologist                                            | November 2006    

Directors Service Contracts

None of the directors have contracts that provide for any
benefits upon termination of his/her service as a director.

Pursuant to a severance agreement dated September 1, 2007 with
the Company, Mr. Cadenhead was paid a one time severance fee of $405,600 that
was calculated based on industry standards and in consultation with the
Companys legal counsel. For further detail see Item 10.C - Material
Contracts.

The terms of Mr. Johnsons current employment agreement as CEO,
provide that, upon termination without cause, he will be paid a severance
payment equal to 30 months remuneration. See Item 10.C - Material Contracts
for more detail.

Audit and Compensation Committees

As at September 19, 2008 the members of the audit committee are
John Vaccaro, Giuseppe (Pino) Perone and Dan Brown. Mr. Vaccaro has served as a
member of the audit committee since June 24, 2008. 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.

---

41

The audit committee serves pursuant to an Audit Committee
Charter adopted by the Company on June 24, 2005. 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. A copy of our Audit Committee Charter was filed as an exhibit to our
annual report on Form 20-F filed September 30, 2005.

As at September 19, 2008 the members of the compensation
committee are Mr. Perone and Mr. Brown. Mr. Perone has served as a member of the
compensation committee since June 24, 2008. Mr. Brown has served as a member of
the compensation committee since July 20, 2007 and is also the chairman.

The compensation committee serves pursuant to a Compensation
Committee Charter adopted by the Company on October 3, 2005. 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. A copy of our Compensation
Committee Charter was filed as an exhibit to our annual report on Form 20-F
filed September 28, 2006.

D.       
Employees

As at March 31, 2008 we had three full time employees. Mr.
Johnson, the Companys Chief Executive Officer, Chief Financial Officer and
Corporate Secretary, Mr. McCall the Companys Engineering and Developments
Manager and Mr. Kazianis, the Companys Operations Geologist. Mr. McCall and Mr.
Kazianis resided in New Zealand and Mr. Johnson resided in Vancouver, British
Columbia.

As at March 31, 2007 we had four full time employees. Mr.
Cadenhead, the Companys President and Chief Executive Officer, Mr. Johnson, the
Companys Chief Financial Officer and Corporate Secretary, Mr. David McCall, the
Companys Engineering Manager and Mr. Carlos Kazianis, the Companys Operations
Geologist. Mr. Cadenhead, Mr. McCall and Mr. Kazianis resided in New Zealand and
Mr. Johnson resided in Vancouver, British Columbia.

As at March 31, 2006 we had four full time employees. Mr.
Cadenhead, the Companys President and Chief Executive Officer, Mr. Johnson, the
Companys Chief Financial Officer and Corporate Secretary, Mr. Mark Webster, the
Companys Exploration Manager and Mr. Ricardo Bertolotti, the Companys Chief
Geophysicist. Mr. Cadenhead, Mr. Webster and Mr. Bertolotti resided in New
Zealand and Mr. Johnson resided in Vancouver, British Columbia.

In addition, the Company also receives technical, business and
administrative services from a number of consultants.

E.        Share Ownership

The following table provides information relating to the
shareholdings of our directors and senior managers as of September 19, 2008:

|Name    | Number of | Number of | Percentage  | Exercise   | Expiry Date   
|------- | --------- | --------- | ----------- | ---------- | --------------
|        | Shares    | Options   | of          | Price of   | of Options    
|        |           |           | Outstanding | Options(1) |               
|        |           |           | Shares      |            |               
|Garth   | 38,000    | 75,000    | 0.04 %      | $0.77      | May 10, 2010  
|Johnson |           | 100,000   |             | $1.30      | Nov 22, 2010  
|        |           | 100,000   |             | $0.70      | August 2, 2011

---

42

John Vaccaro
    10,000
    -
    0.01%
    -
    -Dan Brown
    -
    25,000
    
    $0.70
    August 2, 2011Giuseppe
    -
    -
    -
    -
    -(Pino) PeroneDavid McCall
    -
    150,000
    -
    $0.57
    February 1, 2012125,000
    
    $0.25August 1, 2013Carlos Kazianis
    -
    60,000
    -
    $0.52
    November 22, 2011100,000
    
    $0.25August 1, 2013


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

No shares held by directors or members of senior management
have different voting rights.

During the 2008 fiscal year, the Company did not grant any
options. Subsequent to the 2008 fiscal year, the Company granted options to two
employees to purchase up to 225,000 common shares at a price of $0.25 per share
vesting over eighteen months with an expiry date of August 1, 2013. There have
been no options exercised by any director, officer or employee as of the date of
this Annual Report.

The Companys current option plan was approved by shareholders
at the annual general meeting held on December 21, 2007 and accepted by the
TSX-V (the Plan). Under the 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, which is subject to a minimum exercise price of
not less than the Discounted Market Price as defined in the policies of the
TSX-V.

The Company does not have any formal arrangements for involving
the employees in the capital of the Company. The number of options that are
granted to each employee of the Company is determined by the Board and conducted
pursuant to the Plan.

ITEM
7.          MAJOR SHAREHOLDERS AND
RELATED PARTY TRANSACTIONS

A.        Major
Shareholders

Beneficial Holders of 5% or More of Voting Securities

The following sets forth information relating to the beneficial
ownership of our shares held by persons who own 5% or more of our common stock
as of September 19, 2008.

|Name and
      Address of Owner |  | Number of Shares |  | Percentage of Class
|------------------------------- |  | ---------------- |  | -------------------
|                                |  |                  |  |                    
|Alex Guidi                      |  | 11,590,500       |  | 12.65%             
|                                |  |                  |  |                    
|RAB Energy Fund Limited         |  | 7,225,000        |  | 7.88%              

---

43

|Name and Address of Owner              |  | Number of Shares |  | Percentage of Class
|-------------------------------------- |  | ---------------- |  | -------------------
|                                       |  |                  |  |                    
|Wellington Trust Company, NA           |  | 5,351,000        |  | 5.84%              
|                                       |  |                  |  |                    
|Peter Loretto                          |  | 5,036,000        |  | 5.50%              
|                                       |  |                  |  |                    
|South Pacific Lease Operations Limited |  | 5,000,000        |  | 5.46%              

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 fiscal years up to the date of this Annual Report 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, 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. They have
      subsequently sold 7,373,500 shares of the Company through the open
      market.
| |    |                                                                                                                                                                                                                                                                                                           
| | 4. | Wellington Trust Company, NA acquired 5,351,000 shares of
      the Company through the open market.                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                           
| | 5. | Alex Guidi aqcuired 11,590,500 shares of the Company
      through the open market.                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                           
| | 6. | Peter Loretto acquired 5,036,000 shares of the Company
      through the open market.                                                                                                                                                                                                                     

There are no different voting rights attributable to the major
shareholders. Every shareholder has equal voting rights.

Host Country Record Holders

The following provides information about shareholders of record
in the U.S. as at September 19, 2008 as follows:

Estimated proportion of shares held in the
      U.S.
    8.55%Number of U.S. shareholders
    537Number of shares held by U.S. shareholders
    7,830,272Total number of shareholders
    631Total number of shares held
    91,631,081


---

44

Controlling Shareholdings

To the knowledge of management, the Company is not directly or
indirectly owned or controlled by another corporation(s), by any foreign
government or by any other natural or legal person, severally or jointly. None
of the major shareholders listed in Item 7.A  Major Shareholders under the
heading Beneficial Holders of 5% or More of Voting Securities directly or
indirectly owns or controls the Company.

Arrangements Affecting Shareholdings

To our knowledge, there are no arrangements the operation of
which would at a subsequent date result in a change of control of the Company.

B.        Related Party
Transactions

The following sets forth, since the beginning of our last
completed fiscal year, information relating to transactions entered into with us
by certain related parties:

|(a) | Pursuant to a consulting agreement dated October 1, 2007
      the Company paid Alex Guidi through his wholly owned private company,
      Pacific Reach Management Ltd. (PRM), monthly compensation of $5,000 on
      an on-going basis to perform various consulting and advisory services on
      strategic matters for the Company. Beginning July 1, 2008 the monthly
      compensation increased to $7,500 per month.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(b) | Pursuant to an agreement dated June 11, 2008, the Company
      paid John Vacarro, who was appointed to the Board on June 11, 2008,
      monthly compensation of $1,000 for his services as a director.                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(c) | Pursuant to a severance agreement dated September 1,
      2007, Drew Cadenhead was paid compensation of $405,600 by the
    Company.                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(d) | On July 17, 2008, the Company and Trans-Orient entered
      into a consulting arrangement whereby Drew Cadenhead allocates up to 50%
      of his time to the Company, under which the Company compensates Mr.
      Cadenhead for 50% of his contracted monthly compensation with Trans-Orient
      in the amount of $10,000 per month;                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(e) | Independent directors of the Company received a total of
      $35,855 (2007 fiscal year - $53,500) in directors fees for the 2008
      fiscal year.                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(f) | Subsequent to the fiscal year ending March 31, 2008 the
      Company paid DLJ a total of $69,489 in consulting fees. Mr. Brown holds a
      corporate accounting position with DLJ and Mr. Perone holds a position
      with DLJ as legal counsel.                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(g) | During the fiscal year ending March 31, 2008 the Company
      paid a total of $616,850 (2007 fiscal year - $366,921) in wages, bonuses
      and cost of living allowance to its executive
officers.                                                                                                                                                                                                                           

C.        Interests of
Experts and Counsel

Not applicable.

---

45

ITEM 8.        
 FINANCIAL INFORMATION

A.        Consolidated
Statements and Other Financial Information

Financial Statements

Our audited consolidated financial statements as at and for the
years ended March 31, 2008, 2007 and 2006 are included under Item 17.

Legal Proceedings

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

Subsequent to the year ended March 31, 2008, the Company and
Austral resolved a dispute related to the construction of the Cheal production
station located on PMP 38156-S. The agreement to resolve the dispute required
Austral to issue 2,273,000 million common shares to the Company valued at
NZ$2,000,240 and to pay the Company NZ$300,000. The issuance of Austral common
shares also includes six-month anti-dilution protection for the Company whereby
the Company will be issued additional Austral common shares should Austral issue
any shares at a price less than NZ$0.88 per share. Furthermore, in the event
Cheal A7 is successfully completed for production, the Company will receive an
additional US$250,000 payable in equal instalments over twelve months.

Austral has since issued additional common shares at a price
less than NZ$0.88, which means that under the Companys anti-dilution protection
clause the Company was to have been issued approximately 750,000 additional
Austral common shares. Austral has disputed the timing for issue as well as
certain aspects of how the anti-dilutive protection applies to future Austral
financings. The Company is considering its options to collect these shares from
Austral.

Dividends

The Company has not paid dividends to shareholders and no
dividends will be paid in the foreseeable future. All cash derived by the
Company is re-invested in the Companys operations.

B.        Significant
Changes

The following significant changes have occurred since March 31,
2008:

| | a) | On August 1, 2008 the Company granted to two employees
      options to purchase up to 225,000 common shares exercisable at a price of
      $0.25 per share, vesting over eighteen months with an expiry date of
      August 1, 2013.                                                                                                         
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                 
| | b) | The Company drilled Cheal A6, A6ST and A7 in PMP 38156-S,
      and following a short-term production test, the Cheal A7 well has
      commenced production through the Cheal facility as described above in Item
      4.A  History and Development of the Company under the heading
      Principal Capital Expenditures & Divestitures.
| |    |                                                                                                                                                                                                                                                                                                                                                 
| | c) | On June 11, 2008 John Vaccaro was appointed as a director
      of the Company. David Bennett subsequently resigned as a director of the
      Company, effective June 23, 2011.                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                 
| | d) | On May 23, 2008, the Company accepted a settlement offer
      from Austral with respect to the dispute over the Cheal project.                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                 
| | e) | In May 2008, the Company sold 15.1% interest in PEP
      38738-D and PMP 38156-D to Genesis containing the Cardiff deep gas
      prospect for a combination of cash and a 1% royalty on
  any                                                                                                                                                 

---

46

| |    | future production from both permits, although legal
      transfer of the licenses remains subject to government approval. Genesis
      has also agreed to pay our forward costs.                                             
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                
| | f) | In April 2008, the Company received consent from the MED
      approving the sale of its 35.5% interest in PEP 38342 to Discovery for a
      combination of cash and a 1.11% royalty on future production on the
      permit.

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

ITEM 9.        
 THE OFFER AND LISTING

A.        Offer and
Listing Details

There is no offering of stock hereunder. This is our Annual
Report only.

Price History of the stock

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

Summary trading by year, for the five most recently completed
fiscal periods ending March 31, 2008:

OTCBB
      TSX-VFiscal Year
      High(1)(2)(3)
      Low(1)(2)(3)
      High(2)(3)
      Low(2)(3)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
      0.242008
      0.30
      0.06
      0.29
      0.07


Summary trading by quarter for the two most recently competed
fiscal periods ending March 31, 2008:

OTCBB
      TSX-VFiscal Year andQuarter
      High(1)(2)(3)
      Low(1)(2)(3)
      High(2)(3)
      Low(2)(3)2007First 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
      0.242008First Quarter
      0.30
      0.13
      0.29
      0.10Second Quarter
      0.29
      0.13
      0.24
      0.14Third Quarter
      0.17
      0.06
      0.16
      0.07Fourth Quarter
      0.12
      0.08
      0.12
      0.08


Summary trading by quarter for any full quarter subsequent to
the year end March 31, 2008:

---

47

OTCBB
      TSX-VMonth
      High(1)(2)(3)
      Low(1)(2)(3)
      High(2)(3)
      Low(2)(3)April 1 to June 30
      0.23
      0.06
      0.23
      0.07


Summary trading by month for the six most recently completed
months ending August 31, 2008:

OTCBB
      TSX-VMonth
      High(1)(2)(3)
      Low(1)(2)(3)
      High(2)(3)
      Low(2)(3)March
      0.10
      0.08
      0.10
      0.08April
      0.09
      0.06
      0.10
      0.07May
      0.21
      0.08
      0.23
      0.09June
      0.23
      0.14
      0.22
      0.15July
      0.19
      0.09
      0.19
      0.08August
      0.11
      0.09
      0.11
      0.09


|(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 and TSX-V are from the website
      located at www.finance.yahoo.com.                                                                

B.        Plan of
Distribution

Not applicable.

C.        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 19, 2008.

The Companys 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-V under the symbol TAO. Beginning on December 8,
1999 our shares traded on the OTCBB under the symbol DUREF until we changed
our name to TAG Oil Ltd. on June 12, 2002. Thereafter, the Companys shares have
traded on the OTCBB under the symbol TAGOF.

D.        Selling
Shareholders

Not applicable.

E.        Dilution

Not applicable.

F.        Expenses of the
Issue

---

48

Not applicable.

ITEM 10.       
ADDITIONAL INFORMATION

A.        Share Capital

Not applicable.

B.        Memorandum and
Articles of Association

The Companys Articles of Association were previously filed in
the Companys annual report on Form 20-F for the fiscal year ended March 31,
2000. On September 22, 2006 the shareholders of the Company approved the Boards
recommendation to return the Companys incorporation from the Yukon Territory to
British Columbia and to adopt new Articles, which replaced the Companys former
by-laws. It is now a company subsisting under the B.C. Act, which replaced the
Company Act (B.C.) in 2004. See also Item 4.A under the heading History and
Development of the Company.

A copy of the Articles, as approved by shareholders on
September 22, 2006, was attached as an exhibit to the Companys annual report on
20-F for the fiscal year ended March 31, 2006. There have been no changes to the
Articles since then.

Corporate Registry Entry Number, Objects

The Company is registered as a corporation under the B.C. Act,
entry number 771528. The Company is entitled to carry on all lawful business
which can be carried on by a natural person, except that it is restricted by law
and under its Articles from carrying on the business of a railway, steamship,
air transporter, canal, telegraph, telephone or irrigation company.

Directors Powers

The directors, by majority resolution vote, have power to cause
the Company to enter into and conduct its business and to perform all manner of
agreements and other transactions.

The Articles provide that when a director holds a disclosable
interest (as that term is defined in the B.C. Act) in a matter which is being
considered by the directors, he or she must disclose the nature and extent of
his interest in such contract or transaction or of any other possible conflict,
in accordance with the provisions of the B.C. Act. The B.C. Act definition of a
disclosable interest can be summarized as a material interest in a contract or
transaction that is material to the company. A director who holds a disclosable
interest may not vote on the transaction (unless all of the directors have a
disclosable interest in that transaction) but will be counted in the quorum
present at the meeting at which such vote is taken. A directors remuneration is
not a matter which falls within the definition of a disclosable interest.

The quorum for the transaction of the business of the directors
may be set by the directors and, if not so set, is deemed to be set at two
directors or, if the number of directors is set at one, is deemed to be set at
one director, and that director may constitute a meeting.

The directors may, on behalf of the Company:

- borrow money in such manner and amount, on such security, from such
  sources and upon such terms, and conditions as they consider appropriate;

---

49

- issue bonds, debentures, and other debt obligations either outright or as a
  security for any liability or obligation of the Company or any other person
  and at such discounts or premiums and on such other terms as they consider
  appropriate;
- guarantee the repayment of money by any other person or the performance of
  any obligation or any other person; and
- mortgage, charge, whether by way of specific or floating charge, grant a
  security interest in, or give other security on, the whole or any part of the
  present and future assets and undertaking of the Company.

There are no age limit requirements applicable to the Company
under its Articles relating to the retirement or non-retirement of its
directors.

A director of the Company is required under the B.C. Act to be
at least 18 years old, not a bankrupt or mentally incapacitated, nor have been
convicted of fraud. A director is not required to hold a share in the capital of
the Company as qualification for his or her office. There are no requirements
that a director be resident in any particular jurisdiction.

Rights, Preferences and Restrictions Attaching to Common
Shares

The authorized capital of the Company consists of an unlimited
number of common shares without par (or nominal) value and without special
rights or restrictions attached. As at September 19, 2008 there were 91,631,081
common shares issued and outstanding.

Common shares each have the right to one vote in connection
with matters upon which shareholders may vote. This includes the annual election
of directors and approval of other matters requiring a shareholder vote such as
a merger, sale of substantially all of the Companys assets and undertaking, and
transfer from the jurisdiction of British Columbia. Other matters may require
shareholders approval by policy of the stock exchanges on which the Companys
shares are listed. Directors do not stand for re-election at staggered
intervals. Directors are elected by simple plurality of votes (the candidates
with the largest number of votes for win until the maximum number of Board
positions are filled). Cumulative voting does not apply (that is a shareholder
does not get a number of votes equal to the number of candidates in a way that
allows the shareholder to skew his or her voting by voting more votes for only a
single candidate).

Common shares are entitled to dividends only if and when
declared by the Board. The Company has not declared or paid any dividends on its
common shares, and has no expectation that dividends will be declared in the
foreseeable future as the Company re-invests its cash to further its exploration
and development activities.

All of the common shares rank equally in respect to any
entitlement to a surplus (after creditors) upon liquidation or wind-up.

There are no such provisions in the Companys Articles in
relation to establishing a redemption or sinking fund for any class of
shares.

The B.C. Act does not permit the issuance of partially paid
shares hence all presently outstanding share capital is not subject to any call
or assessment, all having been issued as fully paid and non-assessable.

There are no such provisions in the Companys Articlesdiscriminating against any existing or prospective holder as a result of
such shareholder owning a substantial number of shares.

Changing the Rights of Shareholders

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50

Under the B.C. Act, a company may, by the type of shareholders
resolution specified by the articles, or, if the articles do not specify the
type of resolution, by a special resolution:

- create special rights or restrictions for, and attach those special rights
  or restrictions to, the shares of any class or series of shares, whether or
  not any or all of those shares have been issued; or
- vary or delete any special rights or restrictions attached to the shares of
  any class or series of shares, whether or not any or all of those shares have
  been issued.

The Companys Articles provide that if the B.C. Act does not
specify the type of resolution and the Articles do not specify another type of
resolution, the Company may by special resolution (at least 2/3 of votes cast)
alter the Articles.

The Company may by a resolution of the directors or an ordinary
resolution (that is, 50% plus one of the votes cast) authorize an alteration of
its Notice of Articles in order to change its name. Other more substantive
capital alterations require a special resolution.

The Articles provide that the attachment, variation and
deletion of special rights and restrictions to any class of shares must be
authorized by a special resolution. If the amendment prejudices or interferes
with the rights or special rights attached to any class of issued shares, the
B.C. Act requires the consent of the holders of that class of shares be obtained
by a separate special resolution.

Meetings of Shareholders

The Company must hold its annual shareholders meeting once
  in every calendar year (and in a period not exceeding more than 15 months from
  the last annual shareholders meeting) at such time and place to be determined
  by the directors of the Company. The Company must publish an advance notice
  in the manner required by the B.C. Act of any general meeting at which directors
  are to be elected. The directors may fix in advance a record date, which is
  no fewer than 21 days prior to the date of the meeting and not more than 60
  days before. All the holders of common shares as at that record date are entitled
  to receive notice of and to attend and vote at a general meeting.

The Articles provide that the quorum for the transaction of
business at any meeting of shareholders is two persons who are, or who represent
by proxy, shareholders who, in the aggregate, hold at least five percent of the
issued shares entitled to be voted at the meeting. If a quorum is not present,
the meeting is set over for one week and then whatever number of shares that is
represented at the set-over meeting shall be deemed to constitute a quorum.

In addition to the requirements of the B.C. Act, there is
extensive regulation of the requirements for the form and content of proxy
materials and the corporate disclosures made therein, which are mandated by
Canadian securities legislation applicable to the Company.

No Limitations on the Right to Own Securities

The Companys Articles do not contain any restrictions on the
rights of any person, including any nonresident or foreign shareholder to hold
or exercise voting rights on the Companys securities. There are no restrictions
applicable to such ownership in Canadian law as discussed in Item 10.D 
Exchange Controls.

Restrictions on Change in Control, Merger, Acquisition or
Corporate Restructuring

There are no provisions in the Companys Articles that would
have the effect of delaying, deferring or preventing a change in control of the
Company or that would operate only with respect to a merger, acquisition or
corporate restructuring involving the Company. The B.C. Act does not contain any

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provisions that would have the effect of delaying, deferring or
preventing a change of control of the Company. Stock exchange policies
applicable to the Company however do impose shareholder approval requirements
for certain types of control change transactions.

Ownership Threshold Requiring Public Disclosure

There are no provisions in the Companys Articles or in the
B.C. Act governing the threshold above which shareholder ownership must be
disclosed. The Company is a reporting company under the Securities Act (B.C.)
and the Securities Act (Alberta), and is governed by the securities legislation
in the U.S. as a foreign private issuer.

Canadian provincial securities legislation requires that a
shareholder disclose ownership of 10% or more of the shares (and any further
increases of 2% or more) of the Company by issuing a news release and filing a
report (both containing prescribed disclosure) with the Securities Commissions
in those provinces. They also require the Company to disclose, in its
information circular sent out for an annual meeting or special meeting, the
names of holders known to the Company to beneficially own more than 10% of the
Companys issued and outstanding shares.

Most state corporation statutes do not contain provisions
governing the threshold above which shareholder ownership must be disclosed.
U.S. federal securities laws require a company that is subject to the reporting
requirements of the Exchange Act to disclose, in its annual reports filed with
the SEC those shareholders who own more than 5% of the corporations issued and
outstanding shares. Shareholders are required to file a disclosure statement on
Schedule 13D or 13G if they own more than 5% of the corporations issued and
outstanding shares.

Significant Differences between U.S. Law and the Law
Applicable to Company

The law applicable to the Company and its own governance
practices differ from those followed by U.S. domestic companies in the following
material respects:

- The Company is a foreign private issuer as defined in Rule 3b-4 under the
  Exchange Act, and the equity securities of the Company are accordingly exempt
  from the proxy rules set forth in Sections 14(a), 14(b), 14(c) and 14(f) of
  the Exchange Act. The Company solicits proxies in accordance with applicable
  rules and regulations in Canada.

Changes to the Companys Capital

The Companys Articles do not contain any provisions governing
changes in capital more stringent than those required by the B.C. Act.

C.        Material
Contracts

The Company has entered into, or remains subject to, the
following material contracts in the two years prior to September 19, 2008 that
can reasonably be regarded as not being in the ordinary course of the Companys
business (which ordinary course includes the routine purchase and
farm-in/farm-out of oil and gas properties, and settlement of claims):

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52

Contract
      Date
      Parties
      
      DescriptionSeverance Agreement
      September 1, 2007
      TAG and Drew Cadenhead
      Provides for Drew Cadenhead receiving 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.Executive Employment Agreement
      September 1, 2007
      TAG and Garth Johnson
      Provides for Garth Johnson
          receiving an annual salary of $150,000 on an on-going basis and being
          eligible for a bonus of up to 35% of the annual salary per year, which
          will be recommended by the compensation committee of TAG and approved
          by the Board, and includes employee and vacation benefits and severance
          terms as well. Mr. Johnson may terminate the agreement by giving not
          less than one months written notice of termination. TAG may on
          written notice immediately terminate this agreement at any time for
          cause (as defined in the agreement), without a notice period or pay
          in lieu of a notice period or any other form of compensation, severance
          pay or damages. TAG may terminate the agreement at any time without
          cause by providing thirty months written notice to Mr. Johnson,
          pay in lieu of such notice or any combination thereof. Within a twelve
          (12) month period immediately following a change of control, the Company
          is required to pay Mr. Johnson an amount equal to his base salary for
          thirty months:•
      if the agreement is terminated by the Company without
          cause after a change of control;•
      if Mr. Johnson is placed in a position of lesser stature
          than that of President and Chief Executive Officer;•
      if Mr. Johnson is assigned duties significantly inconsistent
          with the position of Chief Executive Officer immediately prior to the
          change of control;•
      if Mr. Johnson is assigned performance requirements or
          working conditions that are at variance with the performance requirements
          and working conditions in effect immediately preceding the change of
          control;•
      if Mr. Johnson is accorded treatment on a general basis
          that is in derogation of his status as Chief Executive Officer; or•
      any requirement that the location at which Mr. Johnson
          performs his principal duties is outside a radius of twenty-five miles
          from the location at which he performs such duties immediately before
          the change of control.Share Option Plan
      December 21, 2007
      TAG, Directors, Officers, Consultants and Employees
      Reserves 10% of the Companys issued and outstanding
          shares at any time for grants of options to eligible participants in
      accordance with the policies of the TSX-V.


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Contract
      Date
      Parties
      
      DescriptionOption Agreement
      August 1, 2008
      TAG and David McCall
      Issued pursuant to TAGs
          Plan to acquire 125,000 shares up to August 1, 2013 at an exercise price
          of $0.25 per share, which will vest and may be exercised as follows:•
      1/3 of the total number of options granted will vest six
          months after the date of grant;•
      a further 1/3 of the total number of options granted will
          vest one year after the date of grant; and•
      the remaining 1/3 of the total number
          of options granted will vest eighteen months after the date of grant.Option Agreement
      August 1, 2008
      TAG and Carlos Kazianis
      
      Issued pursuant to TAGs Plan to acquire 100,000 shares
          up to August 1, 2013 at an exercise price of $0.25 per share, which
          will vest and may be exercised as follows:•
      1/3 of the total number of options granted will vest six
          months after the date of grant;•
      a further 1/3 of the total number of options granted will
          vest one year after the date of grant; and•
      the remaining 1/3 of the total number
          of options granted will vest eighteen months after the date of grant.Consulting Agreement
      September 1, 2007
      TAG and DLJ
      Provides for consulting compensation of $12,000 per month
          on an on-going basis to DLJ to provide office space and various administrative,
          legal and reporting services for TAG. DLJ may terminate the agreement
          by giving not less than one months written notice of termination.
          TAG may on written notice immediately terminate this agreement at any
          time for cause (as defined in the agreement) and DLJ will not be entitled
          to receive any payment on account of such termination, other than such
          amounts due in respect of the period ending on the date of termination.
          In the event that TAG terminates DLJ without cause, or that DLJ terminates
          the agreement for good reason (as defined in the agreement) or on change
          of control (as defined in the agreement), TAG will pay a lump sum amount
          of $180,000 to DLJ.Consulting Agreement
      July 1, 2008
      TAG and PRM
      Provides for consulting compensation of $7,500 per month
          on an on-going basis to Alex Guidi through PRM to perform various consulting
          and advisory services on strategic matters for TAG. This agreement supersedes
          any prior agreement between TAG and PRM. PRM may terminate the agreement
          by giving not less than one months written notice of termination.
          TAG may on written notice immediately terminate this agreement at any
          time for cause (as defined in the agreement) and PRM will not be entitled
          to receive any payment on account of such termination, other than such
          amounts due in respect of the period ending on the date of termination.
          In the event that TAG terminates PRM without cause, or that PRM terminates
          the agreement for good reason (as defined in the agreement) or on change
          of control (as defined in the agreement), TAG will pay a lump sum amount
          of $15,000 to PRM.


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Contract
    Date
    Parties
    DescriptionConsulting Arrangement
    July 17, 2008
    TAG and Trans- Orient
    Provides for a consulting
      arrangement between TAG and Trans-orient whereby Drew Cadenhead allocates
      up to 50% of his time to TAG, under which TAG compensates Mr. Cadenhead
      for 50% of his contracted monthly compensation with Trans-Orient in the
      amount of $10,000 per month on an on-going basis, effective January 1,
      2008.Directors Compensation and Indemnity Agreement
    June 11, 2008
    TAG and John Vaccaro
    Provides for indemnity and annual
      compensation of $12,000 to John Vaccaro for his services as a
      non-executive director and audit committee member of TAG.Indemnity Agreement
    February 26, 2007
    TAG and Garth Johnson
    Provides for indemnity to Garth
      Johnson for his services as an Officer and a director of TAG.Indemnity Agreement
    July 20, 2007
    TAG and Giuseppe (Pino) Perone
    Provides for indemnity to
      Giuseppe (Pino) Perone for his services as a director of TAG.Indemnity Agreement
    July 20, 2007
    TAG and Dan Brown
    Provides for indemnity to Dan
      Brown for his services as a director of TAG.


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 below.

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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55

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

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U.S. Holders. The summary does not deal with special
situations, such as particular circumstances of traders or dealers, limited
liability companies, tax-exempt entities, insurers, financial institutions
(including those to which the mark-to-market provisions of the Tax Act apply),
or otherwise.

This summary is based on the current provisions of the Tax Act
and the regulations thereunder, all proposed amendments to the Tax Act and
regulations publicly announced by the Minister of Finance (Canada) to the date
hereof, the current provisions of the Treaty and the current administrative
practices of the Canada 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 U.S.
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 U.S. 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 U.S. 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 U.S. Holder and/or persons and entities
not dealing at arms length with the U.S. 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 U.S. 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. U.S. 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.

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U.S. 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 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

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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 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

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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 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.

PFIC Considerations

Management believes that the Company will not be treated as a
PFIC, for U.S. federal income tax purposes for the current taxable year, nor for
the foreseeable future. However, an actual determination of PFIC status is
factual in nature and generally cannot be made until the close of the applicable
taxable year. We will be a PFIC if either:

- 75% or more of our gross income in a taxable year is passive income, which
  includes dividends, interest, royalties, rents, annuities, and some types of
  gains; or
- the average percentage of the value of our assets that produce or are held
  for the production of passive income is at least 50%.

If the Company were classified as a PFIC, U.S. shareholders
would be subject to certain adverse U.S. tax consequences, including the
application of special rules to certain extraordinary distributions, possible
characterization of gain with respect to the shares as ordinary and the possible
imposition of an interest charge on taxes that U.S. holders would be deemed to
have deferred.

U.S. shareholders are urged to consult their own tax advisors
concerning the potential application of the PFIC rules to their ownership and
disposition of the Companys shares.

---

60

F.        Dividends and
Paying Agents

Not applicable.

G.        Statement by
Experts

Not applicable.

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 SEC and can be viewed at: www.sec.gov.

I.Subsidiary Information

See Item 4.C - Organizational Structure.

ITEM 11.       
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are currently not subject to any material market risks.

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

Not applicable.

ITEM 15T.     CONTROLS AND PROCEDURES

The Company is aware of the importance of maintaining controls
and procedures and is continuously improving its controls and procedures.

---

61

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that
are designed to ensure that information required to be disclosed on reports that
the Company files under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Exchange Act Rules and
forms.

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-15(e) and 15d-15(e)) as of March 31, 2008,
concluded that, as of such date, our disclosure controls and procedures were
effective in ensuring that information required to be disclosed by the Company
was recorded, processed, summarized and reported within the time periods
specified in the Exchange Act Rules and forms.

Managements Annual Report on Internal Control Over
Financial Reporting

The Companys management is responsible for establishing and
maintaining adequate internal control over financial reporting as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Companys internal
control over financial reporting is a process designed by, or under the
supervision of, the Companys Chief Executive Officer and Chief Financial
Officer, and effected by the Companys board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of the financial statements for external
purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that (i) pertain to the maintenance of
records that in reasonable detail accurately and fairly reflect our transactions
and dispositions of assets; (ii) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that our receipts
and expenditures are being made only in accordance with the authorization of our
management and directors; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material effect on the financial statements.

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

Under the supervision and with the participation of our
management, including the Companys Chief Executive Officer and Chief Financial
Officer, we conducted an evaluation of the effectiveness of the Companys
internal control over financial reporting as of March 31, 2008. In making this
evaluation, management used the framework set forth in Internal Control 
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this evaluation, management concluded that as of
March 31, 2008, the Companys internal control over financial reporting was
effective.

Attestation Report of Registered Public Accounting Firm

This Annual Report does not include an attestation report of
the Companys registered public accounting firm regarding internal control over
financial reporting. Managements report was not subject to attestation by the
Companys registered public accounting firm pursuant to temporary rules of the
SEC that permit the Company to provide only managements report in the Annual
Report.

---

62

Changes in Internal Controls Over Financial Reporting

During the year ended March 31, 2008, there were no changes in
our internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) of the Securities Exchange Act of 1934) that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.

ITEM 16.       
[RESERVED]

ITEM 16A.     AUDIT COMMITTEE FINANCIAL
EXPERT

The Company has an audit committee comprised of Dan Brown,
Giuseppe (Pino) Perone and John Vaccaro. Our Board has determined that Mr.
Brown, who is the chairman, is an audit committee financial expert and is not
independent as defined in the listing standards of AMEX.

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
employees. A copy of our code of ethics may be requested, free of charge, from
the head office of the Company at Suite 1407, 1050 Burrard Street, Vancouver,
British Columbia, Canada, V6Z 2S3, Attention: Investor Relations. In addition,
the Code of Ethics has been filed as an exhibit to our annual report on Form
20-F on September 28, 2005.

ITEM 16C.     PRINCIPAL ACCOUNTANT FEES
AND SERVICES

Principal Accountant Service
    For the fiscal year ended March
      31, 2008
    For the fiscal year ended March
      31, 2007Audit Fees
      (1)
    $42,104
    $40,634Audit Related
      Fees (2)
    $7,674
    $21,316Tax Fees
      (3)
    $2,000
    $5,419All 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

---

63

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 Companys audit committee to
approve all audit and non-audit related fees paid to the independent auditors.
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 THE LISTING
STANDARDS FOR AUDIT COMMITTEES

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 61.

INDEX TO FINANCIAL STATEMENTS

PageAuditors
        Report
      64Consolidated
        Balance Sheets
      65Consolidated
        Statements of Operations and Deficit
      66Consolidated
        Statements of Cash Flows
      67Notes
        to the Consolidated Financial Statements
      68


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

---

64

D E  V I S S E R  G R A Y  L L
PCHARTERED 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, 2008 and 2007 and the consolidated statements of operations and
deficit and cash flows for each of the years in the three year period ended
March 31, 2008. 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, 2008 and 2007 and the results of its operations and its cash flows for
each of the years in the three year period ended March 31, 2008 in accordance
with generally accepted accounting principles in Canada.

De Visser Gray LLP

CHARTERED ACCOUNTANTS





Vancouver, British Columbia Canada July 16, 2008

---

65

Consolidated Balance Sheets Expressed in Canadian
Dollars

|As at March 31                              |   | 2008        |   |   | 2007        |  
|------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                            |   |             |   |   |             |  
|Assets                                      |   |             |   |   |             |  
|Current                                     |   |             |   |   |             |  
|Cash and cash equivalents (Note 2f)         | $ | 6,553,101   |   | $ | 13,425,795  |  
|Amounts receivable and prepaids             |   | 1,537,078   |   |   | 375,581     |  
|Inventory (Note 2m)                         |   | 1,015,886   |   |   | 857,004     |  
|                                            |   | 9,106,065   |   |   | 14,658,380  |  
|Property and equipment (Note 5 and 10)      |   | 29,381,949  |   |   | 32,014,990  |  
|                                            | $ | 38,488,014  |   | $ | 46,673,370  |  
|                                            |   |             |   |   |             |  
|Liabilities and Shareholders Equity        |   |             |   |   |             |  
|Current                                     |   |             |   |   |             |  
|Accounts payable and accrued liabilities    | $ | 1,595,026   |   | $ | 1,007,588   |  
|                                            |   |             |   |   |             |  
|Non-current                                 |   |             |   |   |             |  
|Future income tax (Note 4 and 9)            |   | 4,144,883   |   |   | 5,329,492   |  
|Asset retirement
      obligations (Note 6) |   | 513,907     |   |   | 202,460     |  
|                                            |   | 6,253,816   |   |   | 6,539,540   |  
|                                            |   |             |   |   |             |  
|Share capital (Note 7)                      |   | 69,979,631  |   |   | 69,979,631  |  
|Contributed surplus                         |   | 897,925     |   |   | 817,642     |  
|Deficit                                     |   | (38,643,358 | ) |   | (30,663,443 | )
|                                            |   | 32,234,198  |   |   | 40,133,830  |  
|                                            | $ | 38,488,014  |   | $ | 46,673,370  |  
|                                            |   |             |   |   |             |  
|Nature of operations (Note1)                |   |             |   |   |             |  
|Commitments and contingencies (Note 8)      |   |             |   |   |             |  
|Subsequent events (Note 10)                 |   |             |   |   |             |  

See accompanying notes

Approved by the Board of Directors:

|Garth Johnson         | Dan Brown        
|----------------------- | -------------------
|                        |                    
|Garth Johnson, Director | Dan Brown, Director

---

66

Consolidated Statements of Operations and Deficit
Expressed in Canadian Dollars

|For the Years Ended March 31                |   | 2008        |   |   | 2007        |   |   | 2006        |  
|------------------------------------------- | - | ----------- | - | - | ----------- | - | - | ----------- | -
|                                            |   |             |   |   |             |   |   |             |  
|Revenues                                    |   |             |   |   |             |   |   |             |  
|Production revenue                          | $ | 4,103,954   |   | $ | 938,838     |   | $ | -           |  
|Royalties                                   |   | (209,096    | ) |   | (43,425     | ) |   | -           |  
|                                            |   | 3,894,858   |   |   | 895,413     |   |   | -           |  
|                                            |   |             |   |   |             |   |   |             |  
|Expenses                                    |   |             |   |   |             |   |   |             |  
|General and administrative                  |   | 2,321,093   |   |   | 2,066,665   |   |   | 1,404,864   |  
|Production costs                            |   | 1,552,752   |   |   | 361,328     |   |   | -           |  
|Stock option compensation                   |   | 80,283      |   |   | 107,782     |   |   | 123,829     |  
|Directors & officers insurance              |   | 50,533      |   |   | 53,192      |   |   | 32,250      |  
|Wellhead insurance                          |   | -           |   |   | 4,166       |   |   | -           |  
|Foreign exchange                            |   | 863,843     |   |   | (134,530    | ) |   | (62,080     | )
|Depletion, depreciation and accretion       |   | 1,348,745   |   |   | 380,235     |   |   | 7,596       |  
|                                            |   | (6,217,249  | ) |   | (2,838,838  | ) |   | (1,506,459  | )
|                                            |   |             |   |   |             |   |   |             |  
|Other Items                                 |   |             |   |   |             |   |   |             |  
|Interest income                             |   | 426,590     |   |   | 841,569     |   |   | 399,684     |  
|Write-off of oil and gas properties         |   | (6,561,682  | ) |   | (17,246,651 | ) |   | (358,699    | )
|Write-down of inventory                     |   | (201,431    | ) |   | (209,959    | ) |   | -           |  
|Legal settlement                            |   | 470,561     |   |   | -           |   |   | -           |  
|Sale of oil and gas property                |   | 208,438     |   |   | -           |   |   | -           |  
|Gain on sale of
      marketable securities |   | -           |   |   | -           |   |   | 39,912      |  
|                                            |   | (5,657,524  | ) |   | (16,615,041 | ) |   | 80,897      |  
|                                            |   |             |   |   |             |   |   |             |  
|Net loss for the year                       |   | (7,979,915  | ) |   | (18,558,466 | ) |   | (1,425,562  | )
|                                            |   |             |   |   |             |   |   |             |  
|Deficit, beginning of year                  |   | (30,663,443 | ) |   | (12,104,977 | ) |   | (10,679,415 | )
|                                            |   |             |   |   |             |   |   |             |  
|Deficit, end of year                        | $ | (38,643,358 | ) | $ | (30,663,443 | ) | $ | (12,104,977 | )
|                                            |   |             |   |   |             |   |   |             |  
|Loss per share                              | $ | (0.09       | ) | $ | (0.22       | ) | $ | (0.04       | )
|                                            |   |             |   |   |             |   |   |             |  
|Weighted average number of shares           |   |             |   |   |             |   |   |             |  
|outstanding                                 |   | 91,631,081  |   |   | 82,576,286  |   |   | 37,330,058  |  

See accompanying notes.

---

67

Consolidated Statements of Cash Flows Expressed in
Canadian Dollars

|For the Years Ended March 31                          |   | 2008       |   |   | 2007        |   |   | 2006       |  
|----------------------------------------------------- | - | ---------- | - | - | ----------- | - | - | ---------- | -
|                                                      |   |            |   |   |             |   |   |            |  
|Operating Activities                                  |   |            |   |   |             |   |   |            |  
|Net loss for the year                                 | $ | (7,979,915 | ) | $ | (18,558,466 | ) | $ | (1,425,562 | )
|Changes in non-cash operating items:                  |   |            |   |   |             |   |   |            |  
|Depletion, depreciation and accretion                 |   | 1,348,745  |   |   | 380,235     |   |   | 7,596      |  
|Stock option compensation                             |   | 80,283     |   |   | 107,782     |   |   | 123,829    |  
|Write-off of oil and gas properties                   |   | 6,561,682  |   |   | 17,246,651  |   |   | 358,699    |  
|Write-down of inventory                               |   | 201,431    |   |   | 209,959     |   |   | -          |  
|Gain on sale
      of marketable securities           |   | -          |   |   | -           |   |   | (39,912    | )
|                                                      |   | 212,226    |   |   | (613,839    | ) |   | (975,350   | )
|Changes in non-cash working capital accounts:         |   |            |   |   |             |   |   |            |  
|Amounts receivable and prepaids                       |   | (1,161,497 | ) |   | 753         |   |   | (191,990   | )
|Accounts payable and accrued liabilities              |   | (190,897   | ) |   | 82,773      |   |   | 71,261     |  
|Inventory                                             |   | (360,313   | ) |   | (124,194    | ) |   | (942,769   | )
|Cash used in
      operating activities               |   | (1,500,481 | ) |   | (654,507    | ) |   | (2,038,848 | )
|                                                      |   |            |   |   |             |   |   |            |  
|Financing Activities                                  |   |            |   |   |             |   |   |            |  
|Issuance of common shares                             |   | -          |   |   | 28,054,682  |   |   | 20,371,485 |  
|Cash provided by
      financing activities           |   | -          |   |   | 28,054,682  |   |   | 20,371,485 |  
|                                                      |   |            |   |   |             |   |   |            |  
|Investing Activities                                  |   |            |   |   |             |   |   |            |  
|Property and equipment expenditures                   |   | (5,372,213 | ) |   | (32,728,075 | ) |   | (5,991,089 | )
|Proceeds from sale
      of marketable securities     |   | -          |   |   | -           |   |   | 43,212     |  
|Cash used in investing activities                     |   | (5,372,213 | ) |   | (32,728,075 | ) |   | (5,947,877 | )
|                                                      |   |            |   |   |             |   |   |            |  
|Net increase (decrease) in cash during
      the year |   | (6,872,694 | ) |   | (5,327,900  | ) |   | 12,384,760 |  
|Cash and cash
      equivalents - Beginning of year   |   | 13,425,795 |   |   | 18,753,695  |   |   | 6,368,935  |  
|Cash and cash equivalents - End of year               | $ | 6,553,101  |   | $ | 13,425,795  |   | $ | 18,753,695 |  
|                                                      |   |            |   |   |             |   |   |            |  
|See accompanying notes.                               |   |            |   |   |             |   |   |            |  
|                                                      |   |            |   |   |             |   |   |            |  
|Supplementary disclosures:                            |   |            |   |   |             |   |   |            |  
|                                                      |   |            |   |   |             |   |   |            |  
|Interest received                                     | $ | 426,590    |   | $ | 841,569     |   | $ | 399,684    |  

Non-cash investing activities:

The Company incurred $1,551,111 (2007: $772,776 and 2006:
$2,077,526) in exploration expenditures which amounts were in accounts payable
at year end.

---

68

Notes to the Consolidated Financial StatementsFor the Years Ended March 31, 2008 and 2007 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 development
and exploration 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | On April 1, 2007 the Company adopted the new Canadian
      Institiute of Chartered Accountants (CICA) standards for Comprehensive
      Income (CICA 1530), Financial Instruments (CICA 3855) and Hedges (CICA
      3865). The new standards bring Canadian rules into line with current rules
      in the United States. The standards have introduced the concept of
      Comprehensive Income to Canadian GAAP and will require that an
      enterprise: a) classify items of comprehensive income by their nature in
      the financial statements and b) display the accumulated balance of
      comprehensive income seperately from retained earnings and additional
      paid-in capital in the equity section of the statement of financial
      position. Derivative contracts will be carried on the balance sheet at
      their mark-to-market value, with any change in value flowing to either net
      income or comprehensive income. Gains and losses on instruments that are
      identified as hedges will flow initially to comprehensive income and be
      brought into net income at the time the underlying hedged item is settled.
      Any instruments that do not qualify for hedge accounting treatment will be
      marked-to-market with the tax-effected adjustment flowing through the
      income statement. The Company did not identify any derivatives or
      comprehensive income items requiring disclosure as a result of adopting
      the new standards.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Material differences between Canadian and United States
      generally accepted accounting principles, that affect the Company, are
      described in note 12.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|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 production of, and 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

---

69

|   | 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 cash and
      cash equivalents, amounts receivable and accounts payable and accrued
      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 three months or less, together with accrued interest
      thereon, which are readily convertible to known amounts of cash.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|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, 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, development, estimated future development as
      well as dismantlement and abandonment costs, net of salvage values 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 at a discount rate of 10% and
      the lower of cost and market of unproved properties. The cash flows are
      estimated using forecast product prices and costs with the forecast
      product pricing being a constant price utilizing the actual oil price
      posted at March 31, 2008 and discounted using a risk-free interest rate of
      10%.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Sales of oil and gas properties, whether or not being
      amortized currently, shall be accounted for as adjustments of capitalized
      costs, with no gain or loss recognized unless such adjustments would
      significantly alter the relationship between capitalized costs and proved
      reserves of oil and gas attributable to a cost centre. Abandonments of oil
      and gas properties shall be accounted for as adjustments of capital cost
      with the costs of abandoned properties being charged to the cost center
      and amortized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | 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 48%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|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 on the trading price of the
      Companys shares on the TSX Venture Exchange on the measurement date. The
      measurement date is defined as the earliest of the date at which the
      commitment for performance by the counterparty to earn the common shares
      is reached or the date at which the counterpartys performance is
      complete.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|j) | Stock-based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The Company has a stock based compensation program for
      officers, directors, employees and
consultants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

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70

|   | 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, 2008 the Company has $513,907 in asset retirement
      obligations.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|m) | Inventory                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Inventory is valued at the lower of cost and net
      realizable value with cost being determined using a first-in first-out
      basis. Inventory consists of field operation consumables.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|n) | Oil and gas revenue recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Sales revenues represent invoiced sales of oil and gas
      products. Revenue from the sale of goods is recognized when the
      significant risks and rewards of ownership have been transferred to the
      buyer. No revenue is recognized if there are significant uncertainties
      regarding recovery of the consideration due, associated costs or the
      possible return of goods, or where there is continuing management
      involvement with the goods.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|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  FUTURE CHANGES IN ACCOUNTING POLICIES

|a) | Capital Disclosures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Effective April 1, 2008 the Company will be required to
      adopt CICA Handbook Section 1535 that requires disclosure of an entitys
      objectives, policies and processes for managing capital, quantitative data
      about what the entity regards as capital and whether the entity has
      complied with any capital requirements and, if it has not complied, the
      consequences of such non-compliance. This standard is effective for the
      Company for interim and annual periods relating to fiscal years beginning
      on or after January 1, 2008. The Company is currently evaluating the
      effects of adopting this standard.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|b) | Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Effective April 1, 2008 the Company will be required to
      adopt CICA Handbook Section 3862, Financial Instruments - Disclosures and
      Section 3863 -Financial Instruments-Presentation which have replaced CICA
      Handbook Section 3861, Financial Instruments - Disclosure and
      Presentation. Sections 3862 and 3863 increase the disclosures currently
      required, which will enable users to evaluate the significance of
      financial instruments for an entitys financial position and performance,
      including disclosures about fair value. In addition, disclosure is
      required of qualitative and quantitative information about exposure to
      risks arising from financial instruments, including specified minimum
      disclosures about credit risk, liquidity risk and market risk. The
      quantitative disclosures must provide information about the extent to
      which the entity is exposed to risk, based on information provided
      internally to the entitys key management personnel. This standard is
      effective for the Company for interim and annual periods beginning on or
      after January 1, 2008. The Company is currently evaluating the effects of
      adopting this standard.

---

71

|c) | International Financial reporting Standards
      (IFRS)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | In February 2008 the Canadian Accounting Standards Board
      announced 2011 as the changeover date for publicly-listed companies to use
      IFRS, replacing Canadas own generally accepted accounting principles. The
      specific implementation is set for interim and annual financial statements
      relating to fiscal years beginning on or after January 1, 2011. The
      transition date of January 1, 2011 will require restatement for
      comparative purposes of amounts reported by the Company for the year ended
      December 31, 2010. While the Company has begun assessing the adoption of
      IFRS for 2011, the financial reporting impact of the transition to IFRS
      cannot be reasonably estimated at this time.

NOTE 4  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.

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 price:Cash for purchase of shares
    $
    12,839,074Fair value of shares issued
    
    3,500,000Transaction costs
    
    100,000$
    16,439,074Allocation of purchase price:Oil 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


Refer to Note 5

NOTE 5  PROPERTY AND EQUIPMENT

|             |  | Working     |  |  |                      |  |   |             |  |   |            |   |   |                      |  |   |             |  |   |            |   |   |                      | 
|------------ |  | ----------- |  |  | -------------------- |  | - | ----------- |  | - | ---------- | - | - | -------------------- |  | - | ----------- |  | - | ---------- | - | - | -------------------- | 
|             |  | Interest    |  |  |                      |  |   | Additions   |  |   |            |   |   |                      |  |   | Additions   |  |   |            |   |   |                      | 
|             |  | at March 31 |  |  | Net Book             |  |   | During the  |  |   | Depletion  |   |   | Net Book             |  |   | During the  |  |   | Depletion  |   |   | Net Book             | 
|             |  | 2007/2008   |  |  | Value at             |  |   | 2007 Fiscal |  |   | Recoveries |   |   | Value at             |  |   | 2008 Fiscal |  |   | Recoveries |   |   | Value at             | 
|             |  | %           |  |  | March
      31, 2006 |  |   | Year        |  |   | Write-offs |   |   | March
      31, 2007 |  |   | Year        |  |   | Write-offs |   |   | March
      31, 2008 | 
|Oil and Gas  |  |             |  |  |                      |  |   |             |  |   |            |   |   |                      |  |   |             |  |   |            |   |   |                      | 
|Properties   |  |             |  |  |                      |  |   |             |  |   |            |   |   |                      |  |   |             |  |   |            |   |   |                      | 
|New Zealand  |  |             |  |  |                      |  |   |             |  |   |            |   |   |                      |  |   |             |  |   |            |   |   |                      | 
|Proved       |  |             |  |  |                      |  |   |             |  |   |            |   |   |                      |  |   |             |  |   |            |   |   |                      | 
|PMP 38156-S  |  | 30.5/30.5   |  |  | -                    |  | $ | 23,690,514  |  | $ | (324,022   | ) | $ | 23,366,492           |  | $ | 407,836     |  | $ | (2,005,056 | ) | $ | 21,769,272           | 
|Unproved:    |  |             |  |  |                      |  |   |             |  |   |            |   |   |                      |  |   |             |  |   |            |   |   |                      | 
|New Zealand: |  |             |  |  |                      |  |   |             |  |   |            |   |   |                      |  |   |             |  |   |            |   |   |                      | 
|PMP 38153    |  | 15.0 /15.0  |  |  | 9,597                |  |   | 11,589      |  |   | -          |   |   | 21,186               |  |   | 100,468     |  |   | (88,743    | ) |   | 32,911               | 
|PMP 38156-D  |  | 15.1/15.1   |  |  | -                    |  |   | 1,818,599   |  |   | -          |   |   | 1,818,599            |  |   | 604,099     |  |   | (2,227,126 | ) |   | 195,572              | 
|PMP 38157    |  | 25/-        |  |  | 4,342                |  |   | 8,644,599   |  |   | (7,899,641 | ) |   | 749,300              |  |   | 179,059     |  |   | (928,359   | ) |   | -                    | 
|PEP 38256    |  | 100         |  |  | 417,568              |  |   | 71,186      |  |   | (488,754   | ) |   | -                    |  |   | -           |  |   | -          |   |   | -                    | 
|PEP 38258    |  | -/-         |  |  | 79,167               |  |   | 213,489     |  |   | (292,656   | ) |   | -                    |  |   | -           |  |   | -          |   |   | -                    | 
|PEP 38260    |  | -/-         |  |  | 512,885              |  |   | 111,266     |  |   | (624,151   | ) |   | -                    |  |   | -           |  |   | -          |   |   | -                    | 
|PEP 38341    |  | 35.5/-      |  |  | 523,150              |  |   | 33,537      |  |   | (556,687   | ) |   | -                    |  |   | -           |  |   | -          |   |   | -                    | 
|PEP 38342    |  | 35.5/-      |  |  | 502,635              |  |   | 30,896      |  |   | -          |   |   | 533,531              |  |   | 16,674      |  |   | (550,205   | ) |   | -                    | 
|PEP 38732    |  | -/-         |  |  | 1,000                |  |   | 50,073      |  |   | (51,073    | ) |   | -                    |  |   | -           |  |   | -          |   |   | -                    | 

---

72

|PEP 38736     |  | -/-         |  |  | 29,843    |  |  | 11,113     |  |  | (40,956     | ) |  | -          |  |  | -         |  |  | -          |   |  | -          | 
|------------- |  | ----------- |  |  | --------- |  |  | ---------- |  |  | ----------- | - |  | ---------- |  |  | --------- |  |  | ---------- | - |  | ---------- | 
|PEP 38738-S   |  | 30.5-30.5   |  |  | -         |  |  | -          |  |  | -           |   |  | -          |  |  | -         |  |  | -          |   |  | -          | 
|PEP 38738-D   |  | 15.1-15.1   |  |  | -         |  |  | -          |  |  | -           |   |  | -          |  |  | -         |  |  | -          |   |  | -          | 
|PEP 38741     |  | 45/-        |  |  | 1,637,891 |  |  | 777,331    |  |  | -           |   |  | 2,415,222  |  |  | 194,919   |  |  | (2,610,141 | ) |  | -          | 
|PEP 38744     |  | -/-         |  |  | -         |  |  | 37,353     |  |  | (37,353     | ) |  | -          |  |  | -         |  |  | -          |   |  | -          | 
|PEP 38745     |  | 83.33/-     |  |  | 554,925   |  |  | 31,159     |  |  | (586,084    | ) |  | -          |  |  | -         |  |  | -          |   |  | -          | 
|PEP 38746     |  | 16.67/16.67 |  |  | 95,538    |  |  | 86,023     |  |  | -           |   |  | 181,561    |  |  | 5,479     |  |  | -          |   |  | 187,040    | 
|PEP 38748     |  | 33.33/33.33 |  |  | -         |  |  | 18,765     |  |  | -           |   |  | 18,765     |  |  | 6,074     |  |  | -          |   |  | 24,839     | 
|PEP 38751     |  | 33.33/-     |  |  | 563,522   |  |  | 7,307      |  |  | (570,829    | ) |  | -          |  |  | -         |  |  | -          |   |  | -          | 
|PEP 38757     |  | 100/-       |  |  | 2,466,661 |  |  | 66,436     |  |  | (2,533,097  | ) |  | -          |  |  | -         |  |  | -          |   |  | -          | 
|PEP 38758     |  | 100/100     |  |  | 983,650   |  |  | 2,303,203  |  |  | (3,286,853  | ) |  | -          |  |  | 189,559   |  |  | (189,559   | ) |  | -          | 
|PEP 38765     |  | 38.3/-      |  |  | 690,155   |  |  | 151,509    |  |  | (202,180    | ) |  | 639,484    |  |  | 14,801    |  |  | (654,285   | ) |  | -          | 
|PEP 38766     |  | -/-         |  |  | -         |  |  | 21,218     |  |  | (21,218     | ) |  | -          |  |  | -         |  |  | -          |   |  | -          | 
|PEP 38767     |  | -/-         |  |  | 83,234    |  |  | 38,019     |  |  | (121,253    | ) |  | -          |  |  | -         |  |  | -          |   |  | -          | 
|New interests |  | -/-         |  |  | -         |  |  | 136,046    |  |  | (136,046    | ) |  | -          |  |  | 439       |  |  | (439       | ) |  | -          | 
|              |  |             |  |  | 9,155,763 |  |  | 38,361,230 |  |  | (17,772,853 | ) |  | 29,744,140 |  |  | 1,719,407 |  |  | (9,253,913 | ) |  | 22,209,634 | 

|           |  |           |  |   | Net Book       |  |   | Additions  |  |   | Amortization |   |   | Net Book       |  |   | Additions  |  |   | Amortization |   |   | Net Book       | 
|---------- |  | --------- |  | - | -------------- |  | - | ---------- |  | - | ------------ | - | - | -------------- |  | - | ---------- |  | - | ------------ | - | - | -------------- | 
|           |  |           |  |   | Value at       |  |   | During the |  |   |              |   |   | Value at       |  |   | During the |  |   |              |   |   | Value at       | 
|           |  |           |  |   | March 31, 2006 |  |   | Year       |  |   |              |   |   | March 31, 2007 |  |   | Year       |  |   |              |   |   | March 31, 2008 | 
|Production |  |           |  |   |                |  |   |            |  |   |              |   |   |                |  |   |            |  |   |              |   |   |                | 
|equipment  |  | 30.5/30.5 |  |   | -              |  |   | 2,191,243  |  |   | -            |   |   | 2,191,243      |  |   | 5,012,087  |  |   | (59,314      | ) |   | 7,144,016      | 
|Office     |  |           |  |   |                |  |   |            |  |   |              |   |   |                |  |   |            |  |   |              |   |   |                | 
|equipment  |  | 100/100   |  |   | 30,836         |  |   | 97,875     |  |   | (49,104      | ) |   | 79,607         |  |   | 3,911      |  |   | (55,219      | ) |   | 28,299         | 
|           |  |           |  |   | 30,836         |  |   | 2,289,118  |  |   | (49,104      | ) |   | 2,270,850      |  |   | 5,015,998  |  |   | (114,533     | ) |   | 7,172,315      | 
|           |  |           |  |   |                |  |   |            |  |   |              |   |   |                |  |   |            |  |   |              |   |   |                | 
|Total      |  |           |  | $ | 9,186,599      |  | $ | 40,650,348 |  | $ | (17,821,957  | ) | $ | 32,014,990     |  | $ | 6,735,405  |  | $ | (9,368,446   | ) | $ | 29,381,949     | 

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 and mining 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.

Pursuant to an agreement dated September 6, 2007 the Company
sold its interest in PMP 38157 for NZ$266,000.

In October 2007, the Company signed a letter of intent (LOI)
with New Zealand based Genesis Energy to sell its 15.1% interest in PEP 38738-D
and PMP 38156-D containing the Cardiff deep gas prospect for a combination of
cash and a 1% royalty on any future production from both permits. The LOI is
conditional to a formal agreement being signed as well as consents required
under the joint venture operating agreement and Ministry of Economic Development
in New Zealand.

In December 2007, the Company signed an agreement with
Discovery Geo Corporation to sell its 35.5% interest in PEP 38342 for a
combination of cash and a 1.11% royalty on future production on the permit. The
agreement is conditional to receiving consent from the Ministry of Economic
Development in New Zealand.

During the year ended March 31, 2008, the Company reached an
out of court cash settlement with its joint venture partner in PEP 38260 where
the joint venture partner paid NZ$600,000 to the Company in exchange for the
cancellation of the Companys interest in PEP 38260.

During the year ended March 31, 2008, the Company recorded a
write-down of $6,561,682 associated with its oil and gas properties after the
Company completed an assessment that determined that the costs related to each
permit were unlikely to be recovered.

During the year ended March 31, 2008, the Company relinquished
its interests in PEP 38256, PEP 38341, PEP 38741, PEP 38745, PEP 38751, PEP
38757 and PEP 38765 and has sold its interests in PMP 38157, PEP 38342, PEP
38738-D, PMP 38156-D and PEP 38260 and has written-off the net costs associated
with each permit. The Company also elected to write-off all costs associated
with its interest in PEP 38758 after an assessment was completed that determined
that the costs related to the permit were unlikely to be recovered.

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
mining and exploration permits granted by the national government. The Company
is satisfied that evidence supporting the current validity of

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73

these permits is adequate and acceptable by prevailing industry
standards in respect to the current stage of development and exploration on
these properties.

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.

Refer to Note 10

NOTE 6  ASSET RETIREMENT OBLIGATIONS

The following is a continuity of asset retirement obligations
for the year ended March 31, 2008:

Balance at March 31, 2007
    $
    202,460Revision in estimated obligations
    
    299,535Accretion expense
    
    11,912Balance at March 31, 2008
    $
    513,907


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, 2008, the Company recorded an additional
liability of $299,535 resultant from a revision in estimated asset retirement
obligations during the year. The Company estimates the total undiscounted amount
of cash flows required to settle its asset retirement obligations to be
approximately $968,129 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.

NOTE 7 - 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, 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 and 2008     |  | 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 Notes 4 and 5                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|b) | 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.

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74

The following is a continuity of outstanding stock options:

|                          |  | Number of |  |  | Weighted Average  |  
|------------------------- |  | --------- |  |  | ----------------- | -
|                          |  | Options   |  |  | Exercise Price (1 | )
|                          |  |           |  |  |                   |  
|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              |  
|                          |  |           |  |  |                   |  
|Expired during the year   |  | 700,000   |  |  | 0.76              |  
|                          |  |           |  |  |                   |  
|Balance at March 31, 2008 |  | 1,260,000 |  |  | 0.77              |  

|(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.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following summarizes information about stock options that
are outstanding at March 31, 2008:

Number
    Price
    Weighted Average
    Expiry
    Optionsof Shares
    per
      Share
    Remaining Contractual Life
    Date
    Exercisable100,000
    US$0.65
    0.17
    May 31, 2008
    100,000400,000
    US$0.65
    1.75
    January 1, 2010
    400,00075,000
    US$0.65
    2.11
    May 10, 2010
    75,000150,000
    $1.30
    2.65
    November 22, 2010
    150,000325,000
    $0.70
    3.34
    August 2, 2011
    325,00060,000
    $0.52
    3.65
    November 22, 2011
    20,000150,000
    $0.57
    3.84
    February 1, 2012
    50,0001,260,000
    
    2.50
    
    1,120,000


During the 2008 fiscal year, the Company did not grant any
options.

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.

The Company applies the Black-Scholes option pricing model when
options are granted 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 that is amortized over the vesting period
of the options. During the 2008 fiscal year the Company recorded a total option
benefit of $80,283 (2007: $107,782).

NOTE 8 - 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 2009 under
various agreements relating to permits held at March 31, 2008 are as
follows:

Work Commitment or ObligationOil and Gas Property
      Working Interest %
      
      to March 31, 2009PMP 38156-S
      30.50
      
      
      
      $
      2,300,000PMP 38156-D
      15.10
      
      
      
      
      125,000PEP 38746
      16.67
      
      
      
      
      125,000Total
      
      
      
      
      $
      2,550,000


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75

NOTE 9 - INCOME TAXES

| |                                                                              |   | 2008       |   |   | 2007        |  
| | ---------------------------------------------------------------------------- | - | ---------- | - | - | ----------- | -
| |                                                                              |   |            |   |   |             |  
| | Net loss for the year                                                        | $ | (7,979,915 | ) | $ | (18,558,466 | )
| | Expected income recovery                                                     |   | (2,638,170 | ) |   | (6,130,199  | )
| | Net adjustment for amortization, deductible
      and non-deductible amounts |   | (166,774   | ) |   | (160,257    | )
| | Unrecognized benefit of current non-capital loss                             |   | 2,804,944  |   |   | 6,290,456   |  
| | 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:

| |                                                                          |   | 2008       |   |   | 2007       |  
| | ------------------------------------------------------------------------ | - | ---------- | - | - | ---------- | -
| | Future income tax assets:                                                |   |            |   |   |            |  
| | Net property and equipment carrying amounts in
      excess of tax pools | $ | (7,176,060 | ) | $ | (7,533,161 | )
| | Non-capital loss carryforwards                                           |   | 10,302,870 |   |   | 10,818,832 |  
| |                                                                          |   | 3,126,809  |   |   | 3,285,671  |  
| | Valuation allowance                                                      |   | (3,126,809 | ) |   | (3,285,671 | )
| |                                                                          |   | -          |   |   | -          |  
| | Purchase of Cheal                                                        |   | 5,329,492  |   |   | 5,329,492  |  
| | Reassessment of future income tax liability                              |   | (1,184,609 | ) |   |            |  
| | Net future tax liabilities                                               | $ | 4,144,883  |   | $ | 5,329,492  |  

During the 2007 fiscal year the Company recorded a future
income tax liability on its acquisition of Cheal due to an 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. During the 2008 fiscal year the excess
costs allocated to the cost of the property over tax pools was reassessed and
this notional future tax liability was reduced to $4,166,493. 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 4.

The Company has non-capital losses of approximately $6.26
million (2007 - $4.31 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 (2007 - $4.15 million) available to reduce taxable income in
future years.

At March 31, 2008, the Company also has losses and deductions
of approximately NZ$35.1 million (March 31, 2007 - NZ$29.6 million) available to
offset future taxable income earned in New Zealand. These tax losses are
available to be carried forward indefinitely as long as shareholder continuity
is maintained.

NOTE 10  SUBSEQUENT EVENTS

Legal claim

Subsequent to the year ended March 31, 2008, the Company and
Austral Pacific Energy Ltd. (Austral) resolved a dispute related to the
construction of the Cheal Production Station located on PMP 38156-S. The
agreement to resolve the dispute required Austral to issue 2,273,000 million
common shares to the Company valued at NZ$2,000,240 and to pay the Company
NZ$300,000. The issuance of Austral common shares also includes six-month
anti-dilution protection for the Company whereby the Company will be issued
additional Austral common shares should Austral issue any shares at a price less
than NZ$0.88 per share. Furthermore, in the event Cheal A7 is successfully
completed for production, the Company will receive an additional US$250,000
payable in equal installments over twelve months.

Property and Equipment

In May 2008, the Company signed a formal agreement with a
subsidiary of New Zealand based Genesis Energy Limited to sell its 15.1%
interest in PEP 38738-D and PMP 38156-D containing the Cardiff deep gas prospect
for a combination of cash and a 1% royalty on any future production from both
permits. The agreement is conditional to obtaining the consent of the Ministry
of Economic Development in New Zealand.

In April 2008, the Company received consent from the Ministry
of Economic Development in New Zealand approving the agreement with Discovery
Geo Corporation to sell the Companys 35.5% interest in PEP 38342 for a
combination of cash and a 1.11% royalty on future production on the permit.

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76

NOTE 11  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:

| | 2008                                        |   | Canada     |   |   | New Zealand |   |   | Total Company |  
| | ------------------------------------------- | - | ---------- | - | - | ----------- | - | - | ------------- | -
| |                                             |   |            |   |   |             |   |   |               |  
| | Production revenue                          | $ | -          |   | $ | 4,103,954   |   | $ | 4,103,954     |  
| | Royalty expenses                            |   | -          |   |   | (209,096    | ) |   | (209,096      | )
| |                                             |   |            |   |   | 3,894,858   |   |   | 3,894,858     |  
| | Expenses:                                   |   |            |   |   |             |   |   |               |  
| | General and administrative                  |   | 895,126    |   |   | 1,425,967   |   |   | 2,321,093     |  
| | Production costs                            |   | -          |   |   | 1,552,752   |   |   | 1,552,752     |  
| | Stock option compensation                   |   | 80,283     |   |   | -           |   |   | 80,283        |  
| | Insurance                                   |   | 50,533     |   |   | -           |   |   | 50,533        |  
| | Foreign exchange                            |   | 815,996    |   |   | 47,847      |   |   | 863,843       |  
| | Depletion,
      depreciation and accretion |   | 4,594      |   |   | 1,344,151   |   |   | 1,348,745     |  
| |                                             |   | (1,846,532 | ) |   | (4,370,717  | ) |   | (6,217,249    | )
| |                                             |   |            |   |   |             |   |   |               |  
| | Other items                                 |   |            |   |   |             |   |   |               |  
| | Interest income                             |   | 392,601    |   |   | 33,989      |   |   | 426,590       |  
| | Write-down of inventory                     |   | -          |   |   | (201,431    | ) |   | (201,431      | )
| | Write-off of oil and gas properties         |   | -          |   |   | (6,561,682  | ) |   | (6,561,682    | )
| | Legal settlement                            |   | -          |   |   | 470,561     |   |   | 470,561       |  
| | Sale of oil and
      gas property          |   | -          |   |   | 208,438     |   |   | 208,438       |  
| |                                             |   | 392,601    |   |   | (6,050,125  | ) |   | (5,657,524    | )
| |                                             |   |            |   |   |             |   |   |               |  
| | Net loss for the year                       | $ | (1,453,931 | ) | $ | (6,525,984  | ) | $ | (7,979,915    | )
| |                                             |   |            |   |   |             |   |   |               |  
| | Total assets                                |   | 6,125,992  |   |   | 32,362,022  |   |   | 38,488,014    |  
| | Capital expenditures for the year           |   | -          |   |   | 5,372,213   |   |   | 5,372,213     |  

NOTE 12 - 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:

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77

CONSOLIDATED BALANCE SHEETS

|a) | Foreign Currency Translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The functional currency of the Companys foreign
      operations is considered to be the Canadian dollar for the 2008 fiscal and
      accordingly the Companys current accounting for foreign exchange under
      Canadian GAAP is consistent with the applicable US GAAP in this
    area.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | In prior years the Company took the position that, for US
      GAAP purposes its foreign operations, while considered to be integrated
      for purposes of foreign currency translation under Canadian GAAP, utilized
      a different functional currency from that of the Canadian parent company.
      Accordingly, in previous fiscal years the current rate method of foreign
      currency translation was 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.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Translation adjustments resulting from previous years
      foreign currency translations under U.S. GAAP would have been recorded as
      a separate component of the stockholders equity section on the balance
      sheet.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

| |                                            |   | March 31,  |  |   | March 31,  |  
| | ------------------------------------------ | - | ---------- |  | - | ---------- | -
| |                                            |   | 2008       |  |   | 2007       |  
| | Property and Equipment under Canadian GAAP | $ | 29,381,949 |  | $ | 32,014,990 |  
| | Foreign currency translation adjustment    |   | -          |  |   | 2,731,456  |  
| | Cumulative historical adjustments          |   | 1,558,662  |  |   | (1,172,794 | )
| | Oil and gas properties under U.S. GAAP     | $ | 30,940,611 |  | $ | 33,573,632 |  

|   | As a result of the adjustments, total assets under U.S.
      GAAP as at March 31, 2008 and 2007 would be $40,046,676 and $48,232,032,
      respectively.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                           
|b) | Stockholders Equity                                                                                                                                      
|   |                                                                                                                                                           
|   | i)                                                                                                                                                        
|   |                                                                                                                                                           
|   |                                                                                                                                                           
|   |                                                                                                                                                           
|   |                                                                                                                                                           

| |                                   |   | March 31,  |  |   | March 31,  | 
| | --------------------------------- | - | ---------- |  | - | ---------- | 
| |                                   |   | 2008       |  |   | 2007       | 
| | Common stock under Canadian GAAP  | $ | 69,979,631 |  | $ | 69,979,631 | 
| | Cumulative historical adjustments |   | 3,042,858  |  |   | 3,042,858  | 
| | Common stock under U.S. GAAP      | $ | 73,022,489 |  | $ | 73,022,489 | 

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

| |                                                               |   | March 31, |  |   | March 31,  |  
| | ------------------------------------------------------------- | - | --------- |  | - | ---------- | -
| |                                                               |   | 2008      |  |   | 2007       |  
| | Foreign currency translation adjustment                       | $ | -         |  | $ | 2,731,456  |  
| | Cumulative historical adjustments                             |   | 1,558,662 |  |   | (1,172,794 | )
| | Foreign currency translation adjustment
      under U.S. GAAP | $ | 1,558,662 |  | $ | 1,558,662  |  

---

78

As a result of this adjustment, total
stockholders equity under U.S. GAAP as at March 31, 2008 and 2007 would be
$33,792,860 and $41,692,492, respectively.

---

79

ITEM 18.        FINANCIAL
STATEMENTS

Not applicable.

ITEM 19.        EXHIBITS

ExhibitReference
      Exhibition Description1.1
      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 2008 Share Option Plan (5)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
      Articles (Post Continuance) as approved by shareholders
          on September 22, 2006 (3)4.10
      Audit Committee Charter (2)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 dated
          September 1, 2007 (4)4.16
      Consulting Agreement between
          the Company and PRM dated July 1, 2008 (5)4.17
      Consulting Arrangement between
          the Company and Trans-Orient dated July 17, 2008 (5)4.18
      Directors
          Compensation and Indemnity Agreement between the Company and John Vaccaro
          dated June 11, 2008 (5)


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80

Exhibit Reference
      Exhibition Description4.19
      Indemnity Agreement between the
          Company and Garth Johnson dated February 26, 2007 (5)4.20
      Indemnity Agreement between the
          Company and Giuseppe (Pino) Perone dated July 20, 2007 (5)4.21
      Indemnity Agreement between the
          Company and Dan Brown dated July 20, 2007 (5)4.22
      Option Agreement between the
          Company and David McCall dated August 1, 2008 (5)4.23
      Option Agreement between the
          Company and Carlos Kazianis dated August 1, 2008 (5)8.0
      List of Wholly-Owned Subsidiaries
          of TAG Oil Ltd. (5)11.1
      Code of Ethics (2)12.1
      Certification
          of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
          Act of 2002 (5)12.2
      Certification
          of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
          Act of 2002 (5)13.1
      Certification
          of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
          Act of 2002 (5)13.2
      Certification
          of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
          Act of 2002 (5)


|(1) | Herein incorporated by reference as previously included
      in our Form 20-F dated March 31, 2000 filed on September 29,
  2000.
|--- | ----------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                   
|(2) | Herein incorporated by reference as previously included
      in our Form 20-F dated March 31, 2005 filed on September 28,
  2005.
|    |                                                                                                                                   
|(3) | Herein incorporated by reference as previously included
      in our Form 20-F dated March 31, 2006 filed on September 28,
  2006.
|    |                                                                                                                                   
|(4) | Herein incorporated by reference as previously included
      in our Form 20-F dated March 31, 2007 filed on September 28,
  2007.
|    |                                                                                                                                   
|(5) | Filed herewith.                                                                                                                   

SIGNATURES

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

|                         | **TAG OIL LTD.**
|------------------------ | ----------------
|                         |                 
|                         |                 
|Date: September 29, 2008 | By:             
|                         |                 
|                         | Name:           
|                         |                 
|                         | Title:          

---