> Corporate Information : Corporate Governance & Audits

On June 30, 2005 the Canadian Securities Administrators ("CSA") adopted rules regarding corporate governance best practices and amendments to the rules relating to audit committees, through the implementation of National Instrument 58-101 - Disclosure of Corporate Governance Practices ("NI 58-101"), National Policy 58-201 - Corporate Governance Guidelines ("NP 58-201") and amendments to Multilateral Instruments 52-110 - Audit Committees ("MI 52-110").

This statement of corporate governance practices sets out the Corporation's board of directors' review of the Corporation's governance practices relative to NI 58-101 and NP 58-201.

Board of Directors

The Corporation's board of directors (the "Board"), which is responsible for supervising the management of the business and affairs of the Corporation, is currently comprised of four (4) directors. Following the Meeting, it is anticipated that there will be four (4) directors, of which only one (1) will be independent, as such term is defined in NI 58-101 and MI 52-110. The independent director shall be Dallas O. Hawkins. Roger J. Penner, the President, Chief Executive Officer and Chief Financial Officer of the Corporation, and Sandra Towpich, the Vice-President and Corporate Secretary of the Corporation, are not independent by virtue of being a member of the Corporation's management. Thomas P. Fehr is not independent by virtue of being a director of a company which receives direct compensation for the accounting services it provides to the Corporation.

The Board has not adopted any formal terms of reference or mandate for the board of directors.

The Board has plenary power to manage and supervise the management of the business and affairs of the Corporation and to act in the best interest of the Corporation. The Board is responsible for the overall stewardship of the Corporation and, in discharging this responsibility, reviews, approves and provides guidelines in respect of the strategic planning of the Corporation and reviews the progress of strategic planning as it occurs. The Board approves all significant decisions that affect the Corporation before they are implemented. The Board also considers their implementation and reviews the results.

The Board operates by delegating certain of its authorities including spending authorizations, to management and by reserving certain powers to itself. Subject to statutory legal obligations and to the articles and bylaws of the Corporation, the Board retains the responsibility for managing its own affairs, including planning its composition in size, nominating candidates for election to the Board, appointing committees, determining director compensation and assessing the effectiveness of the Board, committees and directors in fulfilling their responsibilities.

The Board has the responsibility to participate with management, in the development of, and ultimately approve, the Corporation's strategic plan, to approve the entering into, or withholding from, lines of business that are, or are likely to be, material to the Corporation, approve material divestures and acquisitions and monitor the Corporation's progress toward its goals, and to advise and alter its directions for management in light of changing circumstances.

Other Board Positions

No director of the Corporation acts as a director for any other reporting issuers (or equivalent) in a jurisdiction or a foreign jurisdiction.

Director Orientation and Continuing Education

Given the current size of the Corporation and the Board, the Corporation provides only a limited orientation and education program for new directors. This process includes discussions with management and the Board, with respect to the business and operations of the Corporation. Additionally, each new Board member would be introduced to the Corporation's auditors, legal counsel and consulting staff. Each new Board member is also entitled to review all previous minutes of the Board and the shareholders.

Directors or a group of directors may also engage outside advisors, at the Corporations expense, to provide advice with respect to a decision or action of the Corporation upon providing notice thereof to the Corporation.

Ethical Business Conduct

Given the current size of the Corporation and the Board, the Corporation has not adopted any formal terms of reference, mandate or ethical code of conduct for the board of directors.

The Corporation has adopted a Whistleblower Policy for confidential reporting of any complaints or concerns regarding the accuracy and integrity of the Corporation's accounting, auditing and financial reporting.

Director Nominations

All members of the Board are encouraged to identify prospective additions to the Board. Any recommendations would be approved by the entire Board and elected annually by the shareholders of the Corporation.

Four (4) members are to be nominated for election to the Board. The Board must have a sufficient number of directors to carry out it its duties efficiently, presenting a diversity of views and experience. The Board reviews the contributions of the directors and considers whether the current size of the Board promotes effectiveness and efficiency, and currently believes that the appropriate size of the Board is four (4) members.

Compensation

Compensation for Executive Officers of the Corporation is reviewed annually by the entire Board. Recommendations in regards to compensation for directors and executive officers are made, based on industry surveys and statistical references, and the Board considers, and if thought appropriate, approves the recommendations.

The Board also administered the Old Stock Option Plan and will administer the New Stock Option Plan, if approved at the Meeting. The Board determines the number of options to be granted to each employee based on the level of responsibility and experience required for the position. The Board regularly reviews and where appropriate adjusts the number of options granted to individual employees. The Board sets the number of options as appropriate designed to attract and retain qualified and talented employees.

Director Assessment

The Board, acting as a whole, is responsible for proposing new nominees to the Board and for assessing the performance of directors on an ongoing basis. The Board has not appointed a nominating committee to assess the effectiveness of the Board as a whole, committees of the Board and the contribution of individual directors.

Board Committees

The audit committee of the Board of the Corporation (the "Audit Committee") currently consists of Roger J. Penner (Chairman), Thomas Fehr and Dallas O. Hawkins, only one of whom is independent and all of whom are financially literate, as such terms are defined in MI 52-110.

The primary function of the Audit Committee is to assist the Board in fulfilling its oversight responsibilities by reviewing the financial information that will be provided to the shareholders and others, assist with internal control that management and the Board have established and all audit processes.

The Terms of Reference of the Audit Committee are set forth in Schedule "B" (Adobe PDF format).

Relevant Education and Experience

Roger J. Penner has a B.Sc. from the University of Calgary and has worked at the executive level in the oil and natural gas sector since 1995, with Nu-Sky Energy Inc. (a public company listed on the TSX Venture Exchange Inc.) from 1995 to 2003, and with the Corporation since 2001.

Thomas Fehr has over forty (40) years of experience in the accounting field, thirty-five (35) of which have been in oil and gas natural related business. He currently works as a consultant providing accounting services to various clients.

Dallas O. Hawkins has a M.B.A. from Gonzaga University and has been an independent business owner and manager for twenty (20) years, working as a financial advisor and insurance broker for private companies in the United States.

Audit Committee Oversight

At no time since the commencement of the Corporation's most recently completed financial year was a recommendation of the Audit Committee to nominate or compensate an external auditor not adopted by the board of directors.

Reliance on Certain Exemptions

As an issuer listed on the Exchange the Corporation currently relies on the exemption set forth in Part 6.1 of MI 52-110.

At no time since the commencement of the Corporation's most recently completed financial year has the Corporation relied on the exemption in Section 2.4 of MI 52-110 (De Minimis Non-Audit Services), or an exemption from MI 52-110, in whole or in part, granted under Part 8 of MI 52-110.

Pre-Approval Policies and Procedures

The Committee has adopted specific policies and procedures for the engagement of non-audit services as described above under the heading "External Audit and Review".

External Auditor Service Fees (By Category)

The approximate aggregate fees paid by the Corporation to the external auditors of the Corporation in each of the last two financial years for audit fees are described below.