TriStar Oil & Gas Ltd. - Announces Fourth Quarter and Year-End Results



    CALGARY, March 11 /CNW/ - TriStar Oil & Gas Ltd. ("TriStar" or the
"Company") is pleased to announce its financial and operating results for the
three month period and years ended December 31, 2007 and 2006.
    In this report, all references to barrels of oil equivalent ("Boe") are
calculated converting natural gas to oil at a ratio of six thousand cubic feet
of natural gas to one barrel of oil.

    
    Highlights              Three    Three                      Year
                           Months   Months             Year    Ended
                            Ended    ended            Ended   Dec 31,
                           Dec 31,  Dec 31,    %     Dec 31,    2006     %
                             2007   2006(1) Change     2007   (1),(2) Change
    -------------------------------------------------------------------------
    ($ thousands except
    per share and Boepd
    amounts)

    -------------------------------------------------------------------------

    Financial (CDN$)
      Production revenue
       (prior to hedging)  85,419   18,846    353%  185,878   57,107    225%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

      Cash flow from
       operations(3)       43,503   10,725    306%   95,580   33,627    184%
        Per share basic      0.64     0.48     33%     2.27     1.78     27%
        Per share diluted    0.64     0.46     39%     2.27     1.72     32%
      Net income
       (loss)(4)          (11,414)   1,786     NMF  (16,911)   6,218     NMF
        Per share basic     (0.17)    0.08     NMF    (0.40)    0.33     NMF
        Per share diluted   (0.17)    0.08     NMF    (0.40)    0.32     NMF
      Total net debt(5)   223,398   63,247    253%  223,398   63,247    253%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

      Common shares (000's)
        Shares
         outstanding, end
         of period (basic) 68,462   22,248    208%   68,462   22,248    208%
        Weighted average
         shares (basic)    68,462   22,248    208%   42,193   18,893    123%
        Weighted average
         shares (fully
         diluted)          68,462   22,838    200%   43,098   19,606    120%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Operations
      Production
        Crude oil
         (Bbls per day)     9,347    2,779    236%    5,520    1,975    179%
        Natural gas
         (Mcf per day)     32,536    6,841    376%   18,010    5,117    252%
        Barrels of oil
         equivalent
         (Boepd, 6:1)      14,769    3,919    277%    8,521    2,828    201%
      Average realized
       price
        Crude oil
         ($ per Bbl)        78.14    56.20     39%    72.05    63.73     13%
        Natural gas
         ($ per Mcf)         6.06     7.12    (15%)    6.19     6.41     (3%)
        Barrels of oil
         equivalent
         ($ per Boe, 6:1)   62.76    52.27     20%    59.76    56.10      7%
      Netback per Boe
       (6:1) ($)
        Operating
         netback(3)         37.28    34.69      7%    36.36    37.64     (3%)
        Cash flow
         netback(3)         32.02    29.74      8%    30.74    33.04     (7%)
      Wells drilled
        Gross                  34       23               87       82
        Net                  22.2     14.9             60.7     47.2
        Success (%)            97       96               93       92
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    "NMF"  No Meaningful Figure
    (1)    Pursuant to the acquisition of Real Resources Inc., the number of
           outstanding shares of prior comparative periods has been adjusted
           by a factor of 0.4762 in order for the comparative outstanding
           share and per share amounts to be equivalent.
    (2)    TriStar commenced active operations on January 6, 2006.
    (3)    Management uses cash flow from operations (before changes in non-
           cash working capital), and operating and cash flow netback to
           analyze operating performance and leverage. Cash flow as
           presented, and operating and cash flow netback do not have any
           standardized meaning prescribed by Canadian GAAP and therefore may
           not be comparable with the calculation of similar measures for
           other entities.
    (4)    The net loss in the quarter and year ended December 31, 2007,
           primarily relates to the unrealized loss on the Company's
           financial derivative contracts of $33.3 million and $39.2 million
           recognized in those periods, respectively.
    (5)    Calculated as bank loan and current liabilities less current
           assets, excluding financial derivative contracts and related
           current future income taxes.


    President's Letter to Shareholders

    The Company's achievements in the fourth quarter and year ended 2007
include the following:
    -   Completed the Company's year-end independent reserves evaluation
        under the National Instrument 51-101 - Standard of Disclosure for Oil
        and Gas Activities ("NI 51-101") with an increase to 51.3 Mmboe
        proved plus probable reserves from 15.1 Mmboe at year-end 2006, a
        240 percent increase;

    -   Production averaged 14,769 Boepd in the fourth quarter of 2007, an
        increase of 277 percent over the fourth quarter of 2006 when
        production averaged 3,919 Boepd;

    -   Achieved seventh consecutive quarter of production growth as average
        production grew to 14,769 Boepd in the fourth quarter of 2007 from
        10,120 Boepd in the third quarter of 2007, representing a quarter
        over quarter increase of 46 percent;

    -   Production averaged 8,521 Boepd in 2007, a 201 percent increase over
        2006 when production averaged 2,828 Boepd;

    -   Cash flow totalled $43.5 million in the fourth quarter, an increase
        of 306 percent over the fourth quarter of 2006 when cash flow
        totalled $10.7 million;

    -   Cash flow per share was $0.64 per share in the fourth quarter, an
        increase of 39 percent over the fourth quarter of 2006 when cash flow
        per share was $0.46 per share;

    -   Cash flow totalled $95.6 in 2007, an increase of 184 percent over
        2006 when cash flow totalled $33.6 million;

    -   Cash flow per share was $2.27 per share in 2007, an increase of
        32 percent over 2006 when cash flow per share was $1.72 per share;

    -   Successfully drilled 34 (22.2 net) wells in the fourth quarter for a
        97 percent success rate;

    -   For 2007, the Company successfully drilled 87 (60.7 net) wells for an
        overall success rate of 93 percent;

    -   Demonstrated cost effective reserves growth (drilling and
        acquisitions):

        -  proved plus probable F&D excluding
           future development costs                              $ 13.81/Boe
        -  proved plus probable F&D including
           future development costs                              $ 18.79/Boe
        -  proved plus probable FD&A excluding
           future development costs                              $ 18.64/Boe
        -  proved plus probable FD&A including
           future development costs                              $ 21.88/Boe
        -  proved plus probable reserves replacement           1,363 percent
        -  proved plus probable F&D recycle ratio
           (2007 operating netback)                                2.6 times
        -  proved plus probable FD&A recycle ratio
           (2007 operating netback)                                2.0 times

    -   Subsequent to year-end, closed the acquisitions of Kinwest
        Corporation (January 8, 2008), Arista Energy Limited (January 18,
        2008) and Bulldog Resources Inc. (February 7, 2008) (together, the
        "2008 Acquisitions") adding 15.6 Mmboe of proven plus probable
        reserves bringing corporate reserves as at December 31, 2007 to
        66.8 Mmboe (pro forma the 2008 Acquisitions); and

    -   Subsequent to year-end, the Company is revising upwards its 2008
        capital expenditure program to $260 million from $220 million to
        reflect TriStar's Bakken land acquisitions of approximately
        $40 million in the first quarter of 2008. TriStar's Bakken land
        position now exceeds 195 (120 net) sections of land with over 718
        (444 net) identified drilling locations.
    

    Operational Review

    During the fourth quarter of 2007, TriStar drilled a total of 34
(22.2 net) wells resulting in 32 (20.2 net) oil wells, 1 (1.0 net) gas well,
and 1 (1.0 net) D&A well, for an overall success rate of 97 percent and
bringing the 2007 success rate to 93 percent.

    Bakken Activity
    ---------------
    Development and exploration activity for TriStar in the fourth quarter
was mainly focused in the Freestone-Kisbey-Handsworth area of southeast
Saskatchewan, where the light oil (40 degree API) Bakken play continues to
develop and expand. TriStar drilled 18 (9.8 net) Bakken horizontal wells
during the fourth quarter bringing the total 2007 activity in the Bakken up to
24 (12.6 net) wells drilled with a 100 percent success rate.
    TriStar substantially grew its Bakken position during 2007. In early
August, TriStar's Bakken production was under 30 Boepd. By the end of 2007
TriStar's Bakken production had increased to over 1,100 Boepd. As at year-end
2007, TriStar has booked 5.4 Mmboe of proven plus probable reserves, up from
0.3 Mmboe at year-end 2006. TriStar's current reserve booking represents a
recovery factor of approximately one percent of the total estimated Original
Oil In Place ("OOIP") of 480 Mmboe on the Company's land base. If a 10 percent
"primary" recovery factor is achieved, TriStar will recover approximately
43 million barrels of oil over and above the current reserve booking. TriStar
estimates that greater than a 10 percent recovery factor could be achieved
based on drilling four wells per section on its current land base.
    Continued industry improvements to the fracture technology applied to the
Bakken horizontal wells has resulted in an approximate two fold increase in
the initial oil production rates from 75 - 100 Boepd to 150 - 200 Boepd and a
decrease in the initial water cuts from 50 - 75 percent down to approximately
25 percent. TriStar believes that these improvements will ultimately lead to
higher recovery factors and reserves per well than are currently anticipated
in its booked reserves.

    Bakken Land Update
    ------------------
    Since the end of 2007, TriStar has been successful in continuing to grow
its Bakken land and opportunity base through the closing of the 2008
Acquisitions and through Saskatchewan crown land sales. TriStar's development
and exploration land base in this play now exceeds 195 (120 net) sections of
land, a 74 percent increase over the Company's year-end net land position.
TriStar has identified over 718 (444 net) Bakken drilling locations on its
land base.
    Based on the current forward prices, each average Bakken well adds
approximately $4.0 million of net present value (at 10 percent discount) to
TriStar and reaches payout in under nine months. With these attractive
economics, the Bakken play will continue to be a focus of TriStar's from a
capital allocation perspective.

    Conventional Southeast Saskatchewan
    -----------------------------------
    At Hastings (100% WI), on property acquired in the third quarter of 2007,
TriStar drilled its first three Frobisher development horizontal oil wells.
These wells produce high netback, light oil (40 degree API) at initial rates
between 75 and 250 Boepd. In 2008, TriStar plans to drill an additional six,
100 percent working interest development oil wells into this light, large oil
in place reservoir.
    At Wauchope (100% WI), a property acquired in the first quarter of 2007,
TriStar drilled its first two Alida development horizontal oil wells. These
wells are producing high netback, light oil (35 degree API) at initial rates
of up to 250 Boepd. In 2008, TriStar plans to drill up to four additional
development oil wells into this light oil reservoir.
    Additional drilling results in southeast Saskatchewan in the fourth
quarter included the drilling of 3 (0.9 net) new horizontal oil wells into
TriStar's Star Valley and Antler pools. These pools are high quality, light
oil accumulations with large OOIP. During 2008, TriStar plans to drill
approximately 84 (62.6 net) conventional oil wells into many of the Company's
high quality, light oil accumulations in southeast Saskatchewan including
42 (33.3 net) wells planned to be drilled into the Tilston age Fertile and
Hazelwood pools, both of which were acquired through the 2008 Acquisitions.

    Alberta
    -------
    In southern Alberta, TriStar was active in the fourth quarter drilling a
successful 5 (3.5 net) oil well program targeting light oil at Countess. These
wells represent the continued development of the original 24 new pool
discoveries that TriStar started with at its inception in early 2006. Since
that time, TriStar has achieved a 96 percent success rate in this area. The
Countess property is located on Freehold Lands where TriStar does not pay any
Lessor's Royalty and are therefore not subject to the New Alberta Royalty
Framework as described below.
    At the Ante Creek Montney Pool, in west central Alberta, production
commenced on the 2 (2.0 net) horizontal oil wells drilled in the first quarter
of 2007. These wells were fracture stimulated with similar multi-staged
fracturing techniques employed in TriStar's southeast Saskatchewan Bakken
program. Early results from the first fracture stimulated horizontal are
encouraging with initial production rates of over 200 Boepd (60 percent light
oil and natural gas liquids ("NGL"). TriStar followed this success by bringing
on the second of the two wells in late December with initial production rates
from this well in excess of 400 Boepd (60 percent light oil and NGL). TriStar
believes that its land position over the Montney play at Ante Creek contains
in excess of 100 million barrels of 39 degree API oil and 75 BCF of associated
gas in place with low recoveries to date. TriStar estimates that recovery
factors of 7.5 percent of the oil and 71 percent of the gas in place are
achievable. Activity in 2008 at Ante Creek will see the drilling and multi-
stage fracture stimulation of up to eight, 100 percent working interest
horizontal wells into this play.
    At Ante Creek North, TriStar has plans to actively pursue the drilling of
its Montney gas pool which the Company acquired in early 2007. TriStar
believes it has approximately eight sections of prospective land for Montney
gas, and has plans to employ the same multi-stage fracture stimulation
techniques used in TriStar's Ante Creek Montney oil pool and Bakken oil play
prior to the end of 2008.

    Outlook
    -------
    TriStar continues to add to its large drilling inventory. The Company now
has more than 1,700 gross development, step-out and exploratory locations on
its land base throughout western Canada. This large internal suite of
strategically focused drilling opportunities represents a greater than four
year drilling inventory on TriStar's land base. In addition to building an
internal inventory of prospects, TriStar continues to evaluate potential farm
out opportunities on its large undeveloped land base of more than 750,000 net
acres in order to maximize value.
    TriStar is revising upward its 2008 capital expenditure budget to
$260 million from $220 million to reflect TriStar's Bakken land acquisition of
approximately $40 million in the first quarter of 2008. Capital expenditures
in 2008 will include drilling 204 (142.4 net) wells, which represents
approximately 64 percent of the total $260 million budget (75 percent of the
budget excluding the recent land acquisition). Southeast Saskatchewan will be
allocated greater than 70 percent of TriStar's 2008 capital budget with the
remaining expenditures split between TriStar's three remaining core areas.
This high quality, low risk development drilling program will be focused over
90 percent to light oil prospects. TriStar will use approximately 10 to 15
percent of its capital budget to evaluate various exploration plays primarily
in the Company's core areas of West Central Alberta and Southeast
Saskatchewan.

    Regulatory Changes

    On October 25, 2007, the Alberta Government announced increases in the
royalty rates that are expected to result in an increase in TriStar's royalty
rates of less than three percentage points from TriStar's current corporate
royalty rates of approximately 20 percent of revenue, commencing on January 1,
2009 (the "New Alberta Royalty Framework"). The impact of the royalty increase
is estimated to decrease the net present value of TriStar's reserves by
approximately three percent when using a 10 percent discount rate and using
Sproule Associates Limited ("Sproule") forecast prices as at December 31,
2007. The New Alberta Royalty Framework will impact TriStar's future drilling
decisions to the extent it affects acceptable rates of return on the Company's
capital deployed. As the assets acquired in the 2008 Acquisitions are
primarily located in southeast Saskatchewan, they will not be impacted by the
New Alberta Royalty Framework.
    On October 30, 2007, the Finance Minister announced, as part of the 2007
Economic Statement, changes to the tax system including reduction of the
corporate income tax rate from 22.1 percent to 15 percent by 2012. The
reductions will be phased in between 2008 and 2012. Legislation enacting the
measures announced in the Economic Statement received Royal Assent on
December 14, 2007.

    2008 Acquisition Reserves Update

    TriStar's independent reserve evaluator, Sproule Associates Limited,
evaluated the reserves associated with the 2008 Acquisitions as at
December 31, 2007 in accordance with National Instrument 51-101 ("NI 51-101").
The reserves as set forth below do not include 0.5 Mmboe of proven plus
probable reserves associated with the private company acquisition which was
announced concurrently with the acquisition of Kinwest Corporation, but closed
prior to December 31, 2007 and was recorded in TriStar's year-end reserves.

    
                                                                  Before Tax
                                          Working      Total   Present Value
                                         Interest        Net      Discounted
    Reserve Category                        (MBoe)     (MBoe)  @ 10% ($MM)
    -------------------------------------------------------------------------
      Total Proved                          9,543      8,363             334
      Proved plus Probable                 15,583     13,641             480

    The acquisition reserves are weighted approximately 95% to light oil and
    5% to gas.
    

    Risk Management

    As a key component to management's strategy, TriStar maintains an ongoing
risk management program to reduce volatility of revenues in order to maintain
balance sheet strength, protect acquisition economics and fund capital
expenditures.
    Although management considers the risk management contracts that TriStar
enters into to be effective economic hedges, these contracts do not meet the
accounting definition requirement as an effective hedge. Therefore, gains and
losses on such contracts are shown as a separate category in the statement of
income.
    As the price of crude oil increased from US$80.24 per barrel at the end
of the third quarter of 2007 to US$95.98 per barrel at the end of the fourth
quarter, TriStar recorded an unrealized loss of $33.8 million in its fourth
quarter financial statements and had a year-end unrealized liability of
$39.0 million based on market values at year-end.
    The year-end mark-to-market liability values represent the market price
to buy-out the hedge contracts as of December 31, 2007. The mark-to-market
value at December 31, 2007 may be different from what will eventually be
realized.
    TriStar's management team continues to be disciplined in using what it
believes to be effective economic hedges when making acquisitions to protect
the economics of transactions despite the accounting impact.

    Management Addition

    TriStar is pleased to announce the appointment of Michael Wihak to the
position of Vice President, Operations. Mr. Wihak has more than 20 years of
experience in the Canadian oil and gas industry. Most recently, he was
President & CEO of a private junior oil and gas company. Prior to that, he was
the Chief Operating Officer of Ultima Energy Trust, a mid-sized energy trust
with operations in Alberta and Saskatchewan. Mr. Wihak is a professional
engineer who holds a Masters in Business Administration.

    Outlook; Guidance

    2007 was an exceptional year for TriStar. The Company has successfully
executed management's strategy of acquiring, exploiting and exploring to
achieve considerable per share growth in reserves, production and cash flow
while building an opportunity base that provides for growth in 2008 and
beyond.
    Today, as a result of implementing management's focused business
strategy, TriStar is well positioned to continue growing its reserves,
production and cash flow per share, and has the following key attributes (pro
forma the 2008 Acquisitions):

    
    -   High Quality Assets:          High netback (pro forma Q4 operating
                                      netback greater than $43.00) light
                                      oil and natural gas reserves and
                                      production focused in four operating
                                      areas

    -   Operatorship/High Working     More than 90 percent operated assets,
         Interest:                    and more than a 70 percent average
                                      working interest

    -   Long Life Reserves:           67 Mmboe proven plus probable; greater
                                      than 9 year RLI

    -   High Netback Production:      20,250 Boepd (2008 Estimated Average)
                                      21,750 Boepd (2008 Estimated Exit)

    -   Extensive Drilling Inventory: More than 1,700 locations identified
                                      (including more than 400 net Bakken
                                      locations)
                                      Greater than a four year drilling
                                      inventory
                                      Greater than 750,000 net acres of
                                      undeveloped land

    -   Strong Balance Sheet:         Debt to run rate cash flow ratio of
                                      just over one times

    -   Shares Outstanding:           110.1 mm (Basic)
                                      115.0 mm (Fully Diluted)
    



    On behalf of the Board of Directors,

    (signed)

    Brett Herman
    President and Chief Executive Officer

    March 11, 2008


    Forward-Looking Statements

    This President's Letter contains forward-looking statements. More
particularly, this President's Letter contains forward looking statements
concerning the potential recovery rates and volumes at the Company's Bakken
and Ante Creek properties, the anticipated impact on the Company of changes to
the Alberta royalty structure, anticipated capital expenditures, the Company's
anticipated 2008 estimated exit rate and annual average rate of production and
the Company's expected debt to cash flow ratio for 2008.
    The forward-looking statements contained in this President's Letter are
based on certain key expectations and assumptions made by the Company,
including expectations and assumptions concerning the application of
regulatory and royalty regimes, prevailing commodity prices and exchange
rates, availability and cost of labour and services, the timing of receipt of
regulatory approvals, the performance of existing wells, the success obtained
in drilling new wells, the performance of new wells and the sufficiency of
budgeted capital expenditures in carrying out planned activities.
    Although the Company believes that the expectations and assumptions on
which these forward-looking statements are based are reasonable, undue
reliance should not be placed on the forward-looking statements because the
Company can give no assurance that they will prove to be correct. Since
forward-looking statements address future events and conditions, by their very
nature they involve inherent risks and uncertainties. Actual results could
differ materially from those currently anticipated due to a number of factors
and risks.
    These include, but are not limited to, the risks associated with the oil
and gas industry in general (e.g., operational risks in development,
exploration and production; delays or changes in plans with respect to
exploration or development projects or capital expenditures; the uncertainty
of reserve estimates; the uncertainty of estimates and projections relating to
production, costs and expenses, and health, safety and environmental risks),
commodity price and exchange rate fluctuations and uncertainties resulting
from potential delays or changes in plans with respect to exploration or
development projects or capital expenditures. These risks are set out in more
detail in the Company's Annual Information Form which will be filed on SEDAR
and can be accessed at www.sedar.com.
    The forward-looking statements contained in this press release are made
as of the date hereof and the Company undertakes no obligation to update
publicly or revise any forward-looking statements or information, whether as a
result of new information, future events or otherwise, unless so required by
applicable securities laws.



    Management's Discussion and Analysis

    Management's Discussion and Analysis ("MD&A") is dated March 11, 2008.
The MD&A should be read in conjunction with TriStar Oil & Gas Ltd.'s
("TriStar" or the "Company") audited consolidated financial statements as at
and for the year ended December 31, 2007. The reader should be aware that
historical results are not necessarily indicative of future performance.
Additional information relating to TriStar can be found at www.sedar.com.
    TriStar commenced commercial operations on January 6, 2006 after the
completion of a plan of arrangement pursuant to which TriStar acquired certain
oil and gas properties from StarPoint Energy Trust and Acclaim Energy Trust.

    Non-GAAP Measurements

    Management's Discussion and Analysis contains the terms "cash flow from
operations" and "operating netback" which are not Canadian GAAP standards and
therefore may not be comparable to performance measures presented by others.
Cash flow from operations represents cash flow from operating activities prior
to changes in non-cash working capital. Operating netback represents revenue
less royalties, realized hedging gains and losses, operating expenses and
transportation expenses. Management believes that in addition to net income,
cash flow from operations and operating netback are useful supplemental
measures as they provide an indication of TriStar's operating performance,
leverage and liquidity. Investors should be cautioned, however, that these
measures should not be construed as an alternative to net income determined in
accordance with GAAP as an indication of TriStar's performance.
    The reconciliation between cash flow from operations, as defined above,
and cash flow from operations after changes in working capital is as follows:

    
                                Three        Three
                               Months       Months         Year         Year
                                ended        ended        ended        ended
                               Dec 31,      Dec 31,      Dec 31,      Dec 31,
    ($ thousands)                2007         2006         2007         2006
    -------------------------------------------------------------------------
    Cash flow from operations
     (as defined above)        43,503       10,725       95,580       33,627
    Changes in non-cash
     working capital           (3,496)       1,901      (10,072)       2,827
    -------------------------------------------------------------------------
    Cash flow from operations
     after changes in
     working capital           40,007       12,626       85,508       36,454
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    TriStar's reporting and measurement currency is the Canadian dollar.
Amounts in this MD&A are in Canadian dollars unless otherwise stated.
    Where amounts are expressed on a barrel of oil equivalent ("Boe") basis,
natural gas volumes have been converted to Boe using a ratio of 6,000 cubic
feet of natural gas to one barrel of oil equivalent. This conversion ratio is
based upon an energy equivalent conversion method primarily applicable at the
burner tip and does not represent value equivalence at the wellhead. Boe
figures may be misleading, particularly if used in isolation.

    Forward-Looking Statements

    This MD&A contains forward-looking statements. More particularly, this
MD&A contains statements concerning the anticipated impact on the Company of
changes to the Alberta royalty structure, the anticipated continuation of
volume constraints in the Enbridge Pipelines (Saskatchewan) gathering system
and the anticipated means of financing the Company's capital budget and
acquisitions in 2008.
    The forward-looking statements are based on certain key expectations and
assumptions made by the Company, including expectations and assumptions
concerning the application of regulatory and royalty regimes, the reasons for
and the anticipated timing of the amelioration of volume constraints in the
Enbridge Pipelines (Saskatchewan) gathering system and expected cash and
capital expenditures.
    Although the Company believes that the expectations and assumptions on
which the forward-looking statements are based are reasonable, undue reliance
should not be placed on the forward-looking statements because the Company can
give no assurance that they will prove to be correct.
    Since forward-looking statements address future events and conditions, by
their very nature they involve inherent risks and uncertainties. Actual
results could differ materially from those currently anticipated due to a
number of factors and risks. These include, but are not limited to, risks
associated with the oil and gas industry in general (e.g., operational risks
in development, exploration and production; delays or changes in plans with
respect to exploration or development projects or capital expenditures; the
uncertainty of reserve estimates; the uncertainty of estimates and projections
relating to production, costs and expenses, and health, safety and
environmental risks), commodity price and exchange rate fluctuations,
unforeseen factors affecting the volume constraints in the Enbridge Pipelines
(Saskatchewan) gathering system and uncertainties resulting from potential
delays or changes in plans with respect to exploration or development projects
or capital expenditures. Certain of these risks are set out in more detail in
this MD&A and in the Company's Annual Information Form which will be filed on
SEDAR and can be accessed at www.sedar.com.
    The forward-looking statements contained in this MD&A are made as of the
date hereof and the Company undertakes no obligation to update publicly or
revise any forward-looking statements or information, whether as a result of
new information, future events or otherwise, unless so required by applicable
securities laws.

    Significant Transactions

    Divestiture of Non-Core Assets

    On October 31, 2007 and November 1, 2007, TriStar closed two divestitures
of certain non-core assets for aggregate proceeds of $39.5 million, before
transaction-related adjustments.

    Plan of Arrangement with Real Resources Inc.

    On August 2, 2007, the shareholders of TriStar and Real Resources Inc.
("Real") approved a plan of arrangement to form an intermediate oil and gas
exploration and development company (hereinafter the "Arrangement"). Under the
terms of the Arrangement, each TriStar shareholder received 0.4762 shares of
the combined entities for each share of TriStar held and each Real shareholder
received one share of the combined entities for each share of Real held. At
the closing date, TriStar shareholders owned approximately 42 percent of the
combined entities and Real shareholders owned approximately 58 percent of the
combined entities. The transaction closed on August 16, 2007. The combined
entities continued under the name TriStar.
    At the close of the Arrangement, senior management of the combined entity
were the previous officers of TriStar, and the board of directors was
comprised of seven of TriStar's previous directors and three of Real's
previous directors. Accordingly, the transaction has been accounted for as a
reverse takeover whereby TriStar is deemed to be the acquirer of Real, using
the purchase method of accounting with an effective date of August 16, 2007.
    This transaction also resulted in the number of outstanding shares of
prior comparative periods being reduced by being multiplied by 0.4762, in
order for these share and per share amounts to be equivalent.

    Other Corporate Acquisitions

    In January 2007, TriStar completed the acquisition of a privately held
company with petroleum and natural gas assets in southeast Saskatchewan.
TriStar acquired all of the issued and outstanding common shares of this
private company for total consideration of 2.5 million common shares of
TriStar ("Common Shares") and the assumption of approximately $0.6 million in
debt.
    During March 2007, TriStar completed two acquisitions of certain assets
in its core areas of Ante Creek and Countess, Alberta and in southeast
Saskatchewan for total cash consideration of approximately $55.9 million, net
of certain closing adjustments.
    In conjunction with the March 2007 acquisitions, the Company issued, on a
private placement basis, 4.1 million Common Shares (8.6 million shares before
the consolidation of shares related to the Real acquisition) for gross
aggregate proceeds of approximately $40.4 million, and 0.8 million flow-
through Common Shares (1.7 million shares before the effect of the Real
acquisition) for gross aggregate proceeds of approximately $10.2 million.

    Subsequent Acquisitions

    On January 8, 2008, TriStar closed the acquisition of Kinwest Corporation
and issued 8.0 million Common Shares to the shareholders of Kinwest
Corporation.
    On January 18, 2008, TriStar closed the acquisition of Arista Energy
Limited ("Arista") by way of a plan of arrangement under the Business
Corporations Act (Alberta) for cash consideration of approximately
$212.0 million, including the assumption of Arista's net debt and before
transaction costs. Concurrent with this arrangement, 16.9 million Common
Shares were issued by way of a bought deal private placement for gross
proceeds of $205.0 million.
    On February 7, 2008, TriStar closed the acquisition of Bulldog Resources
Inc. ("Bulldog") by way of plan of arrangement under the Business Corporations
Act (Alberta). Under the terms of the arrangement, TriStar issued 16.8 million
Common Shares to the shareholders of Bulldog.

    Results of Operations

    
    Production

                                Three        Three
                               Months       Months         Year         Year
                                ended        ended        ended        ended
                               Dec 31,      Dec 31,      Dec 31,      Dec 31,
                                 2007         2006         2007         2006
    -------------------------------------------------------------------------

    Daily Production
    Crude oil and natural gas
     liquids (Bbls per day)     9,347        2,779        5,520        1,975
    Natural gas (Mcf per day)  32,536        6,841       18,010        5,117
    -------------------------------------------------------------------------

    Total (Boepd)              14,769        3,919        8,521        2,828
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    For the three months ended December 31, 2007, TriStar averaged
14,769 Boepd as compared to 3,919 Boepd in the fourth quarter of 2006, a
277 percent increase. Production was comprised of approximately 9,347 Bbls per
day of crude oil and natural gas liquids ("NGL") and 32,536 Mcf per day of
natural gas.
    For the year ended December 31, 2007, TriStar averaged 8,521 Boepd as
compared to 2,828 Boepd in the corresponding period of 2006, a 201 percent
increase. Production was comprised of approximately 5,520 Bbls per day of
crude oil and NGL and 18,010 Mcf per day of natural gas.
    Production from corporate and asset acquisitions is only included from
the date of closing. Similarly, production from the divestiture of non-core
assets is included only until the date of close of these transactions.

    
    Production for the quarter was divided between the following areas:

                                                          Three        Three
                                                         Months       Months
                                                          ended        ended
                                                         Dec 31,      Dec 31,
                                                           2007         2006
    -------------------------------------------------------------------------
                            Crude Oil
                              and NGL  Natural Gas        Total        Total
    Area                 Bbls per day  Mcf per day        Boepd        Boepd
    -------------------------------------------------------------------------

    Alberta                     4,826       31,296       10,041        2,597
    Saskatchewan                4,521        1,240        4,728        1,322
    -------------------------------------------------------------------------

    Total                       9,347       32,536       14,769        3,919
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    During the quarter, the Company drilled 34 (22.2 net) wells, achieving a
97 percent success rate.
    For 2007, TriStar drilled 87 (60.7 net) wells with an overall success
rate of 93 percent.

    Pricing

    Crude oil prices continued to rise in the fourth quarter as compared to
the first three quarters of 2007 as WTI reached a high of US$98.18 per Bbl
during the quarter. Tight supply/demand fundamentals continue to drive the
world crude markets as WTI averaged US$90.66 in the fourth quarter after
averaging US$58.25 per Bbl in the first quarter of 2007, US$64.94 per Bbl in
the second quarter of 2007 and US$70.57 per Bbl in the third quarter of 2007.
WTI averaged US$72.27 per Bbl in 2007 relative to US$66.09 per Bbl in 2006, a
9 percent increase. Although WTI achieved record highs in 2007, the
strengthening of the Canadian dollar as compared to the US dollar in 2007
relative to 2006 mitigated the benefits in Canadian dollar terms. The Canadian
dollar averaged $0.93 per US dollar in 2007 relative to $0.88 per US dollar in
2006. Edmonton mixed sweet averaged $87.29 in the fourth quarter, as compared
to $80.27 per Bbl in the third quarter, $73.75 per Bbl in the second quarter
and $67.86 per Bbl in the first quarter. Edmonton mixed sweet averaged $77.78
in 2007 relative to $73.77 in 2006, a 5 percent increase.
    Natural gas prices averaged $6.13 per Mcf for AECO daily spot and
US$6.96 per Mmbtu for NYMEX daily gas in the fourth quarter. In 2007, natural
gas prices averaged $6.45 per Mcf for AECO daily spot, compared to $6.62 per
Mcf in 2006. In 2007, NYMEX daily gas averaged US$6.96 per Mmbtu compared to
US$6.73 per Mmbtu in 2006. Fluctuating supply/demand forecasts continue to
cause significant price volatility in natural gas.
    TriStar's average realized price for its crude oil and NGL was $78.14 per
Bbl in the fourth quarter while its realized natural gas price was $6.06 per
Mcf. For 2007, TriStar's average realized price for its crude oil and NGL was
$72.05 per Bbl while its realized natural gas price was $6.19 per Mcf.

    
                                Three        Three
                               Months       Months         Year         Year
                                ended        ended        ended        ended
                               Dec 31,      Dec 31,      Dec 31,      Dec 31,
                                 2007         2006         2007         2006
    -------------------------------------------------------------------------
    Average Benchmark Prices
    Crude oil - WTI
     (US$ per Bbl)              90.66        59.96        72.27        66.09
    Crude oil - Edmonton Par
     Price ($ per Bbl)          87.29        65.25        77.78        73.77
    Natural gas - AECO-C
     Daily Spot ($ per Mcf)      6.13         6.03         6.45         6.62
    Exchange rate - (US$/CDN$)   1.02         0.87         0.93         0.88
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Revenues

    For the three months ended December 31, 2007, TriStar recorded
$67.5 million in crude oil and NGL sales and $17.9 million in natural gas
sales, a 370 percent and 300 percent increase, respectively, over the fourth
quarter of 2006 when TriStar recorded $14.4 million of crude oil and NGL sales
and $4.5 million of natural gas sales.
    For the year ended December 31, 2007, TriStar recorded $145.2 million in
crude oil and NGL sales and $40.7 million in natural gas sales, a 220 percent
and 245 percent increase, respectively, over the year ended December 31, 2006
when TriStar recorded $45.3 million of crude oil and NGL sales and
$11.8 million of natural gas sales.
    The Company realized the following commodity prices for the three months
and years ended December 31, 2007 and December 31, 2006.

    
                                Three        Three
                               Months       Months         Year         Year
                                ended        ended        ended        ended
                               Dec 31,      Dec 31,      Dec 31,      Dec 31,
                                 2007         2006         2007         2006
    -------------------------------------------------------------------------
    TriStar Average Realized
     Prices Prior to Hedging
    Crude oil and NGL
     - ($ per Bbl)              78.14        56.20        72.05        63.73
    Natural gas - ($ per Mcf)    6.06         7.12         6.19         6.41
    Boe - ($ per Boe)           62.76        52.27        59.76        56.10
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                                Three        Three
                               Months       Months         Year         Year
                                ended        ended        ended        ended
                               Dec 31,      Dec 31,      Dec 31,      Dec 31,
    ($ thousands)                2007         2006         2007         2006
    -------------------------------------------------------------------------

    Revenues by Product
    Crude oil and NGL          67,506       14,367      145,171       45,305
    Realized hedging
     gains (losses)            (2,367)         297       (1,199)         335
    Natural gas                17,913        4,479       40,707       11,802
    Realized hedging gains        385          179        1,090          273
    -------------------------------------------------------------------------

    Total revenues             83,437       19,322      185,769       57,715
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Royalty Expenses

    Royalties in the quarter ended December 31, 2007 were $17.1 million or
20.0 percent of revenue as compared to $3.0 million or 15.9 percent in the
fourth quarter of 2006. Royalties in the year ended December 31, 2007 were
$36.5 million or 19.6 percent of revenue as compared to $9.1 million or
16.0 percent in the year ended December 31, 2006. Royalties are calculated and
paid based on oil and natural gas revenues before any realized hedging gains
or losses. Accordingly, royalty expense is directly correlated to changes in
revenue (prior to the effect of hedging). The difference in the percentage
royalty for periods between 2007 and 2006 is due to a greater proportion of
higher rate royalty properties in 2007, as well as a smaller proportion of
wells subject to the benefits of royalty holidays.
    On October 25, 2007 the Alberta provincial government announced its
response to the Alberta Royalty Review Panel's recommendations which were
announced on September 18, 2007. The government announced that numerous
changes will be made to the current royalty structure effective January 1,
2009. Although all details were not released, TriStar expects that the revised
royalty program will generally have a negative impact on Alberta conventional
oil and gas production. TriStar does have significant production in the
province of Saskatchewan and production in Alberta that is not subject to
crown royalties, mitigating the effect on TriStar's corporate royalties. Based
on preliminary calculations, the expected effect on corporate royalties in
2009 would be an increase of less than three percentage points to TriStar's
current corporate royalty rates of approximately 20 percent.

    Operating Expenses

    Operating expenses were $14.4 million or $10.59 per Boe in the quarter
ended December 31, 2007 as compared to $3.7 million or $10.30 per Boe in the
fourth quarter of 2006. Operating expenses were $33.2 million or $10.68 per
Boe in the year ended December 31, 2007 as compared to $10.0 million or
$9.83 per Boe in the year ended December 31, 2006. Growing production volumes
in southeast Saskatchewan have strained the area's major oil gathering system,
Enbridge Pipelines (Saskatchewan). This has resulted in increased oil emulsion
trucking costs in the quarter. It is expected that this will continue into the
first half of 2008 and intermittently thereafter.

    Transportation Expenses

    Transportation expenses were $1.4 million or $1.00 per Boe in the quarter
ended December 31, 2007 as compared to $0.3 million or $0.30 per Boe in the
fourth quarter of 2006. Transportation expenses were $3.0 million or $0.96
per Boe in the year ended December 31, 2007 as compared to $0.30 million or
$0.28 per Boe in the year ended December 31, 2006. Transportation expenses are
reflective of the location of TriStar's properties, transportation rates and
the location where the product is sold. It is expected that the Enbridge
Pipelines (Saskatchewan) issues described above will affect clean oil
transportation costs in the first half of 2008 and intermittently thereafter.

    Operating Netbacks

    Operating netbacks were $37.28 per Boe for the quarter ended December 31,
2007 as compared to $34.69 per Boe for the quarter ended December 31, 2006 and
$36.36 per Boe for the year ended December 31, 2007 as compared to $37.64 per
Boe for the year ended December 31, 2006.

    Netbacks

    
                                Three        Three
                               Months       Months         Year         Year
                                ended        ended        ended        ended
    ($ per Boe, unless         Dec 31,      Dec 31,      Dec 31,      Dec 31,
     otherwise noted)            2007         2006         2007         2006
    -------------------------------------------------------------------------

    Total production (Boepd)   14,769        3,919        8,521        2,828
    -------------------------------------------------------------------------

    Crude oil and natural
     gas liquids ($/Bbl)        78.14        56.20        72.05        63.73
    Realized hedging
     gains/(losses) ($/Bbl)     (2.74)        1.16        (0.59)        0.47
    -------------------------------------------------------------------------

    Natural gas ($/Mcf)          6.06         7.12         6.19         6.41
    Realized hedging
     gains ($/Mcf)               0.13         0.28         0.17         0.15
    -------------------------------------------------------------------------

    Average Price Prior
     to Hedging                 62.87        52.27        59.76        56.10
    -------------------------------------------------------------------------

    Realized gain/(loss) on
     financial instruments      (1.45)        1.32        (0.03)        0.60
    Royalties, net             (12.55)       (8.30)      (11.73)       (8.95)
    Operating                  (10.59)      (10.30)      (10.68)       (9.83)
    Transportation              (1.00)       (0.30)       (0.96)       (0.28)
    -------------------------------------------------------------------------

    Operating Netback           37.28        34.69        36.36        37.64
    Operating Netback
     (prior to hedging)         38.73        33.37        36.66        37.04
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    General and Administrative Expenses

    During the fourth quarter of 2007, general and administrative ("G&A")
expenses, net of recoveries and capitalized amounts, were $2.9 million
($2.15 per Boe) as compared to the quarter ended December 31, 2006 where G&A
expenses were $0.8 million or $2.19 per Boe. G&A expenses, net of recoveries
and capitalized amounts, for the year ended December 31, 2007 were
$7.1 million ($2.29 per Boe) as compared to $2.4 million or $2.37 per Boe for
the year ended December 31, 2006. The absolute increase in G&A expenses
relative to previous periods reflects the greater size of TriStar, primarily
as a result of the acquisition of Real.

    
                                Three        Three
                               Months       Months         Year         Year
                                ended        ended        ended        ended
                               Dec 31,      Dec 31,      Dec 31,      Dec 31,
    ($ thousands)                2007         2006         2007         2006
    -------------------------------------------------------------------------

    General and administrative
     expenses                   6,454        2,266       14,854        6,101
    Recoveries                 (1,366)        (746)      (2,806)      (1,671)
    Capitalized general and
     administrative expenses   (2,161)        (731)      (4,911)      (2,020)
    -------------------------------------------------------------------------

    Total net general and
     administrative expenses    2,927          789        7,137        2,410
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Interest Expense

    Interest expense was $3.2 million or $2.33 per Boe in the quarter as
compared to $0.7 million or $1.82 per Boe in the quarter ended December 31,
2006. Interest expense was $7.6 million or $2.44 per Boe in the year ended
December 31, 2007 as compared to $1.7 million or $1.66 per Boe in the year
ended December 31, 2006. Interest costs increased primarily as a result of an
increased level of bank debt held by the Company in the quarter as well as
increased interest rates.
    The Company's effective interest rate for the years ended December 31,
2007 and 2006 was 5.7 percent and 4.8 percent, respectively.

    Stock-Based Compensation Expenses

    The Company's stock-based compensation expense for the quarter ended
December 31, 2007 was $1.0 million or $0.75 per Boe as compared to the quarter
ended December 31, 2006 of $0.4 million or $1.05 per Boe. The Company's stock-
based compensation expense for the year ended December 31, 2007 was
$2.5 million or $0.81 per Boe as compared to the year ended December 31, 2006
of $0.9 million or $0.93 per Boe. The stock-based compensation expense was
calculated utilizing a fair value assessment methodology. These amounts are
net of amounts capitalized to property and equipment when they are related to
drilling, production and acquisitions, which amount to $0.7 million for the
quarter ended December 31, 2007 or $0.52 per Boe (2006 - $0.3 million or
$0.70 per Boe) and to $2.5 million for the year ended December 31, 2007 or
$0.80 per Boe (2006 - $0.7 million or $0.66 per Boe).

    Acquisition Related Expenses

    In the fourth quarter of 2007, as a result of the acquisition of Real,
TriStar incurred $0.2 million or $0.17 per Boe of merger-specific cash
employment expenses. In 2007, these cash costs totaled $1.0 million or
$0.33 per Boe. In addition, the transaction resulted in the termination of
TriStar's previous stock-based compensation arrangements, which resulted in
the immediate recognition of a $1.1 million or $0.36 per Boe non-cash expense
under stock-based compensation accounting rules, which was recognized prior to
the fourth quarter of 2007.

    Depletion, Depreciation and Accretion Expenses

    Depletion of oil and natural gas properties, including the capitalized
portion of the asset retirement obligations, is provided for on a unit-of-
production basis using estimated proven reserves volumes.
    Depletion, depreciation and accretion expense in the quarter ended
December 31, 2007 was $38.7 million or $28.48 per Boe as compared to the
quarter ended December 31, 2006 which was $10.6 million or $29.35 per Boe.
Depletion, depreciation and accretion expense in the year ended December 31,
2007 was $90.3 million or $29.02 per Boe as compared to the year ended
December 31, 2006 which was $29.4 million or $28.89 per Boe.

    Taxes

    For the quarter ended December 31, 2007, TriStar recorded a capital tax
expense of $0.8 million, and a future income tax reduction of $18.1 million as
compared to the quarter ended December 31, 2006 when the Company recorded
$0.3 million of capital tax expense and a future income tax reduction of
$2.0 million. For the year ended December 31, 2007, TriStar recorded a capital
tax expense of $1.8 million, and a future income tax reduction of
$20.6 million as compared to the year ended December 31, 2006 when the Company
recorded $0.6 million of capital tax expense and a future income tax reduction
of $2.9 million. The capital tax expense is comprised of the Saskatchewan
Capital Tax and Resource Surcharge.
    The income tax reduction in the year and quarter ended December 31, 2007
is due to changes in federal income tax rates enacted in the fourth quarter of
2007 which include the reduction of the corporate income tax rate from
22.1 percent to 15 percent between 2008 and 2012.
    As at December 31, 2007, TriStar had approximately $469.3 million of tax
pools available to offset future taxable income.

    Net Income (Loss) and Comprehensive Income

    Net loss for the quarter ended December 31, 2007 was $11.4 million
compared to net income of $1.8 million during the same period in 2006. Net
loss for the year ended December 31, 2007 was $16.9 million compared to net
income of $6.2 million during the same period in 2006. The net loss in the
quarter and the year primarily relates to the unrealized loss of $33.8 million
on the Company's financial derivative contracts recognized in the quarter and
$39.2 million in 2007 despite a significant recovery of taxes recorded in
those periods compared to the same periods in 2006.
    Basic and diluted net loss per share for the quarter ended December 31,
2007 were $0.17 per share. This is compared to net income of $0.04 per share
basic and diluted for the same period in 2006. Basic and diluted net loss per
share for the year ended December 31, 2007 was $0.40. This is compared to net
income of $0.16 and $0.15 per share basic and diluted, respectively, for the
same period in 2006.
    Other comprehensive income for the quarter ended December 31, 2007
included a charge of $0.4 million, net of tax, (2006 - $nil) relating to the
amortization of the amount recognized in accumulated other comprehensive
income on January 1, 2007 for the fair value of financial derivatives on
adoption of new accounting standards for financial instruments at that date.
This resulted in a total comprehensive loss of $11.8 million for the quarter
ended December 31, 2007 (2006 - $nil), and a total comprehensive loss of
$18.8 million for the year ended December 31, 2007 (2006 - $nil).

    Risk Management - Financial Instruments

    TriStar enters into commodity price derivative contracts that provide
downside price protection in order to protect acquisition economics and
provide some stability of cash flows for capital spending planning purposes.
Commodity prices fluctuate due to political events, meteorological conditions,
disruptions in supply and changes in demand. The Company's risk management
activities are conducted pursuant to the Company's risk management policies
approved by the Board of Directors.
    At December 31, 2007, the fair value of the financial derivative
contracts was a liability of $38.9 million. The fair values represent the
market price to buy-out TriStar's contracts at December 31, 2007 and may be
different from what will eventually be realized.
    During 2007, WTI increased to average US$90.66 per Bbl in the fourth
quarter from US$70.57 per Bbl in the third quarter. Although this increase had
an overall positive impact on TriStar's revenue, this has resulted in a loss
recorded on TriStar's derivative contracts. For the quarter ended December 31,
2007, the Company had a net unrealized loss on its financial derivative
contracts of $33.8 million before taxes, in addition to the after-tax
amortized gain of $0.4 million (pre-tax: $0.5 million) from the adoption of
new GAAP standards on January 1, 2007, for a net pre-tax unrealized loss on
financial instruments of $33.3 million.
    The following tables summarizes TriStar's commodity risk management
positions as at December 31, 2007:

    
    Oil Costless Collar Contracts
    -----------------------------

                                       Volume           Price
                                       (Bbl/d)       ($US/Bbl)         Index
    -------------------------------------------------------------------------
    Jan. 1, 2007 - Dec. 31, 2008          250    60.00 - 75.00           WTI
    Jan. 1, 2008 - Dec. 31, 2009          500    65.00 - 76.30           WTI
    Jan. 1, 2008 - Dec. 31, 2009          500    65.00 - 76.15           WTI
    Jan. 1, 2008 - Dec. 31, 2009          500    67.00 - 76.70           WTI
    Jan. 1, 2008 - Dec. 31, 2009          500    70.00 - 75.52           WTI
    Jan. 1, 2008 - Dec. 31, 2009          500    65.00 - 73.25           WTI
    Jan. 1, 2008 - Dec. 31, 2008(1)       250    80.00 - 97.05           WTI
    Jan. 1, 2008 - Dec. 31, 2009(1)       250    75.00 - 96.05           WTI
    Jan. 1, 2008 - Dec. 31, 2009(1)       250   75.00 - 102.00           WTI
    Jan. 1, 2008 - Dec. 31, 2009(1)       250   75.00 - 100.00           WTI
    Jan. 1, 2008 - Dec. 31, 2009(1)       250   80.00 - 100.00           WTI
    Jan. 1, 2008 - Dec. 31, 2009(1)       250   75.00 - 100.00           WTI
    Jan. 1, 2008 - Dec. 31, 2009(1)       250   80.00 - 100.00           WTI
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Contract was entered into pursuant to the 2008 Acquisitions



    Oil Swap Contracts
    ------------------

                                       Volume            Price
                                       (Bbl/d)        ($US/Bbl)        Index
    -------------------------------------------------------------------------
    Jan. 1, 2007 - Dec. 31, 2008          250            68.35           WTI
    Apr. 1, 2007 - Dec. 31, 2009          250          C$76.60         C$WTI
    Jan. 1, 2008 - Dec. 31, 2009          250          C$78.20         C$WTI
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The fair value of the oil costless collars and swap contracts at
    December 31, 2007 was a liability of $39.3 million.

    Natural Gas Costless Collar Contracts
    -------------------------------------

                                       Volume            Price
                                        (GJ/d)           ($/GJ)        Index
    -------------------------------------------------------------------------
    Nov. 1, 2007 - Mar. 31, 2008        2,000     7.50 - 10.32  AECO Monthly
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The fair value of the natural gas costless collar as at December 31, 2007
    was an asset of $0.3 million.

    Subsequent to the year-end, TriStar entered into the following contracts:

    Oil Put Contracts
    -----------------

                                       Volume      Floor Price
                                       (Bbl/d)        ($US/Bbl)        Index
    -------------------------------------------------------------------------
    Jan. 1, 2008 - Dec. 31, 2009(1)       500            75.00           WTI
    Mar. 1, 2008 - Dec. 31, 2009(1)       500            80.00           WTI
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Contract was acquired pursuant to the 2008 Acquisitions



    Oil Swap Contract
    -----------------

                                       Volume            Price
                                       (Bbl/d)        ($US/Bbl)        Index
    -------------------------------------------------------------------------
    Mar. 1, 2008 - Dec. 31, 2008          500           100.10           WTI
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Natural Gas Swap Contracts
    --------------------------

                                       Volume            Price
                                        (GJ/d)           ($/GJ)        Index
    -------------------------------------------------------------------------
    Apr. 1, 2008 - Sep. 30, 2008        1,500             8.07  AECO Monthly
    Apr. 1, 2008 - Oct. 31, 2008        2,000             8.00  AECO Monthly
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Natural Gas Costless Collar Contracts
    -------------------------------------

                                       Volume            Price
                                        (GJ/d)           ($/GJ)        Index
    -------------------------------------------------------------------------
    Apr. 1, 2008 - Sep. 30, 2008        1,500      7.50 - 8.67  AECO Monthly
    Apr. 1, 2008 - Oct. 31, 2008        2,000      7.50 - 8.45  AECO Monthly
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Liquidity and Capital Resources

    In order to support TriStar's growth-oriented business plan, TriStar's
strategy is to fund its capital expenditure program with cash flows from
operations and bank debt.
    As at December 31, 2007, the Company had available a $300.0 million
credit facility which was subsequently increased to $400.0 million. The
Company's credit facility is with a syndicate of Canadian chartered banks and
is open for review semi-annually. The facility is a borrowing base facility
that is determined based on, among other things, the Company's current reserve
report, results of operations, current and forecasted commodity prices and the
current economic environment.
    The credit facility provides that advances may be made by way of direct
advances, bankers acceptances, or standby letters of credit/guarantees. Direct
advances bear interest at the bank's prime lending rate plus an applicable
margin for Canadian dollar advances and at the bank's U.S. base rate plus an
applicable margin for U.S. dollar advances. The applicable margin charged by
the bank is dependent on the Company's debt to trailing cash flow ratio. The
banker's acceptances bear interest at the applicable banker's acceptance rate
plus a stamping fee, based on the Company's debt to trailing cash flow ratio.
The credit facility is secured by a fixed and floating charge debenture on the
assets of the Company. The borrowing base is subject to semi-annual review by
the bank.
    As at December 31, 2007, TriStar had $198.6 million drawn on its credit
facility and a net working capital deficit of $24.8 million (excluding the
fair value of financial instruments and related current future income taxes)
for a total net debt of $223.4 million. As at that date, TriStar had met all
of its covenants pertaining to this loan agreement and is not required to make
any repayments.

    Capital Expenditures

    The Company closed seven acquisitions and three dispositions in the year
ended December 31, 2007 for net consideration of approximately $623.7 million,
including closing adjustments ($648.2 million was allocated to property, plant
and equipment). Of these transactions, the Real transaction was the most
significant, which was for total consideration of $576.3 million.
    During the quarter, the Company incurred $19.6 million of capital
expenditures, net of $38.1 million of disposition proceeds, as compared to
$29.3 million spent for the three months ended December 31, 2006. The Company
added $759.3 million to its property, plant and equipment, net of disposition
proceeds, during the year ended December 31, 2007 as compared to
$321.3 million in the year ended December 31, 2006. The following table
details additions to the Company's property, plant and equipment for these
periods:

    
                                Three        Three
                               Months       Months         Year         Year
                                ended        ended        ended        ended
                               Dec 31,      Dec 31,      Dec 31,      Dec 31,
    ($ thousands)                2007         2006         2007         2006
    -------------------------------------------------------------------------
    Drilling, development and
     production equipment      42,983       20,627       94,286       58,937
    Land and seismic            3,041        1,946        9,469        3,633
    Acquisitions(1)             9,033        5,759      687,345      254,589
    Dispositions              (38,118)           -      (39,149)           -
    Other(2)                    2,703          992        7,388        4,118
    -------------------------------------------------------------------------

    Total                      19,642       29,324      759,339      321,277
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Acquisitions include the amount allocated to property, plant and
        equipment for corporate and property acquisitions. This differs from
        the purchase price as there were allocations made to goodwill and
        other assets and liabilities, including asset retirement obligations.
    (2) Includes capitalized G&A and administrative assets.
    

    The Company's current budgeted capital program for 2008 is approximately
$260.0 million which is expected to be financed primarily through the
Company's cash flow. The Company does not set a budget for acquisitions. The
Company searches for opportunities that align with strategic parameters and
evaluates each prospect on a case by case basis. The Company's acquisitions
are expected to be financed through the Company's cash flow, bank debt and new
equity issuances.

    Goodwill

    During the quarter, TriStar recorded a $0.5 million reduction of goodwill
with respect to purchase price equation changes. Goodwill as at December 31,
2007 was $126.3 million.

    Shareholders' Equity

    
    Share Capital
    -------------

                                Three        Three
                               Months       Months         Year         Year
                                ended        ended        ended        ended
                               Dec 31,      Dec 31,      Dec 31,      Dec 31,
                                 2007       2006(1)        2007       2006(1)
    -------------------------------------------------------------------------

    Outstanding Common shares
    Weighted average
     outstanding
     Common shares
    Basic                  68,462,492   22,248,051   42,193,376   18,892,755
    Diluted                68,462,492   22,837,504   42,193,376   19,606,130
    -------------------------------------------------------------------------

    Outstanding Securities:
    Common shares          68,462,492   22,248,051   68,462,492   22,248,051
    Common share options    2,695,800      995,258    2,695,800      995,258
    Incentive shares        1,819,650            -    1,819,650            -
    Performance shares              -    1,082,157            -    1,082,157
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Pursuant to the acquisition of Real, the number of outstanding shares
        of prior comparative periods has been adjusted by a factor of 0.4762
        in order for the comparative outstanding share and per share amounts
        to be equivalent.
    

    Contractual Obligations

    Bank Facility
    -------------
    As at December 31, 2007, the Company had available a $300.0 million
credit facility which was subsequently increased to $400.0 million. The
Company's credit facility is with a syndicate of Canadian chartered banks and
is open for review semi-annually. The facility is a borrowing base facility
that is determined based on, among other things, the Company's current reserve
report, results of operations, current and forecasted commodity prices and the
current economic environment.

    Working Capital
    ---------------
    The capital intensive nature of the Company's activities may create a
negative working capital position in periods with high levels of capital
investment. The Company will limit the total negative working capital plus the
outstanding bank debt to the amount of the Company's credit line.
    The industry has a pre-arranged monthly clearing day for payment of
revenues from all buyers of crude oil and natural gas. This occurs on the 25th
day following the month of sale. As a result, the Company's production
revenues are collected in an orderly fashion. To the extent that the Company
has joint venture partners in its activities it will collect on a monthly
basis the partners' share of capital and operating expenses. These are subject
to normal collection risk. At December 31, 2007 the Company had no material
accounts receivable it deemed uncollectible.
    Accounts payable consist of amounts payable to suppliers relating to head
office expenses, field operating activities and capital spending activities.
These invoices are processed within the Company's normal payment period.
    The Company continuously manages the pace of its capital spending program
by monitoring forecasted production and commodity prices and resulting cash
flows. Should circumstances affect cash flow in a detrimental way, the Company
is capable of reducing its capital spending levels.

    Newly Adopted Accounting Policies

    Financial Instruments

    The following standards regarding financial instruments became effective
on January 1, 2007; 3855 "Financial Instruments - Recognition and
Measurement", 3861 "Financial Instruments - Disclosure and Presentation", 1530
"Comprehensive Income", and 3865 "Hedges". The standards require all financial
instruments other than held-to-maturity investments, loans and receivables to
be included on a company's balance sheet at their fair value. Held-to-maturity
investments, loans and receivables are measured at their amortized cost. The
standards created a new statement for comprehensive income that includes
changes in the fair value of certain financial instruments.
    The effect of adopting these new accounting standards is presented in the
section "Risk Management - Financial Instruments" elsewhere in this MD&A.

    Business Conditions and Risks

    The Company is engaged in the exploration, development, production and
acquisition of crude oil and natural gas. TriStar's business is inherently
risky and there is no assurance that hydrocarbon reserves will be discovered
and economically produced. Financial risks associated with the petroleum
industry include fluctuations in commodity prices, interest rates, and
currency exchange rates. Operational risks include competition, environmental
factors, reservoir performance uncertainties, a complex regulatory environment
and safety concerns.
    The Company minimizes its business risks by operating a large number of
its properties. This enables TriStar to control the timing, direction and
costs related to exploration and development opportunities. TriStar's
geological focus is on areas in which the prospects are well understood by
management. Technological tools are regularly used to reduce risk and increase
the probability of success. The Company closely follows all government
regulations and has an up-to-date emergency response plan that has been
communicated to field operations by management. The Company also carries
insurance coverage to protect itself against potential losses. Maintaining a
highly motivated and talented staff of petroleum and natural gas professionals
further minimizes the business risk.
    TriStar relies on various sources of funding to support its growing
capital expenditure program:

    
    -   Internally-generated cash flow provides a minimum level of funding on
        which the Company's annual capital expenditure program is based;
    -   Debt may be utilized to expand capital programs when appropriate; and
    -   New equity, if available on favourable terms, may be utilized to
        expand exploration programs.
    

    The Company is exposed to commodity price and market risk for its
principal products of petroleum and natural gas. Commodity prices are
influenced by a wide variety of factors, most of which are beyond TriStar's
control. To manage this risk, the Company has entered into a number of
financial derivative contracts for hedging purposes. These derivative
contracts included contracts related to oil and gas prices, as well as foreign
exchange rates. The Company may also from time to time, enter into fixed
physical contracts. The Company continues to monitor the cost and associated
benefit of these instruments and contracts as well as debt levels and
utilization rates on bank lines and will utilize these derivatives and
contracts when warranted.
    Inflation risks subject the Company to potential erosion of product
netbacks. For example, increasing domestic prices for oil and natural gas
production equipment and services can inflate the costs of operations.
    The supply of service and production equipment at competitive prices is
critical to the ability to add reserves at a competitive cost and produce them
in an economic and timely fashion. In periods of increased activity, these
services and supplies can become difficult to obtain. The Company attempts to
mitigate this risk by developing strong long-term relationships with suppliers
and contractors and maintaining an appropriate inventory of production
equipment.
    Demand for crude oil and natural gas produced by the Company exists
within Canada and the United States; however, crude oil prices are affected by
worldwide supply and demand fundamentals while natural gas prices are
primarily affected by North American supply and demand fundamentals. Demand
for natural gas liquids is influenced mainly by the demand for petrochemicals
in North American and off-shore markets. TriStar mitigates these risks as
follows:

    
    -   Crude oil production is of a high quality and hence not subject to
        adverse quality differentials;
    -   Natural gas production is generally connected to a mature pipeline
        infrastructure that operates with minimal interruptions;
    -   Exploration efforts target high-quality oil and liquids-rich natural
        gas reserves;
    -   Sale arrangements vary in term and pricing structure creating a
        diverse portfolio that minimizes risk of exposure to any one market;
        and
    -   Financial instruments may be used where appropriate to manage
        commodity price volatility.
    

    Disclosure Control Risks

    Disclosure controls and procedures have been designed to ensure that
information required to be disclosed by the Company is accumulated and
communicated to its management as appropriate to allow timely decisions
regarding required disclosure. The Company's Chief Executive Officer ("CEO")
and Chief Financial Officer ("CFO") have concluded, based on their evaluation
of the design of TriStar's disclosure controls and procedures as of the date
of this MD&A, that the Company's disclosure controls and procedures provide
reasonable assurance that material information is made known to them by others
within the Company.

    Internal Controls over Financial Reporting

    The Company's CEO and CFO have designed or caused to be designed under
their supervision internal controls over financial reporting to provide
reasonable assurance regarding the reliability of the Company's financial
reporting and the preparation of financial statements for external purposes in
accordance with Canadian GAAP.
    The Company's CEO and CFO are required to cause the Company to disclose
any change in the Company's internal controls over financial reporting that
has occurred during the period that has materially affected, or is reasonably
likely to materially affect, the Company's internal controls over financial
reporting. No changes in the Company's internal controls over financial
reporting were identified during the year ended December 31, 2007, that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.

    Additional Information

    Additional information relating to TriStar, including TriStar's AIF and
financial statements, can be found on SEDAR at www.sedar.com.

    
    Summary of Quarterly Results

                                             Three        Three
                                            Months       Months
                                             ended        ended
    ($ thousands except per share           Dec 31,      Sep 30,
     and Boepd amounts)                       2007         2007
    ------------------------------------------------------------

    Production revenue
     (prior to hedging)                     85,419       53,578
    Net income (loss)                      (11,414)      (5,418)
      Per share - basic(2)                   (0.17)       (0.11)
      Per share - diluted(2)                 (0.17)       (0.11)
    Production (Boepd)                      14,769       10,120
    Cash flow from operations(3)            43,503       26,735
      Per share - basic(2)                    0.64         0.56
      Per share - diluted(2)                  0.64         0.56
    Cash flow from operating
     activities(4)                          40,007       25,005
      Per share - basic(2)                    0.58         0.52
      Per share - diluted(2)                  0.58         0.52
    Total assets                         1,169,530    1,160,068
    Total net debt(5)                      223,398      246,690
    ------------------------------------------------------------
    ------------------------------------------------------------


                                             Three        Three
                                            Months       Months         Year
                                             ended        ended        ended
    ($ thousands except per share           Jun 30,      Mar 31,      Dec 31,
     and Boepd amounts)                       2007         2007         2007
    -------------------------------------------------------------------------

    Production revenue
     (prior to hedging)                     25,965       20,916      185,878
    Net income (loss)                        2,024       (2,101)     (16,911)
      Per share - basic(2)                    0.07        (0.09)       (0.40)
      Per share - diluted(2)                  0.07        (0.09)       (0.40)
    Production (Boepd)                       4,941        4,121        8,521
    Cash flow from operations(3)            13,931       11,410       95,580
      Per share - basic(2)                    0.48         0.49         2.27
      Per share - diluted(2)                  0.47         0.49         2.27
    Cash flow from operating
     activities(4)                          13,537        6,960       85,508
      Per share - basic(2)                    0.49         0.30         2.03
      Per share - diluted(2)                  0.48         0.30         2.03
    Total assets                           453,337      441,661    1,169,530
    Total net debt(5)                       77,665       77,058      223,398
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                                             Three        Three
                                            Months       Months
                                             ended        ended
    ($ thousands except per share           Dec 31,      Sep 30,
     and Boepd amounts)                       2006         2006
    ------------------------------------------------------------

    Production revenue
     (prior to hedging)                     18,846       18,084
    Net income (loss)                        1,786        1,126
      Per share - basic(2)                    0.08         0.04
      Per share - diluted(2)                  0.08         0.04
    Production (Boepd)                       3,919        3,424
    Cash flow from operations(3)            10,725       11,021
      Per share - basic(2)                    0.48         0.50
      Per share - diluted(2)                  0.46         0.48
    Cash flow from operating
     activities(4)                          12,626       12,371
      Per share - basic(2)                    0.57         0.57
      Per share - diluted(2)                  0.55         0.55
    Total assets                           351,974      330,821
    Total net debt(5)                       63,247       44,844
    ------------------------------------------------------------
    ------------------------------------------------------------


                                             Three        Three
                                            Months       Months         Year
                                             ended        ended        ended
    ($ thousands except per share           Jun 30,      Mar 31,      Dec 31,
     and Boepd amounts)                       2006       2006(1)      2006(1)
    -------------------------------------------------------------------------

    Production revenue
     (prior to hedging)                     12,673        7,504       57,107
    Net income (loss)                        2,996          311        6,218
      Per share - basic(2)                    0.17         0.02         0.33
      Per share - diluted(2)                  0.17         0.02         0.32
    Production (Boepd)                       2,290        1,489        2,828
    Cash flow from operations(3)             7,426        4,455       33,627
      Per share - basic(2)                    0.40         0.36         1.78
      Per share - diluted(2)                  0.40         0.34         1.72
    Cash flow from operating
     activities(4)                           8,313        3,144       36,454
      Per share - basic(2)                    0.46         0.25         1.93
      Per share - diluted(2)                  0.44         0.23         1.86
    Total assets                           314,905      192,611      351,974
    Total net debt(5)                       48,361       16,411       63,247
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) TriStar began active operations on January 6, 2006.
    (2) Pursuant to the Real transaction, the shares outstanding for each
        quarter prior to the one ending September 30, 2007 have been
        converted on a 0.4762 to 1 basis to reflect the exchange of each
        share of TriStar Oil & Gas Ltd.
    (3) "Cash flow from operations" should not be considered an alternative
        to, or more meaningful than, cash flow from operating activities as
        determined in accordance with Canadian Generally Accepted Accounting
        Principles ("GAAP") as an indicator of TriStar's performance. "Cash
        flow from operations" represents cash flow from operating activities
        prior to changes in non-cash working capital. TriStar's determination
        of cash flow from operations may not be comparable to that found in
        the consolidated statement of cash flows in the unaudited interim
        financial statements. TriStar also presents cash flow from operations
        per share whereby per share amounts are calculated using weighted
        average shares outstanding consistent with the calculation of
        earnings per share.
    (4) "Cash flow from operating activities" is determined in accordance
        with GAAP and includes changes in non-cash working capital.
    (5) "Total net debt" is calculated as bank loan and current liabilities
        less current assets, excluding financial derivative contracts and
        related current future income taxes.



    TriStar Oil & Gas Ltd.
    Consolidated Balance Sheets

    -------------------------------------------------------------------------

                                                   December 31,  December 31,
    ($ thousands)                                         2007          2006
    -------------------------------------------------------------------------

    Assets

    Current assets
      Accounts receivable                               59,749        15,907
      Inventory                                              -         1,788
      Fair value of financial instruments
       (notes 3, 11)                                     2,916             -
      Future income taxes (note 8)                       6,000             -
      Other current assets                               6,481         2,445
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                        75,146        20,140

    Property and equipment (notes 4, 5)                965,485       293,187
    Goodwill (note 4)                                  126,293        38,647
    Fair value of financial instruments (notes 3, 11)    2,606             -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Total assets                                     1,169,530       351,974
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities

    Current liabilities
      Accounts payable and accrued liabilities          91,025        28,975
      Bank loan (note 6)                                     -        54,411
      Fair value of financial instruments
       (notes 3, 11)                                    24,250             -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                       115,275        83,386

    Asset retirement obligations (note 7)               22,650         6,089
    Long-term debt (note 6)                            198,603             -
    Future income taxes (note 8)                       121,947        35,018
    Fair value of financial instruments (notes 3, 11)   20,218             -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Total liabilities                                  478,693       124,493
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Shareholders' Equity

    Share capital (notes 4, 9)                         694,934       219,652
    Contributed surplus (note 9)                         6,414         1,611
    Accumulated other comprehensive income
     (notes 3, 9)                                          182             -
    Retained earnings                                  (10,693)        6,218
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Total shareholders' equity                         690,837       227,481
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Total liabilities and shareholders' equity       1,169,530       351,974
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Commitments (note 13)
    Contingencies (note 14)
    Subsequent events (note 15)

    See accompanying notes to consolidated financial statements.


    Approved on behalf of the Board

    (signed)                       (signed)

    Paul Colborne                  Brett Herman
    Director                       Director



    TriStar Oil & Gas Ltd.
    Consolidated Statements of Operations, Comprehensive Income and
    Retained Earnings
    For the years ended December 31, 2007 and 2006

    -------------------------------------------------------------------------

    ($ thousands)                                         2007          2006
    -------------------------------------------------------------------------
                                                                     (note 1)
    Revenues
      Petroleum and natural gas sales                  185,878        57,715
      Royalties                                        (36,494)       (9,112)
    -------------------------------------------------------------------------
                                                       149,384        48,603

    Realized gain (loss) on financial instruments
     (notes 3, 11)                                        (109)            -
    Unrealized loss on financial instruments
     (notes 3, 11)                                     (39,204)            -
    -------------------------------------------------------------------------
                                                       110,071        48,603
    Expenses
      Operating                                         33,215        10,007
      Transportation                                     2,971           289
      General and administration                         7,136         2,410
      Acquisition related (note 12)                      2,167             -
      Depletion, depreciation and accretion             90,264        29,407
      Stock-based compensation                           2,512           942
      Interest                                           7,577         1,695
    -------------------------------------------------------------------------
                                                       145,842        44,750

    Income (loss) before taxes                         (35,771)        3,853
    -------------------------------------------------------------------------

    Taxes
      Capital taxes                                      1,754           575
      Future income tax reduction (note 8)             (20,614)       (2,940)
    -------------------------------------------------------------------------
                                                       (18,860)       (2,365)

    -------------------------------------------------------------------------
    Net income (loss)                                  (16,911)        6,218

    Other comprehensive income
      Amortization of fair value
       of financial instruments                         (1,905)            -
    -------------------------------------------------------------------------

    Comprehensive income (loss)                        (18,816)        6,218
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Retained earnings
    Retained earnings, beginning of year                 6,218             -
    -------------------------------------------------------------------------

    Retained earnings (deficit), end of year           (10,693)        6,218
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings (loss) per share (note 9)
      Basic                                              (0.40)         0.33
      Diluted                                            (0.40)         0.32
    -------------------------------------------------------------------------

    Weighted average number of shares (note 9)
      Basic                                         42,193,376    18,892,755
      Diluted                                       42,193,376    19,606,130
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to consolidated financial statements.



    TriStar Oil & Gas Ltd.
    Consolidated Statements of Cash Flows
    For the years ended December 31, 2007 and 2006

    -------------------------------------------------------------------------

    ($ thousands)                                         2007          2006
    -------------------------------------------------------------------------
                                                                     (note 1)
    Operating activities
      Net income (loss)                                (16,911)        6,218
      Unrealized loss on financial instruments          39,204             -
      Non-cash acquisition related expenses (note 12)    1,125             -
      Depletion, depreciation and accretion             90,264        29,407
      Stock-based compensation                           2,512           942
      Future income taxes                              (20,614)       (2,940)
    -------------------------------------------------------------------------
                                                        95,580        33,627

      Change in non-cash working capital               (10,072)        2,827
    -------------------------------------------------------------------------

                                                        85,508        36,454
    -------------------------------------------------------------------------

    Financing activities
      Issuance of share capital                         50,620        77,237
      Share issue costs                                 (2,781)       (3,458)
      Increase in bank loan                              8,913        26,605
    -------------------------------------------------------------------------

                                                        56,752       100,384
    -------------------------------------------------------------------------

    Investing activities
      Capital expenditures                            (108,612)      (65,477)
      Acquisitions, net of cash acquired               (82,141)      (77,906)
      Proceeds from dispositions                        39,149             -
      Change in non-cash working capital                 9,344         6,545
    -------------------------------------------------------------------------

                                                      (142,260)     (136,838)
    -------------------------------------------------------------------------

    Change in cash and cash equivalents                      -             -
    Cash and cash equivalents, beginning of year             -             -
    -------------------------------------------------------------------------

    Cash and cash equivalents, end of year                   -             -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash flow information (note 10)

    See accompanying notes to consolidated financial statements.



    TriStar Oil & Gas Ltd.
    Notes to the Consolidated Financial Statements
    As at and for the years ended December 31, 2007 and 2006

    1.  Business and basis of presentation

        TriStar Oil & Gas Ltd. ("TriStar" or the "Company") was incorporated
        pursuant to the Business Corporations Act (Alberta) on September 30,
        2005. The Company commenced active operations on January 6, 2006,
        following the completion of a plan of arrangement involving StarPoint
        Energy Trust, StarPoint Energy Ltd., Acclaim Energy Trust and Acclaim
        Energy Ltd. to form Canetic Resources Trust and TriStar (the "Canetic
        Transaction"). Accordingly, the year ended December 31, 2006 includes
        only results from operations for 360 days.

        The corporate acquisition of Real Resources Inc. ("Real") described
        in note 4 has been accounted for as a reverse takeover. As a result
        the number of outstanding shares of prior comparative periods has
        been reduced by being multiplied by 0.4762, in order for the
        comparative share and per share amounts to be equivalent.

    2.  Principles of consolidation

        The consolidated financial statements include the accounts of
        TriStar, TOG Partnership, Vortex Energy Corporation, 3249271 Canada
        Limited, TriStar Resources Ltd. and Real Oil & Gas Corp.

    3.  Significant accounting policies

        These consolidated financial statements are stated in Canadian
        dollars and have been prepared in accordance with Canadian Generally
        Accepted Accounting Principles ("GAAP"). The preparation of financial
        statements in conformity with Canadian GAAP requires the Company's
        management to make estimates and assumptions that affect the reported
        amounts of assets and liabilities and disclosure of contingent assets
        and liabilities at the date of the financial statements and reported
        amounts of revenues and expenses during the period. Actual results
        could differ from those estimates and assumptions. In the opinion of
        management, these financial statements have been prepared within
        reasonable limits of materiality and within the framework of the
        significant accounting policies summarized below.

        a)  Joint venture activities

        Substantially all exploration, development and production activities
        are conducted jointly with others and, accordingly, the Company only
        reflects its proportionate interest in such activities.

        b)  Property and equipment

        The Company follows the full cost method of accounting for petroleum
        and natural gas operations. All costs related to the acquisition of,
        exploration for and development of petroleum and natural gas reserves
        are capitalized. Such costs include lease acquisition costs,
        geological and geophysical expenses, carrying charges of non-
        producing property, costs of drilling both productive and non-
        productive wells, petroleum and natural gas production equipment and
        overhead charges related to exploration, development and acquisition
        activities, including stock-based compensation and the related future
        income tax effect.

        Petroleum and natural gas assets are evaluated on an annual basis to
        determine that the costs are recoverable and do not exceed the fair
        value of the properties (the "ceiling test"). The costs are assessed
        to be recoverable if the sum of the undiscounted cash flows expected
        from the production of undiscounted proved reserves and the lower of
        cost and fair value of unproved properties exceed the carrying value
        of the petroleum and natural gas assets. If the carrying value of the
        petroleum and natural gas assets is not assessed to be recoverable,
        an impairment loss is recognized to the extent that the carrying
        value exceeds the sum of the discounted cash flows expected from the
        production of proved and probable reserves and the lower of cost and
        fair value of unproved properties. The cash flows are estimated using
        future commodity prices and costs and are discounted using the
        Company's credit adjusted risk-free rate.

        Capitalized costs are depleted using the unit-of-production method
        based on estimated proved reserves of petroleum and natural gas
        before royalties as determined by independent petroleum engineers.
        The cost of acquiring and evaluating unproved properties are
        initially excluded from the depletion calculation.

        Proceeds from the disposition of petroleum and natural gas properties
        are credited to the capitalized costs except for dispositions that
        would change the rate of depletion and depreciation by 20% or more,
        in which case a gain or loss would be recorded.

        c)  Asset retirement obligations

        The Company records a liability for the fair value of legal
        obligations associated with the retirement of long-lived tangible
        assets in the period in which they are incurred, normally when the
        asset is purchased or developed. On recognition of the liability,
        there is a corresponding increase in the carrying amount of the
        related assets, known as the asset retirement cost, which is depleted
        on a unit-of-production basis over the life of the reserves. The
        liability is adjusted each reporting period to reflect the passage of
        time, with the accretion charged to earnings, and for revisions to
        the estimated future cash flows. Actual costs incurred upon
        settlement of the obligations are charged against the liability.

        d)  Goodwill

        The Company records goodwill relating to a corporate acquisition when
        the purchase price exceeds the fair value for accounting purposes of
        the net identifiable assets and liabilities acquired by the Company.
        The goodwill balance is assessed for impairment annually at year-end
        or as events occur that could result in an impairment.

        e)  Flow-through shares

        The Company may finance a portion of its exploration and development
        activities through the issuance of flow-through common shares. Under
        the terms of the flow-through share agreements, the resource
        expenditure deductions for income tax purposes are renounced to
        investors in accordance with the appropriate income tax legislation.
        The Company provides for the future effect on income taxes related to
        flow-through shares as a charge to share capital in the period in
        which the expenditures are renounced.


        f)  Stock-based compensation

        The Company follows the fair value method of valuing stock option
        grants and other stock-based compensation. Under this method, the
        compensation cost attributable to stock options and other stock-based
        compensation issued to employees, contractors, officers and directors
        of the Company is measured at fair value at the date of grant and
        expensed over the estimated life of the options with a corresponding
        increase to contributed surplus. The Company calculates the fair
        value of stock options using an option pricing model. Upon the
        exercise of the stock options or other stock-based compensation the
        consideration paid together with the amount previously recognized in
        contributed surplus is recorded as an increase to share capital.

        g)  Income taxes

        The Company uses the asset and liability method of accounting for
        income taxes. Under this method, future tax assets and liabilities
        are recognized for the future tax consequences attributable to
        differences between the financial statement carrying amounts of
        existing assets and liabilities and their respective tax basis.
        Future income tax assets are recognized to the extent it is more
        likely than not that sufficient future taxable income will be
        available to allow the future income tax assets to be realized.
        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 that date of enactment or substantive enactment.

        h)  Hedges

        The Company uses derivative financial instruments from time to time
        to hedge its exposure to commodity prices and foreign exchange
        fluctuations. The Company does not enter into derivative financial
        instrument contracts for trading or speculative purposes. The
        derivative financial instruments are initiated within the guidelines
        of the Company's risk management policy.

        On January 1, 2007, the Company adopted new accounting standards
        regarding the recognition, measurement, disclosure and presentation
        of financial instruments. In conjunction with the adoption of these
        new standards, the Company elected not to use hedge accounting for
        its crude oil and natural gas derivative contracts under its risk
        management program. As a result, the fair value of the commodity
        contracts is recognized at each reporting period with the change in
        the fair value being classified as an unrealized gain or loss on the
        statement of operations. Also, in accordance with the transitional
        provisions of the standards, the accounting for hedging relationships
        for prior periods is not retroactively adjusted; therefore, there has
        been no restatement of the prior period.

        On adoption, the Company recognized an asset of $3.0 million for the
        fair value of its financial derivative contracts at January 1, 2007
        and an increase to the future income tax liability and accumulated
        other comprehensive income of $0.9 million and $2.1 million,
        respectively. The $2.1 million in accumulated other comprehensive
        income is amortized through other comprehensive income and unrealized
        gain or loss on financial derivatives in the statement of operations
        and other comprehensive income over the term of the contracts. As a
        result, for the year ended December 31, 2007, $1.9 million, net of
        tax, was charged to other comprehensive income with a corresponding
        unrealized gain on financial derivatives of $2.7 million and a charge
        to future income tax expense of $0.8 million. The impact of the
        change in fair value from January 1, 2007 to December 31, 2007 is
        disclosed in note 11. Certain comparative amounts have been
        reclassified to conform to the presentation adopted in 2007.

        i)  Financial instruments

        GAAP requires that all financial assets and liabilities, within its
        scope, be carried at fair value in the consolidated balance sheets,
        except for loans and receivables, securities designated as held-to-
        maturity and non-trading financial liabilities which are carried at
        amortized cost unless designated as held-for-trading upon initial
        recognition. Fair values are based on quoted market prices from
        active markets where available; otherwise fair values are estimated
        using other valuation techniques and models.

        Held-for-trading financial assets are purchased for resale, generally
        within a short period of time. They are measured at fair value at the
        balance sheet date. Gains and losses realized on disposal and
        unrealized gains and losses from market fluctuations are reported in
        earnings.

        Designated fair value financial assets and financial liabilities are
        those that were designated on initial recognition as instruments that
        will be measured at fair value through the consolidated statements of
        operations. These are accounted for in the same manner as held-for-
        trading financial assets.

        Held-to-maturity financial assets are non-derivative financial assets
        with fixed or determinable payments and a fixed maturity, other than
        loans and receivables, that an entity has the positive intention and
        ability to hold to maturity. These are accounted for at amortized
        cost. The Company has not designated any financial assets as held-to-
        maturity.

        Available for sale financial assets are non-derivative financial
        assets that are designated as available for sale and include debt and
        equity securities, including investments with no significant
        influence that have quoted market values in an active market. These
        are carried at fair value and any unrealized gains and losses are
        included in accumulated other comprehensive income until sale or
        permanent impairment. Equities that do not have a quoted market value
        in an active market are carried at cost. The Company has not
        designated any financial assets as available for sale.

        Loans and receivables are accounted for at amortized cost.

        Derivatives are carried at fair value and are reported as assets when
        they have a positive fair value and as liabilities when they have a
        negative fair value. Derivatives may be embedded in other financial
        instruments, in which case they may be required to be separated and
        fair valued as separate derivatives. The Company has not identified
        any material embedded derivatives in any of its financial
        instruments.

        The Company has elected to account for its commodity sales contracts
        and other non-financial contracts, which were entered into and
        continue to be held for the purpose of receipt or delivery of non-
        financial items in accordance with its expected purchase, sale or
        usage requirements, on an accrual basis rather than as non-financial
        derivatives. Prior to adoption of new GAAP standards on January 1,
        2007, physical receipt and delivery contracts did not fall within the
        scope of the definition of a financial instrument and were also
        accounted for on an accrual basis.

        j)  Other comprehensive income

        GAAP requires a statement of comprehensive income, which is comprised
        of net earnings and other comprehensive income which, for the
        Company, relates to changes in gains or losses on derivatives that
        previously qualified for hedge accounting.

        k)  Revenue recognition

        Revenues from the sale of petroleum and natural gas are recorded when
        title transfers to an external party.

        l)  Cash and cash equivalents

        Cash and cash equivalents consist of cash in bank, less outstanding
        cheques and short term deposits with a maturity of less than three
        months.

        m)  Per share information

        Basic net income per share is calculated using the weighted average
        number of shares outstanding during the period. Diluted per share
        amounts reflect the potential dilution that could occur if stock-
        based compensation to purchase common shares were exercised. Diluted
        net income per share is calculated using the treasury stock method to
        determine the dilutive effect of outstanding stock-based
        compensation. The treasury stock method assumes that proceeds from
        the exercise of the "in-the-money" stock-based compensation is used
        to re-purchase common shares at the prevailing market price.

    4.  Business combinations

        Acquisition of Real
        -------------------
        On August 2, 2007, the shareholders of TriStar and Real approved a
        plan of arrangement to form an intermediate oil and gas exploration
        and development company (hereinafter the "Arrangement"). Under the
        terms of the Arrangement, each TriStar shareholder received 0.4762
        shares of the combined entities for each share of TriStar held and
        each Real shareholder received one share of the combined entities. At
        the close of the transaction, TriStar shareholders owned
        approximately 42 percent of the combined entities and Real
        shareholders owned approximately 58 percent of the combined entities.
        The transaction closed on August 16, 2007. The combined entities
        continued under the name TriStar.

        At the close of the Arrangement, senior management of the combined
        entity were the officers of TriStar, and the board of directors was
        comprised of seven of TriStar's previous directors and three of
        Real's previous directors. Accordingly, the transaction has been
        accounted for as a reverse takeover, whereby TriStar is deemed to be
        the acquirer of Real, using the purchase method of accounting, as
        follows:

        ($ thousands)
        ---------------------------------------------------------------------
        Consideration
        ---------------------------------------------------------------------
          Common shares issued                                       417,965
          Transaction costs                                            8,000
        ---------------------------------------------------------------------

                                                                     425,965
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Net assets received, at estimated fair value
        ---------------------------------------------------------------------
          Property and equipment                                     599,702
          Working capital                                            (17,248)
          Goodwill                                                    70,843
          Bank loan                                                 (133,105)
          Asset retirement obligations                               (14,060)
          Future income taxes                                        (80,167)
        ---------------------------------------------------------------------

                                                                     425,965
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The results of operations include net revenue from this transaction
        effective August 16, 2007.

        The above amounts are estimates, which were made by management at the
        time of the preparation of these financial statements based on
        information then available. Amendments may be made to these amounts
        as values subject to estimate are finalized.

        Corporate Acquisition
        ---------------------
        On March 31, 2007, TriStar acquired a company with assets in core
        areas in Alberta and southeast Saskatchewan for total cash
        consideration of $47.8 million, after certain closing adjustments.
        The results of operations include net revenue from this transaction
        effective April 1, 2007.

        This acquisition has been accounted for using the purchase method of
        accounting as follows:

        ($ thousands)
        ---------------------------------------------------------------------
        Consideration
        ---------------------------------------------------------------------
          Cash                                                        47,394
          Transaction costs                                              376
        ---------------------------------------------------------------------

                                                                      47,770
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Net assets received, at estimated fair value
        ---------------------------------------------------------------------
          Property and equipment                                      48,587
          Working capital                                                 26
          Goodwill                                                    11,134
          Asset retirement obligations                                  (843)
          Future income taxes                                        (11,134)
        ---------------------------------------------------------------------

                                                                      47,770
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Saskatchewan Private Company Acquisition
        ----------------------------------------
        On January 11, 2007, TriStar acquired, through a series of
        transactions with another public company, all of the issued and
        outstanding common shares of a privately owned Saskatchewan oil and
        gas company (the "Saskatchewan Private Company"). The results of
        operations include net revenue from this transaction effective
        January 12, 2007.

        This acquisition has been accounted for using the purchase method of
        accounting, as follows:

        ($ thousands)
        ---------------------------------------------------------------------
        Consideration
        ---------------------------------------------------------------------
          Common shares issued                                        11,700
          Transaction costs                                              155
        ---------------------------------------------------------------------

                                                                      11,855
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Net assets received, at estimated fair value
        ---------------------------------------------------------------------
          Property and equipment                                      12,741
          Working capital                                              1,538
          Goodwill                                                     5,669
          Bank loan                                                   (2,174)
          Asset retirement obligations                                  (249)
          Future income taxes                                         (5,670)
        ---------------------------------------------------------------------

                                                                      11,855
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        2006 acquisitions
        -----------------
        During 2006, TriStar acquired all of the issued and outstanding
        common shares of Raven Energy Ltd., Sawtooth International Resources
        Inc., and two private Saskatchewan oil and gas companies.

        In aggregate, these acquisitions have been accounted for using the
        purchase method of accounting, as follows:

        ($ thousands)
        ---------------------------------------------------------------------
        Consideration
        ---------------------------------------------------------------------
          Cash                                                        63,744
          Common shares issued                                        88,778
          Transaction costs                                            2,047
        ---------------------------------------------------------------------

                                                                     154,569
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Net assets received, at estimated fair value
        ---------------------------------------------------------------------
          Working capital                                              2,633
          Property and equipment                                     182,127
          Goodwill                                                    38,647
          Bank loan                                                  (27,806)
          Asset retirement obligations                                (2,372)
          Future income taxes                                        (38,660)
        ---------------------------------------------------------------------

                                                                     154,569
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    5.  Property and equipment

        ($ thousands)
        ---------------------------------------------------------------------
                                                             2007       2006
        ---------------------------------------------------------------------
        Petroleum and natural gas assets                1,082,855    321,500
        Administrative assets                               1,040        826
        ---------------------------------------------------------------------
                                                        1,083,895    322,326

        Less accumulated depletion and depreciation      (118,410)   (29,139)
        ---------------------------------------------------------------------

                                                          965,485    293,187
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        At December 31, 2007 the calculation of the depletion expense
        excludes unproved property and undeveloped land cost of
        $161.2 million (2006: $49.7 million). Unused seismic costs of
        $33.9 million (2006: $nil) were also excluded. Future development
        costs of $125.6 million (2006: $23.2 million) were included in the
        depletion calculation.

        During the year ended December 31, 2007, the Company capitalized
        $4.9 million (2006: $2.0 million) of general and administrative costs
        and $3.6 million (2006: $1.0 million) of stock-based compensation
        expense, including a tax effect of $1.1 million (2006: $nil),
        relating to exploration, development and acquisition activities.

        The ceiling test calculation at December 31, 2007 indicated that the
        net recoverable amount from proved reserves exceeded the net carrying
        value of the petroleum and natural gas properties and equipment. The
        following are the prices that were used in the December 31, 2007
        ceiling test:

        ---------------------------------------------------------------------
                                    Natural
                       Crude Oil        Gas         Natural Gas Liquids
        ---------------------------------------------------------------------
                        Edmonton       AECO   Edmonton   Edmonton   Edmonton
                       Par Price  Gas Price    Propane     Butane   Pentanes
                       (Cdn$/bbl) (Cdn$/Mcf) (Cdn$/bbl) (Cdn$/bbl) (Cdn$/bbl)
        ---------------------------------------------------------------------
        2008               88.17       7.24      52.29      65.72      90.30
        2009               84.54       8.03      50.14      63.01      86.58
        2010               83.16       8.55      49.32      61.98      85.17
        2011               81.26       8.56      48.20      60.57      83.23
        Thereafter(1)         2%         2%         2%         2%         2%
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (1) Percentage change of 2% represents the change in future prices
            each year after 2011 to the end of the reserve life.

    6.  Bank loan

        At December 31, 2007, the Company had available a $300.0 million
        credit facility which was subsequently increased to $400.0 million.
        The credit facility provides that advances may be made by way of
        direct advances, bankers acceptances, or standby letters of
        credit/guarantees. Direct advances bear interest at the bank's prime
        lending rate plus an applicable margin for Canadian dollar advances
        and at the bank's U.S. base rate plus an applicable margin for U.S.
        dollar advances. The applicable margin charged by the bank is
        dependent on the Company's debt to trailing cash flow ratio. The
        banker's acceptances bear interest at the applicable banker's
        acceptance rate plus a stamping fee, based on the Company's debt to
        trailing cash flow ratio. The credit facility is secured by a fixed
        and floating charge debenture on the assets of the Company. The
        borrowing base is subject to semi-annual review by the bank.

        The Company's effective interest rate for the years ended
        December 31, 2007 and 2006 was 5.7 percent and 4.8 percent,
        respectively.

    7.  Asset retirement obligations

        The total future asset retirement obligations ("ARO") were estimated
        based on the Company's net ownership interest in all of its wells and
        facilities, estimated costs to reclaim and abandon the wells and
        facilities, and the estimated timing of the costs to be incurred in
        future periods. The Company has estimated an undiscounted total
        future liability of $72.0 million as at December 31, 2007. The
        Company's credit adjusted risk-free rate of 8.5 percent and an
        inflation rate of 2.0 percent per annum were used to calculate the
        net present value of the asset retirement obligations.

        The following table reconciles the Company's total asset retirement
        obligations:

        ($ thousands)
        ---------------------------------------------------------------------
                                                             2007       2006
        ---------------------------------------------------------------------
        ARO, beginning of year                              6,089          -
        Liabilities acquired (net of dispositions)         14,340      5,090
        Liabilities incurred                                1,249        731
        Accretion expense                                     972        268
        ---------------------------------------------------------------------

        ARO, end of year                                   22,650      6,089
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    8.  Taxes

        Tax expense
        -----------
        The combined provision for taxes in the statement of operations and
        retained earnings reflects an effective tax rate which differs from
        the expected statutory rate. The difference is principally due to a
        reduction of previously booked future tax liabilities arising from
        acquisitions as a result of reduced federal and provincial corporate
        tax rates which were substantially enacted in 2007. Excluding the
        effects of this reduction of future tax liabilities, the Company's
        effective tax rate was 30.9 percent.

        ($ thousands)
        ---------------------------------------------------------------------
                                                             2007       2006
        ---------------------------------------------------------------------
        Income (loss) before taxes                        (35,771)     3,853
        Statutory income tax rate                           32.8%      35.5%
        ---------------------------------------------------------------------
        Expected income tax expense (reduction)           (11,726)     1,368
        Add (deduct):
          Effect of reduced tax rates                      (9,597)    (4,459)
          Deductible capital taxes                           (575)      (204)
          Stock-based compensation                          1,192        335
          Other                                                92         20
        ---------------------------------------------------------------------

        Future income tax reduction                       (20,614)    (2,940)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        Future income taxes
        -------------------

        ($ thousands)
        ---------------------------------------------------------------------
                                                             2007       2006
        ---------------------------------------------------------------------
        Fair value of financial instruments                 6,000          -
        ---------------------------------------------------------------------

        Future income tax asset                             6,000          -
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------



        ($ thousands)
        ---------------------------------------------------------------------
                                                             2007       2006
        ---------------------------------------------------------------------
        Property and equipment                            128,258     33,105
        Fair value of financial instruments                (4,387)         -
        Partnership income deferral                        41,741      6,326
        Asset retirement obligations                       (6,041)    (1,796)
        Loss carryforwards                                (35,346)    (1,564)
        Share issue costs                                  (2,278)    (1,053)
        ---------------------------------------------------------------------

        Future income tax liability                       121,947     35,018
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        As at December 31, 2007, the Company has tax deductions of
        approximately $469.3 million available to shelter future taxable
        income.

    9.  Shareholders' equity

        As described in note 4, the corporate acquisition of Real has been
        accounted for as a reverse takeover. As a result the number of
        outstanding shares of prior comparative periods has been reduced by
        being multiplied by 0.4762, in order for the comparative share and
        per share amounts to be equivalent.

        a)  Share capital - authorized
              i)  An unlimited number of voting common shares of TriStar
                  ("Common Shares").
              ii) The Company is authorized to issue four classes of
                  preferred shares designated as First Preferred Shares,
                  Second Preferred Shares, Third Preferred Shares and Fourth
                  Preferred Shares, each class issuable in series
                  (collectively, the "Preferred Shares"). There were no
                  Preferred Shares outstanding during the year.

            Prior to the Real transaction, TriStar had authorized 2,309,657
            non-voting Performance Shares, without nominal or par value. The
            Performance Shares were exercised or cancelled pursuant to the
            Real transaction.

        b)  Share capital - issued and outstanding

            The following table reconciles the Company's share capital
            movements:

            ($ thousands, except share amounts)
            -----------------------------------------------------------------
                                                 Number of shares     Amount
            -----------------------------------------------------------------
            Common Shares
              Balance, January 1, 2006                          1          -
            -----------------------------------------------------------------

              Issued for cash                           4,004,018     51,528
              Issued on acquisitions (note 4)           6,072,045     88,778
              Issued pursuant to Canetic Transaction    9,523,805     56,075
              Exercise of warrants                      1,843,404     10,645
              Issued for cash: flow-through shares        804,778     15,041
              Share issue costs (net of tax effect)             -     (2,438)
            -----------------------------------------------------------------

              Balance, December 31, 2006               22,248,051    219,629
            -----------------------------------------------------------------

            Performance Shares
              Issued pursuant to private placement
               and balance at December 31, 2006         1,082,157         23
            -----------------------------------------------------------------

              Total share capital, December 31, 2006   23,330,208    219,652
            -----------------------------------------------------------------
            -----------------------------------------------------------------



            ($ thousands, except share amounts)
            -----------------------------------------------------------------
                                                 Number of shares     Amount
            -----------------------------------------------------------------
            Common Shares
              Balance, January 1, 2007                 22,248,051    219,629
            -----------------------------------------------------------------

              Issued for cash                           4,095,320     40,420
              Issued on acquisitions (note 4)          40,922,047    429,665
              Issued for cash: flow-through shares        809,540     10,200
              Tax effect on flow-through
               expenses renounced                               -     (4,425)
              Conversion of performance shares            387,534      1,406
              Share issue costs (net of tax effect)             -     (1,961)
            -----------------------------------------------------------------

              Balance, December 31, 2007               68,462,492    694,934
            -----------------------------------------------------------------

            Performance Shares
              Balance, January 1, 2007                  1,082,157         23
              Exercised for Common Shares(1)           (1,082,157)       (23)
            -----------------------------------------------------------------

              Balance, December 31, 2007                        -          -
            -----------------------------------------------------------------

              Total share capital,
               December 31, 2007                       68,462,492    694,934
            -----------------------------------------------------------------
            -----------------------------------------------------------------
            (1) The Performance Shares were exercised or cancelled pursuant
                to the Real transaction.

        c)  Per share amounts

            The reconciling items between the basic and diluted average
            Common Shares outstanding are stock-based compensation items.

        d)  Stock-based compensation

            The Company has an employee stock option plan under which
            employees and directors are eligible to receive option grants
            ("Stock Options") and Common Share incentives ("Incentive
            Shares"). The total aggregate amount of Stock Options and
            Incentive Shares that can be issued cannot exceed ten percent of
            the outstanding Common Shares. The Company accounts for its
            stock-based compensation using the fair value method.

            Stock Options granted under the plan have a term of five years to
            expiry and vest over three years. The fair value of each Stock
            Option granted was estimated on the date of the grant using the
            Black-Scholes option pricing model with weighted average
            assumptions. The average expected life for the Stock Options is
            three years. The risk-free interest rate used to fair value the
            Stock Options is 4.25 percent and the expected volatility is
            35 percent. The fair value of Incentive Shares is deemed to equal
            the stock price on the date of grant. The fair value of the Stock
            Options and Incentive Shares is charged to earnings over three
            years on a straight-line basis.

            Pursuant to the Real transaction, a change of control caused the
            cancellation of all stock options issued prior to August 16,
            2007, followed by the issuance of new Stock Options and Incentive
            Shares.

            The following table reconciles Stock Option activity:

            -----------------------------------------------------------------
                                          2007                  2006
                                 --------------------------------------------
                                              Weighted              Weighted
                                               average               average
                                  Number of   exercise  Number of   exercise
                                    options   price ($)   options   price ($)
            -----------------------------------------------------------------
            Balance, beginning
             of year                995,258      14.62          -          -
            Prior to Real
             transaction:
              Granted                71,430      11.03    995,258      14.62
              Cancelled          (1,066,688)     14.61          -          -
            Subsequent to Real
             transaction:
              Granted             2,710,100       7.40          -          -
              Cancelled             (14,300)      7.29          -          -
            -----------------------------------------------------------------

            Balance, end of year  2,695,800       7.40    995,258      14.62
            -----------------------------------------------------------------
            -----------------------------------------------------------------

            Exercisable,
             end of year                  -          -          -          -
            -----------------------------------------------------------------
            -----------------------------------------------------------------

            Incentive Shares are earned annually in equal amounts over three
            years from the date of grant. Upon being earned, the Incentive
            Shares are converted into Common Shares and issued from treasury
            at no cost to the Incentive Shareholder. During the year ended
            December 31, 2007, 1,860,550 Incentive Shares were granted and
            40,900 Incentive Shares were cancelled. As at December 31, 2007,
            there were 1,819,650 Incentive Shares outstanding and none were
            convertible to Common Shares.

        e)  Contributed surplus

            The following table reconciles the Company's contributed surplus
            balance:

            ($ thousands)
            -----------------------------------------------------------------
                                                             2007       2006
            -----------------------------------------------------------------
            Balance, beginning of year                      1,611          -
            Stock-based compensation expense arising from:
              Stock Options                                 3,185        755
              Incentive Shares                              2,328          -
              Performance Shares                              527        856
            Reclass to share capital upon conversion:
              Performance Shares                           (1,383)         -
              Escrowed shares                                 146          -
            -----------------------------------------------------------------

            Balance, end of year                            6,414      1,611
            -----------------------------------------------------------------
            -----------------------------------------------------------------

        f)  Accumulated other comprehensive income

            As described in note 3, the adoption of new accounting policies
            regarding financial instruments on January 1, 2007 resulted in an
            amount being recognized in accumulated other comprehensive income
            for the fair value of the Company's commodity derivative
            contracts at January 1, 2007. The amount recognized in
            accumulated other comprehensive income is as follows:

            ($ thousands)
            -----------------------------------------------------------------
                                                             2007       2006
            -----------------------------------------------------------------
            Balance, beginning of year                          -          -
            Change in accounting policy,
             net of tax of $874                             2,087          -
            Amortization of fair value of financial
             instruments, net of tax of $797               (1,905)
            -----------------------------------------------------------------

            Balance, end of year                              182          -
            -----------------------------------------------------------------
            -----------------------------------------------------------------

        g)  Flow-through shares

            On March 16, 2007, TriStar issued 1,700,000 (809,540 after the
            effect of the Real acquisition) flow-through Common Shares at a
            price of $6.00 ($12.60 after the effect of the Real acquisition)
            per share for gross proceeds of $10.2 million. As a result, the
            Company must incur certain qualifying resource expenditures
            before December 31, 2008. The related tax impact will be recorded
            when the qualifying expenditures are renounced to shareholders in
            2008. Accordingly, no qualifying expenditures related to this
            flow-through share obligation were renounced as at December 31,
            2007. The obligation remaining for this flow-through share issue
            was $10.0 million at December 31, 2007. There was no obligation
            remaining related to 2006 flow-through shares at December 31,
            2007.

    10. Supplemental cash flow information

        ($ thousands)
        ---------------------------------------------------------------------
                                                             Year       Year
                                                            ended      ended
                                                           Dec 31,    Dec 31,
                                                             2007       2006
        ---------------------------------------------------------------------
        Income and other taxes paid                           624         93
        Interest paid, net of interest income               7,703      1,820
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    11. Financial instruments

        The Company's financial instruments recognized on the balance sheet
        consist of accounts receivable, accounts payable and accrued
        liabilities, bank loan and derivative commodity contracts. The fair
        value of these instruments, excluding derivative commodity contracts,
        approximate their carrying value due to their short terms to maturity
        or the indexed rate of interest on the bank debt. The fair value of
        the derivative commodity contracts ("financial derivatives") is
        recognized on the balance sheet as described below.

        Financial derivatives
        ---------------------
        TriStar enters into commodity derivative contracts that provide
        downside price protection in order to provide some stability of cash
        flows for capital spending planning purposes. Commodity prices
        fluctuate due to political events, meteorological conditions,
        disruptions in supply and changes in demand. The Company's risk
        management activities are conducted pursuant to the Company's risk
        management policies approved by the Board of Directors.

        At December 31, 2007, the following table presents a reconciliation
        of the change in the unrealized amounts from January 1, 2007 to
        December 31, 2007:

        ($ thousands)
        ---------------------------------------------------------------------
                                                                       Total
                                                                  unrealized
                                                      Fair value  gain/(loss)
        ---------------------------------------------------------------------
        Balance, beginning of year                         2,960           -
        Unrealized loss on financial instruments         (41,906)    (41,906)
        Amortization of fair value of financial
         instruments                                           -       2,702
        ---------------------------------------------------------------------

        Balance, end of year                             (38,946)    (39,204)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        Commodity contracts
        -------------------

        Commodity contracts outstanding as at December 31, 2007 are as
        follows:

        Oil Costless Collars Contracts
        ---------------------------------------------------------------------
                                       Volume            Price
                                       (Bbl/d)        (per Bbl)        Index
        ---------------------------------------------------------------------

        Jan. 1, 2007 - Dec. 31, 2008      250    60.00 - 75.00           WTI
        Jan. 1, 2008 - Dec. 31, 2009      500    65.00 - 76.30           WTI
        Jan. 1, 2008 - Dec. 31, 2009      500    65.00 - 76.15           WTI
        Jan. 1, 2008 - Dec. 31, 2009      500    67.00 - 76.70           WTI
        Jan. 1, 2008 - Dec. 31, 2009      500    70.00 - 75.52           WTI
        Jan. 1, 2008 - Dec. 31, 2009      500    65.00 - 73.25           WTI
        Jan. 1, 2008 - Dec. 31, 2008      250    80.00 - 97.05           WTI
        Jan. 1, 2008 - Dec. 31, 2009      250    75.00 - 96.05           WTI
        Jan. 1, 2008 - Dec. 31, 2009      250   75.00 - 102.00           WTI
        Jan. 1, 2008 - Dec. 31, 2009      250   75.00 - 100.00           WTI
        Jan. 1, 2008 - Dec. 31, 2009      250   80.00 - 100.00           WTI
        Jan. 1, 2008 - Dec. 31, 2009      250   75.00 - 100.00           WTI
        Jan. 1, 2008 - Dec. 31, 2009      250   80.00 - 100.00           WTI
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------



        Oil Swap Contracts
        ---------------------------------------------------------------------
                                       Volume            Price
                                       (Bbl/d)        (per Bbl)        Index
        ---------------------------------------------------------------------

        Jan. 1, 2007 - Dec. 31, 2008      250         US$68.35           WTI
        Apr. 1, 2007 - Dec. 31, 2009      250          C$76.60         C$WTI
        Jan. 1, 2008 - Dec. 31, 2009      250          C$78.20         C$WTI
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------



        Natural Gas Costless Collars Contracts
        ---------------------------------------------------------------------
                                       Volume            Price
                                        (GJ/d)           ($/GJ)        Index
        ---------------------------------------------------------------------

        Nov. 1, 2007 - Mar. 31, 2008    2,000     7.50 - 10.32  AECO Monthly
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    12. Acquisition related expenses

        During 2007, as a result of the acquisition of Real, TriStar incurred
        $2.1 million of merger-specific expenses. Of these, $1.0 million
        related to cash employment and financing expenditures. In addition,
        the transaction resulted in the termination of TriStar's previous
        stock-based compensation arrangements, which resulted in the
        immediate recognition of a $1.1 million non-cash expense under stock-
        based compensation accounting rules.

    13. Commitments

        At December 31, 2007, The Company had the following lease commitment
        for office space:

        ($ thousands)
        ---------------------------------------------------------------------

        ---------------------------------------------------------------------
        2008                                                           3,544
        2009                                                           3,544
        2010                                                           3,544
        2011                                                           3,544
        2012                                                           3,590
        Thereafter                                                    11,449
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    14. Contingencies

        The Company is involved in litigation and claims arising in the
        normal course of operations and believes that such claims will not
        materially affect the Company's financial position or reported
        results of operations.

    15. Subsequent events

        On January 8, 2008, TriStar closed the acquisition of Kinwest
        Corporation and issued 8.0 million Common Shares to the shareholders
        of Kinwest Corporation. These Common Shares were valued at $10.28 per
        share, being the weighted average TriStar share price two days before
        and after the announcement date of this acquisition for total
        consideration of $82.4 million, before transaction costs. In
        addition, TriStar assumed net debt and bank debt of $6.2 million,
        subject to final adjustments.

        On January 18, 2008, TriStar closed the acquisition of Arista Energy
        Limited ("Arista") by way of a plan of arrangement under the Business
        Corporations Act (Alberta) for cash consideration of approximately
        $212.0 million, including the assumption of $47.2 million of net debt
        and bank debt, subject to final adjustments, and before transaction
        costs. Concurrent with this arrangement, 16.9 million common shares
        of TriStar were issued by way of bought deal private placement for
        proceeds of $205.0 million.

        On February 7, 2008, TriStar closed the acquisition of Bulldog
        Resources Inc. ("Bulldog") by way of plan of arrangement under the
        Business Corporations Act (Alberta). Under the terms of the
        arrangement, TriStar issued 16.8 million Common Shares to the
        shareholders of Bulldog, which were valued at $11.66 per Common
        Share, being the weighted average TriStar share price two days before
        and after the announcement date of this acquisition for total
        consideration of $191.3 million, before transaction costs. TriStar
        assumed net debt and bank debt of $17.8 million, subject to final
        adjustments.
    
    %SEDAR: 00025796E




For further information:

For further information: Brett Herman, President & Chief Executive
Officer, TriStar Oil & Gas Ltd., (403) 268-7800; or Jason Zabinsky, Vice
President, Finance & Chief Financial Officer, TriStar Oil & Gas Ltd., (403)
268-7800

Organization Profile

TriStar Oil & Gas Ltd.

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