TriStar Oil & Gas Ltd. - For the three months and year ended December 31, 2006



    CALGARY, March 12 /CNW/ - TriStar Oil & Gas Ltd. ("TriStar" or the
"Company") is pleased to announce its financial and operating results for the
three month period and year ended December 31, 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
to one barrel of oil.

    
    Highlights
                                      Three      Three
                                     Months     Months                  Year
                                      Ended      Ended                 Ended
                                   December  September              December
                                   31, 2006   30, 2006  % Change  31, 2006(1)
    -------------------------------------------------------------------------

    ($ thousands except per
     share and Boepd amounts)
    (unaudited)
    -------------------------------------------------------------------------

    Financial (CDN$)
      Production Revenue
       (prior to hedging)            18,846     18,084         4      57,107
    -------------------------------------------------------------------------

      Cash flow from operations(2)   10,725     11,021        (3)     33,627
        Per share basic                0.23       0.24        (4)       0.85
        Per share diluted              0.22       0.23        (4)       0.82
      Net earnings                    1,786      1,126        59       6,218
        Per share basic                0.04       0.02        56        0.16
        Per share diluted              0.04       0.02        57        0.15
    -------------------------------------------------------------------------

    Common shares (000's)
      Shares outstanding,
       end of period (basic)         46,720     46,720         0      46,720
      Weighted average shares
       (basic)                       46,720     45,967         2      39,674
      Weighted average shares
       (fully diluted)               47,958     47,381         1      41,172
    -------------------------------------------------------------------------

    Operations
      Production
        Crude oil (Bbls per day)      2,779      2,191        27       1,975
        Natural gas (Mcf per day)     6,841      7,400        (8)      5,117
        Barrels of oil equivalent
         (Boepd, 6:1)                 3,919      3,424        15       2,828
      Average realized price
        Crude oil ($ per Bbl)         56.20      70.67       (20)      63.73
        Natural gas ($ per Mcf)        7.12       5.64        26        6.41
        Barrels of oil equivalent
         ($ per Boe, 6:1)             52.27      57.41        (9)      56.10
      Netback per Boe (6:1) ($)
        Operating netback             34.69      38.87       (11)      37.64
        Cashflow netback              29.74      35.00       (15)      33.04
      Wells Drilled
        Gross                            23         29                    82
        Net                            14.9       15.7                  47.3
        Success (%)                      96         93                    92
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) TriStar commenced active operations on January 6, 2006.
    (2) Management uses cash flow (before changes in non-cash working
        capital), and operating and cashflow netback to analyze operating
        performance and leverage. Cash flow as presented, and operating and
        cashflow 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.

    President's Letter to Shareholders

    The Company's achievements in the fourth quarter and year ended 2006
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 of reserves to
        15.1 mmboe proved plus probable reserves from 3.3 mmboe at inception,
        a 353 percent increase;

    -   Increased net asset value at 5 percent before income tax (forecast
        pricing) per fully diluted share by 121 percent from $3.15 per share
        to $6.96 per share;

    -   Increased net asset value at 10 percent before income tax (forecast
        pricing) per fully diluted share by 108 percent from $2.71 per share
        to $5.64 per share;

    -   Increased total proved reserves by fully diluted share by 123
        percent;

    -   Increased total proved plus probable reserves per fully diluted share
        by 154 percent;

    -   Production grew to 3,919 Boepd in the fourth quarter of 2006 from
        3,424 Boepd in the third quarter of 2006, representing a quarter over
        quarter increase of 15 percent;

    -   Production averaged 2,828 Boepd in 2006;

    -   Increased production per fully diluted share in 2006 by 136 percent
        (start of 2006 to exit 2006);

    -   Cash flow totalled $10.7 million in the fourth quarter, and
        $33.6 million for 2006;

    -   Cash flow per share was $0.22 per share in the fourth quarter, and
        $0.82 per share for 2006;

    -   Successfully drilled 22 (13.9 net) of 23 (14.9 net) wells in the
        fourth quarter for a 96 percent success rate;

    -   For 2006, the Company successfully drilled 75 (42.3 net) of 82 (47.3
        net) wells for an overall success rate of 92 percent;

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

        - proved plus probable F&D excluding future
          development costs                                      $ 17.73/Boe

        - proved plus probable F&D including future
          development costs                                      $ 20.43/Boe

        - proved plus probable FD&A excluding future
          development costs                                      $ 19.96/Boe

        - proved plus probable FD&A including future
          development costs                                      $ 22.61/Boe

        - proved plus probable reserves replacement            1,581 percent

        - proved plus probable FD&A recycle ratio
          (2006 operating netback)                                 1.9 times

    -   Subsequent to quarter end, closed the acquisition of a private
        company in southeast Saskatchewan ("Private Company acquisition");
        and

    -   Subsequent to quarter end, announced the acquisition of certain
        assets in the Company's core areas of Ante Creek and Countess in
        Alberta and in southeast Saskatchewan producing more than
        950 Boepd (greater than 60% light oil) for approximately
        $55.7 million in cash, after certain closing adjustments. In
        conjunction with the transaction, TriStar announced that it had
        entered in to an agreement with a syndicate of underwriters to issue
        8.6 million subscription receipts at a price of $4.70 per
        subscription receipt and 1.7 million flow-through common shares at a
        price of $6.00 per flow-through common share for total gross proceeds
        of approximately $50 million (the "Offering"). The acquisitions and
        the Offering are expected to close on or before March 31, 2007.
    

    Operational Review

    During the fourth quarter of 2006, TriStar drilled a total of 23 (14.9
net) wells, resulting in 22 (13.9 net) potential oil wells and 1 (1.0 net) D&A
wells, for an overall success rate of 96 percent.
    At the Company's Star Valley light oil pool in southeast Saskatchewan
(40 percent - 100 percent WI), TriStar executed a successful horizontal Alida
oil well program resulting in 4 (2.3 net) oil wells. These wells produce high
netback, light oil (33 degrees API) at initial production rates averaging 125
Boepd. This recent program brings the total number of wells drilled at Star
Valley in 2006 to 6 (3.7 net), resulting in 100 percent success. TriStar's
2006 drilling program increased the Company's net production from the pool
from 225 Boepd at the beginning of 2006 to over 525 Boepd by the end of 2006.
TriStar's success at Star Valley demonstrates the Company's proven strategy of
focusing on large oil in place reservoirs. The Company has currently
identified 22 gross locations of which 6 (4.9 net) wells are planned for 2007.
    At Gainsborough in southeast Saskatchewan TriStar holds a 50 percent WI
in a new Frobisher discovery well which had an initial production rate of 125
Boepd of high netback, light oil (32 degrees API). This well continues to
produce at attractive rates after four months of production with a very low
water cut. The discovery well was drilled to test a 3-D seismically defined
porosity anomaly. In 2007, TriStar plans to further delineate this new
discovery with the drilling of up to two step-out wells.
    Additional drilling results in southeast Saskatchewan in the fourth
quarter included the drilling of 5 (1.6 net) successful new oil wells into
TriStar's Willmar and Hastings pools. These pools, along with additional pools
at Clarilaw and Fletwode, are high quality, light oil accumulations which will
see continued development in 2007 with the drilling of 14 (12 net) oil wells.
    In southern Alberta, TriStar was active in the fourth quarter, drilling a
3 (1.5 net) oil well program at Countess. TriStar drilled a total of 14 (7.4
net) wells at Countess in 2006 with a 93 percent success rate increasing
production from 350 Boepd at the beginning of 2006 to over 575 at the end of
2006. This 2006 drilling program successfully delineated seven of the 24 new
pool discoveries that were originally rolled into TriStar. In 2007, TriStar
will focus on development and step-out programs on these new pools as well as
pursuing additional exploration targets that have been identified on 3-D
seismic. The Company currently has an 8 (5.0 net) well program planned for
Countess in 2007.
    At Redwater, located in central Alberta, fourth quarter activity included
the drilling of a very successful 7 (7.0 net) oil well drilling program into
this high quality, 34 degrees API light oil pool. This program has resulted in
the successful completion of six of the seven oil wells with initial
production rates ranging from 50 Boepd to 200 Boepd. This recent drilling
program has confirmed our original estimate of OOIP in this exciting Ellerslie
oil pool discovery. Further, new mapping indicates a potential for the pool to
have greater than 20 million barrels OOIP with a less than 4 percent recovery
factor to date. 2007 planned activity includes the drilling of 5 (5.0 net)
additional oil wells, shooting five square miles of additional 3-D seismic and
the initiation of a water flood pilot study to potentially increase the
ultimate recovery factor of this pool.
    In west central Alberta, at TriStar's Ante Creek Montney Pool, the fourth
quarter saw the successful completion of the two wells drilled in the third
quarter on this long life light oil pool. TriStar believes that its lands
contain in excess of 100 million barrels of 39 degrees API of original oil in
place with very low recovery factors to date. In addition, TriStar believes
there is over 75 Bcf of associated solution gas in place within this
reservoir. TriStar successfully completed a vertical Montney test into this
reservior which had initial capability of 100 barrels of oil per day
("bbls/d") and 500 thousand cubic feet of gas per day ("mcf/d"), with an
ultimate stabilized rate of 25 bbls/d and 250 mcf/d of sweet gas. The second
well in the 2006 program was the first horizontal well drilled into this
Montney pool. TriStar is employing a similar technique of fracture stimulating
this horizontal well as developed in the southeast Saskatchewan Bakken
exploration play. In 2007, TriStar plans to drill up to six horizontal wells
(6.0 net) into this pool and continue to refine its frac technique to
efficiently exploit this resource play.
    Exploration activity for TriStar in the fourth quarter included the
drilling of a new horizontal oil well in the Sinclair-Antler area of eastern
Saskatchewan. This well had an initial production rate of 135 Boepd of light
oil (40 degrees API) from the Devonian Torquay zone and is currently producing
approximately 50 Boepd after three months of production with water cuts of
less than 10 percent. TriStar's exploration land base in this area now exceeds
90 net sections of undeveloped land. Additional drilling of this exciting
exploration play in 2007 will commence with a 3 (0.75 net) horizontal well
program in the second quarter. In addition, TriStar participated in the
drilling of 1 (0.5 net) Bakken exploration well in the Freestone area of
southeast Saskatchewan. This well further extends the Bakken fairway to the
north of the existing Stoughton-Viewfield Bakken Pool. TriStar currently has
plans to drill 8 (4.5 net) Bakken wells in 2007.
    TriStar continues to add to its large drilling inventory. The Company has
more than 325 gross development and step-out locations on its land base
throughout western Canada. This large internal suite of strategically focused
drilling opportunities represents a four to five year drilling inventory on
TriStar's land base. TriStar continues to evaluate opportunities to expand its
inventory of locations through potential farm out opportunities on its large
undeveloped land base.

    Outlook; Guidance

    TriStar has had an excellent first year of operations. 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 2007
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 acquisition and financings announced on March 9, 2007):

    
    -   High Quality Assets:                  High netback (2006 operating
                                              netback = $37.64)
                                              light oil and natural gas
                                              reserves and production focused
                                              in four operating areas

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

    -   Long Life Reserves:                   19.6 Mmboe proven plus
                                              probable; greater than
                                              10 year RLI

    -   High Netback Production (guidance):   5,150 Boepd (2007 Estimated
                                              Average)
                                              5,900 Boepd (2007 Estimated
                                              Exit)

    -   Extensive Drilling Inventory:         More than 325 locations -
                                              greater than a four year
                                              drilling inventory
                                              Greater than 225,000 net acres
                                              of undeveloped land

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

    -   Shares Outstanding:                   59.5mm (Basic)
                                              60.5mm (Fully Diluted)
    

    TriStar begins its second year of operations in a strong position to
continue delivering per share growth with an excellent balance sheet, high
netback production, significant opportunity inventory and a dedicated team
executing a proven strategy.

    On behalf of the Board of Directors,

    (signed)
    Brett Herman
    President and Chief Executive Officer

    March 12, 2007

    Forward-Looking Statements

    This document contains forward-looking statements. More particularly,
this document contains statements concerning TriStar's projected annual exit
rate of production of oil and natural gas and planned exploration and
development activities.
    The forward-looking statements are based on certain key expectations and
assumptions made by TriStar, including expectations and assumptions concerning
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 TriStar's planned activities.
    Although TriStar 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 TriStar 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 TriStar's Annual Information Form which has been 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 TriStar 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.
    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.

    Management's Discussion and Analysis

    Management's Discussion and Analysis ("MD&A") is dated March 12, 2007.
The MD&A should be read in conjunction with TriStar Oil & Gas Ltd.'s
("TriStar" or the "Company") audited financial statements as at and for the
years ended December 31, 2006 and 2005. 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 (the "Plan") involving StarPoint Energy
Trust ("StarPoint") and Acclaim Energy Trust ("Acclaim"), which resulted in
the creation of Canetic Resources Trust ("Canetic") and TriStar. Under the
Plan, TriStar acquired certain oil and gas properties from StarPoint and
Acclaim.
    The financial data presented below has been prepared in accordance with
Canadian Generally Accepted Accounting Principles ("GAAP"), unless otherwise
indicated.
    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, 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 this
measure should not be construed as an alternative to net income determined in
accordance with GAAP as an indication of TriStar's performance.
    The 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.
    This MD&A contains forward-looking statements, which may include
statements relating to management's approach to the number of wells, amount
and timing of capital projects, interest rates, worldwide and industry
production, prices of oil and natural gas, Company production, cash flow and
debt levels. These forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. See under "Business Conditions and Risks" in this
MD&A and under "Risk Factors" in the Company's Annual Information Form ("AIF")
which has been filed on SEDAR and can be accessed at www.sedar.com. The reader
is cautioned that assumptions used in preparation of such information,
although considered reasonable by TriStar at the time of preparation, may
prove to be incorrect.

    Subsequent Events

    Acquisition of Private Saskatchewan Company

    On January 11, 2007, the Company closed the acquisition of all of the
issued and outstanding shares of a private Saskatchewan oil and gas company,
for total consideration of 2,500,000 Common Shares and $2.0 million in cash.

    Acquisitions of Assets and Common Share Financing

    On March 9, 2007, the Company announced 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 $55.7 million, net
of certain closing adjustments but before related transaction expenses. The
acquisitions are expected to close on or before March 31, 2007.
    In conjunction with the acquisitions, the Company announced it had
entered into a bought deal equity financing agreement with a syndicate to
issue on a private placement basis, 8.6 million subscription receipts of
TriStar at a price of $4.70 each for gross aggregate proceeds of approximately
$40.4 million (the "Subscription Receipt Offering") and 1.7 million
flow-through Common Shares at a price of $6.00 for gross aggregate proceeds of
approximately $10.2 million (the "Flow Through Offering"). Closing of the
Subscription Receipt Offering is scheduled for March 29, 2007 and the closing
of the Flow Through Offering is scheduled for March 16, 2007.
    The proceeds of the Subscription Receipt Offering will be held in escrow
pending TriStar's receipt of all necessary approvals and the completion of the
primary acquisition.
    Upon these conditions being met, the proceeds of the Subscription Receipt
Offering will be released to TriStar and each subscription receipt will be
exchanged for one Common Share without additional payment. If closing of the
primary acquisition does not take place by April 30, 2007, or the primary
acquisition is terminated at any earlier time, holders of the subscription
receipts will be entitled to a return of their full subscription price and
their pro rata entitlement to the interest earned on the escrowed funds.
    Subscription receipts and flow-through Common Shares issued pursuant to
the private placement will be subject to a hold period of four months from the
date of closing. The offerings are subject to the receipt of all necessary
regulatory and stock exchange approvals.

    
    Results of Operations

    Production
                                  Three Months   Three Months           Year
                                         Ended          Ended          Ended
                                   December 31,  September 30,   December 31,
                                          2006           2006           2006
    -------------------------------------------------------------------------
    Daily Production
    Crude oil (Bbls per day)             2,779          2,191          1,975
    Natural gas (Mcf per day)            6,841          7,400          5,117
    -------------------------------------------------------------------------
    Total (Boepd)                        3,919          3,424          2,828
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    For the three months ended December 31, 2006, TriStar averaged 3,919
Boepd as compared to 3,424 Boepd in the third quarter of 2006, a 14 percent
increase. Production was comprised of approximately 2,779 Bbls per day of
crude oil and NGLs and 6,841 Mcf per day of natural gas. Production averaged
2,828 Boepd for the year ended December 31, 2006 comprised of 1,975 Bbls per
day of crude oil and NGLs and 5,117 Mcf per day of natural gas.

    
    Production for the quarter was divided between the following areas:
    -------------------------------------------------------------------

                                                                Three Months
                                                                       Ended
                                                                 December 31,
                                                                        2006
    -------------------------------------------------------------------------
                                     Crude Oil    Natural Gas          Total
    Area                          Bbls per day    Mcf per day          Boepd
    -------------------------------------------------------------------------

    Alberta                              1,474          6,740          2,597
    Saskatchewan                         1,305            101          1,322
    -------------------------------------------------------------------------

    Total                                2,779          6,841          3,919
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    During the quarter, the Company drilled 23 (14.9 net) wells resulting in
22 (13.9 net) potential oil wells and 1 (1.0 net) dry and abandoned well,
achieving a 96 percent success rate.
    For 2006, the Company drilled 82 (47.3 net) wells resulting in an overall
success rate of 92 percent.

    Pricing

    Crude oil prices in 2006 averaged US$66.09 per Bbl WTI ($73.77 Edmonton)
and ranged from a high of US$77.75 per Bbl WTI ($90.94 Edmonton) to a low of
US$55.55 per barrel WTI ($58.83 Edmonton) as global political instability and
crude and refined product inventory fundamentals fluctuated. In the fourth
quarter, WTI averaged US$59.96 per Bbl and Edmonton averaged $65.25 per Bbl as
concerns over supply/demand fundamentals eased.
    Natural gas prices averaged $6.17 per Mcf for AECO daily spot and
US$6.73/Mmbtu for NYMEX daily gas in 2006 and $6.53 per Mcf for AECO daily
spot and US$6.63/Mmbtu for NYMEX daily in the quarter. North American gas
prices remain volatile as supply and demand dynamics fluctuate.
    TriStar's average realized price for its crude oil and NGLs averaged
$56.20 in the quarter and $63.73 in 2006 while its realized natural gas price
was $7.12 per Mcf in the quarter and $6.41 in 2006.

    
                                  Three Months   Three Months           Year
                                         Ended          Ended          Ended
                                   December 31,  September 30,   December 31,
                                          2006           2006           2006
    -------------------------------------------------------------------------

    Average Benchmark Prices
    Crude oil - WTI (US$ per Bbl)        59.96          70.36          66.09
    Crude oil - Edmonton Par Price
     ($ per Bbl)                         65.25          79.40          73.77
    Natural gas - AECO-C Monthly
     ($ per Mcf)                          6.03           6.03           6.62
    Natural gas - AECO Daily
     ($ per Mcf)                          6.53           5.67           6.17
    Exchange rate - (US$/CDN$)            0.87           0.89           0.88
    -------------------------------------------------------------------------
    

    Revenues

    For the three months ended December 31, 2006, TriStar recorded
$14.4 million in crude oil sales and $4.5 million in natural gas sales, prior
to the effect of hedging, a 1 percent and 17 percent increase respectively
over the third quarter of 2006 when TriStar recorded $14.2 million of crude
oil sales and $3.8 million of natural gas sales. TriStar recorded $45.3
million in crude sales and $11.8 million in natural gas sales, prior to the
effect of hedging, for the year ended December 31, 2006. In the fourth quarter
of 2006 TriStar's revenue was affected by a gain of $0.5 million as a result
of its hedging program as compared to the third quarter when there was a gain
of $0.09 million. For the year ended 2006 TriStar's revenue was affected by a
gain of $0.6 million as a result of its hedging program. The Company realized
the following commodity prices for the three months ended December 31 and
September 30, 2006 and year ended December 31, 2006, prior to the effect of
hedging.

    
                                  Three Months   Three Months           Year
                                         Ended          Ended          Ended
                                   December 31,  September 30,   December 31,
                                          2006           2006           2006
    -------------------------------------------------------------------------

    TriStar Average Realized
     Prices Prior to Hedging
    Crude oil - ($ per Bbl)              56.20          70.67          63.73
    Natural gas - ($ per Mcf)             7.12           5.64           6.41
    Boe - ($ per Boe)                    52.27          57.41          56.10
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                  Three Months   Three Months           Year
                                         Ended          Ended          Ended
                                   December 31,  September 30,   December 31,
    ($ thousands)                         2006           2006           2006
    -------------------------------------------------------------------------
    Revenues by Product
    Crude oil                           14,367         14,242         45,305
    Hedging gains                          297             38            335
    Natural gas                          4,479          3,842         11,802
    Hedging gains                          179             52            273
    -------------------------------------------------------------------------

    Total revenues                      19,322         18,174         57,715
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Royalty Expenses

    Royalties in the quarter ended December 31, 2006 were $3.0 million or
15.9 percent of revenue as compared to $2.8 million or 15.6 percent in the
third quarter of 2006. For the year ended December 31, 2006 royalties were
$9.1 million or 16.0 percent of revenue. Royalties are calculated and paid
based on oil and natural gas revenues before any hedging gains or losses.
Accordingly, royalty expense is correlated to changes in revenue (prior to the
effect of hedging).

    Operating Expenses

    Operating expenses were $3.7 million or $10.30 per Boe in the quarter
ended December 31, 2006 as compared to $3.0 million or $9.67 per Boe in the
third quarter of 2006. For the year ended December 31, 2006, operating
expenses were $10.0 million or $9.83 per Boe. Operating expenses in the
quarter were affected by pipeline capacity issues in southeast Saskatchewan,
TriStar's largest core area. Growing production volumes in the area and
incremental imports from other areas have exceeded the capacity of the area's
major oil gathering system, Enbridge Pipelines (Saskatchewan). TriStar worked
diligently to maintain production in the quarter, and as a result incurred
incremental oil emulsion trucking costs in the quarter. TriStar expects that
operating costs will be affected intermittently during 2007 as a result of
this situation.

    Transportation Expenses

    Transportation expenses were $0.1 million or $0.30 per Boe in the quarter
ended December 31, 2006 as compared to $0.06 million or $0.19 per Boe in the
third quarter of 2006. For the year ended December 31, 2006, transportation
expenses were $0.3 million or $0.28 per Boe. Transportation expenses are
reflective of the location of TriStar's properties, transportation rates and
the location where the product is sold. Transportation of clean oil in the
fourth quarter was also affected by the Enbridge Pipelines (Saskatchewan)
issues described above. It is expected that clean oil transportation costs
will be affected intermittently during 2007 as a result of this situation.

    Operating Netbacks

    Operating netbacks were $34.69 per Boe for the quarter ended December 31,
2006 as compared to $38.87 per Boe for the quarter ended September 30, 2006.
For the year ended December 31, 2006, operating netbacks were $37.64 per Boe.

    
    Netbacks
    --------

                                  Three Months   Three Months           Year
                                         Ended          Ended          Ended
    ($ per Boe, unless             December 31,  September 30,   December 31,
     otherwise noted)                     2006           2006           2006
    -------------------------------------------------------------------------

    Total production (Boepd)             3,919          3,424          2,828
    -------------------------------------------------------------------------

    Crude oil and natural gas
     liquids ($ per Bbl)                 56.20          70.67          63.73
    Hedging gains ($ per Bbl)             1.16           0.18           0.47
    -------------------------------------------------------------------------

    Natural gas ($ per Mcf)               7.12           5.64           6.41
    Hedging gains ($ per Mcf)             0.28           0.08           0.15
    -------------------------------------------------------------------------

    Average Price Prior to Hedging       52.27          57.41          56.10
    -------------------------------------------------------------------------

      Hedging gains                       1.32           0.29           0.60
      Royalties, net                     (8.30)         (8.97)         (8.95)
      Operating                         (10.30)         (9.67)         (9.83)
      Transportation                     (0.30)         (0.19)         (0.28)
    -------------------------------------------------------------------------

    Operating Netback                    34.69          38.87          37.64
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    General and Administrative Expenses

    During the fourth quarter, general and administrative expenses ("G&A"),
net of recoveries, was $0.8 million or $2.19 per Boe as compared to the
quarter ended September 30, 2006 where G&A was $0.7 million or $2.12 per Boe.
For the year ended December 31, 2006, G&A was $2.4 million or $2.37 per Boe.
G&A in the fourth quarter was affected by expenses related to filing, printing
and mailing annual documents. With the exception of minor changes when
required, management believes that TriStar is adequately staffed to execute
its 2007 planned capital expenditure program.

    
                                  Three Months   Three Months           Year
                                         Ended          Ended          Ended
                                   December 31,  September 30,   December 31,
    ($ thousands)                         2006           2006           2006
    -------------------------------------------------------------------------
    General and administrative
     expenses                            2,266          1,745          6,101
    Recoveries                            (746)          (508)        (1,671)
    Capitalized general and
     administrative expenses              (731)          (570)        (2,020)
    -------------------------------------------------------------------------

    Total net general and
     administrative expenses               789            667          2,410
    -------------------------------------------------------------------------
    

    Interest Expense

    Interest expense was $0.7 million or $1.82 per Boe in the quarter as
compared to $0.6 million or $1.88 per Boe in the quarter ended September 30,
2006. For the year ended December 31, 2006, interest expense was $1.7 million
or $1.66 per Boe.

    Stock-based Compensation

    The Company's stock-based compensation expense for the quarter ended
December 31, 2006 was $0.4 million or $1.05 per Boe as compared to the quarter
ended September 30, 2006 of $0.3 million or $0.89 per Boe. For the year ended
December 31, 2006, stock-based compensation was $0.9 million or $0.93 per Boe.
The stock-based compensation expense was calculated utilizing a fair value
assessment methodology.

    Depletion, Depreciation and Accretion

    Depletion of oil and natural gas properties, including capitalized asset
retirement obligations, is calculated on a unit-of-production basis using
estimated proven reserves volumes.
    Depletion, depreciation and accretion expense in the quarter ended
December 31, 2006 was $10.6 million or $29.35 per Boe as compared to the
quarter ended September 30, 2006 which was $9.0 million or $28.68 per Boe. For
the year ended December 31, 2006, depletion, depreciation and accretion was
$29.4 million or $28.89 per Boe.

    Taxes

    For the quarter ended December 31, 2006, TriStar recorded a capital tax
expense of $0.3 million, and a future income tax reduction of $2.0 million as
compared to the quarter ended September 30, 2006 when the Company recorded
$0.04 million of capital tax reduction and future income tax expense of
$0.6 million. TriStar recorded a capital tax expense of $0.6 million and a
future income tax reduction of $2.9 million in 2006. The capital tax expense
is comprised of the Saskatchewan Capital Tax and Resource Surcharge. The
future income tax reduction for the year is mainly as a result of reduced
federal and provincial corporate tax rates which were enacted in 2006.
    As at December 31, 2006, TriStar had $168.4 million of tax deductions
available to offset future taxable income. Based on current commodity prices,
TriStar does not expect to pay current income taxes in 2007.

    Hedging Program

    TriStar enters into commodity price 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. TriStar's Risk Management Policy, as set out by the Board of
Directors, allows management to implement a commodity price hedging program.
    TriStar's financial instruments qualify for hedge accounting, which
TriStar has elected to use. The following tables summarize TriStar's hedging
relationships as at December 31, 2006:

    
    Costless Collars Oil Contracts
    ------------------------------
                                                     Price
                                 Volume (Bbl/d)    ($US/Bbl)         Index
    -------------------------------------------------------------------------
    Mar. 1, 2006 - Dec. 31, 2006       250       60.00 - 73.00        WTI
    Apr. 1, 2006 - Jun. 30, 2007       250       60.00 - 77.20        WTI
    Apr. 1, 2006 - Dec. 31, 2007       250       60.00 - 76.10        WTI
    Jun. 1, 2006 - Dec. 31, 2006       250       70.00 - 79.50        WTI
    Jan. 1, 2007 - Dec. 31, 2007       500       70.00 - 78.10        WTI
    Jan. 1, 2007 - Dec. 31, 2008       250       60.00 - 75.00        WTI
    Jul. 1, 2007 - Dec. 31, 2007       250       70.00 - 78.00        WTI
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

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

    The fair value of the oil costless collars and the swap contract at
December 31, 2006 was a gain of US$2.1 million.

    Costless Collars Natural Gas Contracts
    --------------------------------------

                                  Volume (GJ/d)   Price ($/GJ)       Index
    -------------------------------------------------------------------------
    Nov. 1, 2006 - Mar. 31, 2007      2,000       7.50 - 16.25   AECO Monthly
    Apr. 1, 2007 - Oct. 31, 2007      1,000       6.50 - 9.00    AECO Monthly
    Apr. 1, 2007 - Oct. 31, 2007      1,000       7.50 - 8.75    AECO Monthly
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The fair value of the natural gas costless collars at December 31, 2006
was a gain of $0.6 million.
    Subsequent to December 31, 2006, TriStar entered into the following hedge
relationships:

    Natural Gas Swap Contract
    -------------------------

                                  Volume (GJ/d)   Price ($/GJ)       Index
    -------------------------------------------------------------------------
    Apr. 1, 2007 - Oct. 31, 2007      1,000           7.64       AECO Monthly
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Costless Collars Natural Gas Contracts
    --------------------------------------

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

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

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

    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, bank debt and working capital. As at December 31, 2006, TriStar
had $54.4 million drawn on its demand loan facility with a major Canadian
chartered bank and had a working capital deficit of $8.8 million. At
December 31, 2006, the demand loan facility was for $80.0 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

    During the quarter, the Company incurred $29.3 million of capital
expenditures as compared to $21.9 million spent for the three months ended
September 30, 2006. TriStar incurred $321.3 million of capital expenditures
for the year ended December 31, 2006. The following table details capital
expenditures for the quarters ended December 31, 2006 and September 30, 2006,
and for the year ended December 31, 2006:

    
    Capital Expenditures
    --------------------

                                  Three Months   Three Months           Year
                                         Ended          Ended          Ended
                                   December 31,  September 30,   December 31,
    ($ thousands)                         2006           2006           2006
    -------------------------------------------------------------------------
    Drilling, development and
     production equipment               20,627         20,188         58,937
    Land and seismic                     1,946            532          3,633
    Acquisitions(1)                      5,759            256        254,589
    Other(2)                               992            932          4,118
    -------------------------------------------------------------------------
    Total                               29,324         21,908        321,277
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Includes total consideration (cash, stock and transaction costs) paid
        for acquisitions, and working capital and debt assumed.
    (2) Includes capitalized G&A and administrative assets.

    Goodwill

    TriStar recorded additional goodwill of $0.6 million during the quarter
ended December 31, 2006, bringing its balance as of December 31, 2006 to
$38.6 million. The change in the amount recorded in the fourth quarter as
compared to the third quarter relates to adjustments made to the purchase
price equations for previous acquisitions.

    Shareholders' Equity

    Share Capital
    -------------
                                  Three Months   Three Months           Year
                                         Ended          Ended          Ended
                                   December 31,  September 30,   December 31,
                                          2006           2006           2006
    -------------------------------------------------------------------------
    Outstanding Common Shares
    Weighted Average Outstanding
     Common Shares
      Basic                         46,719,972     45,966,820     39,673,991
      Diluted                       47,957,799     47,381,465     41,172,049
    -------------------------------------------------------------------------
    Outstanding Securities
      Common Shares                 46,719,972     46,719,972     46,719,972
      Common Share options           2,090,000      2,085,000      2,090,000
      Performance Shares             2,272,484      2,272,484      2,272,484
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Contractual Obligations

    TriStar's significant contractual obligations can be summarized as
follows:

                                                                  Year ended
                                    Year ended     Year ended    December 31,
                                   December 31,   December 31,      2009 and
    ($ thousands)                         2007           2008     thereafter
    -------------------------------------------------------------------------
    Bank facility                       54,411              -              -
    Flow-through shares                  7,400              -              -
    Office space and equipment           1,385          1,327          3,062
    -------------------------------------------------------------------------
    Total contractual obligations       63,196          1,327          3,062
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Bank Facility

    TriStar has available an $80.0 million demand credit facility. The
Company's credit facility is with a Canadian chartered bank 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.

    Flow-Through Shares

    On August 10, 2006, TriStar issued 1,690,000 flow-through Common Shares
at a price of $8.90 per share for gross proceeds of $15.0 million. As at
December 31, 2006, the Company had incurred approximately $7.6 million on
qualifying expenditures towards this obligation, with the remainder of
$7.4 million to be incurred during 2007. The entire obligation was renounced
to shareholders in January 2007.
    On the purchase of Raven Energy Ltd., TriStar assumed flow-through share
obligations to incur $1.3 million on qualifying expenditures on or before
December 31, 2006, arising from a $3.3 million flow-through share issue in
2005. These obligations were satisfied as at December 31, 2006.

    Off Balance Sheet Arrangements

    Other than as disclosed in the "Hedging Program" section of this MD&A,
TriStar does not have any off balance sheet arrangements.

    Working Capital

    The capital intensive nature of the Company's activities may create a
negative working capital position in quarters 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, 2006 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.

    
    Summary of Quarterly Results


                                      Three      Three      Three      Three
                                     Months     Months     Months     Months
                                      Ended      Ended      Ended      Ended
    ($ thousands except per        December  September       June   March 31,
     share and Boepd amounts)      31, 2006   30, 2006   30, 2006     2006(1)
    -------------------------------------------------------------------------

    Production revenue (prior to
     hedging)                        18,846     18,084     12,673      7,504
    Net income (loss)                 2,200      1,126      2,996        311
      Per share - basic                0.05       0.02       0.08       0.01
      Per share - diluted              0.05       0.02       0.08       0.01
    Production (Boepd)                3,919      3,424      2,290      1,489
    Cash flow from operations(2)     10,725     11,021      7,426      4,455
      Per share - basic                0.23       0.24       0.19       0.17
      Per share - diluted              0.22       0.23       0.19       0.16
    Cash flow from operating
     activities(3)                    3,144      8,313     12,371     12,626
      Per share - basic                0.12       0.22       0.27       0.27
      Per share - diluted              0.11       0.21       0.26       0.26
    -------------------------------------------------------------------------
    (1) TriStar began active operations on January 6, 2006.
    (2) "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.
    (3) "Cash flow from operating activities" is determined in accordance
        with GAAP and includes changes in non-cash working capital.
    


    Newly Adopted Accounting Policies

    There were no significant accounting policies newly adopted during the
three months ended December 31, 2006.

    Financial Instruments

    The following standards regarding financial instruments are effective for
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 would be measured at their amortized cost.
The standards create a new statement for comprehensive income that will
include changes in the fair value of certain financial instruments. As a
result of these new standards, the Company will not use hedge accounting
beginning January 1, 2007 and will record the fair value of its crude oil and
natural gas derivative contracts under its risk management program. The
accounting for hedging relationships for prior fiscal years is not
retroactively changed; therefore, no restatement of prior periods is expected
as a result of these new standards.

    Business Conditions and Risks

    The business of exploration, development and acquisition of oil and
natural gas reserves involves a number of uncertainties and as a result,
TriStar is exposed to a number of risks inherent in the oil and natural gas
industry. Operationally, TriStar faces risks that are associated with finding,
developing and producing oil and natural gas reserves. These include risks
associated with drilling, economic risk, environmental and safety concerns and
access to processing facilities. The financial risks that are not within
TriStar's control include the fluctuations in national and international
commodity prices, exchange rates and interest rates. TriStar mitigates risk
through the competence of its management team, adequate insurance coverage and
safety and environmental programs that meet or exceed regulations.

    Internal Control Reporting

    In March 2006 Canadian Securities Administrators decided to not proceed
with proposed multilateral instrument 52-111 "Reporting on Internal Control
over Financial Reporting" and instead proposed to expand multilateral
instrument 52-109 "Certification of Disclosure in Issuers' Annual and Interim
Filings". The major changes resulting from this are that the Chief Executive
Officer and Chief Financial Officer will be required to certify in the annual
certificates that they have evaluated the effectiveness of internal controls
over financial reporting ("ICOFR") as of the end of the financial year and
disclose in the annual MD&A their conclusions about the effectiveness of
ICOFR. There will be no requirement to obtain an internal control audit
opinion from the issuer's auditors concerning management's assessment of the
effectiveness of ICOFR. There is also no requirement to design and evaluate
internal controls against an external control framework. This proposed
amendment is expected to apply for the year ended December 31, 2008. TriStar
is continuing with its evaluation of ICOFR to ensure it meets the criteria for
the proposed certification for December 31, 2008.

    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 our management as appropriate to allow timely decisions
regarding required disclosure. The Company's Chief Executive Officer and Chief
Financial Officer have concluded, based on their evaluation of the
effectiveness of our disclosure controls and procedures as of the date of this
Management's Discussion and Analysis, that disclosure controls and procedures
provide reasonable assurance that material information is made known to them
by others within the Company. Certain weaknesses, however, have been
identified and the Company's Chief Executive Officer and Chief Financial
Officer do not expect that the disclosure controls and procedures can prevent
all errors and fraud. A control system, no matter how well conceived or
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. In the current year, there have been
no changes in the Company's internal control over financial reporting that has
materially affected, or is likely to materially affect, the Company's internal
control over financial reporting.

    Internal Control Over Financial Reporting
    -----------------------------------------
    The Chief Executive Officer and Chief Financial Officer of the Company
are responsible for designing ICOFR or causing them to be designed under their
supervision in order to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with Canadian GAAP. The design of our ICOFR
was assessed as of the date of this Management's Discussion and Analysis.

    Segregation of Duties

    Opportunities for improving deficiencies have been identified within the
Company's accounting function and its financial information systems regarding
segregation of duties and user access, respectively. Specifically, certain
duties within the accounting function were not ideally segregated due to the
small number of individuals employed in these areas. In addition, the Company
identified instances whereby personnel had the ability to initiate
transactions or accounting entries within certain financial reporting
applications that were not compatible with their other roles and
responsibilities.
    As the Company continues to grow, we plan to expand the number of
individuals involved in the accounting function. At the present time, the
Chief Executive Officer and the Chief Financial Officer oversee all material
transactions and related accounting records and there is daily oversight by
the senior management of the Company. In addition, the Audit Committee reviews
on a quarterly basis the financial statements and key risks of the Company and
queries management about significant transactions.

    Additional Information

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


    
                           TriStar Oil & Gas Ltd.

                         Audited Financial Statements

                     As at December 31, 2006 and 2005 and
                     for the Year Ended December 31, 2006


    Financial Statements

    TriStar Oil & Gas Ltd.
    Consolidated Balance Sheets

    ($ thousands)
    -------------------------------------------------------------------------
                                                  December 31,   December 31,
                                                         2006           2005
    -------------------------------------------------------------------------

    Assets

    Current assets
      Cash                                                  -              -
      Accounts receivable                              15,907              -
      Inventory                                         1,788              -
      Other current assets                              2,445              -
    -------------------------------------------------------------------------
                                                       20,140              -

    Property and equipment (notes 4, 5 and 6)         293,187              -
    Goodwill (notes 4 and 5)                           38,647              -
    -------------------------------------------------------------------------

    Total assets                                      351,974              -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities

    Current liabilities
      Bank loan (note 7)                               54,411              -
      Accounts payable and accrued liabilities         28,975              -
    -------------------------------------------------------------------------
                                                       83,386              -

    Asset retirement obligations (note 4, 5, 8)         6,089              -
    Future income taxes (note 9)                       35,018              -
    -------------------------------------------------------------------------

    Total liabilities                                 124,493              -
    -------------------------------------------------------------------------

    Shareholders' Equity

    Share capital (notes 4, 5 and 10)                 219,652              -
    Contributed surplus (note 10)                       1,611              -
    Retained earnings                                   6,218              -
    -------------------------------------------------------------------------

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

    Total liabilities and shareholders' equity        351,974              -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Commitments (note 13)

    Subsequent events (note 14)

    See accompanying notes to consolidated financial statements.

    Approved on behalf of the Board of Directors

    (signed) "Paul Colborne"            (signed) "Brett Herman"
    Paul Colborne                       Brett Herman
    Chairman of the Board               President and Chief Executive Officer



    TriStar Oil & Gas Ltd.
    Consolidated Statements of Operations and Retained Earnings


    ($ thousands, except per share amounts)
    -------------------------------------------------------------------------
                                                           For the Year Ended
                                                            December 31, 2006
    -------------------------------------------------------------------------
                                                                     (note 1)
    Revenues
      Petroleum and natural gas sales                                 57,715
      Royalties                                                       (9,112)
    -------------------------------------------------------------------------
                                                                      48,603

    Expenses
      Operating                                                       10,007
      Transportation                                                     289
      General and administration                                       2,410
      Depletion, depreciation and accretion                           29,407
      Stock-based compensation                                           942
      Interest                                                         1,695
    -------------------------------------------------------------------------
                                                                      44,750

    Income before taxes                                                3,853
    -------------------------------------------------------------------------

    Taxes (note 9)
      Capital taxes                                                      575
      Future income taxes                                             (2,940)
    -------------------------------------------------------------------------
                                                                      (2,365)

    -------------------------------------------------------------------------
    Net income                                                         6,218

    Retained earnings, beginning of year                                   -
    -------------------------------------------------------------------------

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

    Earnings per share (note 10)
      Basic                                                             0.16
      Diluted                                                           0.15
    -------------------------------------------------------------------------

    Weighted average number of shares (note 10)
      Basic                                                       39,673,991
      Diluted                                                     41,172,049
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to consolidated financial statements.



    TriStar Oil & Gas Ltd.
    Consolidated Statements of Cash Flows


    ($ thousands)
    -------------------------------------------------------------------------
                                                           For the Year Ended
                                                            December 31, 2006
    -------------------------------------------------------------------------
                                                                     (note 1)
    Cash flows related to the following activities:

    Operating activities
      Net income for the period                                        6,218
      Depletion, depreciation and accretion                           29,407
      Stock-based compensation                                           942
      Future income taxes                                             (2,940)
    -------------------------------------------------------------------------
                                                                      33,627

      Change in non-cash working capital                               2,827
    -------------------------------------------------------------------------
                                                                      36,454
    -------------------------------------------------------------------------

    Financing activities
      Issuance of share capital                                       77,237
      Share issue costs                                               (3,458)
      Increase (decrease) in bank loan                                26,605
    -------------------------------------------------------------------------
                                                                     100,384
    -------------------------------------------------------------------------

    Investing activities
      Capital expenditures                                           (65,477)
      Acquisitions, net of cash acquired                             (77,906)
      Change in non-cash working capital                               6,545
    -------------------------------------------------------------------------
                                                                    (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 11)

    See accompanying notes to consolidated financial statements.



    TriStar Oil & Gas Ltd.
    Notes to the Consolidated Financial Statements,
    As at and for the year ended December 31, 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 the plan of arrangement described in
        note 4. Accordingly, the year ended December 31, 2006 includes only
        results from operations for 360 days, from January 6, 2006 to
        December 31, 2006.

    2.  Principles of consolidation

        The consolidated financial statements include the accounts of TriStar
        Oil & Gas Ltd., TriStar Oil & Gas Partnership and Vortex Energy
        Corporation.

    3.  Significant accounting policies

        These financial statements have been prepared in accordance with
        Canadian generally accepted accounting principles. The preparation of
        financial statements in accordance with Canadian generally accepted
        accounting principles requires management to use estimates and
        assumptions that affect the reported amounts of assets and
        liabilities as at the date of the financial statements and the
        reported amounts of revenues and expenses during the reporting
        periods presented. Actual results may differ from these 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
           and development activities.

           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 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 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 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 the stock options and other stock-
           based compensation 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 liability method of accounting for income
           taxes. Under the liability 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. This includes
           linking all derivatives to specific assets and liabilities on the
           balance sheet or to specific firm commitments or forecasted
           transactions.

           These derivative contracts, accounted for as hedges, are not
           recognized on the balance sheet. Realized gains and losses on
           these contracts are recognized in petroleum and natural gas
           revenue and cash flows in the same period in which the revenues
           associated with the hedged transaction are recognized. Premiums
           paid or received are deferred and amortized to earnings over the
           term of the contract.

           Financial instruments that are not effective as hedges are
           recorded at fair value on the balance sheet with changes in fair
           value recognized in earnings.

           The following standards regarding financial instruments are
           effective for 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 would be
           measured at their amortized cost. The standards create a new
           statement for comprehensive income that will include changes in
           the fair value of certain derivative financial instruments. As a
           result of these new standards, the Company expects not to elect to
           use hedge accounting beginning January 1, 2007 and will record the
           fair value of its crude oil and natural gas derivative contracts
           under its risk management program. The accounting for hedging
           relationships for prior fiscal years is not retroactively changed;
           therefore, no restatement of prior periods is expected as a result
           of these new standards.

        i) Revenue recognition

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

        j) 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.

        k) 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.  Canetic Transaction

        On January 5, 2006, StarPoint Energy Trust ("StarPoint"), StarPoint
        Energy Ltd., Acclaim Energy Trust ("Acclaim"), Acclaim Energy Inc.
        and TriStar completed a plan of arrangement to combine StarPoint and
        Acclaim to form a new publicly traded income trust, Canetic Resources
        Trust ("Canetic"), and TriStar, a new publicly traded exploration
        company (collectively, the "Canetic Transaction").

        The Canetic Transaction was carried out pursuant to a plan of
        arrangement. Specifically, unitholders of the respective trusts
        received:

        a)    For each StarPoint unit owned, 1.0000 units of Canetic, 0.1000
              of a common share of TriStar ("Common Share") and 0.0210 of one
              arrangement warrant of TriStar ("Warrant").

        b)    For each Acclaim unit owned, 0.8333 units of Canetic, 0.0833 of
              a Common Share and 0.0175 of one Warrant.

        Each full Warrant was exercisable into one Common Share at an
        exercise price of $2.75 until February 6, 2006. As a result of the
        Warrants being exercised, 3,871,072 Common Shares were issued for
        total proceeds of $10.6 million.

        During the completion of the Canetic Transaction, the following
        additional events took place:

        a)    TriStar acquired certain oil and gas properties from Acclaim
              and StarPoint through a series of transactions involving cash
              and assets transferred to TriStar from Acclaim in exchange for
              TriStar Shares, and assets transferred from StarPoint in
              exchange for cash and TriStar Shares. The net result was an
              exchange value of approximately $56.1 million of assets in
              consideration for 19,999,591 Common Shares.

        b)    TriStar acquired undeveloped land from StarPoint for cash
              consideration of $2.1 million.

        c)    A private placement ("TriStar Private Placement") took place
              with gross proceeds of $7.5 million consisting of 2,727,269
              Common Shares at a price of $2.75 per Common Share. All of the
              shares issued pursuant to the private placement were acquired
              by contractors, employees, officers or directors of the Company
              ("deemed service providers"). The Common Shares issued under
              this private placement are subject to a contractual escrow
              arrangement. Under the escrow arrangement, one-third of the
              Common Shares issued to each deemed service provider will be
              releasable to the holder on each of January 4, 2007, July 4,
              2007 and January 4, 2008. If a holder of such Common Shares
              ceases to be a deemed service provider to TriStar during the
              term of the escrow, TriStar will have the right to repurchase
              any Common Shares still subject to escrow at a price equal to
              the lesser of $2.75 and the market price of the Common Shares
              on the last trading day immediately prior to such person
              ceasing to be a deemed service provider. The Common Shares may
              be transferred within escrow to another deemed service provider
              with the approval of the Board of Directors of TriStar.

        d)    TriStar issued 2,272,484 non-voting performance shares
              ("Performance Shares") to deemed service providers at a price
              of $0.01 per share, for proceeds of $22,725. A holder of
              Performance Shares shall become entitled to convert the
              Performance Shares into Common Shares on each of the first,
              second and third anniversaries of their issuance under the
              following terms: if the closing trading price of the Common
              Shares on the Toronto Stock Exchange or such other stock
              exchange on which the Common Shares are listed (the "Market
              Price") on these anniversaries is greater than $2.75, a holder
              of Performance Shares shall have the right, from and after such
              date and until the expiry time of the Performance Shares, to
              convert up to 33 1/3 percent of the total number of Performance
              Shares originally issued to such holder into Common Shares on
              each of these anniversaries. The number of Common Shares that
              can be thus obtained is calculated as the number of Performance
              Shares converted multiplied by the difference between the
              Market Price and $2.75, divided by the Market Price.

        The acquisition of the Canetic Transaction oil and gas properties has
        been accounted for by the purchase method of accounting and has been
        recorded at the fair value of the properties, as follows:

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

        Consideration
        ---------------------------------------------------------------------
          Common Shares issued                                   $    56,075
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Net assets received, at estimated fair value
        ---------------------------------------------------------------------

          Property and equipment                                 $    60,490
          Working capital                                             (2,096)
          Asset retirement obligations                                (2,319)
        ---------------------------------------------------------------------

                                                                 $    56,075
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        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.

    5.  Business combinations

        The Company made the following significant acquisitions during the
        year ended December 31, 2006:

        Raven acquisition
        -----------------

        On June 7, 2006, TriStar acquired all of the issued and outstanding
        common shares of Raven Energy Ltd. ("Raven"). Under the terms of the
        plan of arrangement, the purchase price paid by TriStar for each
        Raven common share was, at the election of each Raven common
        shareholder, $2.25 in cash, 0.32 Common Shares, or $0.6525 in cash
        and 0.2272 Common Shares, subject to a maximum cash payment of $22.5
        million.

        The Raven common shareholders elected to receive $14.7 million in
        cash and 9,104,893 Common Shares.

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

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

        Consideration
        ---------------------------------------------------------------------

          Cash                                                   $    14,683
          Common Shares issued                                        62,220
          Transaction costs                                              974
        ---------------------------------------------------------------------

                                                                 $    77,877
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Net assets received, at estimated fair value
        ---------------------------------------------------------------------

          Accounts receivable                                     $    2,272
          Inventory                                                    1,509
          Other current assets                                           265
          Property and equipment                                      83,552
          Goodwill                                                    18,075
          Bank loan                                                   (8,130)
          Accounts payable and accrued liabilities                      (863)
          Asset retirement obligations                                  (727)
          Future income taxes                                        (18,076)
        ---------------------------------------------------------------------

                                                                 $    77,877
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        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.

        Sawtooth acquisition
        --------------------

        On March 16, 2006, the Company acquired all of the issued and
        outstanding common shares of Sawtooth International Resources Inc.
        ("Sawtooth"). Under the terms of the plan of arrangement the purchase
        price paid by TriStar for each Sawtooth common share was, at the
        election of each Sawtooth common shareholder, $2.25 in cash or 0.2903
        Common Shares, or $1.125 in cash and 0.1452 of a Common Share.

        The plan of arrangement required an aggregate of 3,646,146 Common
        Shares be issued to the holders of Sawtooth common shares. Because of
        this requirement, an adjustment was made so that any holder of
        Sawtooth common shares who elected to receive all cash instead
        received approximately $1.24 in cash and 0.13 Common Shares. No
        adjustment was made for holders of Sawtooth common shares who elected
        to receive all Common Shares or a combination of Common Shares and
        cash.

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

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

        Consideration
        ---------------------------------------------------------------------

          Cash                                                   $    27,584
          Common Shares issued                                        26,558
          Transaction costs                                              766
        ---------------------------------------------------------------------

                                                                 $    54,908
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Net assets received, at estimated fair value
        ---------------------------------------------------------------------

          Property and equipment                                 $    76,294
          Goodwill                                                    17,297
          Bank loan                                                  (19,676)
          Working capital                                               (663)
          Asset retirement obligations                                (1,040)
          Future income taxes                                        (17,304)
        ---------------------------------------------------------------------

                                                                 $    54,908
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        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.

        Saskatchewan acquisitions
        -------------------------

        On February 15, 2006, the Company acquired all of the issued and
        outstanding shares of two private Saskatchewan oil and gas companies,
        and certain other minor, complimentary interests in the assets held
        by other private companies (together, the "Saskatchewan Assets").

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

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

        Consideration
        ---------------------------------------------------------------------

          Cash                                                   $    21,477
          Transaction costs                                              307
        ---------------------------------------------------------------------

                                                                 $    21,784
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Net assets received, at estimated fair value
        ---------------------------------------------------------------------

          Property and equipment                                 $    22,281
          Goodwill                                                     3,275
          Working capital                                                113
          Asset retirement obligations                                  (605)
          Future income taxes                                         (3,280)
        ---------------------------------------------------------------------

                                                                 $    21,784
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        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.

    6.  Property and equipment

        As at December 31, 2006, the property and equipment balances are as
        follows:


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

                                               Accumulated
                                             depletion and
                                     Cost     depreciation    Net book value
        ---------------------------------------------------------------------
        Petroleum and
         natural gas         $    321,500     $    (29,017)     $    292,483
        Administrative
         assets                       826             (122)              704
        ---------------------------------------------------------------------

                             $    322,326     $    (29,139)     $    293,187
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The calculation of the depletion and depreciation expense excludes
        unproved property costs of $49.7 million. Future development costs of
        $23.2 million were included in the depletion calculation.

        During the year ended December 31, 2006, the Company capitalized $2.0
        million and $1.0 million of general and administrative costs and
        stock-based compensation expense, respectively, relating to
        exploration and development activities.

        The ceiling test calculation at December 31, 2006 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, 2006
        ceiling test:


                  Crude Oil   Natural 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)
        ---------------------------------------------------------------------

        2007          74.10         7.72       43.94       55.23       75.88
        2008          77.62         8.59       46.03       57.85       79.49
        2009          70.25         7.74       41.66       52.36       71.94
        2010          65.56         7.55       38.88       48.87       67.14
        Thereafter(1)    2%           2%          2%          2%          2%
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (1)    Percentage change of 2% represents the change in future prices
               each year after 2010 to the end of the reserve life.

    7.  Bank loan

        The Company has an $80.0 million revolving demand operating credit
        facility. The credit facility provides that advances may be made by
        way of direct advances, banker's 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 year ended December 31,
        2006 was 4.8 percent.

    8.  Asset retirement obligations

        The total future asset retirement obligations was 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 $22.9 million as at December 31, 2006. These
        payments are expected to be made over the foreseeable future with the
        majority of costs incurred between 2018 and 2037. 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)
        ---------------------------------------------------------------------

                                                           December 31, 2006
        ---------------------------------------------------------------------
        Asset retirement obligations, beginning of period         $        -
        Liabilities acquired                                           5,090
        Liabilities incurred                                             731
        Accretion expense                                                268
        ---------------------------------------------------------------------
                                                                  $    6,089
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    9.  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 tax rate. This difference was principally due
        to a reduction of previously booked future tax liabilities arising
        from acquisition as a result of reduced federal and provincial
        corporate tax rates which were substantially enacted in the second
        quarter ended June 30, 2006. Excluding the effects of this reduction
        of future tax liabilities, the Company's effective tax rate was 39.4
        percent.

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

                                                                  Year ended
                                                           December 31, 2006
        ---------------------------------------------------------------------

        Income before taxes                                       $    3,853
        Statutory income tax rate                                      35.5%
        ---------------------------------------------------------------------

        Expected income taxes                                          1,368
        Add (deduct):
          Effect of reduced tax rates                                 (4,459)
          Deductible capital taxes                                      (204)
          Stock-based compensation                                       335
          Other                                                           20
        ---------------------------------------------------------------------

        Future income tax reduction                               $   (2,940)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

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

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

                                                               Balance as at
                                                           December 31, 2006
        ---------------------------------------------------------------------

        Property and equipment                                        33,105
        Partnership deferral                                           6,326
        Asset retirement obligations                                  (1,796)
        Loss carryforwards                                            (1,564)
        Share issue costs                                             (1,053)
        ---------------------------------------------------------------------

        Future income tax liability                              $    35,018
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        As at December 31, 2006, the Company has tax deductions of
        approximately $168.4 million that are available to shelter future
        taxable income.

        Flow-through shares
        -------------------

        On August 10, 2006, TriStar issued 1,690,000 flow-through Common
        Shares at a price of $8.90 per share for gross proceeds of $15.0
        million. The related tax impact will be recorded when the qualifying
        expenditures are renounced to shareholders in 2007. No qualifying
        expenditures related to this flow-through share obligation were
        renounced as at December 31, 2006. The obligation remaining at
        December 31, 2006 was $7.4 million.

        On the purchase of Raven described in note 5, TriStar assumed
        obligations to incur $1.3 million on qualifying expenditures on or
        before December 31, 2006, arising from a $3.3 million flow-through
        share issue. These obligations were satisfied as at December 31,
        2006.

    10. Share capital

        (a)    Authorized

              (i)    An unlimited number of voting Common Shares.

              (ii)   2,309,657 of non-voting Performance Shares, without
                     nominal or par value.


        (b)    Issued and outstanding

        ($ thousands, except share amounts)
        ---------------------------------------------------------------------

                                                        Number of
                                                           shares     Amount
        ---------------------------------------------------------------------

        Common Shares
          Issued and outstanding, December 31, 2005             1  $       -
        ---------------------------------------------------------------------

          Issued pursuant to private placement for
           cash (note 4)                                2,727,269      7,500
          Issued pursuant to Canetic Transaction
           (note 4)                                    19,999,591     56,075
          Issued on acquisition of Sawtooth (note 5)    3,646,146     26,558
          Issued on acquisition of Raven (note 5)       9,104,893     62,220
          Exercise of Warrants (note 4)                 3,871,072     10,645
          Issued for cash                               5,681,000     44,028
          Issued for cash: Flow-through shares          1,690,000     15,041
          Share issue costs (net of $1,020
           income tax effect)                                   -     (2,438)
        ---------------------------------------------------------------------

          Balance, December 31, 2006                   46,719,972  $ 219,629
        ---------------------------------------------------------------------

        Performance Shares
          Issued pursuant to private placement and
           balance at December 31, 2006 (note 4)        2,272,484         23
        ---------------------------------------------------------------------

        Total share capital, December 31, 2006         48,992,456  $ 219,652
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (c)  Earnings per share

             In computing diluted earning per share for the period ended
             December 31, 2006 the only reconciling items were stock options
             and Performance Shares.

        (d)  Stock options

             The Company has an employee stock option plan under which
             employees and directors are eligible to receive option grants.
             The total amount of stock options that can be issued under the
             stock option plan cannot exceed ten percent of the outstanding
             Common Shares when the total Performance Shares are added to the
             total stock options issued. Stock options granted under the plan
             have a term of five years to expiry and vest over three years
             with 33% vesting upon each anniversary date.

        The following table reconciles stock option plan activity:

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

                               Number of         Range of   Weighted average
                                 options  exercise prices  exercise price ($)
        ---------------------------------------------------------------------

        Balance, December 31,
         2005                          -                                   -
          Granted              2,090,000    $5.68 - $7.34               6.96
        ---------------------------------------------------------------------

        Balance, December 31,
         2006                  2,090,000                                6.96
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        There were no options exercisable as at December 31, 2006.


        (e)  Stock-based compensation

             The fair value of each stock option and Performance Share
             granted is estimated on the date of the grant using the Black-
             Scholes option pricing model with weighted average assumptions.
             The expected life for both the stock options and the Performance
             Shares is three years. The risk-free interest rates are 4.10
             percent and 3.75 percent, respectively, and the expected
             volatility is 35 percent. This results in fair values of the
             stock options and the Performance Shares of $3.3 million and
             $1.4 million, respectively, or $1.56 per stock option and $0.61
             per Performance Share.

        (f)  Contributed surplus

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

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

                                                           December 31, 2006
             ----------------------------------------------------------------

             Balance, December 31, 2005                                    -
             Stock-based compensation expense arising from:
               Stock options                                             755
               Performance Shares                                        856
             ----------------------------------------------------------------

             Balance, December 31, 2006                                1,611
             ----------------------------------------------------------------
             ----------------------------------------------------------------

    11. Supplemental cash flow information

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

                                                           December 31, 2006
        ---------------------------------------------------------------------

        Income and Capital taxes paid                                $    93
        Interest paid, net of interest income                          1,820
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    12. Financial instruments

        Risk management
        ---------------

        TriStar enters into commodity price 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. TriStar's Risk
        Management Policy, as set out by the Board of Directors, allows
        management to implement a commodity price hedging program.

        TriStar's financial instruments qualify for hedge accounting, which
        TriStar has elected to use. The following tables summarize TriStar's
        hedging relationships as at December 31, 2006:

        Costless collars oil contracts
        -------------------------------

        ---------------------------------------------------------------------
                                                             Price
                                        Volume (Bbl/d)    ($US/Bbl)    Index
        ---------------------------------------------------------------------

        Mar. 1, 2006 - Dec. 31, 2006         250        60.00 - 73.00    WTI
        Apr. 1, 2006 - Jun. 30, 2007         250        60.00 - 77.20    WTI
        Apr. 1, 2006 - Dec. 31, 2007         250        60.00 - 76.10    WTI
        Jun. 1, 2006 - Dec. 31, 2006         250        70.00 - 79.50    WTI
        Jan. 1, 2007 - Dec. 31, 2007         500        70.00 - 78.10    WTI
        Jan. 1, 2007 - Dec. 31, 2008         250        60.00 - 75.00    WTI
        Jul. 1, 2007 - Dec. 31, 2007         250        70.00 - 78.00    WTI
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Oil swap contract
        -----------------

        ---------------------------------------------------------------------
                                                             Price
                                        Volume (Bbl/d)    ($US/Bbl)    Index
        ---------------------------------------------------------------------

        Jan. 1, 2007 - Dec. 31, 2008         250             68.35       WTI
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The fair value of the oil costless collars and the swap contract at
        December 31, 2006 was a gain of US$2.1 million.

        Costless collars natural gas contracts
        --------------------------------------

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

                                                    Price
                                   Volume (GJ/d)    ($/GJ)             Index
        ---------------------------------------------------------------------

        Nov. 1, 2006 - Mar. 31, 2007    2,000   7.50 - 16.25    AECO Monthly
        Apr. 1, 2007 - Oct. 31, 2007    1,000    6.50 - 9.00    AECO Monthly
        Apr. 1, 2007 - Oct. 31, 2007    1,000    7.50 - 8.75    AECO Monthly


        The fair value of the natural gas costless collars at December 31,
        2006 was a gain of $0.6 million.

    13. Commitments

        At December 31, 2006, the Company had contractual obligations and
        commitments for office space and equipment:

        ---------------------------------------------------------------------
                                                                       ($000)
        ---------------------------------------------------------------------

        2007                                                           1,385
        2008                                                           1,327
        2009                                                           1,293
        2010                                                           1,258
        2011                                                             511
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    14. Subsequent events

        Acquisition of Private Saskatchewan Company
        -------------------------------------------

        On January 11, 2007, the Company closed the acquisition of all of the
        issued and outstanding shares of a private Saskatchewan oil and gas
        company, for total consideration of 2,500,000 Common Shares and $2.0
        million in cash.

        Acquisitions of Assets and Common Share Financing
        -------------------------------------------------

        On March 9, 2007, the Company announced two acquisitions for total
        cash consideration of approximately $55.7 million, net of certain
        closing adjustments but before related transaction expenses. The
        acquisitions are expected to close on or before March 31, 2007.

        In conjunction with the acquisitions, the Company announced it had
        entered into a bought deal equity financing agreement with a
        syndicate of to issue on a private placement basis, 8.6 million
        subscription receipts of TriStar at a price of $4.70 each for gross
        aggregate proceeds of $40.4 million (the "Subscription Receipt
        Offering") and 1.7 million flow through Common Shares at a price of
        $6.00 each for gross aggregate proceeds of $10.2 million (the "Flow
        Through Offering"). Closing of the Subscription Receipt Offering is
        scheduled for March 29, 2007 and the closing of the Flow Through
        Offering is scheduled for March 16, 2007.

        The proceeds of the Subscription Receipt Offering will be held in
        escrow pending TriStar's receipt of all necessary approvals and the
        completion of the primary acquisition.

        Upon these conditions being met, the proceeds of the Subscription
        Receipt Offering will be released to TriStar and each subscription
        receipt will be exchanged for one Common Share without additional
        payment. If closing of the primary acquisition does not take place
        by April 30, 2007, or the primary acquisition is terminated at any
        earlier time, holders of the subscription receipts will be entitled
        to a return of their full subscription price and their pro rata
        entitlement to the interest earned on the escrowed funds.

        Subscription receipts and flow through Common Shares issued pursuant
        to the private placement will be subject to a hold period of four
        months from the date of closing. The offerings are subject to the
        receipt of all necessary regulatory and stock exchange approvals.

    

    %SEDAR: 00023171E




For further information:

For further information: Brett Herman, President and Chief Executive
Officer, TriStar Oil & Gas Ltd., Telephone: (403) 268-7800, Fax: (403)
218-6075; Jason J. Zabinsky, Vice President, Finance and Chief Financial
Officer, TriStar Oil & Gas Ltd., Telephone: (403) 268-7800, Fax: (403)
218-6075

Organization Profile

TriStar Oil & Gas Ltd.

More on this organization


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890