document

The historic (1912) Waitangi Hill shallow oil discovery reported to have produced high quality oil, is a primary area of interest for modern development

Cover: Site of the Cheal oil discovery and production facility under construction

* TAG holdings assume final completion of all acquisitions and business arrangements.

East Coast Basin Oil and Gas Permits Permit 38348 Permit 38349 Permit 50940

New Zealand’s North Island

Taranaki Basin Oil and Gas Permits Permit 38156-S Permit 38748 Permit 38738-S

New Zealand Area of Detail

TAG Oil is meeting opportunity with action.

Today, TAG Oil is poised to create shareholder value through full development of our Cheal oil discovery. This will be achieved through producing infill drilling and step-out exploration in surrounding acreage.

TAG also owns low-risk acreage in the Taranaki discovery fairway, with drill-ready prospects defined by 3-D seismic providing a strong portfolio of high impact exploration targets.

Through a recent business combination agreement to merge with Trans-Orient

Petroleum Ltd., TAG will assume control of a large acreage position in the lightly explored East Coast Basin. TAG is assessing the development potential of the historical Waitangi Hill shallow oil discovery, as well as drilling high-impact exploration prospects.

By leveraging rapidly advancing – and proven – technology, TAG will be able to drill, and potentially produce, directly from the oil rich fractured shale source rock formations that are widespread across the acreage.

Permit Interest Basin Acreage Status

PMP 38156-S 100% Taranaki 7,487 Producing

PEP 38748 100% Taranaki 7,910 Exploration

PEP 38738-S 100% Taranaki 11,494 Exploration

PEP 38348 100% East Coast 530,524 Exploration

PEP 38349 100% East Coast 1,633,331 Exploration

PEP 50940 100% East Coast 112,010 Exploration

Producer. Explorer. Leader.

The fractured Waipawa Black Shale. A world-class source rock formation is a target for unconventional exploration

Dear Stockholders,

I am pleased to report that TAG has excelled through a diffi cult worldwide fi nancial crisis by taking advantage of strategic

acquisitions and other opportunities that have resulted in a signifi cant expansion to our operations in New Zealand. In

addition, the business combination announced between TAG and Trans-Orient will create a dynamic production and exploration

vehicle poised for immediate production growth through development of reserves, complimented with high-impact exploration

opportunities within the acreage.

On June 16, 2009 TAG signed a binding agreement with the appointed Receivers of Austral Pacifi c Energy Ltd. to acquire the

remaining 69.5% of the Cheal Mining License, exploration acreage and the newly completed production facilities. Upon closing

of the acquisition, TAG will proceed with full development of the Cheal discovery and step-out exploration on numerous 3-D

defi ned prospects placed in the prolifi c discovery fairway in the Taranaki Basin.

Upon completion of the business arrangement between TAG Oil Ltd. and Trans-Orient Petroleum Ltd., Trans-Orient will become a

wholly owned subsidiary of TAG. Trans-Orient brings to the transaction an under-explored frontier acreage position located in the

onshore East Coast Basin of New Zealand. Trans-Orient’s 2.2 million-acre exploration permits encompass a portfolio of large

conventional prospects and unconventional opportunities where the Company is leveraging new technology to target fractured

oil shale source-rock formations that are widespread across the acreage.

Important Highlights

•Increased net cash fl ow by approximately 300% upon closing of the Cheal transaction

•Increased core acreage in the Taranaki Basin by 18,465 acres

•Reduced per barrel operating costs at Cheal by 25%

•Reduced G&A by 25% for fi scal 2009

•Purchased and canceled 8% of TAG’s outstanding shares at a signifi cant discount to NAV

•Cash fl ow from oil revenue of $4.9 million in fi scal 2009

•Increased working capital to $12.5 million upon closing of the Trans-Orient transaction

TAG’s immediate plan will focus on work overs and fracturing on the existing six producing Cheal wells with the intention of

materially increasing production rates from the current production of 350 barrels per day. The additional cash fl ow generated

will allow us to invest more aggressively in additional operations, including development wells and step-out drilling on prospects

identifi ed along the Taranaki discovery trend.

In closing, I would like to thank the shareholders, consultants and all concerned for their tremendous support and I am delighted

to be involved in this exciting endeavor. Once all of the pending transactions receive formal closing, TAG will be transformed into

a prominent player in the emerging New Zealand exploration and production sector. We plan to use this position as a foundation

for future growth in the country.

Sincerely,

Garth Johnson,

September 30, 2009

Letter from the President

1 Annual Report

To the Shareholders of TAG Oil Ltd. (“the Company”)

We have audited the consolidated balance sheets of TAG Oil Ltd as at March 31, 2009 and 2008 and the consolidated

statements of operations and deficit, comprehensive loss and cash flows for the years then ended. These financial state-

ments are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial

statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require

that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material

misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the

financial statements. An audit also includes assessing the accounting principles used and significant estimates made by

management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the

Company as at March 31, 2009 and 2008 and the results of its operations and its cash flows for each of the years then

ended in accordance with Canadian generally accepted accounting principles.

Chartered Accountants

Vancouver, British Columbia

July 17, 2009

Auditor’s Report

2 Annual Report

Annual Report 3

Consolidated Balance SheetsExpressed in Canadian Dollars

As at March 31 2009 2008

Assets

Current

Cash and cash equivalents (Note 2f) $ 7,385,177 $ 6,553,101

Amounts receivable and prepaids 192,711 1,537,078

Inventory (Note 2m) 779,423 1,015,886

8,357,311 9,106,065

Property and equipment (Note 5) 4,547,879 29,381,949

Investments (Note 7) 217,521 –

$ 13,122,711 $ 38,488,014

Liabilities and Shareholders’ Equity

Current

Accounts payable and accrued liabilities $ 484,531 $ 1,595,026

Non-current

Future income tax (Note 13) – 4,144,883

Asset retirement obligations (Note 8) 812,522 513,907

1,297,053 6,253,816

Share capital (Note 9) 69,644,677 69,979,631

Contributed surplus 917,512 897,925

Deficit (57,517,923) (38,643,358)

13,044,266 32,234,198

Accumulated other comprehensive loss (Notes 2 and 7) (1,218,608) –

$ 13,122,711 $ 38,488,014

See accompanying notes.

Nature of operations (Note 1)

Commitments and contingencies (Note 12)

Subsequent events (Note 14)

Approved by the Board of Directors:

Garth Johnson, Director Dan Brown, Director

4 Annual Report

Consolidated Statements of Operations and DeficitExpressed in Canadian Dollars

For the Years Ended March 31 2009 2008

Revenues

Production revenue $ 4,923,856 $ 4,103,954

Royalties (249,356) (209,096)

4,674,500 3,894,858

Expenses

General and administrative (Note 6) 1,499,701 2,059,505

Depletion, depreciation and accretion 1,374,336 1,348,745

Directors & officers insurance 45,000 50,533

Foreign exchange (355,035) 863,843

General exploration 349,256 261,588

Interest income (158,559) (426,590)

Legal settlement (Note 5) (182,347) (470,561)

Production costs 1,524,651 1,552,752

Sale of oil and gas property - (208,438)

Stock based compensation 19,587 80,283

Gain on sale of inventory (132,241) -

Write-down of inventory - 201,431

Write-off of oil and gas properties 19,564,716 6,561,682

(23,549,065) (11,874,773)

Net loss for the year (18,874,565) (7,979,915)

Deficit, beginning of year (38,643,358) (30,663,443)

Deficit, end of year $ (57,517,923) $ (38,643,358)

Loss per share — basic (Note 2k) $ (1.05) $ (0.44)

Weighted average number of shares outstanding 17,891,266 18,326,216


Annual Report 5


Consolidated Statements of Comprehensive LossExpressed in Canadian Dollars


Net loss for the year $ (18,874,565) $ (7,979,915)

Other comprehensive loss in the year

Fair value adjustment to financial instruments:

Investment (Note 7) (1,218,608) -

Comprehensive loss for the year $ (20,093,173) $ (7,979,915)

6 Annual Report

Consolidated Statements of Cash FlowsExpressed in Canadian Dollars


Operating Activities


Changes in non-cash operating items:

Depletion, depreciation and accretion 1,374,336 1,348,745

Stock based compensation 19,587 80,283

Write-off of oil and gas properties 19,564,716 6,561,682

Write-down of inventory (132,241) 201,431

1,951,833 212,226

Changes in non-cash working capital accounts:

Amounts receivable and prepaids 1,344,367 (1,161,497)

Accounts payable and accrued liabilities 29,913 (190,897)

Inventory 368,704 (360,313)

Cash provided by (used in) operating activities 3,694,817 (1,500,481)

Financing Activities

Shares purchased and returned to treasury (334,954) –

Cash used in financing activities (334,954) –

Investing Activities

Property and equipment expenditures (2,523,637) (5,372,213)

Investment (4,150) –

Cash used in investing activities (2,527,787) (5,372,213)

Net increase (decrease) in cash during the year 832,076 (6,872,694)

Cash and cash equivalents — beginning of year 6,553,101 13,425,795

Cash and cash equivalents — end of year $ 7,385,177 $ 6,553,101

Supplementary cash flow disclosures:

Interest received $ 158,559 $ 426,590

Non-cash investing activities:

The Company incurred $410,703 (2008: $1,551,111) in exploration expenditures which amounts were in accounts payable

at year end.

Annual Report 7

NOTE 1 – Nature of OperationsThe Company was incorporated under the Business Corporations Act (British Columbia) and had continued its jurisdiction of

incorporation to the Yukon Territory under the Business Corporations Act (Yukon). As approved by shareholders at the Com-

pany’s annual general meeting held on September 22, 2006, the Company continued from the legal jurisdiction of the Yukon

Territory back to the Province of British Columbia and adopted a new set of articles appropriate to British Columbia on October

12, 2006. Its major activity is the development and exploration of international oil and gas properties.

The Company is in the process of exploring, developing and producing from its oil and gas properties and has one oil and gas

property that contains reserves that are economically recoverable. The success of the Company’s exploration and development

of its oil and gas properties is influenced by significant financial and legal risks, as well as commodity prices and the ability of

the Company to discover additional economically recoverable reserves and to bring such reserves into future profitable produc-

tion. In addition, the Company must continue to obtain sufficient financing to develop its properties towards planned principal

operations.

NOTE 2 – Summary of Significant Accounting Policiesa) Accounting Principles and Use of Estimates

These financial statements are prepared in accordance with Canadian generally accepted accounting principles (“GAAP”),

which require the Company’s management to make informed judgments and estimates that affect the reported amounts

of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and

the reported amounts of revenues and expenses during the fiscal year. Specific items particularly subject to management

estimates are the carrying amounts of deferred property costs, potential accruals for future site reclamation costs and

the determination of inputs required in the calculation of stock based compensation. Actual results could differ from these

estimates.

b) Financial Instruments

All financial assets, liabilities or non-financial derivatives are initially recognized on the balance sheet at fair value and

must be classified as one of the following categories: held-for-trading; held to maturity instruments; loans and receivables;

available-for-sale financial assets; or other financial liabilities. Loans and receivables, held-to-maturity instruments and other

financial liabilities are subsequently measured at amortized cost. Held-for-trading assets are measured at fair value with

changes in fair value recognized in earnings. Available-for-sale financial assets are measured at fair value with changes in

fair value recognized in comprehensive income and reclassified to earning when derecognized or impaired.

The Company has classified cash and cash equivalents as held-for-trading, investments as available for sale and accounts

receivables and accounts payable and accrued liabilities are classified as loans and receivables and other liabilities respec-

tively.

c) Basis of Consolidation

These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries: TAG Oil

(NZ) Limited, TAG Oil (Canterbury) Limited and Cheal Petroleum Limited. The Company consolidates its financial state-

ments with those of its subsidiaries in which it has a controlling interest. Should restrictions be placed on any foreign

subsidiary that prevents the Company from exercising effective control, the Company’s investment in that subsidiary shall

be accounted for using the cost basis. All significant intercompany balances and transactions with subsidiaries have been

eliminated on consolidation.

Notes to the Consolidated Financial StatementsFor the Years Ended March 31, 2009 and 2008

Expressed in Canadian Dollars

8 Annual Report

d) Joint Operations

Substantially all of the Company’s activities relate to the production of, and exploration for, oil and gas. To the extent that

these activities are conducted jointly with other companies, the accounts reflect only the Company’s proportionate interest

in these activities.

e) Translation of Foreign Currencies

The Company’s foreign operations, conducted through its subsidiaries, are of an integrated nature and, accordingly, the

temporal method of foreign currency translation is used for conversion of foreign-denominated amounts into Canadian dol-

lars. Monetary assets and liabilities are translated into Canadian dollars at the rates prevailing on the balance sheet date.

Other assets and liabilities are translated into Canadian dollars at the rates prevailing on the transaction dates. Revenues

and expenses arising from foreign currency transactions are translated into Canadian dollars at the average rate for the

year. Exchange gains and losses are recorded as income or expense in the year in which they occur.

f) Cash and Cash Equivalents

Cash and cash equivalents include term investments with maturities of twelve months or less, together with accrued inter-

est thereon, which are readily convertible to known amounts of cash. At March 31, 2009 the Company held term deposits

of $4,655,653 (2008: $5,333,217) bearing interest rates ranging from 1.1% to 10.69% (2008: 1.01%)

g) Property and Equipment

The Company follows the full cost method of accounting for oil and gas properties whereby all costs relating to the acquisi-

tion, exploration, and development of oil and gas properties and equipment are capitalized and accumulated in cost centres

by country. Such costs include lease acquisition costs, geological and geophysical expenditures, lease rentals, seismic and

costs of drilling productive and non-productive wells, together with overhead expenses related to acquisition, exploration,

development activities. The costs in cost centres from which there has been no commercial production are not subject to

depletion until commercial production commences. Depletion is calculated using costs of acquisition, exploration, develop-

ment, estimated future development as well as dismantlement and abandonment costs, net of salvage values using the

unit-of production method. An assessment is performed at every reporting date to determine whether the aggregate net

costs in each pre-development stage cost centre are recoverable. Costs which are unlikely to be recovered are written-off.

Oil and gas properties for which there has been commercial production, are subject to a ceiling test in each reporting period

to determine that the costs are recoverable and do not exceed the fair value of the properties. The costs are assessed to

be recoverable if the sum of the undiscounted cash flows expected from the production of proved reserves and the lower of

cost and market of unproved properties exceed the carrying values of the oil and gas properties. If the carrying value of the

oil and gas properties is not assessed to be recoverable, an impairment loss is recognized to the extent that the carrying

value exceeds an estimated fair value. The fair value estimate is normally based on the sum of the discounted cash flows

expected from production of proved and probable reserves at a discount rate of 10% and the lower of cost and market of

unproved properties. The cash flows are estimated using forecast product prices and costs with the forecast product pric-

ing being a constant price utilizing the actual oil price posted at March 31, 2009 and discounted using a risk-free interest

rate of 10%.

Sales of oil and gas properties, whether or not being amortized currently, shall be accounted for as adjustments of capi-

talized costs, with no gain or loss recognized unless such adjustments would significantly alter the relationship between

capitalized costs and proved reserves of oil and gas attributable to a cost centre. Abandonments of oil and gas properties

shall be accounted for as adjustments of capital cost with the costs of abandoned properties being charged to the cost

centre and amortized.

Annual Report 9

Furniture, office and computer equipment is recorded at cost less accumulated amortization. Amortization is provided for

over its estimated useful life on a declining-balance basis at rates between 20% and 48%.

h) Income Taxes

The Company accounts for and measures future tax assets and liabilities for future tax consequences attributable to differ-

ences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

Future tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable

income in the years in which those temporary differences are expected to be recovered or settled. The effect on future tax

assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or

substantive enactment of the change. When the future realization of income tax assets does not meet the test of being

more likely to occur than not to occur, a valuation allowance in the amount of potential future benefit is taken and no asset

is recognized. Such an allowance would apply fully to all potential income tax assets of the Company.

i) Share Capital

Common shares issued for non-monetary consideration are recorded at their fair market value based on the trading price

of the Company’s shares on the TSX Venture Exchange on the measurement date. The measurement date is defined as the

earliest of the date at which the commitment for performance by the counterparty to earn the common shares is reached

or the date at which the counterparty’s performance is complete.

j) Stock-based Compensation

The Company has a stock based compensation program for officers, directors, employees and consultants.

All stock option based grants are measured and recognized in the consolidated financial statements using a fair value based

method. Fair value is created using the Black-Scholes option-pricing model and the compensation cost is amortized over

the vesting period. The Company re-measures compensation expense if the options are changed or modified. Consideration

received upon the exercise of stock options together with the amount of non-cash compensation expense recognized in

contributed surplus is recorded as share capital.

k) Loss Per Share

Loss per share is calculated using the weighted-average number of common shares outstanding during the year. Diluted

loss per share is not presented, as it is anti-dilutive. For the purpose of calculating the weighted average number of shares

outstanding, stock consolidations are deemed to occur at the beginning of the period and are applied retroactively to the

preceding periods.

l) Asset Retirement Obligation

The Company recognizes the fair value of an Asset Retirement Obligation (“ARO”) in the period in which it is incurred

when a reasonable estimate of the fair value can be made. The fair value is determined through a review of engineering

studies, industry guidelines and managements estimate on a site-by-site basis. The fair value of the ARO is recorded as

a liability, with a corresponding increase in the amount of the related asset. The capitalized amount is depleted on the unit-

of-production method based on proven and probable reserves. The liability amount of accretion is expensed in the period.

Actual costs incurred upon the settlement of the ARO are charged against the liability. At March 31, 2009 the Company has

$812,522 in asset retirement obligations.

m) Inventory

Inventory is valued at the lower of cost and net realizable value with cost being determined using a first-in first-out basis.

Inventory consists of field operation consumables.

10 Annual Report

n) Oil and Gas Revenue Recognition

Sales revenues represent invoiced sales of oil and gas products. Revenue from the sale of goods is recognized when the

significant risks and rewards of ownership have been transferred to the buyer. No revenue is recognized if there are signifi-

cant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods, or where

there is continuing management involvement with the goods.

o) Acquisitions

Acquisitions are accounted for using the purchase method. Where an entity becomes part of the Company during the year,

the results of the entity are included in the consolidated results from the date that control commenced. When an entity is

acquired, all identifiable assets and liabilities are recognized at their fair value at the acquisition date. The fair value does

not take into consideration any future intentions by the Company.

NOTE 3 – Accounting Policies Adopted in 2009a) Capital Disclosures

Effective April 1, 2008 the Company adopted CICA Handbook Section 1535 that requires disclosure of an entity’s objectives,

policies and processes for managing capital, quantitative data about what the entity regards as capital and whether the

entity has complied with any capital requirements and, if it has not complied, the consequences of such non-compliance.

b) Financial Instruments

Effective April 1, 2008 the Company adopted CICA Handbook Section 3862, Financial Instruments - Disclosures and Section

3863 -Financial Instruments-Presentation which have replaced CICA Handbook Section 3861, Financial Instruments - Dis-

closure and Presentation. Sections 3862 and 3863 increase the disclosures currently required, which will enable users to

evaluate the significance of financial instruments for an entity’s financial position and performance, including disclosures

about fair value. In addition, disclosure is required of qualitative and quantitative information about exposure to risks aris-

ing from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk. The

quantitative disclosures must provide information about the extent to which the entity is exposed to risk, based on informa-

tion provided internally to the entity’s key management personnel.

NOTE 4 – Future Changes in Accounting PoliciesInternational Financial Reporting Standards (“IFRS”)

In February 2008 the Canadian Accounting Standards Board announced 2011 as the changeover date for publicly-listed com-

panies to use IFRS, replacing Canada’s own generally accepted accounting principles. The specific implementation is set for

interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The transition date of

January 1, 2011 will require restatement for comparative purposes of amounts reported by the Company for the year ended

December 31, 2010. While the Company has begun assessing the adoption of IFRS for 2011, the financial reporting impact of

the transition to IFRS cannot be reasonably estimated at this time.

Annual Report 11

NOTE 5 – Property and Equipment Working Interest Net Book Additions Net Book Additions Net Book at March 31, Value at During the Depletion Value at During the Depletion Value at 2008/2009 March 31, 2008 Fiscal Recoveries March 31, 2009 Fiscal Recoveries March 31, % 2007 Year Write-offs 2008 Year Write-offs 2009

Oil and Gas

Properties

New Zealand Proved PMP 38156-S 30.5/30.5 $ 23,366,492 $ 407,836 $ (2,005,056) $ 21,769,272 $ 1,107,703 $(18,706,314) $ 4,170,661

UnprovedNew Zealand: PMP 38153 - /- 21,186 100,468 (88,743) 32,911 4,877 (37,788) - PMP 38156-D -/- 1,818,599 604,099 (2,227,126) 195,572 - (195,572) - PMP 38157 -/- 749,300 179,059 (928,359) - - - - PEP 38342 -/- 533,531 16,674 (550,205) - - - - PEP 38738-S 30.5/30.5 - - - - - - - PEP 38738-D -/- - - - - - - - PEP 38741 -/- 2,415,222 194,919 (2,610,141) - 13,005 (13,005) - PEP 38746 16.65/16.65 181,561 5,479 - 187,040 66,838 - 253,878 PEP 38748 33.33/33.33 18,765 6,074 - 24,839 51,186 - 76,025 PEP 38757 -/- - - - - 262 (262) - PEP 38758 -/- - 189,559 (189,559) - 27,834 (27,834) - PEP 38765 -/- 639,484 14,801 (654,285) - 11,078 (11,078) -New interests -/- - 439 (439) - - - -

29,744,140 1,719,407 (9,253,913) 22,209,634 1,282,783 (18,991,853) 4,500,564

Net Book Net Book Net Book Value at Additions Value at Additions Value at March 31, During the March 31, During the March 31, Equipment 2007 Year Amortization 2008 Year Amortization 2008

Production equipment 30.5/30.5 2,191,243 5,012,087 (59,314) 7,144,016 804,849 (7,948,864) 1Office equipment 100/100 79,607 3,911 (55,219) 28,299 41,158 (22,143) 47,314

2,270,850 5,015,998 (114,533) 7,172,315 846,007 (7,971,007) 47,315

Total $ 32,014,990 $ 6,735,405 $ (9,368,446) $ 29,381,949 $ 2,128,790 $ (26,962,860) $ 4,547,879

Refer to Note 14

The Company’s oil and gas properties are located in New Zealand and its interests in these properties are maintained pursu-

ant to the terms of exploration and mining permits granted by the national government. The Company is satisfied that evidence

supporting the current validity of these permits is adequate and acceptable by prevailing industry standards in respect to the

current stage of exploration on these properties.

12 Annual Report

For the year ended March 31, 2009, the Company received the results from an independent reserves assessment on its 30.5%

interest in PMP 38156-S (Cheal Oil Field, onshore Taranaki Basin, New Zealand). As a result of the report findings on the

property, the Company wrote-down the property value by approximately $21.2 million and in doing so also reversed previously

recorded future income tax liabilities to the acquisition of the property in the amount of $4,144,883.

During the 2009 fiscal year, the Company and Austral Pacific Energy Ltd. (“Austral”) resolved a dispute related to the con-

struction of the Cheal Production Station located on PMP 38156-S. The agreement to resolve the dispute required Austral to

issue 2,273,000 common shares to the Company valued at the time of issuance at NZ$2,000,240 and to pay the Company

NZ$300,000 which was recorded as a recovery of capital expenditures at Cheal. The issuance of Austral common shares also

included six-month anti-dilution protection for the Company whereby the Company was issued 757,303 additional Austral com-

mon shares when Austral completed a common share financing on June 23, 2008 at a price less than NZ$0.88 per share.

In addition, because the Cheal A7 well was completed successfully for production, Austral was required to pay the Company

an additional US$250,000 in twelve equal monthly amounts commencing September 2008. During the year ended March 31,

2009, the Company received US$145,831 from Austral for the first seven payments. However, it is unlikely that the Company

will receive the balance remaining of $104,169 due to Austral’s financial condition.

On February 7, 2009, and March 6, 2009 the Company relinquished its interest in PEP 38758 and PMP 38153 and has written-

off the net costs associated with each permit.

On January 27, 2009, the Company received the consent of the Ministry of Economic Development in New Zealand and com-

pleted the agreement with a subsidiary of New Zealand based Genesis Energy Limited to sell its 15.1% interest in PEP 38738-D

and PMP 38156-D containing the Cardiff deep gas prospect for a combination of cash and a 1% royalty on any future production

from both permits.

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

In April 2008, the Company received the consent of the Ministry of Economic Development in New Zealand and complete the

December 2007 agreement with Discovery Geo Corporation to sell the Company’s 35.5% interest in PEP 38342 for a combina-

tion of cash and a 1.11% royalty on future production on the permit.

During the year ended March 31, 2008, the Company reached an out of court cash settlement with its joint venture partner

in PEP 38260 where the joint venture partner paid NZ$600,000 to the Company in exchange for the cancellation of the Com-

pany’s interest in PEP 38260.

During the year ended March 31, 2008, the Company recorded a write-down of $6,561,682 associated with its oil and gas

properties after the Company completed an assessment that determined that the costs related to each permit were unlikely

to be recovered.

During the year ended March 31, 2008, the Company relinquished its interests in PEP 38256, PEP 38341, PEP 38741, PEP

38745, PEP 38751, PEP 38757 and PEP 38765 and has sold its interests in PMP 38157, PEP 38342, PEP 38738-D, PMP

38156-D and PEP 38260 and has written-off the net costs associated with each permit. The Company also elected to write-off

all costs associated with its interest in PEP 38758 after an assessment was completed that determined that the costs related

to the permit were unlikely to be recovered.

Refer to Note 14

Annual Report 13

NOTE 6 – Related Party Transactions The Company is of the view that the amounts incurred for services provided by related parties approximates what the Company

would incur to arms-length parties for the same services.

The Company incurred $329,521 of its general and administrative expenses through DLJ Management Corp. (“DLJ”), a sub-

sidiary of Trans-Orient Petroleum Ltd. (“Trans-Orient”). DLJ incurs certain general and administrative costs on behalf of the

Company, Trans-Orient and AMG Oil Ltd. (“AMG”). Included in these general and administrative costs DLJ pays rent to a private

company owned by an insider of TAG. Two directors of the Company are also employees of DLJ.

Trans-Orient and AMG are related to the Company through common directors and officers.

Pursuant to an agreement dated October 1, 2007, and as revised on July 1, 2008, the Company paid an insider of the Company

$72,500 in consulting fees.

Pursuant to agreements October 1, 2007 and June 11, 2008, the Company paid a former Director $60,000 in fees and a cur-

rent director compensation of $10,000, respectively.

Pursuant to an agreement with Trans-Orient dated January 1, 2008, the Company agreed to utilize Trans-Orient’s Chief Operat-

ing Officer as the Company’s technical consultant on an ongoing basis, by paying one-half of the $20,000 monthly compensa-

tion paid to Trans-Orients Chief Operating Officer.

NOTE 7 – Investments

At March 31, 2009, the Company’s ownership interests in investments accounted for under the cost method of accounting

are as follows:

March 31, March 31, Number of 2008 Additions 2009 Common Carrying During the Comprehensive Market Shares Value Period Income (loss) Value

Austral Pacific Energy Ltd. 3,030,303 $ - $ 1,431,979 $ (1,219,858) $ 212,121

Trans-Orient Petroleum Ltd. 45,000 - 4,150 1,250 5,400

$ - $ 1,436,129 $ (1,218,608) $ 217,521

At March 31, 2009, the Company has a 5.03% ownership in Austral Pacific Energy Ltd. In accordance with CICA 3855 the

Company’s investments are recorded at market value at March 31, 2009.

Refer to Notes 5 and 14

14 Annual Report

NOTE 8 – Asset Retirement Obligations

The following is a continuity of asset retirement obligations for the year ended March 31, 2009:

Balance at March 31, 2008 $ 513,907Revision in estimated obligations 258,279Accretion expense 40,336

Balance at March 31, 2009 $ 812,522

The Company’s asset retirement obligations result from net ownership interests in petroleum and natural gas development

activity and, during the year ended March 31, 2009, the Company recorded an additional liability of $258,279 resultant from

a revision in estimated asset retirement obligations during the year. The Company estimates the total undiscounted amount of

cash flows required to settle its asset retirement obligations to be approximately $845,439 which is estimated to be incurred

between 2011 and 2012.

The fair value of the liability for the Company’s asset retirement obligation is recorded in the period in which it is incurred, using

an inflation rate of 3% and discounted to its present value using a credit adjusted risk free rate of 3.5% and the corresponding

amount is recognized by increasing the carrying amount of the oil and gas properties. The liability is accreted each period and

the capitalized cost is depreciated over the useful life of the related asset using the unit-of-production method.

NOTE 9 – Share Capitala) Authorized and Issued Share Capital

The authorized share capital of the Company consists of an unlimited number of common stock without par value.

Number

Issued and fully paid: of Shares Amount

Balance at March 31, 2007 and 2008 91,631,081 $ 69,979,631

Shares purchased and returned to treasury (5,689,000) (288,485)

85,942,081 69,691,146

February 4, 2009 share consolidation (68,753,659) –

17,188,422 69,691,146

Shares purchased and returned to treasury (235,200) (46,469)

Balance at March 31, 2009 16,953,222 $ 69,644,677

Effective February 4, 2009, the Company’s common shares began trading on a consolidated basis. Shareholders approved

the consolidation of the Company’s common shares on the basis of five common shares being consolidated into one com-

mon share.

On September 26, 2008 the Company launched a normal course issuer bid to purchase its common shares through the

facilities of the TSX Venture Exchange. As of March 31, 2009, the Company has purchased 1,373,000 common shares on

a post consolidated basis for cancellation and return to treasury.

Refer to Note 2 and 14

Annual Report 15

b) Incentive Stock Options

The Company has a stock option plan for the granting of stock options to directors, employees and service providers. Under

the terms of the stock option plan, the number of shares reserved for issuance as share incentive options will be equal

to 10% of the Company’s issued and outstanding shares at any time. The exercise price of each option equals the market

price of the Company’s shares the day prior to the date that the grant occurs less any applicable discount approved by the

Board of Directors and per the guidelines of the TSX Venture Exchange. The options maximum term is five years and must

vest over a minimum of eighteen months.

The following is a continuity of outstanding stock options:

Number of Weighted Average

Options Exercise Price(1)

Balance at March 31, 2007 1,960,000 $ 0.76

Expired during the year (700,000) 0.76

Balance at March 31, 2008 1,260,000 0.77

Expired during the year (375,000) (0.42)

Granted during the year 225,000 0.25

1,110,000 0.76

February 4, 2009 share consolidation (888,000) –

Balance at March 31, 2009 222,000 $ 3.78

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

The following summarizes information about stock options that are outstanding at March 31, 2009:

Number Price Weighted Average Expiry Options

of Shares per Share Remaining Contractual Life Date Exercisable

80,000 US$3.25 0.75 January 1, 2010 80,000

15,000 US$3.25 1.10 May 10, 2010 15,000

30,000 $6.50 1.65 November 22, 2010 30,000

65,000 $3.50 2.34 August 2, 2011 65,000

12,000 $2.60 2.65 November 22, 2011 12,000

20,000 $1.25 4.33 August 1, 2013 6,667

222,000 1.79 208,667

During the 2009 fiscal year, the Company granted options to two employees to purchase 45,000 common shares of the

Company (post consolidation) at $1.25 per share vesting over eighteen months with an expiry date of August 1, 2013.

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

The Company applied the Black-Scholes option pricing model using the closing market prices on the grant dates and during

2009 and 2008 the Company has calculated option benefits using a volatility ratio of 42% and a risk free interest rate of

3.5% to calculate option benefits. The fair value of the option benefit is amortized over the vesting period of the options,

generally being eighteen months. During the 2009 fiscal year the Company recorded a total option benefit of $19,587

(2008: $80,283).

16 Annual Report

NOTE 10 – Capital Management The Company’s primary objective for managing its capital structure is to maintain financial capacity for the purpose of sustain-

ing the future development of the business and maintaining investor, creditor and market confidence.

The Company considers its capital structure to include shareholders’ equity and working capital. Management is continually

monitoring changes in economic conditions and the risk characteristics of the underlying petroleum and natural gas industry. In

the event that adjustments to the capital structure are necessary, the Company may consider issuing additional equity, raising

debt or revising its capital investment programs.

The Company’s share capital is not subject to any external restrictions. The Company has not paid or declared any dividends

since the date of incorporation, nor are any currently contemplated. There have been no changes to the Company’s approach

to capital management during the period.

NOTE 11 – Financial Instruments

The nature of the Company’s operations expose the Company to credit risk, liquidity risk and market risk, and changes in

commodity prices, foreign exchange rates and interest rates may have a material effect on cash flows, net income and com-

prehensive income.

This note provides information about the Company’s exposure to each of the above risks as well as the Company’s objectives,

policies and processes for measuring and managing these risks.

The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appro-

priate risk limits and to monitor market conditions and the Company’s activities. The Board of Directors has overall responsibil-

ity for the establishment and oversight of the Company’s risk management framework and policies.

a) Credit Risk

Credit risk is the risk of financial loss to the Company if counterparties do not fulfill their contractual obligations. The most

significant exposure to this risk is relative to the sale of oil production; the majority of all of the Company’s production is sold

directly to one company by the operator of the permit on behalf of the Cheal joint venture. The Company is paid its share of

oil sales, by the operator, immediately upon receipt of sale proceeds. The Company has assessed the risk of non-collection

from the operator as a significant risk due to the operator’s financial condition.

Cash and cash equivalents consist of cash bank balances and short-term deposits. The Company’s short-term invest-

ments are held with a Canadian chartered bank and are monitored to ensure a stable return. The Company’s short-term

investments currently consist of term deposits as it is not the Company’s policy to utilize complex, higher-risk investment

vehicles.

The carrying amount of accounts receivable and cash and cash equivalents represents the maximum credit exposure. The

Company does not have an allowance for doubtful accounts as at March 31, 2009 and did not provide for any doubtful

accounts nor was it required to write-off any receivables during the year ended March 31, 2009. As at March 31, 2009 there

were no significant amounts past due or impaired.

b) Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its work commitments and other financial obligations

as they are due. The Company’s approach to managing liquidity is to ensure, to the extent possible, that it will have

sufficient liquidity to meet its liabilities when due without incurring unacceptable losses or risking harm to the Company’s

reputation.

Annual Report 17

The Company’s liquidity is dependent upon maintaining its current working capital balances, operating cash flows and abil-

ity to raise funds. To forecast and monitor liquidity the Company prepares operating and capital expenditure budgets which

are monitored and updated as considered necessary. Expected future cash flow from the Cheal oil field currently exceeds

operating costs and future capital expenditures. Considering these circumstances and the cash balance at March 31, 2009

of $7.385 million, the Company’s liquidity risk is assessed as low. As at March 31, 2009 the Company’s only financial

liabilities are accounts payable and accrued liabilities of $484,531.

c) Market Risk

Market risk is the risk that changes in foreign exchange rates, commodity prices and interest rates will affect the Company’s

cash flows, net income and comprehensive income. The objective of market risk management is to manage and control

market risk exposures within acceptable limits, while maximizing returns. Changes to commodity prices materially affected

the Company’s cash flow and net income, during the 2009 fiscal year.

d) Foreign Currency Exchange Rate Risk

Foreign currency exchange rate risk is the risk that future cash flows, net income and comprehensive income will fluctuate

as a result of changes in foreign exchange rates. All of the Company’s petroleum sales are denominated in United States

dollars and operational and capital activities related to our properties are transacted primarily in New Zealand dollars and/

or United States dollars with some costs also being incurred in Canadian dollars.

The Company currently does not have significant exposure to other currencies and this is not expected to change in the

foreseeable future as the work commitments in New Zealand are expected to be carried out in New Zealand and to a lesser

extent, in United States dollars.

e) Commodity Price Risk

Commodity price risk is the risk that future cash flows will fluctuate as a result of changes in commodity prices, affecting

results of operations and cash generated from operating activities. Such prices may also affect the value of exploration and

development properties and the level of spending for future activities. Prices received by the Company for its production are

largely beyond the Company’s control as petroleum prices are impacted by world economic events that dictate the levels

of supply and demand. All of the Company’s oil production is sold at spot rates exposing the Company to the risk of price

movements.

The Company did not have any commodity price contracts in place as at or during the year ended March 31, 2009, however

changes in commodity prices did affect the Company’s results of operations. These commodity price decreases have nega-

tively affected the value of the Company’s development property.

f) Interest Rate Risk

Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Company

is exposed to interest rate fluctuations on its cash and cash equivalents which bear a floating rate of interest. The risk is

not considered significant as the Company’s interest revenue is approximately 3% of total revenue.

The Company did not have any interest rate swaps or financial contracts in place as at or during the year ended March 31,

2009 and any variations in interest rates would not have materially affected net income.

g) Fair Value of Financial Instruments

The Company’s financial instruments as at March 31, 2009 included cash and cash equivalents, accounts receivable,

investments and accounts payable and accrued liabilities. The fair value of the financial instruments with exception of the

Company’s investments, approximate their carrying amounts due to their short terms to maturity. The fair value of the Com-

pany’s investments approximate their carrying value as they are recorded at market value at March 31, 2009.

18 Annual Report

NOTE 12 – Commitments and Contingencies

The Company participates in oil and gas exploration operations jointly with independent third and related parties and is contrac-

tually committed under agreements to complete certain exploration programs. The Company’s management estimates that the

total commitments for fiscal 2010 under various agreements relating to permits held at March 31, 2009 are as follows:

Work Commitment or Obligation

Oil and Gas Property Working Interest % to March 31, 2010

PMP 38156-S 30.50 $ 150,000

PEP 38738-S 30.50 500,000

PEP 38748 33.33 525,000

Total $ 1,175,000

NOTE 13 - Income Taxes 2009 2008


Expected income tax recovery (5,666,420) (2,638,170)

Net adjustment for amortization, deductible and non-deductible amounts 4,647,874 (166,774)

Unrecognized benefit of non-capital losses 1,018,546 2,804,944

Total income taxes $ – $ –

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

2009 2008

Future income tax assets (liabilities):

Net property and equipment carrying amounts in excess of tax pools $ (214,251) $ (7,176,060)

Non-capital loss carryforwards and share issue costs 10,011,181 10,302,870

9,796,930 3,126,810

Valuation allowance (9,796,930) (3,126,810)

– –

Purchase of Cheal 4,144,883 5,329,492

Reassessment of future income tax liability (4,144,883) (1,184,609)

Net future tax liabilities $ – $ 4,144,883

During the 2007 fiscal year the Company recorded a future income tax liability on an acquisition due to an excess of the allo-

cated cost of the property for consolidated accounting purposes over the tax pools applicable to these assets in the corporate

entity acquired. In the acquisition the Company’s carrying cost of the Cheal assets for consolidated accounting purposes, as

otherwise determined, was increased by this notional $5,329,492 future tax liability assumed. During the 2009 and 2008

fiscal years the excess costs allocated to the cost of the property over tax pools were reassessed and this notional future tax

liability was reduced to $Nil.

Annual Report 19

The Company has non-capital losses of approximately $7.25 million (2008 - $6.26 million), which are available to reduce future

taxable income in Canada, which expire between 2010 and 2029. Subject to certain restrictions the Company also has min-

eral property expenditures of approximately $4.08 million (2008 - $4.08 million) available to reduce taxable income in future

years.

At March 31, 2009, the Company also has losses and deductions of approximately NZ$36.2 million (March 31, 2008 -

NZ$33.1 million) available to offset future taxable income earned in New Zealand. These tax losses are available to be carried

forward indefinitely as long as shareholder continuity is maintained.

NOTE 14 – Subsequent EventsProperty and Equipment

a) On June 17, 2009, the Company executed a binding agreement with the receivers of Austral Pacific Energy Limited to

acquire the remaining 69.5% interest in PMP 38156-S (“Cheal”) and PEP 38738-S (“Greater Cheal”) in the Taranaki Basin,

New Zealand. Upon completion of this transaction TAG will own 100% interest in the Cheal Oil and Gas field including the

recently completed Cheal Production Station. The consideration to be paid by TAG for these assets includes:

i) US$2,000,000 in cash;

ii) an initial 25% overriding royalty on net oil sale revenue per barrel on PMP 38156-S and PEP 38738-01 for the first

500,000 barrels of shallow oil produced (reduced to 7.5% for the life of the field after 500,000 barrels of oil

have been produced);

iii) certain permit work commitments that include optimization and drilling operations to be completed in the next 30

months;

iv) at completion TAG will grant a first ranking security interest over all oil produced and the proceeds of all oil produced

from PMP 38156-S and PEP 38738-S to secure royalty payments and performance of certain permit work commitments.

The binding offer also contains certain price adjustments that relate to net operating profits earned and capital expenditures

paid at Cheal between the May 31, 2009 effective date and the completion date of the transaction.

b) In April 2009, the Company signed an agreement for purchase and sale with Greymouth Gas Co. Limited to sell its 16.65%

interest in PEP 38746 for cash. The agreement is conditional to receipt of necessary consents required under the joint

venture operating agreement and from the Ministry of Economic Development in New Zealand.

Share Capital

Subsequent to March 31, 2009 the Company acquired another 142,000 common shares of the Company under the normal

course issuer bid to purchase its common shares through the facilities of the TSX Venture Exchange.

On May 27, 2009, the Company filed a Form 15F with the U.S. Securities and Exchange Commission (“SEC”) with the intention

of voluntarily terminating the registration of its common shares under section 12(g) of the Securities Exchange Act and expects

that termination of registration will become effective 90 days after its filing with the SEC. As a result of this filing, TAG Oil’s

reporting obligations with the SEC will immediately be suspended and, once effective, the Company’s shares will no longer be

quoted in the United States on the Over-the-Counter Bulletin Board.

20 Annual Report

NOTE 15 – Segmented InformationThe Company operates in one industry: petroleum exploration and production. It operates in two geographical regions, therefore

information on country segments is provided as follows:

2009 Canada New Zealand Total Company

Production revenue $ – $ 4,923,856 $ 4,923,856

Royalty expenses – (249,356) (249,356)

4,674,500 4,674,500

Expenses:

General and administrative 1,068,137 431,564 1,499,701

General exploration – 349,256 349,256

Production costs – 1,524,651 1,524,651

Stock based compensation 19,587 – 19,587

Directors and officers insurance 45,000 – 45,000

Foreign exchange (474,709) 119,674 (355,035)

Depletion, depreciation and accretion 8,643 1,365,693 1,374,336

Interest income (125,428) (33,131) (158,559)

Write-off of oil and gas properties – 9,564,716 9,564,716

Gain on sale of inventory – (132,241) (132,241)

Legal settlement – (182,347) (182,347)

Net loss for the year $ (541,230) $ (18,333,335) $ (18,874,565)

Total assets $ 5,585,705 $ 7,537,006 $ 13,122,711

Capital expenditures for the year $ – $ 2,128,855 $ 2,128,855

Annual Report 21

Management’s Discussion and Analysis

The following Management’s Discussion and Analysis (MD&A) is dated July 28, 2009 for the year ended March 31, 2009 and

should be read in conjunction with the Company’s accompanying audited consolidated financial statements and the notes for

the years ended March 31, 2009 and 2008.

Forward Looking Statements

The MD&A contains forward-looking statements within the meaning of securities laws, including the “safe harbour” provisions

of Canadian securities legislation. Forward-looking statements and information concerning anticipated financial performance

are based on management’s assumptions using information currently available. Material factors or assumptions used to

develop forward-looking information include potential business prospects, growth strategies, the ability to add production and

reserves through development and exploration activities, the ability to reduce costs and extend commitments, projected capital

costs, government legislation, well performance, the ability to market production, the commodity price environment and quality

differentials and exchange rates. Although management considers its assumptions to be reasonable based on these factors,

they may prove to be incorrect.

Forward-looking information is often, but not always, identified by the use of words such as “anticipate”, “assume”, “believe”,

“estimate”, “expect”, “forecast”, “guidance”, “may”, “plan”, “predict”, “project”, “should”, “will”, or similar words suggesting

future outcomes. Forward-looking statements in this MD&A include, but are not limited to, statements with respect to reserves,

future production volumes, cash flow, royalty and tax obligations, production expenses, general and administrative expenses,

future income taxes, and future exploration and development activities and the related expenditures.

Because forward-looking information addresses future events and conditions, it involves risks and uncertainties that could

cause actual results to differ materially from those contemplated by the forward-looking information. These risks and uncertain-

ties include, but are not limited to: commodity price volatility; well performance and marketability of production; transportation

and refining availability and costs; exploration and development costs; the recoverability of reserves; reserves estimates and

valuations; the Company’s ability to add reserves through development and exploration activities; fluctuations in currency

exchange rates; and changes in government legislation and regulations.

The forward-looking statements contained herein are as of July 28, 2009 and are subject to change after this date. Readers are

cautioned that the foregoing list of factors that may affect future results is not exhaustive and as such undue reliance should

not be placed on forward-looking statements. Except as required by applicable securities laws, with the exception of events or

circumstances that occurred during the period to which the MD&A relates that are reasonably likely to cause actual results to

differ materially from material forward-looking information for a period that is not yet complete that was previously disclosed to

the public, the Company disclaims any intention or obligation to update or revise these forward-looking statements, whether as

a result of new information, future events or otherwise.

Business

TAG Oil Ltd. is a Canadian-based oil and gas producer and explorer with assets in the onshore Taranaki Basin of New Zealand.

TAG is poised to grow through profitable operations, acquisition, development and exploration. TAG remains in a strong financial

position, with sufficient working capital to fund operations and meet all commitments for the foreseeable future.

At the date of this report there are six wells producing at the Cheal oil field (TAG: 30.5%). Having completed and fully commis-

sioned the Cheal production facility during the 2008 fiscal year, the Company is focused on reducing operating costs, increasing

production at Cheal through optimization and high-grading our exploration prospects while continuing to mitigate the risk of our

prospects through technical evaluation and strict cost control. The 2009 fiscal year was a challenging year that required the

Company to record a reduction in independent reserves estimates for the Cheal oil field and this write-down, when combined

22 Annual Report

with lower oil prices received for Cheal oil had a significant impact on the company’s balance sheet and statement of opera-

tions. The Company believes that a properly executed development plan at Cheal will allow the Company to increase reserve

value through optimization and further drilling with a goal of increasing production and recovery factors. Our short-term plan

will continue to focus on maximizing value at Cheal so that oil revenues can fund our development and exploration programs

going forward and longer-term the Company will identify other opportunities for growth through acquisitions and through

providing funding for suitable development opportunities. At the same time we also intend to sell none-core assets and seek

extensions on commitments where available and where felt necessary.

Petroleum Property Activities, Production and Capital Expenditures for the Year Ended March 31, 2009

With the contribution to Cheal production from the A7 well that was drilled in July 2008, the Cheal JV produced an average

of approximately 440 barrels per day during the year ended March 31, 2009. The Company believes that maximum value

of the Cheal field will be realized through the implementation of certain optimization operations and additional successful

drilling that will enhance recovery rates and increase daily production.

In addition to oil production, gas export from the field commenced on December 21, 2007 with a total of 30.03 million

standard cubic feet being exported to the Waihapa Production Station to March 31, 2008 and 30.351 million standard cubic

feet being exported during the first quarter of the 2009 fiscal year. In July 2008, however the Waihapa Production Station

(“WPS”) was shut down due to inadequate supplies of gas to the facility from other sources and remains shut-down at the

date of this report. The Cheal field oil production produces very small volumes of gas; most of which is used to generate

electricity to operate the plant with excess electricity being sold into the grid. Any residual amounts of gas not used was

being processed at the WPS and sold prior to the shut-down. As a result of the shut down, processing of raw gas from

Cheal into the WPS has been suspended and oil production as a result is required to be cycled to ensure excess gas is not

produced. It is uncertain when processing through the WPS will begin again.

During the year ended March 31, 2009 the Company incurred $2,087,632 worth of net expenditures on its oil and gas prop-

erties. This compares to $6,731,494 worth of expenditures during the 2008 fiscal year. The primary capital expenditures

and activities during the year were as follows:

PMP 38156-S: $804,849 (2008: $5,012,087) in costs were incurred by the Company during the year on the Cheal oil field

production facilities and the Company spent $1,107,703 (2008: $407,836) primarily on the drilling of the Cheal A6 and A7

wells. Cheal A6 was drilled, whipstocked and was then found to be a sub-commercial oil discovery while the Cheal A7 well

was commercially successful and was tied into the Cheal facilities.

The Company received the results from an independent reserves assessment on its 30.5% interest in the Cheal Oil Pool,

onshore Taranaki Basin, New Zealand dated March 31, 2009 that assigned a net present value of US$2.84 million, using

a 10% discount rate to TAG’s share of proved and probable reserves. In addition, gross proved and probable reserves

estimates of the Cheal pool have been reduced from 2.783 million boe at March 31, 2008 to 530,000 boe. As a result the

Company wrote-down the Cheal book value which reversed an accrual of $4,144,883 related to estimated future income

tax liabilities recorded for the Cheal field in a prior fiscal year. BOEs may be misleading, particularly if used in isolation.

A BOE conversion ratio of 6 Mcf:1bbl is based on an energy equivalency at the burner tip and does not represent a value

equivalency at the wellhead.

Annual Report 23

PEP 38746 (TAG: 16.66%): $66,838 (2008: $5,479) was spent primarliy on a 2D seismic programme conducted over PEP

38746. The seismic interpretation has been completed and the Cheal JV has requested an extension to the conditions of

the work program on this permit.

PEP 38748 (TAG: 33.33%): $51,186 (2008: $6,074) was spent primarily on overhead and planning for the Company’s well

commitment in this permit.

Please also refer below to subsequent events for further information.

The Company has the following commitments for Capital Expenditure at March 31, 2009:

Contractual Obligations Total $ Less than One Year $ More than One Year $

Long term debt - - -

Operating leases - - -

Purchase obligations - - -

Other long-term obligations (1) 1,175,000 1,175,000 -

Total Contractual Obligations (2) 1,175,000 1,175,000 -

(1) The Other Long Term Obligations that the Company has are in respect to the Company’s share of expected exploration and development permit obligations and/or

commitments at the date of this report. The Company may choose to alter the program, request extensions, reject development costs, relinquish certain permits or

farm-out its interest in permits where practical.

(2) The Company’s total commitments include those that are required to be incurred to maintain its permits in good standing during the current permit term, prior to the

Company committing to the next stage of the permit term where additional expenditures would be required. In addition costs are also included that relate to commit-

ments the Company has made that are in addition to what is required to maintain the permit in good standing.

The Company’s commitments shown above totalling $1,175,000 include exploration and development activities. Certain

exploration commitments may exceed the exploration work required under the permit terms to maintain the permits in good

standing and are subject to change as work is completed, results are received and whether the required services are avail-

able to the Company.

The commitment amounts for capital expenditure relate primarily to the drilling of a well on each of PEP 38738-S (TAG: 30.5%

interest) and PEP 38748 (TAG: 33.33% interest). The Company also has an obligation to pay its joint venture interest share

of costs to plug and abandon the unsuccessful SuppleJack and Kahili wells previoulsy drilled. The Company expects to use

working capital on hand as well as cash flow from oil sales to meet these commitments.

Selected Annual Financial Information

The following table summarizes selected annual information for the years ended March 31, 2009 and 2008:

2009 2008 2007

Production revenue $ 4,923,856 $ 4,103,954 $ 938,838

Net loss (18,874,565) (7,979,915) (18,558,466)

Net loss per share (1.05) (0.44) (1.10)

Working capital 7,872,780 7,511,039 13,650,792

Total assets 13,122,711 38,488,014 46,673,370

Long term debt - - -

Shareholders equity $ 13,044,266 $ 32,234,198 $ 40,133,830

24 Annual Report

Results of Operations

The Company recorded a net loss for the 2009 fiscal year of $18,874,565 ($1.05 loss per share- basic and fully diluted)

compared to a loss of $7,979,915 ($0.44 loss per share) for the same period last year. The net loss for the year essen-

tially resulted from a write-down of approximately $19.56 million (2008: $6.56 million) in PMP 38156-S and the Company’s

revenue of $4,923,856 (2008: $4,103,954). Although the Company recorded a significant loss as a result of the Cheal

write-down the Company’s operations remained profitable. Stock options outstanding are not included in the computation of

the diluted loss per share as the inclusion of such securities would be anti-dilutive.

Please also refer to Note 5 of the accompanying audited consolidated financial statements.

The Company’s revenue for the year consisted of oil and gas sales from the Cheal Oil Field totalling $4,923,856 (2008:

$4,103,954) and interest income of $158,559 (2008: $426,590). Interest income decreased for the year when compared

to last year as a result of the Company’s lower working capital balances.

During the year ended March 31, 2009, the Cheal oil field produced 161,713 (2008: 169,737) gross barrels of oil and

174,558 (2008: 154,240) gross barrels of oil were sold during the year with associated gas produced being used to generate

electricity on-site with a small amount of excess gas and electricity being sold to independent third parties. The Company’s

30.5% share of oil produced and sold for the year was 49,322 (2008: 51,770) and 53,240 (2008: 47,043), respectively.

The Company’s share of production costs for the 2009 fiscal year amounted to $1,524,651 (2008: $1,552,752) while

depletion and royalties amounted to $1,308,922 (2008: $1,281,614) and $249,356 (2008: $209,096), respectively.

Since the Company acquired its interest in PMP 38156-S in June 2006, the Cheal oil field has produced 377,185 barrels

of oil to March 31, 2009. From November 2004 to March 31, 2009, however, the Cheal oil field has produced 470,239

barrels of oil.

General and administrative (“G&A”) costs for the 2009 fiscal year were $1,499,701 (2008: $2,059,505).

A comparative summary of the Company’s G&A costs for the two-years ending March 31, 2009 and 2008 is as follows:

2009 2008

Consulting fees $ 262,701 $ 99,935Directors fees 25,000 74,741

Filing, listing and transfer agent 71,184 53,994

Exploration and reports 77,222 17,468

Office and administration 101,194 112,551

Professional fees 207,340 215,216

Rent 46,792 42,754

Shareholder relations and communications 75,038 165,164

Travel 81,823 173,375

Wages 602,563 1,196,975

Overhead recoveries (51,156) (92,668)

$ 1,499,701 $ 2,059,505

In addtion to the G&A costs above:

a) The Company recorded a foreign exchange gain for the year ended March 31, 2009 amounting to $355,035 compared

to a foreign exchange loss of $863,843 last year. The foreign exchange gain for the year was caused by fluctuations of

both the U.S. and New Zealand dollar in comparison to the Canadian dollar.

b) The Company recorded stock option compensation costs of $19,587 for the year ending March 31, 2009 (2008:

$80,283) relating to the amortization of the fair value compensation cost of stock options previously granted.

Annual Report 25

c) The Company incurred $349,256 of general exploration costs for the 2009 fiscal year (2008: $261,588).

d) The Company received $182,347 from Austral Pacific as part of the agreement to resolve the dispute related to the con-

struction of the Cheal facility. Specifically, the $182,347 consists of the first seven of twelve payments Austral Pacific will

pay to the Company after successfully completing the Cheal A7 well for production, however it is unlikely the Company

will receive the final five payments due to Austral’s financial condition.

Please also refer to Note 5 of the accompanying audited consolidated financial statements for information relating to the

Company’s assets.

Summary of Quarterly Information

2009 2008

Q4$ Q3$ Q2$ Q1$ Q4$ Q3$ Q2$ Q1$

Total revenue 600,628 728,031 1,534,373 2,060,824 1,181,981 1,238,819 789,655 893,499

General and administrative (350,947) (429,179) (396,850) (322,725) (735,459) (421,921) (779,753) (383,961)

Foreign exchange (123,235) 573,099 (34,808) (60,021) (509,337) (188,290) (633,645) (551,244)

Stock option compensation (13,246) 6,339 (6,341) (6,339) (11,382) (22,817) (22,817) (22,817)

Other (8,810,557) (11,983,946) (958,880) (880,785) 276,812 (7,202,724) (27,274) (847,240)

Net income (loss) (8,697,357) (11,105,656) 137,494 790,954 202,615 (6,596,933) (673,834) (911,763)

Basic income (loss) per share (0.50) (0.60) 0.00 0.04 0.00 (0.35) (0.05) (0.05)

Diluted income (loss) per share (0.50) (0.60) 0.00 0.04 0.00 (0.35) (0.05) (0.05)

Fourth Quarter 2009 Results

Production for the fourth quarter of 2009 averaged 417 barrels gross per day (TAG: 127 barrels per day). The Company

recorded a net loss of $8,697,357 (2008: net income of $202,615) for the quarter ended March 31, 2009, mainly as

a result of a write down in the Company’s oil and gas properties for the quarter. The Company’s revenue for the quarter

consisted of the Company’s 30.5% share of 38,870 gross barrels of oil sold (37,550 barrels of oil produced during the

quarter).

Production revenue for the quarter was partially offset by $255,129 (2008: $526,561) in production costs, while deple-

tion, depreciation and accretion amounted to $241,936 (2008: $252,586) and royalties amounted to $63,774 (2008:

$67,674).

Interest income of $31,021 (2008: $55,011) was recorded in the quarter and the Company recorded a gain on the sale of

inventory amounting to $132,241 compared to a write-down of inventory recorded last year amounting to $201,431. G&A

for the fourth quarter decreased to $350,947 compared to $473,871 for the comparable quarter last year.


26 Annual Report

Liquidity and Capital Resources

At March 31, 2009 the Company had $7,385,177 (2008: $6,553,101) in cash and cash equivalents and $7,872,780

(2008: $7,511,039) in working capital. As of the date of this report the Company is adequately funded to meet its capital

and ongoing requirements for the next twelve months based on the current exploration and development programs and

anticipated revenue from the Cheal oil field. Additional material commitments, changes to production estimates or any

acquisitions by the Company may require a source of additional financing. Alternatively certain permits may be farmed-out,

sold or relinquished.

Off-Balance Sheet Arrangements and Proposed Transactions

The Company has no off-balance sheet arrangements or proposed transactions.

Related Party Transaction

The Company was not involved in any related party transaction during the period ended March 31, 2009 outside of paying

wages and certain other general and adminstrative expenses as disclosed in this report and in the accompanying audited

consolidated financial statements.

Subsequent Events

Property and Equipment

The Company entered into a binding agreement on July 1, 2009 to offer to acquire a 66.67% interest in PEP 38748, a 7,910

acre exploration permit. The Company has applied for a change of conditions to extend the timing of the requirement to drill

a well on this permit.

To enhance the Company’s ability to sell or farm-out its interest in PEP 38746, a change of conditions application was filed

by the joint venture partners to revise the work programme and to extend the requirement of the joint venture to commit to

and then drill a well on this permit.


Share Capital

Please refer to Notes 9 and 14 of the accompanying audited consolidated financial statements for share capital information

to the date of this report.

Business Risks and Uncertainties

The Company, like all companies in the international oil and gas sector, is exposed to a variety of risks which include title

to oil and gas interests, the uncertainty of finding and acquiring reserves, funding and developing those reserves and find-

ing storage and markets for them. In addition there are commodity price fluctuations, interest and exchange rate changes

and changes in government regulations. The oil and gas industry is intensely competitive and the Company must compete

against companies that have larger technical and financial resources. The Company works to mitigate these risks by evaluat-

ing opportunities for acceptable funding, considering farm-out opportunities that are available to the Company, operating in

politically stable countries, aligning itself with joint venture partners with significant international experience and by employ-

ing highly skilled personnel. The Company also maintains a corporate insurance program consistent with industry practice

Annual Report 27

to protect against losses due to accidental destruction of assets, well blowouts and other operating accidents and disruptions. The

oil and gas industry is subject to extensive and varying environmental regulations imposed by governments relating to the protection

of the environment and the Company is committed to operate safely and in an environmentally sensitive manner in all operations.

Please also refer to Forward Looking Statements.

Changes in Accounting Policies

Please refer to Note 4 of the accompanying audited consolidated financial statements.

Additional information relating to the Company is available on Sedar at www.sedar.com.

28 Annual Report

Notes

3 Annual Report

DIRECTORS AND OFFICERS

Garth Johnson

President, CEO, CFO and Director


John Vaccaro

Director


Dan Brown

Director


Giuseppe (Pino) Perone

Director


CORPORATE OFFICE

Suite 2901, 1050 Burrard Street


Canada V6Z 2S3

Telephone: 1-604-609-3350

Facsimile: 1-604-682-1174

TECHNICAL HEADQUARTERS

233 Broadway

P.O. Box 262

Stratford 4332

Taranaki, New Zealand

Telephone: 06-765-6643

Facsimile: 06-765-6654

SUBSIDIARIES

TAG Oil (NZ) Limited

TAG Oil (Canterbury) Limited

Cheal Petroleum Limited

SHAREHOLDER RELATIONS

Telephone: 604-609-3350

Email: [email protected]

SHARE CAPITAL

At July 28, 2009, there were

16,809,722 shares issued and outstanding.

Fully diluted: 17,031,722 shares

BANKER

Bank of Montreal


LEGAL COUNSEL

Blake, Cassels & Graydon


AUDITORS

De Visser Gray

Chartered Accountants


REGISTRAR AND TRANSFER AGENT

Computershare Investor Services Inc.

100 University Avenue, 9th Floor

Toronto, Ontario

Canada M5J 2Y1

Telephone: 1-800-564-6253

Facsimile: 1-866-249-7775

ANNUAL GENERAL MEETING

The Annual General Meeting will be held

on December 11, 2009 at 10:00 a.m. at the

at the offices of Blake, Cassels & Graydon

located at Suite 2600, 595 Burrard Street

Vancouver, B.C. V7X 1L3

SHARE LISTING

TSX Venture Exchange

Trading Symbol: TAO

WEBSITE

www.tagoil.com

Corporate Information

Corporate Office

2901-1050 Burrard StreetVancouver, British ColumbiaV6Z 2S3 Canada

Phone (604) 609-3350Fax (604) 682-1174

Technical Headquarters

233 BroadwayP.O. Box 262Stratford 4332Taranaki, New Zealand

Phone (06) 765-6643Fax (06) 765-6654

pri

nte

d i

n C

anada

www.tagoil.com

document

Documents

exploration acreage

cheal oil discovery

east coast basin oil

tag holdings

cheal discovery

high quality oil

taranaki discovery fairway

basin acreage statuspmp