20-F 1 form20f123110.htm form20f123110.htm
UNITED STATES SECURITIES
AND
EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 20-F

 
   [ ]  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR
   [X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE   ACT OF 1934
 
For the fiscal year ended ________December 31, 2010________

 
OR
   [ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
          For the transition period from ____________ to __________

 
OR

 
   [ ]  SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 
Date of event requiring this shell company report: ______

Commission File Number: 333-137571

POWER OIL & GAS INC.
 (Exact name of Registrant as specified in its charter)

Alberta, Canada
(Jurisdiction of incorporation or organization)

104 – 1240 Kensington Road N.W., Calgary, Alberta, Canada T2N 3P7
(Address of principal executive offices)

Securities to be registered pursuant to Section 12(b) of the Act:

None

Securities to be registered pursuant to Section 12(g) of the Act:

Common Stock, Fully Paid and Non-Assessable Common Shares Without Par Value
(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report:  42,818,875 common shares as of December 31, 2010 and 42,818,875 common shares as of June 29, 2011.  No preferred shares issued and outstanding.

 
1
 


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:Yes [  ] No [X]

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes [  ] No [X]
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days.  Yes [X]   No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [  ]                                           Accelerated filer [  ]                                           Non-accelerated filer [X]

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

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

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 [ X] Item 18 [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)Yes [  ]  No [X]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [  ]  No [X]


Index to Exhibits on Page 86

 
2
 




POWER OIL & GAS INC.

FORM 20-F ANNUAL REPORT 2010

TABLE OF CONTENTS


Oil and Gas Glossary
   4
 
Introduction
   5
Part I
     
Item 1.
Identity of Directors, Senior Management and Advisors
   7
Item 2.
Offer Statistics and Expected Timetable
   7
Item 3.
Key Information
   7
Item 4.
Information on the Company
  20
Item 4A.
Unresolved Staff Comments
   31
Item 5.
Operating and Financial Review and Prospects
   31
Item 6.
Directors, Senior Management and Employees
   40
Item 7.
Major Shareholders and Related Party Transactions
   46
Item 8.
Financial Information
   48
Item 9.
The Offer and Listing
   51
Item 10.
Additional Information
   52
Item 11.
Quantitative and Qualitative Disclosures About Market Risk
   57
Item 12.
Description of Other Securities Other Than Equity Securities
   58
 
Part II
     
Item 13.
Defaults, Dividend Arrearages and Delinquencies
   59
Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
   59
Item 15.
Controls and Procedures
   59
Item 16.
Reserved
   61
Part III
     
Item 17.
Financial Statements
   63
Item 18.
Financial Statements
   63
Item 19.
Exhibits
   86
     
Financial Statements
   64
     
Signature Page
  



 
3
 


GLOSSARY


 
Term
Definition
  
     
Adsorption
The accumulation of gases, liquids, or solutes on the surface of a solid or liquid.
  
Basin
A depressed area where sediments have accumulated during geologic time and considered to be prospective for oil and gas deposits.
  
Coal
A carbon-rich rock derived from plant material (peat)
  
Development
The phase in which a proven oil or gas field is brought into production by drilling production (development) wells.
  
Drilling
The using of a rig and crew for the drilling, suspension, production testing, capping, plugging and abandoning, deepening, plugging back, sidetracking, re-drilling or reconditioning of a well.
  
Drilling logs
Recorded observations made of rock chips cut from the formation by the drill bit, and brought to the surface with the mud, as well as rate of penetration of the drill bit through rock formations. Used by geologists to obtain formation data.
  
Exploration
The phase of operations which covers the search for oil or gas by carrying out detailed geological and geophysical surveys followed up where appropriate by exploratory drilling. Compare to "Development" phase.
  
Fracturing
The application of hydraulic pressure to the reservoir formation to create fractures through which oil or gas may move to the wellbore.
  
Methane
The simplest of the various hydrocarbons and is the major hydrocarbon component of natural gas, and in fact is commonly known as natural gas. It is colorless, odorless, and burns efficiently without many byproducts
  
Mineral Lease
A legal instrument executed by a mineral owner granting exclusive right to another to explore, drill, and produce oil and gas from a piece of land
  
Permeability
A measure of the ability of a rock to transmit fluid through pore spaces.
  
Reserves
Generally the amount of oil or gas in a particular reservoir that is available for production.
  
Reservoir
The underground rock formation where oil and gas has accumulated. It consists of a porous rock to hold the oil or gas, and a cap rock that prevents its escape
  


 
4
 


INTRODUCTION

We were formed as a corporation under the federal laws of Canada pursuant to the Canada Business Corporations Act on April 25, 2005 under the name Liberty Gold Corp.  On June 23, 2006, at an annual general and special meeting of shareholders, a majority of the shareholders of the Company approved a change in business of the Company from mineral exploration to oil and gas exploration and extraction.  At the same meeting, a majority of the shareholders of the Company approved a change in name of the Company to Liberty Petroleum Inc.  On May 23, 2008 at a special meeting of shareholders, a majority of the Company’s shareholders approved a change in name of the Company to Power Oil & Gas Inc.

We are currently an oil and gas exploration stage company and anticipate acquiring, exploring, and if warranted and feasible, developing oil and gas properties.

In this Annual Report, the “Company”, “Power Oil & Gas Inc.”, “Power”, "we", "our", and "us", refer to Power Oil & Gas Inc. (unless the context otherwise requires).  Summary discussions of documents referred to in this 20-F may not be complete, and we refer you to the actual documents for more complete information.  Our principal corporate offices are located at 104 – 1240 Kensington N.W., Calgary, Alberta, T2N 3P7.

BUSINESS OF POWER OIL & GAS INC.

Power Oil & Gas Inc., (the “Company") is principally a company engaged in the acquisition and exploration of oil and gas properties.  On March 15, 2006, the Company entered into an agreement giving it the exclusive right and option to acquire a 100% interest in a mineral exploration property known as the GQ Property located in the Kamloops Mining District of British Columbia, Canada.  In relation to the Company’s decision to pursue opportunities in the oil and gas industry, it terminated the GQ Property option on May 31, 2006.

The Company currently has an interest in 18 Petroleum and Natural Gas leases with the Province of Alberta, Canada.  All of these leases are located in Alberta, Canada with the Company focusing on the region known as the Milk River.

For all of its current properties, the Company has obtained the Petroleum and Natural Gas rights only.

FINANCIAL AND OTHER INFORMATION

In this Annual Report, unless otherwise specified, all dollar amounts are expressed in Canadian Dollars (“CDN$” or “$”).  The Government of Canada permits a floating exchange rate to determine the value of the Canadian Dollar against the U.S. Dollar (US$).

FORWARD-LOOKING STATEMENTS

This Annual Report includes forward-looking statements, principally in ITEM #4, “Information on the Company” and ITEM #5, “Operating and Financial Review and Prospects".  We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting our business.  These forward-looking statements are subject to risks, uncertainties and assumptions including, among other things, the factors discussed in this Annual Report under ITEM #3, “Key Information, Risk Factors" and factors described in documents that we may furnish from time to time to the Securities and Exchange Commission.


 
5
 


The words "believe", "may", "estimate", "continue", "anticipate", "intend", "expect", and similar words are intended to identify forward-looking statements.  In light of these risks and uncertainties, the forward-looking information, events and circumstances discussed in this Annual Report might not occur.  Our actual results and performance could differ substantially from those anticipated in our forward-looking statements.  We undertake no obligation to update publicly or revise any forward-looking statements because of new information, future events or otherwise.



 
6
 


PART I

ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

--- Not applicable ---

ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE.

--- Not applicable ---

ITEM 3.  KEY INFORMATION.

3.A. Selected Financial Data

The selected financial data of the Company for the fiscal years ended December 31, 2010, 2009, 2008, 2007 and 2006 and for the fiscal period from April 25, 2005 (inception) to December 31, 2005 were derived from the financial statements of the Company that have been audited by Smythe Ratcliffe LLP, independent Chartered Accountants or BDO Canada LLP, as indicated in their audit reports, which are included elsewhere in this Annual Report.  The selected financial data should be read in conjunction with the financial statements and other financial information included elsewhere in this 20-F.

Effective September 21, 2010 at the request of the Corporation, Smythe Ratcliffe Chartered Accountants (“Smythe”) resigned as auditors of the Corporation.  The Board of Directors of the Corporation has recommended BDO Canada LLP, Chartered Accountants, as the replacement auditors of the Corporation.  In the opinion of the Corporation, throughout the period Smythe was the Corporation’s auditors, there have been no reservations in the auditor’s reports or any “reportable events” as that term is defined in Section 4.11 of National Instrument 51-102 Continous Disclosure Obligations.  The resignation of Smythe has not occurred because of any reportable disagreement or unresolved issue involving the Corporation, or any consultation with the successor auditors BDO Canada LLP.

The Company has not declared any dividends since incorporation and does not anticipate that it will do so in the foreseeable future.  The present policy of the Company is to retain all available funds for use in its operations and the expansion of its business.

The selected financial information disclosed below has been derived from financial statements of the Company, which have been prepared in accordance with Canadian Generally Accepted Accounting Principles (GAAP).  There are no material numerical differences between Canadian GAAP and US GAAP, as applicable to the Company.


 
7
 


Selected Financial Information
 
All in Canadian $ except Common Shares issued
For Year Ended December 31, 2010
For Year Ended December 31, 2009
For Year Ended December 31, 2008
For Year Ended December 31, 2007
For Year Ended December 31, 2006
For the Period April 25, 2005 (Inception) to December 31, 2005
Operating Revenues
-
-
-
-
-
-
Interest Income
-
-
$151
$2,451
$2,451
-
Loss from Operations
$(971,141)
$(2,327,920)
$(131,360)
$(61,618)
$(61,618)
$(8,950)
Net Loss
$(971,141)
$(2,327,920)
$(131,360)
$(61,618)
$(61,618)
$(8,950)
Loss per Share – Basic and Diluted
 
$(0.02)
 
$(0.06)
 
$(0.01)
 
$(0.01)
 
$(0.01)
 
$(0.01)
Total Assets
$121,886
$173,236
$100,466
$38,676
$38,676
$130,525
Net Assets
$86,881
$136,696
$(35,092)
$29,215
$29,215
$125,525
Total Liabilities
$35,005
$36,540
$135,558
$9,461
$9,461
$5,000
Working Capital (Deficiency)
$(29,867)
$(29,767)
$(77,208)
$19,881
$19,881
$125,525
Share Capital
$411,756
$242,271
$134,475
$134,475
$134,475
$134,475
Common Shares Issued
42,818,875
42,140,935
41,709,750
41,709,750
41,709,750
41,709,750
Shares to be Issued
-
477,940
-
-
-
-
Dividends Declared
-
-
-
-
  
-

3.A.3. Exchange Rates

In this Annual Report, unless otherwise specified, all dollar amounts are expressed in Canadian Dollars (CDN$).  The Government of Canada permits a floating exchange rate to determine the value of the Canadian Dollar against the U.S. Dollar (US$).

Set forth below are the exchange rates for the Canadian Dollar at the end of five periods ended December 31st since the Company’s inception on April 25, 2005, the average rates for the period and the range of high and low rates for the period.  The data for May 2011 and for each month during the most recent six months is also provided.

For purposes of this table, the rate of exchange means the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York.  The table sets forth the number of Canadian Dollars required under that formula to buy one U.S. Dollar.  The average rate means the average of the exchange rates on the last day of each month during the period.




 
8
 


Table No. 2
U.S. Dollar/Canadian Dollar



Period
Average
High
Low
Close
         
May 2011
0.97
0.97
0.96
0.97
April 2011
0.96
0.97
0.94
0.95
March 2011
0.98
0.99
0.97
0.97
February 2011
0.99
1.00
0.97
0.97
January 2011
0.99
1.00
0.99
1.00
December 2010
1.01
1.00
0.99
0.99
         
Fiscal Year Ended December 31, 2010
1.01
1.00
0.99
0.99
Fiscal Year Ended December 31, 2009
1.14
1.03
1.30
1.05
Fiscal Year Ended December 31, 2008
1.07
0.97
1.30
1.22
Fiscal Year Ended December 31, 2007
1.07
0.91
1.19
0.98
Fiscal Year Ended December 31, 2006
1.13
1.10
1.17
1.17

3.B. Capitalization and Indebtedness
 
--- Not applicable ---

3.C. Reasons for the Offer and Use of Proceeds

--- Not applicable ---

3.D. Risk Factors

This investment has a high degree of risk.  Before you invest you should carefully consider the risks and uncertainties described below and the other information in this prospectus.  If any of the following risks actually occur, our business, operating results and financial condition could be harmed and the value of our stock could go down.  This means you could lose all or a part of your investment.

RISKS RELATING TO OUR COMPANY

1.
We are an exploration stage Company, with limited operating history in oil and gas exploration and we have focused primarily on establishing our operations, all of which raises substantial doubt as to our ability to successfully develop profitable business operations and makes an investment in our common shares very risky.

On June 23, 2006 at an annual general and special meeting of shareholders, a majority of the shareholders of the Company approved the change in the name of the Company from Liberty Gold Corp. to Liberty Petroleum Inc.  At the same meeting, a majority of the Company’s shareholders also approved the change in business of the Company from mineral exploration to oil and gas exploration.  On May 23, 2008 at a special meeting of shareholders, a majority of the Company’s shareholders approved a change in name of the Company to Power Oil & Gas Inc.  As a result we have only recently commenced oil and gas exploration operations.


 
9
 


Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered in establishing a business in the oil and natural gas industries. We have yet to generate any revenues from operations and have been focused on organizational, start-up, property acquisition, and fund raising activities. Since we have not generated any revenues, we will have to raise additional capital to fund our operations for the next twelve months, which we may do through loans from existing shareholders, the sale of our equity securities or strategic arrangement with a third party in order to continue our business operations.  There is nothing at this time on which to base an assumption that our business operations will prove to be successful or that we will ever be able to operate profitably. Our future operating results will depend on many factors, including:

 
• our ability to raise adequate working capital;
 
• success of our development and exploration;
 
• demand for natural gas and oil;
 
• the level of our competition;
 
• our ability to attract and maintain key management and employees; and
 
• our ability to efficiently explore, develop and produce sufficient quantities of marketable natural gas or oil in a highly competitive and speculative environment while maintaining quality and controlling costs.

To achieve profitable operations, we must, alone or with others, successfully execute on the factors stated above.  If we are not successful in executing any of the above stated factors, our business will not be profitable and may never even generate any revenue, which make our common shares a less attractive investment and may harm the trading of our common shares, if a market ever develops.

2.
The field of oil and gas exploration is difficult to predict because of technological advancements and market factors, which factors our management may not correctly assess and it may make it difficult for investors to sell their  common shares.

Because the nature of our business is expected to change as a result of shifts in the market price of oil and natural gas, competition, and the development of new and improved technology, management forecasts are not necessarily indicative of future operations and should not be relied upon as an indication of future performance.

Our Management may incorrectly estimate projected occurrences and events within the timetable of our business plan, which would have an adverse effect on our results of operations and, consequently, make our common shares a less attractive investment and harm the future trading of our common shares trading on the OTC Markets.  Investors may find it difficult to sell their shares on the OTC Markets should a market ever develop for our shares.

3.
Because we have no plan to generate revenue unless and until our exploration program is successful in finding productive wells, we will need to raise a substantial amount of additional capital in order to fund our operations for the next twelve months and in order to develop our property and acquire and develop new properties.  If the prospects for our property are not favorable or the capital markets are tight, we would not be able to raise the necessary capital and we will not be able to pursue our business plan, which would likely cause our common shares to become worthless.


 
10
 


Cash on hand is insufficient to fund our anticipated operating needs of approximately $117,000 for the next twelve months. As we have no plan to generate revenue unless and until our exploration program is successful in finding productive wells, we will require substantial additional capital to fund our operations for the next twelve months and in order to participate in the development of our property, which has not had any production of oil or natural gas, as well as for the future acquisition and/or development of other properties.  Because we currently do not have any cash flow from operations we need to raise additional capital, which may be in the form of loans from current shareholders and/or from public and private equity offerings.  Our ability to access capital will depend on our success in participating in properties that are successful in exploring for and producing oil and gas at profitable prices.  It will also be dependent upon the status of the capital markets at the time such capital is sought.  Should sufficient capital not be available, the development of our business plan could be delayed and, accordingly, the implementation of our business strategy would be adversely affected. In such event it would not be likely that investors would obtain a profitable return on their investments or a return of their investments at all.

4.
Even if we discover unconventional tight gas on our properties, a great deal more effort has to be put into extracting gas from a tight formation than a conventional natural gas deposit, where once drilled, the gas can usually be extracted quite readily, and easily.  Several techniques exist that allow natural gas to be extracted, including fracturing and acidizing, however, these techniques are very costly.  Accordingly, we will require substantial additional capital to fund our operations and should we fail to do so, we will not be able to pursue our business plan, which would likely cause our common shares to become worthless.

Currently, we are focused primarily on exploring our properties to determine the potential for hosting natural gas in the form of unconventional tight gas.  Unconventional tight gas is stuck in very tight formations underground, trapped in unusually impermeable, hard rock, or in a sandstone or limestone formations that are unusually impermeable and non-porous (tight sand).  We have no revenues, and we do not have any plan to generate revenue unless and until our exploration program is successful in finding productive wells.  However, even if we discover unconventional tight gas on our properties, a great deal more effort has to be put into extracting gas from a tight formation than a conventional natural gas deposit, where once drilled, the gas can usually be extracted quite readily, and easily.  Several techniques exist that allow natural gas to be extracted, including fracturing and acidizing, however, these techniques are very costly.  Accordingly, we will require substantial additional capital to fund our operations.  Because we currently do not have any cash flow from operations, we will need to raise additional capital, which may be in the form of loans from current shareholders and/or from public and private equity offerings.  Should sufficient capital not be available, the development of our business plan could be delayed and, accordingly, the implementation of our business strategy would be adversely affected.  In such event it would not be likely that investors would obtain a profitable return on their investments or a return of their investments at all.

5.
We have an irrevocable option to repurchase an aggregate of 30,000,000 common shares held by our Directors, and unaffiliated stockholders have no protection against our future potential decision to repurchase such  shares pursuant to current or potentially modified contracts, even if such repurchase would essentially use all or substantially all of the Company’s working capital and essentially cause the Company to become insolvent.

We have an irrevocable option to repurchase 16,000,000 common shares held by Pratt Barndollar, a member of our Board of Directors and 14,000,000 common shares held by Keith Diakiw, our Director, President, Chief Executive Officer, Chief Financial Officer, Treasurer and Secretary,.  This repurchase option is exercisable by us if, at any time on or before April 30, 2025, the holder of such shares ceases to be a director of the Company.   For further information on such agreements, see our disclosure below under the section entitled “Material Contracts.”

 
11
 


The exercise price of such repurchase option is $0.01 per share, amounting in the aggregate to $160,000 for the shares held by Mr. Barndollar and $140,000 for the shares held by Mr. Diakiw.  Unaffiliated stockholders have no protection against our future potential decision to repurchase the shares of the two directors pursuant to current or potentially modified contracts, even if such repurchase would essentially use all or substantially all of the company’s working capital and essentially cause the company to become insolvent.

6.
We are heavily dependent on contracted third parties and upon Keith Diakiw, who is our Director, President, Chief Executive Officer, Chief Financial Officer, Treasurer and Secretary.  The loss of Mr. Diakiw, whose knowledge, leadership and technical expertise upon which we rely, would harm our ability to execute our business plan and continue our operations until we found a suitable replacement.

We are dependent on the continued contributions of Keith Diakiw, whose knowledge and leadership would be difficult to replace.  Our success is also heavily dependent on our ability to retain and attract experienced engineers, geoscientists and other technical and professional staff.  We do not currently have any consulting agreements in place with either Mr. Diakiw or third parties under which we can ensure that we will have sufficient expertise to undertake our planned exploration program.  We do not maintain any key person insurance on Mr. Diakiw.   If we were to lose his services, our ability to execute our business plan would be harmed and we may be forced to cease operations until such time as we could hire a suitable replacement for Mr. Diakiw.

7.
Volatility of oil and gas prices and markets, over which we have no control, could make it difficult for us to achieve profitability and investors are likely to lose their investment in our common shares.

Our ability to achieve profitability is substantially dependent on prevailing prices for natural gas and oil.  The amounts of, and price obtainable for, any oil and gas production that we achieve will be affected by market factors beyond our control.  If these factors are not favorable over time to our financial interests, it is likely that owners of our common shares will lose their investments. Such factors include:

 
• worldwide or regional demand for energy, which is affected by economic conditions;
 
• the domestic and foreign supply of natural gas and oil;
 
• weather conditions;
 
• domestic and foreign governmental regulations;
 
• political conditions in natural gas and oil producing regions;
 
• the ability of members of the Organization of Petroleum Exporting Countries to agree upon and maintain oil prices and production levels; and
 
• the price and availability of other fuels.


 
12
 


8.
Drilling wells is speculative, often involving significant costs that are difficult to project and may be more than our estimates, unsuccessful drilling of wells or successful drilling of wells that are, nonetheless, unprofitable, any one of which is likely to reduce the profitability of our business and negatively affect our results of operations.

Developing and exploring for natural gas and oil involves a high degree of operational and financial risk, which precludes definitive statements as to the time required and costs involved in reaching certain objectives.  The budgeted costs of drilling, completing and operating wells are often exceeded and can increase significantly when drilling costs rise due to a tightening in the supply of various types of oilfield equipment and related services.  Drilling may be unsuccessful for many reasons, including title problems, weather, cost overruns, equipment shortages and mechanical difficulties.  Moreover, the successful drilling of a natural gas or oil well does not ensure a profit on investment.  Exploratory wells bear a much greater risk of loss than development wells.  A variety of factors, both geological and market-related, can cause a well to become uneconomical or only marginally economic and the results of our operations will be negatively affected as well.

9.
The natural gas and oil business involves numerous uncertainties and operating risks that can prevent us from realizing profits and can cause substantial losses.

Our development, exploitation and exploration activities may be unsuccessful for many reasons, including weather, cost overruns, equipment shortages and mechanical difficulties. Moreover, the successful drilling of a natural gas and oil well does not ensure a profit on investment.  A variety of factors, both geological and market-related, can cause a well to become uneconomical or only marginally economical.

The natural gas and oil business involves a variety of operating risks, including:

 
• fires;
 
• explosions;
 
• blow-outs and surface cratering;
 
• uncontrollable flows of oil, natural gas, and formation water;
 
• natural disasters, such as hurricanes and other adverse weather conditions;
 
• pipe, cement, or pipeline failures;
 
• casing collapses;
 
• embedded oil field drilling and service tools;
 
• abnormally pressured formations; and
 
• environmental hazards, such as natural gas leaks, oil spills, pipeline ruptures and discharges of toxic gases.

If we experience any of these problems, it could affect well bores, gathering systems and processing facilities, which could adversely affect our ability to conduct operations. We could also incur substantial losses as a result of:

 
• injury or loss of life;
 
• severe damage to and destruction of property, natural resources and equipment;
 
• pollution and other environmental damage;
 
• clean-up responsibilities;
 
• regulatory investigation and penalties;
 
• suspension of our operations; and
 
• repairs to resume operations.


 
13
 


10.
If we commence drilling, we do not currently have any contracts with equipment providers, we may face the unavailability or high cost of drilling rigs, equipment, supplies, personnel and other services which could adversely affect our ability to execute on a timely basis our development, exploitation and exploration plans within our budget and, as a result, negatively impact our financial condition and results of operations.

If we commence drilling, shortages or an increase in cost of drilling rigs, equipment, supplies or personnel could delay or interrupt our operations, which could negatively impact our financial condition and results of operations.  Drilling activity in the geographic areas in which we conduct drilling activities may increase, which would lead to increases in associated costs, including those related to drilling rigs, equipment, supplies and personnel and the services and products of other vendors to the industry.  Increased drilling activity in these areas may also decrease the availability of rigs.  We do not currently have any contracts with providers of drilling rigs and, consequently we may not be able to obtain drilling rigs when we need them.  Therefore, our drilling and other costs may increase further and necessary equipment and services may not be available to us at economical prices.

11.
We are subject to complex laws and regulations, including environmental regulations, which can significantly increase our costs and possibly force our operations to cease.

If we commence drilling and experience any leakage of crude oil and/or gas from the subsurface portions of a well, our gathering system could cause degradation of fresh groundwater resources, as well as surface damage, potentially resulting in suspension of operation of a well, fines and penalties from governmental agencies, expenditures for remediation of the affected resource, and liabilities to third parties for property damages and personal injuries.  In addition, any sale of residual crude oil collected as part of the drilling and recovery process could impose liability on us if the entity to which the oil was transferred fails to manage the material in accordance with applicable environmental health and safety laws.

Drilling operations generally involve a high degree of risk. Hazards such as unusual or unexpected geological formations, power outages, labor disruptions, blow-outs, sour gas leakage, fire, inability to obtain suitable or adequate machinery, equipment or labor, and other risks are involved. We may become subject to liability for pollution or hazards against which it cannot adequately insure or which it may elect not to insure. Incurring any such liability may have a material adverse effect on our financial position and operations.

Development, production and sale of natural gas and oil in Canada are subject to extensive laws and regulations, including environmental laws and regulations.  We may be required to make large expenditures to comply with environmental and other governmental regulations.  Matters subject to regulation include:

 
• location and density of wells;
 
• the handling of drilling fluids and obtaining discharge permits for drilling operations;
 
• accounting for and payment of royalties on production from state, federal and Indian lands;
 
• bonds for ownership, development and production of natural gas and oil properties;
 
• transportation of natural gas and oil by pipelines;
 
• operation of wells and reports concerning operations; and
 
• taxation.


 
14
 


Under these laws and regulations, we could be liable for personal injuries, property damage, oil spills, discharge of hazardous materials, remediation and clean-up costs and other environmental damages.  Failure to comply with these laws and regulations also may result in the suspension or termination of our operations and subject us to administrative, civil and criminal penalties.  Moreover, these laws and regulations could change in ways that substantially increase our costs.  Accordingly, any of these liabilities, penalties, suspensions, terminations or regulatory changes could materially adversely affect our financial condition and results of operations enough to possibly force us to cease our business operations.

12.
The potential profitability of oil and gas ventures depends upon various factors beyond the control of our company, which may materially affect our financial performance.

The potential profitability of oil and gas properties is dependent upon many factors beyond our control.  For instance, world prices and markets for oil and gas are unpredictable, highly volatile, potentially subject to governmental fixing, pegging, controls, or any combination of these and other factors, and respond to changes in domestic, international, political, social, and economic environments. Additionally, due to worldwide economic uncertainty, the availability and cost of funds for production and other expenses have become increasingly difficult, if not impossible, to project.  These changes and events may materially affect our financial performance.

13.
Our auditors’ opinion in our December 31, 2010 financial statements includes an explanatory paragraph in respect of there being substantial doubt about our ability to continue as a going concern.   We will need to raise additional capital in order to fund our operations for the next twelve months, and if we fail to raise such capital investors may lose some or all of their investment in our common shares.

We have incurred net losses of $3,535,682 from April 25, 2005 (inception) to December 31, 2010.  Our financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.  We anticipate generating losses for at least the next 12 months.  Therefore, there is substantial doubt about our ability to continue operations in the future as a going concern.  We will need to obtain additional funds in order to fund our operations for the next twelve months.  Our plans to deal with this cash requirement include loans from existing shareholders, raising additional capital from the public or private sale of equity or entering into a strategic arrangement with a third party.  If we cannot continue as a viable entity, our shareholders may lose some or all of their investment in our company.

14.
If we do not maintain the property lease payments on our properties, we will lose our interests in the properties as well as losing all monies incurred in connection with the properties.

We have 18 Petroleum and Natural Gas leases in Alberta, Canada.  Our leases require annual lease payments to the Alberta provincial government.  See Item 4.D of this Form 20-F for a more detailed description of the property obligations.  If we do not continue to make the annual lease payments, we will lose our ability to explore and develop the properties and we will not retain any kind of interest in the properties.


 
15
 


15.
We may not be able to compete with current and potential exploration companies, some of whom have greater resources and experience than we do in locating and commercializing oil and natural gas reserves and, as a result, we may fail in our ability to maintain or expand our business.

The natural gas and oil market is intensely competitive, highly fragmented and subject to rapid change.  We may be unable to compete successfully with our existing competitors or with any new competitors.  We compete with many exploration companies which have significantly greater personnel, financial, managerial, and technical resources than we do.  This competition from other companies with greater resources and reputations may result in our failure to maintain or expand our business.

16.
We expect losses to continue in the next 12 months because we have no oil or gas reserves and, consequently, no revenue to offset losses.

Based upon the fact that we currently do not have any oil or gas reserves, we expect to incur operating losses in next 12 months.  The operating losses will occur because there are expenses associated with the acquisition of, and exploration of natural gas and oil properties which do not have any income-producing reserves.  Failure to generate revenues may cause us to go out of business.  We will require additional funds to achieve our current business strategy and our inability to obtain additional financing will interfere with our ability to expand our current business operations.

17.
Since our Directors work for other natural resource exploration companies, their other activities for those other companies may involve a conflict of interest with regard to their time, could slow down our operations or negatively affect our profitability.

Our Officer and Directors are not required to work exclusively for us and do not devote all of their time to our operations.  In fact, our Directors work for other natural resource exploration companies.  Therefore, it is possible that a conflict of interest with regard to their time may arise based on their employment by such other companies.  Their other activities may prevent them from devoting full-time to our operations which could slow our operations and may reduce our financial results because of the slow down in operations.  It is expected that each of our Directors will devote approximately 1 hour per week to our operations on an ongoing basis, and when required will devote whole days and even multiple days at a stretch when property visits are required or when extensive analysis of information is needed.

18. Our principal shareholders, Officer and Directors own a controlling interest in our voting stock and investors will not have any voice in our management, which could result in decisions adverse to our general shareholders.

Our Officer and Directors, in the aggregate, beneficially own approximately or have the right to vote approximately 70.5% of our outstanding common stock. As a result, these stockholders, acting together, will have the ability to control substantially all matters submitted to our stockholders for approval including:

·  
election  of  our  Board  of  Directors;
·  
removal  of  any  of  our  Directors;
·  
amendment  of  our  Articles of Incorporation  or  bylaws;  and
·  
adoption of measures that could delay or prevent a change in control or impede a merger, takeover or other business combination involving us.


 
16
 


As a result of their ownership and positions, our Directors and Executive Officer collectively are able to influence all matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions.  In addition, it is possible for our Directors and Executive Officer to modify their share purchase agreements such that they could force the repurchase of their shares and remain on the board.  Also, sales of significant amounts of shares held by our Directors and Executive Officer, or the prospect of these sales, could affect the market price of our common stock if the marketplace does not orderly adjust to the increase in shares in the market and the value of your investment in the Company may decrease.  Management's stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price.

 
19.
We have no employees and our only Officer works one day per week on our business and our Directors work only one hour per week on our business.  Consequently, we may not be able to monitor our operations and respond to matters when they arise in a prompt or timely fashion.  Until we have additional capital or generate revenue, we will have to rely on consultants and service providers, which will increase our expenses and increase our losses.

We do not have any employees, our only Officer works on our business one day per week and our Directors each spends one hour a week on our business.  With practically no personnel, we have a limited ability to monitor our operations, such as the progress of oil and gas exploration, and to respond to inquiries from third parties, such as regulatory authorities or potential business partners.  Though we may rely on third party service providers, such as accountants and lawyers, to address some of our matters, until we raise additional capital or generate revenue, we will have to rely on consultants and third party service providers to monitor our operations, which will increase our expenses and have a negative effect on our results of operations.

RISKS RELATING TO OUR COMMON SHARES

20.
We may, in the future, issue additional common shares, which would reduce investors’ percent of ownership and may dilute our share value.

Our Articles of Incorporation authorize the issuance of an unlimited number of common shares without par value and an unlimited number of preferred shares without par value.  The future issuance of our unlimited authorized common shares may result in substantial dilution in the percentage of our common shares held by our then existing shareholders. We may value any common shares issued in the future on an arbitrary basis.  The issuance of common shares for future services or acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our investors, and might have an adverse effect on any trading market for our common shares.

 
21. Our common shares are subject to the "Penny Stock" Rules of the SEC and we have no established market for our securities, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.


 
17
 


The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than USD $5.00 per share or with an exercise price of less than USD $5.00 per share, subject to certain exceptions.  For any transaction involving a penny stock, unless exempt, the rules require:

·  
that a broker or dealer approve a person’s account for transactions in penny stocks; and
·  
the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person's account for transactions in penny stocks, the broker or dealer must:

·  
obtain financial information and investment experience objectives of the person; and
·  
make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:

·  
sets forth the basis on which the broker or dealer made the suitability determination; and
·  
that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules.  This may make it more difficult for investors to dispose of our common shares and cause a decline in the market value of our stock.

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions.  Finally, monthly statements have to be sent disclosing recent
price information for the penny stock held in the account and information on the limited market in penny stocks.
 
 
22.
We have registered 33,540,875 common shares underlying our warrants that may be available for future sale.  The sale of these shares may depress the market price of our common shares and shareholders could suffer a loss on their investment.

As of June 29, 2011, we had warrants outstanding to purchase an aggregate of 33,540,875 common shares.  We have registered the 33,540,875 common shares underlying the warrants and all of these warrants will be freely tradable under U.S. federal law upon their respective vesting dates of May 26, 2009 with respect to the 10,440,875 Class A warrants, November 26, 2011 with respect to the 11,550,000 Class B warrants, and May 26, 2012 with respect to the 11,550,000 Class C warrants. If such warrants are exercised in full and converted to common shares, our shareholders may experience a decline in the price of our common shares as such common shares are sold into the open market.  If such decline in the price of our common shares were to materialize, shareholders could suffer a loss on their investment.


 
18
 


23.
State securities laws may limit secondary trading, which may restrict the states in which and conditions under which you can sell the shares offered by this prospectus.

Secondary trading in common shares sold in this offering will not be possible in any state until the common shares are qualified for sale under the applicable securities laws of the state or there is confirmation that an exemption, such as listing in certain recognized securities manuals, is available for secondary trading in the state.  If we fail to register or qualify, or to obtain or verify an exemption for the secondary trading of, the common shares in any particular state, the common shares could not be offered or sold to, or purchased by, a resident of that state. In the event that a significant number of states refuse to permit secondary trading in our common shares, the liquidity for the common shares could be significantly impacted thus causing you to realize a loss on your investment.

24.
We are a “foreign private issuer”, and you may not have access to the information you could obtain about us if we were not a “foreign private issuer”.

We are considered a "foreign private issuer" under the Securities Act of 1933, as amended. As an issuer incorporated in Canada, we will be required to prepare our annual and interim financial statements in accordance with Canadian Generally Accepted Accounting Principles. For purpose of our annual disclosure obligations in the United States, we will annually file in the United States financial statements prepared in accordance with Canadian GAAP together with reconciliation to US GAAP.  In addition, as a foreign private issuer we will not have to file quarterly reports with the SEC nor will our Directors, Officer and 10% stockholders be subject to Section 16(b) of the Exchange Act. As a foreign private issuer we will not be subject to the proxy rules of Section 14 of the Exchange Act. Furthermore, Regulation FD does not apply to non-U.S. companies and will not apply to us. Accordingly, you may not be able to obtain information about us as you could obtain if we were not a “foreign private issuer”.

25.
Because we do not intend to pay any cash dividends on our common shares, our stockholders will not be able to receive a return on their shares unless they sell them.

We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common shares in the foreseeable future.  Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they sell them.

26.
We may become a passive foreign investment company, or PFIC, which could result in adverse U.S. tax consequences to U.S. investors.

If we are a “passive foreign investment company” or “PFIC” as defined in Section 1297 of the Code, U.S. Holders will be subject to U.S. federal income taxation under one of two alternative tax regimes at the election of each such U.S. Holder. Section 1297 of the Code defines a PFIC as a corporation that is not formed in the United States and either (i) 75% or more of its gross income for the taxable year is “passive income”, which generally includes interest, dividends and certain rents and royalties or (ii) the average percentage, by fair market value (or, if we elect, adjusted tax basis), of its assets that produce or are held for the production of “passive income” is 50% or more.  Whether we are a PFIC in any year and the tax consequences relating to PFIC status will depend on the composition of our income and assets, including cash. U.S. Holders should be aware, however, that if we become a PFIC, we may not be able or willing to satisfy record-keeping requirements that would enable U.S. Holders to make an election to treat us as a “qualified electing fund” for purposes of one of the two alternative tax regimes applicable to a PFIC, which would result in adverse tax consequences to our shareholders who are U.S. citizens.


 
19
 


27.
Because we are formed under the Canadian Business Corporations Act in Canada and all of our assets, Officer, and Directors are located outside the United States, it may be difficult for an investor to enforce within the United States any judgments obtained against us or any of our officers and directors.

All of our assets are located outside of the United States and we do not currently maintain a permanent place of business within the United States. In addition, our Officer and all of our Directors are nationals and/or residents of countries other than the United States, and all or a substantial portion of such persons' assets are located outside the United States. As a result, it may be difficult for an investor to effect service of process or enforce within the United States any judgments obtained against us or our Officer or Directors, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. In addition, there is uncertainty as to whether the courts of Canada would recognize or enforce judgments of United States courts obtained against us or our Directors and Officer predicated upon the civil liability provisions of the securities laws of the United States or any state thereof.  There is even uncertainty as to whether the Canadian courts would have jurisdiction to hear original actions brought in Canada against us or our Directors and Officer predicated upon the securities laws of the United States or any state thereof.

ITEM 4.  INFORMATION ON THE COMPANY

4.A. History and Development of the Company

Power Oil & Gas Inc., (the “Company”) is principally a company engaged in the acquisition and exploration of oil and gas properties.  On March 15, 2006, the Company entered into an agreement giving it the exclusive right and option to acquire a 100% interest in a mineral exploration property known as the GQ Property located in the Kamloops Mining District of British Columbia, Canada.  In relation to the Company’s decision to pursue opportunities in the oil and gas industry, it terminated the GQ Property option on May 31, 2006.

On June 14, 2006, the Company entered into a Petroleum, Natural Gas and General Rights Conveyance  with Stone Petroleums Ltd., Supernova Resources Ltd., 349385 Alberta Ltd. and Torland Ltd., whereby the Company acquired a 100% interest in a petroleum and natural gas (“P&NG”) lease with the government of Alberta.  The underlying lease acquired by the Company is Alberta P&NG lease 0405070015, and the property to which the Lease pertains is located in the Milk River area of Alberta. Upon signing the Agreement, the Company paid the Vendor $7,500 and paid closing costs of $938 and agreed to assume the underlying lease payments to the province of Alberta.  In addition, the Vendor is entitled to an overriding 5% royalty on all petroleum substances produced from the Milk River Property, if any.  The Vendor is entitled to a first and paramount lien upon all of the petroleum substances produced or allocated to the Property to secure the payment of any amounts due and payable to the Vendor relating to the royalty.

On July 23, 2008, the Company entered into an Assignment and Assumption agreement with Giant Oil & Gas Inc. et al, a company related by a common director, whereby the Company purchased a 100% right and interest in 10 Alberta Crown Petroleum and Natural Gas Lease Agreements, lease umbers 0407020077, 0407030073, 0407030650, 0407040015, 0407040018, 0407040020, 0407050502, 0407080296, 0407080298 and 0407080302 for a total of 1,911 hectares in the Taber, Grand Forks area of Alberta, Canada.  Upon signing the Agreement, the Company paid the Vendor $30,331 and agreed to assume the underlying lease payments to the province of Alberta


 
20
 


On June 30, 2009, the Company entered into a petroleum, natural gas and general rights conveyance with Stone Petroleums Ltd., Supernova Resources Ltd., 349385 Alberta Ltd. and Torland Ltd., whereby the Company acquired a 100% interest in a P&NG lease for a total of 1,280 hectares with the government of Alberta.  The underlying lease acquired by the Company is Alberta P&NG lease 0405060026, and the property to which the lease pertains is located in the Bow Island area of Alberta.  Upon signing the Agreement, the Company paid the Vendor $14,124 and agreed to assume the underlying lease payments to the Province of Alberta.  In addition, the Vendor is entitled to an overriding 2% royalty on all petroleum substances produced from the Property, if any.  The Vendor is entitled to a first and paramount lien upon all of the petroleum substances produced or allocated to the Property to secure the payment of any amounts due and payable to the Vendor relating to the royalty.  This lease expires on June 2, 2010.

On August 20, 2009, the Company acquired 100% interest in 13 P&NG leases with the Province of Alberta.  The underlying leases acquired by the Company are Alberta P&NG lease numbers 0409080267, 0409080268, 0409080271, 0409080272, 0409080274, 0409080280, 0409080283, 0409080284, 0409080286, 0409080287, 0409080288, 0409080310 and 0409080311, and the property to which the leases pertain to cover 3,328 hectares of land located in the Bow Island area of Alberta for the total amount of $38,433.  All of the leases were acquired through a public auction process that requires the Company to submit sealed bids for land packages being auctioned by the provincial government.  Upon being notified that it has submitted the highest bid for a specific land parcel the Company immediately pays the government the bid price and enters into a formal five year extendable lease with the government.  The bid price includes the first year’s minimum annual lease payments.

On September 3, 2009, the Company acquired 100% interest in 2 P&NG leases with the Province of Alberta.  The underlying leases acquired by the Company are Alberta P&NG lease numbers 0409090046 and 0409090047, and the property to which the leases pertain to cover 512 hectares of land located in the Provost area of Alberta for the total amount of $4,337.  All of the leases were acquired through a public auction process that requires the Company to submit sealed bids for land packages being auctioned by the provincial government.  Upon being notified that it has submitted the highest bid for a specific land parcel the Company immediately pays the government the bid price and enters into a formal five year extendable lease with the government.  The bid price includes the first year’s minimum annual lease payments.

On October 29, 2009, the Company acquired 100% interest in 1 P&NG lease with the Province of Alberta.  The underlying lease acquired by the Company is Alberta P&NG lease number 0409100445, and the property to which the lease pertains to covers 2,816 hectares of land located in the Medicine Hat area of Alberta for the total amount of $31,601.  The lease was acquired through a public auction process that requires the Company to submit sealed bids for land packages being auctioned by the provincial government.  Upon being notified that it has submitted the highest bid for a specific land parcel the Company immediately pays the government the bid price and enters into a formal five year extendable lease with the government.  The bid price includes the first year’s minimum annual lease payments.

On March 6, 2010, the Company surrendered P&NG lease number 0407030073 with the Province of Alberta, previously acquired from Giant Oil & Gas Inc. on July 23, 2008, due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable. This transaction decreased the Company’s total P&NG leases to 27 for an aggregate 9,847 hectares.

On March 9, 2010, the Company surrendered P&NG lease number 0407030650 with the Province of Alberta, previously acquired from Giant Oil & Gas Inc. on July 23, 2008, due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable. This transaction decreased the Company’s total P&NG leases to 26 for an aggregate 9,591 hectares.

 
21
 


On June 2, 2010, P&NG lease number 0405060026 expired with the Province of Alberta.  Due to the lack of potential for unconventional tight gas sands, the Company chose not to renew the lease.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable.  This transaction decreased the Company’s total P&NG leases to 25 for an aggregate 8,311 hectares.

On July 12, 2010, the Company surrendered P&NG lease number 0405070015 with the Province of Alberta, due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable.  This transaction decreased the Company’s total PN&G leases to 24 for an aggregate 8,055 hectares.

On August 14, 2010, the Company surrendered P&NG lease number 0409080272 with the Province of Alberta, due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable.  This transaction decreased the Company’s total PN&G leases to 23 for an aggregate 7,799 hectares.

On October 13, 2010, the Company surrendered P&NG lease number 0409100445 with the Province of Alberta, due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable.  This transaction decreased the Company’s total PN&G leases to 22 for an aggregate 4,983 hectares.

On February 06, 2011, the Company surrendered P&NG lease number 0407020077 with the Province of Alberta, due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable.  This transaction decreased the Company’s total PN&G leases to 21 for an aggregate 4,855 hectares.

On April 13, 2011, the Company surrendered 3 P&NG leases, 0407040015, 0407040018, and 0407040020 with the Province of Alberta, due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in these properties and all amounts paid for these leases are non-refundable.  This transaction decreased the Company’s total PN&G leases to 18 for an aggregate 4,284 hectares.

Our office is located at 104 – 1240 Kensington Road N.W., Calgary, Alberta, Canada, T2N 3P7.  Our telephone number is (403) 261-3070.  Our internet address is www.poweroilinc.com.

We are a company in the early stages of engaging in the exploration and development of oil and gas properties.

No commercially viable natural gas deposit may exist on our properties.  Our plan of operations is to carry out geological analysis of these properties in order to ascertain whether it possesses deposits of natural gas.  We can provide no assurance to investors that our property contains a commercially viable natural gas deposit until appropriate exploratory work is done and an evaluation based on that work concludes further work programs are justified.  At this time, we definitely have no known reserves on our property.

For the period from April 25 2005 (inception) to December 31, 2010, we did not generate any revenue.


 
22
 


4.B. Business Overview

Historical Corporate Development

Power Oil & Gas Inc., (the “Company") is principally a company engaged in the acquisition and exploration of oil and gas properties.  On March 15, 2006, the Company entered into an agreement giving it the exclusive right and option to acquire a 100% interest in a mineral exploration property known as the GQ Property located in the Kamloops Mining District of British Columbia, Canada.  In relation to the Company’s decision to pursue opportunities in the oil and gas industry, it terminated the GQ Property option on May 31, 2006.

We are a company in the early stages of engaging in the exploration and development of oil and gas properties.  To accomplish our objective, our strategy is to acquire exploration prospects. On June 14, 2006, the Company entered into a Petroleum, Natural Gas and General Conveyance Agreement with Stone Petroleums Ltd. et al whereby the Company acquired a 100% interest in a petroleum and natural gas lease in the Milk River area of Alberta, Canada.

On July 23, 2008, the Company entered into an Assignment and Assumption agreement with Giant Oil & Gas Inc. et al, a company related by a common director, whereby the Company purchased a 100% right and interest in 10 Alberta Crown Petroleum and Natural Gas Lease Agreements for a total of 1,911 hectares in the Taber, Grand Forks area of Alberta, Canada for the total amount of $30,331.

On June 30, 2009, the Company entered into a petroleum, natural gas and general rights conveyance with Stone Petroleums Ltd., Supernova Resources Ltd., 349385 Alberta Ltd. and Torland Ltd., whereby the Company acquired a 100% interest in a P&NG lease for a total of 1,280 hectares in the Bow Island area of Alberta, Canada for the total amount of $14,124.

On August 20, 2009, the Company acquired 100% interest in 13 P&NG leases with the Province of Alberta for a total of 3,328 hectares in the Bow Island area of Alberta for the total amount of $38,433.

On September 3, 2009, the Company acquired 100% interest in 2 P&NG leases with the Province of Alberta for a total of 512 hectares of land located in the Provost area of Alberta for the total amount of $4,337.

On October 29, 2009, the Company acquired 100% interest in 1 P&NG lease with the Province of Alberta for a total of 2,816 hectares of land located in the Medicine Hat area of Alberta for the total amount of $31,601.

On March 6, 2010, the Company surrendered 1 P&NG lease with the Province of Alberta for a total of 256 hectares due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable. This transaction decreased the Company’s total P&NG leases to 27 for an aggregate 9,847 hectares.

On March 9, 2010, the Company surrendered 1 P&NG lease with the Province of Alberta for a total 256 hectares due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable. This transaction decreased the Company’s total P&NG leases to 26 for an aggregate 9,591 hectares.


 
23
 


On June 2, 2010, P&NG lease number 0405060026 expired with the Province of Alberta.  Due to the lack of potential for unconventional tight gas sands, the Company chose not to renew the lease.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable.  This transaction decreased the Company’s total P&NG leases to 25 for an aggregate 8,311 hectares.

On July 12, 2010 the Company surrendered 1 P&NG lease with the Province of Alberta for a total of 256 hectares due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable.  This transaction decreased the Company’s total P&NG leases to 24 for an aggregate 8,055 hectares.

On August 14, 2010, the Company surrendered 1 P&NG lease with the Province of Alberta for a total of 256 hectares due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable.  This transaction decreased the Company’s total P&NG leases to 23 for an aggregate 7,799.

On October 13, 2010, the Company surrendered 1 P&NG lease with the Province of Alberta for a total of 2,816 hectares due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable.  This transaction decreased the Company’s total P&NG leases to 22 for an aggregate 4,983.

On February 06, 2011, the Company surrendered 1 P&NG lease with the Province of Alberta for a total of 128 hectares due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable.  This transaction decreased the Company’s total P&NG leases to 21 for an aggregate 4,855.

On April 13, 2011, the Company surrendered 3 P&NG leases with the Province of Alberta for a total of 571 hectares due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in these properties and all amounts paid for these leases are non-refundable.  This transaction decreased the Company’s total P&NG leases to 18 for an aggregate 4,284.

The Company’s specific goal is to explore the properties for potential unconventional tight gas sands.  However, extensive analysis of these properties will be required before we can make an evaluation as to the economic feasibility of developing or finding valuable natural gas on these grounds. In addition, there is no assurance that we will be able to make the payments required by the lease agreement for the property.  There is no assurance that the property will ever generate any revenue.

We have limited finances and require additional funding in order to accomplish our exploration, development and acquisition objectives. There is no assurance that we will have revenues in the future or that we will be able to secure other funding necessary for our future growth and expansion.  There is also no assurance that our oil and natural gas exploration activities will produce commercially viable reserves.  Our efforts to extract oil and gas may be unprofitable.

We may seek relationships with other mineral exploration and development companies that will allow us to exploit idle and/or undeveloped resources.


 
24
 


MATERIAL EFFECTS OF GOVERNMENT REGULATIONS

Development, production and sale of natural gas and oil in Canada are subject to extensive laws and regulations, including environmental laws and regulations.  The oil and gas leases currently leased by the Company are owned by the Province of Alberta and are managed by the Department of Energy.  We may be required to make large expenditures to comply with environmental and other governmental regulations.  Matters subject to regulation include:
 
 
• location and density of wells;
 
• the handling of drilling fluids and obtaining discharge permits for drilling operations;
 
• accounting for and payment of royalties on production from state, federal and Indian lands;
 
• bonds for ownership, development and production of natural gas and oil properties;
 
• transportation of natural gas and oil by pipelines;
 
• operation of wells and reports concerning operations; and
 
• taxation.

Under these laws and regulations, we could be liable for personal injuries, property damage, oil spills, discharge of hazardous materials, remediation and clean-up costs and other environmental damages.  Failure to comply with these laws and regulations also may result in the suspension or termination of our operations and subject us to administrative, civil and criminal penalties.  Moreover, these laws and regulations could change in ways that substantially increase our costs.  Accordingly, any of these liabilities, penalties, suspensions, terminations or regulatory changes could materially adversely affect our financial condition and results of operations enough to possibly force us to cease our business operations.

ANTICIPATED CHANGES TO FACILITIES AND EMPLOYEES

Management of the Company anticipates no changes to either facilities or employees in the near future.

SEASONALITY, DEPENDENCY UPON PATENTS, LICENSES, CONTRACTS, PROCESSES, SOURCES AND AVAILIBILTY OF RAW MATERIALS

Certain of the Company’s properties may be in remote locations and subject to significant temperature variations and changes in working conditions.  It may not be possible to actively explore the Company’s property in Alberta throughout the year because seasonal changes in the weather.  If exploration is pursued at the wrong time of year, the Company may incur additional costs to address issues relating to the weather.

If we commence drilling, shortages or an increase in cost of drilling rigs, equipment, supplies or personnel could delay or interrupt our operations, which could impact our financial condition and results of operations.  Drilling activity in the geographic areas in which we conduct drilling activities may increase, which would lead to increases in associated costs, including those related to drilling rigs, equipment, supplies and personnel and the services and products of other vendors to the industry. Increased drilling activity in these areas may also decrease the availability of rigs.  We do not have any contracts with providers of drilling rigs and, consequently we may not be able to obtain drilling rigs when we need them.  Therefore, our drilling and other costs may increase further and necessary equipment and services may not be available to us at economical prices.


 
25
 


COMPETITION

The oil and gas exploration industry is intensely competitive, highly fragmented and subject to rapid change.  We may be unable to compete successfully with our existing competitors or with any new competitors.  We compete with many exploration companies that have significantly greater personnel, financial, managerial, and technical resources than we do.  This competition from other companies with greater resources and reputations may result in our failure to maintain or expand our business.

4.C. Organizational Structure

The Company is not part of a group and has no subsidiaries.

4.D. Property, Plant And Equipment

CORPORATE OFFICES

We do not own any real property.  We currently lease our corporate headquarters at 104 – 1240 Kensington Road N.W., Calgary, Alberta T2N 3P7.    We do not have any policies regarding investments in real estate, securities or other forms of property.

A detailed description of the Company’s exploration properties with additional information for the properties of major significance to the Company is outlined below.

PETROLEUM AND NATURAL GAS LEASES

 
The Company has an interest in 18 P&NG leases in Alberta, Canada.

Unconventional Tight Gas Sands Background

Canada has large deposits of natural gas in rock formations that are especially difficult and expensive to produce. The gas in these difficult-to-produce formations is often referred to as “unconventional”. Most commonly, the formations are low permeability, or “tight” sandstones and limestones, coal seams, organic shales, or interbedded combinations of these formations.

Unconventional gas is found in virtually all Canadian sedimentary basins with the gas resource estimated at over 60 trillion cubic metres. Over the last several decades, new technologies have allowed it to be commercially developed. Between 20 to 30% of Canada's current natural gas production is unconventional. In the United States, unconventional gas accounts for over 40% of gas production.

Tight sandstones and limestones are Canada's most important unconventional gas resource in terms of production. A recent study, funded in part by the Canadian government, indicates that between 85 and 113 million cubic metres per day of Canada's gas production is from tight gas formations. Historically, it has not been the practice in Canada to distinguish between conventional and unconventional gas production from sandstones and limestones. Over the last decade or so, the contribution of tight zones to production has been increasingly recognized and targeted for development.

Significant tight gas production occurs in shallow gas plays in Alberta, and the deep basin of Alberta.  Over the years there has been significant success in accessing natural gas locked in these tight gas reservoirs primarily through the application of horizontal drilling technology.  As conventional sandstones and limestones continue to decline in production, these tight formations will become increasingly important as industry currently shows a high level of interest in this play.

 
26
 


Acquisition and Disposition of Interests

On June 14, 2006, the Company entered into a Petroleum, Natural Gas and General Rights Conveyance (the “Agreement”) with Stone Petroleums Ltd., Supernova Resources Ltd., 349385 Alberta Ltd., and Torland Ltd. (together the “Vendor”) whereby the Company acquired a 100% interest in a P&NG lease with the government of the Province of Alberta.  The underlying lease acquired by the Company is Alberta P&NG lease 0405070015, and the property to which the lease pertains is located in the Milk River area of Alberta, as further described below. Upon signing of the Agreement the Company paid the Vendor $7,500 and paid closing costs of $938 and agreed to assume the underlying lease payments to the Province of Alberta.  In addition, the Vendor is entitled to an overriding 5% royalty on all petroleum substances produced from the Milk River Property, if any.  The Vendor is entitled to a first and paramount lien upon all of the petroleum substances produced or allocated to the property to secure the payment of any amounts due and payable to the Vendor relating to the royalty.

On July 23, 2008, the Company entered into an assignment and assumption agreement with Giant Oil & Gas Inc. et al whereby the Company purchased a 100% right and interest in 10 Alberta Crown Petroleum and Natural Gas Lease Agreements, lease numbers 0407020077, 0407030073, 0407030650, 0407040015, 0407040018, 0407040020, 0407050502, 0407080296, 0407080298 and 0407080302 for a total of 1,911 hectares in the Taber, Grand Forks area of Alberta, Canada.  Upon signing the Agreement, the Company paid the Vendor $30,331 and agreed to assume the underlying lease payments to the province of Alberta.

On June 30, 2009, the Company entered into a petroleum, natural gas and general rights conveyance with Stone Petroleums Ltd., Supernova Resources Ltd., 349385 Alberta Ltd. and Torland Ltd., whereby the Company acquired a 100% interest in a P&NG lease for a total of 1,280 hectares with the Province of Alberta.  The underlying lease acquired by the Company is Alberta P&NG lease 0405060026, and the property to which the lease pertains is located in the Bow Island area of Alberta.  Upon signing the Agreement, the Company paid the Vendor $14,124 and agreed to assume the underlying lease payments to the Province of Alberta.  In addition, the Vendor is entitled to an overriding 2% royalty on all petroleum substances produced from the Property, if any.  The Vendor is entitled to a first and paramount lien upon all of the petroleum substances produced or allocated to the property to secure the payment of any amounts due and payable to the Vendor relating to the royalty.  This lease expires on June 2, 2010.

On August 20, 2009, the Company acquired 100% interest in 13 P&NG leases with the Province of Alberta.  The underlying leases acquired by the Company are Alberta P&NG lease numbers 0409080267, 0409080268, 0409080271, 0409080272, 0409080274, 0409080280, 0409080283, 0409080284, 0409080286, 0409080287, 0409080288, 0409080310 and 0409080311, and the property to which the leases pertain to cover 3,328 hectares of land located in the Bow Island area of Alberta for the total amount of $38,433.  All of the leases were acquired through a public auction process that requires the Company to submit sealed bids for land packages being auctioned by the provincial government.  Upon being notified that it has submitted the highest bid for a specific land parcel the Company immediately pays the government the bid price and enters into a formal five year extendable lease with the government.  The bid price includes the first year’s minimum annual lease payments.

On September 3, 2009, the Company acquired 100% interest in 2 P&NG leases with the Province of Alberta.  The underlying leases acquired by the Company are Alberta P&NG lease numbers 0409090046 and 0409090047, and the property to which the leases pertain to cover 512 hectares of land located in the Provost area of Alberta for the total amount of $4,337.  All of the leases were acquired through a public auction process that requires the Company to submit sealed bids for land packages being auctioned by the provincial government.  Upon being notified that it has submitted the highest bid for a specific land parcel the Company immediately pays the government the bid price and enters into a formal five year extendable lease with the government.  The bid price includes the first year’s minimum annual lease payments.

 
27
 



On October 29, 2009, the Company acquired 100% interest in 1 P&NG lease with the Province of Alberta.  The underlying lease acquired by the Company is Alberta P&NG lease number 0409100445, and the property to which the lease pertains to covers 2,816 hectares of land located in the Medicine Hat area of Alberta for the total amount of $31,601.  The lease was acquired through a public auction process that requires the Company to submit sealed bids for land packages being auctioned by the provincial government.  Upon being notified that it has submitted the highest bid for a specific land parcel the Company immediately pays the government the bid price and enters into a formal five year extendable lease with the government.  The bid price includes the first year’s minimum annual lease payments.

On March 6, 2010, the Company surrendered P&NG lease number 0407030073 with the Province of Alberta, previously acquired from Giant Oil & Gas Inc. on July 23, 2008, due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable. This transaction decreased the Company’s total P&NG leases to 27 for an aggregate 9,847 hectares.

On March 9, 2010, the Company surrendered P&NG lease number 0407030650 with the Province of Alberta, previously acquired from Giant Oil & Gas Inc. on July 23, 2008, due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable. This transaction decreased the Company’s total P&NG leases to 26 for an aggregate 9,591 hectares.

On June 2, 2010, P&NG lease number 0405060026 expired with the Province of Alberta.  Due to the lack of potential for unconventional tight gas sands, the Company chose not to renew the lease.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable.  This transaction decreased the Company’s total P&NG leases to 25 for an aggregate 8,311 hectares.

On July 12, 2010, the Company surrendered P&NG lease number 040570015 with the Province of Alberta, due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable.  This transaction decreased the Company’s total P&NG leases to 24 for an aggregate 8,055 hectares.

On August 14, 2010, the Company surrendered P&NG lease number 0409080272 with the Province of Alberta, due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable.  This transaction decreased the Company’s total P&NG leases to 23 for an aggregate 7,799 hectares.

On October 13, 2010, the Company surrendered P&NG lease number 0409100445 with the Province of Alberta, due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable.  This transaction decreased the Company’s total P&NG leases to 22 for an aggregate 4,983 hectares.

On February 06, 2011, the Company surrendered P&NG lease number 0407020077 with the Province of Alberta, due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable.  This transaction decreased the Company’s total P&NG leases to 21 for an aggregate 4,855 hectares.


 
28
 


On April 13, 2011, the Company surrendered 3 P&NG leases, 047040015, 0407040018, and 0407040020 with the Province of Alberta due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in these properties and all amounts paid for these leases are non-refundable.  This transaction decreased the Company’s total P&NG leases to 18 for an aggregate 4,284 hectares.

Location

All of the Company’s leases are located in the Province of Alberta with a focus on the Taber/Grand Forks/Bow Island area.  This area is known to have significant potential and a demonstrated history of production.

The Taber/Grand Forks/Bow Island group of leases covers approximately 3,004 hectares or 7,420 acres in southern Alberta.

Property Lease Information

The Company’s properties are comprised of 18 leases with the government of the Province of Alberta, Canada.  The leases are for an initial term of five years with a commencement date equal to the date of acquisition.  The leases are renewable if certain conditions are met.  All leases require the payment of the first year’s minimum annual lease payments at the time of acquisition.  In general, minimum annual lease payments are $3.50 per hectare.

Lease Number
Hectares
Lease Commencement Date
Annual Lease Payments
       
0407050502
256
May 31, 2007
$896
0407080296
124.32
August 23, 2007
$435
0407080298
128
August 23, 2007
$448
0407080302
192
August 23, 2007
$672
0409080267
256
August 20, 2009
$896
0409080268
256
August 20, 2009
$896
0409080271
256
August 20, 2009
$896
0409080274
256
August 20, 2009
$896
0409080280
256
August 20, 2009
$896
0409080283
256
August 20, 2009
$896
040980284
256
August 20, 2009
$896
0409080286
256
August 20, 2009
$896
0409080287
256
August 20, 2009
$896
0409080288
256
August 20, 2009
$896
0409080310
256
August 20, 2009
$896
0409080311
256
August 20, 2009
$896
0409090046
256
September 03, 2009
$896
0409090047
256
September 03, 2009
$896
       
Total
4,284
  
$14,995



 
29
 


Regional Geology

Alberta contains vast amounts of coal distributed throughout the southern Plains, Foothills, and Mountains.  Originally deposited in relatively flat-lying peat swamps, organic matter (peat) was buried by sediments derived from uplift (mountain building), in the west and gradually changed into coal with increasing heat and pressure of burial.  Over time, the coals were uplifted and partially eroded away, resulting in the present distribution of coal across the Plains.  Coal-bearing strata dip gently westward toward the Mountains where coals are folded and abruptly turn toward the surface to be exposed in the Foothills.

Coal typically occurs within a coal zone as discrete seams and/or packages with several thin and thick seams interbedded with non-coaly rock layers or beds.  A coal zone may be traceable over a large geographic area.  Coal zones are found in strata ranging in age from Late Jurassic (approximately 145 millions years old) to Tertiary (approximately 65 million years old).

The oldest and deepest coals of the Alberta Plains belong to the Lower Cretaceous Mannville Group coals.  The Mannville coals are widely distributed across the Alberta Plains, are thick, continuous and contain some of the highest gas contents of any coals in the Alberta Plains.  Typically six or more seams with cumulative coal thickness ranging from 2 to 14 meters occur over a stratigraphic interval of 40 to 100 meters.  The thickest coals extend from southeast Grande Prairie in a widening wedge between Edmonton and Calgary to the Coronation area with coals occurring at depths ranging from about 800 meters to 2800 meters.

Upper Cretaceous through Tertiary-aged coal also occurs across the Plains with older coals being overlain by progressively younger rocks and coals.  Three coal zones are recognized within the Upper Cretaceous Belly River Group:  the McKay Coal Zone, near the base of the Belly River Group; the Taber Coal Zone, located in the middle; and the Lethbridge Coal Zone, at the top of the Belly River Group.  Compared to the Mannville coals, the overall thin coals and restricted lateral continuity of the Belly River Group coal seams have resulted in limited exploration efforts in these coals.

The rank of coal in Alberta ranges from very low (lignite) to high (anthracite).  Coal near the surface in the Plains is generally of sub-bituminous rank with lignite occurring in the north and northeast part of the Plains, and high volatile bituminous C in the northwest and southwest areas of the Plains.  Coal rank increases with burial depth.  In the Plains, coal rank increases towards the west as seams dip and become progressively deeper toward the mountains.  With increasing depth also comes increasing overburden pressure, which may restrict permeability.

To date, Horseshoe Canyon coals with relatively low gas contents, but with favourable fracturing are being successfully exploited for unconventional production in the south-central plains.  Mannville coals are showing potentially favourable amounts of fracturing and high gas contents in some locations are undergoing evaluation in the north central to central plains.

Property Geology

The Company’s properties have not undergone any drilling.  Drill log information from wells drilled on adjacent properties is publicly available. Based on a review of these drill logs, there is an indication that Belly River and Mannville coals may be present.


 
30
 


Previous Work

The properties are very early stage properties and have not had any drilling performed on it.  The properties are located in an area that is known to host Belly River and Mannville coals.

Planned Work by the Company for 2011

The Province of Alberta maintains a significant publicly-available database of drilling information from all wells drilled under leases issued by the provincial government.  Companies who drill on government land in Alberta are required to submit their drill results to the province.  Therefore, previous drilling undertaken on land adjacent to the Company’s holding, or drilling on the Company’s land by companies exploring for other resources (oil sands for example) are required to submit their drill log data to the Alberta government.  As a result, there is a large database of drill results available to the public.  The Company intends to undertake a comprehensive review of this drill log data from surrounding properties in order to gain a better understanding of the exploration potential of the properties.  The Company does not currently have agreements in place with qualified geologists who can undertake this review.  Currently, the Company is attempting to engage consultants to perform the reviews.

The review of the data will include preparing detailed geological maps using existing drill log data with the aim of identifying potential drill targets and to obtain a better understanding of potential strategies for acquiring new land holdings.  The Company will not undertake any drilling in 2011, as the review of available information will take between twelve to eighteen months to complete, commencing January 2011.  Therefore, the Company is not expecting to undertake any drilling until at least 2012.

ITEM 4A.  UNRESOLVED STAFF COMMENTS

--- Not applicable ---

ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion for the fiscal year ended December 31, 2010, 2009, 2008, 2007 and 2006 should be read in conjunction with the financial statements of the Company and the notes thereto.

Certain statements contained in the foregoing MD&A and elsewhere in this 20-F constitute forward-looking statements.  Such forward-looking statements involve a number of known and unknown risks, uncertainties and other factors which may cause 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.  Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of the financial statements were made, and readers are advised to consider such forward-looking statements in light of the risks set forth in section 3.D. above.


 
31
 


OVERALL PERFORMANCE

The following table sets forth the audited statement of operations data for Power Oil & Gas Inc., for the fiscal years indicated:

Periods Ended
December 31

 
2010
2009
2008
2007
2006
Operating revenue
$                 -
$                  -
$                 -
$               -
$                 -
Interest income
$                 -
$                  -
$            151
$       2,451
$         2,673
Expenses
$     902,895
$   2,327,840
$     131,111
$     64,069
$       37,365
           
Loss from operations
$  (971,141)
$ (2,327,920)
$  (131,360)
$   (61,618)
$     (34,692)
Net loss
$  (971,141)
$ (2,327,920)
$  (131,360)
$   (61,618)
$     (34,692)
Net loss per share:
          
Basic and diluted
$       (0.02)
$         (0.06)
$        (0.01)
$         0.00
$           0.00
Weighted average number of
common shares outstanding
 
42,640,866
 
41,989,725
 
41,709,750
 
41,709,750
 
41,709,750

Results of Operations of Fiscal 2010 vs. Fiscal 2009

We are a natural resource exploration company in the exploration stage with an objective of acquiring, exploring, and, if warranted and feasible, developing oil and gas properties.  Oil and natural gas exploration and development requires significant capital and our assets and resources are limited. Therefore, we participate in the oil and gas industry through the optioning of oil and gas exploration and development projects.

Revenue - Cost of Revenue

We did not earn any revenues during the years ended December 31, 2010 or 2009.  We do not anticipate earning revenues until such time as we have entered into commercial production of our oil and gas properties. We can provide no assurance that we will discover commercially exploitable levels of oil or gas on our properties, or if such resources are discovered, that we will enter into commercial production of our oil and gas properties.

General and Administrative Expenses

For the year ended December 31, 2010, we had a net loss of $971,141 of the like consisting of: (a) $19,600 in professional fees related to the preparation of our financial statements; (b) $5,835 in office expenses; (c) $4,500 for consulting fees; and (e) $871,327 in stock based compensation.

For the year ended December 31, 2009, we had a net loss of $2,327,920 consisting of: (a) $30,125 in professional fees related to the preparation of our financial statements (b) $12,245 in office expenses; (c) $8,800 for consulting fees; (d) $1,500 for Directors’ fees, and (e) $2,272,427 in stock based compensation.

The decrease in loss in 2010 compared to 2009 is primarily related to the fact that in 2010 the Company incurred an expense for stock based compensation of $871,327 versus $2,272,427 for 2009.  In addition, professional fees decreased to $19,600 in 2010 compared to $30,125 in 2009 and office expenses decreased to $5,835 in 2010 compared to $12,245 in 2009.

 
32
 


Results of Operations of Fiscal 2009 vs. Fiscal 2008

We are a natural resource exploration company in the exploration stage with an objective of acquiring, exploring, and, if warranted and feasible, developing oil and gas properties.  Oil and natural gas exploration and development requires significant capital and our assets and resources are limited. Therefore, we participate in the oil and gas industry through the optioning of oil and gas exploration and development projects.

Revenue - Cost of Revenue

We did not earn any revenues during the years ended December 31, 2009 or 2008.  We do not anticipate earning revenues until such time as we have entered into commercial production of our oil and gas properties. We can provide no assurance that we will discover commercially exploitable levels of oil or gas on our properties, or if such resources are discovered, that we will enter into commercial production of our oil and gas properties.

General and Administrative Expenses

For the year ended December 31, 2009, we had a net loss of $2,327,920 of the like consisting of: (a) $30,125 in professional fees related to the preparation of our financial statements; (b) $14,620 in office expenses; (c) $8,800 for consulting fees; (d) $1,500 in Directors’ fees, (e) $2,272,427 in stock based compensation.

For the year ended December 31, 2008, we had a net loss of $131,360 consisting of: (a) $5,948 in listing and filing fees related to the preparation of the Company’s 20-F and the updating of the F-1 registration statement; (b) $36,250 in professional fees related to the preparation of our financial statements (c) $5,210 in office expenses; (d) $1,650 for transfer agent costs (e) $15,500 for Directors’ fees; (f) $60,573 in stock based compensation, and (g) $151 in interest income.

The increase in loss in 2009 compared to 2008 is primarily related to the fact that in 2009 the Company incurred an expense for stock based compensation of $2,272,427 versus $60,573 for 2008.  In addition, consulting fees increased to $8,800 in 2009 compared to $Nil in 2008.

5.B.  Liquidity and Capital Resources

Liquidity

We are an oil and gas exploration Company with an objective of acquiring, exploring, and if warranted and feasible, developing oil and gas properties. We have members on our Board of Directors who have extensive experience in the oil and gas industry. However, exploration activities of properties without any proven reserves require a considerable amount of time and money, and the subsequent return on investment for our shareholders would be very long term indeed.  Should we make a finding of natural gas on our properties, we would consider our alternatives to such finding, including the possibility of selling any findings to a major oil and gas company. By selling its findings to another oil and gas company, it would provide an immediate return to our shareholders without the long time frame and cost of putting an oil or gas operation into operation ourselves, and it would also provide future capital for the company to continue operations.


 
33
 


Since our incorporation we have financed our operations almost exclusively through the sale of our common shares to investors.  As we are an oil and gas exploration and development company with no producing resource properties, we do not generate operating income or cash flow from our business operations.  Until a significant discovery is found, our working capital requirements will be dependent upon the amount of our exploration budget for any given year.  We expect to continue to finance operations through the sale of equity.  However, there is no guarantee that we will be successful in arranging financing on acceptable terms.

On October 14, 2008 and November 6, 2008, the Company entered into two bridge loan agreements with two separate investors for $57,672 and $59,472 respectively.  The loans carry an interest rate of the Bank of Canada Rate +1% per annum, and may be converted to common stock of Power Oil & Gas at the discretion of the Borrower or Lender at a conversion rate based on fair market value of the Company’s common shares, which will be determined by the Borrower and the Lender on the date of conversion.  The funds will be used for operating capital purposes and the acquisition of exploration properties.  The 2008, 2007, and 2006 operations were funded through two private placements and the two bridge loan agreements. Such proceeds were not sufficient to enable us to continue our planned operations to present day.

On August 25, 2009, we received $107,796 CDN$ in proceeds from the exercise of warrants.

On October 14, 2009, the Company entered into an agreement with an investor who is the lender of a loan under a loan agreement dated October 14, 2008 to exchange the outstanding loan balance for shares of common stock of the Company through the exercise of warrants held by the investor.  The loan amount of $57,672.50 plus accrued interest of $1,221.52 for a total of $58,894.02 was settled for warrants with an exercise price of CDN$ $0.25 per warrant resulting in the issuance of 235,577 restricted shares of Common Stock.  Any fractional share of common stock or warrant issuable upon the exchange for shares of the loan was rounded up to the next nearest whole share of common stock or warrant.

On November 6, 2009, the Company entered into an agreement with an investor who is the lender of a loan under a loan agreement dated November 6, 2008 to exchange the outstanding loan balance for shares of common stock of the Company through the exercise of warrants held by the investor.  The loan amount of $59,472.50 plus accrued interest of $1,118.08 for a total of $60,590.58 was settled for warrants with an exercise price of CDN$ $0.25 per warrant resulting in the issuance of 242,363 restricted shares of Common Stock.  Any fractional share of common stock or warrant issuable upon the exchange for shares of the loan was rounded up to the next nearest whole share of common stock or warrant.

On March 3, 2010, we received $50,000 CDN$ in proceeds from the exercise of warrants.

During 2010, we used $99,231 for operating activities, an increase of $62,815 over 2009.  The increase in 2010 from 2009 was primarily due to increased operating expenses which affected net income. In 2010, there was a decrease of accounts payable and accrued liabilities of $1,536 compared to an increase of $18,127 in 2009.

Investing activities in 2010 related to $(49,715) cash used in the acquisition of oil and gas interests in which $18,516 was related to annual property payments and $(68,231) was in relation to the Company surrendering its rights and obligations to six P&NG leases for the total amount of $(49,715).

During 2009, we used $36,416 for operating activities, a decrease of $19,132 over 2008.  The decrease in 2009 from 2008 was primarily due to an increase in the 2009 net loss ($2,327,920) compared to the net loss in 2008 ($131,360).     In 2009, there was an increase of accounts payable and accrued liabilities of $18,127 compared to $8,952 in 2008.

 
34
 


Investing activities in 2009 related to $124,347 cash used for the acquisition of oil and gas interests and annual property payments.  In 2008, we received proceeds from $20,000 from short-term investments and used $32,782 cash for the acquisition of oil and gas interests and annual property payments.

We had cash of $4,128 as of December 31, 2010. We anticipate that we will incur through the end of our next fiscal year:

·  
$50,000 in connection with work expenditures, lease payments and the initial geological analysis of the oil and gas leases;

·  
$67,000 for operating expenses, including working capital and general, administrative and professional legal and accounting expenses associated with our being a reporting issuer under the Securities Exchange Act of 1934.

At December 31, 2010, we had a working capital deficiency of ($29,867). Therefore, current cash on hand is not sufficient for the next twelve months as proposed in our plan of operations.  We shall require additional funding and we anticipate that such funding will be in the form of equity financing from the sale of our common shares.  However, we cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common shares to fund additional phases of the exploration program, should we decide to proceed.  We believe that debt financing will not be an alternative for funding any further phases in our exploration program.  The risky nature of this enterprise and lack of tangible assets places debt financing beyond the credit-worthiness required by most banks or typical investors of corporate debt until such time as an economically viable operation can be demonstrated.  We do not have any arrangements in place for any future equity financing.
 
These conditions raise substantial doubt about the Company's ability to continue as a going concern. The Company's ability to continue as a going concern is dependent on its ability to develop its oil and gas properties and ultimately achieve profitable operations and to generate sufficient cash flow from financing and operations to meet its obligations as they become payable. The Company expects that it will need approximately $117,000 to fund its operations during the next twelve months which will include minimum annual property lease payments as well as the costs associated with maintaining an office.  Management has plans to seek additional capital through a private placement and public offering of its common stock.  Although there are no assurances that management’s plans will be realized, management believes that the Company will be able to continue operations in the future

Critical accounting estimates

The preparation of financial statements in conformity with Canadian GAAP requires management to make estimates and assumptions 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 for the reporting period.  Actual results could differ from these estimates and would impact future results of operations and cash flows.


 
35
 


The Company follows the full cost method for accounting for its oil and natural gas property interests as prescribed by the Canadian Institute of Chartered Accountants, (“CICA”) Accounting Guideline 16 - Oil and Gas Accounting – Full Cost.  Under this method all costs related to the acquisition of, the exploration for, and the development of oil and natural gas reserves are capitalized on a country-by-country basis.  These capitalized costs are depleted or depreciated on a unit-of-production basis on the estimated proved reserves.  Certain costs associated with the acquisition and exploration of unproven properties are excluded from depletion and depreciation until it is determined whether proved reserves are attributable to the properties. Where the Company has entered into option agreements for the acquisition of an interest in oil and gas properties that provide for periodic payments, amounts unpaid are not recorded as a liability since they are paid entirely at the Company’s option.  Estimates of undiscounted future cash flows that we use for conducting impairment tests are subject to significant judgment decisions based on assumptions of highly uncertain future factors such as, crude oil and natural gas prices, production quantities, estimates of recoverable reserves, and production and transportation costs. Given the significant assumptions required and the strong possibility that actual future factors will differ, we consider the impairment test to be a critical accounting procedure.

Management has made significant assumptions and estimates determining the fair market value of stock-based compensation granted to employees and non-employees.  These estimates have an effect on the stock-based compensation expense recognized and the contributed surplus and share capital balances on the Company’s Balance Sheet.  The value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model.  For non-employees, such amount is revalued on a quarterly basis.  To date, all of our stock option grants have been to non-employees.  Increases in our share price will likely result in increased stock option compensation expense. The Black-Scholes option-pricing model requires the input of subjective assumptions, including the expected term of the option award and stock price volatility. The expected term of options granted for the purposes of the Black-Scholes calculation is the term of the award since all grants are to non-employees. Because our Company has only recently become an oil and gas exploration company, the expected volatility is based on comparable junior oil and gas companies who granted similar term options.  These estimates involve inherent uncertainties and the application of management judgment. An expected forfeiture rate of nil was used in the recognition of compensation expense for those options not yet vested at December 31, 2010.

5.C. Research and Development, Patents and Licenses etc.

 --- Not applicable ---

5.D. Trends.

--- No Disclosure Necessary ---

5.E. Off-Balance Sheet Arrangements.

We do not have any off balance sheet arrangements as of December 31, 2010 and December 31, 2009 or of the date of this report.


 
36
 


5.F. Contractual Obligations.

We have the following contractual obligations as expressed in CDN$ dollars at December 31, 2010:

Contractual Obligations
Payments due by period
 
Total
Less than 1 year
1-3 years
3-5 years
More than five years
Annual Lease Payments:
          
Property Leases
$  40,083
$ 14,995
$ 25,088
$  0
$ 0
Capital (Finance) Lease Obligations
0
0
0
0
0
Operating Lease Obligations
0
0
0
0
0
Purchase Obligations
0
0
0
0
0
Other Long-Term Liabilities Reflected on the Company’s Balance Sheet Under the GAAP of the primary financial statements
 
 
0
 
 
0
 
 
0
 
 
0
 
 
0
Total
$  40,083
$ 14,995
$ 25,088
$  0
$  0

On June 14, 2006, the Company entered into a Petroleum, Natural Gas and General Rights Conveyance with Stone Petroleums Ltd., Supernova Resources Ltd., 349385 Alberta Ltd., and Torland Ltd. (collectively the “Vendor”) whereby the Company acquired a 100% interest in a petroleum and natural gas lease with the government of the Province of Alberta.  Upon signing of the agreement, the Company paid the Vendor $8,438 (including closing costs) and agreed to assume the underlying lease payments to the Province of Alberta of the greater of $3.50 per hectare or $50 per year.  The Lease expires on July 14, 2010.

On July 23, 2008, the Company entered into an assignment and assumption agreement with Giant Oil & Gas Inc. et al whereby the Company purchased a 100% right and interest in 10 Alberta Crown Petroleum and Natural Gas Lease Agreements, lease numbers 0407020077, 0407030073, 0407030650, 0407040015, 0407040018, 0407040020, 0407050502, 0407080296, 0407080298 and 0407080302 for a total of 1,911 hectares in the Taber, Grand Forks area of Ablerta, Canada.  Upon signing the Agreement, the Company paid the Vendor $30,331.48 and agreed to assume the underlying lease payments to the Province of Alberta of $3.50 per hectare.  These leases all expire in 2012.

On June 30, 2009, the Company entered into a petroleum, natural gas and general rights conveyance with Stone Petroleums Ltd., Supernova Resources Ltd., 349385 Alberta Ltd. and Torland Ltd., whereby the Company acquired a 100% interest in a P&NG lease for a total of 1,280 hectares with the Province of Alberta.  The underlying lease acquired by the Company is Alberta P&NG lease 0405060026, and the property to which the lease pertains is located in the Bow Island area of Alberta.  Upon signing the Agreement, the Company paid the Vendor $14,124 and agreed to assume the underlying lease payments to the Province of Alberta.  In addition, the Vendor is entitled to an overriding 2% royalty on all petroleum substances produced from the Property, if any.  The Vendor is entitled to a first and paramount lien upon all of the petroleum substances produced or allocated to the Property to secure the payment of any amounts due and payable to the Vendor relating to the royalty.  This lease expires on June 2, 2010.

 
37
 


On August 20, 2009, the Company acquired 100% interest in 13 P&NG leases with the Province of Alberta.  The underlying leases acquired by the Company are Alberta P&NG lease numbers 0409080267, 0409080268, 0409080271, 0409080272, 0409080274, 0409080280, 0409080283, 0409080284, 0409080286, 0409080287, 0409080288, 0409080310 and 0409080311, and the property to which the leases pertain to cover 3,328 hectares of land located in the Bow Island area of Alberta for the total amount of $38,433.  All of the leases were acquired through a public auction process that requires the Company to submit sealed bids for land packages being auctioned by the provincial government.  Upon being notified that it has submitted the highest bid for a specific land parcel the Company immediately pays the government the bid price and enters into a formal five year extendable lease with the government.  The bid price includes the first year’s minimum annual lease payments.  These leases expire in 2014, but can be renewed.

On September 3, 2009, the Company acquired 100% interest in 2 P&NG leases with the Province of Alberta.  The underlying leases acquired by the Company are Alberta P&NG lease numbers 0409090046 and 0409090047, and the property to which the leases pertain to cover 512 hectares of land located in the Provost area of Alberta for the total amount of $4,337.  All of the leases were acquired through a public auction process that requires the Company to submit sealed bids for land packages being auctioned by the provincial government.  Upon being notified that it has submitted the highest bid for a specific land parcel the Company immediately pays the government the bid price and enters into a formal five year extendable lease with the government.  The bid price includes the first year’s minimum annual lease payments.  These leases expire in 2014, but can be renewed.

On October 29, 2009, the Company acquired 100% interest in 1 P&NG lease with the Province of Alberta.  The underlying lease acquired by the Company is Alberta P&NG lease number 0409100445, and the property to which the lease pertains to covers 2,816 hectares of land located in the Medicine Hat area of Alberta for the total amount of $31,601.  The lease was acquired through a public auction process that requires the Company to submit sealed bids for land packages being auctioned by the provincial government.  Upon being notified that it has submitted the highest bid for a specific land parcel the Company immediately pays the government the bid price and enters into a formal five year extendable lease with the government.  The bid price includes the first year’s minimum annual lease payments.  These leases expire in 2014, but can be renewed.

On March 6, 2010, the Company surrendered P&NG lease number 0407030073 with the Province of Alberta, previously acquired from Giant Oil & Gas Inc. on July 23, 2008, due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable. This transaction decreased the Company’s total P&NG leases to 27 for an aggregate 9,847 hectares.

On March 9, 2010, the Company surrendered P&NG lease number 0407030650 with the Province of Alberta, previously acquired from Giant Oil & Gas Inc. on July 23, 2008, due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable. This transaction decreased the Company’s total P&NG leases to 26 for an aggregate 9,591 hectares.

On June 02, 2010, P&NG lease number 0405060026 expired with the Province of Alberta.  Due to the lack of potential for unconventional tight gas sands, the Company chose not to renew the lease.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable.  This transaction decreased the Company’s total P&NG leases to 25 for an aggregate 8,311 hectares.

 
38
 


On July 12, 2010 the Company surrendered P&NG lease number 0405070015 with the Province of Alberta, due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable.  This transaction decreased the Company’s total P&NG leases to 24 for an aggregate 8,055 hectares.

On August 14, 2010, the Company surrendered P&NG lease number 0409080272 with the Province of Alberta, due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interests in the property and all amounts paid for this lease are non-refundable.  This transaction decreased the Company’s total P&NG leases to 23 for an aggregate 7,799 hectares.

On October 13, 2010, the Company surrendered P&NG lease number 0409100445 with the Province of Alberta, due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interests in the property and all amounts paid for this lease are non-refundable.  This transaction decreased the Company’s total P&NG leases to 22 for an aggregate 4,983.

On February 06, 2011, the Company surrendered P&NG lease number 0407020077 with the Province of Alberta, due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable.  This transaction decreased the Company’s total P&NG leases to 21 for an aggregate 4,855.

On April 13, 2011, the Company surrendered 3 P&NG leases, 0407040015, 0407040018, and 0407040020 with the Province of Alberta, due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable.  This transaction decreased the Company’s total P&NG leases to 18 for an aggregate 4,284 hectares.

At December 31, 2010, the Company had trade payables and accrued liabilities of $35,005.  All of these obligations are unsecured and due in less than one year.

Recent Accounting Pronouncements Applicable to the U.S.

ASU 2010-06

In January 2010, the FASB issued ASU 2010-06, “Fair Value Measurements and Disclousures (ASC 820):  Improving Disclosures about Fair Value Measurements” which amends the disclosure requirements related to recurring and nonrecurring fair value measurements.  This update requires new disclosures on significant transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy (including the reasons for these transfers) and the reasons for any transfers in or out of Level 3.  This update also requires a reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis.  In addition to these new disclosure requirements, this update clarifies that reporting entities are required to provide fair value measurement disclosures for each class of assets and liabilities rather than each major category of assets and liabilities.  This update also clarifies the requirement for entities to disclose information about both the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements.  The adoption of ASU 2010-06 has been reflected in the Company’s financial statements.


 
39
 


ASU 2010-09

In February 2010, FASB issued ASU 2010-09, “Subsequent Event (Topic 855) Amendments to Certain Recognition and Disclosure Requirements”.  ASU 2010-09 removes the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements.  Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of GAAP.  All of the amendments in ASU 2010-09 are effective upon issuance of the final ASU, except for the use of the issued date for conduit debt obligors.  That amendment is effective for interim or annual periods ending after June 15, 2010.  The adoption of ASU 2010-09 has been reflected in the Company’s financial statements.

ITEM 6.  DIRECTORS, SENIOR MANAGEMENT, AND EMPLOYEES

6.A. Directors and Senior Management

Directors and Senior Management
June 29, 2011
______________________________________________________________________________

The following table sets forth certain information regarding the members of our Board of Directors and our Executive Officer:


Name
Age
Positions and Offices Held
Keith Diakiw
38
Director, Chairman, President, Chief Executive
Officer, Chief Operating Officer, and Secretary
Pratt Barndollar
52
Director
Ron Daems
43
Director

Our Directors hold office until the next annual meeting of our shareholders or until their successors are duly elected and qualified.  None of our Directors have any family relationships with any of our other Directors or Executive Officer.  Set forth below is a summary description of the principal occupation and business experience of each of our Directors and Executive Officer for at least the last five years.


 
40
 


Keith Diakiw, age 38, has served on our Board of Directors since May 15, 2007.  He is a professional geologist who has field experience in Canada and Brazil.  Mr. Diakiw is currently working as a Production Geologist for Canadian Natural Resources Ltd. in Fort McMurray, Alberta, Canada.  From 2005 to 2006 he was employed by Wellsite Masters Ltd. as a Well Site Geologist for an oil sands exploration drilling.  From 2003 to 2004, he worked as a Field Engineer for Schlumberger’s Measurements While Drilling division in Brazil on offshore platforms, while in 2003; he was employed by EnCana Corporation as a Contract Geologist and successfully completed his NW Alberta shallow gas play project.  Prior to 2003, Mr. Diakiw was attending the University of Alberta where he successfully earned a Bachelor of Science with Specialization (Geology) in 2003 and a Bachelor of Arts (anthropology/archaeology) in 2002.  In 2001, Mr. Diakiw joined the Canadian Navy and became a qualified MARS Officer by the summer of 2005.  As a naval officer, he continues to serve Canada and is currently the Public Affairs Officer for his naval reserve unit.  Furthermore, Lieutenant (Navy) Keith Diakiw was recently selected as an Aide-de-Camp for the new Lieutenant Governor of Alberta, a volunteer position until 2015.  Lastly, Mr. Diakiw began his university career at the University of Lethbridge and successfully earned a Bachelor of Science (Physical Geography) in 1996 and was U of L’s first Arts & Science CO-OP degree graduate.  Mr. Diakiw is a member of several professional organizations including the Association of Professional Engineers, Geologists, and Geophysicists of Alberta (APEGGA), the Canadian Institute of Mining, Metallurgy, and Petroleum (CIM), Canadian Society of Petroleum Geologists (CSPG), and the Alberta Paleontological Society (APS).

Pratt Barndollar, age 52, is an experienced geophysicist who has served as senior geoscience manager and interpreter for large and small oil companies during the span of his career.  He has broad US and international experience in prospect evaluation, operations and planning and currently holds the position of Manager, Exploration Planning at Talisman Energy Inc. Between 2006 and 2008 he was Vice President, Exploration of Napa Energy Ltd.  Mr. Barndollar served as Chief Geophysicist and Exploration Portfolio Manager for Devon Energy between 2002 and 2005, Senior Geophysicist for Samson Canada between 2000 and 2002, Chief Geophysicist for Apache Canada between 1997 and 2000, and Senior Explorer and Project Leader for Phillips Petroleum between 1982 and 1997.  Mr. Barndollar earned two Bachelor of Science degrees from Kansas State University, in Geophysics and Civil Engineering.  His professional affiliations include the Association of Professional Engineers, Geologists, and Geophysicists of Alberta; Texas Board of Professional Geoscientists; American Association of Petroleum Geologists; Canadian Society of Petroleum Geologists; and the Canadian Society of Exploration Geophysicists.

Ron Daems, age 43, brings extensive financial and resource industry experience to Power Oil & Gas Inc.  In the span of his career he has focused primarily on business development, strategic planning and financial analysis, while serving as project manager for numerous capital ventures.  From 2000 through 2003, Mr. Daems founded and became the CEO of Emerging Business Solutions Inc., a privately held business development company focused primarily on assisting startup companies in the resource sector to develop their land acquisition strategies and their operational and administrative systems.  Mr. Daems is currently a President and Director of Strata Oil & Gas Inc., a director of Giant Oil & Gas Inc., and Rush Metals Corp.

Involvement in Certain Legal Proceedings

In the last five years, we are not aware of any material legal proceedings that have occurred concerning any director, director nominee, or control person which involved a criminal conviction, a pending criminal proceeding, a pending or concluded administrative or civil proceeding limiting one's participation in the securities or banking industries, or a finding of securities or commodities law violations.


 
41
 


There are no family relationships between any two or more Directors or Senior Management.

There are no arrangements or understandings with major shareholders, customers, suppliers or others, pursuant to which any person referred to above was selected as a Director or member of senior management.

6.B. Compensation

Cash Compensation

Except as described herein, none of our Officer or Directors have received or earned any compensation or bonus for services rendered in the fiscal years ended December 31, 2010 or 2009.  Commencing May 15, 2007, Mr. Sandhu and Mr. Diakiw, each has received $500 per month to serve as a Director of the Company.  The monthly fees owing to Mr. Sandhu have been temporarily suspended as of January 2009 in order to conserve operating capital.  Mr. Diakiw will receive monthly fees for the first quarter of 2009 and then $nil as a result of less activity and in order to conserve operating capital.  During the fiscal year ended December 31, 2010, total Director’s fees were $Nil (2009 - $1,500).

We do not maintain key-man life insurance for our Executive Officer or Directors.

At the Company’s Annual General Meeting held June 28, 2007, a majority of the Company’s shareholders approved the Company’s 2007 stock option plan.  The stock option plans provides for the granting of up to a maximum of 5,000,000 common stock options.  To date, a total of 200,000 options have been granted under the plan with an exercise price of $.50 USD per option, and 4.8 million options are available for grant.  The options granted in USD were granted on June 30, 2008 and the effective exchange rate was $1.0197 USD per $1 CDN$.


 
42
 


Outstanding Equity Awards as at December 31, 2010

Name
No.  of Options Granted
Exer-cise Price per Option
Grant Date
Expiration Date
Mkt. Value of Securities Underlying Options on Date of Grant
Number of Securities Underlying Unexercised Options, Exercisable
Number of Securities Under-lying Un-exercised Options, Un-exercisable
Grant Date Fair Value of Stock Options(1)
                 
Manny Dhinsa(2)
-
-
-
-
-
-
-
-
Pratt Barndollar(3)
200,000
$.51 USD
06/30/08
06/30/18
$1.80
200,000
-
$78,760
Keith Diakiw
-
-
-
-
-
-
-
-
Ron Daems
-
-
-
-
-
-
-
-

(1) The figures in this column represent the grant date fair value of stock option grants as determined using the Black-Scholes model. For more information regarding the assumptions used to value stock option grants, please refer to note 5(b) of the Company’s audited financial statements for the fiscal year ended December 31, 2008 filed with this Form 20-F.

(2) Mr. Dhinsa was granted 200,000 options on August 10, 2009.  The options vest in equal installments of 100,000 every twelve months commencing August 10, 2010 and ending August 10, 2011.  On July 14, 2010, Mr. Dhinsa resigned as Director, Chairman, President, Chief Executive and Operating Officer, and Secretary and his options were subsequently cancelled.

(3) Mr. Barndollar was granted 600,000 options on June 30, 2008.  The options vest in equal installments of 200,000 every twelve months commencing June 30, 2009 and ending June 30, 2011.  On June 30, 2009 Mr. Barndollar stepped down as Chief Executive Officer, Chief Financial Officer, President Treasurer and Secretary of the Company but remained on the Board of Directors.  Subsequently on August 10, 2009, 200,000 of Mr. Barndollar’s options that vest on June 30, 2010 and 200,000 options that vest on June 30, 2011 were cancelled.

Change of Control Remuneration.

The Company had no plans or arrangements in respect of remuneration received or that may be received by the Executive Officer of the Company in Fiscal 2010 to compensate such officer in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control.

6.C. Board Practices

6.C.1. Terms of Office.

Refer to ITEM 6.A.1.


 
43
 


6.C.2. Directors’ Service Contracts.

With the exceptions of Rob Sandhu, and Keith Diakiw, there are no Director Service contracts.  Pursuant to respective agreements dated May 15, 2007 between the Company and Mr. Sandhu and Mr. Diakiw, commencing May 15, 2007, Mr. Sandhu and Mr. Diakiw each began receiving $500 per month to serve as a Director of the Company.

The monthly fees owing to Mr. Sandhu have been suspended as of January 1, 2009 in order to conserve cash flow.  Accordingly on June 30, 2010, Mr. Sandhu resigned as Director of the Company.  The monthly fees owing to Mr. Diakiw have been stopped as of April 1, 2009 due to less activity at the Board level and in order to conserve cash flow.  The respective service contracts will terminate upon the respective Director ceasing to serve as a Director of the Company.

6.C.3. Board of Director Committees.

The Audit Committee oversees the accounting and financial reporting processes of the Company and all audits and external reviews of the financial statements of the Company on behalf of the Board, and has general responsibility for oversight of internal controls, accounting and auditing activities of the Company.  As of September 2008, the Board of Directors is empowered to appoint an audit committee for the Corporation.  Currently the Board of Directors function as the audit committee.

The Committee reviews, on a continuous basis, any reports prepared by the Company's external auditors relating to the Company's accounting policies and procedures, as well as internal control procedures and systems. The Committee is also responsible for examining all financial information, including annual financial statements, prepared for securities commissions and similar regulatory bodies prior to filing or delivery of the same. The Audit Committee also oversees the annual audit process, the Company's internal accounting controls, any complaints and concerns regarding accounting, internal controls or auditing matters and the resolution of issues identified by the Company's external auditors. The Audit Committee recommends to the Board the firm of independent auditors to be nominated for appointment by the shareholders and the compensation of the auditors. The Audit Committee meets on an as needed basis.

6.D. Employees

We have no employees at this time. We utilize outside contractors where possible, and rely on the industry expertise of management and our Board of Directors. These contractors will be responsible for surveying, geology, engineering, exploration, and excavation. The geologists will evaluate the information derived from the exploration and excavation and the engineers will advise us on the economic feasibility of removing the mineralized material. We presently employ no member of our management team.  We do not foresee any significant changes in the number of employees or consultants we will have over the next twelve months, unless the growth of our business demands it.


 
44
 


6.E. Share Ownership

The following table lists, as of June 29, 2011 Directors and Senior Management who beneficially own the Company's voting securities, consisting solely of common shares and the amount of the Company's voting securities owned by the Directors and Senior Management as a group.

Shareholdings of Directors and Senior Management
______________________________________________________________________________

Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission (the "SEC") and generally includes voting or investment power with respect to securities.  In accordance with SEC rules, shares of common shares issuable upon the exercise of options or warrants which are currently exercisable or which become exercisable within 60 days following the date of the information in this table are deemed to be beneficially owned by, and outstanding with respect to, the holder of such option or warrant.  Except as indicated by footnote, and subject to community property laws where applicable, to our knowledge, each person listed is believed to have sole voting and investment power with respect to all shares of common shares owned by such person.

Name of Beneficial Owner
  
Number of Shares
of common shares
Beneficially Owned *
  
Percent of
common shares
Beneficially Owned
Pratt Barndollar
  
16,200,000(1)(2)
  
37.8%
Keith Diakiw
  
14,000,000(1)
  
32.7%
Ron Daems
  
-
  
-
All Directors and Executive Officer as a group  (four persons)
  
30,200,000
  
70.5%

*              Based on 42,818,875 shares outstanding as of June 29, 2011.

(1)  
16,000,000 shares owned by Mr. Barndollar and 14,000,000 shares owned by Mr. Diakiw are subject to our option to purchase all or any portion of these shares are a purchase price of CDN $0.01 per share.  We are not obligated to repurchase the shares at any time or for any reason (such as termination of employment, resignation from the Board or as officer, a change of control of the Company or failure to reach performance goals).  Our repurchase right will continue with respect to and for so long as any of the 30 million shares issued to Messrs. Barndollar and Diakiw are held by them (or any of their affiliates or family members), and will survive the resignation as an Officer or Director of the Company by Mr. Barndollar and/or Mr. Diakiw.  We may exercise our right of repurchase as to some or all of the shares held (directly or indirectly) by these Directors by delivering a notice of such exercise to Mr. Barndollar and/or Mr. Diakiw not less than ten business days prior to the closing of such repurchase.  Messrs. Barndollar and Diakiw agree that they shall not, directly or indirectly, sell, exchange, pledge, hypothecate, transfer, gift, grant an irrevocable proxy with respect to, devise, assign or in any other way dispose of, encumber or grant a security interest in, any of the shares or any interest therein.  Messrs. Barndollar and Diakiw also agree and acknowledge that said restriction is in addition to all applicable securities laws and regulation.

(2)  
Represents options that are currently exercisable or that are exercisable within 60 days of the date of this report.  Mr. Barndollar was granted 200,000 stock options on June 30, 2008 at an exercise price of $.51 that are fully vested on June 30, 2009.

 
45
 


Our major shareholders do not have voting rights that differ from the other holders of shares of our common shares.

Stock Options

On June 28, 2007, the stockholders of the Company approved the Company’s 2007 stock option plan whereby the Company may grant options to its directors, consultants and employees for up to 5,000,000 shares of common stock.  The exercise price of each option equals the market price of the Company’s stock on the date of grant.  Options vest over a three-year period, unless otherwise specified by the Board of Directors.  All options have a ten year term. 200,000 options have been granted to date.

ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

7.A. Major Shareholders.

7.A.1.a. Holdings By Major Shareholders.

The Company has two shareholders who own more than 5% of the issued shares.  As at June 29, 2011 Pratt Barndollar and Keith Diakiw own an aggregate 30,200,000 shares, or 70.5% of the common shares.

7.A.1.b. Significant Changes in Major Shareholders’ Holdings.

On September 10, 2008, one of our founding Directors, Mr. Paul Uppal, resigned as Director and pursuant to a share assignment agreement dated September 10, 2008, gifted his 16,000,000 common shares to Pratt Barndollar, our new President, CEO and Director.  Pursuant to the share assignment agreement, the common shares gifted to Mr. Barndollar are subject to the same terms and conditions as were in our agreement with Mr. Uppal, including the repurchase option held by us with respect to Mr. Uppals’s shares.

On September 10, 2008, Mr. Duncan Budge, resigned as Director, and pursuant to a share assignment agreement dated September 10, 2008, gifted his 14,000,000 common shares to Manny Dhinsa, a Director of the Company.  Pursuant to the share assignment agreement, the common shares gifted to Mr. Dhinsa are subject to the same terms and conditions as were in our agreement with Mr. Budge, including the repurchase option held by us with respect to Mr. Budge’s shares.


On July 14, 2010, Mr. Manny Dhinsa resigned as Director.  Pursuant to a share assignment agreement dated September 10, 2008 gifted his 14,000,000 common shares to Keith Diakiw, a Director of the Company.  Pursuant to the share assignment agreement, the common shares gifted to Mr. Diakiw are subject to the same terms and conditions as were in our agreement with Mr. Dhinsa, including the repurchase option held by us with respect to Mr. Dhinsa’s shares.

7.A.1.c. Different Voting Rights.

The Company’s major shareholders do not have different voting rights.


 
46
 


7.A.2. Canadian Share Ownership.

On June 29, 2011 the Company’s shareholders’ list showed 42,818,875 common shares outstanding which were held by approximately 48 stockholders of record.  Of the shares issued and outstanding 34,902,975 are held by shareholders with Canadian addresses.

The Company’s shares began trading in January 2008 under the stock symbol LTYPF on the OTC Bulletin Board.  In June 2008 the symbol was changed to PWOIF to reflect the name change from Liberty Petroleum Inc. to Power Oil & Gas Inc.

7.A.4. Change of Control of Company Arrangements.

There are no arrangements, known to the Company, the operation of which may at a subsequent date result in a change in control of the Company.

7.B. Related Party Transactions


On September 10, 2008, Mr. Duncan Budge, resigned as Director, and pursuant to a share assignment agreement dated September 10, 2008, gifted his 14,000,000 common shares to Manny Dhinsa, a Director.  Pursuant to the share assignment agreement, the common shares gifted to Mr. Dhinsa are subject to the same terms and conditions as were in our agreement with Mr. Budge, including the repurchase option held by us with respect to Mr. Budge’s shares.

On July 14, 2010, Mr. Dhinsa resigned as Director, President and Chief Executive Officer, and pursuant to a share assignment agreement dated September 10, 2008, gifted his 14,000,000 common shares to Keith Diakiw, a Director.  Pursuant to the share assignment agreement, the common shares gifted to Mr. Diakiw are subject to the same terms and conditions as were in our agreement with Mr. Dhinsa, including the repurchase option held by us with respect to Mr. Dhinsa’s shares.

The common shares issued to Mr. Barndollar and Mr. Diakiw are subject to our right, exercisable at any time, to purchase any or all of these shares from Mr. Barndollar and Mr. Diakiw at a purchase price of CDN$0.01 per share.  We have this right until we, in our sole discretion, decide to terminate the agreement.  The exercise price of such repurchase option is $0.01 per share, amounting in the aggregate to $160,000 for the shares held by Mr. Barndollar and $140,000 for the shares held by Mr. Diakiw. Unaffiliated stockholders have no protection against our future potential decision to repurchase the shares of the two Directors pursuant to current or potentially modified contracts, even if such repurchase would essentially use all or substantially all of the Company’s working capital and essentially cause the Company to become insolvent.

Shareholder Loans

There are no loans to shareholders.


 
47
 


Amounts Owing to Senior Management/Directors

At December 31, 2010 and 2009 no amounts were owed to senior management or Directors.  There have been no transactions since inception, or proposed transactions, which have materially affected or will materially affect the Company in which any Director, Executive Officer, or beneficial holder of more than 5% of the outstanding common shares, or any of their respective relatives, spouses, associates or affiliates has had or will have any direct or material indirect interest.  Management believes the transactions referenced above were on terms at least as favorable to the Company as the Company could have obtained from unaffiliated parties.

7.C. Interests of Experts and Counsel

--- Not applicable ---

ITEM 8.  FINANCIAL INFORMATION

8.A.  Statements and Other Financial Information

The Company's financial statements are stated in Canadian Dollars (CDN$) and are prepared in accordance with Canadian Generally Accepted Accounting Principles (GAAP), the application of which, in the case of the Company, conforms in all material respects for the periods presented with United States GAAP, as discussed in footnotes to the financial statements.

The financial statements as required under ITEM #17 are attached hereto and found immediately following the text of this Annual Report.  The audit report of BDO Canada LLP is included herein immediately preceding the financial statements.

The previous year financial statements have been audited by Smythe Ratcliffe Chartered Accountant, the predecessor auditor, who expressed an unqualified opinion on June 29, 2010.

Audited Financial Statements:

Fiscal periods ended December 31, 2010, 2009 and 2008.
 
 
8.A.7. Legal/Arbitration Proceedings

The Directors and the management of the Company do not know of any material, active or pending, legal proceedings against them; nor is the Company involved as a plaintiff in any material proceeding or pending litigation.

The Directors and the management of the Company know of no active or pending proceedings against anyone that might materially adversely affect an interest of the Company.

8.A.8. Policy on Dividend Distributions

The Company has never declared or paid a dividend to its shareholders.  The Company does not have any policy on dividend distributions.


 
48
 


8.B. Significant Changes

On June 30, 2009, Pratt Barndollar resigned as CEO, CFO President, Secretary, and Treasurer but maintained his directorship on the Board.

On June 30, 2009, Manny Dhinsa was appointed CEO, CFO President, Secretary, and Treasurer

On June 30, 2009, the Company entered into a petroleum, natural gas and general rights conveyance with Stone Petroleums Ltd., Supernova Resources Ltd., 349385 Alberta Ltd. and Torland Ltd., whereby the Company acquired a 100% interest in a P&NG lease for a total of 1,280 hectares with the Province of Alberta.  The underlying lease acquired by the Company is Alberta P&NG lease 0405060026, and the property to which the lease pertains is located in the Bow Island area of Alberta.  Upon signing the Agreement, the Company paid the Vendor $14,124 and agreed to assume the underlying lease payments to the Province of Alberta.  In addition, the Vendor is entitled to an overriding 2% royalty on all petroleum substances produced from the Property, if any.  The Vendor is entitled to a first and paramount lien upon all of the petroleum substances produced or allocated to the Property to secure the payment of any amounts due and payable to the Vendor relating to the royalty.  This lease expires on June 2, 2010.
On August 20, 2009, the Company acquired 100% interest in 13 P&NG leases with the Province of Alberta.  The underlying leases acquired by the Company are Alberta P&NG lease numbers 0409080267, 0409080268, 0409080271, 0409080272, 0409080274, 0409080280, 0409080283, 0409080284, 0409080286, 0409080287, 0409080288, 0409080310 and 0409080311, and the property to which the leases pertain to cover 3,328 hectares of land located in the Bow Island area of Alberta for the total amount of $38,433.
 
 
On September 3, 2009, the Company acquired 100% interest in 2 P&NG leases with the Province of Alberta.  The underlying leases acquired by the Company are Alberta P&NG lease numbers 0409090046 and 0409090047, and the property to which the Leases pertain to cover 512 hectares of land located in the Provost area of Alberta for the total amount of $4,337.

On October 29, 2009, the Company acquired 100% interest in 1 P&NG lease with the Province of Alberta.  The underlying lease acquired by the Company is Alberta P&NG lease number 0409100445, and the property to which the lease pertains to covers 2,816 hectares of land located in the Medicine Hat area of Alberta for the total amount of $31,601.

On March 6, 2010, the Company surrendered P&NG lease number 0407030073 with the Province of Alberta, previously acquired from Giant Oil & Gas Inc. on July 23, 2008, due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable. This transaction decreased the Company’s total P&NG leases to 27 for an aggregate 9,847 hectares.

On March 9, 2010, the Company surrendered P&NG lease number 0407030650 with the Province of Alberta, previously acquired from Giant Oil & Gas Inc. on July 23, 2008, due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable. This transaction decreased the Company’s total P&NG leases to 26 for an aggregate 9,591 hectares.

On June 02, 2010, P&NG lease number 0405060026 expired with the Province of Alberta.  Due to the lack of potential for unconventional tight gas sands, the Company chose not to renew the lease.  The Company no longer holds any interest in the property and all amounts paid for the lease are non-refundable.  This transaction decreased the Company’s total P&NG leases to 25 fro an aggregate 8,311 hectares.

 
49
 


On June 30, 2010, Rob Sandhu resigned as Director of the Company.

On July 12, 2010, the Company surrendered P&NG lease number 0405070015 with the Province of Alberta, due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable.  This transaction decreased the Company’s total P&NG leases to 24 for an aggregate 8,055 hectares.

On July 14, 2010, Manny Dhinsa resigned as CEO, CFO, President, Treasurer, Secretary, and Director of the Company and pursuant to a share assignment agreement dated September 10, 2008, gifted his 14,000,000 common shares to Keith Diakiw, our Director.  Pursuant to the share assignment agreement, the common shares gifted to Mr. Diakiw are subject to the same terms and conditions as were in our agreement with Mr. Dhinsa, including the repurchase option held by us with respect to Mr. Dhinsa’s shares.
On July 14, 2010, Keith Diakiw was appointed CEO, CFO, President, Treasurer and Secretary of the Company.

On August 14, 2010, the Company surrendered P&NG lease number 0409080272 with the Province of Alberta, due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable.  This transaction decreased the Company’s total P&NG leases to 23 for an aggregate 7,799 hectares.

On September 21, 2010, at the request of the Corporation, Smythe Ratcliffe Chartered Accountants resigned as auditors of the Corporation.  The Board of Directors recommended BDO Canada LLP, Chartered Accountants, as the replacement auditors of the Corporation.

On October 13, 2010, the Company surrendered P&NG lease number 0409100445 with the Province of Alberta, due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable.  This transaction decreased the Company’s total P&NG leases to 22 for an aggregate 4,983 hectares.

On December 13, 2010, Ron Daems was appointed to the Board of Directors.

On February 06, 2011, the Company surrendered P&NG lease number 0407020077 with the Province of Alberta, due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable.  This transaction decreased the Company’s total P&NG leases to 21 for an aggregate of 4,855 hectares.

On April 13, 2011 the Company surrendered 3 P&NG leases, 0407040015, 0407040018, and 0407040020 with the Province of Alberta due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in these properties and all the amounts paid for these leases are non-refundable.  This transaction decreased the Company’s total P&NG leases to 18 for an aggregate 4,284 hectares.


 
50
 


ITEM 9.  THE OFFER AND LISTING

A.  Offer and Listing Details

1.  
Annual high and low market prices for the last five full financial years:

Year
Market Price
 
High Price
Low Price
2010
$2.35
$0.12
2009
$2.60
$0.35
2008
$2.00
$0.50
2007
N/A
N/A
2006
N/A
N/A
     

2.           High and low market prices for each full financial quarter during the two most recent full financial years:
Financial Quarter
Market Price
Year
Quarter
High Price
Low Price
2010
Fourth Quarter of 2010
$0.50
$0.12
Third Quarter of 2010
$0.84
$0.25
Second Quarter of 2010
$2.04
$0.36
First Quarter of 2010
$2.35
$1.01
2009
Fourth Quarter of 2009
$2.60
$1.11
Third Quarter of 2009
$1.86
$0.35
Second Quarter of 2009
$0.66
$0.45
First Quarter of 2009
$1.05
$0.65

3.           High and low market prices for each of the six most recent months:
Month
Market Price
 
High Price.
Low Price
     
     
May 2011
$0.12
$0.08
April 2011
$0.12
$0.06
March 2011
$0.14
$0.08
February 2011
$0.19
$0.10
January 2011
$0.19
$0.11


 
51
 


9.C. Markets

Admission to Quotation on the OTC Markets

Our shares began trading in January 2008 under the stock symbol LTYPF on the OTC Bulletin Board. In June 2008 the symbol was changed to PWOIF to reflect the name change from Liberty Petroleum Inc. to Power Oil & Gas Inc.  There is currently no established public trading market for our securities.  As a result, a market may never develop or if developed may not be maintained.  As a result an investor may find it more difficult to dispose of, or to obtain accurate quotations as to the market value of our securities. The OTC Bulletin Board differs from national and regional stock exchanges in that it:

 
(1)
is not situated in a single location but operates through communication of bids, offers and confirmations between broker-dealers, and

 
(2)
securities admitted to quotation are offered by one or more Broker-dealers rather than the  "specialist" common to stock exchanges.

To qualify for quotation on the OTC Bulletin Board, an equity security must have at least one registered broker-dealer, known as the market maker, willing to list bid or sale quotations and to sponsor the Company listing.

In 2010, the new “OTC Markets” quotation tiers began replacing the former OTCBB.  The OTC Markets launched the OTCQB marketplace to help investors easily identify SEC reporting companies and regulated banks that are current with their disclosure obligations.  Issuers on the OTCQB must be fully reporting and current in their reporting obligations with the SEC.  Although, the entire Over the Counter is regulated by the SEC and FINRA, the OTC Markets and the OTCBB are both now privately owned and merely serve as quotation mediums.  The OTC Markets is more user friendly, factually up-to-date and accurate than the website for the OTCBB.  Over the Counter quotes can be found at www.otcmarkets.com and the companies trading on the OTCQB have the exact same standards as the OTCBB.  Effective February 23, 2011 through the progressive changes of the OTC Markets platform, the Company’s stock is now quoted on the OTC:QB.

The following description of our capital stock is a summary and is qualified in its entirety by the provisions of our Articles of Incorporation, which were previously filed as an exhibit to the Company’s registration statement on Form F-1 filed with the Commission on September 25, 2006.

ITEM 10.  ADDITIONAL INFORMATION

10.A. Share Capital

--- Not applicable ---


 
52
 


10.B.  Memorandum and Articles of Association

The Company’s Articles of Incorporation were filed with the Director under the Canada Business Corporations Act on April 25, 2005. The Company, having a primary place of business in the Province of British Columbia, was also issued a Certificate of Registration as an extra provincial company under the Business Corporations Act, British Columbia on May 6, 2005.  In addition, the Company also was issued a Certificate of Registration as an extra provincial company in Alberta on July 17, 2006.  On June 28, 2006 the Company filed its Articles of Amendment changing its name to Liberty Petroleum Inc. and changing its purpose to “oil and natural gas exploration”.  On May 23, 2008 the Company filed its Articles of Amendment changing its name to Power Oil & Gas Inc.  In September 2008 the Company deregistered as an extra provincial company in British Columbia.

The Directors of the Company are empowered under the Articles of Incorporation and By-Laws, and in accordance with the Canada Business Corporations Act, to (1) borrow money upon the credit of the Company; (2) issue, reissue, sell or pledge the debt obligations of the Company; (3) give a guarantee on behalf of the Company to secure performance of an obligation of any person; and (4) charge, mortgage, hypothecate, pledge or otherwise create a security interest in all or any of the currently owned or subsequently acquired property and assets of the Company, including, without limitation, real and personal property, movable and immovable property, tangible and intangible assets, book debts, right, powers, franchises and undertakings, to secure any obligation of the Company.  The Company’s Articles of Incorporation and By-Laws do not place any restrictions on the voting powers of interested directors.  With respect to the Directors of the Company, in accordance with section 3 of the By-Laws of the Company and the Canada Business Corporations Act , as long as an interested director has complied with the applicable provisions of the Canada Business Corporations Act, any director shall not be disqualified by his office from contracting with the Company, nor shall any contract or arrangement entered into by or on behalf of the Company with any director or in which any director is in any way interested be liable to be voided, nor shall any director so contracting or interested be liable to account to the Company for any profit realized from such contract or arrangement by reason of that director or officer holding that office or of the fiduciary relationship thereby established provided that such officer or director shall have complied with the provisions of the Canada Business Corporations Act

The holders of the Company’s common shares are entitled to receive notice of, and attend and vote at all, meetings of shareholders.   Currently, there are no specific rights, preferences and restrictions attaching to each of the Company’s preferred shares.  The Company may issue preferred shares in one or more series and, pursuant to Schedule A to the Company’s Articles of Incorporation, the directors may, by majority resolution, alter the Articles of Incorporation to create, define and attach rights and restrictions to the shares of each series.

Pursuant to section 6 of the Company’s By-Laws, the quorum at meetings of the Company’s shareholders shall be constituted by the presence of two shareholders entitled to vote at any such meeting holding or representing by proxy not less than one-twentieth of the shares entitled to be voted at such meeting.

There are no limitations on the rights of non-resident or foreign shareholders to hold or exercise voting rights on the securities of the Company imposed by foreign law or by the Articles of Incorporation or any other constituent document of the Company.


 
53
 


10.C. Material Contracts

The Company has entered into the material contracts listed below in the past two years:

 
1.  On June 30, 2009, the Company entered into a petroleum, natural gas and general rights conveyance with Stone Petroleums Ltd., Supernova Resources Ltd., 349385 Alberta Ltd. and Torland Ltd., whereby the Company acquired a 100% interest in a P&NG lease for a total of 1,280 hectares with the Province of Alberta.  The underlying lease acquired by the Company is Alberta P&NG lease 0405060026, and the property to which the lease pertains is located in the Bow Island area of Alberta.  Upon signing the Agreement, the Company paid the Vendor $14,124 and agreed to assume the underlying lease payments to the province of Alberta.  In addition, the Vendor is entitled to an overriding 2% royalty on all petroleum substances produced from the Property, if any.  The Vendor is entitled to a first and paramount lien upon all of the petroleum substances produced or allocated to the Property to secure the payment of any amounts due and payable to the Vendor relating to the royalty.  This lease expires on June 2, 2010 but can be renewed.

2.
On August 20, 2009, the Company acquired 100% interest in 13 P&NG leases with the Province of Alberta.  The underlying leases acquired by the Company are Alberta P&NG lease numbers 0409080267, 0409080268, 0409080271, 0409080272, 0409080274, 0409080280, 0409080283, 0409080284, 0409080286, 0409080287, 0409080288, 0409080310 and 0409080311, and the property to which the leases pertain to cover 3,328 hectares of land located in the Bow Island area of Alberta for the total amount of $38,433.
 
 
3.
On September 3, 2009, the Company acquired 100% interest in 2 P&NG leases with the Province of Alberta.  The underlying leases acquired by the Company are Alberta P&NG lease numbers 0409090046 and 0409090047, and the property to which the leases pertain to cover 512 hectares of land located in the Provost area of Alberta for the total amount of $4,337.

4.
On October 29, 2009, the Company acquired 100% interest in 1 P&NG lease with the Province of Alberta.  The underlying lease acquired by the Company is Alberta P&NG lease number 0409100445, and the property to which the lease pertains to covers 2,816 hectares of land located in the Medicine Hat area of Alberta for the total amount of $31,601.

 
5. On November 19, 2009, by way of letter agreements with each individual warrant holder, the Company and each respective warrant holder have agreed to re-extend the Warrant Commencement Date from November 26, 2009, to November 26, 2011 with respect to the Class B Warrants, and from May 26, 2010, to May 26, 2012 with respect to the Class C Warrants.  In addition, the warrant expiry date has been extended from May 26, 2010 to May 26, 2012 with respect to the Class A Warrants, and from May 26, 2011 to May 26, 2013 with respect to the Class B Warrants, and from May 26, 2012 to May 26, 2014 with respect to the Class C Warrants. All other terms of the Warrant agreements remain unchanged.

6.
On March 6, 2010, the Company surrendered P&NG lease number 0407030073 with the Province of Alberta, previously acquired from Giant Oil & Gas Inc. on July 23, 2008, due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable. This transaction decreased the Company’s total P&NG leases to 27 for an aggregate 9,847 hectares.


 
54
 


7.
On March 9, 2010, the Company surrendered P&NG lease number 0407030650 with the Province of Alberta, previously acquired from Giant Oil & Gas Inc. on July 23, 2008, due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable. This transaction decreased the Company’s total P&NG leases to 26 for an aggregate 9,591 hectares.

8.
On June 02, 2010, P&NG lease number 0405060026 expired with the Province of Alberta.  Due to the lack of potential for unconventional tight gas sands, the Company chose not to renew the lease.  The Company no longer holds any interest in the property and all amounts paid for this lease are non-refundable.  This transaction decreased the Company’s total P&NG leases to 25 for an aggregate 8,311 hectares.

9.
On July 12, 2010, the Company surrendered P&NG lease number 0405070015 with the Province of Alberta, due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for the lease are non-refundable.  This transaction decreased the Company’s total P&NG leases to 24 for an aggregate 8,055 hectares.

10.
On August 14, 2010, the Company surrendered P&NG lease number 0409080272 with the Province of Alberta, due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for the lease are non-refundable.  This transaction decreased the Company’s total P&NG leases to 23 for an aggregate 7,799 hectares.

11.
On October 13, 2010, the Company surrendered P&NG lease number 0409100445 with the Province of Alberta, due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for the lease are non-refundable.  This transaction decreased the Company’s total P&NG leases to 22 for an aggregate 4,983 hectares.

12.
On February 06, 2011, the Company surrendered P&NG lease number 0407020077 with the Province of Alberta, due to the lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for the lease are non-refundable.  This transaction decreased the Company’s total P&NG leases to 21 for an aggregate 4,855 hectares.

13.
On April 13, 2011, the Company surrendered 3 P&NG leases, 0407040015, 0407040018, and 0407040020 with the Province of Alberta, due to the lack of unconventional tight gas sands.  The Company no longer holds any interest in these properties and all amounts paid for the leases are non-refundable.  This transaction decreased the Company’s total P&NG leases to 18 for an aggregate 4,284 hectares.

10.D. Exchange Controls

There are no government laws, decrees or regulations in Canada, which restrict the export or import of capital or, subject to the following sentence, which affect the remittance of dividends or other payments to nonresident holders of our common shares. However, any such remittance to a resident of the United States is generally subject to non-resident tax pursuant to Article X of the 1980 Canada-United States Income Tax Convention. See “Material Income Tax Considerations” above for additional discussion on tax matters.

 
55
 


There are currently no limitations of general application imposed by Canadian federal or provincial laws on the rights of non-residents of Canada to hold or vote our common shares. There are also no such limitations imposed by the articles of incorporation with respect to our common shares. There are, however, certain requirements on the acquisition of control of our securities by non-residents of Canada. The Investment Canada Act requires notification to and, in certain cases, advance review and approval by, the Government of Canada, of the acquisition by a “non-Canadian” of “control” of a “Canadian business”, all as defined in the Investment Canada Act. Generally speaking, in order for an acquisition to be subject to advance review and approval, the asset value of the Canadian business being acquired must meet or exceed certain monetary thresholds.

10.E. Taxation

Canadian Federal Income Tax Considerations

The following is a brief summary of some of the principal Canadian federal income tax consequences to a holder of common shares of the Company (a "U.S. Holder") who deals at arm's length with the Company, holds the shares as capital property and who, for the purposes of the Income Tax Act (Canada) (the "Act") and the Canada – United States Income Tax Convention (the "Treaty"), is at all relevant times resident in the United States, is not and is not deemed to be resident in Canada and does not use or hold and is not deemed to use or hold the shares in carrying on a business in Canada. Special rules, which are not discussed below, may apply to a U.S. Holder that is an insurer that carries on business in Canada and elsewhere.

Under the Act and the Treaty, a U.S. Holder of common shares will generally be subject to a 15% withholding tax on dividends paid or credited or deemed by the Act to have been paid or credited on such shares. The withholding tax rate is 5% where the U.S. Holder is a corporation that beneficially owns at least 10% of the voting shares of the Company and the dividends may be exempt from such withholding in the case of some U.S. Holders such as qualifying pension funds and charities.

In general, a U.S. Holder will not be subject to Canadian income tax on capital gains arising on the disposition of shares of the Company unless (i) at any time in the five-year period immediately preceding the disposition, 25% or more of the shares of any class or series of the capital stock of the Company was owned by (or was under option of or subject to an interest of) the U.S. holder, persons with whom the  U.S. holder did not deal at arm's length, or the U.S holder, together with such persons and (ii) the value of the common shares of the Company at the time of the disposition derives principally from real property (as defined in the Treaty) situated in Canada. For this purpose, the Treaty defines real property situated in Canada to include rights to explore for or exploit mineral deposits and other natural resources situated in Canada, rights to amounts computed by reference to the amount or value of production from such resources, certain other rights in respect of natural resources situated in Canada and shares of a corporation the value of whose shares is derived principally from real property situated in Canada.

A U.S. Holder who is subject to Canadian income tax in respect of a capital gain realized on a disposition of a common share must include one-half of the capital gain (taxable capital gain) in computing the Holder's taxable income earned in Canada.  The Holder may, subject to certain limitations, deduct one-half of any capital loss (allowable capital loss) arising on a disposition of taxable Canadian property from taxable capital gains realized in the year of disposition in respect of taxable Canadian property and, to the extent not so deductible, from such taxable capital gains realized in any of the three preceding years or any subsequent year.


 
56
 


United States Taxation

For federal income tax purposes, an individual who is a citizen or resident of the United States or a domestic corporation ("U.S. Taxpayer") will recognize a gain or loss on the sale of the Company's common shares equal to the difference between the proceeds from such sale and the adjusted tax basis of the common shares.  The gain or loss will be a capital gain or capital loss if the Company's common shares are a capital asset in U.S. Taxpayer's hands.

For federal income tax purposes, a U.S. Taxpayer will be required to include in gross income dividends received on the Company's common shares.  A U.S. Taxpayer who pays Canadian tax on a dividend on common shares will be entitled, subject to certain limitations, to a credit (or alternatively, a deduction) against federal income tax liability.  A domestic corporation that owns at least 10% of the voting shares should consult its tax advisor as to applicability of the deemed paid foreign tax credit with respect to dividends paid on the Company's common shares.

Under a number of circumstances, United States Investor acquiring shares of the Company may be required to file an information return with the Internal Revenue Service Center where they are required to file their tax returns with a duplicate copy to the Internal Revenue Service Center, Philadelphia, PA 19255.  In particular, any United States Investor who becomes the owner, directly or indirectly, of 10% or more of the shares of the Company will be required to file such a return.  Other filing requirements may apply, and United States Investors should consult their own tax advisors concerning these requirements.

The US Internal Revenue Code provides special anti-deferral rules regarding certain distributions received by US persons with respect to, and sales and other dispositions (including pledges) of stock of, a passive foreign investment company.  A foreign corporation, such as the Company, will be treated as a passive foreign investment company if 75% or more of its gross income is passive income for a taxable year or if the average percentage of its assets (by value) that produce, or are held for the production of, passive income is at least 50% for a taxable year.  The Company believes that it may be a passive foreign investment company for the taxable year ended December 31, 2010.  Individual investors should consult with there own tax advisors regarding the tax implications in their own situation.

10.F. Dividends and Paying Agents

--- Not applicable ---

10.G. Statement by Experts

--- Not applicable ---

ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FOREIGN CURRENCY EXCHANGE RATE SENSITIVITY

The Company's operating expenses and liabilities are primarily incurred in Canadian dollars.

To the extent the Company engages in transactions in US dollars, the results of the Company’s operations are subject to currency transaction risk and currency translation risk. The operating results and financial position of the Company are reported in Canadian dollars in the Company’s financial statements. The fluctuation of the US dollar in relation to the Canadian dollar will consequently have an impact upon the operations of the Company and may also affect the value of the Company’s assets and the amount of shareholders’ equity.

 
57
 



The Company’s functional currency is the Canadian dollar and its expenses are predominantly incurred in Canadian dollars. The Company incurs a relatively small portion of its expenses in U.S. dollars.
The Company is exposed to foreign currency risk with respect to its foreign exchange derivative. The foreign exchange derivative arises from the Company having issued stock options during 2008 with an exercise price stated in a currency other than the Canadian dollar. For the year ended December 31, 2010, the Company incurred a mark-to-market unrealized loss on the foreign exchange derivative of $80. As the stock options exercise price is stated in the US dollar, a fluctuation of $0.01 in the difference between the futures price and the current exchange rate for the US dollar to Canadian dollar exchange rate could result in a $6,000 fluctuation in earnings.

INTEREST RATE SENSITIVITY

The Company currently has no significant long-term or short-term debt requiring interest payments. Thus, the Company has not entered into any agreement or purchased any instrument to hedge against possible interest rate risks at this time.

The Company's interest earning investments are primarily short-term, or can be held to maturity, and thus, any reductions in carrying values due to future interest rate declines are believed to be immaterial. However, reductions in interest rates will reduce the interest income from these investments.

ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

12.A. Debt Securities

The Company has no debt outstanding.

12.B. Warrants and Rights

We have warrants outstanding to purchase an aggregate of 33,540,875 common shares. Of these warrants, 10,440,875 are exercisable at $0.25 per share, which are exercisable beginning May 26, 2009 and expire May 26, 2012; 11,550,000 are exercisable at $0.50 per share, which are exercisable beginning November 26, 2011 and expire May 26, 2013; and 11,550,000 are exercisable at $1.00 per share, which are exercisable beginning May 26, 2012 and expire May 26, 2014. The warrants are non-transferable and provide for a cashless exercise option.

We have the right, in our sole and absolute discretion, to (i) accelerate the exercise date of the warrants to a date which is prior to the date the warrants can be exercised and /or (ii) reduce the exercise price. If we exercise our right to do so, we shall provide notice thereof to the warrant holder.

12.C. Other Securities

--- Not applicable ---

12.D. American Depository Shares

--- Not applicable ---



 
58
 


PART II

ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

There have been no defaults, dividend arrearages or delinquencies.

ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY
          HOLDERS AND USE OF PROCEEDS

There have been no modifications to securities of any class of the Company.

ITEM 15.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange Act”), the Company’s management carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures as of December 31, 2010, being the date of the Company’s most recently completed fiscal year end. This evaluation was carried out under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, Mr. Keith Diakiw.  Based upon that evaluation, our Principal Executive Officer concluded that our disclosure controls and procedures are not effective due to the material weakness noted in the Internal Controls over Financial Reporting below.

Internal Controls over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision of the Company’s Principal Executive Officer, the Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles (“GAAP”). The Company’s controls include policies and procedures that:

¨  
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
¨  
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP; and
¨  
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the annual financial statements or interim financial statements.

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


 
59
 


Management conducted an evaluation of the design and operation of the Company’s internal control over financial reporting as of December 31, 2010, based on the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on this evaluation, management concluded that our internal control over financial reporting was not effective as of December 31, 2010 due to the following material weakness:

·  
Our company’s administration is composed of a small number of administrative individuals resulting in a situation where limitations on segregation of duties exist. In order to remedy this situation we would need to hire additional staff to provide greater segregation of duties. Currently, it is not feasible to hire additional staff to obtain optimal segregation of duties.  Management will reassess this matter in the following year to determine whether improvement in segregation of duty is feasible.

Limitations of Controls and Procedures

The Company’s management, including the Principal Executive Officer and Principal Financial Officer, believe that any disclosure controls and procedures or internal controls over financial reporting, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, they cannot provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been prevented or detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by unauthorized override of the control. The design of any systems of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Accordingly, because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.

Attestation Report of Registered Public Accounting Firm

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


Changes in Internal Controls over Financial Reporting

During the most recently completed fiscal year ended December 31, 2010, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to affect, the Company’s internal control over financial reporting.


 
60
 


ITEM 16.  RESERVED

ITEM 16A.  AUDIT COMMITTEE FINANCIAL EXPERT

As of September 2008, the Board of Directors is empowered to appoint an audit committee for the Corporation.  Currently the Board of Directors functions as the audit committee.

ITEM 16B.  CODE OF ETHICS

The Company has not adopted a formal code of ethics that applies to the Company's Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer or Controller, persons performing similar functions and other officers of the Company.

Item 16C. PRINCIPAL ACCOUNTING FEES AND SERVICES

The Audit Committee is directly responsible for the appointment, compensation and oversight of auditors; the audit committee has in place procedures for receiving complaints and concerns about accounting and auditing matters; and has the authority and the funding to engage independent counsel and other outside advisors.

The Audit Committee may delegate to one or more designated members of the Audit Committee the authority to grant pre-approvals required by this policy/procedure.  The decisions of any Audit Committee member to whom authority is delegated to pre-approve a service shall be presented to the full Audit Committee at its next scheduled meeting.

Fees, including reimbursements for expenses, for professional services rendered by BDO Canada LLP in 2010 and Smythe Ratcliffe LLP in 2009, the Company’s auditors. Their pre-approved fees to the Company (including an estimate of year-end audit fees) are set forth below:

Fiscal Year ended December 31, 2010 and 2009
  
Fiscal Year
    
Fiscal Year
  
Principal Accountant Fees and Services
  
2010
    
2009
  
Audit Fees
   $ 25,000     $ 28,650  
Audit Related Fees
  
$Nil
    
$Nil
  
Tax Fees
  
$Nil
     $ 1,475  
All Other Fees
  
$Nil
    
$Nil
  
Total
   $ 25,000     $ 30,125  

Audit related fees relate to services provided to review the Company’s annual financial statements and related disclosures.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

--- Not applicable ---


 
61
 


 
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

There have been no purchases of the Company's common shares by the Company or affiliated purchasers during the period covered by this report.


ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
 
In September 2010, our board of directors approved the appointment of BDO Canada LLP as our independent accountants to audit our financial statements and dismissed Smythe Ratcliffe LLP, Chartered Accountants, as our independent accountants.
 
During our most recent fiscal year, and any subsequent interim periods preceding the change in accountants, there were no disagreements with Smythe Ratcliffe LLP, Chartered Accountants, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope procedure. The report on the financial statements prepared by Smythe Ratcliffe LLP, Chartered Accountants, for the last fiscal year did not contain an adverse opinion or a disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope or accounting principles, except that such report on our financial statements for the year ended December 31, 2009 contained an explanatory paragraph in respect to uncertainty as to our ability to continue as a going concern.  The decision to change independent accountants was based on the determination by our board of directors that such a step was appropriate given the growth of our company and the related growth in our demands, and that such expertise required can be provided by a national accounting firm. There were no events that led to disagreements or differences of opinion between the Company and the former accountant.
 

We have engaged the firm of BDO Canada LLP, as of September 2010. During our two most recent fiscal years, and any subsequent interim periods preceding the change in accountants, BDO Canada LLP was not consulted on any matter relating to application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements.


Item 16G. Corporate Governance

We are subject to a variety of corporate governance guidelines and requirements enacted by the SEC under its rules and those mandated by the U.S. Sarbanes Oxley Act of 2002. Today, we are in compliance with the corporate governance legal requirements in the United States. We are listed on the NASDAQ and, although we are not required to comply with all of the Exchange’s corporate governance requirements to which we would be subject if we were a U.S. corporation, our governance practices comply with the NASDAQ’s requirements as if we were a U.S. domestic issuer.



 
62
 


PART III

ITEM 17.  FINANCIAL STATEMENTS

The Company's financial statements are stated in Canadian dollars (CDN$) and are prepared in accordance with Canadian Generally Accepted Accounting Principles (GAAP), the application of which, in the case of the Company, conforms in all material respects for the periods presented with United States GAAP, except as discussed in footnotes to the financial statements.

The financial statements as required under ITEM 17 are attached hereto and found immediately following the text of this Annual Report.  The audit report of BDO Canada LLP, is included herein immediately preceding the audited financial statements.

The previous year financial statements have been audited by Smythe Ratcliffe Chartered Accountant, the predecessor auditor, who expressed an unqualified opinion on June 29, 2010.


ITEM 18.  FINANCIAL STATEMENTS

The Company has elected to provide financial statements pursuant to ITEM 17.
 
 

 
63
 













POWER OIL & GAS INC.
(An Exploration Stage Company)

Financial Statements
December 31, 2010 and 2009
(Expressed in Canadian Dollars)








Index
Page
   
Report of Independent Registered Public Accounting Firm
65
   
Financial Statements
  
   
Balance Sheets
67
   
Statements of Operations and Comprehensive Loss
68
   
Statements of Shareholders’ Equity
69
   
Statements of Cash Flows
70
   
Notes to Financial Statements
71 – 85



 
64
 



                                           BDO Canada LLP                                       600 Cathedral Place
925 West Georgia Street
Vancouver, BC, Canada V6C 3L2
Telephone:  (604) 688-5421
Telefax:  (604) 688-5132
E-mail:  vancouver@bdo.ca
www.bdo.ca


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Directors and Stockholders,
Power Oil & Gas Ltd.
(An Exploration Stage Company)

We have audited the accompanying balance sheet of Power Oil & Gas Ltd. (the “Company”) (An Exploration Stage Company) as at December 31, 2010, and the statements of operations and comprehensive loss, cash flows and shareholders’ equity for the year ended December 31, 2010, and a summary of significant accounting policies and other explanatory information.
 
 
Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian generally accepted accounting principles and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, these financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2010 and the results of its operations and its cash flows for each of the year ended December 31, 2010 in accordance with accounting principles generally accepted in the United States.


 
65
 


Emphasis of Matter

Without qualifying our opinion, we draw attention to Note 1 in the financial statements, which indicates that the Company has an accumulated deficit during the exploration stage of $3,535,681 as at December 31, 2010.  These conditions, along with other matters as set forth in Note 1, indicate the existence of a material uncertainty that may cast substantial doubt upon the Company’s ability to continue as a going concern.

Other Matters

The financial statements of the Company for the year ended December 31, 2009, were audited by another auditor who expressed an unmodified opinion on those statements on June 29, 2010.

   
 
/s/ BDO Canada LLP
 
 
Chartered Accountants
  
   
Vancouver, Canada
  
June 29, 2011
  


 
66
 


POWER OIL & GAS INC.
(An Exploration Stage Company)
Balance Sheets
December 31
(Expressed in Canadian Dollars)

   
2010
    
2009
  
Assets
            
             
Current
            
  Cash
   $ 4,128     $ 3,644  
  Goods and services tax receivable
     -       2,119  
  Prepaid expenses
     1,010       1,010  
                 
      5,138       6,773  
Oil and Gas Property Interests (note 4)
     116,748       166,463  
                 
    $ 121,886     $ 173,236  
                 
Liabilities and Shareholders’ Equity (Deficiency)
                
                 
Current Liabilities
                
  Accounts payable and accrued liabilities
   $ 35,004     $ 36,540  
 
                
                 
 
     35,004       36,540  
                 
Shareholders’ Equity
                
                 
Capital Stock
                
  Authorized
                
    1,000,000,000 common shares without par value
                
    1,000,000,000 preferred shares without par value
                
  Issued and outstanding
                
    42,818,875 (2009 - 42,140,935) common shares (notes 6 and 7)
     411,756       242,271  
    Obligation to issue shares (note 5)
     -       119,485  
  Contributed surplus
     3,210,807       2,339,480  
  Deficit accumulated during the exploration stage
     (3,535,681 )     (2,564,540 )
                 
      86,882       136,696  
                 
    $ 121,886     $ 173,236  

Nature of Operations and Going Concern (note 1)

Approved on behalf of the Board:

“Keith Diakiw”
__________________________________
Keith Diakiw, President

“Pratt Barndollar”
__________________________________
Pratt Barndollar, Director

 
See notes to financial statements.
 
67
 

POWER OIL & GAS INC.
(An Exploration Stage Company)
Statements of Operations and Comprehensive Loss
Years Ended December 31
(Expressed in Canadian Dollars)

   
2010
    
2009
    
2008
  
Expenses
                  
Stock-based compensation (note 6(d))
   $ 871,327     $ 2,272,427     $ 67,053  
Professional fees
     19,600       30,125       36,250  
Office and sundry
     5,835       12,245       5,210  
Consulting fees (note 9)
     4,500       8,800       -  
   Interest
     -       2,340       -  
Directors’ fees (note 9)
     -       1,500       15,000  
Listing and filing fees
     1,532       185       5,948  
Transfer agent fees
     101       218       1,650  
                         
                         
Total Expenses
     902,895       2,327,840       131,111  
Other
                        
Interest income
     -       -       (151 )
Foreign exchange loss
     15       80       400  
Surrendered oil and gas property
 interests (note 4)
     68,231       -       -  
                         
Net Loss and Comprehensive Loss for Year
   $ (971,141 )   $ (2,327,920 )   $ (131,360 )
                         
Basic and Diluted Loss Per Share
   $ (0.02 )   $ (0.06 )   $ (0.01 )
                         
Weighted Average Number of Common Shares Outstanding
     42,640,866       41,989,725       41,709,750  


 
See notes to financial statements.
 
68
 

POWER OIL & GAS INC.
(An Exploration Stage Company)
Statements of Shareholders’ Equity
Years Ended December 31
(Expressed in Canadian Dollars)

   
Number of Common Shares
    
Capital
Stock
    
 
 
Shares to be Issued
    
Contributed
Surplus
    
Deficit Accumulated During the Exploration Stage
    
Total
  
                                     
Balance, December 31, 2007
     41,709,750       134,475       -       -       (105,260 )     29,215  
Stock-based compensation
     -       -       -       67,053       -       67,053  
Net loss for year
     -       -       -       -       (131,360 )     (131,360 )
                                                 
Balance, December 31, 2008
     41,709,750       134,475       -       67,053       (236,620 )     (35,092 )
Warrants exercised
     431,185       107,796       -       -       -       107,796  
Shares to be issued  via exercise of warrants (note  5)
     -       -       119,485       -       -       119,485  
Stock-based compensation (note 6(d))
     -       -       -       2,272,427       -       2,272,427  
Net loss for year
     -       -       -       -       (2,327,920 )     (2,327,920 )
                                                 
Balance, December 31, 2009
     42,140,935       242,271       119,485       2,339,480       (2,564,540 )     136,696  
Warrants exercised
     200,000       50,000       -       -       -       50,000  
Shares issued on obligation (note 5)
     477,940       119,485       (119,485 )     -       -       -  
Stock-based compensation (note 6(d))
     -       -       -       871,327       -       871,327  
Net loss for year
     -       -       -       -       (971,141 )     (971,141 )
                                                 
Balance, December 31, 2010
     42,818,875     $ 411,756     $ -     $ 3,210,807     $ (3,535,681 )   $ 86,882  


 
See notes to financial statements.
 
69
 

POWER OIL & GAS INC.
(An Exploration Stage Company)
Statements of Cash Flows
Years Ended December 31
(Expressed in Canadian Dollars)

   
2010
    
2009
    
2008
  
Operating Activities
                  
Net loss for the year
   $ (971,141 )   $ (2,327,920 )   $ (131,360 )
Adjustment to reconcile net loss to net cash used in operating activities
                        
Stock-based compensation
     871,327       2,272,427       67,053  
   Surrendered oil and gas property interests
     68,231       -       -  
Changes in non-cash working capital:
                        
Good and services tax receivables
     2,119       (1,390 )     (193 )
Interest on bridge loan settled by obligation to issue shares
     -       2,340       -  
                         
Accounts payable and accrued liabilities
     (1,536 )     18,127       8,952  
                         
Cash Used in Operating Activities
     (31,000 )     (36,416 )     (55,548 )
                         
Investing Activities
                        
Proceeds from short-term investments
     -       -       20,000  
Expenditures on oil and gas property interests
     (18,516 )     (124,347 )     (32,782 )
                         
Cash Used in Investing Activities
     (18,516 )     (124,347 )     (12,782 )
                         
Financing Activities
                        
Issuance of capital stock upon exercise of warrants
     50,000       107,796       -  
Bridge loan payable
     -       -       117,145  
                         
Cash Provided by Financing Activities
     50,000       107,796       177,145  
                         
Inflow (Outflow) of Cash
     484       (52,967 )     48,815  
Cash, Beginning of Year
     3,644       56,611       7,796  
                         
Cash, End of Year
   $ 4,128     $ 3,644     $ 56,611  
                         
Supplementary Information
                        
Obligation to issue shares in settlement of bridge loan (note 6)
   $ -     $ 119,485     $ -  

No taxes or interest paid in 2010, 2009 or 2008.

 
See notes to financial statements.
 
70
 
POWER OIL & GAS INC.
(An Exploration Stage Company)
Notes to Financial Statements
Years Ended December 31, 2010, 2009 and 2008
(Expressed in Canadian Dollars)



1.  
NATURE OF OPERATIONS AND GOING CONCERN

Power Oil & Gas Inc. (the “Company”) was incorporated under the Canada Business Corporations Act on April 25, 2005.

The Company is primarily engaged in the acquisition and exploration of oil and gas property interests in North America.

At December 31, 2010, the Company had a working capital deficiency of $29,866 (2009 - $29,767) and an accumulated deficit of $3,535,681 (2009 - $2,564,540).  The Company will require additional financing or outside participation to undertake further acquisitions and exploration and subsequent development of future oil and gas property interests and to meet its administrative overhead costs in 2011.

The Company’s financial statements have been prepared on a going-concern basis. The application of the going-concern basis is dependent upon the Company’s ability to achieve and maintain future profitable operations and receive continued financial support from its creditors and shareholders or raise additional equity financing. The current financial equity market conditions and the challenging funding environment make it difficult to raise funds by placement of common shares. There is no assurance that the Company will be successful with any financing ventures. Management is actively engaged in the review and due diligence on new projects, is seeking to raise the necessary capital to meet its funding requirements and has undertaken available cost cutting measures. There can be no assurance that management’s plan will be successful. Therefore a significant uncertainty exists in relation to the Company’s ability to continue as a going-concern.

If the going-concern assumption were not appropriate for these financial statements then adjustments would be necessary in the carrying values of assets and liabilities, the reported expenses and the balance sheet classifications used. Such adjustments would be material.

The business of oil and gas exploration involves a high degree of risk and there can be no assurance that current exploration programs will result in profitable operations. The Company has no revenue, and has significant cash requirements to meet its administrative overhead and maintain its oil and gas interests. The recoverability of amounts shown for oil and gas property interests is dependent on several factors. These include the discovery of economically recoverable reserves, the ability of the Company to obtain the necessary financing to complete the development of these properties, and future profitable production or proceeds from disposition of oil and gas interests.

2.  
SIGNIFICANT ACCOUNTING POLICIES

The financial statements of the Company have been prepared in accordance with Canadian Generally Accepted Accounting Principles (“GAAP”). The functional and reporting currency of the Company is the Canadian dollar.  Canadian GAAP differs in certain respects from accounting principles generally accepted in the United States (see note 11). The significant accounting policies are summarized as follows.

 
71
 
POWER OIL & GAS INC.
(An Exploration Stage Company)
Notes to Financial Statements
Years Ended December 31, 2010, 2009 and 2008
(Expressed in Canadian Dollars)





2.           SIGNIFICANT ACCOUNTING POLICIES (Continued)

(a)  
Use of estimates

The preparation of financial statements in conformity with Canadian GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses for the reporting period.  Significant areas requiring the use of estimates include the carrying value of oil and gas property interests, estimates of accrued liabilities, variables used in the calculation of stock-based compensation and the determination of the valuation allowance for future income tax assets.  Management believes the estimates are reasonable; however, actual results could differ from these estimates and could impact future results of operations and cash flows.

(b)  
Financial instruments

The Company classifies its financial instruments into one of these five categories: held-for-trading, held-to-maturity, loans and receivables, available-for-sale financial assets or other financial liabilities. All financial instruments are initially measured at fair value. Subsequent measurement and changes in fair value will depend on their initial classification as follows: held-for-trading financial assets are measured at fair value and changes in fair value are recognized in net income; available-for-sale financial instruments are measured at fair value with changes in fair value recorded in other comprehensive income until the investment is no longer recognized or impaired, at which time the amounts would be recorded in net income. All other financial instruments which are classified as loans and receivables, held-to-maturity investments and other financial liabilities measured at amortized cost.

Transaction costs that are directly attributable to the acquisition or issuance of financial instruments that are classified as other than held-for-trading, which are expensed as incurred, are included in the initial carrying value of such instruments.

In order to measure changes in fair value, the fair value hierarchy under GAAP distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels and adjustments to fair value must be based on one of the following measures:

·  
Level one – Quoted market prices in active markets for identical assets or liabilities;
·  
Level two – Inputs other than level one inputs that are either directly or indirectly observable, and;
·  
Level three – Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.

(c)  
Oil and gas property interests

The Company follows the full cost method of accounting for petroleum and natural gas interests whereby all costs of exploration for and development of petroleum and natural gas reserves are capitalized.  These costs include leasehold acquisition costs, geological and geophysical expenses, drilling costs of successful as well as unsuccessful wells and overhead charges related directly to exploration and development activities.

 
72
 
POWER OIL & GAS INC.
(An Exploration Stage Company)
Notes to Financial Statements
Years Ended December 31, 2010, 2009 and 2008
(Expressed in Canadian Dollars)






2.  
SIGNIFICANT ACCOUNTING POLICIES (Continued)

(c)  
Oil and gas property interests – (continued)

If the interests are sold, the proceeds of the interests will be applied against capitalized costs unless such a sale significantly impacts the rate of depletion.

The Company defers expenditures related to the acquisition, exploration and development of its exploration properties. If an exploration property is abandoned, continued exploration is not planned in the foreseeable future or when other events and circumstances indicate that the carrying amount may not be recovered, the accumulated costs and expenditures are written down. Deferred expenditures relating to exploration projects represent costs to be charged to operations in the future and do not necessarily reflect the present or future values of the particular projects. Development projects include those projects where development alternatives are in progress and/or studies have been completed suggesting that the properties are economically viable. The Company reviews the carrying amount of development projects when events or circumstances suggest that the carrying amount may not be recoverable.

The amounts shown for petroleum and natural gas interests represent costs incurred to date less depletion and impairment if any, and do not necessarily reflect present or future values.

(d)  
Future income taxes

The Company follows the asset and liability method of accounting for future income taxes.  Under this method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, and losses carried forward.  Future tax assets and liabilities are measured using 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 operations in the period in which the change is enacted or substantially enacted under certain circumstances.  The amount of future income tax assets is limited to the amount of the benefit that is more likely than not to be realized.

(e)  
Stock-based compensation

The Company accounts for stock-based compensation using a fair value based method with respect to all stock-based payments to directors and non-employees.  For directors, the fair value of the option is measured at the date of grant.  For non-employees, the fair value of the options is measured on the earlier of the date at which the counterparty performance is complete, the date the performance commitment is reached or the date at which the equity instruments are granted if they are fully vested and non-forfeitable.  For directors and non-employees, the fair value of the option is charged either to operations or mineral property interests, with the offset credit to contributed surplus, over the vesting period.  If and when the stock options are exercised, the applicable amounts from contributed surplus are transferred to capital stock.

 
73
 
POWER OIL & GAS INC.
(An Exploration Stage Company)
Notes to Financial Statements
Years Ended December 31, 2010, 2009 and 2008
(Expressed in Canadian Dollars)




2.           SIGNIFICANT ACCOUNTING POLICIES (Continued)

(f)  
Loss per share

Basic loss per share is calculated using the weighted average number of common shares outstanding during the year. The Company uses the treasury stock method for calculating diluted loss per share. Under this method, the dilutive effect on earnings per share is calculated presuming the exercise of outstanding options, warrants and similar instruments. It assumes that the proceeds would be used to purchase common shares at the average market price during the period. However, the calculation of diluted loss per share excludes the effects of various conversions and exercise of options and warrants that would be anti-dilutive.

Diluted loss per share as at December 31, 2010 did not include 200,000 options or 33,540,875 warrants as they were determined to be anti-dilutive.

Shares held in escrow, other than where their release is subject to the passage of time, are not included in the calculation of the weighted average number of common shares outstanding.

(g)  
Asset retirement obligations (“ARO”)

The Company recognizes an estimate of the liability associated with an ARO in the financial statements at the time the liability can be reasonably estimated. The estimated fair value of the ARO is recorded as a long-term liability, with a corresponding increase in the carrying amount of the related asset.  The capitalized amount is depleted on a unit-of-production basis based upon proven oil and gas reserves.  The liability amount is increased each reporting period due to the passage of time and the amount of accretion is charged to operations in the period.  The ARO can also increase or decrease due to changes in the estimates of timing of cash flows or changes in the original estimated undiscounted cost.  Actual costs incurred upon settlement of the ARO are charged against the ARO to the extent of the liability recorded.  At present, the Company has no material ARO’s to record in the financial statements.

(h)  
Foreign currency transactions

Amounts held or transacted in foreign currency are translated into Canadian dollars as follows:

(i)  
Monetary assets and liabilities at the rate of exchange in effect at the balance sheet date;

(ii)  
Non-monetary items at the historical exchange rate; and

(iii)  
Expenses, at the exchange rate on the date of the transaction.

Gains and losses arising from translation are included in the current year’s loss.

 
74
 
POWER OIL & GAS INC.
(An Exploration Stage Company)
Notes to Financial Statements
Years Ended December 31, 2010, 2009 and 2008
(Expressed in Canadian Dollars)





 
75
 
POWER OIL & GAS INC.
(An Exploration Stage Company)
Notes to Financial Statements
Years Ended December 31, 2010, 2009 and 2008
(Expressed in Canadian Dollars)



2.           SIGNIFICANT ACCOUNTING POLICIES (Continued)

(i)  
Future accounting change

International Financial Reporting Standards (“IFRS”)

In 2008, the Canadian Accounting Standards Board (“AcSB”) confirmed that the transition to IFRS from Canadian GAAP will be effective for fiscal years beginning on or after January 1, 2011 for publicly accountable enterprises.  The effective date will require the restatement for comparative purposes of amounts reported by the Company for the interim periods and for the year ended December 31, 2010 and earlier where applicable.  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.

3.  
FINANCIAL INSTRUMENTS

The Company’s financial instruments consist of cash, accounts payable and accrued liabilities.  The Company has designated its cash as held-for-trading; and accounts payable and accrued liabilities as other liabilities.

(a)  
Fair value

The carrying values of cash and accounts payable and accrued liabilities approximate their fair values because of the short-term maturity of these financial instruments.

(b)  
Foreign currency risk

The Company is not exposed to significant foreign currency risk.

(c)  
Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages its liquidity risk by forecasting cash flows required by operations and anticipated investing and financing activities. At December 31, 2010, the Company had accounts payable, other than accrued liabilities, of $16,485 (2009 - $11,541), which were due within 30 days. The Company does not have sufficient cash at December 31, 2010 to meet short-term business requirements such as overhead costs and oil and gas lease payments. Management is currently planning on equity, third-party and related party financing to manage its liquidity and settlement of liabilities. The Company will be required to raise additional debt or equity to meet its obligations for 2011. There is no assurance that management’s strategy will be successful.

(d)  
Interest rate risk

The Company is not exposed to interest rate risk due to the short-term nature of its monetary assets and liabilities.  Future cash flows from interest income on cash will be affected by interest rate fluctuations.

(e)  
Other price risk

Other price risk is the risk that fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices, other than those arising from interest rate

 
76
 
POWER OIL & GAS INC.
(An Exploration Stage Company)
Notes to Financial Statements
Years Ended December 31, 2010, 2009 and 2008
(Expressed in Canadian Dollars)




3.           FINANCIAL INSTRUMENTS - (Continued)

(e)           Other price risk (continued)

risk or foreign currency risk. The Company is not exposed to significant other price risk on its financial instruments.

(f)  
Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company is exposed to minimal credit risk with respect to its cash as this financial instrument is held at a major Canadian financial institution.

4.  
OIL AND GAS PROPERTY INTERESTS

The cumulative costs of the Company’s unproven oil and gas interests are as follows:

   
2010
    
2009
  
             
Balance, beginning of the year
   $ 166,463     $ 42,116  
                 
Lease and acquisition costs
     17,441       96,091  
Geological and geophysical
     1,075       27,628  
Camp, field supplies and travel
     -       628  
                 
Total costs for the year
     18,516       124,347  
 
Surrendered oil and gas property interest
     (68,231 )     -  
                 
Balance, end of the year
   $ 116,748     $ 166,463  

On June 14, 2006, the Company entered into a petroleum, natural gas and general rights conveyance with Stone Petroleums Ltd., Supernova Resources Ltd., 349385 Alberta Ltd. and Torland Ltd. whereby the Company acquired a 100% interest in a petroleum and natural gas (“P&NG”) lease with the government of Alberta.  The underlying lease acquired by the Company is Alberta P&NG lease 0405070015, and the property to which the lease pertains is located in the Milk River area of Alberta. Upon signing the Agreement, the Company paid the Vendor $7,500, paid closing costs of $938 and agreed to assume the underlying lease payments to the Province of Alberta.  In addition, the Vendor is entitled to an overriding 5% royalty on all petroleum substances produced from the Property, if any.  The Vendor is entitled to a first and paramount lien upon all of the petroleum substances produced or allocated to the Property to secure the payment of any amounts due and payable to the Vendor relating to the royalty.

On July 12, 2010, the Company surrendered the lease with the Province of Alberta due to lack of potential for unconventional tight gas sands.  The Company no longer holds any interest in the property and all amounts paid for the lease are non-refundable. As a result, the Company wrote off the carrying amount of these leases totalling $23,443.


 
77
 
POWER OIL & GAS INC.
(An Exploration Stage Company)
Notes to Financial Statements
Years Ended December 31, 2010, 2009 and 2008
(Expressed in Canadian Dollars)




4.           OIL AND GAS PROPERTY INTERESTS (Continued)

On July 23, 2008, the Company entered into an assumption agreement with Giant Oil & Gas Inc., a company related by common directors, whereby the Company acquired all of the rights and obligations of ten Alberta Crown Petroleum and Natural Gas Lease Agreements for the total amount of $30,331, which was equal to the carrying value of the ten leases.

On June 30, 2009, the Company entered into a petroleum, natural gas and general rights conveyance (the “Agreement”) with Stone Petroleums Ltd., Supernova Resources Ltd., 349385 Alberta Ltd. and Torland Ltd. (together, the “Vendor”) whereby the Company acquired a 100% interest in a petroleum and natural gas (“PN&G”) lease with the government of Alberta.  The underlying lease acquired by the Company is Alberta P&NG lease 0405060026 (the “Lease”), and the property to which the Lease pertains is located in the Bow Island area of Alberta (the “Property”).  Upon signing the Agreement, the Company paid the Vendor $14,124 and agreed to assume the underlying lease payments to the province of Alberta.  In addition, the Vendor is entitled to an overriding 2% royalty on all petroleum substances produced from the Property, if any.  The Vendor is entitled to a first and paramount lien upon all of the petroleum substances produced or allocated to the Property to secure the payment of any amounts due and payable to the Vendor relating to the royalty.

On August 20, 2009, the Company acquired 100% interest in 13 petroleum and natural gas (“P&NG”) leases with the government of Alberta.  The underlying leases acquired by the Company are Alberta PN&G lease numbers 0409080267, 0409080268, 0409080271, 0409080272, 0409080274, 0409080280, 0409080283, 0409080284, 0409080286, 0409080287, 0409080288, 0409080310 and 0409080311 (the “Leases”), and the property to which the Leases pertain are located in the Bow Island area of Alberta for the total amount of $38,433.
 
 
On September 3, 2009, the Company acquired 100% interest in 2 petroleum and natural gas (“P&NG”) leases with the government of Alberta.  The underlying leases acquired by the Company are Alberta PN&G lease numbers 0409090046 and 0409090047 (the “Leases), and the property to which the Leases pertain are located in the Provost area of Alberta for the total amount of $4,337.

On October 29, 2009, the Company acquired 100% interest in 1 petroleum and natural gas (“P&NG”) lease with the government of Alberta.  The underlying lease acquired by the Company is Alberta PN&G lease number 0409100445 (the “Lease), and the property to which the Lease pertains is located in the Medicine Hat area of Alberta for the total amount of $31,601.

In a series of transactions from March 06, 2010 to October 13, 2010, the Company surrendered its rights and obligations to six Alberta Crown and Natural Gas Leases for the combined annual lease payment amount of $12,544. Including the July 12, 2010 decision, the total accumulated oil and property interests surrendered and written off amounted to $44,788.

Total annual lease payments for 2010 paid to the Province of Alberta amounted to $18,337 (2009 - $7,586). As at December 31, 2010, the Company has 22 leases requiring total annual lease payments of $17,441 through to 2012.



 
78
 
POWER OIL & GAS INC.
(An Exploration Stage Company)
Notes to Financial Statements
Years Ended December 31, 2010, 2009 and 2008
(Expressed in Canadian Dollars)




5.  
BRIDGE LOAN PAYABLE

On November 6, 2008, the Company entered into a $117,145 bridge loan agreement with two unrelated parties.  For the year ended December 31, 2009, the loan bears interest at the Bank of Canada Prime Rate of 2% (2008 - 3.50%) plus 1% per annum.  Loan principal and accrued interest in the amount of $57,672 was due on October 14, 2009 and $59,473 was due on November 6, 2009. The loan is unsecured and may be converted to common shares of the Company in 2009 at the discretion of the Borrower or Lender at a conversion rate based on the quoted market value of the Company’s common shares, which will be determined by the Borrower and the Lender on the date of conversion.

During the year ended December, 31, 2009, the Company entered into agreements whereby the lenders exercised previously held Class A warrants for the purchase of 477,940 restricted shares of common stock at $0.25 per share and then set-off the proceeds of the exercise against the outstanding loan balance of $119,485 (including accrued interest).  The shares from the exercise of the warrants are presented as an obligation to issue shares.  The shares were issued in April 2010.

6.  
CAPITAL STOCK

(a)  
Common shares

During the year ended December 31, 2010, the Company issued 200,000 common shares upon exercise of share purchase warrants at $0.25 per common share for gross proceeds of $50,000.

(b)  
Stock options

The Company has established a stock option plan whereby the Board of Directors may, from time to time, grant options to directors, officers, employees and consultants of the Company.  Under the Plan, the aggregate number of shares that may be issued under the plan shall not exceed 5,000,000 shares.  Additional options may be granted at the discretion of the Board of Directors.  The expiry date for each option shall be set by the Board of Directors at the time of issue of the options and shall not be more than ten years after the grant date.  The exercise price of each option shall be determined by the Board of Directors and in default of any specific determination, shall be equal to 100% of the fair market value per share on the date of grant.

In 2009, 200,000 stock options were granted to a Director and Officer of the Company, which vest over a two-year period.  In addition, 400,000 stock options previously issued to a Director and Officer were cancelled.

During the year ended December 31, 2010, the Company recognized stock-based compensation of $871,327 (2009 – expense of $172,075; 2008 – expense of $67,053) related to these options.

An estimated forfeiture rate of zero has been assumed and the fair value of each option granted was estimated as at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions and resulting fair value:



 
79
 
POWER OIL & GAS INC.
(An Exploration Stage Company)
Notes to Financial Statements
Years Ended December 31, 2010, 2009 and 2008
(Expressed in Canadian Dollars)




6.           CAPITAL STOCK (Continued)

(b)           Stock options (continued)

 
2010
2009
     
Risk-free interest rate
3.10%
3.37%
Dividend yield
0%
0%
Expected volatility
130%
168%
Expected option life (years)
8
9
Forfeiture rate
0%
0%
Weighted average fair value
$0.40
$0.49

Expected volatilities are based on industry comparables using available data and other factors due to the fact that the Company’s stock has only limited trading history.  When applicable, the Company will use historical data to estimate option exercise, forfeiture, and employee termination within the valuation model.  For non-employees, the expected term of the options approximate the full term of the options.

The following table sets forth a summary of stock option activity:

 
Number of Options
Weighted Average Exercise Price
     
Balance, December 31, 2008
600,000
$ 1.04
Options granted
200,000
$ 0.50
Options cancelled
(400,000)
$1.30
Balance, December 31, 2009
400,000
$ 0.51
Options cancelled
(200,000)
$ 0.50
Balance, December 31, 2010
200,000
$ 0.51

The following table summarizes information concerning outstanding and exercisable common stock options under the 2007 Plan at December 31, 2010:

Exercise
Price
Options
Outstanding
Expiry date
Number of Options Currently Exercisable
Weighted Average
Life
         
$ 0.51
200,000
June 30, 2018
200,000
7.50 years
         
 
200,000
  
200,000
7.50 years

At December 31, 2010, the intrinsic value of the Company’s outstanding stock options was $Nil (2009 - $627,991).


 
80
 
POWER OIL & GAS INC.
(An Exploration Stage Company)
Notes to Financial Statements
Years Ended December 31, 2010, 2009 and 2008
(Expressed in Canadian Dollars)




6.         CAPITAL STOCK (Continued)

(c)  
Share purchase warrants

As at December 31, 2010, the Company has share purchase warrants outstanding entitling the holders to acquire common shares as follows:

Class
Exercise
Price
Expiry
Date
Outstanding at
December 31, 2009
Issued
Exercised
Expired
Outstanding at
December 31, 2010
Weighted Average Remaining Contractual
Life (Years)
                 
A
$ 0.25
May 26, 2012
10,640,875
-
(200,000)
-
10,440,875
  1.25
B
$ 0.50
May 26, 2013
11,550,000
-
-
-
11,550,000
2.52
C
$ 1.00
May 26, 2014
11,550,000
-
-
-
11,550,000
3.52
                 
 
$ 0.59
  
33,740,875
-
(200,000)
-
33,540,875
2.43

Class A warrants are fully vested and exercisable as at December 31, 2010 whereas Class B and Class C warrants vest and become fully exercisable on November 26, 2011 and May 26, 2012 respectively.

During 2008, the vesting dates of the share purchase warrants were extended. Originally, all of the warrants were to have become exercisable on May 26, 2008.  On March 25, 2008, by way of letter agreements with each individual warrant holder, the Company and each respective warrant holder have agreed to extend the vesting of the Company’s Class A, Class B and Class C warrants. As a result of the agreements between the Company and the respective warrant holders, the warrant vesting date has been extended to May 26, 2009 with respect to the Class A warrants, to November 26, 2009 with respect to the Class B warrants, and to May 26, 2010 with respect to the Class C warrants.  All other terms of the warrant agreements remain unchanged and accordingly there is no change in the fair value to be recognized.

On November 19, 2009, by way of letter agreements with each individual warrant holder, the Company and each respective warrant holder have agreed to further extend the vesting of the Company’s Class B and Class C warrants.  As a result of the letter agreements between the Company and the respective warrant holders, the warrant vesting date has been extended from November 26, 2009 to November 26, 2011 with respect to the Class B warrants and from May 26, 2010 to May 26, 2012 with respect to Class C warrants.  In addition, the warrant expiry date has been extended from May 26, 2010 to May 26, 2012 with respect to the Class A warrants, from May 26, 2011 to May 26, 2013 with respect to the Class B warrants, and from May 26, 2012 to May 26, 2014 with respect to the Class C warrants.

All other terms of the warrant agreements remained unchanged.The aggregate fair value of the modification to the warrants determined using the Black-Scholes pricing model was $4,313,782 that will be amortized over the revised vesting term(s). The fair value of the original warrants and the fair value of the modified warrants were estimated as at the date of modification using the Black-Scholes option pricing model with the following weighted-average assumptions: risk-free interest rate of 2.03%, dividend yield of 0.00%,


 
81
 
POWER OIL & GAS INC.
(An Exploration Stage Company)
Notes to Financial Statements
Years Ended December 31, 2010, 2009 and 2008
(Expressed in Canadian Dollars)




6.         CAPITAL STOCK (Continued)

(c)           Share purchase warrants (continued)

volatility of 118.25%, expected life of 3.43 years and fair-value of $0.89. During the year ended December 31, 2010, the Company recognized stock-based compensation of $898,997 (2009 - $2,100,352; 2008 - $Nil) related to the modification of these warrants. At December 31, 2010 there is $1,314,433 (2009 - $2,213,430; 2008 - $Nil) in unrecognized stock-based compensation, which will be recognized in future periods as the warrants vest.

The Company has the right, at its sole discretion, to accelerate the maturity date and to lower the exercise price of all of the warrants.

(d)  
Stock-based compensation

For the year ended December 31, 2010, the Company has recognized $871,327 (2009 - $2,272,427; 2008 - $67,053) in stock-based compensation attributed as follows:

 
2010
2009
2008
       
Management services (note 7(b))
$        (27,670)
$      172,075
 $      67,053
Modification cost (note 7(c))
898,997
2,100,352
-
       
 
$     871,327
$   2,272,427
$      67,053


7.  
SHARE REPURCHASE OPTION

The Company holds an irrevocable right to repurchase all or a portion of the 30,000,000 shares owned by two of its Directors for a price of $0.01 per share.  The right can be exercised by the Company at any time and at its sole discretion.  The Company is not obligated to repurchase the shares at any time or for any reason (such as termination of employment, a change of control of the Company or failure to reach performance goals).  The repurchase right held by the Company will continue with respect to and for so long as any of the 30,000,000 shares issued to these directors are held by them (or any of their affiliates or family members), and will survive any such director’s resignation as an officer or director of the Company.  The Company may exercise its right of repurchase on some or all of the shares held, directly or indirectly, by these directors by delivering a notice of such exercise to such director(s) not less than seven calendar days prior to the closing of such repurchase.  The directors agree that they shall not, directly or indirectly, sell, exchange, pledge, hypothecate, transfer, gift, grant an irrevocable proxy with respect to, devise, assign or in any other way dispose of, encumber or grant a security interest in any of the shares or any interest therein. The directors also agree and acknowledge that said restriction is in addition to all applicable securities laws and regulations.


 
 


 
82
 
POWER OIL & GAS INC.
(An Exploration Stage Company)
Notes to Financial Statements
Years Ended December 31, 2010, 2009 and 2008
(Expressed in Canadian Dollars)




8.  
INCOME TAXES

The reconciliation of income tax provision computed at Canadian statutory rates of 28% (2009 - 30%; 2008 - 31%) to the reported income tax provision is as follows:

   
2010
    
2009
    
2008
  
                   
                   
Income tax benefit
   $ 272,000     $ 698,376     $ 40,722  
Stock-based compensation
     (244,000 )     (681,728 )     (20,786 )
                         
      28,000       16,648       19,936  
Change in future income taxes resulting from enacted tax rate reduction
     (3,000 )     (4,470 )     (8,479 )
Change in valuation allowance
     (25,000 )     (12,178 )     (11,457 )
                         
Income tax provision
   $ -     $ -     $ -  

The significant components of future income tax assets are as follows:

   
2010
    
2009
  
             
Non-capital losses
   $ 257,074     $ 225,491  
Oil and gas interests
     68,231       (431 )
                 
      325,305       225,060  
                 
Income tax rate
     25 %     25 %
                 
Income tax asset
     81,300       56,265  
Valuation allowance
     (81,300 )     (56,265 )
                 
    $ -     $ -  

The valuation allowance reflects the Company’s estimate that the tax assets more likely than not will not be realized.

The Company has accumulated non-capital losses for income tax purposes of $257,074.  The losses expire in the following years:

       
2015
   $ 8,950  
2026
     35,123  
2027
     61,618  
2028
     64,307  
2029
     55,493  
2030
     31,583  
         
    $ 257,074  



 
83
 
POWER OIL & GAS INC.
(An Exploration Stage Company)
Notes to Financial Statements
Years Ended December 31, 2010, 2009 and 2008
(Expressed in Canadian Dollars)




9.  
RELATED PARTY TRANSACTIONS

During the year ended December 31, 2010, directors’ fees in aggregate of $Nil (2009 - $1,500; 2008 - $15,000) were paid to the Directors of the Company and management fees of $4,500 (2009 - $8,800; 2008 - $Nil) were paid to a former Officer and Director of the Company.  These transactions are measured at the exchange amount, which is the amount agreed to by the related parties.  There was $Nil (2009 - $1,260) of management fees in accounts payable at December 31, 2010.

10.  
DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GAAP

(a) Recent US accounting pronouncements


(i)  
In February 2010, FASB issued ASU 2010-09, “Subsequent Event (Topic 855) Amendments to Certain Recognition and Disclosure Requirements”. ASU 2010-09 removes the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of GAAP. All of the amendments in ASU 2010-09 are effective upon issuance of the final ASU, except for the use of the issued date for conduit debt obligors. That amendment is effective for interim or annual periods ending after June 15, 2010.  The adoption of ASU 2010-09 has been reflected in the Company’s financial statements.

(ii)  
In January 2010, the FASB issued ASU 2010-06, “Fair Value Measurements and Disclosures (ASC 820): Improving Disclosures about Fair Value Measurements” which amends the disclosure requirements related to recurring and nonrecurring fair value measurements. This update requires new disclosures on significant transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy (including the reasons for these transfers) and the reasons for any transfers in or out of Level 3. This update also requires a reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis. In addition to these new disclosure requirements, this update clarifies certain existing disclosure requirements. For example, this update clarifies that reporting entities are required to provide fair value measurement disclosures for each class of assets and liabilities rather than each major category of assets and liabilities. This update also clarifies the requirement for entities to disclose information about both the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements.  The adoption of ASU 2010-06 has been reflected in the Company’s financial statements.

(b) Impact between Canadian GAAP and US GAAP

The Company currently has no reconciling items to its financial statements prepared in accordance with Canadian GAAP to comply with US GAAP.





 
84
 
POWER OIL & GAS INC.
(An Exploration Stage Company)
Notes to Financial Statements
Years Ended December 31, 2010, 2009 and 2008
(Expressed in Canadian Dollars)




11.  
CAPITAL MANAGEMENT

The Company considers its capital to be its shareholders’ equity.  The Company’s objectives when managing its capital are to safeguard the Company’s ability to continue as a going-concern in order to pursue the development of its oil and gas property interests and to maintain a flexible capital structure, which optimizes the costs of capital at an acceptable risk.

The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets.  To maintain or adjust the capital structure, the Company may attempt to issue new shares, issue new debt, acquire or dispose of assets, or adjust the amount of cash and term deposits.

In order to facilitate the management of its capital requirements, the Company prepares expenditure budgets that are updated as necessary depending on various factors, including successful capital deployment and general industry conditions.

In order to maximize ongoing development efforts, the Company does not pay out dividends.  The Company’s investment policy is to invest its short-term excess cash in highly liquid short-term interest-bearing investments, selected with regard to the expected timing of expenditures from continuing operations. There were no changes in the Company’s approach to capital management during the year ended December 31, 2010. The Company is not subject to externally imposed capital requirements.

12.  
SUBSEQUENT EVENTS

(a)  
On February 06, 2011, the Company surrendered its rights and obligations to one Alberta Crown and Natural Gas lease for the annual lease payment amount of $448.

(b)           On April 13, 2011, the Company surrendered its rights and obligations to three Alberta
Crown and Natural Gas leases for the annual lease payment amount of $1,998.

 
(c)
On May 9, 2011, the Company entered into a $35,000 Convertible Note Agreement with Risor Energy Exploration Inc. a related party by common directors.  The loan bears interest at the Bank of Canada Prime Rate plus 1%.  The Company may repay the entire loan including the outstanding interest at anytime by advising the lender of such intent to repay 15 days prior to the anticipated date of repayment. The loan may be converted to common shares of the Company at the discretion of the Company or the lender with terms yet to be determined.


 
 



 
85
 


ITEM 19.  EXHIBITS

Exhibit
Numbers
 
Description of Document
1.1(1)
Articles  of  Incorporation  of  the  Company
1.2(1)
Articles of Amendment
1.3(1)
By-Laws  of  the  Company
2.1(1)
Specimen  Common  Stock  Certificate
2.2(1)
Form of Subscription Agreement
2.3(1)
Form of Class A Warrant
2.4(1)
Form of Class B Warrant
2.5(1)
Form of Class C Warrant
2.6(1)
Agreement between the Company and Paul Uppal dated April 30, 2005
2.7(1)
Agreement between the Company and Greg Crowe dated April 30, 2005
2.8(1)
Agreement among Greg Crowe, Duncan Budge, and the Company dated August 17, 2006
4.1(1)
Property Option Agreement between Warner Gruenwald and the Company dated March 15, 2006
4.2(1)
Petroleum, Natural Gas and General Rights Conveyance Agreement dated June 14, 2006, among the Company, Stone Petroleums Ltd., Supernova Resources Ltd., 349385 Alberta Ltd., and Torland Ltd.
4.3(1)
Royalty Agreement dated June 14, 2006, among the Company, Stone Petroleums Ltd., Supernova Resources Ltd., 349385 Alberta Ltd., and Torland Ltd.
*12.1
Certification of Principal Executive and Financial Officer
*13.1
Section 1350 Certification

(1) Previously filed as an exhibit to the Company’s registration statement on Form F-1 filed with the Commission on September 25, 2006.

* Filed herewith.


 
86
 

Signature Page

Pursuant to the requirements of Section 12g of the Securities Exchange Act of 1934, the Registrant certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Registrant:

Power Oil & Gas Inc., SEC File No. 333-137571

Dated: June 29, 2011

By: /s/ Keith Diakiw
Name: Keith Diakiw
Title: Director, Chairman, President,
Chief Executive Officer, Chief Financial Officer, and Secretary


Dated: June 29, 2011

By: /s/ Pratt Barndollar
Name: Pratt Barndollar
Title: Director


Dated: June 29, 2011

By: /s/ Ron Daems
Name: Ron Daems
Title: Director