UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 20-F

[] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or 12(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 March 31, 2006 (with other information to September 28, 2006 except where noted)

OR

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

Commission file number 0-22500

TAG OIL LTD.
(Exact name of Registrant specified in its charter)

Not Applicable
(Translation of Registrant’s name into English)

YUKON TERRITORY, CANADA
(Jurisdiction of incorporation or organization)

Suite 1407, 1050 Burrard Street
Vancouver, British Columbia, Canada, V6Z 2S3
(Address of principal executive offices)

COMMON SHARES WITHOUT PAR VALUE
(Title of Class)

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

Title of Each Class	Name of each exchange on which registered
None	Not applicable

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

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

Number of outstanding shares of TAG Oil’s only class of capital stock as on March 31, 2006.

46,631,081 Common Shares Without Par Value (91,631,081 outstanding at September 28, 2006)

Indicate by check mark whether 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 Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [ X ]            No []

Indicate by check mark which financial statement item Registrant has elected to follow:

Item 17 [ X ]             Item 18 []

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

Yes []            No [ X ]  

(End of Cover Page)

3

TABLE OF CONTENTS
of the Form 20F of TAG Oil Ltd.

GLOSSARY		6
ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	6
ITEM 2.	OFFER STATISTICS AND EXPECTED TIMETABLE	6
ITEM 3.	KEY INFORMATION	6
ITEM 4.	INFORMATION ON THE COMPANY	9
ITEM 5.	OPERATING, FINANCIAL REVIEW AND PROSPECTS	19
ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	25
ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	28
ITEM 8.	FINANCIAL INFORMATION	30
ITEM 9.	THE OFFER AND LISTING	31
ITEM 10.	ADDITIONAL INFORMATION	32
ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	41
ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	41
ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	41
ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	41
ITEM 15.	CONTROLS AND PROCEDURES	41
ITEM 16.	AUDIT COMMITTEE, CODE OF ETHICS, ACCOUNTANTS FEES	42
ITEM 17.	FINANCIAL STATEMENTS	43
ITEM 18.	FINANCIAL STATEMENTS	58
ITEM 19.	EXHIBITS	58

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Currency, Measurement and Glossary of Industry Terms

Currency and Measurement

All currency amounts are stated in Canadian dollars unless otherwise indicated.

Conversion from metric into imperial units of measurement is as follows:

Metric Units	Imperial Units
hectare	2.471 acres
metre (m)	3.281 feet
kilometre (km)	0.621 miles (3,281 feet)

Industry Expressions

The following are industry expressions that may be used in this Annual Report:

TAG, We, Our, Company or Registrant refers to TAG Oil Ltd., a corporation organized and registered under the laws of Yukon, Canada, and unless the context clearly requires, includes its subsidiaries.

AMI is an Area of Mutual Interest relating to joint venture partners of two or more permits that have agreed to explore together, a defined area within their permits.

Basin is a segment of the crust of the Earth which has been downwarped and in which thick layers of sediments have accumulated over a long period of time.

Depletion is the reduction in petroleum reserves due to production.

Discovery is the location by drilling of a well of an accumulation of gas, condensate or oil reserves, the size of which may be estimated but not precisely quantified and which may or may not be commercially economic, depending on a number of factors.

Entrapment is the geological structure in which hydrocarbons build up to form an oil, condensate or gas field.

Exploration Well is a well drilled in a prospect without knowledge of the underlying sedimentary rock or the contents of the underlying rock.

Farm-In or Farm-Out refers to a common form of agreement between petroleum companies where the holder of the petroleum interest agrees to assign all or part of an interest in the ownership to another party that is willing to fund agreed exploration activities which may be more or less than the proportionate interest assigned to them.

Fault is a fracture in a rock or rock formation along which there has been an observable amount of displacement.

Formation is a reference to a group of rocks of the same age extending over a substantial area of a basin.

Geology is the science relating to the history and development of the Earth, and is also used to refer to the make-up of the rocks in a particular area.

Hydrocarbons is the general term for oil, gas, condensate and other petroleum products.

Joint Venture or JV refers to a standard form of participation in petroleum exploration, via unincorporated joint arrangements between a number of industry participants, with one party operating

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the permit (ie managing the operations) on behalf of all the participants, and Joint Venturers has a corresponding meaning.

Participating Interest or Working Interest is an equity interest, compared with a royalty interest, in an oil and gas property whereby the participating interest holder pays its proportionate percentage share of development and operating costs and receives the equivalent share of the proceeds of hydrocarbon sales after deduction of royalties or other imposts due on gross income.

Permit or Licence is an area that is granted for a prescribed period of time for exploration, development or production under specific contractual or legislative conditions.

Preemption is the right granted to a party in a Joint Venture Operating Agreement to require another party, which party is proposing to assign its interest in a permit or licence, to assign that interest to the first party on the terms of the proposed assignment.

Prospect is a potential hydrocarbon trap which has been confirmed by geological and geophysical studies to the degree that drilling of an exploration well is warranted.

Reservoir is a porous and permeable sedimentary rock formation containing adequate pore space in the rock to provide storage space for oil, gas or water.

Royalty is the entitlement to a stated or determinable percentage of the proceeds received from the sale of hydrocarbons calculated as prescribed in applicable legislation or in the agreement reserving the royalty to the owner of the royalty.

Seismic refers to a geophysical technique using low frequency sound waves to determine the subsurface structure of sedimentary rocks.

Shut-in refers to a well that is suspended from production, usually for operational reasons, such as in order to build up pressure in the reservoir.

Trap is a geological structure covered by a seal in which hydrocarbons build up to form an oil or gas reservoir.

Forward Looking Statements

Certain statements in this Annual Report constitute forward-looking statements. These forward-looking statements are not guarantees of our future operational or financial performance and are subject to risks and uncertainties. When used in this Annual Report, the words “estimate”, “intend”, “expect”, “anticipate” and similar expressions are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on these statements, which speak only as of the date of this Annual Report. These statements are subject to risks and uncertainties that could cause results to differ materially from those contemplated in such forward-looking statements.

Such risks and uncertainties include, but are not limited to, those identified under the subheading “Risk Factors” in Item 3 hereof.

Actual operational and financial results may differ materially from our expectations contained in the forward-looking statements as a result of various factors, many of which are beyond the control of the Company. These factors include, but are not limited to, changes in the price of crude oil and natural gas, adverse technical factors associated with exploration, changes or disruptions in the political or fiscal regimes in our areas of activity, changes in tax, energy or other laws or regulations, changes in significant capital expenditures, delays in production starting up due to an industry shortage of skilled manpower, equipment and or materials.

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PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable

ITEM 3. KEY INFORMATION

Selected financial data

The selected historical financial information presented in the table below for each of the years ended March 31, 2006, 2005, 2004, 2003 and 2002, is derived from the audited consolidated financial statements of the Company. The audited consolidated financial statements of the Company for the years ended March 31, 2006, 2005 and 2004 are included in this filing. The selected historical financial information for the years ended March 31, 2003 and 2002 presented in the table below are derived from audited consolidated financial statements of the Company that are not included in this filing. The selected financial information presented below should be read in conjunction with our consolidated financial statements and the notes thereto (Item 17) and the Operating and Financial Review and Prospects (Item 5) included elsewhere in this filing.

The selected consolidated financial data has been prepared in accordance with Canadian Generally Accepted Accounting Principles ("Canadian GAAP"). The consolidated financial statements included in Item 17 in this filing are also prepared under Canadian GAAP. Included within these consolidated financial statements in Note 9 is a reconciliation between Canadian and US GAAP.

Under Canadian Generally Accepted Accounting Principles (in Cdn$)

	Year Ended March 31
	2006	2005	2004	2003	2002
	$	$	$	$	$
Current Assets	20,072,798	6,556,579	920,461	1,245,229	2,223,719
Oil and Gas Properties	9,155,763	1,933,088	645,209	521,041	457,812
Property and
Equipment	30,836	16,834	17,470	400,583	413,841
Incorporation Costs	-	-	-	-	-
Total Assets	29,259,397	8,506,501	1,583,140	2,166,853	3,095,372
Share Capital	39,134,809	18,639,495	11,023,925	10,584,745	10,349,531
Deficit	(12,104,977)	(10,679,415)	(9,465,038)	(8,527,037)	(7,531,784)
Interest Income	399,684	17,352	15,737	43,470	83,691
Rental Income	-	-	-	23,000	4,000
Net Loss	(1,425,562)	(1,214,377)	(938,001)	(995,253)	(131,136)
Net Loss per Share	(0.04)	(0.09)	(0.08)	(0.11)	(0.02)

Please refer to Note 2 of Item 17, which includes the Company’s adopted recommendations of the Canadian Institute of Chartered Accountants.

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Under U.S. Generally Accepted Accounting Principles (in Cdn$)

	Year Ended March 31
	2006	2005	2004	2003	2002
	$	$	$	$	$
Current Assets	20,072,798	6,583,579	937,261	1,248,829	2,223,719
Oil and Gas Properties	7,982,969	2,018,617	738,225	567,701	444,794
Property and
Equipment	30,836	16,834	17,470	400,583	413,841
Incorporation Costs	-	-	-	-	-
Total Assets	28,086,603	8,619,030	1,692,956	2,213,513	3,082,354
Share Capital	41,467,807	21,682,353	14,066,783	13,627,603	13,392,389
Deficit	(15,111,523)	(13,698,873)	(12,494,696)	(11,566,296)	(10,574,642)
Cumulative
Comprehensive Adj.	(27,000)	27,000	16,800	3,600	-
Interest Income	399,684	17,352	15,737	43,470	83,691
Rental Income	-	-	-	23,000	4,000
Net Loss	(1,425,562)	(1,204,177)	(924,801)	(991,653)	(148,636)
Net Loss per Share	(0.04)	(0.09)	(0.08)	(0.11)	(0.02)

Please refer to Note 9 of Item 17, which includes all material differences between Canadian and US GAAP that are relevant in preparation of our financial statements.

Given the nature of our operations and assets we are of the view that for the two years ended March 31, 2006 and 2005 the foregoing difference in Canadian and U.S. GAAP would not have resulted in any material disclosure differences insofar as our financial results are concerned.

Exchange Rates

Our financial statements, as provided under Item 8 and 17 are presented in Canadian Dollars. On March 31, 2006 the buying rate for Canadian dollars was US $1.00 for Cdn$ 1.168. At the close of business on September 14, 2006 the buying rate for Canadian dollars was US$1.00 for Cdn$1.1178. Rates of exchange are obtained from the Bank of Canada and believed by the Company to approximate closely the rates certified for customs purposes by the Federal Reserve Bank in New York.

The following table sets out the buying rate for Canadian dollars for the six months preceding March 31, 2006:

	Oct 2005	Nov 2005	Dec 2005	Jan 2006	Feb 2006	Mar 2006
Month End	1.1812	1.1669	1.1630	1.1390	1.1366	1.1680
Average	1.1770	1.1809	1.1613	1.1570	1.1489	1.1572
High (2)	1.1882	1.1937	1.1731	1.1706	1.1584	1.1719
Low (2)	1.1627	1.1669	1.1518	1.1390	1.1366	1.1314

The following table sets out the buying rate for Canadian dollars for the last five fiscal years:

	2006	2005	2004	2003	2002
Year End (1)	1.1680	1.2096	1.3113	1.4678	1.5942
Average	1.1935	1.2782	1.3527	1.5491	1.5655
High (2)	1.2696	1.2834	1.4924	1.5988	1.6125
Low (2)	1.1314	1.2742	1.2683	1.4628	1.5583

Notes:
(1) Year end is March 31.
(2) The high and low buying rate figures are selected from daily high and low closing figures.

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Capitalization and indebtedness

Not applicable.

Reasons for the offer and use of proceeds

Not applicable.

Risk Factors

The common shares of our Company must be considered a speculative investment due to a number of factors. An investment in our common shares should only be made by persons who can afford to lose their entire investment and there can be no assurance that our common shares will increase in value. The purchase of the common shares involves a number of significant risk factors. Purchasers of common shares should consider the following:

1. Failure to Locate Commercial Quantities of Hydrocarbons and Geological Risks

Exploration for hydrocarbons is a speculative venture necessarily involving substantial risk. There is no certainty that the expenditures we incur on our exploration properties will result in discoveries of commercial quantities of hydrocarbons. In addition, even if hydrocarbons are discovered, the costs of extraction and delivering the hydrocarbons to market, and variations in the market price may render any deposit found uneconomic. Geological conditions are variable and unpredictable. Even if production is commenced from a well, the production will inevitably decline and may be affected or terminated by geological conditions that cannot be foreseen.

2. Marketability and Price of Oil and Natural Gas

The marketability and price of oil and natural gas that may be acquired or discovered may be affected by numerous factors beyond our control. We may be affected by the differential between the price paid by refiners for light, quality oil and various grades of oil produced. We are subject to market fluctuations in the prices of oil and natural gas, deliverability uncertainties related to the proximity of reserves to pipeline and processing facilities and government regulation relating to prices, taxes, royalties, land tenure, allowable production, the export of oil and natural gas and many other aspects of the oil and natural gas business.

Our operations will be further affected by the remoteness of, and restrictions on access to, certain properties as well as climatic conditions.

3. Limited Financial Resources

We have limited financial resources and, if our business is not profitable, we may not be able to raise sufficient funds to sustain, continue or expand our business. Although we currently have some operating revenues, these revenues are not sufficient to sustain our exploration and development activities and we continue to rely principally on the issuance of common shares to raise funds to finance our business. There is no assurance that market conditions will continue to permit us to raise necessary funds at all or on acceptable terms.

4. History of Losses

The Company, at the date of this report, has one oil and gas property in the production stage. The Company has an accumulated deficit from its historical operating results and there is no assurance that the business of the Company will be profitable in the future. A failure to generate sufficient revenues may cause the Company to eventually go out of business. The Company has not paid dividends at any time in its history to date and there is no assurance that the Company will pay a dividend at any time in the future.

5. Dilution

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Our Articles of Continuance authorize the issuance of an unlimited number of shares of common stock. We have several types of dilutive securities outstanding and our Board of Directors has the power to issue further shares without stockholder approval. Our Board of Directors may issue some of such shares to acquire further capital in order to carry out our intended operations or expand our current operations, or to provide additional financing in the future. The issuance of any such shares may result in a reduction of the book value or market price of our outstanding common shares. If we issue any such additional shares, such issuance will also cause a reduction in the proportionate ownership and voting power of all other shareholders. Further, any such issuance may result in a change of control. TSX-V policies may require the Company to obtain shareholder approval of any transaction which will result in the creation of a new control person.

6. Environmental Risks

We are subject to laws and regulations that control the discharge of materials into the environment, require removal and cleanup in certain circumstances, require the proper handling and disposal of waste materials or otherwise relate to the protection of the environment. In operating and owning petroleum interests, we may be liable for damages and the costs of removing hydrocarbon spills for which we are held responsible. Laws relating to the protection of the environment have in many jurisdictions become more stringent in recent years and may, in certain circumstances, impose strict liability, rendering our Company liable for environmental damage without regard to negligence or fault on the part of our Company. Such laws and regulations may expose us to liability for the conduct of, or conditions caused by others or for acts of our Company that were in compliance with all applicable law at the time such acts were performed. The application of these requirements or the adoption of new requirements could have a material adverse effect on our business. We believe that we have conducted our business in substantial compliance with all applicable environmental laws and regulations.

7. Indemnities may be Unenforceable or Uncollectable

The operating agreements we have with participants in a property generally provide for the indemnification of the company that is the operator. We do not operate all of our programs on our oil and gas properties and may be requested to reimburse the company that is the operator for losses or damages caused or incurred in the course of operations.

8. Title to Properties and Consequences of Failure to Satisfy Prescribed Permit or Licence Terms and Conditions

In all cases, the terms and conditions of the permit or licence granting us, or the party from which we acquired, the right to explore for, and develop, hydrocarbons, prescribe a work program and the date or dates before which such work program must be done. Varying circumstances, including the financial resources available to us, rig availability and reliance on third party operators of permits and licenses, or other circumstances beyond our control or influence may result in the failure to satisfy the terms and conditions of a permit or license and result in the complete loss of the interest in the permit or license without compensation.

Such terms and conditions may be renegotiated with applicable regulatory authorities, but there is no assurance that if a term or condition of a license or permit that is required to be satisfied has not been met, that such term or condition will be successfully renegotiated with the applicable authority.

We participate in permits or licences with industry partners with access to greater resources to meet their joint venture capital commitments. If we are unable to meet our commitments, the other joint venture participants may assume some or all of our deficiency and thereby assume a pro-rata portion of our interest in any production from the joint venture area. We are a majority interest owner in only seven of our properties and in those that we do not have a majority interest, we do not have sole control over the future course of development in those properties. Property interests may be subject to joint venture and other like agreements, which can give rise to interpretive disputes with other parties who are financially interested in the property. If a participant in a joint venture, which participant has fewer resources than the

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Company, is unable to meet its commitments, it may delay or veto exploration or development plans which it cannot afford. This may delay the Company’s desired exploration and development program and lead to the Company and other participants assuming all or some of the share of the non-committing entity’s interest, and therefore meeting a pro-rata share of its required contributions, as well as receiving a pro-rata share of it’s revenue.

We do not maintain title insurance over our any of our properties. See also Risk Factor 12 regarding title assurance.

9. Possible Lack of or Inadequacy of Insurance

The Company maintains insurance against certain public liability, operational and environmental risks on behalf of the Company and where applicable, on behalf of the respective joint venture, but there is no assurance that an event causing loss will be covered by such insurance, that such insurance will continue to be available to our Company, or that the benefits of such insurance will be adequate to cover our liability.

10. Effect of Different Currencies

We hold cash reserves in CDN and US dollars and to a lesser extent in New Zealand dollars. We incur the majority of our petroleum property expenditures in New Zealand dollars. The Company does not currently hedge its exposure to current rate changes, although it may choose to selectively hedge exposure to foreign currency exchange rate risk. The Company manages some of this risk by shifting a portion of its cash on hand from one currency to another in a timely manner. A decrease in the value of the New Zealand currency against the value of the CDN and US will be a benefit to the Company. An increase in value of the New Zealand dollar relative to the CDN or US dollar would have a detrimental effect on us as our expenses incurred would, in turn, increase in CDN and US dollars.

11. Penny Stock Regulation and Difficulties in Selling Shares

The Securities and Exchange Commission (the “SEC”) has rules that regulate broker-dealer practices in connection with transactions in “penny stocks.” Penny stocks generally are equity securities with a price of less than $5.00 per share (other than securities registered on certain national securities exchanges or quoted on the NASDAQ Stock Market, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from such rules, the broker-dealer must make a special written determination that a penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements often have the effect of reducing the level of trading activity in any secondary market for a stock that becomes subject to the penny stock rules. Our common stock is currently subject to the penny stock rules, and accordingly, investors may find it difficult to sell their shares, if at all.

12. No Title Assurance

The possibility exists that title to one or more properties may be lost due to an omission in the claim of title. We do not maintain title insurance and there is no guarantee of title. The properties may be subject to prior unregistered agreements or transfers or native land claims, and title may be affected by undetected defects. The Company has investigated the rights to explore the various oil and gas properties it holds or proposes to participate in and to the best of our knowledge, those rights are in good standing. In addition many of the Company’s properties are located on private property and may be subject to

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delays and/or disputes with landowners in certain circumstances. Such delays/disputes may affect the Company’s ability to explore for, produce or develop its oil and gas properties.

13. Uncertainty of Reserves Figures

Estimates of production expenditures, revenues and reserves will likely vary from actual results, and these variances may be material. Estimates of oil and gas reserves referred to below and in Exhibit 4.9 are interpreted through geological, petro-physical and reservoir engineering data. Such interpretations are inherently uncertain, as are the projections of future rates of production and timing of development expenditures. The accuracy of the reserves estimates is a function of the quality of available data, engineering and geological interpretation and judgement. Factors such as historical production from the area compared with the production from other producing areas, assumed effects of governmental regulations, assumptions of future oil and gas prices, future operating costs, development costs and remedial work-over costs, will affect the estimates of economically recoverable quantities and of future net cash flow. Any significant variance in the assumptions could materially affect the estimated quantity and value of reserves.

14. Competition

We encounter strong competition from other independent operators and from major oil companies in acquiring properties suitable for development, in contracting for drilling equipment and in securing trained personnel. Many of these competitors have financial resources and staffs substantially larger than our own. The availability of a ready market for any oil and gas that may be discovered by the Company depends on numerous factors beyond our control, including the proximity and capacity of natural gas pipelines and the effect of regional or national regulations.

15. Foreign Jurisdiction Risks; Governmental Laws and Local Conditions

Claims of aboriginal peoples in New Zealand may adversely affect the rights or operations of our Company and there is no assurance that governmental regulation will not vary, including regulations relating to prices, royalties, allowable production, environmental matters, import and export of hydrocarbons and protection of water resources and agricultural lands. Our exploration interests in New Zealand are subject to regulations that relate directly and indirectly to our operations, including title to the petroleum interests, production, marketing and sale of hydrocarbons, taxation, environmental matters, restriction on the withdrawal of capital from a country and other factors. There is no assurance that the laws relating to the ownership of petroleum interests and the operation of our business in New Zealand will not change in a manner that may materially and adversely affect our business.

16. Value of Properties

The amounts attributed to our properties in our financial statements represent acquisition and exploration expenditures to date, and should not be taken to in any way reflect realizable value.

17. Legal Proceedings Against Foreign Directors

The Company is incorporated under the laws of the Yukon Territory, Canada, and three of the Company’s directors and officers are residents of Canada and one is a resident of New Zealand. Consequently, it may be difficult for United States investors to effect service of process within the United States upon the Company or upon its directors or officers, or to realize in the United States upon judgements of United States courts predicated upon civil liabilities under the United States Securities Exchange Act of 1934, as amended. Furthermore, it may be difficult for investors to enforce judgements of the U.S. courts based on civil liability provisions of the U.S. federal securities laws in a foreign court against the Company or any of the Company’s non-U.S. resident officers or directors.

Please refer to Corporate Actions below for information on the Company’s pending continuation to British Columbia as approved by shareholders on September 22, 2006.

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18. Labour Requirements

The Company may be required to hire and train local workers in its petroleum and natural gas operation. Some of these workers may organize into labour unions and any strike or labour unrest could adversely affect the Company’s ongoing operations and its ability to explore for, produce and market its oil and gas production.

ITEM 4. INFORMATION ON THE COMPANY

History and Development of the Company

Corporate Actions

Our legal and corporate name is TAG Oil Ltd. although we have had the name changes disclosed below. We are a Vancouver, British Columbia Canada based hydrocarbon resource company that holds varying interests in 21 New Zealand exploration permits as detailed below.

As a company domiciled in the Yukon Territiory, Canada, our legally registered office is Suite 2600, Three Bentall Centre, 595 Burrard Street, Vancouver, B.C. V7X 1L3. Our principal business office is located at Suite 1407-1050 Burrard Street, Vancouver, B.C. V6Z 2S3, our operational office is located at 117 Powderham Street, PO Box 183, New Plymouth, New Zealand and our technical headquarters is located at Braemar Building, 32 The Terrace, 4^th Floor, Wellington, New Zealand.

We were incorporated in British Columbia on December 12, 1990 under the name "398052 B.C. Ltd." by the registration of memorandum and articles under the Company Act (British Columbia). We changed our name to "Aldus Energy (Canada) Corp." on January 28, 1991, to "Aldus Energy Corp." on April 4, 1991, to "Durum Energy Corp." on July 18, 1991, to “Durum Cons. Energy Corp.” on October 27, 1998 and to our current name “TAG Oil Ltd.” on June 12, 2002. We became a reporting company in British Columbia on obtaining a receipt for our initial prospectus in British Columbia in February 1992. We obtained a listing on the Vancouver Stock Exchange (the “VSE”) and commenced trading through the facilities of the VSE on March 16, 1992. Trading in our common shares was halted by the VSE on September 12, 1996 and recommenced on May 5, 1997.

On October 29, 1997 we were continued (or re-domiciled) from a company subsisting under the jurisdiction of the Company Act (British Columbia) to a company subsisting under the Business Corporations Act (Yukon). Our authorized share capital was originally 25,000,000 common shares without par value. Effective April 5, 1995, we subdivided our shares on a two new for one old basis. Effective October 27, 1998, we increased our authorized share capital to an unlimited number of common shares without par value and consolidated our shares on a one new for five old basis.

Effective with the October 27, 1998 share consolidation (or “reverse-split”), we changed our name to Durum Cons. Energy Corp. and then changed our name again to our current name TAG Oil Ltd. on June 12, 2002. Our common shares were listed on the Canadian Venture Exchange (“CDNX”) under the trading symbol “DUR” until we voluntarily delisted on September 21, 2000.

During the 2005 fiscal year, we implemented a forward stock split on the basis of one additional new share issued for every two old shares held, resulting in 3,989,025 new shares being issued to existing shareholders of record on April 27, 2004.

All references to our outstanding common shares, issuances of common shares, options and warrants and prices associated with the above corporate actions and their effects on share capital have been shown on a retroactive basis.

Effective July 18, 2005, TAG Oil Ltd. commenced trading on the TSX Venture Exchange (“TSXV”) under the symbol “TAO”. We continue to trade on the United States Over-the-Counter Bulletin Board (“OTCBB”) under the trading symbol “TAGOF”.

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On September 22, 2006 shareholders of the Company approved a continuance (or re-domiciled) from a company subsisting under the Business Corporations Act (Yukon) back to the jurisdiction of the Business Corporations Act (B.C.). The Company expects to effect this continuation in the coming months.

Principal Petroleum Property Activities and Material Capital Expenditures for the year ended March 31, 2006

PEP 38741 (45% interest): $1,015,849 of expenditures were made during the year relating to the costs of drilling, completing and testing the Supplejack-1 well on this permit. Supplejack-1 encountered two potential hydocarbon zones and, to date, the lower gas zone has been tested and flowed at a maximum rate of 640,000 cubic feet per day with the joint venture incorporating the short-term flow testing results into the Kaimata 3-D data to consider its options to maximize the development potential of this discovery. The SuppleJack-1 well is currently suspended pending the outcome of the Ratanui-1 well scheduled for the second half of the 2007 fiscal year.

PEP 38745 (83.33% interest): $554,925 of expenditures were made during the year primarily relating to the drilling of the Richmond-1 well. This well was drilled in October 2005 and although the main objective sandstones were encountered and a number of thick reservoir sands were penetrated, electrical logs indicated the reservoir was not likely to produce commercial quantities of hydrocarbons and the well was plugged and abandonded.

PEP 38751 (66.66% interest): $563,522 of expenditures were made during the year relating to the drilling of the Konini-1 well in November of 2005. Konini-1 reached the target sandstones and after evaluating the well data the well was plugged and abandoned.

PEP 38757 (100% interest): $1,934,631 of expenditures were made this year relating mainly to the the costs of drilling the Arakamu-1 well. Arakamu-1 was drilled in January 2006 and encountered good quality oil and gas shows but did not find significant reservoir zones so the well was plugged and abandoned.

PEP 38758 (100% interest): $980,609 of expenditures were incurred this year to conduct the Company’s 35 kilometer 2-D seismic program. This program was completed in January 2006 resulting in processed data that is of excellent quality and the Company expects to drill a well on the permit based on this data in the 2007 fiscal year.

PEP 38765 (38.30% interest): $483,289 of expenditures were made during the year relating to the drilling, completion and testing of the SuppleJack South-1 and the SuppleJack South-1a wells between November 2005 and February of 2006. Both wells penetrated high quality sands with SuppleJack South 1a yielding gas utilising under-balanced perforation techniquies. Both wells are currently suspended awaiting the outcome of the Ratanui-1 well scheduled for the second half of 2007 in the neighbouring permit, PEP 38741.

PEP 38256 (53.84% interest): $250,594 of expenditures were made during the year relating to a 30 kilometer 2-D seismic program recently completed that identified a closure over the Company’s Salmon prospect. This seismic information is being incorporated with other permit data in order to determine an optimal drilling location for late 2007. Subsequent to year-end the Company’s interest in PEP 38256 increased to 100%.

PEP 38260 (30.00% interest): $512,885 of expenditures were made during the year relating to the two seismic programs carried out during the year to acquire 27 kilometers of 2-D seismic that have confirmed the existence of a large rollover structure at depth in the Kate prospect that is expected to be drilled in November 2006. The Company, to earn its 30% interest in the permit, paid 100% of all costs associated with onshore exploration on PEP 38260.

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PEP 38341 and PEP 38342 (35.50% interest): $1,025,785 of expenditures were made during the year relating to the Company’s participation in a 67 kilometer seismic program carried out over both permits during the year.

During the 2006 fiscal year the Company acquired interests in fourteen new petroleum interests; PMP 38153, PMP 38157, PEP 38260, PEP 38341, PEP 38342, PEP 38732, PEP 38736, PEP 38744, PEP 38745, PEP 38746, PEP 38748, PEP 38751, PEP 38766 and PEP 38767. Consideration paid for the interests include gross overriding royalties, participation in exploration activities and payment of past costs related to certain permits. Please refer to property plant and equipment below for more information.

Subsequent to the 2006 fiscal year end:

a.	The Company drilled the Radnor 1a well starting on July 25, 2006. At the date of this report the well has been logged, cased and suspended. Although gas was discovered the inflowing rates of gas are sub-economic and a go-forward plan using the data on the well will be prepared. The joint venture drilled Radnor-1a on PMP 38157 on an extension to the permit term that expires on September 30, 2006. The Company expects to file a further request to extend the permit.
b.	On June 16, 2006, the Company acquired all of the outstanding shares of Cheal Petroleum Limited (“Cheal”), PEP 38757 Limited and PEP 38758 Limited which are all located in New Zealand. Please refer to Exhibit 4.8 and 4.12. Cheal owns a 30.5% interest in PEP 38738-S containing the Cheal Oil Field and a 15.1% interest in PEP 38738-D containing the Cardiff deep gas prospect. Consideration paid for these companies was:
	i.	NZ$18,542,857 (CDN$12,800,000) consisting of a payment of NZ$14,625,501 at the closing of the share purchase agreement and a cash payment to the seller immediately after closing of NZ$3,917,356 to re-pay advances made by the seller to Cheal Petroleum Limited;
	ii.	five million shares of the Company; and
	iii.	a 0.775% gross over riding royalty on PEP 38738-D.

In July of 2006 the Ministry of Economic Development granted Petroleum Mining Permit 38156 (“PMP 38156”) that covers 30 square kilometers and includes both the Cheal Oil Field and the Cardiff deep gas prospect. The Cheal Oil Field currently has one well producing a gross average of 350 barrels of oil per day (Net: 105 bbls) and 150mcf/d of natural gas (Net: 45mcf/d).

2005

During the 2005 fiscal year the Company continued its exploration and acquisition focus in New Zealand as described below.

The material aspects of the Company’s 2005 exploration program related to the completion of a 16 square kilometer 3-D seismic program on its 100% held property PEP 38757 during the last quarter of the 2005 fiscal year, along with drilling three unsuccessful, non-operated, wells during the year being the Honeysuckle-1 well on PEP 38741 (TAG interest 20%) in June 2004, the Miromiro-1 well on PEP 38765 (TAG interest 10%) in December 2004 and the Hursthouse-1 well (TAG interest 12.5%) in December 2004, located within the Area of Mutual Interest covering portions of PEP 38745 and PEP 38732.

During the year the Company also acquired interests in three new interests; PEP 38757 (100% interest), PEP 38758 (100% interest) and AMI-Hursthouse (12.5% interest). In return for the assignment of interests in PEP 38757 and PEP 38758 the Company granted a 5% overriding royalty to PEP 38757 Limited and PEP 38758 Limited, in lieu of any cash consideration. In addition to secure the services of an independent professional to provide geotechnical services to the Company on PEP 38757 and 38758 at 50% of New Zealand standard consulting rates, the Company granted the geotechnical consultant a 0.5% overriding royalty based on Net Sales Revenue on PEP 38757 and PEP 38758. As part of the acquisition

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of the interest in the AMI-Hursthouse area, the Company paid NZ$65,000 in past costs relating to the interest as well as committing to paying for its percentage share of the drilling costs of the Hursthouse-1 well described above.

General and Administrative costs relating to exploration and acquisitions of $829,333 were similar to the 2004 fiscal year ($650,680) with the exception of travel costs, filing, listing and transfer agent fees, as well as professional fees also increasing materially due to the Company’s forward stock split, the successful application for listing on the TSX Venture Exchange and additional costs relating to the acquisition of additional exploration interests.

2004

In our 2004 fiscal year, we focussed on our current work programs associated with our New Zealand permits and we also sought to expand our exploration interests in New Zealand. The Company completed the required work commitments on its existing permits and acquired two new permits as described below.

During the 2004 fiscal year the Company (25%) and Austral Pacific Energy Ltd. (75%) as operator, were awarded a new exploration permit (“PEP 38258”) located in the offshore Canterbury Basin. In addition the Company (10%), Austral Pacific (27.5%), Tap (New Zealand) Pty Ltd (50%) and Magellen Petroleum (NZ) Ltd. (12.5%) were awarded new exploration permit (“PEP 38765”) (formerly “PPP 38761” and “Block “M”) located in the onshore Taranaki Basin. We also increased our interest in the onshore Canterbury Basin Project (“PEP 38256”) in New Zealand from 10% to 40.38% . As the activity of the Company increased during 2004, so did the general and administrative costs associated with operating our Company. The Company incurred significant general and administrative costs totalling $650,680 (2003: $622,388) plus incurring stock option compensation expenses totalling $290,030 (2003: $110,606).

The Company also retained key oil and gas exploration personnel, included as a significant cost in our general and administrative expenses, in order for the Company to maintain our work commitments and acquisition efforts in New Zealand.

Financing:

On March 4, 2004, we issued 300,000 shares from treasury upon the exercise of share purchase warrants at a price of US$0.35 per share for proceeds of US$105,000.

In May of 2004, we completed a non-brokered private placement financing of 542,495 units at a price of US$1.67 per unit, for proceeds of US$905,967. Each unit consists of one common share and a two-year share warrant entitling the purchaser to acquire an additional share for US$1.83 per share for the first year and thereafter at a price of US$2.00 per share until expiry at the end of the second year.

The Company, primarily in the fourth quarter of the 2005 fiscal year issued 6,150,000 common shares from treasury pursuant to the exercise of certain share purchase warrants at a price of US$0.23 per share, for proceeds of US$1,414,500 and 100,000 common shares from treasury pursuant to the exercise of certain stock options at a price of US$0.267 per share, for proceeds of US$26,700.

On December 24, 2004 the Company re-purchased 1,800,000 incentive shares for cancellation and return to treasury at the owners cost, that had been previously issued to the Company’s President for US$5,940.

Our final capital raising transaction for the 2005 fiscal year occurred in March of 2005 and consisted of a private placement financing of 9,066,500 units at a price of US$0.40 per unit for proceeds of US$3,626,600. Each unit consists of one common share and a two-year share purchase warrant entitling the purchaser to acquire an additional common share for US$0.60 per share for the first year and thereafter at a price of US$0.80 per share until expiry at the end of the second year, subject to an accelerated expiry if a market trigger price is reached of US$1.00 in year one and US$1.20 in year two, in which event the warrant will expire 30 days after notice is given to the holder that the trigger price was reached.

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On May 19, 2005, the Company’s Board of Directors approved an amendment to the terms of the Company’s 542,495 share purchase warrants issued May 4, 2004. The amendment, was approved by the warrant holders, and reduced the exercise price of the warrants from US$2.00 to US$0.80 in consideration for the warrant holders accepting an accelerated expiry provision whereby the warrants will expire 30 days after notice is given by the Company that the Company’s shares have traded over US$1.20 for 10 consecutive days. These warrants expired unexercised during the 2006 fiscal year.

On August 19, 2005, the Company accelerated the 9,066,500 share purchase warrants outstanding described above, as the market trigger price was reached in year one. As a result, the expiry of the 9,066,500 share purchase warrants, exercisable at US$0.60 per share was changed to September 26, 2005. All affected warrants were exercised prior to expiry for proceeds of US$5,439,900.

On September 22, 2005 the Company completed a brokered private placement financing of 11,538,500 shares at a price of $1.30 per share for gross proceeds of $15,000,050.

Subsequent to the 2006 fiscal year end the Company, on June 16, 2006, completed a brokered private placement financing of 40,000,000 shares at a price of $0.75 per share for gross proceeds of $30,000,000.

Business Overview

Nature of Operations

We are an independent oil and gas acquisition, exploration and production company, incorporated in Canada, with all our interests in hydrocarbon exploration prospects currently being in New Zealand. We are involved in the exploration for and production of hydrocarbons and all of our current property holdings, with the exception of PEP 38738-S that was acquired subsequent to fiscal 2006, are in the grassroots or primary exploration stage. As of the date of this report and subsequent to year end we have started generating a small amount of revenues from the sale of hydrocarbons and the extent of such revenue is not of any significant size at this time for the Company to be affected by principal markets for hydrocarbon products, seasonality of products, or marketing channels. We do not have a reliance on raw materials, or any significant patents or licences, as we operate in an extractive industry.

We compete with other companies in bidding for the acquisition of petroleum interests from various authorities, and in exploring for oil and gas in the Austral Pacific region. We are also subject to government regulation of the oil and gas properties we hold and in the operations we conduct on those properties. The effects of these regulations are described in Item 4. “Property, Plant and Equipment”.

Organizational Structure

Our operations are conducted in part through our wholly-owned subsidiaries, being;

1.	TAG Oil (NZ) Limited;
2.	TAG Oil (Canterbury) Limited;
3.	Cheal Petroleum Limited;
4.	PEP 38757 Limited;
5.	PEP 38758 Limited; and
6.	Durum Energy (PNG) Limited (deregistration in progress)

All of the above noted subsidiaries are owned 100% and we hold 100% of the voting rights.

Petroleum Exploration Regime in New Zealand

Unless otherwise indicated and subject to the conditions of the permit, a petroleum exploration permit granted in New Zealand provides for the exclusive right to explore for petroleum in the land covered by the exploration permit. Exploration permits have an initial term of five years, but are renewable for a

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further term of up to five years over an area of land not exceeding one-half of the original area (with a possible further short appraisal extension where necessary).

An exploration permit holder may apply to the Minister of Energy for amendments to an exploration permit, including changes to the Work Programme or the area covered by the exploration permit, if circumstances require and the conditions of the exploration permit have been substantially complied with. This remains, however, a matter for the Minister’s discretion. Exploration permit holders may exceed the requirement of the Work Programme in relation to any permit.

If an exploration permit holder does not satisfy the Minister that it has complied with the obligations under the Work Programme (or such variation as may have been agreed with the Minister), the New Zealand government has the power to revoke the exploration permit. A NZ$250,000 bond is now payable with all applications for a new permit.

Unless an earlier date is specified in the permit, an exploration permit holder has a right to be granted a petroleum mining permit with a term of up to 40 years if the exploration permit holder satisfies the Minister that, as a result of the activities authorised by the exploration permit, a deposit of petroleum has been found in the land covered by the exploration permit.

The annual royalties payable in relation to a permit depend on when the relevant petroleum discovery in the permit was made, and whether an exploration permit or a mining permit is held.

On deposits of petroleum known to exist before 30 June 2004 or discovered after 31 December 2009, the New Zealand Government reserves a royalty of:

(a)	where an exploration permit is held, a royalty of 5% of the net sales revenue from all petroleum obtained from the exploration permit; and
(b)	where a mining permit is held, a royalty of the greater of:
	(i)	5% of the net sales revenue from the sale of all petroleum obtained from the mining permit; and
	(ii)	20% of the accounting profits from the sale of all petroleum obtained from the mining permit.

On deposits of petroleum discovered in the period 30 June 2004 to 31 December 2009, where an exploration permit is held, the New Zealand Government reserves a royalty of:

(a)	1% of the net sales revenue from the sale of all natural gas products obtained from the exploration permit; and
(b)	5% of the net sales revenue from the sale of all oil products from the exploration permit.

On deposits of petroleum discovered during the period 30 June 2004 to 31 December 2009 that are produced under a mining permit, the New Zealand Government reserves a royalty that is the greater of:

(a)	1% of the net sales revenue from the sale of all natural gas products obtained from the mining permit or 5% of the net sales revenue, from the sale of all oil products from the mining permit; and
(b)	a percentage of accounting profits, calculated on the following basis:
	(i)	15% of the accounting profits on the first NZ$750 million (cumulative) gross sales for an offshore discovery or the first NZ$250 million (cumulative) gross sales for an onshore discovery; and

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(ii) 20% of the accounting profits on any additional petroleum obtained.

In calculating the accounting profits on any petroleum produced from a discovery made during the period 30 June 2004 to 31 December 2009, a mining permit holder may deduct, amongst other things, its prospecting and exploration costs that it has incurred in any permit in New Zealand between 30 June 2004 and 31 December 2009. For production from all other mining permits, only prospecting and exploration costs associated with that specific permit can be deducted for the calculation of accounting profits for that permit.

Detailed methods for calculating “net sales revenue” and “accounting profits” are prescribed for the purpose of royalties’ calculation. Royalties are assessed annually.

On August 22, 2006 new fees were implemented with an effective date of September 22, 2006 for all permits. For the financial year from 1 July 2006 to 30 June 2007, an exploration permit holder must pay the New Zealand Government an annual fee of $9.47 per square kilometre for the first 1500 square kilometres and $7.22 for each additional square kilometre of the land of any exploration permit. In respect of the same period, a mining permit holder must pay the New Zealand Government an annual fee of NZ$303.12 per square kilometre of the land area of any mining permit. From 1 July 2007, or on any permit granted or extended on or after 22 September 2006, the new annual fees require an exploration permit holder to pay the New Zealand Government NZ$10.50 per square kilometre for any exploration permit. A mining permit holder must pay the New Zealand Government an annual fee of NZ$100 per square kilometre of the land area of any mining permit and a prospecting permit holder must pay an annual fee of NZ$4.00 per square kilometre of the land area of any prospecting permit.

Environmental Regulation in New Zealand

In New Zealand, on land and in waters within twelve miles of the coast, the Resource Management Act 1991 controls users of natural and physical resources, including petroleum explorers, with a view to managing resource usage in ways that will not compromise future utilization. The Resource Management Act 1991 places the emphasis on assessment of the effect the proposed activity will, or might, have on the environment with a view to promoting sustainable management. Under the Resource Management Act 1991, most of the responsibility for managing resources and their use is given to local authorities. Regional and district councils must produce and continuously update planning schemes for their jurisdictions which establish procedures and standards for assessing and approving environmental standards in accordance with the Resource Management Act.

Property, Plant and Equipment

Our major operations and principal activities are in the oil and gas exploration business. The following is a brief description of the principal prospects held by the Company. For definitions of technical terms in the following description of properties, see the Glossary of Industry Terms found at the beginning of this report. Apart from our interests in the following hydrocarbon exploration properties, we hold only minor office assets for the purpose of operating our business.

The following properties are discussed in this section:

Property	Location	Working Interest	Gross Sq. Km’s	Net Sq. Km’s
PMP 38153	Taranaki	15	6	0.9002
PMP 38156-S	Taranaki	30.5	30.3	9.2411
PMP 38156-D	Taranaki	15.1	30.3	4.5751
PMP 38157	Taranaki	33.33	22.48	7.4926
PEP 38732	Taranaki	100	7.778	7.778
PEP 38736	Taranaki	15	11.914	1.7871
PEP 38738-S	Taranaki	30.5	46.349	14.1363

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PEP 38738-D	Taranaki	15.1	46.349	6.9986
PEP 38741	Taranaki	45	12.610	5.6745
PEP 38744	Taranaki	100	110.941	110.941
PEP 38745	Taranaki	83.33	50.517	42.0957
PEP 38746	Taranaki	16.67	79.399	13.2359
PEP 38748	Taranaki	33.33	64.236	21.4098
PEP 38751	Taranaki	66.66	66.077	22.0235
PEP 38757	Taranaki	100	29.461	29.461
PEP 38758	Taranaki	100	49.679	49.679
PEP 38765	Taranaki	38.3	12.715	4.8699
PEP 38766	Taranaki	33.33	2.489	0.8295
PEP 38767	Taranaki	100	43.767	43.767
PEP 38256	Canterbury	100	2795.965	2795.965
PEP 38258	Canterbury	25	5460.998	1365.2495
PEP 38260 (1)	Canterbury	30	2429.927	728.9781
PEP 38341	East Coast	35.5	1814.979	644.3174
PEP 38342	East Coast	35.5	1723.002	611.6656

(1) The Company has entered into an agreement, effective May 16, 2005, with the 100% PEP 38260 permit holder where in exchange for completing certain work permit program requirements, at the Company’s own cost, the Company will receive certain working interests. At the date of this report, the Company has earned a 30% interest and operatorship of the onshore portion of this permit. Notice of this agreement has yet to be issued by the New Zealand Ministry of Economic Development.

For further detail on each property and work done during the year please refer to “History and Development of the Company” above and to the Company’s financial statements (Item 17). For details of planned work to be done on each property before March 31, 2007 and the estimated cost thereof see below “Liquidity and Capital Resources”.

Reserves

The Company did not have any reserves at March 31, 2006. Subsequent to the 2006 fiscal year the Company acquired, as detailed above, a 30.5% interest in PEP 38738-S and PEP 38738-D. In July 2006 the Ministry of Economic Development in New Zealand issued a petroleum mining permit (“PMP 38156”) covering 30 square kilometres (of the total 90 square kilometres originally held under PEP 38738-S and PEP 38738-D) that contains the Cheal Oil Field and the Cardiff deep gas prospect. The remaining 60 square kilometres remains in PEP 38738-S and PEP 38738-D. The Company has therefore recognized reserves subsequent to March 31, 2006 in respect to the Cheal Oil Field. An independent report dated as of April 30, 2006 was prepared for the Company by Sproule International Limited (Exhibit 4.9) was completed using data obtained from the Company’s subsidiary Cheal Petroleum Limited and from public sources. As at April 30, 2006 Sproule assigned 484,859 barrels (Company share) of Proved Undeveloped Reserves, 558,150 barrels (Company share) of Probable Reserves and 485,713 barrels (Company share) of Possible Reserves.

Although the Cardiff deep gas prospect was included in the area of PMP 38156 Sproule did not assess the prospect and there has been no reserves assigned to this prospect to the date of this report.

ITEM 5. OPERATING, FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis is management’s opinion of our historical financial and operating results and should be read in conjunction with our audited consolidated financial statements. (See Item 17) for the years ended March 31, 2006, 2005, and 2004, together with the notes related thereto. The financial statements have been prepared in accordance with Canadian GAAP, and a reconciliation to US GAAP is provided in note 9 to the financial statements, under Item 17.

All dollar values are expressed in Canadian dollars, unless otherwise stated.

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Operating Results

Summary

We are in the exploration and evaluation stage with respect to all but one of our oil and gas properties and therefore we do not generate any significant sales or revenue from operations. We have experienced losses in each of our fiscal periods and have not yet achieved break-even cash flow. Our main source of capital currently is the issuance of equity securities, which has a dilutive effect on our shareholders. Total losses incurred since incorporation to the period ending March 31, 2006 were $12,104,977. The level of future operations may be limited by the availability of capital resources, the sources of which are not predictable. The results of operations should be largely measured by the success of the extent and quality of oil and gas discovered as a result of exploration programs.

Results of Operations – 2006 Compared to 2005 and 2004

We have conducted our operations as an acquisition and exploration company for the 2006 fiscal year and our primary acquisitions over the 2006 fiscal year was acquiring PMP 38157, PEP 38260, PEP 38341 and PEP 38342. In addition subsequent to year end we acquired an interest in Cheal Petroleum Limited (“Cheal”) and Cheal holds a 30.5% interest in the Cheal Oil Field as described above. Our primary exploration focus over the 2006 fiscal year is also described above but includes drilling three unsuccessful exploration wells and three exploration wells that are under evaluation to determine if they are commercially viable in combination with future successful wells, all of which wells are located in the Taranaki Basin, New Zealand. The unsuccessful wells drilled during the 2006 fiscal year are: the Richmond-1 well on PEP 38745, the Konini-1 well on PEP 38751, and the Arakamu-1 well on PEP 38757. The wells under evaluation are: The SuppleJack-1 well on PEP 38741 and the SuppleJack South-1 and SuppleJack South-1a wells on PEP 38765. The Company also collected a significant amount of 2-D seismic on PEP 38758 (35 km’s), PEP 38256 (30 km’s), PEP 38260 (27 km’s), PEP 38341 and PEP 38342 combined (67 km’s) as described above.

Our objectives for the 2007 fiscal year are to participate in the Cheal Oil Field development plan that includes drilling at least 2 development wells and 2 exploration wells on production mining permit 38156 and participate in the development of permanent production facilities on PMP 38156. We also intend to drill in our most prospective exploration permits where warranted and to a lesser extent complete the required exploration work required under our permit terms and conditions and where possible exceed those requirements. To date we have drilled the Radnor-1a deep gas well located on PMP 38157 where we earned a 33.33% interest in the well and the Radnor production station by paying 66.66% of the costs of the well. The Company also sole-risked another joint venture participant’s 33.33% interest in the well. The Company has also participated in a 400 kilometre 2-D seismic program offshore in PEP 38258. The Company also intends to drill an additional four wells on PEP 38260, 38256, 38741 and 38758. The Company has a number of other prospects located on its current interests that are suitable for drilling and if rig availability and access to the service industry provides us the opportunity, the Company will consider drilling additional wells during the remainder of the 2007 fiscal year.

Results of operations:

The Company incurred a net loss for the 2006 fiscal year of $1,425,562 ($0.04 per share) compared to $1,214,377 ($0.09 per share) for the 2005 fiscal year and $938,001 (0.08 per share) for the 2004 fiscal year.

For the three years ended March 31, 2006, we generated $nil in oil and gas revenues. Total cost of sales for the same three year period was also $nil.

The Company’s only revenue for the 2006 fiscal year consisted entirely of interest of $399,684 and a gain on sale of marketable securities of $39,912 compared to $17,352 of interest income in the 2005 fiscal year and $15,737 in interest income and $23,256 gain on sale of property and equipment in the 2004

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fiscal year. The increase in interest income in 2006 was a result of the Company’s increased working capital from financings completed during the year.

The Company incurred $1,404,864 in general and administrative (“G&A”) expenses for the year ended March 31, 2006, compared to $829,233 for the year ended March 31, 2005 and $650,680 for the year ended March 31, 2004.

General and administrative (“G&A”) costs increased to $1,404,864 in 2006 from $829,233 in 2005 (a 69% increase) due to the Company’s increased activity levels related to the Company’s assets and, to a lesser extent, costs associated with successfully listing on the TSX Venture exchange. The main items contributing to the increased G&A were wages and travel costs. Wages accounted for 45% of the increase mainly because the Company employed a full-time exploration manager at the start of the fiscal year, the Company paid bonuses to the Company’s executives in December of 2005 and annual rates of compensation increased for the Company’s executives during the year. At the end of the 2006 fiscal year the Company also added a full time chief geophysicist to manage the increase in the Company’s exploration permits in New Zealand from seven permits in fiscal 2005 to twenty four by the date of this report. Travel costs accounted for 25% of the increase as these costs include costs associated with the Company’s President relocating to New Zealand as well as travel costs relating to the Company’s acquisition, exploration and financing efforts.

In addition to the above, the Company recorded stock option compensation costs of $123,829 (2005: $185,395) relating to stock options granted during the year and wrote-off $358,699 (2005: Nil) in costs associated with two permits, the details of which are available for review in Note 5 and Note 3 of the accompanying audited consolidated financial statements, respectively.

We believe that the general and administrative costs of the Company for the 2007 fiscal year will likely increase for the 2007 fiscal year as a result of the need to increase the amount of full-time employees to maintain our New Zealand operations as detailed in this annual report.

Inflation

We operate primarily in New Zealand, where inflation for our operational costs is at low levels – i.e. in the 2-5% range.

Foreign Currency Fluctuations

We hold cash reserves in CDN, US and NZ dollars, and incur the majority of our petroleum property expenditures in New Zealand dollars. An increase in value of the New Zealand dollar relative to the CDN or US dollar has a detrimental effect to us as our expenses incurred would, in turn, increase in CDN and US dollars. We do not currently hedge our exposure to currency rate changes, although we may choose to selectively hedge exposure to foreign currency exchange rate risk. We have no policies relating to the foregoing.

Government Regimes

We are subject to foreign governmental regulations that relate directly and indirectly to our operations including title to the petroleum interests, production, marketing and sale of hydrocarbons, taxation, environmental matters, restriction on the withdrawal of capital from a country in which we are operating and other factors. There is no assurance that the laws relating to the ownership of petroleum interests and the operation of our business in the jurisdictions in which it currently operates will not change in a manner that may materially and adversely affect our business. There is no assurance that the laws of any jurisdiction in which we carry on business may not change in a manner that materially and adversely affects our business.

Differences between Canadian and U.S. Generally Accepted Accounting Principles

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The Company is subject to changes in accounting standards. These financial statements accompanying the report have been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”) which conform in all material respects with United States generally accepted accounting principles (“U.S. GAAP”). However, there are some exceptions and these are detailed below in Item 17, Note 9 “Differences between Canadian and United States Generally Accepted Accounting Principles”.

New Accounting pronouncements

There have not been any new accounting pronouncements during the 2006 fiscal year that have had a material affect on the Company’s financial statements.

Liquidity and capital resources –2006 Compared to 2005 and 2004

As of the date of this report, the Company has sufficient capital to conduct its planned exploration program through the end of the 2007 fiscal year to maintain our interests in all of our New Zealand based permits. However, owing to the inherent risks of oil & gas acquisition and exploration, it is uncertain whether we will be able to generate sufficient income and/or secure outside sources of capital in an amount that are sufficient for us to continue with our expected operations beyond the end of 2007. Due to the exploratory nature of our business, traditional forms of debt financing may not be available to us and the Company may look at opportunities to farm-out, reschedule or defer some of our capital expenditures.

We did not receive any revenue from our operations in 2006. We expect to receive production revenue during the 2007 fiscal year from one property “PMP 38156” that contains the Cheal Oil Field that is currently in the development stage. The balance of our current properties are in the exploration stage and we do not expect to receive any revenue from them during our 2007 fiscal year.

Operating Activities:

The Company had $18,753,695 in cash and cash equivalents and $17,843,233 in working capital at March 31, 2006. This compares to $6,368,935 in cash and cash equivalents and $6,010,158 in working capital for year ended March 31, 2005.

The Company had a net use of cash of $2,038,848 from operating activities for the year ending March 31, 2006 compared to a net use of cash of $1,111,594 for the comparable year ending March 31, 2005.

Financing Activities:

2006

Financing activities for the year ended March 31, 2006 consisted of the Company receiving $20,371,485 as follows:

• During the 2006 fiscal year , the Company issued 9,066,500 shares from treasury upon the exercise of certain share purchase warrants at a price of US$0.60 per share.
   
• On September 22, 2005, the Company completed a brokered private placement financing consisting of 11,538,500 shares at a price of $1.30 per share. In connection with the financing the Company issued 400,000 broker warrants exercisable at a price of $1.30 per share that expired unexercised, subsequent to the 2006 fiscal year end.

Refer to Item 17 Note 5 and 8 for further details.

2005

Financing activities for the year ended March 31, 2005 consisted of the Company receiving $7,430,175 as follows:

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• In May 2004, the Company completed a private placement financing by issuing 542,495 post-split units at a price of US$1.67 and for proceeds of US$905,967 (CAD$1,247,218).
   
• The Company, primarily in the fourth quarter issued 6,150,000 common shares from treasury pursuant to the exercise of certain share purchase warrants at a price of US$0.23 per share, for proceeds of US$1,414,500 (CAD$1,744,978) and 100,000 common shares from treasury pursuant to the exercise of certain stock options at a price of US$0.267 per share, for proceeds of US$26,700 (CAD$ $32,934).
   
• On December 24, 2004 the Company purchased 1,800,000 incentive shares for cancellation and return to treasury at the owners cost, that had been previously issued to the Company’s President for US$5,940 (CAD$7,338).
   
• The Company’s final capital raising transaction for the 2005 fiscal year occurred in March of 2005 and consisted of a private placement of 9,066,500 units at a price of US$0.40 per unit for proceeds of US$3,626,600 (CAD$4,412,383).

Investing Activities:

Investing activities for the 2006 fiscal year consisted of using $5,969,491 of cash for acquisition and exploration work on our New Zealand oil and gas properties. Please refer to Item 17 Note 3 and 8 for additional information relating to acquisitions and expenditures as well as “Property, Plant and Equipment” above. The Company also used $21,598 in cash for the purchase of equipment and sold 6,000 shares of Tenke Mining Corp for proceeds of $43,212.

For the similar period last year, the Company used $822,236 of cash for exploration work on our New Zealand oil and gas properties. The Company also used $3,876 in cash for the purchase of equipment.

The net result for the twelve-month period ending March 31, 2006 was a net use of cash totalling $5,947,877 for investing activities. This compares to a net use of cash from investing activities totalling $826,112 for the same period last year.

Conclusion:

The net impact of all cash activities during the twelve months ended March 31, 2006 resulted in a net increase in cash of $12,384,760, compared to a net increase in cash of $5,492,469 for the year ended March 31, 2005.

Other:

• Subsequent to year-end, on June 12, 2006 the Company completed a brokered private placement financing of 40,000,000 common shares at a price of $0.75 per share.
   
• On June 16, 2006, the Company acquired all of the outstanding shares of Cheal Petroleum Limited (“Cheal”), PEP 38757 Limited and PEP 38758 Limited which are all located in New Zealand. Please refer to Exhibit 4.8 and 4.12. Cheal owns a 30.5% interest in PEP 38738-S containing the Cheal Oil Field and a 15.1% interest in PEP 38738-D containing the Cardiff deep gas prospect. Consideration paid for these companies was:

ix.	NZ$18,542,857 (CDN$12,800,000) consisting of a payment of NZ$14,625,501 at the closing of the share purchase agreement and a cash payment to the seller immediately after closing of NZ$3,917,356 to re-pay advances made by the seller to Cheal Petroleum Limited;
ii.	five million shares of the Company; and
iii.	a 0.775% gross over riding royalty on PEP 38738-D.

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The work commitments expected over the 2007 fiscal year for PEP 38738-S and PEP 38738-D amount to a total of $6,000,000 and relate materially to the Cheal Oil Field Development Plan.

Our capital resources historically were comprised primarily of private investors who are either existing contacts of management or who come to our attention through brokers, financial institutions and other intermediaries. Our capital resources, as a result of our brokered private placements in March and September 2005 and June 2006, have expanded to a broader group than in previous fiscal years. These capital resources are not anticipated to change during the 2007 fiscal year. Our access to capital is always dependent upon general financial market conditions.

ANTICIPATED MATERIAL WORK OBLIGATIONS BEFORE MARCH 31, 2007 (AS AT MARCH 31, 2006)

	Description of		Source of
Property	Work	CAD$ (1)	Funds
Unproved:
PMP 38157	Drill and complete well	3,500,000	working capital
PEP 38260	Drill well	1,400,000	working capital
PEP 38741	Drill Well	572,000	working capital
PEP 38758	Drill Well	1,540,000	working capital
Total Work Obligations		7,012,000

(1) The Company estimates an additional $646,000 will be spent on its various other properties during the 2007 fiscal year.

The estimates of anticipated Material Work Obligations before March 31, 2007, have been revised for the 2007 fiscal year as at September 28, 2006, and the amended obligations for the year are as follows:

	Description of		Source of
Property	Work	CAD$ (1) (2) (3)	Funds
Unproved:
PMP 38153	Drill well	1,050,000	working capital
PEP 38157	Drill and complete well	8,000,000	working capital
PEP 38156	Field development plan/seismic	6,750,000	working capital
PEP 38256	Drill well	750,000	working capital
PEP 38256	Drill well	750,000	working capital
PEP 38260	Drill well	750,000	working capital
PEP 38741	Drill Well and Permit Maintenance	590,000	working capital
PEP 38758	Drill Well	1,584,000	working capital
Total Work Obligations		20,224,000

(1)	Revised as to updated obligations and considering work being performed to the date of this report.
(2)	The Company estimates that an additional $525,000 will be spent on its various other properties during the 2007 fiscal year.
(3)	Subject to change based on the Company’s accessibility to drilling rigs, qualified personnel and other data and results becoming available to the Company.

Research and Development, Patents and Licences

Not applicable.

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Trend Information

Exchange rate fluctuation is an important trend to the Company as we hold our cash in CAD$, US$ and NZ$ and we incur our exploration expenditures in NZ$. Refer to Item 3 “Risk Factors- Effect of Different Currencies”.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

The directors and officers of our Company are:

Name and Municipality	Position Held	Office Held Since
of Residence
Drew Cadenhead	President, Chief Executive Offier	April 24, 2003
New Plymouth, New Zealand	and Director
Garth Johnson,	Chief Financial Officer,	April 20, 2001
Vancouver, BC, Canada.	Secretary and Director
Paul Infuso (1)	Director	February 2, 2005
Winnipeg, MB, Canada
James Smith (1)	Director	February 2, 2005
Calgary, AB, Canada

(1) Member of audit committee.

Mr. Drew Cadenhead has been the Company’s President, Chief Executive Officer and a Director since April 24, 2003. Mr. Cadenhead began his career in the oil and gas industry in 1979 with Amoco and Canadian Hunter where he was responsible for exploration in Canada's Western Sedimentary Basin. Mr. Cadenhead has held various executive positions in the energy sector, including Vice President of Exploration and executive positions responsible for acquisitions and divestitures. Of particular importance to the Company, is Mr. Cadenhead’s international successes in New Zealand's Taranaki Basin with Fletcher Challenge. Mr. Cadenhead is a member of the C.S.P.G. and APEGGA and holds the professional designation P. Geol and received his Bachelor of Science in Geology from the University of Calgary.

Mr. Garth Johnson is a Certified General Accountant who was a Controller with a manufacturer in the lumber industry from 1994 to 1997 in Surrey, B.C. In 1997, Mr. Johnson joined our Company as the corporate accountant. He is currently the Chief Financial Officer, Secretary and a Director of our Company as well as Chief Financial Officer of AMG Oil Ltd.

Mr. Paul Infuso is an independent oil & gas consultant with more than twenty years of experience. Mr. Infuso has held executive and leadership positions with both Ulster Petroleum and Impact Energy, where he played a key role in their success.

Mr. James Smith is a seasoned business executive who has over 30 years of experience with public equity, financial management and reporting. He has been involved in the oil and gas industry at an executive level since 1983. Mr. Smith has formerly worked as CFO of Crestar Energy, as Vice President of Amoco Canada and as an executive for Dome Petroleum. Mr. Smith is a member of the board of directors of Grand Petroleum Inc., Penn West Petroleum Ltd., Grey Wolf Exploration Inc and Pure Energy Services Ltd.

Effective July 25, 2005, the Company secured directors and officers liability insurance. This insurance was renewed on July 25, 2006.

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Compensation

The following table sets forth the aggregate compensation paid by the Company for services rendered during the last full fiscal year indicated:

SUMMARY COMPENSATION TABLE

		Compensation		Securities Under Option
Named Executive Officer and Principal Position	Year Ended	Salary ($)	Other Annual Compensation ($)	Number of Options	Exercise Price (6)	Expiry Date
Drew Cadenhead President, Chief Executive Officer and Director (1)	2006 2005 2004	190,000 165,260 147,667	40,000 - 12,000	50,000 400,000 -	$1.30 $0.77 -	Nov 22, 2010 January 1, 2010 -
Garth Johnson, Chief Financial Officer and Secretary (2)	2006 2006 2005 2004	69,552 - 69,082 58,335	25,000 - -	100,000 75,000 75,000(6)	$1.30 $0.77 $0.77 $0.77	Nov 22, 2010 May 10, 2010 May 31, 2008
Paul Infuso Director (3)	2006 2005 2004	12,000 2,000 -	- - -	- 75,000 -	- $077 -	- Feb 10, 2010 -
James Smith Director (3)	2006 2005 2004	10,500 1,000 -	- - -	25,000 50,000 -	$1.12 $0.77 -	July 10, 2010 Feb 10, 2010 -
Alan Hart, Chairman and Director (4)	2006 2005 2004	- 30,349 49,024	- - -	- - -	- - -	- - -
Barry MacNeil, Chairman and Director (5)	2006 2005 2004	- 5,350 -	- - -	- - -	- - -	- - -

(1)	Mr. Cadenhead was granted 400,000 options on January 1, 2005. The options vest over a five year period. Effective December 1, 2005 the Company and Mr. Cadenhead agreed to annual compensation of $200,000 with certain bonus provisions to be decided by the Company’s compensation committee. Mr. Cadenhead is also paid a 30% cost of living allowance that remains in effect while he resides in New Zealand. Subsequent to March 31, 2006 Mr. Cadenhead was granted an additional 200,000 options exercisable at $0.70 per share until expiry on August 2, 2011.
(2)	Mr. Johnson was paid $69,552 (2005: $69,082; 2004: $58,335) primarily through invoices submitted by DLJ Management Corp., a subsidiary of Trans-Orient Petroleum Ltd., as a result of Mr. Johnson’s time spent on business of the Company. Effective December 1, 2005 the Company and Mr. Johnson agreed to annual compensation of $150,000 per year with certain bonus provisions to be decided by the Company’s compensation committee. Subsequent to March 31, 2006 Mr. Johnson was granted an additional 100,000 options exercisable at $0.70 per share until expiry on August 2, 2011.
(3)	Mr. Infuso and Mr. Smith were paid $1,000 and $500 per month respectively in their capacity as Directors starting from date of their appointment on February 10, 2005 until April 2005 when it was agreed that all independent directors would be compensated $1,000 per month. In addition Mr. Infuso and Mr. Smith were each granted 75,000 and 50,000 options on February 10, 2005 and Mr. Smith was granted an additional 25,000 options on July 29, 2005. Subsequent to the 2006 fiscal

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	year the Company agreed to compensate Mr. Infuso and Mr. Smith each $2,500 per month. Additionally Mr. Infuso and Mr. Smith were each granted an additional 150,000 options exercisable at $0.70 per share until expiry on August 2, 2011.
(4)	Mr. Hart resigned from the Board of Directors effective June 11, 2005.
(5)	Mr. MacNeil resigned from the Board of Directors effective February 2, 2005.
(6)	Certain options are denominated in US dollars and have been converted to Canadian dollars using the March 31, 2006 closing exchange rate.

We currently do not offer profit sharing, pension or retirement benefit plans to our officers or directors and none are presently proposed. There are no arrangements for payments on termination for any officer in the event of a change of control, with the exception that upon a change of control of the Company occurring, directors options and incentive shares that are subject to vesting provisions are deemed to have vested completely, immediately prior to a change of control occurring.

Board Practices

All directors have a term of office expiring at our next annual general meeting, to be held in September of 2007, unless re-elected or unless a director's office is earlier vacated in accordance with our by-laws or the provisions of the Business Corporations Act (Yukon).

All officers have a term of office lasting until their removal or replacement by the board of directors. As of September 28, 2006 the following are the Company’s officers and directors.

Name	Period served in position
Drew Cadenhead, President, Chief Executive Officer and Director	3 years, 5 months
Garth Johnson, Secretary, Chief Financial Officer and Director	5 years, 5 months
James Smith, Director	1 year, 7 months
Paul Infuso, Director	1 year, 7 months

Audit and compensation committees

List of Audit committee members as at September 28, 2006:
          James Smith 
          Paul Infuso

Audit committee members do not have service contracts and are not paid for their services as an audit committee member. The committee is constituted to monitor the veracity of the financial and regulatory reports produced by the Company, and the controls that are in place to ensure the opportunities for fraud or material error in the financial statements of the Company are minimized. Please refer to Exhibits for a copy of the Audit Committee Charter.

The Company has a compensation committee consisting of Mr. Infuso and Mr. Smith. Compensation Committee members do not have service contracts and are not paid for their services as a compensation committee member. The committee is constituted to ensure that executives, staff and board members are provided incentives and compensated in a way that advances both the short and long-term interests of shareholders while also ensuring that the Company is able to attract and retain executive management talent. Please refer to Exhibit 4.11 for a copy of the Compensation Committee Charter.

Employees and Consultants

We have four full time employees. Mr. Cadenhead, President and CEO, Mr. Johnson, CFO and Corporate Secretary, Mr. Mark Webster, Exploration Manager and Mr. Ricardo Bertolotti, Chief Geophysicist.

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Messrs. Cadenhead, Webster and Bertolotti reside in New Zealand and Mr. Johnson is located in Vancouver, British Columbia.

Share ownership by directors and officers of the Company at September 28, 2006 are as follows:

Name	Number of Shares	Number of Options	Exercise Price (1)	Expiry Date
Drew Cadenhead	300,000	400,000 50,000 200,000	$0.77 $1.30 $0.70	Jan 1, 2010 Nov 22, 2010 August 2, 2011
Garth Johnson	38,000	75,000 75,000 100,000 100,000	$0.77 $0.77 $1.30 $0.70	May 31, 2008 May 10, 2010 Nov 22, 2010 August 2, 2011
Paul Infuso	200,000	75,000 150,000	$0.77 $0.70	February 10, 2010 August 2, 2011
James Smith	100,000	50,000 25,000 150,000	$0.77 $1.12 $0.70	February 10, 2010 July 29, 2010 August 2, 2011

⁽¹⁾ Certain options are denominated in US dollars and have been converted to Canadian dollars using the March 31, 2006 closing exchange rate.

There have been no incentive stock options exercised by any director, officer or employee to the report date.

On September 9, 2005 the Company received disinterested shareholder approval to the Company’s new share option plan where directors, officers, employees and consultants to the Company or its affiliates are eligible to receive grants of options. Under the new option plan the number of shares reserved for issuance as share incentive options is equal to 10% of the Company’s issued and outstanding shares at any time. These options are non-assignable and non transferable, and have a term of up to 5 years, terminating within 90 days after the optionee ceases to be associated with the Company and vesting over a period of at least 18 months. The exercise prices will be established at the time the options are granted; subject to a minimum exercise price of not less than the Discounted Market Price as defined in the policies of the TSX-V.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Major shareholders

Beneficial Holder of More Than Five Percent of Outstanding Shares

The Company sets forth the common stock ownership of the only individual known by us to be the beneficial owner of 5% or more of our common stock. All ownership is of record and reflects beneficial ownership as of September 28, 2005. Information was provided by the individual.

Name and address of owner	Number of Shares	Percent of Class
RAB Energy Fund Limited Vancouver, B.C.	6,725,000	7.34
South Pacific Lease Operations Limited	5,000,000	5.46

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To the knowledge of the Company, there have been no significant changes in percentage share ownership held by any major shareholders, during the last three years with the exception of:

1.	On September 22, 2005, RAB Energy Fund Limited acquired 6,725,000 shares of the Company through a brokered private placement detailed above.
2.	On June 15, 2006, the Company issued South Pacific Lease Operations Limited 5,000,000 shares of the Company as part of the acquisition of Cheal Petroleum Limited, PEP 38757 Limited and PEP 38758 Limited as detailed above.

Insider Reporting

The Securities Act (Yukon) does not prescribe any reporting for insiders of our Company. The company is a reporting issuer in British Columbia and insiders comply with the requirements of Part 12 of the Securities Act (British Columbia). Insiders (generally officers, directors and holders of more than ten percent of voting securities) are required to file individual insider reports of changes in their ownership within ten days after the month in which any trade in our securities occurs. Copies of the reports and summaries of the insider activity as well as issuer activity are available for public inspection at www.sedi.com, the Canadian regulatory website for insider trading.

Major Shareholder Voting Right

There are no different voting rights attributable to the major shareholders and every shareholder has equal rights.

Host Country Shareholders

The proportion and number of shareholders of record in the United States as at August 31, 2006 are as follows:

Estimated proportion of shares held in the U.S.	17.72%
Number of shareholders	555
Number of shares held	16,241,232

Arrangements Affecting Shareholdings

None.

Related Party Transactions

The following are reported as Related Party Transactions. The nature of the transaction, the affiliate(s) who had an interest in the transaction and the nature of the interest are included in the description of each of the transactions:

(a)	On August 2, 2006 the Company granted 600,000 options to four Directors all of which vest over eighteen months and are exercisable at a price of $0.70 per share until expiry on August 2, 2011.
(b)	On November 22, 2005 the Company granted 150,000 options to two Directors that vest over eighteen months and are exercisable at a price of $1.30 per share until expiry on November 22, 2010.
(c)	On August 15, 2005 the Company entered into an agreement with Mr. Brian Jones to retain Mr. Jones to provide his services as the Company’s Executive Vice President. The agreement is for an

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	initial three month period with monthly compensation of $7,000 per month. This agreement was terminated in November 2005.
(d)	Independent Directors of the Company received a total of $22,500 (2005 fiscal year - $3,000) in director’s fees for the 2006 fiscal year.
(h)	During the fiscal year ending March 31, 2006 the Company paid a total of $358,427 (2005 fiscal year - $270,041) in wages, bonuses and cost of living allowance to its Executive Officers.

Interests of experts and counsel

Not applicable

ITEM 8. FINANCIAL INFORMATION

Consolidated Statements and Other Financial Information

Consolidated financial statements are provided under PART III. Item 17. FINANCIAL STATEMENTS There are no material legal proceedings to which we are subject or which are anticipated or threatened. We have never paid dividends to shareholders and no dividends are payable in the foreseeable future.

Significant Changes

The following significant changes have occurred since March 31, 2006:

a)	Acquisition of Cheal Petroleum Limited, PEP 38757 Limited and PEP 38758 Limited:
	On June 16, 2006, the Company acquired all of the outstanding shares of Cheal Petroleum Limited (“Cheal”), PEP 38757 Limited and PEP 38758 Limited which are all located in New Zealand. Please refer to Exhibit 4.8 and 4.12. Cheal owns a 30.5% interest in PEP 38738-S containing the Cheal Oil Field and a 15.1% interest in PEP 38738-D containing the Cardiff deep gas prospect. Consideration paid for these companies was:
	i.	NZ$18,542,857 (CDN$12,800,000) consisting of a payment of NZ$14,625,501 at the closing of the share purchase agreement and a cash payment to the seller immediately after closing of NZ$3,917,356 to re-pay advances made by the seller to Cheal Petroleum Limited;
	ii.	five million shares of the Company; and
	iii.	a 0.775% gross over riding royalty on PEP 38738-D.

The work commitments expected over the 2007 fiscal year for PEP 38738-S and PEP 38738-D amount to a total of $6,000,000 and relate materially to the Cheal Oil Field Development Plan.

b)	Private Placement Financing:
	On June 12, 2006, the Company completed a private placement financing of 40,000,000 common shares at a price of $0.75 per share for net proceeds of approximately $28.1 million.

No other significant changes material to the business of the Company has occurred since the date of the annual financial statements.

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ITEM 9. THE OFFER AND LISTING

Offer and Listing Details

Price History of the stock

All values noted below are in US dollars per share for the OTCBB and Canadian dollars for the TSX-V.

Summary trading by year, for the five most recently completed fiscal periods ending March 31, 2006:

	OTCBB		TSX-V
Year	High (1)(2)(3)	Low (1)(2)(3)	High (2)(3)	Low (2)(3)
2002	1.25	0.20	-	-
2003	1.55	0.22	-	-
2004	4.50	0.65	-	-
2005	3.75	0.40	-	-
2006	1.46	0.38	1.70	0.63

Summary trading by quarter for the two most recently competed fiscal periods ending March 31, 2006:

	OTCBB		TSX-V
Year and
Quarter	High (1)(2)(3)	Low (1)(2)(3)	High (2)(3)	Low (2)(3
2005
First Quarter	3.75	2.00	-	-
Second Quarter	2.20	1.01	-	-
Third Quarter	1.42	0.65	-	-
Fourth Quarter	0.95	0.40	-	-

2006
First Quarter	0.80	0.38	-	-
Second Quarter	1.46	0.60	1.70	1.09
Third Quarter	1.25	0.47	1.40	0.63
Fourth Quarter	1.02	0.58	1.19	0.69

Summary trading by quarter for any full quarter subsequent to the year end March 31, 2006:

	OTCBB		TSX-V
Month	High (1)(2)(3)	Low (1)(2)(3)	High (2)(3)	Low (2)(3)
Apr 1 to June 30	0.88	0.60	1.00	0.67

Summary trading by month for the six most recently completed months ending August 31, 2006:

Month	High (1)(2)(3)	Low (1)(2)(3)	High(2)(3)	Low(2)(3)
Mar	0.78	0.60	0.85	0.69
Apr	0.88	0.60	1.00	0.70
May	0.82	0.61	0.90	0.70

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Jun	0.87	0.62	0.90	0.67
July	0.84	0.55	0.83	0.64
Aug	0.66	0.52	0.73	0.58

(1)	OTCBB quotations may reflect interdealer prices, without retail markup, markdown or commission and may not necessarily reflect actual transactions.
(2)	All market prices subsequent to May 4, 2004 reflect trading after the 1.5:1 forward stock split to the recorded shareholders as of April 27, 2004.
(3)	All quotations for OTCBB are from the website located at www.finance.yahoo.com and all quotations for TSX-V are from the website located at www.tsx.com.

Markets

The authorized capital of the Company consists of an unlimited number of Common Shares without par value, of which 46,631,081 were issued as of September 28, 2005.

Our shares traded on the VSE in Vancouver, British Columbia, Canada until September 21, 2000. On July 18, 2005, the Company commenced trading on the TSX Venture Exchange under the symbol “TAO”. Beginning on December 8, 1999 our shares traded on the OTC Bulletin Board (OTCBB”) under the symbol “DUREF” until we changed our name to TAG Oil Ltd.on June 12, 2002. Thereafter our shares have traded on the OTCBB under the symbol “TAGOF”.

ITEM 10. ADDITIONAL INFORMATION

Share Capital

Not applicable

Memorandum and Articles of association

Our Articles of Association were previously filed with our Form 20F for the Year Ended March 31, 2000. On September 22, 2006 the shareholders of the Company approved the Board of Directors recommendation to return the Company’s incorporation to British Columbia and to adopt new Articles. The new Articles to be adopted by the Company are attached in Exhibit 4.10 to this annual report.

Material contracts

Attached as exhibits are material contracts the Company entered into during the period July 30, 2004 to September 28, 2006 as follows:

(a)	TAG Oil Ltd. Form of Subscription Agreement Dated September 2005-Canadian & Non-U.S. Persons. (1)
(b)	TAG Oil Ltd. Form of Subscription Agreement Dated September 2005-U.S. Persons. (1)
(c)	Underwriting Agreement with an Effective date of September 1, 2005 between the Company and Canaccord Capital Corporation is TAG Oil Ltd. Form of Subscription Agreement Dated June 2006-Canadian & Non-U.S. Persons. (1)
(d)	TAG Oil Ltd. Form of Subscription Agreement Dated June 2006-U.S. Persons.
(e)	Underwriting Agreement with an Effective date of May 12, 2006 between the Company and Canaccord Capital Corporation.

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(f) Share Purchase Agreement between the Company and South Pacifc Lease Operations Limited dated May 9, 2006.

⁽¹⁾ Incorporated by reference with our previously filed Form 20-F dated March 31, 2005 filed on September 28, 2005.

Exchange Controls

There is no law or governmental decree or regulation in Canada that restricts the export or import of capital, or affects the remittance of dividends, interest or other payments to a non-resident holder of common shares of the Company, other than withholding tax requirements. See “Taxation”.

There is no limitation imposed by Canadian law or by the charter or other constituent documents of the Company on the right of a non-resident to hold or vote common shares of the Company, other than as provided in the Investment Canada Act (Canada) (the “Investment Act”).

The following discussion summarizes the principal features of the Investment Act for a non-resident who proposes to acquire common shares of the Company. It is general only, it is not a substitute for independent advice from an investor’s own advisor, and it does not anticipate statutory or regulatory amendments.

The Investment Act generally prohibits implementation of a reviewable investment by an individual, government or agency thereof, corporation, partnership, trust or joint venture (each an “entity”) that is not a “Canadian” as defined in the Investment Act (a “non-Canadian”), unless after review the Director of Investments appointed by the minister responsible for the Investment Act is satisfied that the investment is likely to be of net benefit to Canada. The size and nature of a proposed transaction may give rise to an obligation to notify the Director and seek an advance ruling. An investment in common shares of the Company by a non-Canadian other than a “WTO Investor” (as defined in the Investment Act and which term includes entities which are nationals of or are controlled by nationals of member states of the World Trade Organization) when the Company was not controlled by a WTO Investor, would be reviewable under the Investment Act if it was an investment to acquire control of the Company and the value of the assets of the Company, as determined in accordance with the regulations promulgated under the Investment Act, Cdn$5 million, or if an order for review was made by the federal cabinet on the grounds that the investment related to Canada’s cultural heritage or national identity, regardless of the value of the assets of the Company. An investment in common shares of the Company by a WTO Investor, or by a non-Canadian when the Company was controlled by a WTO Investor, would be reviewable under the Investment Act if it was an investment to acquire control of the Company and the value of the assets of the Company, as determined in accordance with the regulations promulgated under the Investment Act, exceeds a specified amount, which in 2003 was Cdn$237 million. A non-Canadian would acquire control of the Company for the purposes of the Investment Act through acquisition of common shares if the non-Canadian acquired a majority of the common shares of the Company. The acquisition of less than a majority but one third or more of the common shares of the Company would be presumed to be an acquisition of control of the Company unless it could be established that, on the acquisition, the Company was not controlled in fact by the acquirer through the ownership of common shares.

Certain transactions relating to common shares of the Company would be exempt from the Investment Act, including

(a) Acquisition of common shares of the Company by a person in the ordinary course of that person’s business as a trader or dealer in securities,

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(b) Acquisition of control of the Company in connection with the realization of security granted for a loan or other financial assistance and not for a purpose related to the provisions on the Investment Act, and

(c) Acquisition of control of the Company by reason of an amalgamation, merger, consolidation or corporate reorganization following which the ultimate direct or indirect control in fact of the Company, through the ownership of common shares, remained unchanged.

Taxation

Canadian Tax Consequences

The following, summarizes the material Canadian federal income tax consequences generally applicable to the holding and disposition of Common Shares by a holder (in this summary, a “U.S. Holder”) who, (a) for the purposes of the Income Tax Act (Canada) (the "Tax Act"), is not resident in Canada, deals at arm's length with the Company, holds the Common Shares as capital property and does not use or hold the Common Shares in the course of carrying on, or otherwise in connection with, a business in Canada, and (b) for the purposes of the Canada-United States Income Tax Convention, 1980 (the "Treaty"), is a resident solely of the United States, has never been a resident of Canada, and has not held or used (and does not hold or use) Common Shares in connection with a permanent establishment or fixed base in Canada.

This summary does not apply to traders or dealers in securities, limited liability companies, tax-exempt entities, insurers, financial institutions (including those to which the mark-to-market provisions of the Tax Act apply), or any other U.S. Holder to which special considerations apply.

This summary is based on the current provisions of the Tax Act including all regulations there under, the Treaty, all proposed amendments to the Tax Act, the regulations and the Treaty publicly announced by the Government of Canada to the date hereof, and the current administrative practices of the Canada Customs and Revenue Agency. It has been assumed that all currently proposed amendments will be enacted as proposed and that there will be no other relevant change in any governing law or administrative practice, although no assurances can be given in these respects. This summary does not take into account provincial, U.S., state or other foreign income tax law or practice. The tax consequences to any particular U.S. Holder will vary according to the status of that holder as an individual, trust, corporation, partnership or other entity, the jurisdictions in which that holder is subject to taxation, and generally according to that holder's particular circumstances. Accordingly, this summary is not, and is not to be construed as, Canadian tax advice to any particular U.S. Holder.

Dividends

Dividends paid or deemed to be paid to a U.S. Holder by the Company will be subject to Canadian withholding tax. Under the Treaty, the rate of withholding tax on dividends paid to a U.S. Holder is generally limited to 15% of the gross amount of the dividend (or 5% if the U.S. Holder is a corporation and beneficially owns at least 10% of the Company’s voting shares). The Company will be required to withhold the applicable withholding tax from any such dividend and remit it to the Canadian government for the U.S. Holder’s account.

Disposition

A U.S. Holder is not subject to tax under the Tax Act in respect of a capital gain realized on the disposition of a Common Share in the open market unless the share is "taxable Canadian property" to the holder thereof and the U.S. Holder is not entitled to relief under the Treaty. A Common Share will be taxable Canadian property to a U.S. Holder if, at any time during the 60 months preceding the disposition, the U.S. Holder or persons with whom the U.S. Holder did not deal at arm's length alone or together owned, or had rights to acquire, 25% or more of the Company’s issued shares of any class or series.

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A U.S. Holder whose Common Shares do constitute taxable Canadian property, and who might therefore be liable for Canadian income tax under the Tax Act, will generally be relieved from such liability under the Treaty unless the value of such shares at the time of disposition is derived principally from real property situated in Canada. Management of the Company believes that the value of our Common Shares is not currently derived principally from real property situated in Canada.

United States Tax Consequences

The following is a discussion of material United States federal income tax consequences, under current law, generally applicable to a U.S. Holder (as hereinafter defined) of common shares of the Company. This discussion does not address all potentially relevant federal income tax matters and it does not address consequences peculiar to persons subject to special provisions of federal income tax law, such as those described below as excluded from the definition of a U.S. Holder. In addition, this discussion does not cover any state, local or foreign tax consequences (see “Taxation – Canadian Federal Income Tax Consequences” above). Accordingly, holders and prospective holders of common shares of the Company should consult their own tax advisors about the specific federal, state, local, and foreign tax consequences to them of purchasing, owning and disposing of common shares of the Company, based upon their individual circumstances.

The following discussion is based upon the sections of the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations, published Internal Revenue Service (“IRS”) rulings, published administrative positions of the IRS and court decisions that are currently applicable, any or all of which could be materially and adversely changed, possibly on a retroactive basis, at any time and which are subject to differing interpretations. This discussion does not consider the potential effects, both adverse and beneficial, of any proposed legislation, which if enacted, could be applied, possibly on a retroactive basis, at any time.

U.S. Holders

As used herein, a “U.S. Holder” means a holder of common shares of the Company who is a citizen or individual resident of the United States, a corporation or partnership created or organized in or under the laws of the United States or of any political subdivision thereof, an estate whose income is taxable in the United States irrespective of source or a trust subject to the primary supervision of a court within the United States and control of a United States fiduciary as described Section 7701(a)(30) of the Code. This summary does not address the tax consequences to, and U.S. Holder does not include, persons subject to specific provisions of federal income tax law, such as tax-exempt organizations, qualified retirement plans, individual retirement accounts and other tax-deferred accounts, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers, non-resident alien individuals, persons or entities that have a “functional currency” other than the U.S. dollar, shareholders subject to the alternative minimum tax, shareholders who hold common shares as part of a straddle, hedging or conversion transaction, and shareholders who acquired their common shares through the exercise of employee stock options or otherwise as compensation for services. This summary is limited to U.S. Holders who own common shares as capital assets and who own (directly and indirectly, pursuant to applicable rules of constructive ownership) no more than 5% of the value of the total outstanding stock of the Company. This summary does not address the consequences to a person or entity holding an interest in a shareholder or the consequences to a person of the ownership, exercise or disposition of any options, warrants or other rights to acquire common shares. In addition, this summary does not address special rules applicable to United States persons (as defined in Section 7701(a)(30) of the Code) holding common shares through a foreign partnership or to foreign persons holding common shares through a domestic partnership.

Distribution on Common Shares

In general, U.S. Holders receiving dividend distributions (including constructive dividends) with respect to common shares of the Company are required to include in gross income for United States federal income tax purposes the gross amount of such distributions, equal to the U.S. dollar value of such

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distributions on the date of receipt (based on the exchange rate on such date), to the extent that the Company has current or accumulated earnings and profits, without reduction for any Canadian income tax withheld from such distributions. Such Canadian tax withheld may be credited, subject to certain limitations, against the U.S. Holder’s federal income tax liability or, alternatively, may be deducted in computing the U.S. Holder’s federal taxable income by those who itemize deductions. (See more detailed discussion at “Foreign Tax Credit” below). To the extent that distributions exceed current or accumulated earnings and profits of the Company, they will be treated first as a return of capital up to the U.S. Holder’s adjusted basis in the common shares and thereafter as gain from the sale or exchange of property. Preferential tax rates for long-term capital gains are applicable to a U.S. Holder, which is an individual, estate or trust. There are currently no preferential tax rates for long-term capital gains for a U.S. Holder, which is a corporation.

In the case of foreign currency received as a dividend that is not converted by the recipient into U.S. dollars on the date of receipt, a U.S. Holder will have a tax basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Generally any gain or loss recognized upon a subsequent sale or other disposition of the foreign currency, including the exchange for U.S. dollars, will be ordinary income or loss. However, an individual whose realized gain does not exceed $200 will not recognize that gain, provided that there are no expenses associated with the transaction that meet the requirements for deductibility as a trade or business expense (other than travel expenses in connection with a business trip) or as an expense for the production of income.

Dividends paid on the common shares of the Company generally will not be eligible for the dividends received deduction provided to corporations receiving dividends from certain United States corporations. A U.S. Holder which is a corporation and which owns shares representing at least 10% of the voting power and value of the Company may, under certain circumstances, be entitled to a 70% (or 80% if the U.S. Holder owns shares representing at least 20% of the voting power and value of the Company) deduction of the United States source portion of dividends received from the Company (unless the Company qualifies as a “foreign personal holding company” or a “passive foreign investment company,” as defined below). The Company does not anticipate that it will earn any United States income, however, and therefore does not anticipate that any U.S. Holder will be eligible for the dividends received deduction.

Under current Treasury Regulations, dividends paid on the Company common shares generally will not be subject to information reporting and generally will not be subject to U.S. backup withholding tax. However, dividends and the proceeds from a sale of the Company’s common shares paid in the U.S. through a U.S. or U.S. related paying agent (including a broker) will be subject to U.S. information reporting requirements and may also be subject to the 31% U.S. backup withholding tax, unless the paying agent is furnished with a duly completed and signed Form W-9. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a refund or a credit against the U.S. Holder’s U.S. federal income tax liability, provided the required information is furnished to the IRS.

Foreign Tax Credit

A U.S. Holder who pays (or has withheld from distributions) Canadian income tax with respect to the ownership of common shares of the Company may be entitled, at the option of the U.S. Holder, to either receive a deduction or a tax credit for such foreign tax paid or withheld. Generally, it will be more advantageous to claim a credit because a credit reduces United States federal income taxes on a dollar-for-dollar basis, while a deduction merely reduces the taxpayer’s income subject to tax. This election is made on a year-by-year basis and generally applies to all foreign taxes paid by (or withheld from) the U.S. Holder during that year. There are significant and complex limitations which apply to the credit, among which is the general limitation that the credit cannot exceed the proportionate share of the U.S. Holder’s United States income tax liability that the U.S. Holder’s foreign source income bears to his or its worldwide taxable income. In the determination of the application of this limitation, the various items of income and deduction must be classified into foreign and domestic sources. Complex rules govern this classification process. In addition, this limitation is calculated separately with respect to specific classes

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of income such as “passive income, “ “high withholding tax interest,” “financial services income,” “shipping income,” and certain other classifications of income. Dividends distributed by the Company will generally constitute “passive income” or, in the case of certain U.S. Holders, “financial services income” for these purposes. The availability of the foreign tax credit and the application of the limitations on the credit are fact specific, and U.S. Holders of common shares of the Company should consult their own tax advisors regarding their individual circumstances.

Disposition of Common Shares of the Company

In general, U.S. Holders will recognize gain or loss upon the sale of common shares of the Company equal to the difference, if any, between (i) the amount of cash plus the fair market value of any property received, and (ii) the shareholder’s tax basis in the common shares of the Company. Preferential tax rates apply to long-term capital gains of U.S. Holders which are individuals, estates or trusts. In general, gain or loss on the sale of common shares of the Company will be long-term capital gain or loss if the common shares are a capital asset in the hands of the U.S. Holder and are held for more than one year. Deductions for net capital losses are subject to significant limitations. For U.S. Holders, which are not corporations, any unused portion of such net capital loss may be carried over to be used in later tax years until such net capital loss is thereby exhausted. For U.S. Holders that are corporations (other than corporations subject to Subchapter S of the Code), an unused net capital loss may be carried back three years and carried forward five years from the loss year to be offset against capital gains until such net capital loss is thereby exhausted. However, the amount that can be carried back is limited to an amount that does not cause or increase a net operating loss in the carry back year.

Other Considerations

Set forth below are certain material exceptions to the above-described general rules describing the United States federal income tax consequences resulting from the holding and disposition of common shares:

Foreign Personal Holding Company

If at any time during a taxable year more than 50% of the total combined voting power or the total value of the Company’s outstanding shares is owned, directly or indirectly (pursuant to applicable rules of constructive ownership), by five or fewer individuals who are citizens or residents of the United States and 60% or more of the Company’s gross income for such year is derived from certain passive sources (e.g., from certain interest and dividends), the Company may be treated as a “foreign personal holding company.” In that event, U.S. Holders that hold common shares would be required to include in gross income for such year their allocable portions of such passive income to the extent the Company does not actually distribute such income. The Company does not believe that it currently qualifies as a foreign personal holding company. However, there can be no assurance that the Company will not be considered a foreign personal holding company for the current or any future taxable year.

Foreign Investment Company

If 50% or more of the combined voting power or total value of the Company’s outstanding shares is held, directly or indirectly, by citizens or residents of the United States, United States domestic partnerships or corporations, or estates or trusts other than foreign estates or trusts (as defined by the Code Section 7701(a)(31)), and the Company is found to be engaged primarily in the business of investing, reinvesting, or trading in securities, commodities, or any interest therein, it is possible that the Company may be treated as a “foreign investment company” as defined in Section 1246 of the Code, causing all or part of any gain realized by a U.S. Holder selling or exchanging common shares to be treated as ordinary income rather than capital gain. The Company does not believe that it currently qualifies as a foreign investment company. However, there can be no assurance that the Company will not be considered a foreign investment company for the current or any future taxable year.

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Passive Foreign Investment Company

United States income tax law contains rules governing “passive foreign investment companies” (“PFIC”) which can have significant tax effects on U.S. Holders of foreign corporations. These rules do not apply to non-U.S. Holders. Section 1297 of the Code defines a PFIC as a corporation that is not formed in the United States if, for any taxable year, either (i) 75% or more of its gross income is “passive income,” which includes interest, dividends and certain rents and royalties or (ii) the average percentage, by fair market value (or, if the corporation is not publicly traded and either is a controlled foreign corporation or makes an election, by adjusted tax basis), of its assets that produce or are held for the production of “passive income” is 50% or more. The Company appears to have been a PFIC for the fiscal year ended March 31, 2001, and in other certain prior fiscal years. In addition, the Company expects to qualify as a PFIC for the fiscal year ending March 31, 2002 and may also qualify as a PFIC in future fiscal years. Each U.S. Holder of the Company is urged to consult a tax advisor with respect to how the PFIC rules affect such U.S. Holder’s tax situation.

Each U.S. Holder who holds stock in a foreign corporation during any year in which such corporation qualifies as a PFIC is subject to United States federal income taxation under one of three alternative tax regimes at the election of such U.S. Holder. The following is a discussion of such alternative tax regimes applied to such U.S. Holders of the Company. In addition, special rules apply if a foreign corporation qualifies as both a PFIC and a “controlled foreign corporation” (as defined below) and a U.S. Holder owns, actually or constructively, 10% or more of the total combined voting power of all classes of stock entitled to vote of such foreign corporation (See more detailed discussion at “Controlled Foreign Corporation” below).

A U.S. Holder who elects to treat the Company as a qualified electing fund (“QEF”) will be subject, under Section 1293 of the Code, to current federal income tax for any taxable year to which the election applies in which the Company qualifies as a PFIC on his pro rata share of the Company’s (i) “net capital gain” (the excess of net long-term capital gain over net short-term capital loss), which will be taxed as long-term capital gain, and (ii) “ordinary earnings” (the excess of earnings and profits over net capital gain), which will be taxed as ordinary income, in each case, for the shareholder’s taxable year in which (or with which) the Company’s taxable year ends, regardless of whether such amounts are actually distributed. A U.S. Holder’s tax basis in the common shares will be increased by any such amount that is included in income but not distributed.

The procedure a U.S. Holder must comply with in making an effective QEF election, and the consequences of such election, will depend on whether the year of the election is the first year in the U.S. Holder’s holding period in which the Company is a PFIC. If the U.S. Holder makes a QEF election in such first year, i.e., a “timely” QEF election, then the U.S. Holder may make the QEF election by simply filing the appropriate documents at the time the U.S. Holder files his tax return for such first year. If, however, the Company qualified as a PFIC in a prior year during the U.S. Holder’s holding period, then, in order to avoid the Section 1291 rules discussed below, in addition to filing documents, the U.S. Holder must elect to recognize under the rules of Section 1291 of the Code (discussed herein), (i) any gain that he would otherwise recognize if the U.S. Holder sold his stock on the qualification date or (ii) if the Company is a controlled foreign corporation, the U.S. Holder’s pro rata share of the Company’s post-1986 earnings and profits as of the qualification date. The qualification date is the first day of the Company’s first tax year in which the Company qualified as a QEF with respect to such U.S. Holder. For purposes of this discussion, a U.S. Holder who makes (i) a timely QEF election, or (ii) an untimely QEF election and either of the above-described gain-recognition elections under Section 1291 is referred to herein as an “Electing U.S. Holder”. A U.S. Holder who holds common shares at any time during a year of the Company in which the Company is a PFIC and who is not an Electing U.S. Holder (including a U.S. Holder who makes an untimely QEF election and makes neither of the above-described gain-recognition elections) is referred to herein as a “Non-Electing U.S. Holder”. An Electing U.S. Holder (i) generally treats any gain realized on the disposition of his Company common shares as capital gain; and (ii) may either avoid interest charges resulting from PFIC status altogether, or make an annual election, subject to certain limitations, to defer payment of current taxes on his share of the Company’s

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annual realized net capital gain and ordinary earnings subject, however, to an interest charge. If the U.S. Holder is not a corporation, any interest charge imposed under the PFIC regime would be treated as “personal interest” that is not deductible.

In order for a U.S. Holder to make (or maintain) a valid QEF election, the Company must provide certain information regarding its net capital gains and ordinary earnings and permit its books and records to be examined to verify such information. The Company intends to make the necessary information available to U.S. Holders to permit them to make (and maintain) QEF elections with respect to the Company. The Company urges each U.S. Holder to consult a tax advisor regarding the availability of, and procedure for making, the QEF election.

A QEF election, once made with respect to the Company, applies to the tax year for which it was made and to all subsequent tax years, unless the election is invalidated or terminated, or the IRS consents to revocation of the election. If a QEF election is made by a U.S. Holder and the Company ceases to qualify as a PFIC in a subsequent tax year, the QEF election will remain in effect, although not applicable, during those tax years in which the Company does not qualify as a PFIC. Therefore, if the Company again qualifies as a PFIC in a subsequent tax year, the QEF election will be effective and the U.S. Holder will be subject to the rules described above for Electing U.S. Holders in such tax year and any subsequent tax years in which the Company qualifies as a PFIC. In addition, the QEF election remains in effect, although not applicable, with respect to an Electing U.S. Holder even after such U.S. Holder disposes of all of his or its direct and indirect interest in the shares of the Company. Therefore, if such U.S. Holder reacquires an interest in the Company, that U.S. Holder will be subject to the rules described above for Electing U.S. Holders for each tax year in which the Company qualifies as a PFIC.

In the case of a Non-Electing U.S. Holder, special taxation rules under Section 1291 of the Code will apply to (i) gains realized on the disposition (or deemed to be realized by reasons of a pledge) of his Company common shares and (ii) certain “excess distributions,” as defined in Section 1291(b), by the Company.

A Non-Electing U.S. Holder generally would be required to pro rate all gains realized on the disposition of his Company common shares and all excess distributions on his Company common shares over the entire holding period for the common shares. All gains or excess distributions allocated to prior years of the U.S. Holder (excluding any portion of the holder’s period prior to the first day of the first year of the Company (i) which began after December 31, 1986, and (ii) for which the Company was a PFIC) would be taxed at the highest tax rate for each such prior year applicable to ordinary income. The Non-Electing U.S. Holder also would be liable for interest on the foregoing tax liability for each such prior year calculated as if such liability had been due with respect to each such prior year. A Non-Electing U.S. Holder that is not a corporation must treat this interest charge as “personal interest” which, as discussed above, is wholly nondeductible. The balance, if any, of the gain or the excess distribution will be treated as ordinary income in the year of the disposition or distribution, and no interest charge will be incurred with respect to such balance. In certain circumstances, the sum of the tax and the PFIC interest charge may exceed the amount of the excess distribution received, or the amount of proceeds of disposition realized, by the U.S. Holder.

If the Company is a PFIC for any taxable year during which a Non-Electing U.S. Holder holds Company common shares, then the Company will continue to be treated as a PFIC with respect to such Company common shares, even if it is no longer definitionally a PFIC. A Non-Electing U.S. Holder may terminate this deemed PFIC status by electing to recognize gain (which will be taxed under the rules discussed above for Non-Electing U.S. Holders) as if such Company common shares had been sold on the last day of the last taxable year for which it was a PFIC.

Effective for tax years of U.S. Holders beginning after December 31, 1997, U.S. Holders who hold (actually or constructively) marketable stock of a foreign corporation that qualifies as a PFIC may elect to mark such stock to the market annually (a “mark-to-market election”). If such an election is made, such U.S. Holder will generally not be subject to the special taxation rules of Section 1291 discussed above. However, if the mark-to-market election is made by a Non-Electing U.S. Holder after the beginning of the

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holding period for the PFIC stock, then the Section 1291 rules will apply to certain dispositions of, distributions on and other amounts taxable with respect to the Company common shares. A U.S. Holder who makes the mark-to market election will include in income for each taxable year for which the election is in effect an amount equal to the excess, if any, of the fair market value of the common shares of the Company as of the close of such tax year over such U.S. Holder’s adjusted basis in such common shares. In addition, the U.S. Holder is allowed a deduction for the lesser of (i) the excess, if any, of such U.S. Holder’s adjusted tax basis in the common shares over the fair market value of such shares as of the close of the tax year, or (ii) the excess, if any, of (A) the mark-to-market gains for the common shares in the Company included by such U.S. Holder for prior tax years, including any amount which would have been treated as a mark-to-market gain for any prior tax year but for the Section 1291 rules discussed above with respect to Non-Electing U.S. Holders, over (B) the mark-to-market losses for shares that were allowed as deductions for prior tax years. A U.S. Holder’s adjusted tax basis in the common shares of the Company will be adjusted to reflect the amount included in or deducted from income as a result of a mark-to-market election. A mark-to-market election applies to the taxable year in which the election is made and to each subsequent taxable year, unless the Company common shares cease to be marketable, as specifically defined, or the IRS consents to revocation of the election. Because the IRS has not established procedures for making a mark-to-market election, U.S. Holders should consult their tax advisor regarding the manner of making such an election. No view is expressed regarding whether common shares of the Company are marketable for these purposes or whether the election will be available.

Under Section 1291(f) of the Code, the IRS has issued Proposed Treasury Regulations that, subject to certain exceptions, would treat as taxable certain transfers of PFIC stock by Non-Electing U.S. Holders that are generally not otherwise taxed, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death. Generally, in such cases the basis of the Company common shares in the hands of the transferee and the basis of any property received in the exchange for those common shares would be increased by the amount of gain recognized. Under the Proposed Treasury Regulations, an Electing U.S. Holder would not be taxed on certain transfers of PFIC stock, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death. The transferee’s basis in this case will depend on the manner of the transfer. In the case of a transfer by an Electing U.S. Holder upon death, for example, the transferee’s basis is generally equal to the fair market value of the Electing U.S. Holder’s common shares as of the date of death under Section 1014 of the Code. The specific tax effect to the U.S. Holder and the transferee may vary based on the manner in which the common shares are transferred. Each U.S. Holder of the Company is urged to consult a tax advisor with respect to how the PFIC rules affect his or its tax situation.

Whether or not a U.S. Holder makes a timely QEF election with respect to common shares of the Company, certain adverse rules may apply in the event that both the Company and any foreign corporation in which the Company directly or indirectly holds shares is a PFIC (a “lower-tier PFIC”). Pursuant to certain Proposed Treasury Regulations, a U.S. Holder would be treated as owning his or its proportionate amount of any lower-tier PFIC shares, and generally would be subject to the PFIC rules with respect to such indirectly-held PFIC shares unless such U.S. Holder makes a timely QEF election with respect thereto. The Company intends to make the necessary information available to U.S. Holders to permit them to make (and maintain) QEF elections with respect to each subsidiary of the Company that is a PFIC.

Under the Proposed Treasury Regulations, a U.S. Holder who does not make a timely QEF election with respect to a lower-tier PFIC generally would be subject to tax (and the PFIC interest charge) on (i) any excess distribution deemed to have been received with respect to his or its lower-tier PFIC shares and (ii) any gain deemed to arise from a so-called “indirect disposition” of such shares. For this purpose, an indirect disposition of lower-tier PFIC shares would generally include (i) a disposition by the Company (or an intermediate entity) of lower-tier PFIC shares, and (ii) any other transaction resulting in a diminution of the U.S. Holder’s proportionate ownership of the lower-tier PFIC, including an issuance of additional common shares by the Company (or an intermediate entity). Accordingly, each prospective

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U.S. Holder should be aware that he or it could be subject to tax even if such U.S. Holder receives no distributions from the Company and does not dispose of its common shares.

The Company strongly urges each prospective U.S. Holder to consult a tax advisor with respect to the adverse rules applicable, under the Proposed Treasury Regulations, to U.S. Holders of lower-tier PFIC shares.

Certain special, generally adverse, rules will apply with respect to Company common shares while the Company is a PFIC unless the U.S. Holder makes a timely QEF election. For example under Section 1298(b)(6) of the Code, a U.S. Holder who uses PFIC stock as security for a loan (including a margin loan) will, except as may be provided in regulations, be treated as having made a taxable disposition of such shares.

Documents on display

Documents concerning the Company which are referred to in this document may be inspected in our offices at 1407-1050 Burrard Street, B.C. Canada V6Z 2S3 or at the registered office at Suite 200 Financial Plaza, 204 Lambert Street, White Horse, YT, Y1A 3T2, Canada. Copies of the Company’s financial statements and other continuous disclosure documents required under the British Columbia Securities Act may be viewed at www.sedar.com and documents referred to in this document are filed with the US Securities Commission and can be viewed on the SEC website at: www.sec.gov.

Subsidiary information

A list of subsidiaries of the Company to March is identified in Note 2 (b) in the notes to the consolidated financial statements and in Item 4 “Organizational Structure”.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required as the Company is a small business issuer, in accordance with Section 12(b)-2 of the Act.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

There has been no material default in any indebtedness, as the Company has no debt.

We have never paid nor declared a dividend, so there are no arrearages.

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

Not applicable.

ITEM 15. CONTROLS AND PROCEDURES

The Company is aware of the importance of maintaining controls and procedures and is continuously improving its controls and procedures. As the Company is not an accelerated filer under SEC definitions, beginning with the Company’s fiscal year ending March 31, 2009, Section 404 of the U.S. Sarbanes Oxley Act 2002 (“Section 404”) will require the Company to include an internal control report from management with the annual report on Form 20-F. The internal control report must contain (1) a statement of management’s responsibility for establishing and maintaining adequate internal control over

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financial reporting of the Company, (2) a statement identifying the framework used by management to conduct the required evaluation of the effectiveness of the Company’s internal controls over financial reporting, (3) management’s assessment of the effectiveness of the Company’s internal controls over financial reporting as of the end of the most recent fiscal year, including a statement as to whether or not the Company’s internal controls over financial reporting are effective and (4) a statement that the Company’s independent auditors have issued an attestation report on management’s assessment of the internal controls over financial reporting.

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) as of a date within 90 days prior to the filing date of this report, have concluded that, as of such date, our disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company would be made known to them by others within the Company.

Changes in Internal Controls

There were no significant changes in the Company’s internal controls or in other factors that could significantly affect the internal controls subsequent to the date of their evaluation, nor do we believe that there are any significant deficiencies or material weaknesses in its internal controls. As a result, no corrective actions were required or undertaken.

ITEM 16. [RESERVED]

ITEM 16A. Audit committee financial expert

Our Board of Directors has determined that we have one independent audit committee financial expert serving on its audit committee. This financial expert is James Smith who is accredited in Canada as a Chartered Accountant.

ITEM 16B. Code of Ethics

We have adopted a code of ethics that applies to the Chief Executive Officer and the Chief Financial Officer, as well as to all other staff. A copy of our code of ethics is available, free of charge, from the offices of TAG Oil Ltd., at 1407-1050 Burrard Street, Vancouver, British Columbia, Canada, V6Z 2S3 and this can be requested in writing, addressed to the Company Secretary.

ITEM 16C. Principal Accountants Fees and Services

Principal Accountant Service	For the fiscal year ended March 31, 2006	For the fiscal year ended March 31, 2005
Audit Fees (1)	21,497	14,458
Tax Fees (2)	4,881	900
All Other Fees (3)	-	3,187

(1) “Audit Fees” include fees necessary to perform the annual audit and quarterly reviews of the Corporation’s consolidated financial statements and include both the fees of the Corporation’s principal auditor, DeVisser Gray, and the Corporation’s New Zealand auditor BDO Spicers. Audit fees also include fees for review of tax provisions and for accounting consultations on matters reflected in the financial statements. Audit Fees also include audit or other attest services required by legislation or regulation, such as comfort letters, consents, reviews of securities filings and statutory audits.

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(2)	“Tax Fees” include fees for all tax services other than those included in “Audit Fees” and “Audit-Related Fees”. This category includes fees for tax compliance, tax planning and tax advice. Tax planning and tax advice includes assistance with tax audits and appeals, tax advice related to mergers and acquisitions, and requests for rulings or technical advice from tax authorities.
(3)	“All Other Fees” include all other non-audit services.

The nature of the services provided by De Visser Gray and BDO Spicers under each of the categories indicated in the table is described below.

Pre-Approval Policies and Procedures

It is within the mandate of the Registrant’s Audit Committee to approve all audit and non-audit related fees. The Audit Committee has pre-approved specifically identified non-audit related services, including tax compliance, review of tax returns, documentation of processes and controls as submitted to the Audit Committee from time to time. The Auditors also present the estimate for the annual audit related services to the committee for approval prior to undertaking the annual audit of the financial statements.

ITEM 16D. EXEMPTION FROM LISTING STANDARDS FOR AUDIT COMMITTEE

ITEM 16E. Purchase of Equity Securities by the Issuer and Affiliated Purchasers

Not Applicable.

PART III

ITEM 17. FINANCIAL STATEMENTS.

Financial Statements begin on page 45.

INDEX TO FINANCIAL STATEMENTS

	Page
Auditors’ Report	45
Consolidated Balance Sheets	46
Consolidated Statements of Operations and Deficit	47
Consolidated Statements of Cash Flows	48
Notes to the Consolidated Financial Statements	49

The financial statements and Report of the independent Auditors are filed as part of the Company’s Annual Report.

- 44 -

TAG OIL LTD.

CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

- 45 -

D E V I S S E R G R A Y
CHARTERED ACCOUNTANTS

401 - 905 West Pender Street
Vancouver, BC Canada
V6C 1L6

Tel: (604) 687-5447
Fax: (604) 687-6737

AUDITORS' REPORT

To the Shareholders of TAG Oil Ltd.

We have audited the consolidated balance sheets of TAG Oil Ltd as at March 31, 2006 and 2005 and the consolidated statements of operations and deficit and cash flows for each of the years in the three year period ended March 31, 2006. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards (“GAAS”) in Canada and the standards of the Public Company Accounting Oversight Board (“PCAOB”) (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at March 31, 2006 and 2005 and the results of its operations and its cash flows for each of the years in the three year period ended March 31, 2006 in accordance with generally accepted accounting principles in Canada.

“DeVisser Gray”

CHARTERED ACCOUNTANTS

Vancouver, British Columbia
Canada
July 7, 2006

COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA – U.S. REPORTING DIFFERENCES

In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when the financial statements are affected by significant uncertainties and contingencies such as those referred to in note 1 to these financial statements. Although we conducted our audits in accordance with both Canadian GAAS and the standards of the PCAOB, our report to the shareholders dated July 7, 2006 is expressed in accordance with Canadian reporting standards, which do not require a reference to such matters when the uncertainties are adequately disclosed in the financial statements.

“DeVisser Gray”

CHARTERED ACCOUNTANTS

Vancouver, British Columbia
Canada
July 7, 2006

- 46 -

TAG Oil Ltd.

Consolidated Balance Sheets

Expressed in Canadian Dollars

As at March 31,		2006			2005
Assets
Current
Cash and cash equivalents	$	18,753,695		$	6,368,935
Amounts receivable and prepaids		376,334			184,344
Inventory (Note 2)		942,769			-
Marketable securities		-			3,300
		20,072,798			6,556,579
Oil and gas properties (Note 3)		9,155,763			1,933,088
Equipment (Note 4)		30,836			16,834
	$	29,259,397		$	8,506,501
Liabilities and Shareholders’ Equity
Current
Accounts payable and accrued liabilities	$	2,229,565		$	546,421
		2,229,565			546,421
Share capital (Note 5)		38,424,949			18,053,464
Contributed surplus		709,860			586,031
Deficit		(12,104,977	)		(10,679,415	)
		27,029,832			7,960,080
	$	29,259,397		$	8,506,501

See accompanying notes.

Nature of operations (Note 1)
Commitments and contingencies (Note 6)
Subsequent events (Note 8)

Approved by the Board of Directors:

“Garth Johnson”	“Drew Cadenhead”
Garth Johnson, Director	Drew Cadenhead, Director

- 47 -

TAG Oil Ltd.

Consolidated Statements of Operations and Deficit

Expressed in Canadian Dollars

For the Years Ended March 31		2006			2005			2004
Expenses
General and administrative	$	1,404,864		$	829,233		$	650,680
Stock option compensation		123,829			185,395			290,030
Directors & officers insurance		32,250			-			-
Foreign exchange		(62,080	)		212,589			30,787
Amortization		7,596			4,512			5,496
Loss before other items		(1,506,459	)		(1,231,729	)		(976,993	)
Other Items
Interest income		399,684			17,352			15,737
Write-off of oil and gas properties		(358,699	)		-			(1	)
Gain on sale of marketable securities		39,912			-			-
Gain on sale of property and equipment		-			-			23,256
Net loss for the year		(1,425,562	)		(1,214,377	)		(938,001	)
Deficit, beginning of year		(10,679,415	)		(9,465,038	)		(8,527,037	)
Deficit, end of year	$	(12,104,977	)	$	(10,679,415	)	$	(9,465,038	)
Loss per share	$	(0.04	)	$	(0.09	)	$	(0.08	)
Weighted average number of shares outstanding		37,330,058			13,111,779			11,227,776

See accompanying notes.

- 48 -

TAG Oil Ltd.

Consolidated Statements of Cash Flows

Expressed in Canadian Dollars

For the Years Ended March 31		2006			2005			2004
Operating Activities
Net loss for the year	$	(1,425,562	)	$	(1,214,377	)	$	(938,001	)
Changes for non-cash operating items:
Amortization		7,596			4,512			5,496
Stock option compensation		123,829			185,395			290,030
Write-off of oil and gas properties		358,699			-			1
Gain on sale of marketable securities		(39,912	)		-			-
Gain on sale of property and equipment		-			-			(23,256	)
		(975,350	)		(1,024,470	)		(665,730	)
Changes for non-cash working capital accounts:
Amounts receivable and prepaids		(191,990	)		(143,649	)		89,967
Due to/from related parties		-			(9,960	)		(71,632	)
Inventory		(942,769	)		-			-
Accounts payable and accrued liabilities		71,261			66,485			(13,260	)
Cash used in operating activities		(2,038,848	)		(1,111,594	)		(660,655	)
Financing Activities
Issuance of common shares		20,371,485			7,437,513			149,150
Repurchase of common shares		-			(7,338	)		-
Cash provided by financing activities		20,371,485			7,430,175			149,150
Investing Activities
Exploration of oil and gas properties		(5,969,491	)		(822,236	)		(124,169	)
Proceeds from sale of property and equipment		-			-			404,141
Purchase of property and equipment		(21,598	)		(3,876	)		(3,268	)
Proceeds from sale of marketable securities		43,212			-			-
Cash (used in) provided by investing activities		(5,947,877	)		(826,112	)		276,704
Net increase (decrease) in cash during the year		12,384,760			5,492,469			(234,801	)
Cash and cash equivalents - Beginning of year		6,368,935			876,466			1,111,267
Cash and cash equivalents - End of year	$	18,753,695		$	6,368,935		$	876,466
Cash	$	2,515,613		$	6,368,935		$	271,319
Cash equivalents		16,208,082			-			605,147
	$	18,753,695		$	6,368,935		$	876,466
Supplementary disclosures:
Interest received	$	399,684		$	17,352		$	15,737

Non-cash investing activities:
The Company incurred $2,077,526 (2005: $465,643 and 2004: $Nil) in exploration expenditures which amounts were in accounts payable at year end.

See accompanying notes.

- 49 -

TAG Oil Ltd.

Notes to the Consolidated Financial Statements

For the Years Ended March 31, 2006 and 2005

Expressed in Canadian Dollars

NOTE 1 - NATURE OF OPERATIONS

The Company was incorporated under the Business Corporations Act (British Columbia) and continued its jurisdiction of incorporation to the Yukon Territory under the Business Corporations Act (Yukon). Its major activity is the acquisition and exploration of international oil and gas properties.

The Company is in the process of exploring its oil and gas properties and has not yet determined whether they contain reserves that are economically recoverable. The success of the Company’s exploration and development of its oil and gas properties is influenced by significant financial and legal risks, as well as commodity prices and the ability of the Company to discover economically recoverable reserves and to bring such reserves into future profitable production. In addition, the Company must continue to obtain sufficient financing to develop its properties towards planned principal operations.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a)	Accounting Principles and Use of Estimates
	These financial statements are prepared in accordance with Canadian generally accepted accounting principles (“GAAP”), which require the Company’s management to make informed judgments and estimates that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the fiscal year. Specific items particularly subject to management estimates are the carrying amounts of deferred property costs, potential accruals for future site reclamation costs and the determination of inputs required in the calculation of stock based compensation. Actual results could differ from these estimates.
	Material differences between Canadian and United States generally accepted accounting principles, that affect the Company, are described in note 9.
b)	Basis of Consolidation
	These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries: TAG Oil (NZ) Limited, TAG Oil (Canterbury) Limited, and Durum Energy (PNG) Limited. The Company consolidates its financial statements with those of its subsidiaries in which it has a controlling interest. Should restrictions be placed on any foreign subsidiary that prevent the Company from exercising effective control, the Company’s investment in that subsidiary shall be accounted for using the cost basis. All significant intercompany balances and transactions with subsidiaries have been eliminated on consolidation.
c)	Joint Operations
	Substantially all of the Company's activities relate to the exploration for oil and gas. To the extent that these activities are conducted jointly with other companies, the accounts reflect only the Company's proportionate interest in these activities.
d)	Translation of Foreign Currencies
	The Company's foreign operations, conducted through its subsidiaries, are of an integrated nature and, accordingly, the temporal method of foreign currency translation is used for conversion of foreign-denominated amounts into Canadian dollars. Monetary assets and liabilities are translated into Canadian dollars at the rates prevailing on the balance sheet date. Other assets and liabilities are translated into Canadian dollars at the rates prevailing on the transaction dates. Revenues and expenses arising from foreign currency transactions are translated into Canadian dollars at the average rate for the year. Exchange gains and losses are recorded as income or expense in the year in which they occur.
e)	Fair Value of Financial Instruments
	The Company's financial instruments consist of current assets and current liabilities. The fair values of the current assets and liabilities approximate the carrying amounts due to the short-term nature of these instruments.
f)	Cash and Cash Equivalents
	Cash and cash equivalents include term investments with maturities of one year or less, together with accrued interest thereon, which are readily convertible to known amounts of cash.

- 50 -

g)	Oil and Gas Properties
	The Company follows the full cost method of accounting for oil and gas properties whereby all costs relating to the acquisition, exploration, and development of oil and gas properties and equipment are capitalized in cost centres by country. Such costs include lease acquisition costs, geological and geophysical expenditures, lease rentals, seismic and costs of drilling productive and non- productive wells, together with overhead expenses related to acquisition, exploration and development activities. All cost centres are in the pre-development stage and as such are not subject to depletion. An assessment is performed at every reporting date to determine whether the aggregate net costs in each pre-development stage cost centre are recoverable. Costs which are unlikely to be recovered are written-off. The recovery of the costs incurred to date is ultimately dependent on discovering commercial quantities of hydrocarbons. The likelihood of such a discovery is not determinable at this time.
h)	Equipment
	Furniture, office and computer equipment is recorded at cost less accumulated amortization. Amortization is provided for over its estimated useful life on a declining-balance basis at rates between 20% and 30%.
i)	Income Taxes
	The Company accounts for and measures future tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment of the change. When the future realization of income tax assets does not meet the test of being more likely to occur than not to occur, a valuation allowance in the amount of potential future benefit is taken and no asset is recognized. Such an allowance would apply fully to all potential income tax assets of the Company.
	The Company’s accounting policy for future income taxes currently has no effect on the financial statements of any of the fiscal years presented.
j)	Share Capital
	Common shares issued for non-monetary consideration are recorded at their fair market value based upon the lower of the trading price of the Company’s shares on the TSX Venture Exchange on the date of the agreement to issue shares and the date of share issuance.
k)	Stock-based Compensation
	The Company has a stock based compensation program for officers, directors, employees and consultants.
	The Company uses the fair value method for valuing stock option grants. Under this method, compensation cost attributable to all stock options granted is measured at fair value at the grant date and expensed in the year of grant with a corresponding increase in contributed surplus. Consideration paid upon the exercise of the stock options will be recorded as an increase to share capital together with the corresponding amounts previously recognized in contributed surplus.
l)	Loss per share
	Loss per share is calculated using the weighted-average number of common shares outstanding during the year. Diluted loss per share is not presented, as it is anti-dilutive.
m)	Marketable securities
	The Company’s marketable securities are recorded at the lower of cost and estimated fair market value.
n)	Asset retirement obligation
	Effective March 31, 2003, the Company has adopted retroactively the Canadian Institute of Chartered Accountants’ new standard on Asset Retirement Obligations. The Company recognizes the fair value of an Asset Retirement Obligation (“ARO”) in the period in which it is incurred when a reasonable estimate of the fair value can be made. The fair value is determined through a review of engineering studies, industry guidelines and managements estimate on a site-by-site basis. The fair value of the ARO is recorded as a liability, with a corresponding increase in the amount of the related asset. The capitalized amount is depleted on the unit-of-production method based on proven reserves. The liability amount of accretion is expensed in the period. Actual costs incurred upon the settlement of the ARO are charged against the liability. At March 31, 2006 the Company does not have any asset retirement obligations.

- 51 -

o)	Inventory
	Inventory is valued at the lower of cost and net realizable value with cost being determined using a specific identification basis. Inventory consists of field operation consumables.

NOTE 3 – OIL AND GAS PROPERTIES

	Working		Net Book		Additions		Write-offs			Net Book
	Interest		Value at		During the		During the			Value at
	%		March 31, 2005		Period		Period			March 31, 2006
Unproved:
New Zealand:
PMP 38153	15.00	$	-	$	9,597	$	-		$	9,597
PMP 38157	33.33		-		4,342		-			4,342
PEP 38256	53.84		166,974		250,594		-			417,568
PEP 38258	25.00		59,833		19,334		-			79,167
PEP 38260	30.00		-		512,885		-			512,885
PEP 38341	35.50		-		523,150		-			523,150
PEP 38342	35.50		-		502,635		-			502,635
PEP 38480	25.00		86,582		12,903		(99,485	)		-
PEP 38732	100.00		-		1,000		-			1,000
PEP 38736	15.00		-		29,843		-			29,843
PEP 38741	45.00		622,042		1,015,849		-			1,637,891
PEP 38744	25.00		-		-		-			-
PEP 38745	83.33		-		554,925		-			554,925
PEP 38746	16.67		-		95,538		-			95,538
PEP 38748	33.33		-		-		-			-
PEP 38751	66.66		-		563,522		-			563,522
PEP 38757	100.00		532,030		1,934,631		-			2,466,661
PEP 38758	100.00		3,041		980,609		-			983,650
PEP 38765	38.30		206,866		483,289		-			690,155
PEP 38766	33.33		-		-		-			-
PEP 38767	100.00		-		83,234		-			83,234
AMI-Hursthouse	12.50		255,720		3,494		(259,214	)		-
Total Unproved		$	1,933,088	$	7,581,374		(358,699	)	$	9,155,763

The Company’s oil and gas properties are located in New Zealand and its interests in these properties are maintained pursuant to the terms of exploration permits granted by the national government. The Company is satisfied that evidence supporting the current validity of these permits is adequate and acceptable by prevailing industry standards in respect to the current stage of exploration on these properties.

The Company participated in three unsuccessful exploration wells and three exploration wells that are under evaluation to determine if they are commercially viable in combination with future successful wells, all of which are located in onshore Taranaki, New Zealand. The unsuccessful wells drilled during the 2006 fiscal year are: the Richmond-1 well on PEP 38745, the Konini-1 well on PEP 38751 and the Arakamu-1 well in PEP 38757. The wells under evaluation to determine commerciality are: the SuppleJack-1 well on PEP 38741 and the SuppleJack South-1 and SuppleJack South-1a wells on PEP 38765.

During the 2006 fiscal year the Company wrote-off PEP 38480 as this permit was relinquished after negotiations with the Ministry of Economic Development in New Zealand did not result in amended exploration terms for the permit. In addition the Company wrote-off the costs related to the Hursthouse-1 well as it was determined that the costs associated with this well were unlikely to be recovered in the future.

Refer to Notes 6 and 8

- 52 -

NOTE 4 - EQUIPMENT

Equipment is comprised as follows:

		2006							2005
				Accumulated			Net Book		Net Book
		Cost		Amortization			Value		Value
Furniture, office and computer equipment	$	125,644	$	(94,808	)	$	30,836	$	16,834

NOTE 5 - SHARE CAPITAL

a) Authorized and Issued Share Capital

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

	Number
Issued and fully paid:	of Shares			Amount
Balance at March 31, 2004	7,978,061		$	10,623,289
Forward stock split on the basis of one additional
new share for every two old shares	3,989,025			-
Private placement	542,495			1,247,218
Private placement	9,066,500			4,412,383
Exercise of share purchase warrants	6,150,000			1,744,978
Exercise of stock options	100,000			32,934
Re-purchase of shares and return to treasury	(1,800,000	)		(7,338	)
Balance at March 31, 2005	26,026,081		$	18,053,464
Exercise of share purchase warrants	9,066,500			6,395,039
Private placement	11,538,500			13,976,446
Balance at March 31, 2006	46,631,081		$	38,424,949

During the 2006 fiscal year, the Company issued 9,066,500 shares from treasury upon the exercise of certain share purchase warrants at a price of US$0.60 per share.

On September 22, 2005, the Company completed a brokered private placement financing consisting of 11,538,500 shares at a price of $1.30 per share. In connection with this financing, the Company issued 400,000 broker warrants exercisable at a price of $1.30 per share until expiry on September 22, 2006.

Refer to Note 8

b) Share Purchase Warrants

The following is a continuity of outstanding share purchase warrants:

	Number of			Weighted Average
Issued and fully paid:	Share Purchase Warrants			Exercise Price (1	)
Balance at March 31, 2004	6,150,000		$	0.27
Issued during the year	9,608,995			0.71
Exercised	(6,150,000	)		0.27
Balance at March 31, 2005	9,608,995		$	0.71
Exercised	(9,066,500	)		0.70
Issued during the year	400,000			1.30
Balance at March 31, 2006	942,495		$	1.09

- 53 -

(1) Certain share purchase warrants are denominated in US dollars and have been converted to Canadian dollars using the March 31, 2006 closing exchange rate.

At March 31, 2006, the following share purchase warrants are outstanding:

Number	Price	Expiry
Of Shares	per Share	Date
542,495	US$0.80	May 4, 2006	(2)
400,000	$1.30	September 22, 2006
942,495

(2) Subsequently, the warrants expired unexercised.

c) Incentive Stock Options

At the Company’s annual general meeting held on September 9, 2005, shareholders approved an amendment to the Company’s stock option plan. Under the new stock option plan the number of shares reserved for issuance as share incentive options will be equal to 10% of the Company’s issued and outstanding shares at any time. The exercise price of each option equals the market price of the Company’s shares the day prior to the date that the grant occurs less any applicable discount approved by the Board of Directors and the TSX Venture Exchange. The options maximum term is five years and must vest over a minimum of eighteen months.

The following is a continuity of outstanding stock options:

	Number of	Weighted Average
Issued and fully paid:	Options	Exercise Price (1)
Balance at March 31, 2004	1,140,000	$ 0.72
Granted during the year	550,000	0.76
Exercised	(100,000)	0.32
Cancelled/Expired	(800,000)	0.76
Balance at March 31, 2005	790,000	$ 0.76
Cancelled/Expired	(165,000)	0.76
Granted during the year	400,000	0.95
Balance at March 31, 2006	1,025,000	$ 0.83

(1) Certain outstanding options are denominated in US dollars and have been converted to Canadian dollars using the March 31, 2006 closing exchange rate.

At March 31, 2006, the following stock options are outstanding:

Number	Price	Expiry
of Shares	per Share	Date
100,000	US$0.65	May 31, 2008
125,000	US$0.65	February 10, 2010
400,000	US$0.65	January 1, 2010
75,000	US$0.65	May 10, 2010
25,000	US$0.95	July 29, 2010
150,000	$1.30	November 22, 2010
150,000	$0.66	January 2, 2011
1,025,000

During the 2006 fiscal year, the Company granted options to three directors and one employee to purchase 400,000 common shares vesting over eighteen months with expiry dates ranging from May 10, 2010 to January 2, 2011 and exercisable at either US$0.65,US$ 0.95, CDN$0.66 or CDN$1.30.

During the 2005 fiscal year, the Company granted options to two directors and to its President to purchase 125,000 common shares vesting over eighteen months with an expiry date of February 10, 2010 and an aggregate of 400,000 common shares vesting over five years with an expiry date of January 1, 2010, respectively, exercisable at a price of US$0.65. The Company also granted an option to a consultant to purchase 25,000 common shares vesting over three years, exercisable at a price of US$0.65 until expiry on May 31, 2008.

- 54 -

During the current fiscal year, the Company applied the Black-Scholes option pricing model using the closing market prices on the grant dates, a volatility ratio of 42% and the risk free interest rate of 3.5% to calculate an option benefit at the dates of grant of $0.31 per option share granted (2005: $0.35 per option share granted) for a total option benefit of $123,829 (2005: $185,395).

Refer to Note 8

NOTE 6 - COMMITMENTS AND CONTINGENCIES

The Company participates in oil and gas exploration operations jointly with independent third and related parties and is contractually committed under agreements to complete certain exploration programs. The Company’s management estimates that the total commitments for fiscal 2006 under various agreements relating to permits held at March 31, 2006 are as follows:

		Work Commitment or Obligation
Oil and Gas Property	Working Interest %	to March 31, 2006
PMP 38153	15.00	$ 10,500
PMP 38157	33.33	3,500,000
PEP 38256	53.84	35,000
PEP 38258	25.00	175,000
PEP 38260	30.00	1,400,000
PEP 38341	35.50	10,500
PEP 38342	35.50	10,500
PEP 38732	100.00	17,500
PEP 38736	15.00	10,500
PEP 38741	45.00	572,000
PEP 38744	25.00	40,000
PEP 38745	83.33	17,500
PEP 38746	16.67	12,000
PEP 38748	33.33	17,500
PEP 38751	66.66	21,000
PEP 38757	100.00	35,000
PEP 38758	100.00	1,540,000
PEP 38765	38.30	193,000
PEP 38766	33.33	23,000
PEP 38767	100.00	17,500
Total		$ 7,658,000

Refer to Note 8

NOTE 7 - INCOME TAXES

		2006			2005
Net loss for the year	$	(1,404,898	)	$	(1,214,377	)
Expected income recovery		(498,763	)		(431,386	)
Net adjustment for amortization, deductible and non-deductible amounts		(32,553	)		67,533
Unrecognized benefit of current non-capital loss		531,316			363,853
Total income taxes		-			-

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

		2006			2005
Future income tax assets:
Net resource property carrying amounts (in excess) of tax pools	$	(5,220,591	)	$	2,144,990
Equipment tax pool in excess of carrying value		93,876			93,954
Non-capital loss carryforwards		17,042,504			8,565,636
		11,915,789			10,804,580
Valuation allowance		(11,915,789	)		(10,804,580	)
Net future tax assets	$	-		$	-

The Company has non-capital losses of approximately $3.3 million (2005 - $2.32 million), which are available to reduce future taxable income in Canada, which expire between 2007 and 2016. Subject to certain restrictions the Company also has mineral property expenditures of approximately $4.1 million (2005 - $4.2 million) available to reduce taxable income in future years. The Company has not recognized any future benefit for these tax losses and resource deductions, as it is not considered likely that they will be utilized.

At March 31, 2006, the Company also has losses and deductions of approximately NZ$16.9 million (March 31, 2005 - NZ$8.0 million) available to offset future taxable income earned in New Zealand.

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NOTE 8 – SUBSEQUENT EVENTS

During the period subsequent to March 31, 2006 the following occurred:

a)	Acquisition of Cheal Petroleum, PEP 38757 Limited and PEP 38758 Limited
	On June 16, 2006, the Company acquired all of the outstanding shares of Cheal Petroleum Limited (“Cheal”) , PEP 38757 Limited and PEP 38758 Limited all located in New Zealand. Cheal owns a 30.5% interest in PEP 38738-S containing the Cheal Oil Field and a 15.1% interest in PEP 38738-D containing the Cardiff deep gas prospect. Consideration paid for these three companies was NZ$18,542,857 (CDN$12,800,000), five million shares of the Company and a 0.775% gross over riding royalty on PEP 38738-D. The work commitments expected over the 2007 fiscal year for PEP 38738-S and PEP 38738-D amount to a total of $6,000,000 and relate materially to the Cheal Oil Field Development Plan.
b)	Private placement financing
	On June 12, 2006, the Company completed a private placement financing of 40,000,000 common shares at a price of $0.75 per share for net proceeds of approximately $28.1 million.
c)	Stock options
	On April 25, 2006 the Company granted an employee an option to acquire up to 100,000 common shares, vesting over eighteen months, exercisable at a price of $0.90 per share until expiry on April 25, 2011.

NOTE 9 - DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

These financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”) which conform in all material respects with United States generally accepted accounting principles (“U.S. GAAP”), except for the following differences:

CONSOLIDATED BALANCE SHEETS

a)	Assets
	i)	Marketable Securities
		Under Canadian GAAP, marketable equity securities are valued at the lower of cost or market value. Under U.S. GAAP, the Company’s marketable equity securities are classified as available-for-sale securities and reported at market value, with unrealized gains and losses included as a component of comprehensive income.

		March 31,		March 31,
		2006		2005
Marketable securities under Canadian GAAP	$	-	$	3,300
Adjustment required under U.S. GAAP		-		10,200
Cumulative historical adjustments		-		16,800
Marketable securities under U.S. GAAP	$	-	$	30,300

As a result, total current assets under U.S. GAAP as at March 31, 2006 and 2005 would be $20,072,798 and $6,583,579, respectively.

ii) Oil and Gas Property

Under U.S. GAAP, the ceiling test under the full cost method is performed for each cost center by comparing the net capitalized costs to the present value of the estimated future net revenues from production of proved reserves discounted by 10%, net of the effects of future costs to develop and produce the proved reserves, plus the costs of unproved properties net of impairment, and less the effects of income taxes. Any excess capitalized costs are written off to expense. The ceiling test under U.S. GAAP has been limited to those periods in which U.S. GAAP balances have been provided.

Under U.S. GAAP, the functional currency for each of the Company's foreign subsidiaries is the local currency of each subsidiary. Accordingly, the current rate method of foreign currency translation is required to be used for conversion into Canadian dollars. All assets and liabilities are translated into Canadian dollars at the rates prevailing on the balance sheet date. Stockholders’ equity accounts are translated into Canadian dollars at the rates prevailing on the transaction dates, with revenues and expenses translated into Canadian dollars at the average rate for the year.

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Translation adjustments resulting from foreign currency translations are recorded as a separate component of the stockholders’ equity section on the balance sheet.

		March 31,			March 31,
		2006			2005
Oil and gas properties under Canadian GAAP	$	9,155,763		$	1,933,088
Foreign currency translation adjustment		(1,258,323	)		(7,487	)
Cumulative historical adjustments		85,529			93,016
Oil and gas properties under U.S. GAAP	$	7,982,969		$	2,018,617

	As a result of the adjustments, total assets under U.S. GAAP as at March 31, 2006 and 2005 would be $28,086,603 and $8,619,030, respectively.
b)	Stockholders’ Equity
	i)	Common Stock
		During the 2004 fiscal year, the Company began recording, under Canadian GAAP, the cost of stock options granted to employees and consultants utilizing a fair value measurement basis, a policy that is materially consistent with U.S. GAAP for stock-based compensation as described in Statement of Accounting Standards 123 (“SFAS 123”). However, in previous fiscal years, prior to the adoption of the fair value measurement standard under Canadian GAAP, the Company was subject to the minimum disclosure standards of SFAS 123 under U.S. GAAP, which required it to report, on a pro-forma basis, the effect of following a fair value based method of measuring the value of stock options granted using the Black Scholes, or similar, option pricing model.
		In accordance with the mandatory disclosure standard, the following are the pro-forma figures for common stock had the Company used, from inception, a fair value-based method of accounting for stock based compensation as described in SFAS 123:

		March 31,		March 31,
		2006		2005
Common stock under Canadian GAAP	$	38,424,949	$	18,053,464
Cumulative historical adjustments		3,042,858		3,042,858
Common stock under U.S. GAAP	$	41,467,807	$	21,096,322

ii) Foreign Currency Translation Adjustment

The effects of Note 9(a)(ii) on foreign currency translation adjustment are as follows:

		March 31,			March 31,
		2006			2005
Foreign currency translation
Adjustment under Canadian GAAP	$	-		$	-
Foreign currency translation adjustment		(1,258,323	)		(7,487	)
Cumulative historical adjustments		85,529			93,016
Foreign currency translation adjustment under U.S. GAAP	$	(1,172,794	)	$	85,529

iii) Accumulated Other Comprehensive Income

The effects of Note 9(a) on accumulated other comprehensive income are as follows:

		March 31,			March 31,
		2006			2005
Accumulated other comprehensive income
under Canadian GAAP	$	-		$	-
Unrealized gain(loss) on marketable securities		(27,000	)		10,200
Cumulative historical adjustments		27,000			16,800
Accumulated other comprehensive income
under U.S. GAAP	$	-		$	27,000

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As a result of these adjustments, total stockholders’ equity under U.S. GAAP as at March 31, 2006 and 2005 would be $25,857,038 and $8,072,609, respectively.

CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT

c) Net Loss and Comprehensive Income for the Year

The following are the effects of Note 9(a)(i) on net loss for the 2006, 2005, and 2004 fiscal years:

		2006			2005			2004
Net loss for the year under Canadian and
U.S. GAAP	$	(1,425,562	)	$	(1,214,377	)	$	(938,001	)
Other comprehensive income:
Realized gain on marketable securities		39,912			-			-
Portion included previously in
comprehensive income		(27,000	)		-			-
Unrealized gain on marketable
securities		-			10,200			13,200
Comprehensive loss for the year
under U.S. GAAP	$	(1,412,650	)	$	(1,204,177	)	$	(924,801	)

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ITEM 18. FINANCIAL STATEMENTS

Not applicable.

ITEM 19. EXHIBITS

The following Exhibits are incorporated by reference:

Exhibit Reference	Exhibit Description
1	Articles of Association and Bylaws(1)
4.1	Form of Subscription Agreement for private placement dated September 2005 Canadian and Non-U.S. subscribers (2)
4.2	Form of Subscription Agreement for private placement dated September 2005 U.S. subscribers (2)
4.3	Underwriting Agreement dated September 1, 2005 (2)
4.4	Form of 2005 Stock Option Plan (2)
4.5	Form of Subscription Agreement for private placement dated June 2006 Canadian and Non-U.S. subscribers
4.6	Form of Subscription Agreement for private placement dated June 2006 U.S. subscribers
4.7	Underwriting Agreement dated May 12, 2006
4.8	Form of Share Purchase Agreement dated May 9, 2006 between the Company and South Pacific Lease Operations Limited.
4.9	Sproule report dated April 30, 2006.
4.10	Articles (Post Continuance) as approved by shareholders on September 22, 2006
4.11	Compensation Committee Charter
4.12	Form of Share Purchase Agreement Amendment as dated June 16, 2006
8.0	List of Wholly-Owned Subsidiaries of TAG Oil Ltd.
16.1	Code of Ethics (2)
31.1	Section 302(a) Certification of CEO
31.2	Section 302(a) Certification of CFO
32	Section 906 Certifications

(1)	Herein incorporated references previously filed with our Form 20-F dated March 31, 2000 filed September 29, 2000.
(2)	Herein incorporated by referenced previously filed with our Form 20-F dated March 31, 2005 filed on September 28, 2005.

SIGNATURES

The Registrant certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.

	TAG OIL LTD.
Date: September 28, 2006	By:	“Drew Cadenhead”
	Name:	Drew Cadenhead
	Title:	President & CEO